State Bank of Pakistan

The State Bank of Pakistan (SBP) is the central bank of Pakistan. While its constitution, as originally laid
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, during British colonial regime the Bank of India was the central bank
for both India and 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 the State Bank of Pakistan
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 Companies Ordinance, 1962 and Banks Nationalization 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 Nationalization 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 Nationalized 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:

1. The 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.

2. 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.

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, 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.

Regulation of liquidity
The State Bank of Pakistan has also been entrusted with the responsibility to carry out monetary and credit
policy in accordance with Government targets for growth and inflation with the recommendations of
the Monetary and Fiscal Policies Co-ordination Board without trying to effect the macroeconomic
policy objectives.

The state bank also regulates the volume and the direction of flow of credit to different uses and sectors, the
state bank makes use of both direct and indirect instruments of monetary management. During the
1980s, Pakistan embarked upon a program of financial sector reforms, which lead to a number of fundamental
changes. Due to these changed the conduct of monetary management which brought about changes to the
administrative controls and quantitative restrictions to market based monetary management. A reserve money
management program has been developed, for intermediate target of M2, that would be achieved by observing
the desired path of reserve money - the operating target.

State Bank of Pakistan has changed the format and designs of many bank notes which are currently in
circulation in Pakistan. These steps were taken to overcome the problems of fraudulent activities.
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. Here are some of the banking areas that the state bank
looks into;

 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/Dfis.

 Banking Sector Supervision in Pakistan

 Micro Finance

 Small Medium Enterprises (SMEs)

 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

Departments

 Agriculture credit

 Audit

 Banking Inspection

 Banking Policy & Regulations

 Banking Supervision

 Corporate Services

 Economic Analysis

 Financial Monitoring Unit

  Monetary Policy

 Research

 Statistics and Data Warehouse

 Exchange Policy

 Human Resource

 Information Systems & Technology

 Islamic Banking

 Legal Services

 Library

 Payment System

 Real Time Gross Settlement System (RTGS System)

 Small and Medium Enterprises

 Training and Development Department (TDD)

 Treasury Operations

 Strategic & Corporate Planning

 Microfinance

 Finance Department

A BRIEF OF THE WORKING OF THE

FINANCE DEPARTMENT SBP

Functions of the Department:-

• Maintenance of books of accounts and preparation of financial statements

of the Bank in accordance with the IAS, as adopted by the Bank..
• Coordination and facilitation for Business planning and budgeting function
in the Bank and periodic reporting to the management and to the Board.
• Management of Federal, Provincial, and District Governments Accounts.
Policy & operations related coordination with MOF, CBR, AGPR, and other Govt.
agencies.
• Maintenance of foreign currency accounts/ investments and execution of
International payments and receipts.
• Maintenance of accounts relating to International Organizations and Donor
Agencies like IMF, IBRD, ADB, Asian Clearing Union (ACU) etc.
• Currency issuance and its overall management.

Functions Performed By Divisions

The Finance Department is responsible to perform and manage the functions

detailed on pre-page. It controls the working of the Offices under the provisions of
Issue and Banking Department Manuals. Issue Department deals with
management of currency operations, which includes designing, printing of
currency notes and its circulation. Banking Department relates to the operation of
 offices of the Bank, maintenance of Federal and Provincial Government Accounts,
booking of financial transactions in the books of accounts of Central Directorate
and issue of weekly Statement of Affairs as required under the provisions of SBP
Act, 1956, preparation of Profit and Loss Account and Balance Sheet on yearly
basis, formulation of budget estimates of revenue and capital expenditure.
Management of General Provident Fund and Provident Fund balances of all
employees of the Bank. Operational control of working of offices by framing
policies and procedures under the provisions of Banking/Issue Department
Manuals, Sale/ purchase of foreign currencies, maintenance of foreign reserves of
the country. To achieve the above objectives, the Department has been divided
into seven divisions as detailed below:

Financial Accounts Division (FAD)

Financial Accounts Division performs the following functions:

• Preparation of Annual Financial Statements Accounting Policies for the

bank.
• Preparation of Weekly Statement of Affairs for issuance in the Government
Gazette as
Provided in the State Bank of Pakistan Act, 1956.
• Quarterly profit updates to the Central Board of Directors.
• Maintenance of GL to provide information for informed decision-making.
• Monitoring of contraction and expansion of Currency operations
• Consolidation of Departmental Budgets
• Maintenance of Federal & Provincial Government Account on the basis of
receipt and
payments effected at our Field Offices and National Bank of Pakistan.
• Preparation of daily balance position and communication thereof to the
Federal Finance
Division and Provincial Finance Departments.
• Creation or retirement of MTBs according to the “Daily Balance Position” of
Federal Government.

Forex, Securities & Investment Division (FSID)

• Maintenance and recording of Cash Reserve Requirement, SCR

Requirements, MCR, foreign debt payments, FE-2 deposits etc.
• FCY payments of Govt. of Pakistan (Defense, Privatization Commission,
TCP etc.) and SBP.
• Short/Medium term investment and Swap deposits and maintenance of
Foreign Currency
Accounts and revaluation of Foreign Currency Assets & Liabilities.
• Special US Dollar Government Bonds. Payment of Profit and principal
payment on
redemption.
• Purchase, repurchase, acquisition of SDR, and revaluation of IMF Loans/
facilities.
• Payments to executing agencies/ parties under various Loans/Grants of
International Donor agencies viz. IBRD/ IDA/ ADB etc.
• Transactions of Sale/ Purchase of Currencies & Settlement of ACU Account
under ACU Arrangement.
• Transactions of the Foreign Funded Projects including TABS etc.
• Central Bank Deposits; rollover; & remittances of the interest.
 • SBP’s investment in share capital of the banks/DFIs.
• Monthly Abstract, Daily Reserves and Weekly review reporting.

Systems and Procedure Division (SPD)

Systems & Procedures Division (SPD) acts as a liaison between functional users & ISTD to ensure
effective systems development, implementation, and usage. Major responsibilities are:

• Representation of Finance Department, SBP, in various automation

projects under
development / implementation (RTGS & Data Ware House).
• Recommend continuous business process refinement in coordination with
business units of Finance Department SBP and SBP BSC.
• Participate in automated solutions development / configuration for SBP in
financial areas

Payment Controller Division (PCD)

This Division is responsible for:

• Making of payments to external suppliers and employees of the Bank after
independent verification of transaction documents on the basis of bills/
invoices/claims approved by the processing units.
• Checking and verifying the selected financial transactions/cases referred
by the Director Finance to ensure accuracy and compliance to respective rules and
regulations.

Asset Management Division (AMD)

Assets Management division is responsible for:

• Assets capitalization, assets transfers and overall responsibility to manage

and maintain
assets physical inventory, keeping track of physical location of assets.
• Maintaining the financial information of the assets, cost evaluation and
retirements/
disposal.
• To ensure the smooth and unhampered running of the Fixed Assets
Management function.
• To record all the expenses regarding repair/ maintenance and rent taxes
for SBP buildings and equipments.

Currency Management Division (CMD)

Currency Management Division is responsible for:

• Policy making and management of Currency related matters, which

include designing,
printing and issuance of Bank notes.
 • Issuance of Statements of Affairs of Issue Department on Weekly, Monthly
and Quarterly Basis.
• Preparation of Balance Sheet of Issue Department at every financial year-
end.

Support Services Division

Support Services Division performs the function as follow:

• To deal with various administrative matters arising in the Finance

Department
• To provide a healthy and sound environment to officers of Finance
Department