Clearing and Settlement

The Mechanism
Clearing system is a mechanism for calculating and determining each bank’s ‘payments / receipts’ position within the Commercial banks forming part of the system. A clearing system is governed by its rules which, among other things, include ‘timing’ for presentation and return of payment instruments.

Settlement is the transfer of value to discharge a payment obligation. Settlement may be within the branch or within the bank or among other banks. The first two being fairly easy, it is the last part of settlement that involves more banks and settlement is effected through the State Bank of Pakistan. Logistical help since the last few years is obtained from National Institutional Facilitation Technologies (NIFT).

Handling of Customers

Handling of Customers in certain circumstances.
During group discussions many people never speak up because they are afraid that people will judge them for saying something stupid. This fear is not really justified. Generally, people are much more accepting than we imagine. In fact most people are dealing with exactly the same fears. By making an effort to speak up at least once in every group discussion you will become a better public speaker. You will instill more confidence in your thoughts and will be recognized as a leader by your peers.

1. Handling of Customers in certain circumstances.
2. Powers of attorney / Mandate
3. Safe custody of customer’s valuables and lockers.

Handling of Customer Accounts in the following Circumstances.

1. Countermand of payment (Stop Payment of Cheque)
2. Notice of Customer’s death
3. Notice of adjudication of customer as an insolvent
4. Notice of customer’s insanity
5. Legal orders attaching customer’s account — A garnishee order 

{insolvent = a person who is unable to pay his debts as they arise.}

Opening accounts for various types of customers

Opening accounts for various types of customers
Opening of Account - Every adult and sane individual can open a bank account, provided he is not insolvent or an un-discharged bankrupt. Joint account can also be opened by two or more individuals. Similarly a group of persons having formed themselves into a ‘partnership firm’ can also open a ‘partnership account’, provided the maximum number of partners is twenty. Whenever the maximum number exceeds this limit, law requires that it should get itself incorporated as a joint stock company under the Companies Ordinance 1984.

A bank account is opened with an initial deposit of money generally in the form of cash. To this end an account opening form is used. The account opening form is required to be completed and signed by the prospective account holder and accepted by the branch Manager or an official duly authorized in this behalf. The completion and signing of the account opening form by the prospective customer and its subsequent acceptance by the bank and deposit of initial amount constitutes a contractual relationship between the account holder and the bank. 

Know your Customer and Anti Money Laundering (AML)

The only way your knowledge and vocabulary can grow is by looking up the meanings of all unfamiliar words in a good New Edition Dictionary. Specialized Dictionaries like the ones on (1) Law and (2) banking and finance can increase your understanding of technical terms and concepts.
Make a resolution that you will look up the words, whose meanings are not clear to you.

Know your Customer and Anti Money Laundering (AML)
(Story BCCI convicted of money laundering and liquidated world wide.)

What is Money Laundering?
Money laundering can be defined as the process whereby the true identity of illegally obtained money is changed or concealed so that it appears to have originated from a legitimate source.

Prudential Regulations for Banks

If the banks in Pakistan violate these Prudential Regulations they are liable to face heavy financial penalties and the bank officers can face disciplinary action by the State Bank of Pakistan and the bank can lose their banking licence besides heavy financial penalties.)

Nature of Prudential Regulations:
Prudential Regulations are both preventive and protective techniques. Preventive regulations forestall crises by reducing the risks facing banks such as controlling and monitoring the management of banks’ capital, solvency (CHECK THE MEANINGS OF SOLVENCY IN THE COMPUTER) and liquidity standards and large exposure limits. Protective techniques provide support to banks once a crisis threatens; lender-of-the-last-resort facilities are of immediate benefits.

In case of Pakistani banks branches functioning overseas the Prudential Regulations or legal requirements of host country shall prevail. The Prudential Regulations do not supersede other directives issued by SBP from time to time.

Banker Customer Relationship

What is a Banker: 
According to Section 3(b) Negotiable Instruments Act (Amendment) 1962 a "Banker means a person transacting the business of accepting, for the purpose of lending or investment, of deposits of money from public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise and includes any Post Office Saving Bank".
Banker has been defined in almost the same terms in section 5(b) of Banking Companies Ordinance 1962.

In simple words we can say banker is one who:

1. Takes deposits of money from the people, 
2. Repays these deposits to the people according to agreed terms and conditions including on demand, and 
3. Lends and/or invests these deposits in profitable ventures.

Who Is a Customer. The term customer has not so far been defined in any banking law, however, some eminent writers on banking and jurists have tried to define it. Sir John Paget says: "To constitute a person being called a “customer” there must be some recognisable course or habit of dealing in the nature of regular banking business". The most important point, according to Sir John Paget, was the sufficiently long "duration" of relationship between the banker and a customer, but it was ruled off by the judgement of Mr. Justice Bailhache in the case of Ladbroke v/s Todd (1914) who observed "the relationship of banker and customer begins as soon as the first cash deposit is accepted or a cheque is paid in and accepted for collection and not merely when it is paid".

Banking Laws And Regulations

Law constitutes the principles and regulations established in a country by some authority, applicable to its people, whether in the form of legislation or of customs and practices recognized and enforced by judicial decision. It is the implementation of social order and justice created by adherence to such a system. The system of judicial administration puts the laws of a community into effect, e.g. all citizens are equal before the law.

The banking business flourishes on the support and confidence of public because they contribute to the capital and deposits of money in the banks. This confidence is strengthened as and when the people find that their interests are being looked after properly by the government and it’s authorized regulatory agencies.

Banks and bank accounts are regulated by Federal statutory law. Banks are established in Pakistan under the Banking Companies Ordinance 1962, regulated by SBP through Prudential Regulations, and Exchange Control Manual. Bank accounts may be established by private and state-owned banks (National Bank of Pakistan) and National Savings centres. All are regulated by the Federal laws. Cheques and related matters (bearer, order, crossing, protection to the bankers, etc) are governed under the Negotiable Instruments Act 1881.

State Bank of Pakistan Act, 1956

This extends to the whole of Pakistan. It shall come into force at once and except Section 46, shall be deemed to have taken effect on and from the twelfth day of May, 1948.
Definitions: the definitions as contained in the Act are given hereunder:
"Annual general meeting" means the annual meeting of the shareholders-of the Bank;
"Approved foreign exchange" means currencies declared as such by any notification under Sec19;
"The Bank" means the State Bank of Pakistan;
"Bank Notes" means notes made and issued by the Bank in accordance with Section 24 and include currency notes of the Government of Pakistan issued  by the Bank;
“Central Board" means the Central Board of Directors of the Bank;
"Co-operative Bank" means a society registered under the Co-operative Societies       Act, 1912, or any other law for the time being in force in Pakistan relating to       co- operative societies, the primary object of which is to provide financial       accommodation to its members;
"Debentures" includes participation term certificates;
"Director" means a Director for the time being of the Central Board;
 "General meeting" means the meeting of the share-holders ' of the Bank convened for       transacting such       business as may be specified in the notice convening the meeting;
"Governor" and "Deputy Governors" means respectively the Governor and Deputy      Governors of the Bank;
"Loans and advances" includes finances provided on the basis of participation in profit  and loss, mark up in price, leasing, hire-purchase of otherwise;
"Local Board" means a Local Board of Members;
"Member" means a Member for the Local Board;
"Rupee coin" means one-rupee coin and one-rupee notes which are legal tender in        Pakistan;
"Scheduled bank" means a bank for the time being included in the list of banks       maintained under sub-section (1) of Section 37;
"Securities" includes securities as defined in the Capital Issues (Continuance of       Control) Act, 1947 (XXIX of 1947);
"Shares" includes modaraba certificates.
 
Establishment and incorporation of the Bank: Sec 3:
As soon as may be after the commencement of this Act steps shall be taken to establish, in accordance with the provisions of this Act, a bank to be called the State Bank of Pakistan or Bank Dautat-e-Pakistan, for the purposes of taking over, as from the first day of July, 1948, the management of the currency from the Reserve Bank of India, and carrying on the business of Central Banking.

Banking Companies Ordinance, 1962

Ombudsman Defined:

• According to International Bar Association, Ombudsman is defined as an “office” provided by the constitution or by an action of the legislature or parliament and headed by an independent, high level public official which is responsible to the legislature or parliament, who receives complaints from the aggrieved person, official, and employees or who acts on his own motion and has the power to investigate, recommend corrective action and issue reports.
• A man who investigates complaints and mediates fair settlements, especially between aggrieved parties such as consumers or students and an institution or organization.
• A government official, especially in Scandinavian countries, who investigates citizens' complaints against the government or its functionaries.

Evolution
In the modern world, an ombudsman was first established in 1809 in Sweden. The word “ombudsman” is of Swedish origin and means “representative or agent” of the people. In 1919, more than a century after Sweden appointed an ombudsman, another Scandinavian country, Finland, adopted the Swedish model for the redressal of public grievances against agencies of state. The next country to follow was Denmark - this happened more recently in 1955. The first country outside Europe to establish such an office was New Zealand. This was in 1962 and generated tremendous global interest inspiring many countries, in search of good governance, to launch such schemes. Today, over 100 countries have such a platform in place. In 1995, the European Union established the first European Ombudsman under the Maastricht Treaty.

The Banks (Nationalization) Act, 1974

Nationalization of Banks 
We have gone through the evolutionary process of banking in Pakistan. We know that by June 30th 1948 the number of branches in Pakistan was only eighty one. However with the establishment of State Bank of Pakistan and efforts of the government, the number of schedule bank increased to 14 with 3323 branches all over Pakistan and also 74 branches in foreign countries by Dec 31st 1973. The commercial banks grew at tremendous speed and mobilized savings from the public and also contributed a lot in financing business and corporate sector. However it was considered that although banking sector was growing but the fruits of development were limited only to the urban population and corporate sector whereas most of the sectors, people and under develop regions were not getting due share. As such it was decided that banks should be nationalized.  For the implementation of this objective Nationalization Act 1974 was promulgated.

Objectives of Nationalization
The nationalization was carried out with a view to achieve the following objectives:
-- Disbursement of funds to the desired channels to achieve the priorities set out by the government for social welfare projects. 
-- Equitable distribution of credit to different classes, sectors and regions.

 Salient features of The Bank (Nationalization) Act, 1974
The Act extends to the whole of Pakistan. 
Act to override other laws.- This Act shall have effect not withstanding anything contained in any other law for the time being in force or in any agreement, contract, award memorandum or articles of association or other instrument.

Evolution of Banking

Historical Overview of Banking     
 Before we move on to evolution of banking in Pakistan, it would be quite interesting to have a glimpse of historical evolution of banking over a period of time.
 Today, we look around us chain of banks rendering host of services to their customers. These banks cater to the commercial and industrial needs of all countries which include die highly developed and industrialized countries, the less developed countries and the countries which are at the take-off stage. Thus there are the industrial banks, the commercial banks, the joint stock banks, the co-operative banks, the agricultural banks, rural development banks, lead banks and so many other types of banks and credit institutions which are functioning. They not only meet the requirements on a national basis, but also on an international basis and what may be called as an ever expanding advancement in banking. The Banks now-a-days are performing so many functions that it would not be a misnomer to suggest that they have become the custodian of the monetary economies of the world.  When we talk of great scientific developments and inventions, banking as it stands today is also a wonder of the world.

Financial Instruments & Banking Law & Practices

Financial Instruments
We have discussed financial system and financial institutions, now shall move on to financial instruments. Financial instruments are the vehicles by which financial markets channel funds from savers to borrowers and provide returns to savers. We shall discuss major instruments or securities, traded in the financial sys­tem. For convenience, we analyze money market and capital market instru­ments separately. Both money market and capital market assets are actively traded in financial markets.

Money Market Instruments
The short maturity of money market assets doesn't allow much time for their returns to vary. Therefore these instruments are safe investments for short-term surplus funds of households and firms. However, ill making investment decisions, savers must still consider the possibility of default—the chance that the borrower will be unable to repay the entire amount borrowed plus interest at maturity.

Financial System & Banking

Financial System
Complete and complex ever changing set of rules, regulations, procedures, practices policies, conducts; role of institutions (financial institution), Governments, Policy makers and central bank taken together may be called financial system.
 The financial system does have its impacts on individuals, businesses, corporations and governments alike. At times in your life, you will be a saver and at other times, you may be a borrower.  The financial system channels funds from savers to borrowers and makes it possible for both to achieve their objectives. When the financial system works efficiently, it leads to better health of the economy.

Purpose of the financial system
Most of us at one time or another may need more funds than you have on hand for one purpose or another.  At the same time, others spend Jess than their incomes.  Those who have surplus funds may be willing to let someone else use their savings if they are compensated for doing so.
The mismatch of income and spending for individuals and organizations / creates an opportunity to trade. The investor can use the funds saved by different classes of people. The investor would be better off by earning a profit from investing funds in a new venture and savers who have lent their money would be better off 'by receiving the return that the investor pays them for lending their funds.

Legal System of Pakistan

We know that every body around talks about law according to one’s own perception. Before studying the statutory provisions of law, interpretation and significance of law, it is important to know what law is all about. Law in general sense is defined as under:
“The law consists of rules that regulate the conduct of individuals, businesses, and other organizations within society”

Significance of law 
Law is to maintain rights, uphold justice and redress wrongs. Law ensures public order, balance, harmony, peace among the persons within the state and inter-states. We can easily conceive that in the absence of law and legal system there would have been disorder, unrest and chaos all around us.

Jurisprudence                                                                        
For understanding law, we must have preliminary understanding of jurisprudence.    
The legal experts term civil law as science of jurisprudence. Some concepts of jurisprudence are given below:
“Jurisprudence means the knowledge of law, or knowledge of just and unjust”
It deals with laws that are enforceable by the courts.