The State Bank of Pakistan (SBP) is the central bank of Pakistan. It was established in 1948 and is headquartered in Karachi, with a second headquarters in Islamabad. As the central bank, the SBP regulates the banking sector, conducts monetary policy, and oversees financial stability in Pakistan. It uses both direct instruments like reserve requirements and interest rate controls, as well as indirect instruments like open market operations and treasury bill auctions to influence monetary conditions and achieve its policy objectives. The SBP also works to develop the financial system and promote priority sectors in Pakistan.

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.
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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.
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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
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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.
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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.
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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
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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.
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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
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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
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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
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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”
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