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 andadvances loan.”Pakistan Banking Ordinance 1962:“Banking means the accepting for the purpose of lendingor investing of deposits of money from the publicrepayable in the demand or otherwise and withdraw ableby 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.• 30th December,1948. British Government distributes reserves between both countries 70 or 30% ratio.• On 1st 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 Operations2. 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 BANK3. CLASSIFICATION ON THE BASIS OF DOMICILE:• DOMESTIC BANK• FOREIGN BANKS4. CLASSIFICATION ON THE BASIS OF STATUS:• SCHEDULED BANK• NON SCHEDULED BANK
BANK ACCOUNTSBanks thrive on three accounts based on commodity and business needs.1). Safety needs2). Borrowing needs3). Debt clearing needs TYPES OF ACCOUNTS:The following accounts are the types:1). Saving Account2). Current Account3). 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 INSTRUMENTSDefinition 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 Note2. Bill of Exchange3. 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 CREATIONCommercial banks creates his income from diferentsources 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 countryThe 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.