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Hailey college of banking and finance

Presented By:
Muhammad Ashfaq (M06MBA001)

Presented To:


Hailey college of banking and finance


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

Hailey college of banking and finance

We dedicate this effort to our loving parents Because it is only because of them that we are Enjoying such a status of life. We are very happy In the environment of HAILEY COLLEGE OF BANKING AND FINANCE And enjoying with nice friends and faculty.

Hailey college of banking and finance

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.


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

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Vision Statement


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Mission Statement


Hailey college of banking and finance

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Hailey college of banking and finance


Hailey college of banking and finance

Quaid-i-Azam's Speech On the occasion of the Opening Ceremony of The State Bank of Pakistan on 1st July, 1948.

"Mr. Governor, Directors of State Bank, Ladies and Gentlemen. 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 cooperation 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.

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I need hardly dilate on the important role that the State Bank will have to play in regulating the economic life of our country. The monetary policy of the bank will have a direct bearing on our trade and commerce, both inside Pakistan as well as with the outside world and it is only to be desired that your policy should encourage maximum production and a free flow of trade. The monetary policy pursued during the war years contributed, in no small measure, to our present day economic problems. The abnormal rise in the cost of living has hit the poorer sections of society including those with fixed incomes very hard indeed and is responsible to a great extent for the prevailing unrest in the country. The policy of the Pakistan Government is to stabilise prices at a level that would be fair to the producer, as well as the consumer. I hope your efforts will be directed in the same direction in order to tackle this crucial problem with success. 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."

Hailey college of banking and finance

Hailey college of banking and finance

Present Governor of State Bank of Pakistan

Dr. Shamshad Akhtar ernor (2nd January, 2006) Present Deputy Governor of State Bank of Pakistan



Hailey college of banking and finance

Hailey college of banking and finance

(Late) MR. ZAHID HUSSAIN (10-06-1948 TO 19-07-1953)

(Late) MR. ABDUL QADIR 20-07-1953 TO 19-07-1960)

(Late) MR. S.A. HASNIE (20-07-1960 TO 19-07-1967)

(Late) MR. MAHBUBUR RASCHID (20-07-1967 TO 01-07-1971)

MR. S.U. DURRANI (01-07-1971 TO 22-12-1971)

MR. GHULAM ISHAQ KHAN (22-12-1971 TO 30-11-1975)

(Late) MR. S. OSMAN ALI (01-12-1975 TO 01-07-1978)

MR. A.G.N. KAZI (15-07-1978 TO 09-07-1986)

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MR. V.A. JAFAREY (10-07-1986 TO 16-08-1988)

MR. I.A. HANFI (17-08-1988 TO 02-09-1989)

MR. KASSIM PAREKH (05-09-1989 TO 30-08-1990)

DR. MUHAMMAD YAQUB (25-07-1993 TO 25-11-1999)

Dr. Ishrat Hussain

“State bank of Pakistan is central bank of our country. This is most important financial institution of Pakistan and is the leader in this field. STATE BANK OF PAKISTAN is not guided by profit motive. It acts only in interest of country. Hailey college of banking and finance

After partition there were many difficulties in banking system of newly born state. Initially, it was decided that reserve bank of INDIA would continue to act as CENTRAL BANK OF PAKISTAN, until PAKISTAN establishes its own.

The reserve bank of INDIA did not perform its functions with diligence and good faith for PAKISTAN. This bank refused to transfer rupees 55 crore which PAKISTAN was entitled to reserve as proportionate share of reserves of undivided IN So, Governor General of PAKISTAN QUAIDE-AZAM issued order of the establishment of SBP on 12 MAY, 1948.

Hailey college of banking and finance


Hailey college of banking and finance


Hailey college of banking and finance

 


Hailey college of banking and finance

Powers of STATE BANK OF PAKISTAN to regulate money supply and control of financial institutions in country were increased in 1956, 1974 and 1997. The National Assembly increased the power through its act, STATE BANK OF PAKISTAN act 1956, Banks Nationalization Act 1974, Bank Companies Act 1997.

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.

The management and supervision of bank vests in CENTRAL BOARD OF DIRECTORS. The CENTRAL BOARD OF DIRECTORS consists of, “ONE GOVERNOR, TWO DEPUTY” “GOVERNORS AND EIGHT DIRECTORS” The chief executive of bank is governor. He is responsible for controlling the affairs of bank on behalf of central board. The governor is appointed by federal government for a term of maximum duration of 5 years. The central board of directors must have at least 6 meetings in a year. There is an executive committee headed by governor, which controls day-to-day business of bank, on behalf of central board of directors. Its head office is at KARACHI.

The organizational chart of SBP runs as follows;

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Governor; DR.SHAMSHAD AKHTAR Reporting officers to governors.

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1) 2) 3) 4) 5) 6)



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Jobs n careers

Hailey college of banking and finance

Zahid Hussain Post Doctoral Research Fellowship Program at State Bank of Pakistan
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/-

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 RFPrecruitment@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/-

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Core functions:
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State Bank of Pakistan is the Central Bank of the country. While its constitution, as originally lay down in the State Bank of Pakistan Order 1948, remained basically unchanged until 1st January 1974 when the Bank was nationalised, 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. 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 nontraditional 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.

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State Bank of Pakistan has been entrusted with the responsibility to formulate and conduct monetary and credit policy in a manner consistent with the Government’s targets for growth and inflation and the recommendations of the Monetary and Fiscal Policies Co-ordination Board with respect to macro-economic policy objectives. The basic objective underlying its functions is twofold i.e. the maintenance of monetary stability, thereby leading towards the stability in the domestic prices, as well as the promotion of economic growth. 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.

Regulation and supervision of the financial system is the primary responsibility of state bank to ensure its soundness and stability as well as to protect the interests of depositors. The rapid advancement in information technology, together with growing complexities of modern banking operations, has made the supervisory role more complex and challenging. The institutional complexity is increasing, technical sophistication is improving and technical base of banking activities is expanding. All this requires the State Bank for endeavouring hard to keep pace with the fast-changing financial landscape of the country. The banking activities are now being monitored through a system of ‘off-site’ surveillance and ‘on-site’ inspection and supervision. Off-site surveillance is conducted by the State Bank through regular checking of various returns regularly received from the different banks. On other hand, on-site inspection is undertaken by the State Bank in the premises of the concerned banks when required. 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

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Of these institutions, a new Department namely, NBFIs Regulation and Supervision Department was set up. Moreover, in order to safeguard the interest of ultimate users of the financial services, and to ensure the viability of institutions providing these services, the State Bank has issued a comprehensive set of Prudential Regulations (for commercial banks) and Rules of Business (for NBFIs). 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.

Another very important and major responsibility of the State Bank is the maintenance of external value of the currency. In this regard, the Bank is required, among other measures taken by it, to regulate foreign exchange reserves of the country in line with the stipulations of the Foreign Exchange Act 1947. As an agent to the Government, the Bank has been authorised to purchase and sale gold, silver or approved foreign exchange and transactions of Special Drawing Rights with the International Monetary Fund under sub-sections 13(a) and 13(f) of Section 17 of the State Bank of Pakistan Act, 1956. 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,

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effective 19th May 1999, the exchange rate has been unified, with the introduction of market-based floating exchange rate system, under which the exchange rate is determined by the demand and supply positions in the foreign exchange market. The surrender requirement of foreign exchange receipts on account of exports and services, previously required to be made to State Bank through authorized dealers, has now been done away with and the commercial banks and other authorised dealers have been made free to hold and undertake transaction in foreign currencies. As the custodian of country’s external reserves, the State Bank is also responsible for the management of the foreign exchange reserves. The task is being performed by an Investment Committee which, after taking into consideration the overall level of reserves, maturities and payment obligations, takes decision to make investment of surplus funds in such a manner that ensures liquidity of funds as well as maximises the earnings. These reserves are also being used for intervention in the foreign exchange market. For this purpose, a Foreign Exchange Dealing Room has been set up at the Central Directorate of State Bank of Pakistan and services of a ‘Forex Expert’ have been acquired.

The responsibility of a Central Bank in a developing country goes well beyond the regulatory duties of managing the monetary policy in order to achieve the macro-economic goals. This role covers not only the development of important components of monetary and capital markets but also to assist the process of economic growth and promote the fuller utilisation of a country’s resources. 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.

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Hailey college of banking and finance

Finance Department
Functions of the Department:        Issuance of notes and coins in Pakistan Bankers of the Federal and Provincial Governments. Bankers of the commercial banks and custodian of their cash reserves. Custodian of Pakistan’s reserves of approved foreign exchange. Sale purchase of foreign currencies. Preparation of Balance Sheet and P/L account of the bank. Preparation of annual budget of the bank. Issuance of weekly statement of affairs of Banking and Issue departments. Management of Provident/General Provident Fund balances.

Agricultural & Rural Credit Department
Functions of the department

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  

To operate as a focal point in SBP for all agriculture and rural finance policies, programs and projects. To assess the credit needs of farm & non farm sector in rural areas. To review the issues and challenges faced and developments taking place in agriculture and rural finance both in the country and elsewhere to develop an adequate knowledge and information base for policy formulation etc To formulate agri & rural finance policies in consultation with stakeholders to ensure adequate flow of institutional credit in rural areas. To monitor growth and trends in agric/rural finance portfolio of banks & financial institutions. To collect periodical agri/rural finance data for analysis, policy formulation and dissemination to general public.

Audit Department
Functions of the department
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Examines and evaluates the adequacy and effectiveness of the internal control systems

• •

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)
Functions of the department

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. •

Banking Policy & Regulations Department
Functions of the department

• • • •

To ensure effective regulatory and supervisory oversight of Banks and DFIs. To assess and review, periodically, performance and future outlook of banking system To monitor risk profiles of banks, to prescribe guidelines etc requiring banks and DFIs to put in place adequate Risk Management Systems To initiate enforcement actions on the basis of on-site inspection, off-site surveillance and market intelligence.

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Corporate Services Department
Functions of the department

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. •

Economic Policy Department

Economic Policy Department is primarily engaged in eight fundamental activities. These include:
• • • • •

Preparation of Monetary Policy Statement; Preparation of Monetary Surveys; Preparation of Annual Credit Plan; Consultations with the IMF; Computation of domestic public debt,

Exchange and Debt Management Department Functions of the department

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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.

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Exchange Policy Department( EPD) Functions of the department

Exchange Policy Department (EPD), one of the core departments of the State Bank is responsible for overall stability of the foreign exchange market and is engaged in the process of policy formulation and implementation. It reviews on continuous basis, the existing rules and regulations, to facilitate foreign exchange activities in the country. Foreign exchange business in Pakistan is governed / regulated under Foreign Exchange Regulations Act, 1947 (FERA, 1947). •

Human Resource Department Functions of the department

(1)Continuous innovation & improvement (ii) Providing effective facilitation and (iii) Efficient and timely delivery of HR services. •

of the advisory

HR policies services to

& procedures line departments

Information Systems & Technology Department Functions of the department

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 Department
General Information on Islamic Banking Department

Islamic Banking Department was established on 15th September, 2003 and has been entrusted with the huge task of promoting & developing the Shariah Compliant Islamic Banking as a parallel and compatible banking system in the country. Islamic Banking is one of the emerging field in global financial market, having tremendous

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potential and growing at a very fast pace all around the world. Al-Hamdulillah, the progress of Islamic Banking in Pakistan has also been commendable during the last two years.

Payment System Department Functions of the department
• • •

Formulate payment systems’ policies and facilitate adoption of international best practices. Introduce developmental strategies for modern payment systems. Operate real time gross settlement (RTGS) system for fund transfers & securities transactions efficiently and securely.

Research Department Functions of the department

1. By analyzing the rationale and objectives of SBP policies, these reports create a link between the central bank and the rest of the economy (and especially the financial sector). 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. •

Statistics and Data Warehouse Department Functions of the department

• • • • •

Balance of Payments Statistics (Monthly, Quarterly, Annual) Workers’ Remittances (Monthly) Export Receipts Statistics (February 2004) Imports Payments Statistics (Monthly) Foreign Investment – Direct & Portfolio (Monthly)

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Real Time Gross Settlement System (RTGS System)
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. •

Strategic and Corporate Planning Department Functions of the department

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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

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Hailey college of banking and finance

The State Bank of Pakistan performs all those functions, which a central bank is Supposed to do. Like a Central Bank in any developing country, the State Bank of Pakistan performs both the traditional and development functions to achieve Macro economic goals. The traditional functions may be classified into two groups: A)

Primary functions

Including issue of notes .regulations and supervision of financial System, bankers’ bank, lender of last resort, banker to government and conduct of monetary policy B)

Secondary functions

Including the agency functions like management of public dept .management of foreign exvhange, etc. and other functions like Advising the government on policy matters and maintaining Close relationship with international financial institutions.

Note issuing agency
SBP enjoys monopoly in the issue of notes.It issues 10-rupee, 50-rupee, 100-rupee and 1000 rupee notes. The bank follows The bank follows the proportional reserve system. All notes Issued by it are backed by at least 20% in the form of gold Coins.

Banker to the government
The SBPof Pakistan acts as a banker to the central and provincial Govt. o Hold cash balances of Govt.,free of interest o Provide short term loans to the Govt. o Pays salaries of Govt.employees o Collects tax revenue and makes payment On the behalf of Govt.

Bankers bank
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The SBP is the leader of banking system. Thus o Its provides loan to banks through rediscounting Of bills o It provides guidance and direction to other banks To formulate their policies about deposits,credit, Investment and interest rate o It fixes the cash deposit ratio for commercial banks. o All the banks send a weekly statement of its assets & liabilities to state bank.

Lender of last resort
It means that whenever the banks are short or funds and are Unable to get help from anywhere, it is the central bank, which Provides them, loans and brings them out of trouble.

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. 

Manager of public dept

The State bank manages all debts secured by federal and provincial Govt.from local sources as well as foreign countries

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.

Manager of foreign exchange
Whenever some banks run short of cash and are unable to get help from Other sources, the state bank comes to rescue. The State bank lends enough funds to them to ensure their liquidity & solvency.

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 Hailey college of banking and finance

direction of bank loans.

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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.

At time of bank CHARTERED ACT in ENGLAND in 1844 there was a huge controversy over the matter as to what is the most suitable method and principle of issuing notes. Some economists favour the currency principle and other advocated for banking principle. Both these principles are discussed below:



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.

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.

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The system will restrict the central authority from over issuing notes. Hence there will be an effective control over inflation.

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.

The currency issued under this principle enjoys a complete confidence of public.

Following are the demerits of this principle.

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.

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.

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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.

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.

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.

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.

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.

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This principle is suitable for the needs of modern economy. It is flexible and elastic and more responsive to change in economic climate. 


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.

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.

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.

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Hailey college of banking and finance

Based on banking and currency principles of note issue, several systems and methods have been devised for the issuance of notes. These are as follows:

This is widely recognized as an important method of note issue. Under this system a limit of volume of currency has been fixed by central authority. This limit is called FIDUCIARY LIMIT. Any note issue in this fiduciary limit is to be backed by Government Securities. However any note issued above this limit is to is 100% backed by gold. This system remained in force in many countries of the world at different times.

Following are the merits and demerits of this system.

 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.

 No danger of over issue:
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.

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.

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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.

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.

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.

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.

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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.

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The demerit is that the paper currency under this method is absolutely inconvertible.

 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.

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.

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.

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 shortterm and long-term monetary and fiscal targets.

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IN the beginning, the STATE BANK OF PAKISTAN issued notes on the basis of SBP act 1956. According to this act the notes were issued on a PROPOTIONAL RESERVE SYSTEM. This method remained in effect till November 1956. Under this method the notes issued had to be backed by an equivalent amount of assets. At least 30% of such assets must be gold coins or gold bullion, silver bullion or approved foreign exchange. The remaining assets might be in form of securities bill of exchange, promissory notes. However afterward in November 1956 the 30% reserve requirement was changed by an ordinance. The ordinance gave the right and authority to federal government that she after consulting with bank specifies the amount of currency that is to be backed by gold and approved foreign exchange.


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Present currency notes

Note of 10 Rs

Note of 20 Rs.

Note of 100 Rs.

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Note of 500 Rs.

Note of 5000 Rs

Main Policy Of
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.

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Orders of SBP Governor Inquiry Against BLACK MARKETING OF Fresh Currency Notes
The Governor, State Bank Of Pakistan, Dr. Shamshad Akhtar has order an inquiry against the black marketing of fresh currency notes during the holy month of Ramzan. It may be pointed out that the office of SBP Banking Service Corporation issued fresh currency notes worth Rs.63.310 billion during the month of Ramazan as compared to Rs51.648 billion issued during same period of last year which depicts an increase of Rs.11.662billion or 23 percent. The following table gives the break up of issuance of fresh currency notes from 26th September, 2006 till 21st October 2006-the last working day of the Bank during the holy month of Ramazan. Denomination Rs.10/= Rs.20/= Rs.50/= Rs.100/= Rs.500/= Rs.1000/= Rs.5000/= Total Pieces 225 Million 64 -do50 -do77 -do12 -do20 -do05 -doValue Rs.2.248 Billion Rs.1.275 -doRs.2.508 -doRs.7.685 -doRs.5.788 -doRs.20.301 -doRs.23.505 -do-

Grand Total: 452 Million Grand Total: Rs.63.310 Billion

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Hailey college of banking and finance


Control of total credit in the economy and total money supply is called the Monetary policy. Credit has assumed great importance in the modern economic system. Thus, For the economic stability of a country, a proper control and regulations of Credit money is essential. If the bank issues too much credit money, it leads to inflation. On the other hand tight control over this money may cause Depression and unemployment.

Objectives of credit control.
Following are the objectives of Monetary Policy

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.

2. Foreign Value of Currency
Monetary Policy helps in improving the external value of home currency, which leads to growth in trade.

3. Increase in Investments
With the help of monetary policy Central bank tries to increase investments both domestic and foreign, which results in economic stability.

4. Stability in Capital Market
The development of any country depends upon its stable capital market.Monetary policy helps in order to create stability in capital market.

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5. Price Stability
Monetary policy helps in creating price stability in the Country by controlling inflation and deflation.

6. Control on Inflation and Deflation
Monetary policy creates economic stability in the country by controlling inflation and deflation.

7. Equitable Distribution of Credit
Monetary policy ensures equitable distribution of credit to all the sectors of economy as well as to the backward areas and also to the small borrowers.

8. Increase in production
With the help of monetary policy various productive Sectors are encouraged to get loans due to which there is an Increase in production.

9. Exchange Stability
Monetary policy helps creating exchange stability by Improving balance of payment position.

10. Promotion of Economic Development
Monetary policy also plays a vital role for the economic Development of the country. It aims at mobilization of monetary Resources and ensuring their full productive use.

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State Bank of Pakistan issues Monetary Policy
The macro-economic outlook and monetary policy stance reads: 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. Pakistan's economy is, therefore, better placed in terms of achievement of medium-term growth targets in view of the momentum already gained in the last fiscal year and existing global trends that augur well for the world economy, at least in the short term. Hailey college of banking and finance

GDP growth for FY05 is projected at 6.6% with the manufacturing sector taking the lead to grow by over 10%, agriculture sector expanding at 4% and the services sector to grow at 6.2%. Due to higher increases in prices recently, the inflation is targeted to increase by 5%. 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. On the positive side: * 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.

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The state of labour market shows high degree of unemployment in the country with very low pressure for wage rise outside the public sector. An inappropriate or more aggressive monetary policy will only aggravate the unemployment problem. The balance of risks indicates that domestic prices may continue to increase and exchange rate may be under pressure in the coming six months. The lingering overhang from the last two years' monetary expansion has to be wrung out of the system thus lowering the inflation risk premium built into market expectations.

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.

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The control of credit is responsibility of the central bank. For this purpose Central bank uses various methods. These are classified into two types.

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



Buying Securities;
State bank can buy securities either from the commercial banks or from public.

 Selling securities;
Securities can be sold either to banks or to public. their lending power increase. When it sells securities, it hands over securities to commercial banks.

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Commercial banks pay cash to central bank, this reduces the commercial Banks cash reserves and their lending power is reduced. When the securities are purchased by public, then public makes payments by cheques which are drawn on commercial banks. Hence deposits with the commercial bank deCreases, the final effect is same again; the cash balance and hence credit creation powers of banks are reduced.

Effect on interest rate;
When securities are purchased by central bank then commercial banks end Up with excessive cash reserves. In order to attract borrowers and investors They lower interest rates.  When securities are sold, this result in reduced cash reserves with comerrcial banks. If there is high demand for loans from borrowers and investors, the interest rate and hence cost or borrowing rises. 

Purpose of Open Market Operations (OMO)
Other functions of Open Market Operations o o o o o o o To administer and maintain the prices of government securities To create suitable climate for the floatation of new loans To activate the money market To manage gold inflows and outflows To create climate in which other tools of monetary policy To avoid sudden fluctuations in the money market To support government credit

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.

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 Excessive Cash Reserves;
The basic rational of open market operations is to decrease cash balances of Commercial banks so that their lending power is reduced. Now if commercial Have such excessive cash reserves, that purchasing securities do not produce reduction in their cash balances then open market operations will be ineffective.

 Availability of securities;
For Open Market Operations to be effective there must be ample and adequateete 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 performAnce, 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 disCourageed 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 operations.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, commercial banks driven by their own priorties may continue to advance loans. In Hailey college of banking and finance

Both these cases open market operations will not bring about the desired results.

Borrowings of Central Bank;

The borrowings o central bank neutralise the effect of open market operations When central bank purchases securities in order to expand credit and money in the economy and if at the same time, central bank borrows from the commercial banks then this will leave the overall cash reserves balance unaffected and open market operations will go unnoticed.

Open Market Operations with Reference to Pakistan:In Pakistan the money and capital markets are not fully developed. Open Market Operations are not widely used as a chief instrument of monetary Policy. There have been sales and purchases of government securities by the cental bank, but these were basically done to provide timely assistance to bank. 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.

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Hailey college of banking and finance

International internship  Visit program
International internship
Eight to Ten Weeks Paid Internship at State Bank of Pakistan

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.

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The interns should have advance knowledge of econometrics so as to meet the pre-requisite of doing the empirical research work and feel comfortable while interacting with counterparts in the Research Department.

SBP Visit Program
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.

1 2

Familiarization about SBP Understanding monetary policy

Briefing about SBP history, functions and working Briefing about monetary policy

Target Group
University/College students Economics students and faculty members

2 hours 2 hours

Scholar ship schemes
REVISED SCHOLARSHIP SCHEME FOR Ph. D IN ECONOMICS/FINANCE 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:-

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1. Any person in good health and of good character who secures admission in one of the following Universities for pursuing a course of study leading to PhD in Economics/ Finance (in an area specified at (3) below) may apply to State Bank of Pakistan for Scholarship provided he/she is a national of Pakistan or Azad Kashmir, is not more than 40 years of age and has not secured any partial or full Scholarship from any other Organization. Only those applications will be entertained where clear evidence of admission into a Ph.D. program in the designated universities under the Scheme is submitted with the application. Note: Due to quota constraints applications for grant of scholarships for universities other than USA are not being entertained for the present.



Pursuant to the announcement made by the Federal Finance Minister in his 2001-2002 budget speech, a STUDENTS LOAN SCHEME (SLS) for Education has been launched by the Government of Pakistan in collaboration with major commercial banks of Pakistan (NBP, HBL, UBL, MCB & ABL). Under the Scheme, financial assistance will be provided by way of Interest Free Loans to the meritorious students who do not have adequate financial means to pursue studies in Scientific, Technical and Professional education within Pakistan. 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.


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Draft - Banking Act, 2006
The Banking Laws Review Commission (BLRC) has been constituted by the Government of Pakistan with a mandate to modernize Pakistan’s financial sector laws. One of the key areas for reform identified by the Commission is to recommend to the Government of Pakistan to promulgate a new banking Act suited to the requirements of modern banking. 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.

Mr. Mansur-ur-Rehman Khan Member Secretary Banking Laws Review Commission State Bank of Pakistan

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Hailey college of banking and finance


MEANING:NIBAF stands for National Institute of Banking and Finance and was set up under the Companies Ordinance 1984 with a paid up capital of Rs250.0 million. The equity was contributed by the nationalized commercial banks and Pakistan Banking Council that held 3% of the shares in its name. Consequent upon dissolution of Pakistan Banking Council (PBC) in 1997 State Bank of Pakistan took over the assets and liabilities of PBC and also decided to purchase of assets of NIBAF. In February 1997 the Training Department of the State Bank was shifted to NIBAF premises at Islamabad and commence functioning as State Bank Training Institute (SBTI) Islamabad. 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

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any type of training program /courses. The library of the institute contains a rich collection of books, banking journals and periodicals besides providing a client and congenial atmosphere for all the participants to get benefit of learning. 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.

Functional and Organizational Set Up:The functional and organizational set up of NIBAF has undergone a quantum change in order to utilize the existing facilities of NIBAF at optimum level. Director General NIBAF is the overall in charge of the Academic Side of the Institute .He is assisted by two Directors one is looking after Academic and the other Logistics side. 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
• • • •

State Bank Officers Training (SBOT) (For new inductees at OG II level) Joint Directors Training Program Research Officers Training Program International Courses on Central and Commercial banking

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Institutional Arrangements:Exchange, Macro the Bank has made contractual arrangements with other partners’ institutions like Institute of Bankers Pakistan (IBP) and Pakistan Institute of Development Economics (PIDE) for conduct training courses at NIBAF and Training Department Karachi. The arrangements are meant for external trainers to be engaged through these institutions as well as for training design and delivery of different modules on Pakistan economy, Foreign Finance, Commercial Banking etc

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.

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The Bank’s current training programmes are launched at Central Directorate (CD) Karachi also. Considering the training needs of Bank’s core departments the training programmes have been designed and offered to CD based officers in the areas of Banking Supervision, Applied Accounting, Commercial Banking and Communication Skills. These courses are offered at regular intervals and provide a good opportunity to officers to upgrade their skills and update themselves with the pace of changes in areas of banking,

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.

Hailey college of banking and finance

Hailey college of banking and finance

In order to cater to information needs of the personnel of Research Departments and other employees of the State Bank of Pakistan, a library was setup in 1949 at Central Directorate, Karachi. Ever since establishment, the library remained administratively associated Research Departments till March 2005 when it was placed with Corporate Services Department as a result of restructuring and business process re-engineering in the SBP. The library remained housed at 5th floor of the main building till 1996 when it was shifted in the old magnificent building originally constructed by the Imperial Reserve Bank of India adjacent to main SBP building. .Later on, it was moved in the newly renovated building of Learning Resource Centre (LRC) adjacent to the main SBP building in November 2005. The SBP library has a rich collection of books, technical reports, Government documents, periodicals and magazines mainly relating to the subjects of Economics, Banking, Finance, Management, Commerce, etc. Besides, sufficient reading material on Islam (in English, Urdu, Arabic, and Persian languages) and literary works in National and Regional languages are also available in the library. Over the years, the library has grown into one of the biggest and wellstocked libraries of the country on these subjects. The library facilities have been so designed that the latest as well as archival materials on the subjects related to Economics, banking, finance and allied subjects are readily within easy access of the readers. In addition to printed resources, the library provides online access to research journals and a host of digital resources to the readers, and provides the adequate modern facilities and services to its readers in a very friendly & conducive environment.

The State Bank library has ever been financed adequately through annual budget as well as special grants for procurement of books and periodical literature. The library adheres to policy of spending its annual and special grants, keeping a ratio of 75:25 between specialized subjects (economics, banking, finance, commerce, management, information technology, etc.) to subjects of general interests like Islam, history, geography & travel, social sciences, literature, science & technology disciplines, in order to maintain balance, evenness and comprehensiveness in collection to cater to information and reading requirements of all the bank employees. A Books Selection Committee, comprising highly qualified and experienced researchers and bankers, meets on monthly basis to select the latest books received from different local booksellers.

Hailey college of banking and finance

The State Bank library has historical collections of books; periodical literature; annual reports of central and commercial banks, financial institutions and industrial undertakings; budgets, gazettes and other publications of federal and provincial governments; the publications of United Nations’ organs like the World Bank, IMF, FAO, UNDP, WTO, ESCAP etc.; local and foreign newspapers; and clipping files pertaining to economic, financial and political issues. A brief overview of our collection is given below:

Economics, Banking, Finance and Commerce Management, Accountancy and Information Technology Islam General and Applied Sciences History, Biographies, Geography and Travel Art and Literature Laws, Political Science, Agriculture, Education, Sociology, Psychology, etc. (English on all subjects) (Urdu) (Arabic) Regional languages (Punjabi, Pashto, Sindhi, Balochi) Rare books (Urdu & English on history of Indo-Pak and Islam)

No. of Books

32,000 5000 5000 5000 5000 6000 20,000 65,000 8,000 4,100 1,100 900

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. Hailey college of banking and finance

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Economic Survey 1948 to 2004-05 Pakistan Statistical Yearbook 1947 to 2005 Population and Housing Census Reports 1951, 1961, 1971, 1981 and 1998 Population Growth Surveys 1968 to 1979 Pakistan Demographic Survey 1984 to 2001 Pakistan Basic Facts 1949 to 1985 Some Socioeconomic Trends 1980 to 1983 Census of Agriculture, Agricultural Machinery and Livestock 1960, 1972, 1980, 1990, 1994 and 2000

United Nations Publications:
The library has a historical collection of regular publications issued by different organs of the United Nations including the World Bank, International Monetary Fund, World Trade Organization, UNCTAD, WTO, ESCAP, FAO, etc. Besides a large number of research reports, analyses, surveys, staff papers, working papers, etc. issued by these agencies under different programmes, the library has complete and updated records of the following periodic publications of these bodies: Direction of Trade Statistics Yearbook 1981 to 2004
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Balance of Payments Yearbook 1947 to 2005 International Financial Statistics 1979 to 2005 International Trade Statistics Yearbook 1955 to 2004 World Trade 1976 to 1995

General Reference Works:
In addition to Government & United Nations Publications, the latest sources of information such as Yearbooks like World of Learning and Europe World Yearbook, general and subject Encyclopaedias and Dictionaries published by reputed local and foreign publishers, Directories, Almanacs, Atlases, etc. are also available in the reference section.

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.

SPRINGLERLINK, which provides access to 503 full-text Springer-Verlag journals and
738 full-text journals formerly published by Kluwer Academic Press.

Hailey college of banking and finance

The SBP library is also subscriber of World Bank Online Resources (including WB-e-library, Global Development Finance & World Development Indicators).

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.

In this era of information and economic crunch when there is exponential rise in literature especially in the disciplines of economics, banking, finance, management, information technology, etc., costs of books and research journals are soaring and paucity of funds prevails, it has become virtually impossible for the libraries individually to cater to growing needs of readers.

Hailey college of banking and finance

AN RE 20
Hailey college of banking and finance

OUR GUIDER and DCM of Banking Department of SBP, 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

Wheat prices likely to rise despite bumper crop: SBP * Central bank forecasts growth close to 7%, inflation above 6.5% target in 2006-07 * Says expansionary fiscal policy compounds risk to economy * Advocates new dams By Sarfaraz Ahmed KARACHI: The State Bank of Pakistan expects wheat prices to rise in 2006-07 and the average inflation rate to go above the 6.5 percent annual target. The bank also forecast economic growth of “close to 7 percent”. “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. Hailey college of banking and finance

According to the central bank, an expansionary fiscal policy has further compounded the risks to the economy. “On the one hand, it adds to inflationary pressures by stimulating demand, and on the other hand, the government’s higher funding requirement induces more pressures to raise interest rates to curb incremental pressures on the economy. “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 nonbanking 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.

Hailey college of banking and finance

Hailey college of banking and finance

In terms of Section36(1) SBP Act, 1956, every scheduled bank is required to maintain with State Bank a balance the amount of which shall not at the close of business or any day be less than such percentage of Time & Demand Liabilities in Pakistan as may be determined by State Bank. Presently the requirement is 5% on weekly average basis subject to daily minimum of 4% of Time & Demand Liabilities (reference BPRD Circular No.27 dated 2nd July, 1999).

In terms of Section 29(1) of Banking Companies Ordinance, 1962 every banking company shall maintain in Pakistan in cash, gold or un-encumbered approved securities valued at price not exceeding "the lower of cost or the current market price" an amount which shall not at the close of business in any day be less than such percentage of the total of its time & demand liabilities in Pakistan, as may be notified by State Bank from time to time. 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).

In terms of Rule 6 of NBFIs Rules of Business, all NBFIs are required to invest 14% of their liabilities defined in the Rule, in Government Securities, NIT Units, shares of listed companies or listed debt securities in the prescribed manner. For the purpose of this rule, liabilities shall not include NBFIs equity, borrowings from financial institutions including accruals thereon, lease key money, deferred taxation not payable within 12 months, dividend payable within two months, advance lease rentals and deposits from financial institutions. In addition, they are also required to maintain cash balance with State Bank, which shall not be less than 1% of their liabilities as defined above.


Hailey college of banking and finance

Under Rule 17 of NBFIs Rule of Business, all NBFIs are required to invest to submit their annual audited accounts within a period of 6 months after the close of their accounting year.

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).

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).

In terms of Section 13 of Banking Companies Ordinance, 1962 no banking company shall commence business unless it has a minimum paid up capital as may be determined by the State Bank or carry on business unless the aggregate of its capital and unencumbered general reserves is of such minimum value within such period as may be determined and notified by the State Bank from time to time for banking companies in general or for a banking company in particular. 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

Hailey college of banking and finance

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Monopoly of note issuing World’s best-automatic Microsoft system due to participation of TABS. Have no competitors and works for national interest. It’s a guarantor of all the Commercial Banks

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No effective control over inflation Credit control is not effectively handled.

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Growing banking industry. Having effective monetary management Effective control over consumer financing on behalf of commercial banks.

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Danger of increasing trade deficit, which causes inflation. According to BASEL – II accord by BIS all banks should have Rs.3 million paid up capital. If not than these should be merged.
10 banks have already been merged and danger of producing competitors of SBP by creating monopolies.

Sources used for Assignment:
• • • state bank website(www.sbp.org.pk) visit to state bank Lahore office www.google.com.pk

Hailey college of banking and finance

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www.weikipedia .com MBF book by pro.Riaz Ahmad Mian

Hailey college of banking and finance

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