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Principles of
Banking &Currency
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Bankingin
Pakistan
Prof. Waseem Subhani [IBA],
University of the Punjab
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Banking in Pakistan
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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
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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!$.
6o#ever, 4eserve Ban% of In&ia &i& not
#or% fair(y for Pa%istan it refuse ma%in/a&vances to the
0cont&..2
The Banking Sector– cont’d
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+Prof. Waseem Subhani [IBA], University of the Punjab
!. he In&ian coins #i(( be va(i& an& they #i((
remain (e/a( ten&er in Pa%istan for at (eastone year from the &ate of issuance of
Pa%istani coins. he Pa%istan /overnment
#i(( issue its o#n coins from )ctober 1,
1!$.
-. he 4eserve Ban% of In&ia #i(( transfer
the Pa%istans share of "- crore to/overnment of Pa%istan ti(( Se'tember +,
1!$.
The History – cont’d
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!
)n 7ecember +, 1!$ 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
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-
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
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: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!$.
Establishment of SBP – cont’d
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"
)n 7ecember +, 1!$ 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
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$Prof. Waseem Subhani [IBA], University of the Punjab
A(so this ban% refuse& to transfer 4s.
-- mi((ion #hich Pa%istan #as entit(e& to
receive as the 'ro'ortionate share of
reserves of un&ivi&e& In&ia. 9urther the (osses
incurre& in the transition to in&e'en&ence#hich #ere amountin/ to 4s. 3+ crore #ere
ta%en from Pa%istans share.
0cont&..2
Establishment of SBP – cont’d
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Prof. Waseem Subhani [IBA], University of the Punjab
;ee'in/ in vie# a(( this, the /overnment
of Pa%istan &eci&e& not to re(y on the In&ian
ban%. So the In&ian ban% #as re(ieve& of
its functions ear(ier than it #as 'revious(y
&eci&e& an& the 8overnor 8enera( ofPa%istan <uai&=e=A>am Muhamma& A(i
*innah issue& the or&er of the
estab(ishment of SBP on 13 May, 1!$.
0cont&..2
Establishment of SBP – cont’d
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Prof. Waseem Subhani [IBA], University of the Punjab
1
his or&er is %no#n as the ?State Ban%
of Pa%istan )r&er 1!$@ an& un&er this
or&er the SBP starte& its o'erations on *u(y 1,
1!$.
Establishment of SBP – cont’d
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11Prof. Waseem Subhani [IBA], University of the Punjab
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
Establishment of SBP – cont’d
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13Prof. Waseem Subhani [IBA], University of the Punjab
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
Establishment of SBP – cont’d
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1+Prof. Waseem Subhani [IBA], University of the Punjab
Establishment of SBP – cont’d
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
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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%
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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.
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1-Prof. Waseem Subhani [IBA], University of the Punjab
!unctions " #ole of the SBP
!. 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
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1:Prof. Waseem Subhani [IBA], University of the Punjab
!unctions " #ole of the SBP
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.
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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.
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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
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!unctions " #ole of the SBP
$. SBP an& conomic 8ro#th
!" was primarily set up for fastening
economic growth and prosperity.
. stab(ishment of S'ecia(i>e& 5re&it
Institutions
6B95 6ouse Bui(&in/ 9inance 5or'oration
I5P Investment 5or'oration of Pa%istan
P9 Fuity Partici'ation 9un&
05ont&..21$
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!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
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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.
!unctions " #ole of the SBP – cont’d
31
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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
!unctions " #ole of the SBP – cont’d
33
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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.
!unctions " #ole of the SBP – cont’d
3+
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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.
!unctions " #ole of the SBP – cont’d
3!
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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 $ct %&'5.
!unctions " #ole of the SBP – cont’d
1-. Echan/e 5entre
#he !" is responsible for enforcing exchangecontrol. It administers the inter banks interest and
exchange rates.
3-
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1:. 4e(ations #ith Internationa( A/encies
!" maintains relations with different
international financial institutions such as I6F, 7!,
etc. as the agent of the government of "akistan. It
negotiates different contracts with theseinstitutions on the behalf of 8ovt.
!unctions " #ole of the SBP – cont’d
3:
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1". conomic Information
!" collects economic and fiscal data from all
over the country throughout the year. It also
annually publishes its report which is an extremely
important document.
!unctions " #ole of the SBP – cont’d
3"
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$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$
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#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
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than% U
Best
of
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