9th Week-Banking in Pakistan

7/21/2019 9th Week-Banking in Pakistan

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Principles of

Banking &Currency



Bankingin

Pakistan

Prof. Waseem Subhani [IBA],

University of the Punjab



Banking in Pakistan



1

Prof. Waseem Subhani [IBA], University of the Punjab

In March 1!", there #ere !$" offices of

ban%s situate& in the area #hich no#

com'rises Pa%istan, but soon after

in&e'en&ence many ban%s c(ose& their

branches an& offices.

)n *une +, 1!$ there #ere on(y 1-

ban% branches (eft in Pa%istan.

his situation 'ose& a /reat threat to the

economic 'osition of Pa%istan.0cont&..2

The Banking Sector



3Prof. Waseem Subhani [IBA], University of the Punjab

he 4eserve Ban% or&er of 1!" states,

that In&ian notes #i(( continue to be (e/a(

ten&er both in Pa%istan an& In&ia. Ban% of

In&ia #ou(& function as 5entra( Ban% of

Pa%istan u'ti(( A'ri(, 1!$.

6o#ever, 4eserve Ban% of In&ia &i& not

#or% fair(y for Pa%istan it refuse ma%in/a&vances to the

0cont&..2

The Banking Sector– cont’d



+Prof. Waseem Subhani [IBA], University of the Punjab

!. he In&ian coins #i(( be va(i& an& they #i((

remain (e/a( ten&er in Pa%istan for at (eastone year from the &ate of issuance of

Pa%istani coins. he Pa%istan /overnment

#i(( issue its o#n coins from )ctober 1,

1!$.

-. he 4eserve Ban% of In&ia #i(( transfer

the Pa%istans share of "- crore to/overnment of Pa%istan ti(( Se'tember +,

1!$.

The History – cont’d



!

)n 7ecember +, 1!$ the British8overnments commission &istribute& the

Ban% of In&ias reserves bet#een Pa%istan

an& In&ia as + 'ercent for Pa%istan an& "

'ercent for In&ia.he share of Pa%istan #as "- crore.Irres'ective of the 'rovisions of the

Monetary system an& 4eserve ban% )r&er1!". he reserve ban% of In&ia &i& not

'erform its function #ith &i(i/ence an& /oo&

faith for Pa%istan. 0cont&..2

Establishment of SBP



-

A(so this ban% refuse& to tranfer 4s. --

mi((ion #hich Pa%istan #as entit(e& to

receive as the 'ro'ortionate share of

reserves of un&ivi&e& In&ia.

9urther the (osses incurre& in the

transition to in&e'en&ence #hich #ere

amountin/ to 4s. 3+ crore #ere ta%en from

Pa%istans share.

0cont&..2

Establishment of SBP – cont’d



:Prof. Waseem Subhani [IBA], University of the Punjab

;ee'in/ in vie# a(( this, the /overnment

of Pa%istan &eci&e& not to re(y on the In&ian

ban%. So the In&ian ban% #as re(ieve& of

its functions ear(ier than it #as 'revious(y

&eci&e& an& the 8overnor 8enera( of

Pa%istan <uai&=i=A>am Muhamma& A(i

*innah issue& the or&er of the

estab(ishment of SBP on 13 May, 1!$.

his or&er is %no#n as the ?State Ban%of Pa%istan )r&er 1!$@ an& un&er this

or&er the SBP starte& its o'erations on *u(y 1,

1!$.




"

)n 7ecember +, 1!$ the British8overnments commission &istribute& the

Ban% of In&ias reserves bet#een Pa%istan

an& In&ia as + 'ercent for Pa%istan an& "

'ercent for In&ia.he share of Pa%istan #as "- crore.Irres'ective of the 'rovisions of the

Monetary system an& 4eserve ban% )r&er1!". he reserve ban% of In&ia &i& not

'erform its function #ith &i(i/ence an& /oo&

faith for Pa%istan. 0cont&..2

Establishment of SBP



$Prof. Waseem Subhani [IBA], University of the Punjab

A(so this ban% refuse& to transfer 4s.

-- mi((ion #hich Pa%istan #as entit(e& to

receive as the 'ro'ortionate share of

reserves of un&ivi&e& In&ia. 9urther the (osses

incurre& in the transition to in&e'en&ence#hich #ere amountin/ to 4s. 3+ crore #ere

ta%en from Pa%istans share.

0cont&..2





;ee'in/ in vie# a(( this, the /overnment

of Pa%istan &eci&e& not to re(y on the In&ian

ban%. So the In&ian ban% #as re(ieve& of

its functions ear(ier than it #as 'revious(y

&eci&e& an& the 8overnor 8enera( ofPa%istan <uai&=e=A>am Muhamma& A(i

*innah issue& the or&er of the

estab(ishment of SBP on 13 May, 1!$.

0cont&..2





1

his or&er is %no#n as the ?State Ban%

of Pa%istan )r&er 1!$@ an& un&er this

or&er the SBP starte& its o'erations on *u(y 1,

1!$.





Share 5a'ita(he State Ban% of Pa%istan ha& the share

ca'ita( of 4s. + crore &ivi&e& into + (ac fu((y

'ai& u' shares of 4s. 1 each. )f the share

ca'ita(, -1 #as contribute& by the

5entra( 8overnment an& the remainin/ !

#as subscribe& by the 'ub(ic.

0cont&..2





9un&amenta( 5han/es7urin/ year 1!, the State Ban% #as

/iven fu(( autonomy. It #as the mi(estone in the

history of SBP. Autonomy /rante& to the SBP

has stren/thene& its su'ervisory an&

re/u(atory 'o#ers an& SBP has become the so(e

re/u(atory authority.

0cont&..2




1+Prof. Waseem Subhani [IBA], University of the Punjab


Mana/ementhe 'o#er to su'ervise an& contro( the

functions of the ban% is veste& #ith a

5entra( Boar& of 7irectors. he centra( boar&

of &irectors consists of 1 'ersons inc(u&in/

A governor and one or more deputy

governors



1!Prof. Waseem Subhani [IBA], University of the Punjab

!unctions " #ole of the SBP

Issue of Cote

Ban%er to the 8overnment

• Ban%ers Ban%



Banker’s Bank

All commercial banks hold somereserves with the central bank andurther the central bank provide

commercial banks very nearly thesame services as those provided bycommercial banks or their clients.

hus central bank can very rightly be

called bank o commercial banks.



1-Prof. Waseem Subhani [IBA], University of the Punjab


!. SBP as 5(earin/ 6ouse

By actin/ as a c(earin/ house the SBP D

CI9 intro&uces f(eEibi(ity in the ban%in/

o'erations an& a(so remains informe&about the (iFui&ity 'osition of various

ban%s.

SBP D CI9 he('s commercia( ban%s tosett(e inter=ban% transactions #ith the

minimum use of cash. 0cont&..2



1:Prof. Waseem Subhani [IBA], University of the Punjab


SBP as 5(earin/ 6ouse G cont&

By actin/ as a c(earin/ house, SBP D CI9

a(so %ee's a chec% on un#ante& an&

harmfu( com'etition amon/ commercia(

ban%s.

he c(earin/ house function of the SBP

a(so he('s the commercia( ban%s. In timesof nee& an& crises, they can he(' one

another by &eferrin/ ear(y 'ayments.



1"

!unctions " #ole of the SBP A&visor to 8overnment

Central bank enjoys extraordinary powers, rights and

authorities. It also enjoys special control on monetary

and fiscal matters. From time to time, it advises govt.

on different financial and economic matters.

Hen&er of Hast 4esort

Central bank job is to examine and guide the banking

system in the best national interest. In case,

commercial banks face any problem, shortage of

reserves, then central bank comes to their help.



SBP as Controller of Credit

!pen "arket !perationsBank #ate $olicy

Changes in #eserves #atio

Changes in "argin #e%uirements

Change in &i%uidity #atio

"oral $ersuasion

$ublicity




$. SBP an& conomic 8ro#th

!" was primarily set up for fastening

economic growth and prosperity.

. stab(ishment of S'ecia(i>e& 5re&it

Institutions

6B95 6ouse Bui(&in/ 9inance 5or'oration

I5P Investment 5or'oration of Pa%istan

P9 Fuity Partici'ation 9un&

05ont&..21$



!unctions " #ole of the SBP – cont’d

stab(ishment of S'ecia(i>e& 5re&it Institutions= cont&

CI Cationa( Investment rust

I7BP In&ustria( 7eve(o'ment Ban% of

Pa%istan

JBH Jarai araFiati Ban% Himite&

0former(y A/ricu(tura( 7eve(o'ment

ban% of Pa%istan2

C795 Cationa( 7eve(o'ment 9inance5or'orations

1



SBP an& Eterna( Ka(ue of 4u'ee G cont&

#ill eptember %&'%, "akistan rupee remained

linked to () "ound. *owever, in eptember

%&'%, it was unlinked from pound and linked to

( +ollar. #his remained so until anuary %&-.

From anuary %&-, we adopted manage floating

exchange rate system. (nder this, the rate was

determined on daily basis vis/0/vis basket of

currency of major trading parterres. "resently we

are on a market based floating exchange rate

system. (nder this the rate is determined by the

demand and supply in foreign exchange market.


31



13. SBP an& S'ecia( 9un&s

tate !ank of "akistan earns huge profits from

its operations. #hese profits are allocated

towards establishment of several funds for

economic progress. #hese funds aim at promoting

widespread growth in different regions and fields.

#he rural credit fund was established in %&1%

with the objective of providing financial assistance to

co/operative banks and rural credit agencies.2cont3d..4


33



SBP an& S'ecia( 9un&s G cont&

In %&' the export credit fund was established

with the view to finance exports.

$ *ousing Credit Fund has also been established

to finance the housing industry.


3+



1+. Pub(ic 7ebt Mana/ement

"akistan has been facing debt burden since long.

#he debts are both internal and external. #he

!" holds a key position in the debt management

framework of "akistan.


3!



1!. 5usto&ian of 9orei/n Echan/e

!" is also the custodian of all gold, silver and

foreign exchange reserves. It regulates foreign

exchange reserve in accordance with foreign

exchange $ct %&'5.


1-. Echan/e 5entre

#he !" is responsible for enforcing exchangecontrol. It administers the inter banks interest and

exchange rates.

3-



1:. 4e(ations #ith Internationa( A/encies

!" maintains relations with different

international financial institutions such as I6F, 7!,

etc. as the agent of the government of "akistan. It

negotiates different contracts with theseinstitutions on the behalf of 8ovt.


3:



1". conomic Information

!" collects economic and fiscal data from all

over the country throughout the year. It also

annually publishes its report which is an extremely

important document.


3"



$part from extensive powers and an extremelyimportant and significant role. !" has been prohibited

from the following9

#o engage in trade, as to have any direct interest

in any commercial matter.

#o make unsecured advances or loans.

#o purchase its own shares or shares of any other

bank or company.

2cont3d..4

Prohibitions

3$



#o become the owner of any immovable

property except when the ownership is essential.

#o draw or accept bills payable otherwise on

demand.

Prohibitions – cont’d

3



than% U

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of

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