Pakistan had 631 offices of 45 scheduled banks out of which 487 were located in West Pakistan and 114 in East Pakistan which Was also served by 500 office of small and non-scheduled banks There were 19 branches of foreign banks in Pakistan but they had a very limited role to play. Just after the partition, the Indian bankers started immigrating and shifting the head offices of their banks and capital to India. It caused a great set back to the banking field in Pakistan, and resulted in decline in the number of offices in schedule bank from 631 to 195 by 30th June, 1948. The West Pakistan the number fell from 487 to 81 in East Pakistan from 144 to 69 by 30th June, 1951. Habib Bank Ltd., with 25 offices and Australia Bank Ltd. with 19 offices were institutions run by muslims who shifted their head offices to Pakistan.
The financial system was very basic and at Independence, Pakistan had no central bank. A central bank is required to control a country's money supply, which helps in determining the buying power of money. it was agreed under “Monetary System and Reserve Bank Order 1947” that the Reserve Bank of India should continue to function as a Central Banking Authority for Pakistan until 30th September 1948. However, subsequently arrangements were made to relieve the Reserve Bank of India from its duties as Central Bank for Pakistan as from the 30th June 1948. Accordingly, the State Bank of Pakistan came into existence with effect from the 1st July 1948.
This was not acceptable to the non-Muslim members, whose argument was that Governors and Deputy Governors did not represent any Government as such and were responsible to the Central Board and that a Deputy Governor could not act on behalf of the Pakistan Government. The Bank was in complete agreement with the non-Muslim members. The Muslim members desired that a provision should be made in the Reserve Bank of India Act for expansion of currency required by Pakistan Government against that Government’s securities. This was a very important issue and needs to be dealt with at some length, especially since it was specifically referred to the Committee of the Central Board. The non-Muslim members did not agree to these proposals, but the Reserve Bank representatives did not see any objection. The Muslim members desired that in matters concerning Pakistan, the Bank should consult the Pakistan Government, in matters concerning both India and Pakistan the Bank should consult both the Governments, and (c) differences, if any, between the two Governments, should be left to be resolved through the normal diplo-matic channels.
The state bank of Paksitan is the chief monetary authority of the country and was established in 1948 prior to that date reserve bank of india was performing the functions of central bank of Paksitan in late 1947 issues arose concerning the cash balance of pakistan. The central government holds 51% of its shares Under act of 1948 state bank is empowered to give directions to scheduled banks. It can require a banking company not to enter a particular transcation Guarding the interests of depositors and ensure functioning of commercial banks Under banking ordinance the state bank can inspect any bank Can order changes in the management of a bank. It can also recommend that the central government prohibit any bank from accepting fresh deposits.
Among the first duties was the replacement of the currency and coins that were in circulation..After partition indian notes were to be replaced by pakistans own currency. Indian currency was retired within short period of one year and three month provided by the monetary system order. After the retirement the first step was the delivery of notes to the reserve bank of india. The notes were shifted to india and pakistan was entitled to assests equal in value to Rs 515.7 million. The notes retired upto 30th june 1949 amounted to Rs. 1251.8 million on 1st april 1948 reserve bank started issuing notes on which the words government of pakistan was inscribed but on 1st october 1948 state bank was able to issue its own notes and reserve bank notes were declared illegal. In march 1949 the state bank Rs. 2 notes and government of Pakistan Rs 1 notes were put into circulation.
The second task was restoring the commercial banking services in the country the shortage of trained personnel was one of the main obstacle in expanding of the commercial banking facilities the first officers training scheme was launched 100 university graduates were placed in training with few commercial banks. On the other hand State bank began preparing plans to set up public commercial bank which would provide banking facilities on national basis and in the mean time take over governments treasury business then performed by the imperial bank of india.
Defence expenses increased rapidly as relations with india deteriorated because of the dispute over kashmir and other issues. Pakistan did not received the full defence system that they were promised at the time of partition. It was Pakistans responsibility to defend highly explosive Durand line that was dividing the tribal areas in the north-west from Pakistan. The railways was overburdend with surplus staff and their fuel cost were very high because of the irregular coal supplies from india. Earnings were affected drastically because of the ticketless. Ticketless travelling was mainly because of the tragedy of thousands of refugees were uprooted and were on the move
Collections from income taxes were less than half of what could have been expected this was because all of the assets of the refugees were left behind. Many of the corporations offices that collected taxes were left behind in india. The central budget of 1948-49 made few adjestments. A series of new taxes were imposed that were designed to raise an additional amount of Rs. 101.6 million. Sharing of income tax with the provinces under section 138 of government of india act 1935 was temporarily suspended.
On partition the province of east bengal was found to have obtained more than 2/3rd of the population of undivided bengal but enojjed less than 1/3rd of its revenues. To counter this situation the province had been given a share in central export duty on jute. East bengals problems were aggravated by the award of arbitral tribunal which transferred 64.8% of the liabilities of the undivided province to the east bengal. East bengal did not received its share in assest from west bengal large sum was also due from government of India. The expected share of the province in revenue budget was placed at 60% of the undivided punjab. In 1948-49 the revenues were placed at Rs. 172.1 million following the imposition of new taxes on land revenue water rates and agricultural income tax. After the partition the financial position of sindh was weak sale of land newly irrigated by central lloyd barrage at sukkur provided a major source of revenue. An estimated revenue surplus of 3million was converted into a defeict of 23.6 million by the time accounts for 1947-48 were closed. N.W.F.P was never considered financially viable. It was granted subvention of rs 10 million under the Niemeyer Award. Revenues of the province were only 33.6 million in 1947-48 inclusive of subvention.
The imperial bank of india which is now known as the state bank of india was the most important indian bank working in paksitan in 1947. it was formed by merging three banks the bank of bombay bengal and madras. It issued notes untill 1935 when the reserve bank of india formally took over. The bank continued to act as a agent for the reserve bank of india. Reserve bank of india had only 19 outlets working in Pakistan after partition against 28 offices and 58 sub offices working before the partition. Some of the offices after partition were unable to perform their work due to shortage of staff.
The establishment of the National Bank of Pakistan in 1950 on the pattern of Imperial Bank of India was yet another milestone in the banking history of Pakistan. National Bank was created because of trade deadlock with india. Its operations were confined to the financing of trade in jute cotton and other agricultural commodities. State bank loaned some of its experienced officers to staff the new institution.
The karachi stock exchange started working in 1947 but it was registered in 1949 under the indian companies act 1913. the exchage provided a market place for the issuses of equity and securities. When the association was registered they had only nine members. Securities market was non existent in 1948. banks and other institutional investors treated the stocks. The state bank of paksitan made procedures for the sales and purchase of government securities through approved brokers. Because of the actions taken by state bank of paksitan the market broadend and it became reasonable to buy and sell securities within limits.
Before august 1947 there were about 250 insurance companies operating in the areas that constitute pakistan. The majority closed down there officed after partition and at the end of 1948. after the partition only 76 companies were operating in pakistan out of which only 8 were pakisatni companies. Untill 31st march 1948 the supritendent of insurance of government of paksitan administered the working of the insurance companies in pakistan. A separate department of insurance was established in karachi after that date. To encourage companies to register in pakistan the deposits were dropped by 50%. As a result many indian companies registered many indian companies asked for further relaxation before resuming their activities in pakistan. A interim solution was reached which was replaced by a detailed agreement at the end of december 1948.
The posts and telegraph department operates a life insurance funds that provides benefits to the government and semi government employees. The scheme was started in India and was meant to provide benefits only to postal employees. After the partition the government of paksitan took resoponsibility of 10000 policies which were valued at Rs. 9 million.
The office served as a deposit institution and was prohibited from entering the financing of business. There were large amount of brances situated throughouh pakistan this provide medium to people to save their money in postal savings where banking facilities were not available.The account can be opened with a minimun deposit of Rs. 2 and the interest rates varied from 1.5 percent to 3 percent. These accounts were exempted from the income tax.
This corporation was created in june 1949. its 51% of shares were owned by the central government and the rest 49% were owned by the private sector mainly banks and insurance companies. This corporation provided loans to the industrial sector. To ensure that the borrowed money was managed properly the corporation reserved the right to nominate the director.
Pakistan refugee rehabilitation corporation was created in may 1948. its purpose was to assist the refugees by advancing them loans organizing the schemes of cottage industries and arrange the marketing of their products. The corporation advanced loans to the firms that amounted to Rs. 16.9 million Sewing machines of Rs. 4 million were provided to refugee tailors and widows
banking and financial sector inherited by Pakistan at Partition
Abdul Rehman Amin
Abddullah Khadim Hussain
Pakistan had 631 offices of 45 scheduled banks.
19 branches of foreign banks.
Schedule banks declined to 195
Revenue budget of west Pakistan was 60% at the
time of partition.
In 1948-49 revenues of west Pakistan were Rs. 172
After the partition Muslims owned only two bank
namely Habib bank limited. Australasia bank
Before independence, Reserve Bank of
India was the central bank of sub-
On 30 December 1947 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.
Muslims demanded that Pakistan
Government should appoint deputy
governor of Reserve bank.
Provision should be made for the
expansion of the currency required by
matters concerning Pakistan, the Bank
should consult the Pakistan Government
On May, 1948 Muhammad Ali Jinnah took
steps to establish the State Bank of Pakistan.
Under act of 1948 state bank is empowered
to give directions to scheduled banks.
Guarding the interests of depositors and
ensure functioning of commercial banks
Under banking ordinance the state bank can
inspect any bank
Can order changes in the management of a
First duty of state bank was the
replacement of pre partition currency.
Return of Indian notes to the reserve bank
and receive equivalent assets of Rs 515.7
Second task of state bank was to assist
the restoration of commercial banks.
First officers training was launched in
Defense expenditure increased sharply as
relations with India decay.
Over burdened railways and high fuel cost
Income tax collections were half than
New taxes imposed in the budget of 1948-
East Bengal obtained 2/3rd of the
population of undivided Bengal but
enjoyed 1/3rd of revenues.
The award of arbitral tribunal
West Pakistan revenue budget was 60% of
the undivided Punjab
The financial position of Sindh was weak
At the time of partition N.W.F.P was the
The imperial bank is now the state bank of
Formed by the amalgamation of three
The bank continued to function in Pakistan
for the reserve bank of India.
19 outlets after partition
National Bank of Pakistan which was
established in 1949 to finance jute trade in
It started with six offices in the former East
Karachi Stock exchange started in 1947
Exchange provided a market place for
securities and equity issues of public.
Had only 9 members at the time of
Securities market was non existent at the
time of partition.
State bank laid down the procedures of
sales and purchase of government
250 companies operating before august
Only 76 companies were operating after
partition and only 8 were Pakistani
Superintendent of insurance, government
of India administered the working of
Deposits were reduced by 50% to
encourage the companies to register.
Department operates life insurance for the
After Partition the government assumed
responsibility for 10000 policies at Rs. 9
Served only as deposit institution.
Account can be opened with minimum
deposit of Rs. 2.
The rate of interest varied from 1.5% to
The corporation was setup in June 1949.
It assisted industrial concerns.
It was established to assist refugee.
The corporation advanced loans
amounting to Rs. 16.9 million.
Pakistan refugee rehabilitation