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  • 1. State Bank Of Pakistan: 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. 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 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 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, Mr. Jinnah took steps to establish the SBP immediately. These were implemented in June 1948, and the state bank of Pakistan commenced operation on July 1, 1948. 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 utilization 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 company’s ordinance, 1962 and Banks Nationalization Act, 1974. Page 1 of 11 From The Desk Of Noman Khan
  • 2. 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. Nationalization: 1974, government took charge of all financial institutions. Duty is monitor this organization; however govt. Is not liable for monitoring those results in de-nationalization that is major financial institution came under the control of Pvt. Organization. Functions of SBP Primary Functions Secondry Functions Functions of SBP: Like any other Central Bank, State Bank of Pakistan have its roles and functions to perform. 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. Page 2 of 11 From The Desk Of Noman Khan
  • 3. The Secondary Functions: Functions like Management of Public Debt. Management of Foreign Exchange. Etc Advising the Government on Policy Matters. Maintaining Close Relationships with International Financial Institutions. Some Other Important Functions of SBP: State Bank of Pakistan Act 1956 requires the 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 utilization of the country’s productive resources". 1st and foremost requirement for monetary stability is ensuring price stability, which, in State Bank of Pakistan, is achieved through stable Interest and Foreign Exchange (Forex) rates. Stability in Interest rates and Forex Markets is achieved through intervention in money market and Forex market, while nature of intervention varies in both markets. To achieve desired interest rates, SBP uses two types of instruments, namely: 1. Direct Instruments: 2. Indirect Instruments: 1. Direct Instruments: Direct instruments are typically directives given by the central bank to control the quantity or price (interest rate) of money deposited with commercial banks (and sometimes other financial institutions) and credit provided by them. Examples of Direct Instruments are: Interest Rate Controls Credit Ceilings Directed Lending Statutory Liquidity Requirements Page 3 of 11 From The Desk Of Noman Khan
  • 4. Pros and Cons of Direct Instruments: Advantages: They are perceived to be reliable, at least initially, in controlling credit aggregates or both the distribution and the cost of credit. They are attractive to government that wants to channelize credit to meet specific objectives. They may constitute the most effective or practicable approach in circumstances of underdeveloped financial markets or where the central bank has inadequate techniques of indirect monetary control. Disadvantages: Bank-by-bank controls hold back competition in financial markets which could benefit both borrowers and depositors. Selective credit controls-credit controls on some banks but not on favored ones, distort markets and impose a cost on society. Direct controls encourage disintermediation into non-controlled markets or abroad. So, overtime, they become less effective as lenders and savers search for ways to circumvent them. Reserve Requirements: Reserve requirements are the percentage of commercial banks’ liabilities (or some sub-set thereof) which they are required to hold as reserves at the central bank. Cash Reserve Requirement (CRR): Under this requirement, banks are required to keep a weekly average balance of 7% of their total demand liabilities with the SBP, subject to daily minimum balance of 6% of total demand liabilities. Statutory Liquidity Ratio: Commercial banks are required to keep some fraction of their assets in the form of cash, Treasury Bills (T-Bills) or other approved securities. This fraction is called Statutory Liquidity Ratio. Page 4 of 11 From The Desk Of Noman Khan
  • 5. 2. Indirect Instruments: SBP uses targeting monetary aggregates for its monetary management function, So Indirect instruments are used for controlling price or volume of the supply of its own liabilities. Examples of Indirect instruments are 1. T-Bill Auctions: Treasury bills are sold through auction system The cut off yield is determined by the Auction Committee, keeping in view monetary targets, prevailing economic and financial conditions and expected market response. The Six months’ T-bill is considered the most important benchmark by the money market and is considered to be the signaling tool of SBP for interest rate movements. T-Bills are issued in 3, 6 and 12 months’ tenors. Pakistan Investment Bond (PIB) Auction: PIB are issued in tenors of 3, 5, 10, 15, 20 and 30 years in auctions, according to the quarterly targets given by MOF. PIBs are sold to meet the GOP long term requirements and to provide benchmark rates to the Capital Market Transactions. 15 days prior to the auction, targets are announced on Reuters and sealed bids are invited. The 15 days period, i.e. from the day of announcement to the auction day, is called short selling period. Auction committee decides the cut-off yields. 2. Open Market Operations (OMOs): Using computerized reporting system SBP monitors the daily liquidity position of the market and on the basis of those reports SBP either injects money to the market by lending against collateral through reverse repo transaction or by an outright purchasing, or mops-up money from the market by selling securities or by conducting repo transaction. Page 5 of 11 From The Desk Of Noman Khan
  • 6. OMOs are conducted on as and when market desires. Is issued through Reuters and bids are received through fax. Only banks are allowed to participate in OMOs and T-Bill auctions. 3. Discounting Facility (3-Day Repo): In Pakistan, SBP has extended a 3-day Repo facility to schedule and investment banks. This is an overnight lending facility provided to banks, through which SBP provides cash accommodation at a penal rate (currently 10 %) to any needy bank by undertaking a reverse repo transaction with it. Cash accommodation is normally for overnight; however transaction period can be lengthened to 3-days or more to cover occasional long week-ends. SBP also uses changes in discount rate primarily as a way of signaling a change in monetary policy. 4. Exchange Rate Management: In Pakistan, since 2000, free float regime is in place i.e. Exchange Rate is determined on supply/demand position of the market. Factors requiring Ex. Rate Management: Appreciation / depreciation of rupee vs.US. $ in interbank market Heavy Fluctuation in Forex market in interbank Market sentiments Heavy payment (Commercial and government) Unforeseen events Factors Affecting Exchange Rate: Trade Activities (Imports & Exports) Foreign Investment (FDI) Home Remittances Market Saturation Page 6 of 11 From The Desk Of Noman Khan
  • 7. Political Factors The Non-Traditional or Promotional Functions: Performed By The State Bank Include. Development of Financial Framework. Institutionalization of Savings and Investment. Provision of Training Facilities to Bankers. Provision of Credit to Priority Sectors. Islamic Banking: The state bank also has been playing an active part in the process of Islamization 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. State bank’s shariah board approves essentials and model agreements for Islamic modes of financing. Procedure for submitting claims with SBP in respect of unclaimed deposits surrendered by banks/DFI. Banking sector supervision in Pakistan. Micro finance regulations. Small Medium Enterprises (SMEs) regulations. Minimum capital requirements for banks. Remittance facilities in Pakistan. Opening of foreign currency accounts with banks in Pakistan under new scheme. Handbook of corporate governance. Guidelines on risk management. Guidelines on commercial paper. Guidelines on securitization. SBP scheme for agricultural financing. Legal framework in Pakistan: SBP Act 1956. Negotiable Instrument Act 1881. Payment Systems and Electronic Funds Transfer Act 2007. Electronics Transactions Ordnance 2002. Page 7 of 11 From The Desk Of Noman Khan
  • 8. Cyber Crime Prevention Ordnance 2008. Contract Act 1872. Banking Companies Ordnance 1962. Foreign Exchange Act 1947. Public Debt Act 1944. Companies Ordnance 1984. Pakistan Telecommunication (Re-Organization) Act 1996. Organizational Structure: Central Board Of Directors One Governor One Deputy Governor Eight Directors President of Pakistan appoint the governor of State Bank of Pakistan. Because SBP is an autonomous body Decision has to be taken independently. Governors of the state bank of Pakistan: Here is a list of the governors of the state bank of Pakistan. Zahid Hussain. 10-06-1948 To 19-07-1953 Abdul Qadir. 20-07-1953 To 19-07-1960 Shujaat Ali Hasnie. 20-07-1960 To 19-07-1967 Mahbubur Raschid. 20-07-1967 To 01-07-1971 Shahkur Ullah Durrani. 01-07-1971 To 22-12-1971 Ghulam Ishaq Khan. 22-12-1971 To 30-11-1975 S. Osman Ali. 01-12-1975 To 01-07-1978 A G N Kazi. 15-07-1978 To 09-07-1986 V.A. Jaffrey. 10-07-1986 To 16-08-1988 I.A. Hanfi. 17-08-1988 To 02-09-1989 (First Term), 01-09-1990 To 30-06-1993 (Second Term) Kassim Parekh. 05-09-1989 To 30-08-1990 Mohammad Yaqub. 25-07-1993 To 25-11-1999 Ishrat Husain. 02-12-1999 To 01-12-2005 Shamshad Akhtar. 02-01-2006 To 01-01-2009 Syed Salim Raza. 01-01-2009 To 02-06-2010 Yasin Anwer (Acting). 02-06-2010 To 08-09-2010 Shahid H. Kardar. 08-09-2010 To Present Page 8 of 11 From The Desk Of Noman Khan
  • 9. Central board of directors: Kamran Laghari Kardar, Chairman. The Secretary Finance Member (Presently Mr. Salman Siddique) Mr. Kamrani Y. Mirza Member. Mr. Zaffar A. Khan Member. Mr. Tariq Sayeed Saigol Member. (Retired, Position Presently Vacant) Mirza Qamar Beg Member. Mr. Asad Umar Member. Mr. Waqar A. Malik Member. Mr. Nawab Sirajudolla. BANKING SERVICES CORPORATION (BSC): Banking Services Corporation (BSC) set up in January 2002, is the subsidiary of the state bank of Pakistan and is entrusted with the task of currency management and operational and administrative oversight of foreign exchange departments, export and other finance, management of government accounts and operational work related to government certificates. With the changing environment of banking sector, BSC has undergone significant change. On one hand BSC has had to relinquish certain functions, it performed at the time when both interest and credit and foreign exchange was rigorously regulated. On the other hand, it has to reposition itself to the deregulated environment (while continuing to perform some old functions such as related to export finance scheme) and be equipped to deal with a transformed central bank and banking system. The challenges posed by these changing requirements have been phenomenal but BSC has been steadily shifting its goals and objectives to align it with the new demands. Going forward, SBP is now working closely with BSC to develop a strategy for its further transformation to assign a more relevant mission to it in line with the withdrawal of some of its old functions, consolidate the organization, fully automate its services and introduce a new culture of change management along with better enforcement of the performance management systems. Developing adequate capacity and managerial skills along with better internal controls will be critical to achieve the anticipated transformation. KEY FUNCTIONAL & OPERATIONAL AREAS: 1. 2. 3. 4. 5. Currency Management Foreign Exchange Operations and Adjudication Export Finance Scheme Payment and Settlement Systems Banking Services to The Government Page 9 of 11 From The Desk Of Noman Khan
  • 10. List Of SBP’s Scheduled Banks: Nationalized Scheduled Banks: First Women Bank Limited National Bank of Pakistan The Bank of Punjab Private Scheduled Banks: Allied Bank of Pakistan, Karachi Arif Habib Bank Limited, Karachi - (Formerly Arif Habib Rupali Bank) Askari Bank, Rawalpindi Atlas Bank, Karachi Bank AL Habib, Karachi Bank Alfalah, Karachi BankIslami Pakistan Limited, Karachi Barclays Bank, Karachi Crescent Commercial Bank, Karachi Faysal Bank, Karachi Habib Bank, Karachi Habib Metropolitan Bank, Karachi HSBC JS Bank KASB Bank, Karachi MCB Bank Limited (formerly Muslim Commercial Bank), Islamabad Mybank Limited, Karachi NIB Bank, Karachi PICIC Commercial Bank, Karachi NIB Bank Limited has acquired PICIC Group including Picic Commercial Bank Ltd.' Royal Bank of Scotland (acquired by MCB Bank Limited) Silk Bank formerly Saudi Pak Non-Commercial Bank, Karachi Soneri Bank, Karachi Union Bank, Karachi - Standard Chartered Bank has acquired Union Bank United Bank, Karachi Bank Of Punjab, Lahore Page 10 of 11 From The Desk Of Noman Khan
  • 11. Islamic Banks: Dawood Islamic Bank Limited (formerly First Dawood Islamic Bank Limited) Dubai Islamic Bank Pakistan limited Meezan Bank AlBaraka Islamic Bank BankIslami Pakistan Limited Emirates Global Islamic Bank Conclusion: SBP has its role important in every sector of economy whether it is Industrial Sector. Agriculture Sector. Consumer Sector. “SBP provides guide lines to each of these Sectors to uplift the economy”. OR “SBP is fully involved in every walk of life” Page 11 of 11 From The Desk Of Noman Khan