BANKING SYSTEM

IN
PAKISTAN
INTRODUCTION TO BANKING
Origin Of Word:
Banke, banc, banque, or banck

Definition:
Under English common law, a banker is
defined as a person who carries on the
business of banking, which is specified as:
Conducting current accounts for his
customers
Paying cheques drawn on him, and
Collecting Cheques for his customers.



Kenlay Says:
A bank is an institution which receives deposits and
advances loan.

Pakistan Banking Ordinance 1962:
Banking means the accepting for the purpose of lending
or investing of deposits of money from the public
repayable in the demand or otherwise and withdraw able
by cheque, draft or otherwise.

EARLIEST FORM OF BANKING:
Mesopotamia
Egypt
INDIA
CHINA
Greece
ROME

CENTRAL BANK:
HISTORY:
Before independence Reserve Bank Of India central
bank for both Pakistan and India.
30
th
December,1948. British Government distributes
reserves between both countries 70 or 30% ratio.
On 1
st
July, 1948 state bank of Pakistan functioned
A large rules and regulations introduced in 1956.



FUNCTIONS OF STATE BANK OF PAKISTAN:
SBP performed both traditional or non traditional functions.
1. TRADITIONAL FUNCTIONS:
Primary functions ( Note issue, Govt. Bank, Monetary Policy)
Secondary functions (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).
2. NON TRADITIONAL FUNCTIONS:
Development of financial framework.
Institutionalization of savings and investment.
Provision of training facilities to bankers.
Provision of credit to priority sectors.




MONETARY POLICY:
DEFINATION:
According to Prof. Harry Johnson,
"A policy employing the central banks control of the supply of money
as an instrument for achieving the objectives of general economic
policy is a monetary policy.
OBJECTIVES:
Rapid Economic Growth
Price Stability
Exchange Rate Stability
Balance of Payments (BOP) Equilibrium
Full Employment
Neutrality of Money
Equal Income Distribution

TOOLS OF MONETARY POLICY:
The followings are two types of tools that adopt state
bank of Pakistan.
1. QUANTITATIVE MEASURES:
Cash Reserve Ratio
Statutory Liquidity Ratio
Open Market Operations
2. QUALITATIVE MEASURES:
Bank Rate
Repo Rate
Reverse Repo Rate

COMMERCIAL BANK
CLASSIFICATION OF BANKS:
Bank can be classified into the various types on the basis of their
function:
1. CLASSIFICATION ON THE BASIS OF FUNCTIONS:
CENTERAL BANK
COMMERCIAL BANK
INDUSTRIAL BANK
AGRICULTURAL BANKS
EXCHANGE BANK
SAVING BANK
INVESTMENT BANK
MORTGAGE BANK
MICRO-FINANCE BANK




2. CLASSIFICATION ON THE BASIS OF OWNERSHIP:
PUBLIC SECTOR BANK
PRIVATE SECTOR BANK
COOPERATIVE BANK
3. CLASSIFICATION ON THE BASIS OF DOMICILE:
DOMESTIC BANK
FOREIGN BANKS
4. CLASSIFICATION ON THE BASIS OF STATUS:
SCHEDULED BANK
NON SCHEDULED BANK

BANK ACCOUNTS
Banks thrive on three accounts based on commodity and business
needs.
1). Safety needs
2). Borrowing needs
3). Debt clearing needs
TYPES OF ACCOUNTS:
The following accounts are the types:
1). Saving Account
2). Current Account
3). Fixed Deposit Account


1. SAVING ACCOUNT:
For peoples who save money from their monthly income.
It can be open with minimum Rs. 100/-
FEATURES:
Interest Rates
Minimum Monthly Balances
Unlimited Transactions
ATM Access
Cheque Book Options
Online Banking Services
Opening Deposits and Balances

1. CURRENT ACCOUNT:
Account in which you can deposit and withdraw at any time. This
account specially maintain for traders and businessman.
FEATURES:
Cash or Debit Card
Direct Debits
Checkbook
Online or Telephone Banking
Overdraft Facility
Interest
Post Office Branches


3. FIXED DEPOSITE ACCOUNT:
This account is maintain for those people who have surplus but no
need it in near future.
FEATURES:
PROFIT:
TERM OF DEPOSITE:
PERIOD:
INTEREST:
WITHDRAWAL FROM FIXED DEPOSITE ACCOUNT
FIXED DEPOSIT RECEIPT
NEGOTIABLE INSTRUMENTS
Definition of Negotiable Instrument:
According to section 13 of the Negotiable Instruments Act, 1881, a
negotiable instrument means:
promissory note, bill of exchange, or cheque, payable either to
order or to bearer.
Types of Negotiable Instruments:
There are just three types of negotiable Instruments:
1. Promissory Note
2. Bill of Exchange
3. Cheque


1. PROMISSORY NOTE:
A contract detailing the term of a promise by one party to pay a sum
of money to the other.
Parties to a Promissory Note:
Drawer
Payee
Endorser
Features of a promissory note:
In writing
Clear promise
Definite promise
Payable on demand
Certain amount

2. Bill of Exchange:
Section 5 of the Negotiable Instruments Act, 1881 defines a bill of
exchange as:
an 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.
PARTIES OF A BILL OF EXCHANGE:
Drawer
Drawee
Payee
FEATURES OF BILL OF EXCHANGE:
Must be in writing
Must contain order to pay
Order must be unconditional
Parties must be mentioned



3. CHEQUES:
The Negotiable Instruments Act, 1881 defines a cheque as:
a bill of exchange drawn on a specified banker and not expressed to
be payable otherwise than on demand.
Features of a cheque:
Must be written or signed by drawer
Contain unconditional order
Issued on specified banker only
Amount must be cleared
Always payable on demand
Types of Cheque:
Open cheque, and
Crossed cheque.
Bearer cheque
Order cheque




CREDIT CREATION
Commercial banks creates his income from diferent
sources such sources as:
Cash Reserve Ratio:
Formula:
Reserve Ratio = Amount Of Reserve / Total Amount Of Reserve

Bank Advances:
Demand Loan
Term Loan
Overdraft:
Cash Credit:
Bill Purchased
Bill Discounting
ISLAMIC BANKING IN PAKISTAN
ISLAMIC PERSPECTIVE:
Not a new religion
Economic growth is main channel
Socio economic justice
Facilitate international trade
Global development and poverty reduction
Tools for acheivment of socio economic objectives
Zakat distribution
Uses Islamic modes of financing (Riba)
MEASURES TAKEN FOR ISLAMIZATION IN
PAKISTAN:
Pakistan is an Islamic country
The Eighth Amendment of the 1973 Constitution


Creation of the Council of Islamic Ideology (CII) in 1962.
Measures taken included the introduction of Zakat (June, 1980) and
Usher
Procedure adopted by banks was declared un-Islamic by the
Federal Shariat Court (FSC) in November 1991
State Bank has issued the criteria for establishment of Islamic banks
A Musharaka-based Export Refinance Scheme has been designed
by the State Bank
Islamic Banking Department has been created in the State Bank
Shariah Board and Shariah scholars hired.
Anti Money Laundering Measures

Introduction of Zakat and Ushr:
Zakat and Ushr Ordinance, 1980
Zakat providing to the needy
Government enacted the Enforcement of Shariah Act, 1991
CHALLENGES:
Enforcement of contracts is not effective
Inefficient system for early recovery.
Ineffective code of conduct for professionals.
Development of Shariah compliant government securities.
Research and development in the field of Islamic finance and
economies.
HR development and training to the banks staff on Islamic Banking
and Finance.
Education and public awareness about Islamic financial system.





THE END