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When our respected Prof. Riaz Ahmad Mian, told us about the term assignment and topic of
our own choice, at that time i decided to go for the most important bank,state bank of Pakistani had
many reasons while selecting this vast and difficult topic.
State bank of Pakistan is responsible for the efficient and effective control of whole banking
sector in Pakistan. Banking sector in any economy plays a very vital and inevitable role. Overall
monitoring of banking sector, control of inflation, foreign exchange and issue of money are the
primarily tasks of the state bank of Pakistan. i At the level where we are standing now it was very
difficult for us to complete a project on the state bank of Pakistan but with the blessings of Almighty
God and the Guideline given by Mr. Riaz Ahmad Mian the task became easy one.
We have put our best efforts in discussing state bank comprehensively. We collected basic
data about the state bank mainly from website of state bank, state bank Lahore office. We took also help
from a book “Money banking and finance” written by the Prof Mr. Riaz Ahmad Main.
The whole assignment is divided into 4 parts. In first part history of state bank, in 2nd part, we have
discussed the core functions and some important departments, in 3rd we have put light to monetary
policy and tools of monetary policy and in the last part we have provided details about swot analysis and
also highlight some other areas of state bank.
Although we have tried to present a correct and clear view of state bank of Pakistan but as it
is the most difficult and complex task, so there might be many mistakes. It is very important to us to
mention the name of JAVED IQBAL MARTH, the DCM of banking sector of SBP, who co-operated
with us in a very lenient way. We shall be obliged if any one inform us about our mistake in this project.
Muhammad Ashfaq
Muhammad Amer shehzad
Umar Jamal
At first instant, humbly we bow our head with all the feeling of our heart and soul before the
Almighty Allah, the beneficent, the omniscient who bestowed us with all the mental abilities to work
out this project.
We feel highly honoured to express our profound gratitude to our respected teacher
‘PROF.RIAZ AHMAD MAIN’, who’s ever encouraging, keen interest and sympathetic
behaviour proved to be a light house to complete this project. I would like to express my cordial
gratitude to the employees of state bank of Pakistan Lahore office, especially MR. JAVED
IQBAL MARATH, DCM banking department of SBP who cooperated with us in the
data collection procedure and respondents in the working sphere.
We would commit a moral lapse if we do not mention our parents through whose patronage
prayers, we happened to come up to this level of qualification
The opening of the State Bank of Pakistan symbolises the sovereignty of our State in the
financial sphere and I am very glad to be here today to perform the opening ceremony. It was not
considered feasible to start a Bank of our own simultaneously with the coming into being of Pakistan
in August last year. A good deal of preparatory work must precede the inauguration of an institution
responsible for such technical and delicate work as note issue and banking.
To allow for this preparation, it was provided, under the Pakistan Monetary System and
Reserve Bank Order, 1947, that the Reserve Bank of India should continue to be the currency and
banking authority of Pakistan till the 30th September, 1948. Later on it was felt that it would be in the
best interests of our State if the Reserve Bank of India were relieved of its functions in Pakistan, as
early as possible. The State of transfer of these functions to a Pakistan agency was consequently
advanced by three months in agreement with the Government of India and the Reserve Bank. It was at
the same time decided to establish a Central Bank of Pakistan in preference to any other agency for
managing our currency and banking. This decision left very little time for the small band of trained
personnel in this field in Pakistan to complete the preliminaries and they have by their untiring effort
and hard work completed their task by the due date which is very creditable to them, and I wish to
record a note of our appreciation of their labours.
As you have observed, Mr. Governor in undivided India banking was kept a close preserve of
non-Muslims and their migration from Western Pakistan has caused a good deal of dislocation in the
economic life of our young State. In order that the wheels of commerce and industry should run
smoothly, it is imperative that the vacuum caused by the exodus of non-Muslims should be filled
without delay. I am glad to note that schemes for training Pakistan nationals in banking are in hand. I
will watch their progress with interest and I am confident that the State Bank will receive the co-
operation of all concerned including the banks and Universities in pushing them forward. Banking
will provide a new and wide field in which the genius of our young men can find full play. I am sure
that they will come forward in large numbers to take advantage of the training facilities which are
proposed to be provided. While doing so, they will not only be benefiting themselves but also
contributing to the well-being of our State.
I shall watch with keenness the work of your Research Organization in evolving banking
practices compatible with Islamic ideas of social and economic life. The economic system of the
West has created almost insoluble problems for humanity and to many of us it appears that only a
miracle can save it from disaster that is not facing the world. It has failed to do justice between man
and man and to eradicate friction from the international field. On the contrary, it was largely
responsible for the two world wars in the last half century. The Western world, in spite of its
advantages, of mechanization and industrial efficiency is today in a worse mess than ever before in
history. The adoption of Western economic theory and practice will not help us in achieving our goal
of creating a happy and contended people. We must work our destiny in our own way and present to
the world an economic system based on true Islamic concept of equality of manhood and social
justice. We will thereby be fulfilling our mission as Muslims and giving to humanity the message of
peace which alone can save it and secure the welfare, happiness and prosperity of mankind.
May the Sate Bank of Pakistan prosper and fulfil the high ideals which have been set as its
goal.
In the end I thank you, Mr. Governor, for the warm welcome given to me by you and your
colleagues, and the distinguished guests who have graced this occasion as a mark of their good
wishes and the honour your have done me in inviting me to perform this historic opening ceremony
of the State Bank which I feel will develop into one of our greatest national institutions and play its
part fully throughout the world."
ernor
Dr.
(2nd
G
Gov
January, 2006)
SHARING CAPITAL
The STATE BANK OF PAKISTAN had share capital of rupees 3 crore divided in to 3 lac
fully paid of shares of rupees 100 each of the share of capital, 51% was contributed by central
government and remaining 49% was subscribed by the public.
However after nationalization in 1974 the federal government took the remaining 49% also
after paying compensation to private share holders through endorsement of negotiable loans
repayable at per at any time within 15 years.
MANAGEMENT
The management and supervision of bank vests in CENTRAL BOARD OF DIRECTORS.
The CENTRAL BOARD OF DIRECTORS consists of,
ORGANISATIONAL CHART
Jobs n careers
State Bank of Pakistan, the central bank of the country, invites applications for Zahid
Hussain Post Doctoral Research Fellowship Program from individuals possessing PhD degrees in
Economics. The Fellowship program, as a tool for knowledge sharing and capacity building, aims at
providing scholars at the postdoctoral level an opportunity to participate in and contribute to the
research activities of SBP with regard to issues of pressing national / global importance and
providing SBP an opportunity to benefit from the diverse knowledge, background and experience
offered by high calibre scholars from around the world.
Fellowship Details:
Research conducted during the fellowship must be on issues relating to Pakistan's economic
and financial system. While helping SBP in building up its research capacity the researchers will
have an opportunity to critically examine and review some of the policy initiatives in the chosen
research areas and develop innovative policy proposals. During the fellowship, the participants will
be based in Karachi, and will report to Director Research, State Bank of Pakistan. This will typically
be a one-year contract, during which they will be required to complete a research study on an agreed
topic. SBP will provide full medical coverage and a two way air ticket along with a monthly stipend
of Rs. 80,000/-
Eligibility:
The program is intended for individuals possessing a PhD degree (preferably fresh) in Economics.
How to Apply:
Qualified candidates may apply via email on prescribed form at RFP-
recruitment@sbp.org.pk or by post at the address given below. The Applications should accompany
the following
Research conducted during the fellowship must be on issues relating to Pakistan's economic
and financial system. While helping SBP in building up its research capacity the researchers will
have an opportunity to critically examine and review some of the policy initiatives in the chosen
research areas and develop innovative policy proposals. During the fellowship, the participants will
be based in Karachi, and will report to Director Research, State Bank of Pakistan. This will typically
be a one-year contract, during which they will be required to complete a research study on an agreed
topic. SBP will provide full medical coverage and a two way air ticket along with a monthly stipend
of Rs. 80,000/-
Under the State Bank of Pakistan Order 1948, the Bank 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".
The scope of the Bank’s operations was considerably widened in the State Bank of Pakistan Act
1956, which required 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 utilisation
of the country’s productive resources". Under financial sector reforms, the State Bank of Pakistan
was granted autonomy in February 1994. On 21st January, 1997, this autonomy was further
strengthened by issuing three Amendment Ordinances (which were approved by the Parliament in
May, 1997) namely, State Bank of Pakistan Act, 1956, Banking Companies Ordinance, 1962 and
Banks Nationalisation Act, 1974. The changes in the State Bank Act 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.
Like a Central Bank in any developing country, State Bank of Pakistan performs both the
traditional and developmental functions to achieve macro-economic goals. The traditional functions,
which are generally performed by central banks almost all over the world, may be classified into two
groups: (a) 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, and (b) 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, institutionalisation 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 islamization of the banking system. The main functions and responsibilities of the State
Bank can be broadly categorised as under.
To regulate the volume and the direction of flow of credit to different uses and sectors, the
Bank makes use of both direct and indirect instruments of monetary management. Until recently, the
monetary and credit scenario was characterised by acute segmentation of credit markets with all the
attendant distortions. Pakistan embarked upon a program of financial sector reforms in the late
1980s. A number of fundamental changes have since been made in the conduct of monetary
management which essentially marked a departure from administrative controls and quantitative
restrictions to market-based monetary management. A reserve money management programme has
been developed. In terms of the programme, the intermediate target of M2 would be achieved by
observing the desired path of reserve money - the operating target. While use in now being made of
such indirect instruments of control as cash reserve ratio and liquidity ratio, the program’s reliance is
mainly on open market operations.
To deepen and broaden financial markets as also to diversify the sources of credit, a number
of non-bank financial institutions (NBFIs) were allowed to increase substantially. The State Bank
has also been charged with the responsibilities of regulating and supervising of such institutions. To
regulate and supervise the activities
The "Prudential Regulations" for banks, besides providing for credit and risk exposure limits,
prescribe guide lines relating to classification of short-term and long-term loan facilities, set criteria
for management, prohibit criminal use of banking channels for the purpose of money laundering and
other unlawful activities, lay down rules for the payment of dividends, direct banks to refrain from
window dressing and prohibit them to extend fresh loam to defaulters of old loans. The existing
format of balance sheet and profit-and-loss account has been changed to conform to international
standards, ensuring adequate transparency of operations. Revised capital requirements, envisaging
minimum paid up capital of Rs.500 million have been enforced. Effective December, 1997, every
bank was required to maintain capital and unencumbered general reserves equivalent to 8 per cent of
its risk weighted assets.
The Bank is responsible to keep the exchange rate of the rupee at an appropriate level and
prevent it from wide fluctuations in order to maintain competitiveness of our exports and maintain
stability in the foreign exchange market. To achieve the objective, various exchange policies have
been adopted from time to time keeping in view the prevailing circumstances. Pak-rupee remained
linked to Pound Sterling till September, 1971 and subsequently to U.S. Dollar. However, it was
decided to adopt the managed floating exchange rate system w.e.f. January 8, 1982 under which the
value of the rupee was determined on daily basis, with reference to a basket of currencies of
Pakistan’s major trading partners and competitors. Adjustments were made in its value as and when
the circumstances so warranted. During the course of time, an important development took place
when Pakistan accepted obligations of Article-VIII, Section 2, 3 and 4 of the IMF Articles of
Agreement, thereby making the Pak-rupee convertible for current international transactions with
effect from July 1, 1994.
After nuclear explosions by Pakistan in 1998, a two-tier exchange rate system was introduced
w.e.f. 22nd July 1998, with a view to reduce the pressure on official reserves and prevent the
economy to some extent from adverse implications of sanctions imposed on Pakistan. However,
Ever since its establishment, the State Bank of Pakistan, besides discharging its traditional
functions of regulating money and credit, has played an active developmental role to promote the
realisation of macro-economic goals. The explicit recognition of the promotional role of the Central
Bank evidently stems from a desire to re-orientate all policies towards the goal of rapid economic
growth. Accordingly, the orthodox central banking functions have been combined by the State Bank
with a well-recognised developmental role.
The scope of Bank’s operations has been widened considerably by including the
economic growth objective in its statute under the State Bank of Pakistan Act 1956.
The Bank’s participation in the development process has been in the form of rehabilitation of
banking system in Pakistan, development of new financial institutions and debt instruments in order
to promote financial intermediation, establishment of Development Financial Institutions (DFIs),
directing the use of credit according to selected development priorities, providing subsidised credit,
and development of the capital market.
• Reviews the application and effectiveness of risk management procedures and risk assessment
methodologies at
various operations and activities of SBP.
• Tests both transactions and functioning of specific internal control procedures at various SBP
departments and offices.
• Reviews the management and financial information systems, including the electronic
information system
• Banking Inspection Department(BID)
Banking Inspection Department (BID) is one of the core departments at SBP. Its mission is to
strive for soundness & stability of the financial system and safeguard interest of stakeholders
through proactive inspection, compatible with best international practices.
BID plays a pivotal role in meeting SBP’s main responsibility of supervising the financial
institutions to maintain soundness of the system and protection of the interest of depositors, thereby
ensuring public confidence in the system. In order to assess a financial institution, BID conducts
regular on-site inspection of all scheduled banks inclusive of the foreign banks & DFIs.
The Corporate and Media Affairs Department mainly deals with the work connected with the
meetings of the Central Board, Board Sub-Committees (for Building Project, Automation, Human
Resource Development and any other Committees approved by the Board). The Director of the
Department is the Secretary of the Corporate Management Team – the top decision making body of
the Bank. The Department is responsible for the preservation of minutes of the meetings of these
bodies.
Monetary Operations.
Raising short term and long-term domestic debts for the Government.
Management of Government Debts
Providing funds to the financial institutions as lender of last resort.
Monitoring of money and foreign exchange market activities.
Intervention in the foreign exchange market.
Reserve Management.
To provide appropriate technical solutions to business requirements and develop state of the art
integrated systems that will facilitate internal and external stakeholders to acquire accurate
information in the most efficient manner
Islamic Banking is one of the emerging field in global financial market, having tremendous
2. The objective analysis allows meaningful guidelines to policy managers at SBP as well as in the
Federal government.
4. These reports not only provide first-hand analysis on issues relating to monetary and financial
policies, but also form the basis for further research by other individuals and institutions.
Objectives
Commercial Banks in Pakistan hold accounts at the State Bank of Pakistan to perform settlement
amongst them as well as to meet certain regulatory requirements.
Each Bank holding account at SBP is issued with a paper cheque-book which is used to
withdraw/transfer funds from its account.
• Continuous development, implementation and review of SBP Strategic & Business Plans
• Perform the function of coordinating and collating the SBP Strategic Plan and the
• Business Plans while reporting to BOD on quarterly basis
• Playing the role of a coordinating office for developing the Financial Sector Road Map and
its implementation
A) Primary functions
B) Secondary functions
Bankers bank
Clearing house
SBP also performs the functions of a clearing house. Since State
Bank holds cash reserves of others bank, it can easily settle their
Mutual payments.
Guardian of reserves
The state bank is guardian of all types of monetary reserves. Gold and
Foreign exchange reserves or the Govt. are kept with the bank.
Controller of credit
The State bank is the guardian and manager of money market in the
country. Since the total supply has close relation with economic activity
The government has given it vast powers to regulate the volume and
NOT
POL
Hailey college of banking and finance
NOTE ISSUE OFFICES/CHESTS
THE STATE BANK OF PAKISTAN has 3 offices of issue situated at
KARACHI
LAHORE
PESHAWAR.
Apart from this numerous currency chests remain in custody of the officers of the
NATIONAL BANK OF PAKISTAN or the TREASURY OFFICERS.
1: CURRENCY PRINCIPLE
THEORY:
The currency principle is based on 100% gold backing. According to this principle CENTRAL
BANK must keep 100% reserves against each and every note issued. So there will be full
convertibility under such system.
MERITS;
FULL SAFETY:
This principle is 100% safe as there is 100% backing. So central bank is able to convert any number
of notes into equivalent reserves of gold. So there will be full safety and there will be no danger or
fears of bank runs and panics.
The system will restrict the central authority from over issuing notes. Hence there will be an
effective control over inflation.
STABILITY:
The 100% backing gives an element of stability to this system. The value of currency
remains stable and it enjoys a greater degree of public confidence.
CONFIDENCE:
The currency issued under this principle enjoys a complete confidence of public.
DEMERITS:
Following are the demerits of this principle.
INELASTIC:
This system is highly inelastic and rigid. As 100% backing is required so when gold reserves
are not available central bank cannot issue notes, even though the economic situation demands
issuance of notes.
NO USE OF GOLD:
Further this system makes an inefficient use of gold. Tons of gold is stored in central
treasury and no effective use is made of it.
The currency principle is not suitable for modern economy. It cannot be effectively used in
today’s complex economic situation which changes very rapidly.
THEORY:
Banking principle lies on the other end. This principle says that note issuance should
be dealt independently by central bank and it shall be allowed to issue notes according to the
ongoing circumstances. Also there is no need of full backing of gold under this principle. Only a
percentage of issued notes are backed by gold. However all the notes are issued with the guarantee
of convertibility into gold.
MERITS:
ELASTIC SUPPLY:
The principle gives an elastic supply of currency. As there is no restriction of 100% backing of
gold, so central bank can issue currency in response to change in economic and monetary situation.
ECONOMICAL:
This principle is economical in sense that only a percentage of notes issued are backed by gold.
So rest of gold can be used for other purposes.
USAGE OF GOLD:
This system allows the government or issuing authority to make effective and efficient use of
gold and metallic reserves. As only proportional of notes issued are to be backed by gold. So major
part of country’s gold reserves can be used to fulfill other economic requirements.
PUBLIC CONFIDENCE:
This system also enjoys a good degree of public confidence just like currency principle.
People have a good trust on currency as it has been declared as legal tender by issuing authority.
This principle is suitable for the needs of modern economy. It is flexible and elastic and more
responsive to change in economic climate.
HELPFUL IN EMERGENCY:
This principle is helpful in emergency. This means that in times of need such as wars or
natural disasters government can print notes without keeping 100% reserves.
DEMERITS:
DANGER OF OVER ISSUE:
The danger of over issue always exists in this principle. As no 100% backing is required so there
is tendency towards issuance of notes which may lead to inflation that can be disastrous for the
economy.
LACK OF CONVERTIBILITY:
As there is no 100% backing so bank failure may occur in a very unlikely situation if all notes are
presented for converting into gold. However there is very rare chance that such situation appears.
MERITS:
Controlled supply;
Under this system the supply of currency note can be held under control. The control can be
exercised by way of fiduciary limit.
Under this system as notes above a particular limit are to be 100% backed by gold, so there is
not a danger of over issue. Any notes above fiduciary limit are issued only after keeping 100%
metallic reserves.
DEMERITS:
IN ELASTIC:
This system was adopted by ENGLAND in 1844 but it was subsequently abandoned in 1913.
The major reasons were that of inelasticity and failure to response towards the changing economic
needs. This means that if economy is rapidly developing than there will be increasing demand for the
currency and credit. At this moment if required volume of gold is not available than bank will not be
able to issue notes. This will produce adverse effects on the economy.
Under this system the CENTRAL BANK is required to keep 100% reserves for a particularly
percentage of notes issued. The rest of notes issued are backed by Government Securities and
Government bills. Usually 25% to 40% of notes issued are fully backed by gold and rest are backed
by Government Securities.
This system remained in force in many countries of world such as in FRANCE and
GERMANY with 30% and 40% backing respectively.
MERITS:
A WIDELY PREVAILED SYSTEM:
This system remained in force in many parts of the world for different time period. This
system is also adopted by UNITED STATES and UK and many other economically stronger
countries. This method ensures considerable and moderate control over supply of currency.
ELASTIC:
This system is elastic in sense that if economy is under expansion than naturally there will be
a need to expand the currency and credit. In such situation CENTRAL BANK will be at ease under
this system to expand the supply of currency.
This system is safer and more sound as compared to others. In this system the chances of over
issue of currency are less and so there is less danger of unwanted inflation.
RESPONSIVE:
This system has high degree of responsiveness. This means that if economy demands an
increase in the supply of currency than under this system appropriate and immediate response can be
taken by Central Monetary Authorities.
This system is rigid. As notes cannot be issued over a particular limit with out keeping
Government Securities, so this may lead to rigid supply of currency even when economic and fiscal
situation demand expansion in currency supply.
An other disadvantage is that Governments some times have to do unwanted contractions in money
supply. This occurs when gold reserves are diminishing. Then CENTRAL BANK in such
circumstances has to reduce money supply. This can lead to various adverse effects on the economy
provided that the ongoing situation depends expansion in currency supply.
NOTE;-
PAKISTAN also adopted the PROPORTIONATE RESERVE SYSTEM and remained on it till
1965.
Under MINIMUM RESERVE SYSTEM method of note issue the CENTRAL BANK has to keep
only a minimum amount of reserves, against all the notes issued. This means that any volume of
currency can be issued by central bank depending on demands of economy. There is no fixed
maximum limit under this system. Once a central authority decides a minimum value of reserves the
issuing authority is at liberty to expand or contract supply of currency. The reserves are kept in the
form of gold and foreign exchange. Usually 20% to 30% of the notes issued are backed by reserves.
DEMERITS:
INCONVERTIBILITY:
NO INTRINSIC VALUE:
Major disadvantage is that currency issued under this system has no intrinsic value. This
means that worth of paper is far less than the value that it claims due to its status of being a legal
tender.
MERITS:
ELASTICITY:
The important merit of this system that it is elastic the STATE BANK can increase or
decrease the supply of currency in response to changes in economic activities.
RESPONSIVE:
This system has higher degree of responsiveness than other systems. This means that if
economy demands increase in supply of currency than under this system immediate response can be
under taken by the central monetary authorities and supply of currency can be increased according to
the requirements of the state of economy.
SAFETY:
This system enjoys higher degree of safety. The central monetary authorities keep a close eye
on state of affairs of the economy. The notes are issued in response to changes in the market activity
demand for currency.
This system is widely practiced in different modern economies. This system caters to the
needs of the growing developed economies. It is also suitable for developing economies. The central
monetary authorities are in a position to manage the supply of currency so as to achieve both short-
term and long-term monetary and fiscal targets.
NOTE:
NOW A DAYS IN PAKISTAN LIES THE MINIMUN RESERVE SYSTEM.UNDER
THIS SYSTEM THE QUANTUM OF NOTE ISSUE
REFLECT THE DENAMD OF ECONOMY FOR CURRENCY, AFTER
THE LONG TIME EXIXTENCE OF FIXED FIDUCARY SYSTEM.
Note of 10 Rs
Note of 20 Rs.
Note of 5000 Rs
Main Policy Of
NOTE CHANGING
Policy of changing the paper notes is that after every 10_15 years they have to
change the design.
Now a days it is doing such because they want to produce them on low cost of
production by using light papers and also to look it like the dollars OR pounds……..it
can be seen by it design.
1. Full employment
One of the objectives of monetary policy s to create more
Opportunities of employment in all sectors of economy.It helps in the
maximizing utilization of all the resources available in the country.
3. Increase in Investments
8. Increase in production
9. Exchange Stability
Recent global trends point to an improved economic outlook as the US and other developed
economies have exhibited significant recovery and growth that started in the later half of the last
fiscal year.
The developing nations have benefited from the on-going recovery in the developed world
and higher capital inflows, and most of the nations including Pakistan have been able to achieve or
even surpass growth targets.
Although high demand in the developed world is the driving force behind the global
economic up-turn, there are risks of relatively high inflation and long-term slowdown due to higher
US deficits caused by heavy tax cuts and costs associated with the war against terrorism.
This has led to rising inflationary expectations worldwide and therefore, interest rates are
likely to continue to increase in the international financial markets. These developments may have,
to some extent, dampening effects on investment and economic growth the world over.
Pakistan's economy has experienced broad-based economic growth during FY04. The
country is estimated to have achieved a growth rate of 6.4% against the target of 5.3%. Principal
factors were the intentional growth-oriented monetary and exchange rate management in a low
inflation scenario, improved fiscal discipline, stable political environment and better relations with
neighbours.
Prevalence of low interest rates on account of easy monetary policy under less inflationary
environment fuelled growth helping to accelerate the pace of economic recovery. The low cost funds
available to the corporate sector enabled many companies to strengthen their balance sheets, improve
profitability and invest retained earnings along with bank borrowing into expansion, modernization
or higher capacity utilization.
On the external front, though the imports also grew more than expected, export earnings
crossed the $12.0 billion mark for the first time mainly due to rising export competitiveness.
Workers' remittances amounted to $3.87 billion, higher than estimated for the FY04. However, there
was a decline in other net foreign capital inflows.
To achieve these targets, the broad money expansion is targeted at 11.4% for the FY05,
slightly less than the nominal growth rate target. Consistent with higher growth and development,
the main thrust of monetary and credit policy would be to ensure adequate availability of bank credit
to private sector while containing inflation.
The constellation of risks has changed in a perceptible manner since the issuance of last
Monetary Policy Statement. On the negative side:
* International interest rates have begun to edge up and there is a fairly strong expectation that these
rates will move upwards in the coming quarters. The differential between Pakistan Rupee interest
rates and US Dollar, Euro, Yen and Sterling Pound interest rates should not be allowed to widen.
* Strong import demand witnessed in FY04 is unlikely to be depressed in the current fiscal year
worsening the trade balance and therefore exerting a downward pressure on the exchange rate.
* Domestic private credit demand has peaked in FY04 and therefore the rate of expansion will be
moderate but still a large portion of net domestic asset growth will be pre-empted by the private
sector.
* Hike in asset prices, adjustment in wages and salaries awarded to public servants will also put
upward pressure on prices.
* Fiscal deficit is likely to remain at 4 percent of GDP and along with the improved financial
balances of public sector enterprises the demand from the public sector, barring any unforeseen
events, would not pose any serious concern.
* Lower capital inflows would moderate the monetary and reserve money growth.
* Lower world prices of raw cotton should help the textile and clothing sector in its export drive but
much depends on how fast the textile export industry is able to expand its share in the post-MFA
textile markets of North America and Europe.
* The continued growth of textile sector should take place with lower demand for working capital
from banking system thus easing somewhat the pressure on private sector credit.
Imports of wheat of one million tones should facilitate the government to stabilize the prices of
wheat flour during the lean months effectively but the uncertainty about oil and commodity prices
remains worrisome.
Therefore, the State Bank will continue to exercise vigilance on the movement of key variables
and make a smooth transition from an expansionary monetary policy stance to measured tightening
to avert inflationary pressures and maintain stability in exchange rate.
This measured response will have to ensure that the current growth and investment momentum in
the country is not impaired in any significant manner; export competitiveness is maintained while
inflation is kept under control. Raising interest rates rapidly or aggressively when the economic
recovery is still incipient, a significant slack exists, and unemployment rates are rising, will entail
real economic costs.
a) Quantitative control.
These include
o Bank Rate Policy
o Open Market Operations(OMO)
o Variations in Reserves Requirement
o Credit Rationing
b) Qualitative control.
These include
o Change in Margin Requirement
o Regulations of consumer s credit
o Moral persuasion
o Publicity
o Direct action
FUNCTIONS:-
Buying Securities;
State bank can buy securities either from the commercial banks
or from public.
Selling securities;
Limitations or Assumptions;
No doubt OMOs are extremely effective tools of monetary management
And control. However, they need a particular climate and conditions to work
Effectively.
Following are the limitations which effect OMOs
Undeveloped Market
For Open Market Operations to be effective the money and capital markets
Must be fully developed. In the absence of broad and developed market the
Bank will not be able to sell or buy government securities well in time to
Exert desire influences on the economy. A suitable institutional frame work is
Required so that a central bank could conduct open market operations.
Availability of securities;
For Open Market Operations to be effective there must be ample and adequate-
ete securities.The central bank purchases securities at high prices in order to
stimulate economy and to push it out of depression or slump. The total amount
of securities must from some considerable propotion of the total excessive
cash reserves.
Economic Climate
The economic climate of the country also determines the effectiveness of Open
Market Operations.The trends of economic indicators, the overall past perform-
Ance, future speculations,price and exchange conditions, all such factors effect
the willingness of borrowers and bankers and hence decide the fate of open
market operations.
Willingness of Borrowers
The investors and borrowers attitude is an important factor that can disturb the
central bank plans based on open market operations.If the borrowers are dis-
Courageed and disappointed and they have become pessimist about future then
they will not like to borrow or to make investment. In such a case if a central
bank tries to expand credit and money supply through open market operations
then this will not prove fruitful. Unless the investors confidence is restored, he
will not borrow despite excessive cash reserves of commercial banks and low
Cost of borrowing.
Willingness of bankers;
The banker’s attitude also plays a role in deciding the fate of open market opera-
tions.Commercial banks are profit seeking institutions and they have their own
Priorities. Sometimes they are not willing to expand credit and advance loans
despite excessive cash reserves and purchasing of securities by government. On
other hand when central bank wants to contract credit and sells securities, com-
mercial banks driven by their own priorties may continue to advance loans. In
However despite all this the SBP has an Open Market Operations, committee
This committee works under the deputy governor. The committee is response.
For conducting Open Market Operations in accordance with credit control
Policies.
The Organization:
State Bank of Pakistan (SBP) is the central bank of the country and was established in July 1948 i.e.,
within one year after Pakistan gained independence. Being the central Bank of the country it
regulates the monetary and credit system of the country to foster its growth in the best national
interest with a view to secure monetary stability and fuller utilization of the country’s productive
resources.
The operations of State Bank of Pakistan also include preserving the value as well as maintaining
stability in the banking system.
In its continued endeavour to promote monetary and financial stability to achieve a sustained
and equitable growth the Bank holds vast experience of exercising various monetary controls spread
over more than five decades which interlay include transformation from a directed monetary regime
to market based monetary management as well as introduction of current account convertibility of
the BOP.
The Objective:
The main objective of offering internship to students from foreign universities is to provide them an
opportunity to work with its Research Department to explore economic and financial system policy
issues related to Pakistan.
Requirement:
State Bank of Pakistan promotes economic and financial education and greater understanding of its
role by providing instructional materials and programs for students and educators. Its Learning
Resource Centre (LRC) including library offers a range of resources and services for its employees,
bankers, professionals and general public.
The Bank also welcomes visits of students accompanied by their faculty members aimed at
providing knowledge about its activities. Visitors learn about the working and functions of the Bank
and its role in the economic and social development of the country. Currently the following two
activities are held for students and faculty members at SBP Karachi only.
With a view to meeting its needs for professionally qualified personnel and in the context of
strengthening the human resource base in its various departments, the State Bank of Pakistan has
decided to introduce a revised “SBP Scholarship Scheme”, the salient features of which are as
under:-
The Scheme will be administered by a high power committee comprising Deputy Governor,
State Bank of Pakistan, Presidents of the commercial banks and Deputy Secretary, Ministry
of Finance, Government of Pakistan.
• The objective of the Students Loan Scheme is to provide financial assistance to the
meritorious students of insufficient means who have obtained 70% marks in the last public
examination and are unable to pursue their studies within Pakistan due to financial
difficulties.
• Loans under the scheme shall be granted to students who are nationals of Pakistan including
Northern Areas, Federally Administered Tribal Areas and Azad Kashmir of age not
exceeding 20 years for graduation, 30 years for post-graduation and 35 years for Ph.D.
The draft Banking Act has been finalized by the Commission and being
place for comments. We, at the Banking Laws Review Commission would like
the informed public to give us the benefit of their views and suggestions. In
particular, we would like to hear from legal practitioners, accountants, bankers,
businessmen, academics and interested citizens. You can make a direct impact
on the future direction of the new law by identifying the major weaknesses in
the current laws and procedures as well as key concerns and issues that should
be considered in the framing of the new law.
The commission will read all submissions and may invite selected
individuals to present their views in person. The deadline for submission of
views / comments (by mail, fax or e-mail) is July 31, 2006.
At present NIBAF has been reorganized and restructured .Its staffing has been reviewed and
institutional arrangements have been put in place to make it as an institution of Marketable repute.
• NIBAF - Islamabad
• NIBAF - Karachi
NIBAF - Islamabad:-
Location
National Institute of Banking and Finance is also referred as State Bank Training Institute
(SBTI) NIBAF Islamabad .It is situated at Sector H –8 Pittras Bukahri Road near Zero Point.
Government offices at Islamabad are situated at a distance of 6/7 kilometers from the institute. The
sector H is famous for educational and vocational institutions and offices. The institute provides the
residential facilities equivalent to four-star hotel. The Public transport is easily available while other
facilities like telephone, postal services; hospitals are located quite close to institute.
Facilities Available:-
All major training activities /courses and State Bank’s Training Programmes are held at NIBAF.
The institute has a modern complex constructed on a plot of land measuring 2.5 acres, having
academic and hostel blocks.
The Academic block of the institute is well equipped with all latest state of all audio visual aids & a
computer laboratory. The spacious training rooms, Auditorium, and Syndicate rooms are suitable for
The Publication Wing housed in the Academic Block provides all sort of published
material which includes course books, reading material, photocopies, arranging of
training material, hand books of training and other publications of NIBAF to the
trainees, participants, trainers, training managers and other senior officials from SBP
and other institutions as well. It is also equipped with modern, electronic equipment for
scanning, typing, word processing of documents, Internet exploring etc.
The hostel block of NIBAF consists of 120 single occupancy rooms and 4 executives
suits that are fully furnished having all facilities of four-star hotel providing homely
environment. There is also a well-maintained cafeteria supported by a modern
commercial kitchen, providing catering services to trainers & participants. Indoor
games and other recreational facilities like TV, VCR is available in the lounge of the
block. To promote healthy competition tournaments are held for each course
participants. Sight seeing trips are also arranged to visit hill stations like Murree,
Nathiagalli, Taxilla, Bhourbon, Kaghan, Naran, etc on weekends /holidays. Such
activities are part of the recreational program arranged for participants to enjoy their
leisure hours and to keep them healthy and fit after long training.
NIBAF is now regarded as an institution of excellence in the area of training of Banking &
Finance in Pakistan. The top international institutions like IMF; Bank Negra Malaysia has
appreciated NIBAF for its arrangements.
The institute now has it own in house capacity to organize the design, development and
review of relevant training programmes for both domestic and foreign institutions in the
field of banking and finance. The institute has conducted a number of training
programmes, which are
NIBAF - Karachi
Training Department at State Bank of Pakistan has now been revived with
prime responsibilities as under: -
• The Training Department will formulate and implement the Banks Training policies and
undertake costing,
budgeting and approval.
• Implementation of training at the Central Directorate and if needed its design and delivery.
• Provide the Administrative support to NIBAF at the Central Directorate in the major areas
needed by NIBAF.
Ensure installation, operation and management of Database at NIBAF. Interface with NIBAF
concerning all matters related to SBP team of trainers.
The role of Training Department is also envisaged in the Training polices and programmes (TPP) of
the State bank of Pakistan duly approved by the Board. The department will act as policy facilitating,
monitoring and coordinating department with no operational responsibilities. NIBAF will be the
operational arm of SBP for training, responsible for design, delivery, development and evaluation of
training. NIBAF will handle and organize the training at Central Directorate also
Training Managers at TD will be responsible for linking the identified training needs
of the SBP staff established in consultation with HRD and the core departments with
actual delivery by NIBAF. In some case Training Managers can act as an agent on
behalf of NIBAF in organizing and delivering some of the courses for CD staff at
Karachi. One of these managers will be in-charge of organizing the logistic support
for foreign training –invitation, circulation of information, secretariat function for the
Foreign Training Selection Committee, liaising with foreign training institutions, pre
and post participation support for those selected.
Location:
Presently the department is temporarily housed at his old premises situated at Shahrah
Kamal Ataturk Karachi, which is almost in the center of the City. However a very
attractive refurbishing plan has been approved for shifting of department to a fully
air-conditioned building at North Nazimabad office. The new premises will contain
modern training rooms, teaching aids, syndicate rooms and well-equipped laboratory
of Information technology to conduct IT based courses.
The proposed premise of North Nazimabad office is very specious and virtually free from the noise
and pollution of the city center.
Government Publications:
The books and reports issued by various agencies of the federal government, periodically or
occasionally, have been organized in the separate section. Being the sources containing primary and
official data or view point on different socioeconomic aspects, these books are extensively consulted
by the SBP researchers, statisticians and executives as well as the outsiders including bankers,
university students, journalists and free lancers visiting the library in connection with their reference
& research work. The library has almost complete archive of renown government publications
including.
DIGITAL RESOURCES:
The SBP library is expanding its resource base by procuring the electronic resources. Library is
presently subscribing to 31 online research journals. SBP library has also to access the following
websites through HEC Digital Library Program:
EBSCOHOST, which provides access to over 17250 abstracted and indexed journals of which
over 1300 are available as full-text with over 4700 of these being fully peer-reviewed.
ORGANIZATION OF MATERIALS:
The library follows different schemes for classification and effective organization of different
kinds of literature. The book collections have been classified according to Dewy Decimal
Classification System (001-999) and arranged systematically subject-wise in different sections in the
main hall for instant retrieval by the users. The library has adopted open shelf system for offering
full, free and independent browsing facility to the users for scanning all books, journals, reports, files
etc. available in different sections meeting their requirements. The library has implemented
computerized relational database management system comprising modules for cataloguing of books,
serial control, circulation routines, clippings, gazettes, etc. developed in Oracle for efficient storage
and retrieval services since 1997. The online public access catalogue (OPAC) has been made
available for readers for independent searching of the library databases. The OPAC designated as
“Library Online” is available bank-wide to all users having access to SBP Electronic Board.
SIR VED JAIQBAL MARATH we have taken annual report and balance sheets from SBP
and also the strategic plan so it is difficult to send you by soft copy.
THANK YOU
By Sarfaraz Ahmed
“The inflation rate, perhaps would slip beyond the 6.5 percent
target,” State Bank Governor Dr Shamshad Akhtar told a press conference on Saturday
According to the bank, the rise in inflation emanates from the risk of reversal of the downtrend in
house rent index (HRI) inflation in the second half of FY 2006-07 due to high international
commodity prices, robust domestic demand for construction inputs, the risk of a rise in food prices
following strong domestic demand of key staples such as milk, and an up-trend in international
prices of key food items such as edible oil and wheat.
“In particular, domestic wheat prices may rise despite an anticipated bumper crop if speculators seek
to take advantage of the rising oil prices,” the central bank said in its report for 2005-06, release on
Saturday.
The bank said while farmers would benefit from high prices, an excessive rise due to speculative
activities could lead to a “net welfare loss to the economy”. The bank also said it may be necessary
for the government to defer wheat exports until the crop size is known and until buffer stocks are in
place.
The bank said the economy grew by 6.6% in FY 2005-06 and based its optimism for an increase in
growth in FY2006-07 on “a recovery in agriculture and industry as well as yet another robust
performance in the services sector”.
While advocating the continuation of a tight monetary policy in FY2006-07, the central bank warned
of the inherent danger of excessive tightening hurting the momentum of growth.
“The probability of this risk materialising depends crucially on the nature of the expenditure growth,
the manner in which the government finances its fiscal deficit,” the bank said, adding that an
increase in government spending could raise inflationary pressures. However, if the greater part of
the higher expenditure is for development, the long-term gains through crowding-in investment and
increased economic productivity may outweigh the short-term cost of inflationary pressures.
The bank expressed concern over the government decision to increase long-term borrowings through
National Saving Schemes instruments, saying this would likely raise government reliance on non-
banking borrowings, but also have negative implications for the development long term debt capital
markets, and consequently for efforts to attract private capital for long-term investment.
The bank said “an extraordinary trade deficit” was the major reason behind the growth of the current
account deficit in recent years, and undertook to adopt a “corrective policy” of reducing import
growth and fostering export growth.
The bank also underscored the need for construction of reservoirs in order to overcome the energy
deficit. New dams could be a medium to long-term solution, but these could be supplemented by
increasing reliance on alternative energy sources, including by expanding nuclear power capacity,
negotiating multiple gas import options (including the pipeline from Iran), and developing domestic
coal resources (particularly the That deposits).
The central bank said Pakistan’s economy overcame the unexpected weak harvest of key crops, the
impact of the October 2005 earthquake, a tight monetary policy and an unprecedented rise in oil
prices, to register real GDP growth of 6.6 percent during FY2005-06.
Presently the requirement is 15% (excluding 5% statutory cash reserve) of the total of
its time and demand liabilities in Pakistan (BPRD Circular No.26 dated 2nd July,
1999).
ANNUAL ACCOUNTS:
At the expiration of each calendar year every banking company incorporated in
Pakistan, in respect of all business transacted by it, and every banking company
incorporated outside Pakistan, in respect of all business transited through its branches
in Pakistan, shall prepare with reference to that year a balance-sheet and profit and
loss account as on the last working day of the year in the prescribed forms(Section 34
of Banking Companies Ordinance, 1962).
SUBMISSION OF RETURNS:
The accounts and balance-sheet referred to in section 34 together with the auditor’s
report as passed in the annual General Meeting shall be published in the prescribed
manner, and three copies thereof shall be furnished as returns to the State Bank within
three months of the close of the period to which they relate (Section 36 of Banking
Companies Ordinance, 1962).
As present, all banks operating in Pakistan are required to maintain capital and
unencumbered general reserve, the value of which is not less than 8% of their risk
weighted assets. Additionally they are also required to maintain a minimum paid up
capital of Rs.500 million