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The State Bank of Pakistan (SBP) is the central bank of Pakistan.

While its constitution,


as originally laid down in the State Bank of Pakistan Order 1948, remained basically
unchanged until January 1, 1974, when the bank was nationalized, the scope of its
functions was considerably enlarged. The State Bank of Pakistan Act 1956, with
subsequent amendments, forms the basis of its operations today. The headquarters are
located in the financial capital of Pakistan, Karachi with its second headquarters in the
capital, Islamabad.

History:
Before independence on 14 August 1947 the Reserve Bank of India (Central Bank of
India) was the central bank for what is now Pakistan. On 30 December 1948 the British
Government's commission distributed the Bank of India's reserves between Pakistan and
India 30 percent (750 M gold) for Pakistan and 70 percent for India.

The losses incurred in the transition to independence were taken from Pakistan's share (a
total of 230 million). In May, 1948 Muhammad Ali Jinnah (Founder of Pakistan) took
steps to establish the State Bank of Pakistan immediately. These were implemented in
June 1948, and the State Bank of Pakistan commenced operation on July 1, 1948.

FUNCTION:

Under the State Bank of Pakistan Order 1948, the state bank of Pakistan was charged
with the duty to "regulate the issue of bank notes and keeping of reserves with a view to
securing monetary stability in Pakistan and generally to operate the currency and credit
system of the country to its advantage".

A large section of the state bank's duties were widened when the State Bank of Pakistan
Act 1956 was introduced. It required the state bank to "regulate the monetary and credit
system of Pakistan and to foster its growth in the best national interest with a view to
securing monetary stability and fuller utilisation of the country’s productive resources".
In February 1994, the State Bank was given full autonomy, during the financial sector
reforms.

On January 21, 1997, this autonomy was further strengthened when the government
issued three Amendment Ordinances (which were approved by the Parliament in May
1997). Those included were the State Bank of Pakistan Act, 1956, Banking Companies
Ordinance, 1962 and Banks Nationalisation Act, 1974. These changes gave full and
exclusive authority to the State Bank to regulate the banking sector, to conduct an
independent monetary policy and to set limit on government borrowings from the State
Bank of Pakistan. The amendments to the Banks Nationalisation Act brought the end of
the Pakistan Banking Council (an institution established to look after the affairs of
NCBs) and allowed the jobs of the council to be appointed to the Chief Executives,
Boards of the Nationalised Commercial Banks (NCBs) and Development Finance
Institutions (DFIs). The State Bank having a role in their appointment and removal. The
amendments also increased the autonomy and accountability of the chief executives, the
Boards of Directors of banks and DFIs.

The State Bank of Pakistan also performs both the traditional and developmental
functions to achieve macroeconomic goals. The traditional functions, may be classified
into two groups:

1. The primary functions including issue of notes, regulation and supervision of the
financial system, bankers’ bank, lender of the last resort, banker to Government, and
conduct of monetary policy.
2. The secondary functions including the agency functions like management of public
debt, management of foreign exchange, etc., and other functions like advising the
government on policy matters and maintaining close relationships with international
financial institutions.

The non-traditional or promotional functions, performed by the State Bank include


development of financial framework, institutionalisation of savings and investment,
provision of training facilities to bankers, and provision of credit to priority sectors. The
State Bank also has been playing an active part in the process of islamisation of the
banking system.

Banking:

The State Bank of Pakistan looks into a lot of different ranges of banking to deal with the
changes in economic climate and different purchasing and buying powers. Here are some
of the banking areas that the state bank looks into;

• State Bank’s Shariah Board Approves Essentials and Model Agreements for
Islamic Modes of Financing
• Procudure For Submitting Claims With SBP In Respect of Unclaimed Deposits
Surrendered By Banks/DFIs.
• Banking Sector Supervision in Pakistan
• Micro Finance
• Small Medium Enterprises (SMEs)
• Minimum Capital Requirements for Banks
• Remittance Facilities in Pakistan
• Opening of Foreign Currency Accounts with Banks in Pakistan under new
scheme.
• Handbok of Corporate Governance
• Guidelines on Risk Management
• Guidelines on Commercial Paper
• Guidelines on Securitization
• SBP.Scheme for Agricultural Financing.
Phases of Banking System:

Phase I: - (1947 to 1974) Establishment of commercial banks.

Phase II: - (1974 to 1979) Nationalization of banks.

Phase III: - (1979 to 1991) Islamization process.

Phase IV :- (1991 to till now) Privatization of banks

Types of banks

Banks' activities can be divided into four groups:

1. Retail banking: dealing directly with individuals and small businesses.


2. Business banking: providing services to mid-market business; corporate
banking, directed at large business entities.
3. Private banking: providing wealth management services to high net worth
individuals and families.
4. Investment banking: relating to activities on the financial markets. Most banks
are profit-making, private enterprises. However, some are owned by government,
or are non-profit organizations.

Central banks are normally government-owned and charged with quasi-regulatory


responsibilities, such as supervising commercial banks, or controlling the cash interest
rate. They generally provide liquidity to the banking system and act as the lender of last
resort in event of a crisis.

Types of retail banks:

• Commercial bank: the term used for a normal bank to distinguish it from an
investment bank. After the Great Depression, the U.S. Congress required that
banks only engage in banking activities, whereas investment banks were limited
to capital market activities. Since the two no longer have to be under separate
ownership, some use the term "commercial bank" to refer to a bank or a division
of a bank that mostly deals with deposits and loans from corporations or large
businesses.
• Community Banks: locally operated financial institutions that empower
employees to make local decisions to serve their customers and the partners.
• Community development banks: regulated banks that provide financial services
and credit to under-served markets or populations.
• Postal savings banks: savings banks associated with national postal systems.
• Private Banks: banks that manage the assets of high net worth individuals.
• Offshore banks: banks located in jurisdictions with low taxation and regulation.
Many offshore banks are essentially private banks.
• Savings bank: in Europe, savings banks take their roots in the 19th or sometimes
even 18th century. Their original objective was to provide easily accessible
savings products to all strata of the population. In some countries, savings banks
were created on public initiative; in others, socially committed individuals created
foundations to put in place the necessary infrastructure. Nowadays, European
savings banks have kept their focus on retail banking: payments, savings
products, credits and insurances for individuals or small and medium-sized
enterprises. Apart from this retail focus, they also differ from commercial banks
by their broadly decentralised distribution network, providing local and regional
outreach—and by their socially responsible approach to business and society.
• Building societies and Landesbanks: institutions that conduct retail banking.
• Ethical banks: banks that prioritize the transparency of all operations and make
only what they consider to be socially-responsible investments.
• Islamic banks: Banks that transact according to Islamic principles.

Types of investment banks:

• Investment banks "underwrite" (guarantee the sale of) stock and bond issues,
trade for their own accounts, make markets, and advise corporations on capital
market activities such as mergers and acquisitions.
• Merchant banks were traditionally banks which engaged in trade finance. The
modern definition, however, refers to banks which provide capital to firms in the
form of shares rather than loans. Unlike venture capital firms, they tend not to
invest in new companies.

Both combined

• Universal banks, more commonly known as financial services companies,


engage in several of these activities. These big banks are very diversified groups
that, among other services, also distribute insurance hence the term
bancassurance, a portmanteau word combining "banque or bank" and "assurance",
signifying that both banking and insurance are provided by the same corporate
entity.

Other types of banks

• Islamic banks adhere to the concepts of Islamic law. This form of banking
revolves around several well-established principles based on Islamic canons. All
banking activities must avoid interest, a concept that is forbidden in Islam.
Instead, the bank earns profit (markup) and fees on the financing facilities that it
extends to customers.
References:

http://www.scribd.com/doc/24437556/Banking-History-Pakistan
http://www.scribd.com/doc/38010366/Banking-System-of-Pakistan1