State Bank of Pakistan and Its Functions

8/8/2019 State Bank of Pakistan and Its Functions

http://slidepdf.com/reader/full/state-bank-of-pakistan-and-its-functions 1/18

BANK

A financial institution that accepts deposits extends credit and channels the money into the

lending activities.

Common features of a bank

• Accepting deposits from the public.

• Lending money to the public.

• Transferring money from one place to other (Remittances).

• Acting as trustee.

• Managing govt. business.

Types of Banks

1. Retail Bank

Manages small and individual businesses

– Commercial bank.

– Community development bank.

– Saving bank.

– Mortgage bank.

– Private bank.

Department Of Business Administration Gomal University

K.P.K (Dera Ismail Khan) Pakistan1

Bank Islamic Bank

Investment Bank

Retail Bank

Central Bank



2. Investment Bank

Manages the activities on the financial markets

– Merchant bank.

– Cooperative bank.

– Consumer bank.

3. Islamic Bank

• Adheres the concept of Islamic methods in banking.

• Revolves around well established concepts based on Islamic cannon.

4. Central Bank

Principal monetary authority of the nation.

Oldest Central Bank

• The central bank of Sweden (1668).

• The bank of England (1694).

• U.S federal reserve created by U.S congress (1913).

Scheduled Banks. Functioning under direct supervision of central bank.

None scheduled Banks. Workings on there on all banks in Pakistan are scheduled.





State Bank Headquarters Karachi, Islamabad Pakistan.

Established 1947

Governor Syed Salim Raza

Central Bank of Pakistan

Currency Pakistani RupeeWebsite www.sbp.org.pk

Introduction

The State Bank of Pakistan (SBP) is the central bank of Pakistan. While its constitution, as

originally lay 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.

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



http://en.wikipedia.org/wiki/Karachi


http://en.wikipedia.org/wiki/Pakistan

http://en.wikipedia.org/wiki/Syed_Salim_Raza



http://en.wikipedia.org/wiki/Currency

http://en.wikipedia.org/wiki/Pakistani_rupee


http://en.wikipedia.org/wiki/Website

http://www.sbp.org.pk/


http://en.wikipedia.org/wiki/Central_bank




http://en.wikipedia.org/w/index.php?title=State_Bank_of_Pakistan_Act_1956&action=edit&redlink=1

http://en.wikipedia.org/wiki/Independence

http://en.wikipedia.org/wiki/Reserve_Bank_of_India

http://en.wikipedia.org/wiki/India

http://en.wikipedia.org/wiki/Gold

http://en.wikipedia.org/wiki/Muhammad_Ali_Jinnah





http://en.wikipedia.org/wiki/Currency


http://en.wikipedia.org/wiki/Website


http://en.wikipedia.org/wiki/Central_bank



http://en.wikipedia.org/wiki/Independence

http://en.wikipedia.org/wiki/Reserve_Bank_of_India

http://en.wikipedia.org/wiki/India

http://en.wikipedia.org/wiki/Gold





the State Bank of Pakistan immediately. These were implemented in June 1948, and the State

Bank of Pakistan commenced operation on July 1, 1948.

Constitution

Order 1948

• Regulating issue of notes.

• Keeping reserves for monetary stability.

1956 act of S.B.P

• Regulating issue of notes.

• Keeping reserves for monetary stability.

• Utilization of countries resources.

• Foster the growth of credit system of Pakistan.

Power of State Bank

Power increased in 1956,1974 and 1997 act of State Bank of Pakistan

Complete autonomy to:

• Regulate banking.

• Issue notes.

• Stabilizing exchange rates.

• Promote investment

• Control inflation.

Share Capital

• Original share capital 3 crore.

• 51% by central government.

• 49% by private sector.

• Nationalized in 1974.

Management

• Chief executive is governor (for three years).

• One or more deputy governors (for five years)..





• Present governor of state bank of Pakistan Dr. Salim Raza.

Governor of SBP

The principal officer of the SBP is the Governor . The current Governor of State Bank of Pakistan

is Syed Salim Raza who took over from Dr. Shamshad in January 2009 for a three year term. He

is a retired professional from Citibank and was the Chairman of Pakistan Business Council.

Central Board of Directors in SBP

1. Syed Salim Raza (Chairman).

2. The Secretary Finance Member (Presently Mr. Salman Siddique).

3. Mr. Kamran Y. Mirza (Member).

4. Mr. Zaffar A. Khan (Member).

5. Mr. Tariq Sayeed Saigol (Member).

6. Mirza Qamar Beg (Member).

7. Mr. Asad Umar (Member).

8. Mr. Waqar A. Malik (Member).

9. Vacant (Member).

Head Quarter and Offices of SBP

The headquarters are located in the financial capital of Pakistan, Karachi with its second

headquarters in the capital, Islamabad.While sixteen (16) local offices at Hyderabad, Multan,

Faisalabad, Sukkar, Quetta, Lahore, Peshawar, Gujranwala, and D.I khan, Sialkot, Muzaffarabad,

Rawalpindi, Bahawalpur, and Islamabad.

Departments of SBP

Accounts department.

Issue department.

Administration department.

Audit department.

Banking department.



http://en.wikipedia.org/wiki/Governor_of_State_Bank_of_Pakistan




http://en.wikipedia.org/wiki/Islamabad

http://en.wikipedia.org/wiki/Governor_of_State_Bank_of_Pakistan




http://en.wikipedia.org/wiki/Islamabad



Engineering department.

Exchange control department.

Legal division services.

Research department.

Security department.

Statistic department.

Training department.

Agriculture department.

Public relations training department.

Training and development department (TDD)

Microfinance department.

Real Time Gross Settlement System department (RTGS System)

Information Systems & Technology department.

FUNCTIONS

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



Functions

http://en.wikipedia.org/w/index.php?title=State_Bank_of_Pakistan_Order_1948&action=edit&redlink=1

http://en.wikipedia.org/w/index.php?title=State_Bank_of_Pakistan_Order_1948&action=edit&redlink=1



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:

Traditional functions

– Primary functions.

– Secondary functions.

Non Traditional functions





http://en.wikipedia.org/w/index.php?title=Banks_Nationalisation_Act&action=edit&redlink=1


http://en.wikipedia.org/w/index.php?title=Pakistan_Banking_Council&action=edit&redlink=1





http://en.wikipedia.org/w/index.php?title=Pakistan_Banking_Council&action=edit&redlink=1



TRADITIONAL FUNCTIONS

It includes further two sub types.

– Primary functions.

– Secondary functions.

PRIMARY FUNCTION



State Bank of

Pakistan

Functions

Non Traditional

Functions

Bank

Traditional Functions

Secondary Functions

Primary Functions



The primary functions including issue of notes (Bank of issue), Banker to the Government,

Regulation and supervision of the financial system, Bankers’ bank, Conduct of monetary policy

and lender of the last resort. Let us discuss in detail.

Bank of issue

Regulation of the currency requirements

Sole authority to issue notes

Issue of coins (1%) by govt.

Issue of notes commemorative notes and coins (99%) by S.B.P

Issue Departments

Its issues departments are in Lahore, Karachi, Peshawar and Queta.

Systems of Issuing Notes

1. Fixed fiduciary system

• Issue of notes to a certain limit without reserves

• 100% reserves after crossing the limits

2. Proportional reserve system

• Keeping 20% reserves for every note being issued

• Reserves as gold, silver bullions, foreign exchange etc.

Banker to the government

o Hold cash balance of govt.

o Providing short term loans

o Salaries of govt. employees

o Collection of taxes

Regulation and supervision of the financial system

Safe guards and stabilizes the financial system

Monitoring the performance of the banking companies





Regulation of Banks like DFI and MFB

Off-site monitoring

On-site monitoring

Prudential regulations

Rules of business

CAMELS (capital, assets quality, management soundness, earnings, liquidity and

sensitivity to other risks)

Bankers bank

Statuary reserves of scheduled banks.

Provide loans by rediscounting of bills.

Provide guidance.

Fixation of cash/deposit ratio.

Weekly statements and annual reports.

Sole authority to determine the authorized and paid up capital.

Conduct of monetary policy

Control of total credit in the country and total money supply is monetary policy.

Objectives

Regulation of money supply.

To stabilize interest rate.

To increase the employment opportunities.

To increase investment.

Price control.

Methods of Credit Control

1. QUANTITATIVE CONTROL





It includes Bank rate policy, open market operations (OMO), Variation in reserve requirement,

Credit rationing, SBP 3 day repo rate, T-bill auction rate.

Bank Rate Policy

• Bank rate is the rate at which a central bank rediscounts bills of exchange.

• A tool to control and regulate, Central money supply, Bank loans, Structure of interest rates.

• SBP’s current bank rate is 7.5%

Open Market Operations

The Sales and purchase of govt. securities in the open market Open Market Operation is a tool to

regulate currency circulation and credit policies of other banks.80 Open Market Operation’s in

the year 2006.

Variation in Reserve Requirements

Means to decrease money supply SBP raises the reserve ratio.

Credit RationingIt is a useful tool to control money supply.

SBP 3 DAY REPO RATE

The 3 days lending facility through reverse repo transactions.

T-Bill Auction Rate

SBP 3 day repo rate influences the yield of T-bills sold through auction.

2. QUALITATIVE CONTROL

• Change in margin requirement

• Moral persuasion





• Publicity

• Direct-action

Lender of the Last Resort

SBP provides loans and rediscount facilities to scheduled banks in times of need. These loans are

short term in nature.

SECONDARY FUNCTION

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(IFIs).

Secondary functions

• Public debt management

• Exchange rate management

• Advisor and agent to the government

• Relationship with International Financial Institutions (IFIs).

Public debt management

• The public debt act 1944

– Subscribing govt. securities at the time of issue

– Sale and purchase of securities

– Interest payment to holders of public debt instruments

Exchange Debt Management Department

To manage public debt and created in Feb 2000.

Management of Foreign Exchange





Responsibilities of S.B.P. for Management of Foreign Exchange the Sales/Purchase of Gold &

Silver, Foreign exchange, Transactions of special drawing rights with I.M.F

Exchange rate systems• Link of Pak rupee with pound and dollar.

• Managed floating exchange rate system and Value of rupee determined on daily base.

• Market based floating exchange rate system and Value of rupee determined by demand.

Management of Foreign Exchange

Investment of surplus reserves to ensure liquidity of funds & maximize earnings and Keeping the

records of payment obligations.

S.B.P as Advisor to Govt.

• Recommendations to the govt. on Economic, Financial, Agricultural credit, Industrial finance,

Savings and Agent to buy foreign exchange.

Relationships with IFIs

• Agreements of provincial & Federal Govt. with IFIs (international financial institutions).

• International Financial Institutions (IFIs) include Bank for International settlements, World

Bank, Central Banks of Foreign Countries.

NON-TRADITIONAL FUNCTIONS

The non-traditional or promotional functions objectives are To enhance the economic growth, To

promote the fuller utilization of economic resources and To expand the scope of banking

operations.

The non-traditional, 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.



http://en.wikipedia.org/wiki/State_Bank





Development of banking system

• Need for independent authority for monetary control

• Contribution to rehabilitation of the banking system in Pakistan

• Collapse of commercial banking system• Commercial banking system

• Islamic banking system

• Creation of microfinance institutions

Commercial Banking

• Establishment of NBP

• Reserve internal banking for local banks

• Introduction of foreign banks in Pakistan

• Financial sector liberalization

• At present

– 7301 local commercial banks

– 105 foreign commercial banks

Microfinance institutions

• Introduction of microfinance banks

– Khushali bank (public sector)

– First microfinance bank FMFB (private sector)

• At present

– 6 MFB’s operating in Pakistan

– 3060 branches

– 700000 borrowers

Islamic banking

• Establishment of sharih board

– Comprising two religion scholars and three experts

– Advise S.B.P on Islamic banking system





• At present

– 3 local Islamic banks

– 1 foreign Islamic bank

Year Wise Entry of Players

In the year 2003

1. Meezan Bank.

2. Bank of Khyber.

3. Muslim Commercial Bank MCB.

4. Bank Alfalah.

In the year 2004 1. Albaraka Islamic Bank.

2. Habib Bank AG Zurich.

3. Standard Chartered.

4. Metropolitan Bank.

5. Soneri Bank.

In the year 2005

1. Habib Bank.2. Bank Al Habib.

In the year 2006

1. Dubai Islamic Bank.

2. Bank Islami Pakistan.

3. ABN Amro N.V. (Now RBS Bank).

4. Askari Bank Limited.

5. National Bank.6. United Bank Limited.

In the year 2007

1. Emirates Global Islamic.

2. Dawood Islamic Bank.





Development of specialized financial institutions

• To provide long and medium term financing facilities

– PICIC

– IDB

– HBFC

• To provide short term finance facilities

– SME bank

– The equity participation funds

– Bankers equity corporation

Training facilities of S.B.P• Institute of bankers Pakistan

• Training departments

• NIBAF

• SEANZA courses

Institute of Bankers Pakistan

• Established in 1951 for conducting examination in banking courses

• Training programs offered by IBP is On-site training, over seas training, Training by

international speakers, Training in IT.

Training Departments

In 1981-82 two training departments established at Karachi and Lahore or Secure training

position for bank officials.

National Institute Banking and Finance

The Training programs conducted is SBOT, Joint Directors training, Research officers training,

and International courses on central and commercial banking.





SEANZA Courses

• South East Asia, new Zealand and Australia association of central banks

• SEANZA courses held each year in one of its member countries

• S.B.P hosted the 5th and 20th SEANZA courses

Credit to Priority Sectors

• Credit schemes to channel resources towards priority sectors

• Spending credit to increase efficiency in all the sectors of economy

Credit to priority sectors

• Credit schemes to channel resources towards priority sectors

• Spending credit to increase efficiency in all the sectors of economy






K P K (Dera Ismail Khan) Pakistan18

State Bank of Pakistan and Its Functions

Documents

Transcript of State Bank of Pakistan and Its Functions