CHAPTER I

INTRODUCTION
1.1 Background

An internship is a work-related learning experience for individuals who wish to develop hands on work experience in a certain occupational field. It involves working in your expected career field. It gives the students a valuable experience and a chance to get exposed to the business environment. Interns are usually college or university students, but they can also be high school students or post graduate adults seeking skills for a new career. Student internships provide opportunities for students to gain experience in their field, determine if they have an interest in a particular career and create a network of contacts. Internships provide the employers with cheap or free labor for low-level tasks and also the prospect of interns returning to the company after completing their education and requiring little or no training. This internship program is designed by Tribhuvan University for the partial fulfillment of the degree of Bachelor in Business Administration (BBA). Being the student of BBA and specializing in Business and Finance the students are honored by the internship program under this curriculum. It helps the students develop their inner ability or the confidence level and the level of understanding to compete in this complex and sophisticated age. It also increases the ability of the students to tackle the business problems, to grasp the opportunities and to face the threats. In its totality, internship program teaches us the corporate culture, develops our public relationship skills, makes us competent and provides us an excellent working experience. The Letters of Credit give importers the most extensively used and conventional international trade payment means and finance instrument. By making Letter of Credit terms to permit Deferred Payment or Trade Acceptance, a Letter of Credit facilitates financing to the importer. It promises payment, provided the seller complies with the terms and conditions inside the Letter of Credit. The Irrevocable letter of credit can't be canceled or varied without the approval of all parties.

1.2Objectives
The general objectives of the report are as follows: To acquire knowledge on banking activities and environment. To understand the practical implications of academic knowledge.

The specific objectives of the report are as follows:

To know the various procedures involved in Letter of Credit. To know the various parties involved in LC. To acquaintance with the overall organizational environment of Nepal Investment Bank Limited.

1.3 Methodology 1.3.1 Source of Data This study is mostly descriptive in nature where the facts and findings are presented in a systematic manner. The methods of data collection used for this project are as follows. 1. Primary Data Personal Observation of work environment during internship period. Tasks performed as assigned by the supervisors and their instructions briefings with questionnaires. 2. Secondary Data Annual report of NIBL Publications of NIBL Website of Nepal Rastra Bank Website of NIBL Websites related to Commercial Bank

1.3.2 Selection of Organization Organization selection is a crucial factor in an internship because it is the place where intern gains practical knowledge, builds up confidence, develops the interpersonal skills etc. To accomplish the internship, the intern approached Nepal Investment Bank Ltd which was recently declared the Bank of the Year 2008. It was a right choice as the bank had internship provision with good learning environment. The bank was not only renowned in the national market but it was also well known for its services in the international market. 1.3.3 Placement in Organization The intern was selected to complete his/her internship at the head office, Durbar Marga. During the internship period the intern was placed at the different departments of the bank in order to gain overall knowledge of the banking operations in the bank. The departments which the intern visited during the internship period are: Trade Finance Department (TFD) Customer Service Department (CSD) Locker

1.3.4 Duration of the internship The duration of internship for BBA program as per the Faculty of Management, Tribhuvan University (T.U.) is for two months, which provided a great opportunity for the students involved in the program. During the internship the placement was done in three different departments. S.N. 1. 2. 3. Department Customer Service Department Trade Finance Department Locker Time period (in Weeks) 3 4.5 0.5

Table 1: Duration of Internship in different departments

1.3.5 Activities Performed in the Bank The intern performed various activities at different department during his stay at the bank are as follows. Customer Service Department This department is oriented towards customers and basically manages all the customers queries and if possible tries to solve in the front desk of the organization. In this department the major tasks that the intern learned are: Dealing with customers Opening and closing of accounts Handling incoming calls Providing accounts statement Issuing cheque books Providing Debit Cards to the customers Maintaining record of ATM card holders Providing e-banking facility b. Trade and Finance Department This department provides facilities like Import/Export Letter of Credit, issuing of bank guarantee, telex transfer which is non funded business in which bank does not have to use its funds at the beginning of the contract. Hence it is a safe mode of dealing with client. In this department the major tasks that the intern learned are: Recording of opening of L/C Separating the documents Filing of documents Transport of the Customer Liability Report to the corporate department Necessary documents were faxed as per the request

a.

c. Locker Department Locker is essential in terms of security fro the customers. NIBL provides locker facility to keep the valuable property and other goods which the customers feel unsafe at their respective home. . In this department the major tasks that the intern learned are: Opening and closing of accounts Recording of the customers visited on a particular day Showing the customers their particular lockers

1.4 Limitations of the study The major limitations of the study are as follows: Time allotted for the study was limited to eight weeks so detailed analysis was not possible. Some of the activities could not be analyzed since some of the matters were to be kept confidential as per the policy of the bank. Since the project is confined to only one topic all the collected data cannot be presented in this report. The study may not be applicable to other organization of similar nature. Validity of the report fully depends on the information provided by the concerned authorities.

CHAPTER II

BANKING INDUSTRY
2.1 Meaning of Bank The term Bank is derived from the Italian word banco meaning bench. A bank is a financial institution where you can deposit your money. It provides a system for easily transferring money from one person or business to another. Using banks and the many services they offer saves us an incredible amount of time, and ensures that our funds "pass hands" in a legal and structured manner. A bank is a financial institution licensed by a government. Its primary activities include borrowing and lending money. Many other financial activities were allowed over time. For example banks are important players in financial markets and offer financial services such as investment funds. It act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. It also enables customer payments via other payment methods such as telegraphic transfer, EFTPOS, and ATM. It borrows money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. It lends money by making advances to customers on current accounts, by making installment loans, and by investing in marketable debt securities and other forms of money lending. The following definition can better signify the meaning of banking: A bank is an organization whose principle operations are concerned with the accumulation of the temporarily idle money of the general public for the purpose of advancing to other for expenditure. Kent The term commercial bank refers to those who pull together the saving of the community and arrange their productive use and supply the financial needs of modern business by various means. They accept deposit form the public on the condition that

they are repayable on the demand or on short notice. They are restricted to invest their funds in corporate securities and finance in fixed assets. Their activities are confined to financing the short term needs of trade and industry such as working capital financing. In addition, they grant loans in the form of credit card and overdraft. According to Commercial Bank Act 2031 Section 2(a) commercial bank is a bank which operates currency exchanges transactions, accepts deposits, provides loan, performs, dealing, relating to commerce except the banks which have been specified for the cooperatives, agricultural, industrial of similar other specific objective. The main objective of commercial bank is to mobilize idle resources for productive use after collecting them form different places. The function of commercial bank is accepting deposit namely fixed, current and saving account, safety of public money, remittance of money, letter of credit, guarantee, loans lending, locker facilities, foreign exchange, serving as agent of client, etc. Hence, commercial bank is profit oriented financial service institution which creates money, makes payment mechanism, extension of credit facilities and accepting bills of exchange of their constituents.

2.2 Origin of the word Bank

The origin of the word bank lies in the city of Italy, where the Lombard Jews were used to keep benches in the market place to transact the business . Italian word for the bench is banco. Such banco arrangements were used to be made for smooth exchange of money and other bills of the business. From those banco arrangements, people used to call them as the banco personnel or the banco area or some specific banco. Gradually, with the mix up of the population and spreading the banco styled business, same banco word started giving rise to the bank. Later on, when the financial organizations started to function with the similar objectives, people gave them the name banco and then the bank. Though, majority of the bankers believe the above theory of development for the bank word. But few also say that the bank word has its origin in the French word beque; incidentally, it also means a bench. This is not the end. Another group is there who advocates German word bank as the ancestor of today's English word bank. In German, bank means a heap of anything or joint stock fund.

2.3 History of Banking in Nepal

The history of modern banking system in Nepal is very new. As in other countries, goldsmith landlords and merchants were also the ancients bankers of Nepal. In the Nepalese context, it is very difficult to trace the correct chronological history of the traditional banking system due to lack of historical records of banking. As in other countries Goldsmiths and landlords functioned as the ancient bankers of Nepal. In respect of formulation of financial institution in Nepal, simple lending and borrowing functions existed during "The Lichhabi Period" King Gunakamdev in 780 B.S. Then, in 11th century King Jayasthiti Malla divided the people in 64 castes on the basis of their professions one of them named "Tenkadhari" who used to perform simple lending and borrowing function. During the tenure of Rana Prime Minister Randeep Singh was the first step towards institutional development banking of Nepal. But their functions were limited only to granting loan. However, Tejarath has performed the institutional form of commercial

banking activities for the first time. "Tejarath Adda" was established to provide loan facilities for government staffs and to general public under the collateral of gold and silver in the tern of 5% interest (1933 B.S.-1942 B.S.). There were moneylenders known as Merwari Merchant, Jamindar, Gold Smith, Brokers, and Sahukars etc. They still exist in some remotest part of the nation. Indian currency was accustomed in Terai area. Hundi function had been done through merchants. "Sainik Dravya Kash" was established in 1993 B.S. specially established for the future welfare of government staffs and Sainik only once since 2019 B.S. Karmachari Shanchaya Kosh has been performing more functions than Sainik Dravya Kosh to give facilities not only to the staff of the government but also to the staff corporations. In Nepal, Banking in true sense of term started with the inception of Nepal Bank Limited (Ltd.), (NBL) on 30th Kartik 1994 B.S. Its functions were to meet the need for development of banking sector and also to formulate monetary policies, NRB was established on 14th Baishak 2031 BS under NRB act 2012 since then it has been functioning as Governments bank. Being a central bank NRB had its own limitation and NBL was reluctant to go to unprofitable sector. To cope with these difficulties, government establishes Rastriya Banijaya Bank in 2022 BS under RBB Act 2021. These banks carried out the functions of commercial bank and functions of development bank as well. Despite governments effort financial sector were sluggish. Banking service to the satisfactory of customer was a far cry. In such condition, the inception of Nepal Arab Bank Limited in 2041 B.S. as first joint venture bank was proved a milestone in the banking history of Nepal. Having observed the success of Nabil Bank based on marketing concept and because of liberal economic policy adopted by the government, other commercial banks were also established in the coming years. Now the banks, development banks, finance companies and co-operative are providing banking services to different sectors.

2.4 Functions of Commercial Bank

In Nepal, the Commercial Banks perform the following functions: a. Accepting Deposits This is the oldest function conducted by commercial banks. It accepts deposits in three forms. They are as current, saving and fixed deposit accounts. Deposited amount is repayable on demand or on short notice. Interest is provided in saving and fixed deposit accounts whereas in current account interest provision is not given. Customers of fixed deposit account are required to keep fixed amount with bank for a fixed period. b. Providing Loans This is the second important function for commercial banks. It provides loans and advances from the money it receives from depositors. Different types of loan or credit facilities are provided to borrowers against tangible and intangible securities. Various types of loan such as education loan, vehicle loan or personal loan are given as per the loan need of customer. c. Agency Functions The commercial bank acts as an agency and performs variety of services on behalf of its clients. The bank makes payment of the cheques, draft and bills of exchange presented by the customers. It can also transfer money from one place to another through use of draft, mail transfer and telegraphic transfer on customers request. It also pays utility expenses on behalf of its customers. The banks on the request of its customers buy and sell a companys shares and government security bonds and also collects the interest on the same. d. Credit Creation Commercial banks accept deposit and advance loan to make profit and survive in the business environment. Banks open current or loan account in the name of borrowers and allow them to withdraw required sum according to borrowers need. Therefore banks create credit by sanctioning loan or credit.

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e. General Utility Functions The banks do some services known as general utilities services. It carries out foreign currencies transactions with central banks approval. Banks provides locker facilities for safe keeping of valuable documents. It also offers investment and merchant banking services. It gives economic and professional advices to its customers. It also issues travelers cheques on behalf of customers name. f. Foreign Trade Financing Banks helps customers who deal with foreign trade. It facilitates export and import business by issuing letter of credit. It discounts the bills of exchange drawn by Nepalese exporters on the foreign importers and enabled the exporters to receive money in the home currency. On the other hand, it also accepts the bills drawn by foreign exporters. g. Information and Other Services Some banks provide regular bulletin on trade and economic conditions at home and abroad countries, and special reports on commodities and markets. They may also invite enquiries for those wishing to extend their trade and are able through their correspondents to furnish the name of reputable and interested dealers of goods and to advice on the appointment of suitable agents in some cases. On request, banks obtain information for customers, for business purpose, for confidential opinions on the financial standing of companies or industries at home or abroad countries.

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2.5 List of Commercial Banks in Nepal

S.No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Names Nepal Bank Ltd. Rastriya Banijya Bank Agriculture Development Bank Ltd. NABIL Bank Ltd. Nepal Investment Bank Limited Standard Chartered Bank Nepal Ltd. Himalayan Bank Ltd. Nepal SBI Bank Ltd. Nepal Bangladesh Bank Ltd. Everest Bank Ltd. Bank of Kathmandu Ltd. Nepal Credit and Commerce Bank Ltd. Lumbini Bank Ltd. Nepal Industrial & Commercial Bank Ltd. Machhapuchhre Bank Ltd. Kumari Bank Ltd. Laxmi Bank Ltd. Siddhartha Bank Ltd. Global Bank Ltd. Citizens Bank International Ltd. Prime Bank Ltd Bank of Asia Nepal Ltd. Sunrise Bank Ltd. Development Credit Bank Ltd. NMB Bank Ltd. Kist Bank Ltd.

Operation Date 1937/11/15 1966/01/23 1968/01/02 1984/07/16 1986/02/27 1987/01/30 1993/01/18 1993/07/07 1993/06/05 1994/10/18 1995/03/12 1996/10/14 1998/07/17 1998/07/21 2000/10/03 2001/04/03 2002/04/03 2002/12/24 2007/01/02 2007/6/21 2007/9/24 2007/10/12 2007/10/12 2001/01/23 1996/11/26 2009/05/07

Head Office Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Siddharthanagar,Rupendehi Narayangadh,Chitawan Biaratnagar,Morang Pokhara, Kaski Kathmandu Birgunj, Parsa Kathmandu Birgunj, Parsa Kathmandu Kathmandu Kathmandu Kathmandu Kamaladi, Kathmandu Babarmahal, Kathmandu Anamnagar, Kathmandu

Paid up Capital (Rs. In Million) 380.4 1172.30 9278.00 689.20 1203.00 620.80 1013.50 874.50 744.10 831.40 603.10 1275.80 750.00 792.00 821.70 900.00 732.00 790.00 700.00 560.00 700.00 700.00 700.00 301.00 1000.00 200.00

Source: www.nrb.org.np, Banking and Financial Statistics

Table 1: List of Commercial Banks

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CHAPTER III

INTRODUCTION TO THE ORGANIZATION

3.1 Introduction to NIBL
Nepal Investment Bank Ltd. (NIBL), previously Nepal Indosuez Bank Ltd., was established in 1986 as a joint venture between Nepalese and French partners. The French partner (holding 50% of the capital of NIBL) was Credit Agricole Indosuez, a subsidiary of one the largest banking group in the world. With the decision of Credit Agricole Indosuez to divest, a group of companies comprising of bankers, professionals, industrialists and businessmen, has acquired on April 2002 the 50% shareholding of Credit Agricole Indosuez in Nepal Indosuez Bank Ltd. The name of the bank has been changed to Nepal Investment Bank Ltd. upon approval of banks Annual General Meeting (AGM), Nepal Rastra Bank and Company Registrars office with the following shareholding structure. A group of companies holding 50% of the capital

Rashtriya Banijya Bank holding 15% of the Capital. Rashtriya Beema Sansthan holding the same percentage. The remaining 20% being held by the General Public, which means that NIBL is a Company listed on the Nepal Stock Exchange (NEPSE). Figure 1. Share Distribution of NIBL

Share distribution of NIBL

Rastriya Beema Sansthan (15% )

Rastriya Banij ya Bank Different Companies (50% ) (15% )

General Public (20% )

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3.2 Mission Statement of NIBL

The mission statement of Nepal Investment Bank Ltd is: To be the leading Nepali Bank, delivering world class service through the blending of stat-of-the art technology and visionary management in partnership with competent and committed staff, to achieve sound financial health with sustainable value addition to all our stakeholders. We are committed to do this mission while ensuring the highest levels of ethical standards, professional integrity, corporate governance and regulatory compliance.

3.3 Vision Statement of NIBL

The vision statement of Nepal Investment Bank Ltd is: To be the most preferred provider of Financial Services in Nepal."

3.4 Objectives of NIBL

The objectives of NIBL are: To develop a customer oriented service culture with special emphasis on customer care and convenience To increase our market share by following a disciplined growth strategy To leverage our technology platform and penscalable systems to achieve costeffective operations, efficient MIS, improved delivery capability and high service standards To develop innovative products and services that attracts our targeted customers and market segments To continue to develop products and services that reduce our cost of funds To maintain a high quality assets portfolio to achieve strong and sustainable returns and to continuously build shareholders value To explore new avenues for growth and profitability

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3.5 Core Values and Ethical Principles of NIBL

The principles by which NIBL pledge to conduct business Customer Focus: At NIBL, the prime focus is to perfect our customer service. Customers are their first priority and driving force. It wishes to gain customer confidence and be their trusted partner Quality: We believe a quality service experience is a paramount to our customers and we are strongly committed in fulfilling this ideal. Honesty and Integrity: NIBL ensures the highest level of integrity to their customer, creating an ongoing relationship of trust and confidence. They treat their customers with honesty, fairness and respect. Belief in the people: NIBL recognizes that employees are their most valuable asset and their competitive strength. It respect the worth and dignity of individual employees who devote their careers for the progress of the Bank. Teamwork: NIBL believes in team work and feel that loyal and motivated teams can produce extraordinary results. They are driven by a performance culture where recognition and rewards are based on individual merit and demonstrated track record. Good Corporate Governance: Effective Corporate Governance procedures are essential to achieve and maintain public trust and confidence in any company, more so in a banking company. At NIBL, they are committed in following best practices resulting in good corporate governance. Corporate Social Responsibility: As a responsible corporate citizen, they consider it important to act in a responsible manner towards the environment and society. Their commitment has always been to behave ethically and contribute towards the improvement of quality of life of their people, the community and greatly the society, of which they are an integral part.

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3.6 Organizational structure of NIBL 3.6.1 Hierarchy of NIBL

Chairman / CED

Senior GM/ Secretary

GM

Deputy GM

Assistant GM

Assistant GM

Head Corporate Banking Head Operation

Head Loan Administration Head Accounts & Treasury Head Cash & Transfer Head Card & Remittance

Head Reconciliation Head General Service

Head Retail Banking

Head R&D Head Internal Audit & Compliance Branch Managers

Head Legal

Head Trade & Finance

Head Human Resources Head Credit Administration

Head IT

Figure 2: Hierarchy of NIBL

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3.6.2 Current Board of Directors of NIBL The present board of directors and management team are as follows: Name Mr. Prithivi Bahadur Pande Mr. Prajanya Rajbhandari Mr. Deepak Man Serchan Designation Chairman/Chief Executive Director Director Director Group Group "A Group "A Group "A

Mr. Krishna Prasad Sharma

Director

Rastriya Banijya Bank

Dr. Shiva Hari Shrestha

Director

Rastriya Beema Sansthan

Mr. Surendra Bdr. Singh

Director

Public Shareholder

Mr. Damodar Prasad Sharma Pandey

Professional Director

Under BFIA

Table 2: Current Board of Directors of NIBL

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3.6.3 Branches of NIBL The head office of NIBL is located art Durbar Marg, Kathmandu. All the major functioning such as rules and policy making, issuance of securities, international banking etc are done through this branch. It has 31 branches within the country in conjunction with the head. Branches of NIBL Branch No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Branches Phone No Head Office, Durbar Marg 4228229, 4242530 Seepadole Branch 6615617, 6612832 Birgunj Branch (051) 523327, 525277 Pulchowk Branch 5010188, 5010042 Banepa Branch (011) 664315,662401 Jeetpur Branch (053) 520297 Newroad Branch 4242858, 4230374 Biratnagar Branch (021) 534523, 534524, 534525 Butwal Branch (071) 549991, 549992, 549993 Bhairahawa Branch (071) 526991, 526992 Pokhara Branch (061) 538919, 539276 Putalisadak Branch 4445302, 4445303 Narayangarh Branch (056) 532921,532922 Janakpur Branch (041) 527331 Nepalgunj Branch (081) 525978,525682 Thamel Branch 4218431,4218434, 4218485 Kalimati Branch 4672493,4672494, 4672495 Birtamod Branch (023) 543810,543811 Battisputali Branch 4471690,4471790 Dhangadi Branch (091) 523620,523706 Gongabu Branch 4365318,4365077 Surkhet Branch (083) 524330, 524331 Jumla Branch (087) 520132 Boudha Branch 4480121,4480122 Hetauda Branch (057) 526001, 525946 Palpa Branch (075) 520832,520833 Lukla Branch (038) 550120 Dhumbarahi Branch 4009006, 4009007 Naya Baneshwor Branch 4785529 Bhotahiti Branch 4230797, 4230788 Tulsipur Branch (082)521613,521614 Table 3: Branches of NIBL

3.6.4 Products and Services of NIBL

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Broadly speaking there are two types of products of a normal commercial. They are deposits and credit. Under these two categories NIBL provides various kinds of products. They are categorized below: DEPOSITS E-zee Saving Account E-zee Student Account Pariwar Bachat Khata( Recurring deposit account) Aafnai Bachat Khata Keta Keti Bachat Khata Lotus Saving Account Fixed Deposit Call Deposit

CREDITS Corporate Loan Home Loan Vehicle Loan Education Loan Loan against gold and silver Bank overdraft

There are other types of products too which the bank provides. They are as follows Visa debit cards Credit cards Travelers checks

SERVICES OF NIBL 365 days banking E-banking SMS Banking Any branch banking service(ABBS)

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Tele-banking Mobile bills payment (NTC) Remittance Trade finance Utility payment Automated Teller Machine (ATM) Safe Deposit Lockers

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CHAPTER IV

ANALYSIS OF ACTIVITIES DONE AND PROBLEM SOLVED

4.1 Overview of Letter of Credit
A standard, commercial letter of credit is a document issued mostly by a financial institution, used primarily in trade finance, which usually provides an irrevocable payment undertaking. The LC can also be the source of payment for a transaction, meaning that redeeming the letter of credit will pay an exporter. Letters of credit are used primarily in international trade transactions of significant value, for deals between a supplier in one country and a customer in another. They are also used in the land development process to ensure that approved public facilities (streets, sidewalks, etc.) will be built. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or canceled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if any. In executing a transaction, letters of credit incorporate functions common to Traveler's cheques. Typically, the documents a beneficiary has to present in order to receive payment include a commercial invoice, bill of lading, and documents proving the shipment were insured against loss or damage in transit. However, the list and form of documents is open to imagination and negotiation and might contain requirements to present documents issued by a neutral third party evidencing the quality of the goods shipped, or their place of origin. A commercial letter of credit is a contractual agreement between banks, known as the issuing bank, on behalf of one of its customers, authorizing another bank, known as the advising or confirming bank, to make payment to the beneficiary. The issuing bank, on the request of its customer, opens the letter of credit. The issuing bank makes a commitment to honor drawings made under the credit. The beneficiary is normally the provider of goods and/or services. Essentially, the issuing bank replaces the bank's customer as the payee.

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As per the definition of International Chamber of Commerce (ICC) "documentary credit is any arrangement however named or described whereby a bank, (the issuing bank) acting at the request and in accordance with the instructions of a customer (the applicant), is to make payment to or to the order of a third party (the beneficiary) or is to pay, accept or negotiate bill of exchange (drafts) drawn by the beneficiary, or authorize such payments to be made or such drafts to be paid, accepted or negotiated by a other bank against stipulated documents in compliance with stipulated terms and conditions."

4.2 Parties involved in LC transaction

a. The Applicant is the party that arranges for the letter of credit to be issued. b. The Beneficiary is the party named in the letter of credit in whose favor the letter of credit is issued. c. The Issuing or Opening Bank is the applicants bank that issues or opens the letter of credit in favor of the beneficiary and substitutes its creditworthiness for that of the applicant. d. An Advising Bank may be named in the letter of credit to advise the beneficiary that the letter of credit was issued. The role of the Advising Bank is limited to establish apparent authenticity of the credit, which it advises. e. The Paying Bank is the bank nominated in the letter of credit that makes payment to the beneficiary, after determining that documents conform, and upon receipt of funds from the issuing bank or another intermediary bank nominated by the issuing bank. f. The Confirming Bank is the bank, which, under instruction from the issuing bank, substitutes its creditworthiness for that of the issuing bank. It ultimately assumes the issuing banks commitment to pay.

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4.3 Types of Letters of Credit at NIBL

To suit the nature of requirement of the involved parties, documents letter of credit are classified into various categories depending upon nature, feature and the function of the letter of credits. The broad classification of documentary letter of credit is as follows: A. Security Wise a. Revocable Letter of Credit A Revocable Credit may be amendment or cancelled by the issuing Bank at any time and without prior notice the Beneficiary. As per the UCPDC 600, Letter of Credit means irrevocable only. This type of credit is not favorable to exporters and is not in practice. Once the documents have been presented and meet the terms and conditions in the LC, and the draft is honored, the LC cannot be revoked. Sunrise Bank does not entertain any request for issuance of recoverable letter of credit. b. Irrevocable Letter of Credit This type of credit is the converse of revocable LC. It gives the beneficiary greater assurance of payment; however, he remains dependent on an undertaking of a foreign issuing bank. Irrevocable credit is a firm undertaking on the parts of the issuing bank and cannot be amendment/cancelled without prior consent of all the parties concerned thereto. c. Confirmed Letter of Credit As discussed above, issuing bank gives a firm undertaking under a credit (irrevocable). If the issuing bank asks nominated bank to add confirmation on their credit and so is done by the nominated bank it is deemed to be a confirmed credit. In other words, the nominated bank provides an undertaking for payment in addition to that of the issuing bank. A confirmed LC is preferred when the beneficiary is not able to ensure payment surety form the issuing bank and/or have faith on it. It is costly since it includes the confirmation charge from the confirming bank.

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B. Payment Wise a. Sight Letter of Credit When LC term stipulates that Credit is available by Sight, this means that the payment of the documents drawn under the LC will be paid immediately upon receipt of same, hence, is called sight credit. The amount is payable as soon as the prescribed documents have been presented and the bank has checked them. So the proceeds are normally at the immediate disposal of the beneficiary. b. Usance Letter of (Acceptance) Credit When a credit calls for drawing of drafts at a stated date or after a stated period (usance period) requiring acceptance and/or payment by drawee at the end of such usance period, it is known a Usance Credit. This type of credit is also referred as Term Credit. c. Red Clause LC This particular type of LC allows for advance payment to the exporter. This type of LC has been prohibited by Nepal Rastra Bank in case of import Letter of Credit. Release of advance payment is subject to fulfillment of certain prescribed conditions. In short, a red clause LC allows the beneficiary to avail finances in advance to execute the required order in the LC. d. Back-To-Back Credit When a credit is opened against the security of another credit it is called a BackTo-Back credit. It is also called as countervailing credit. These type of LC is quite popular in Nepalese garment exporters who require to import fabrics from back to back import LC to execute their export order of ready made garments. In Nepal the back to back Import LC can be opened only up to 50% of the Export LC. e. Green Clause Letter of Credit A credit providing facilities for warehousing and storing of goods at the port of shipment at the cost of opener/opening bank till the goods covered under the credit is put on board the carrying vessel is called Green Clause Letters of Credit. In such cases, warehouse warrants are given as security. f. Reimbursement Letter of Credit Any standard LC having special payment conditions that the negotiating bank is authorized to claim and get the payment against the LC directly from the opening banks nominated agency bank after presentation of credit confirmed documents is known as reimbursement LC. It ensures more security and faster payment for the 24

exporter and it is always at the cost of the importer as the risk and cost of the fund is higher. g. Deferred Payment Credit A LC in which payment is made by designated bank, on respective due dates, determined in accordance with stipulations of the credit, without the drawing of drafts in installment basis or in a lump-sum is known as deferred payment LC. It is an extended payment credit, in which no draft will be called upon to be drawn, but it must specify the maturity at which payment is to be made and how such maturity is to be determined. h. Installment Letter of Credit Installment LC calls for shipment of goods in specified quantity on stated dates or periods. Since this credit is for shipment in specifically stated installments, it is called installment credit. An installment LC is similar to any simple LC with partial shipment. However, an installment LC specifies quantities and dates of such partial shipments. i. Negotiation Letter of Credit In a negotiation credit, the negotiation can be restricted to a specific bank or it may allow free negotiation, which is called freely negotiable credit wherein any bank willing to negotiate can do so. If the bank nominated as negotiating bank and refuse to negotiate, then the responsibility of issuing bank would be to pay as per terms of that credit. C. Others a. Transferable Letter of Credit It is a credit which can be transferred by the original beneficiary in favor of a second beneficiary or several beneficiaries. As per the article 48b UCPDC, credit can be transferred only if it is expressly designated as Transferable by the issuing bank. Further, such credit can be transferred only once, i.e. from the first beneficiary to a second beneficiary and not thereafter from the second beneficiary to a third beneficiary. b. Standby Letter of Credit A bank will issue a stand by LC on behalf of a customer to provide assurances of his ability to perform under the terms of a contract between the beneficiaries. It assures the beneficiary of the performance of the customers obligation. As per ICC International Standby Practices (ISP98), Standby LCs are issued to support 25

payments, when due or after default, of obligations based on money loaned or advanced, or upon the occurrence of non-occurrence of another contingency. These credits are used generally as substitutes for performance guarantees or securing loans. c. Revolving Letter of Credit In this type of LC, value of credit is reinstated automatically to its original value after each drawing. Importers who maintain an ongoing relationship with a supplier occasionally open revolving letter of credit. The amounts under such type of LC are reinstated in terms of value or time and payment is made accordingly.

4.4 Benefits of using Letter of Credit

a. The beneficiary is assured of payment as long as it complies with the terms and conditions of the letter of credit. The letter of credit identifies which documents must be presented and the data content of those documents. The credit risk is transferred from the applicant to the issuing bank. b. The beneficiary can enjoy the advantage of mitigating the issuing banks country risk by requiring that a bank in its own country confirm the letter of credit. That bank then takes on the country and commercial risk of the issuing bank and protects the beneficiary. c. The beneficiary minimizes collection time as the letter of credit accelerates payment of the receivables. d. The beneficiarys foreign exchange risk is eliminated with a letter of credit issued in the currency of the beneficiarys country.

4.5 Risks involved in Letter of Credit

Since all the parties involved in Letter of Credit deal with the documents and not with the goods, the risk of Beneficiary not shipping goods as mentioned in the LC is still persists. The Letter of Credit as a payment method is costlier than other methods of payment such as Open Account or Collection

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The Beneficiarys documents must comply with the terms and conditions of the Letter of Credit for Issuing Bank to make the payment. The Beneficiary is exposed to the Commercial risk on Issuing Bank, Political risk on the Issuing Banks country and Foreign Exchange Risk in case of Usance Letter of Credits.

4.6 Documents required in LC at NIBL

When making payment for product on behalf of its customer, the issuing bank must verify that all documents and drafts conform precisely to the terms and conditions of the LC. Although the credit can require an array of documents, the most common documents that must accompany the draft include: A. Financial document: a. Bill of exchange: A bill of exchange is also referred to as Draft or Hundi. It is a financial instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument. It is a means of collecting payment, demanding payment, extending credit. It is a promise for payment after it is accepted by the drawee at specified tenor. Morever, it acts as the receipt for payment when the payee endorses the bill of exchange as Received Payment and hands it over to the drawee after the amount shown on the B/E is paid by the drawee. B. a. Commercial Document: Performa Invoice/Sales Contract: Basically it is form of quotation by the seller to a potential buyer. Normally it shows the terms of trade and prices in addition to the description of goods so that once the buyer has accepted the order, there is a firm contract to be performed as per terms and conditions mentioned in it. It normally forms the basis for all transactions. b. Commercial Invoice: It is also called a document of contents because it generally contains all the information required for the preparation of all other documents. It is the accounting document for sellers claim on the buyer of goods sold to the buyer. It includes a description of merchandise, quantity of 27

goods, terms of sale, port of shipment and port of destination, value of goods, unit prices, shipping marks, date, name and address of buyer and seller etc. The buyer and seller information must correspond exactly to the description in the LC. The main use of commercial invoice is to check whether the proper merchandise is shipped at an agreed price. c. Packing List: It is a document which shows the nature and number of goods put in each packer/container etc., with distinctive numbers or marks. This is generally needed by the importer when he is importing different types of sizes of merchandise so that he may identify the nature of goods in each package or when an importer is importing goods for ultimate direct distribution to various suppliers. It is also used by customs for checking the goods on random basis or otherwise. Thus it mainly facilities easy identification of goods in each package/container by the importer customs etc. d. Certificate of Origin: It is a document which specifies the country of manufacture or growth of goods or its origin. It is generally issued by the Chamber of Commerce. In some countries, the customs law requires this certificate to be produced before clearance of goods and assessment of duty. e. Certificate of Analysis and Quality (Inspection Certificate): It is a certificate which indicates the inner composition, quality, technical composition and intricate nature of the goods broadly described in the invoice. This certificate may be given by the exporter himself or an institution/organization which is competent or nominated to give such a certificate. In certain types of goods like chemical, food articles, clothes etc., this certificate is generally required called for so that goods exported conform to the desired quality/standard analysis. C. Transport Documents a. Bill of Lading (B/L): Bill of Lading is a format receipt given by the ship owners or their authorized agents stating that the goods mentioned therein (quantity, quality, and description) are shipped to specified date and vessel and are deliverable to the person mentioned therein or to his order after payment of all dues of shipping company. The main functions of B/L are- to act as an evidence of contract of affreightment, a receipt for the merchandise shipped and a document of title of goods. The documents evidence control of goods and also serve as 28

evidence of the carriers obligation to transport the goods to their proper destination. The different types of B/L are: clean B/L, on board B/L, charter party B/L, stale B/L, and house B/L. b. Air Way Bill: It is an acknowledgement issued by an airline company or their authorized agents stating that they have received the goods detailed therein (number of packages, quantity and nature of goods) for dispatch by air to named consignee at the address stated therein. c. Truck/Rail Consignment Note: It is used when trade is between two neighboring countries physically attached together or when one of the trading partners is a landlocked country like Nepal. It is issued by trucking or rail Transport Company and goods are usually delivered against surrender of consignee copy. It is usually issued in a non-negotiable form. D. Risk Covering Documents: a. Insurance Policy: It is a document detailing all the terms of a contract of insurance and risk covered by the contract. Normally it is issued in negotiable form and rights under the contract could be assigned by endorsement and delivery. E. Discrepant Document After receiving the documents, it needs to be thoroughly checked with terms and conditions of L/C. If any document contains any discrepancies which are not accepted by the issuing bank, then it immediately informs the settlement bank and the client within seven working days as per UCP Act. If the issuing bank fails to inform the settlement bank then the bank is bound to remit the payment even though the documents contain any discrepancies. If the client accepts the discrepancies then s/he immediately has to submit an acceptance letter to the bank before retiring the documents and remittance the payment.

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4.7 Amendments in the Documentary Credit

Amendments may be necessary when the stipulation of the credit does not comply with the sales contract, or when there is a need to modify the stipulations of the credit or the wording in the credit. The letter of credit (L/C) is often amended by means of a full text cable. The L/C amendment is advised through the same advising bank that advised the credit. Nevertheless, the advising bank that has confirmed the L/C may not add its confirmation to the amendment of the L/C. The advising bank mails the amendment advice to the beneficiary. The beneficiary pays an amendment fee to claim the L/C amendment from the advising bank. In the event of an amendment, the beneficiary must give notification of acceptance or rejection of the amendment to the advising bank. If the beneficiary fails to notify the advising bank, it is deemed that the beneficiary has accepted the amendment.

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4.8 Eligibility for opening Letter of Credit

A. To open Import L/C a. L/C application form b. Firm registration certificate c. Renewed tax registration certificate d. Proforma invoice e. Bi.Bi.Ni. form no. 3 f. Declaration of import C. At the time of L/C received a. Packing list b. Bill of lading c. Insurance d. Certificate of original e. Commercial invoice D. At the time sending Bi.Bi.No. form no. 4 to the concerned customs office also enclose the following documents a. b. c. d. e. f. Commercial invoice Transport documents Certificate of origin Packing list Bi.Bi.Ni. Form No. 3 D. Following particulars are required to be disclosed in the proforma invoice a. b. c. d. e. f. Name, brand and model no., if any, of merchandise Name of the manufacturing country Harmonic code Unit price Quantity Total amount E. The cheques issued for custom purpose or to custom office, in the reverse side of such cheques, the particular as to Copy of L/C

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a. b. c. d. e. f. a. b. c.

The letter of credit number The importer The exporter Invoice number Amount in foreign exchange as per the invoice Serial number of Bi.Bi.No. form no.4 F. To refund the security deposit Original copy of Bi.Bi.No. form no.4 endorsed custom copy Copy of declaration form ( pragyapan patra) Customs duty payment receipt

4.10 Process of Opening L/C Account

Before opening a L/C Account, the applicant must have a current account with the bank. The following are the systematic steps of opening a L/C account: Procedure of opening LC a. Apply for the application of L/C. The applicant needs to fill in application of L/C, declarations of imports and Bi.Bi.Ni. Form no.3; provided that the applicant brings along the Company registered form, tax form and proforma invoice. b. Documentation of the forms in a file and filling up the offering sheet. After getting the above documents and forms, they need to be kept in a file. This ensures a systematic record keeping of the applicants information. Based on the documents, the offering sheet is filled. c. Filling of Bi.Bi.Ni. Form no.3. This form is important for the evidence that the applicant and its goods transaction are legal and bear no fraud. It is necessary to fill Bi.Bi.Ni. Form no.3. d. Double entry transaction and multiple entries in form and in computer. e. Stacking of transaction and clearing it. f. Insertion of applicants information in computer software and sending it. g. Filling up the Advice of Debit card or take out the print of it and get checked by supervisor and give one copy to customer. h. Fill up the worksheet.

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i. Check before filling the document so fill up the checking form. j. Type the L/C in software and send it to Advising Bank. k. If there is any amendment, then fill up the form and complete the procedure.

4.11 Process of Closing L/C Account

The following process states the process of closing L/C Account: a. After receiving document, check it thoroughly according to L/C. See required documents are full and well or not. b. Fill up bills under Import Credit. c. Fill offering sheet and take approval. d. Double and multiple entry transaction and post it in computer and stack it and clear it. e. Fill up the debit advice. f. Fill up the worksheet. g. Fill up IDT form for Remittance and Loan Department. h. Fill up the Bi.Bi.Ni. Form no. 4 and issue cheques to custom office. i. Submit those documents (required) to Applicant. j. If the 10% margin is saved then credit applicants account and fill and give advice of credit to applicant.

4.12 Problem Solved

There were some problems faced by the department. All the employees put their full effort to manage the situation. Applicants would come to the department to ask whether the LC have been issued or not, in such situation if the client is important, their work are completed first. This would give the customer higher satisfaction. The bank would also try to convince other customers that their LC would be issued the following day. Customers were always in a hurry to get the cheques to be paid, on Discrepancies in the documents (sent by the beneficiary) are identified such situation staff with good customer handling skill dealt with them. and it is informed to the customer. If it is accepted by the customer then

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there is no problem if they are not accepted then another set or documents would be ordered. Documents which were to be sent to respective branches were sometimes misplaced in such conditions all the documents of that particular day had to be rechecked.

4.13 Activities performed by internee

Transport of the Customer Liability Report (CLR) to the corporate department and the bank guarantee form to the RM for authorization for opening the Letter of Credit and Guarantee were done by internee. The documents received from the advising bank in the respective registers such as Bills Collection Inward, Post Financing Bills and Trust Receipt Loan depending upon the nature of the documents and instructions were recorded by the internee The files of the applicant were extracted by whenever the documents were received. Entering the information about the SWIFT messages send to the beneficiary in the register and filing the Xerox copy of the message in the brown file of the branch bank. Separation of the documents for head office and respective branch to be sent depending upon the nature of the documents, to branches from where the L/C was opened with sufficient Xerox was done by the internee. Necessary documents were faxed, as per the request or instruction, to the branch and the concerned applicant, by the internee As the bank printed large number of debit advice at a time and as the customers were not regular to collect the advice due to which misplacing was possible. So, proper arrangements of all the advices were done by the internee.

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4.14 SWOT Analysis

SWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective Every organization is influenced by both the internal as well as external forces. It acquires some strength over its rivals and at same time it may possess some weaknesses internal to the organizations boundary. There are a lot of opportunities and threats in the external environment. A SWOT analysis is done by the internee to evaluate the NIBL banks effectiveness in the Trade and Finance Department. The strength, weakness, opportunities and threats of NIBL in Trade and Finance Department are given below:

Strengths
Large network within the nation and outside the country. Customized and reliable service. Advance banking software (Finacle) implemented. Goodwill (Awarded as Bank of the year 2008 by the banker). Goal oriented, motivated and smart professional employees. Sound relationship with the correspondent bank and link ups in almost every part of the world. Very good relationship with the credit administration department of the bank as well as the governmental agencies concerned. Allocation of an entire flat for the department has made the department more spacious and easy to access.

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Weaknesses
The record keeping facility if the department is very poor especially at the physical level. The fact that the credit administration and TFD lies in different buildings can sometimes make the work tiresome and time consuming in urgent cases. Relatively high price compared to rival banks though quality of service is outstanding and the negotiations can be made in case of large transactions.

Opportunities
Prospects to enter into a new market. New rules and regulations by the government Increase in number of industries involved in trading of goods and services. Technological Advancement.

Threats
High competition from other competitive banks Political instability within the country Change in rules and regulation by the government Establishment of new commercial banks and its operation in various parts of the country.

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CHAPTER V

SUMMARY AND CONCLUSION

5.1 Summary
The internship Program of BBA under the Tribhuvan University is to provide a blend of practical knowledge to the theoretical knowledge we have gained till now. The knowledge that has been acquired in the courses has proved to be very much relevant in the context of the job placement made. It provided an opportunity to put the theoretical aspect of the studies into practical use. The feeling of being responsible towards a work was very new and challenging though it was performed to best efforts possible. Dealing with the customers and the responsibility of making decisions under difficult situations has helped me a lot to have an insight of my future career. One of the important experiences learnt from the internship program is to know the various facets of an organization and their functioning, and learning customers and the ability of the employee to handle the various types of customers with varied needs, demands and temperament. The letter of credit primarily has been developed to provide the security to both the parties of international trade where the conditions are uncertain or if there is no previous trading relationship. Over the past decade, the use of the LC has grown significantly as it mitigates the risk and makes the trade simple. LC is a simple concept but it has wide coverage and is very vast and sensitive by nature; so, LC is to be handled by the person having complete knowledge and training. In our country the use of LC is increasing at a rapid pace. Every commercial bank in Nepal has LC department and they all have to follow NRB directives for LC operation. The rapid increment of international trade of Nepal has provided the various opportunities for every sectors of economy including the commercial banks.

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5.2 Conclusion
Trade and Finance department are very important for the bank as it generates significant amount of profit for the organization. Trade and Finance Department of NIBL deals with Letter of Credit and Bank Guarantee. Letter of Credit facilitates customers to import as well as export the goods. Letter of credit is an instrument issued by a bank at request of its customer (applicant) where by it undertakes to pay value, provided all terms and conditions stipulated in LC have been complied with. . LC has been very important for the country like Nepal where there is significant volume of import than export. Bank Guarantee is a contract between the bank and beneficiary and the beneficiary has a legal right to enforce such an agreement to pay a specified sum of money either on simple written demand or a demand accomplished by stipulated documents in the event of default by the principal.

5.3 Lessons Learnt

Todays world is very dynamic and competitive. A person cannot be competitive enough without acquiring knowledge in both theoretical and practical aspects and getting exposure in the practical field. The main objective of internship program is to provide us the platform and foundation for starting our career in the field which we have done our specialization. Practical knowledge is more important than the theoretical knowledge in a sense that once the people enter into the real work setting, diverse situation, novel problems, difficulties and challenges arises which makes the person more dynamic and enthusiastic. Dealing with the complexities develops the interpersonal and communication skills and further shapes our personality. Working in the LC department has helped me in gaining a deep knowledge and understanding of the basic concept, different aspects, procedures, problems, risk and challenges of LC operation as whole, internationally as well as in the context of our country. Since, LC involves the people of different countries with differing laws, rules, regulations, culture, the noble problems, challenges and difficulties are its part and parcel. LC department of any bank is a very risky department since any party involved in the particular LC transaction can be sued by another party in the

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international court as LC is governed by international articles of UCPDC. I have learned different tactics and techniques to resolve problems arising from LC. The 8 weeks long internship at NIBL did not only gave me an opportunity to learn about the basic activities of the various departments that I worked in but also helped me to shape my personality and character to greater extent. The valuable lessons that I learned apart from the basic activities of concerned department that I worked in are: Learned about the general banking practices and corporate culture. Learned to communicate and deal with the customers belonging to different classes. Learned to handle the grievances of the customers. Learned to be calm under the adverse conditions and tactfully handle the complex situations. Learned about the importance of time and punctuality. Learned to socialize with the professionals. Learned the importance of displayed emotion on the work place. Learned to use office equipments like fax, photocopy, cheque writer, printer etc. Learned to use different banking software like Finacle, Pumori Plus and MS office tools.

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 APPENDICES

Purchase Order (1) Sales Confirmation (2)

Goods/ Servic
B uyer

es (6)
Carrier

DC Application (3)

Do cu me Pa nts ym (7 en ) 13 t (8 ) or

(6) ces ervi Seller ds/S Goo

Pa
(11 )
Reim bu rsin g B an k

ym en

Pay me nt

t( 12 )

ment Docu

s (8)
Negoti ati ng B an k

Letter of Credit (4)

B u yers B an k (I ssu in g B ank ) Advising Bank

Figure 3: Process of Letter of Credit

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Letter of Credit (5)

Documents (10)

Payment (9)