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  • 1. Fixed Fiduciary System:
  • Banking Sector Supervision in Pakistan:
  • Off-Site Monitoring at Banking Sector Development:
  • A. Supplementary Capital:
  • NIBAF Files and Information’s
  • Location
  • Facilities Available
  • Functional and Organizational Set Up:
  • (Accounts (Main) Section):
  • Government Accounts Section
  • Funds Section:
  • Stationery Management Section:
  • Special Cell (Menual):
  • Maintenance of Record of Intra Provincial NBP / SBP
  • drafts
  • Monetary Survey & IMF Consultations Group:
  • Financial Market & Exchange Rates Group


Report on state Bank of Pakistan

All praise is for Almighty Allah, the most merciful most compassionate who help his poor creatures in the time of crisis and best owned upon it, his unfathomable kindness and guidance.


We felt satisfaction to write this page as this project is on the way of its destination. We are thankful to our worthy professor Sir. Omer Hayyat for his most co-operative attitude, valuable comments,

constructive suggestions and step-by-step guidance. Without his help, it would have been impossible to complete this task.

Last but not least we wish to express our feelings and passion of gratitude to our parents who always prayed for our success, health and brilliant future. Our words cannot express our deepest thanks to our parents whose love and sacrifices are invested and written on every page.


Before the World War First, there were only a few countries, which had there own central banks. After the War, the number of central banks


has increased and now there is not a single country in the world, which does not have its own central bank. There were many considerations underlying the establishment of a central bank. After the first war, there was complete confusion in currency and exchange markets. There were large withdrawals of money form banks. The bank reserves fell below the needed levels. There was no institution, which could supervise the working of banks and also serve as a fiscal agent. In addition to the above difficulties, there was a rigidity or lack of elasticity in the supply of the currency. There were also reoccurrences of failures of the commercial banks. In order to solve the monetary problems of the countries and set them on the healthy footings, a conference was held at Brussels in 1920. It was decided in that conference that to control the supply of money and credit in the economy and maintained stable business conditions, each country must establish its own central bank in order to solve the problems.

Brief History of State Bank of Pakistan:
At the time of independence, the immediate and foremost work of the government of Pakistan was to establish a central bank so that it should have an independent currency and banking system. At that time Pakistan faced a lot of complex problems on account of partition of the Sub-continent. It was decided with India that the Reserve Bank STATE BANK OF PAKISTAN

2) The Indian note will remain legal tender in both Pakistan and India until 30th September 1948. which Pakistan was entitled STATE BANK OF PAKISTAN . Establishment of State Bank of Pakistan: Immediately after partition. It rather created further problems and difficulties by refusing to give Rs55 Crore. 1) The reserve bank of India would be the sole note issuing authority in Pakistan till September 1948. The Govt of Pakistan will issue its own currency from October1. The coins issued by the Govt of India would remain the legal tender in Pakistan for at least one year from the date of issue of Pakistani coins. 4) The Govt of Pakistan will issue notes and coins in the country after 30th September 1948. The reserve bank of India showed reluctance in solving the banking crises. 1948. 1948.of India would continue to act as a central bank and currency authority for Pakistan till the establishment of its own central bank. 1947 by an order called “Monetary System and Reserve Bank Order 1947”. 3) The reserve bank of India would transfer the assets of value equal to Pakistani note to Pakistani government after 30th September 1948. Following are the main provisions of the said order. The transitional arrangement of having one central bank for two independent countries was promulgated by Governor General of undivided India on August 14. 5) The reserve bank of India would perform the full functions of central bank in Pakistan up to September 30th. the newly born state was forced with a serious banking situation due to the wholesale migration of the banking staff to India.

 Firstly. The commercial banks are profit seeking companies where as the central bank does not compete with the commercial banks in the hunting of profits. It therefore decided to establish its own currency authority earlier then it was mutually agreed upon.to share the cash balance of the undivided India.” The objectives of establishing Central Bank: . the objectives of establishing the central bank are different from that of commercial bank. the bank is entrusted with the duty of regulating the issue of bank notes and keeping of reserve with a view to seeking monetary stability in Pakistan What The Central Bank is? “The guiding principle of a Central Bank is that it acts only in the public interest and for the welfare of the community as a whole and without regard to profits a primary consideration. The reserve bank of India was relieved of its factions in Pakistan from the first day of July 1948. The Govt of Pakistan then realized that reserve bank of India cannot existence of Pakistan. The Governor General of Pakistan Quid-e-Azam Muhammad Ali Jinnah issued order for the establishment of State Bank of Pakistan on 1st July 1948. According to the State Bank order 1948. Earning of profits is the prime objectives of today STATE BANK OF PAKISTAN .

The central bank is charged with the responsibility of managing the banking and credit system to achieve high and stable level of employment and production in the economy. Organizational Hierarchy Governor Deputy Governo r STATE BANK OF PAKISTAN Deputy Governo r . It controls the monetary as well as the banking system on the behalf of the government. the central bank is subordinates to the government or state. it deals with the member banks and supervises their work.commercial banks.  Thirdly. while for the central bank it has only a secondary consideration.  Secondly.

1962 every banking company shall maintain in Pakistan in cash. Director Assistant Director Statutory Obligations (RMD) STATUTORY CASH RESERVE In terms of Section36 (1) SBP Act. 1956. Presently the requirement is 5% on weekly average basis subject to daily minimum of 4% of Time & Demand Liabilities. gold or unencumbered 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 STATE BANK OF PAKISTAN . 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.Executive Directors Joint Director Dy. STATUTORY LIQUIDITY REQUIREMENT In terms of Section 29(1) of Banking Companies Ordinance.

liabilities shall not include NBFIs equity. For the purpose of this rule. and every banking company incorporated outside Pakistan. in Government Securities. SUBMISSION OF ANNUAL AUDITED ACCOUNTS BY NBFIs Under Rule 17 of NBFIs Rule of Business. in respect of all business transacted by it.total of its time & demand liabilities in Pakistan. they are also required to maintain cash balance with State Bank. deferred taxation not payable within 12 months. 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. ANNUAL ACCOUNTS: At the expiration of each calendar year every banking company incorporated in Pakistan. all NBFIs are required to submit their annual audited accounts within a period of 6 months after the close of their accounting year. advance lease rentals and deposits from financial institutions. lease key money. all NBFIs are required to invest 14% of their liabilities defined in the Rule. dividend payable within two months. borrowings from financial institutions including accruals thereon. as may be notified by State Bank from time to time. 1962). in respect of all business transited through its branches in Pakistan. NIT Units. shares of listed companies or listed debt securities in the prescribed manner. which shall not be less than 1% of their liabilities as defined above. In addition. STATE BANK OF PAKISTAN . Presently the requirement is 15% (excluding 5% statutory cash reserve) of the total of its time and demand liabilities in Pakistan. MAINTENANCE OF LIQUIDITY AGANINST CERTAIN LIABILITIES In terms of Rule 6 of non banking financial institutions (NBFIs) Rules of Business.

MINIMUM CAPITAL REQUIREMENTS: In terms of Section 13 of Banking Companies Ordinance. remained basically unchanged until 1st January 1974 when the Bank was nationalized. with subsequent amendments. Additionally they are also required to maintain a minimum paid up capital of Rs. As present. as originally laid down in the State Bank of Pakistan Order 1948. all banks operating in Pakistan are required to maintain capital and unencumbered general reserve. STATE BANK OF PAKISTAN . 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. Core Functions of State Bank of Pakistan: State Bank of Pakistan is the Central Bank of the country. forms the basis of its operations today.500 million.SUBMISSION OF RETURNS: The accounts and balance-sheet referred to in section 34 together with the auditor’s report as passed in the annual General Meeting shall be published in the prescribed manner. the scope of its functions was considerably enlarged. The State Bank of Pakistan Act 1956. 1962). the value of which is not less than 8% of their risk weighted assets. 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. While its constitution.

this autonomy was further strengthened by issuing three Amendment Ordinances (which were approved by the Parliament in May. 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". 1997) namely. 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 utilization of the country’s productive resources". Like a Central Bank in any developing country. The changes in the State Bank Act gave full and exclusive authority to the State Bank to regulate the banking sector. 1997. with the Sate Bank having a role in their appointment and removal. to conduct an independent monetary policy and to set limit on government borrowings from the State Bank of Pakistan. State Bank of Pakistan performs both the traditional and developmental functions to achieve macro-economic goals. the State Bank of Pakistan was granted autonomy in February 1994. The amendments in Banks Nationalization Act abolished the Pakistan Banking Council (an institution established to look after the affairs of NCBs) and institutionalised the process of appointment of the Chief Executives and Boards of the nationalised commercial banks (NCBs) and development finance institutions (DFIs). 1956. The scope of the Bank’s operations was considerably widened in the State Bank of Pakistan Act 1956. On 21st January. which are generally STATE BANK OF PAKISTAN . Banking Companies Ordinance. The amendments also increased the autonomy and accountability of the Chief Executives and the Boards of Directors of banks and DFIs. 1962 and Banks Nationalization Act.Under the State Bank of Pakistan Order 1948. 1974. State Bank of Pakistan Act. Under financial sector reforms. The traditional functions.

o The sole power to issue notes enables the central bank to control the lending operations of the commercial banks. may be classified into two groups: 1) The primary functions including:  Issue of notes.  Regulation and supervision of the financial system. Advantages: o It brings uniformity in the circulation of currency.  Lender of the last resort. Sole right of Note Issue: The central bank has the monopoly of note issue in world. The monopoly in issuance of currency notes has the following advantages.performed by central banks almost all over the world.  Bankers’ bank. In Pakistan state bank of Pakistan is central bank and has sole right to issue currency notes (coins are issued by the Ministry of Finance in Pakistan). o The central bank is in a better position to exercise control over the money supply in the country.  Management of foreign exchange.   Banker to Government. STATE BANK OF PAKISTAN . Conduct of monetary policy. etc. 2) The secondary functions including:  The agency functions like management of public debt.

o Law regulates the right of note issue. The supply of notes is tied down to the supply of gold available in the country. The STATE BANK OF PAKISTAN . In Pakistan proportionate reserve system is prevailing at the moment. Methods of Note Issue: There are two methods of note issue named as Fixed Fiduciary System and Proportionate Reserve System. institutionalization of savings and investment. The non-traditional or promotional functions. And this system is not in a position to meet the needs of growing trade industry and commerce and not a favorable system for less developed countries like the economy of Pakistan. Proportionate Reserve System: According to Proportionate Reserve System. this methods assures maximum safety for the notes without any doubt but it lacks elasticity. This system also fails to take into consideration the commercial banks power to create credit. 2. 1. provision of training facilities to bankers. the central bank is to keep a certain percentage of the total notes issued in gold. And other functions like advising the government on policy matters and maintaining close relationships with international financial institutions. Therefore it enhanced and increased public confidence in the monetary system of the country. silver etc. Note issued in excess of this amount must be fully backed gold and silver etc. which need to be covered by government securities. Fixed Fiduciary System: Under this system a fixed amount is laid down. performed by the State Bank include development of financial framework. and provision of credit to priority sectors.

the intermediate target of M2 would be achieved by observing the desired path of reserve money . the maintenance of monetary stability. 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.e. The basic objective underlying its functions is twofold i. REGULATION OF LIQUIDITY: Being the Central Bank of the country. A reserve money management programmed has been developed. the monetary and credit scenario was characterised by acute segmentation of credit markets with all the attendant distortions. Until recently. 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. as well as the promotion of economic growth. The main functions and responsibilities of the State Bank can be broadly categorized as under. To regulate the volume and the direction of flow of credit to different uses and sectors. which essentially marked a departure from administrative controls and quantitative restrictions to market-based monetary management.the operating target. While use in now being STATE BANK OF PAKISTAN . In terms of the programmed. thereby leading towards the stability in the domestic prices. the Bank makes use of both direct and indirect instruments of monetary management.State Bank also has been playing an active part in the process of islamization of the banking system.

the program’s reliance is mainly on open market operations. the State Bank in the premises of the concerned banks when required undertakes on-site inspection. To deepen and broaden financial markets as also to diversify the sources of credit.made of such indirect instruments of control as cash reserve ratio and liquidity ratio. The State Bank has also been STATE BANK OF PAKISTAN . has made the supervisory role more difficult and challenging. The banking activities are now being monitored through a system of ‘off-site’ surveillance and ‘on-site’ inspection and supervision. a number of non-bank financial institutions (NBFIs) were allowed to increase substantially. The institutional complexity is increasing. together with growing complexities of modern banking operations. On other hand. Accordingly. Off-site surveillance is conducted by the State Bank through regular checking of various returns regularly received from the different banks. technical sophistication is improving and technical base of banking activities is expanding. the out dated inspection techniques have been replaced with the new ones to have better inspection and supervision of the financial institutions. The rapid advancement in information technology. ENSURING THE SOUNDNESS OF FINANCIAL SYSTEM: REGULATION AND SUPERVISION One of the fundamental responsibilities of the State Bank is regulation and supervision of the financial system to ensure its soundness and stability as well as to protect the interests of depositors.

1997. the activities of these and Department NBFIs Regulation Supervision Department was set up. 1997. envisaging minimum paid up capital of Rs. ensuring adequate transparency of operations. the State Bank has issued a comprehensive set of Prudential Regulations (for commercial banks) and Rules of Business (for NBFIs).500 million have been enforced. As from January. Effective December. are being regulated/supervised by the Securities and Exchange Commission (SECP). STATE BANK OF PAKISTAN . Revised capital requirements. prohibit criminal use of banking channels for the purpose of money laundering and other unlawful activities. and to ensure the viability of institutions providing these services. direct banks to refrain from window dressing and prohibit them to extend fresh loan to defaulters of old loans. lay down rules for the payment of dividends. prescribe guide lines relating to classification of short-term and long-term loan facilities. besides providing for credit and risk exposure limits.charged with the responsibilities of regulating and supervising of such institutions. in order to safeguard the interest of ultimate users of the financial services. Modaraba and leasing companies. which are also specialized type of NBFIs. Moreover. The existing format of balance sheet and profit-and-loss account has been changed to conform to international standards. every bank was required to maintain capital and unencumbered general reserves equivalent to 8 per cent of its risk weighted assets. To a regulate new and supervise namely. institutions. rather than the State Bank of Pakistan. The "Rules of Business" for NBFIs became effective since the day NBFIs came under State Bank’s jurisdiction. set criteria for management. The "Prudential Regulations" for banks.

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. with reference to a basket of currencies of Pakistan’s major trading partners and competitors. among other measures taken by it.S. various exchange policies have been adopted from time to time keeping in view the prevailing circumstances.f. 1982 under which the value of the rupee was determined on daily basis.EXCHANGE RATE MANAGEMENT AND BALANCE OF PAYMENTS One of the major responsibilities of the State Bank is the maintenance of external value of the currency. 1956. STATE BANK OF PAKISTAN . Pak-rupee remained linked to Pound Sterling till September 1971 and subsequently to U. Dollar. 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. 3 and 4 of the IMF Articles of Agreement. As an agent to the Government. During the course of time. it was decided to adopt the managed floating exchange rate system w.e. 1994. the Bank has been authorized to purchase and sale gold. Section 2. thereby making the Pak-rupee convertible for current international transactions with effect from July 1. to regulate foreign exchange reserves of the country in line with the stipulations of the Foreign Exchange Act 1947. Adjustments were made in its value as and when the circumstances so warranted. the Bank is required. However. In this regard. an important development took place when Pakistan accepted obligations of Article-VIII. January 8. To achieve the objective.

For this purpose. These reserves are also being used for intervention in the foreign exchange market. with the introduction of market-based floating exchange rate system. 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 DEVELOPMENTAL ROLE OF STATE BANK 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.After nuclear detonation by Pakistan in 1998. the State Bank is also responsible for the management of the foreign exchange reserves. 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. 22nd July 1998. has now been done away with and the commercial banks and other authorized dealers have been made free to hold and undertake transaction in foreign currencies. the exchange rate has been unified. under which the exchange rate is determined by the demand and supply positions in the foreign exchange market. after taking into consideration the overall level of reserves.e. maturities and payment obligations. The task is being performed by an Investment Committee which.f. previously required to make to State Bank through authorized dealers. effective 19th May 1999. takes decision to make investment of surplus funds in such a manner that ensures liquidity of funds as well as maximizes the earnings. The surrender requirement of foreign exchange receipts on account of exports and services. a two-tier exchange rate system was introduced w. As the custodian of country’s external reserves. This role covers not only the STATE BANK OF PAKISTAN . However.

development of important components of monetary and capital markets but also to assist the process of economic growth and promote the fuller subsidized of a country’s resources. 1974. and development of the capital market Banking Sector Supervision in Pakistan: State Bank of Pakistan (SBP) which is the Central Bank of the country has been interalia entrusted with the responsibility for an ongoing effective supervision of the banking sector. State Bank of Pakistan Act. the State Bank of Pakistan. the State Bank with a well-recognised developmental role has combined the orthodox central banking functions. 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. The Bank’s participation in the development process has been in the form of rehabilitation of banking system in Pakistan. which vest powers in State Bank of Pakistan (SBP) to carry out inspection of banks. Besides. are contained in the Banking Companies Ordinance. providing subsidized credit. directing the use of credit according to selected development priorities. besides discharging its traditional functions of regulating money and credit. Ever since its establishment. The Financial Institutions (Recovery STATE BANK OF PAKISTAN . 1956 and the Bank’s Nationalization Act. development of new financial institutions and debt instruments in order to promote financial intermediation. has played an active developmental role to promote the subsidized of macro-economic goals. establishment of Development Financial Institutions (DFIs). Accordingly. 1962. 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 relevant provisions of law.

Under the WTO commitments the operational status of branch network of foreign banks operating in Pakistan as on 31-12-1997 has been protected and frozen. Modaraba. 1984 and Statutory Regulatory Orders (SROs) are the relevant legislations. Under the prevalent legislative structure the supervisory responsibilities in case of Banks. Non-banking Finance Companies (NBFCs) (leasing companies. Venture Capital Companies. New foreign banks desirous of entering banking business in Pakistan will now be required to incorporate as domestic bank under the local laws. At present there are 41 scheduled banks. Investment Banks. which cover the activities concerning the banking sector. The financial sector in Pakistan comprises of Commercial Banks.of finances) Ordinance.1 billion provided foreign share holding is restricted to a maximum of 49%. and 2 MFBs operating in Pakistan whose activities are regulated and supervised by State Bank of Pakistan. 2001. Development Finance Institutions (DFIs). 6 DFIs. existing foreign banks having less than 3 branches can have branches to the extent of maximum number of 3 only. and Microfinance Banks (MFBs) falls within legal ambit of State Bank of Pakistan while the rest of the financial institutions are monitored by other authorities such as Securities and Exchange Commission and Controller of Insurance. Companies Ordinance. The commercial banks comprise of 3 nationalized STATE BANK OF PAKISTAN . Mutual Funds). The branches of foreign banks operating in Pakistan can also be converted into a local commercial bank by incorporating under the local laws and subject to a minimum paid up capital of Rs. Discount Houses. and Micro finance Banks (MFBs). Housing Finance Companies. Development Finance Institutions (DFIs). Stock Exchange and Insurance Companies. However.

which gave autonomy to the State Bank in the area of banking supervision. In every case in which the management of a bank is failing to discharge its responsibility in accordance with the applicable statutory criteria or banking rules & regulations or is failing to protect the interests of the depositors or for advancing loans and finance without due regard for the best interests of the bank or for reasons other than merit. Caution or prohibit bank against entering STATE BANK OF PAKISTAN . Cancel license of a bank. 3 privatized banks. interalia. 15 private sector banks. Give directions to the bank as it deem fit. Direct prosecution of directors. the State Bank is empowered to take necessary remedial steps. The State Bank of Pakistan can. chief executive or other officer. 14 foreign banks. 2 provincial scheduled banks. 1962 the State Bank of Pakistan is fully authorized to regulate and supervise banks and development finance institutions. Supersede the Board of Directors. advances & credits. and banking rules & regulations. and 4 specialized banks. Prohibiting the bank from accepting deposits. exercise the following powers vested upon it under the Banking Companies Ordinance:- Prohibiting the bank from giving loans. Under Section 40(A) of the said Ordinance it is the responsibility of State Bank to systematically monitor the performance of every banking company to ensure its compliance with the statutory criteria. Remove chairman. chief executive or other managerial persons from the office and appoint a person as chairman. During the year 1997 some major amendments were made in the banking laws.banks. director or chief executive. Under the Banking Companies Ordinance. directors.

Additionally. Winding up the bank through high court. Apply to Federal Government for an order of moratorium in respect of a bank and to prepare scheme of reconstruction or amalgamation. DFIs are required to maintain SLR of 14% and Cash Reserve of 1% of their specified liabilities. These regulations incorporate the spirit and essence of BIS regulations and are constantly watched for possible improvement so that their enforcement yields the best results to promote the objectives of supervision. Presently the Cash Reserve Requirement is 5% on weekly average basis subject to daily minimum of 4% of Time & Demand Liabilities. In addition to that banks are required to maintain Statutory Liquidity Requirement (SLR) @ 15% of their Time & Demand Liabilities.into any particular transaction(s). Require bank to make changes in management. The State Bank has framed Prudential Regulations for banks and Rules of Business for DFIs that present a prudent operating framework within which banks and DFIs are expected to conduct their business in a safe and sound manner taking into account the risks associated with their activities. The Banking Companies Ordinance had been amended in 1997 which empowers the State Bank to prescribe capital requirements for banks. Similarly. The banks have to maintain a Capital Adequacy Ratio STATE BANK OF PAKISTAN . The State Bank is empowered to determine Statutory Liquidity and Cash Reserve Requirements for banks/DFIs. Impose penalties including civil money penalties. In exercise of these powers the State Bank has laid down Minimum Capital Requirements for banks based on Basle capital structure. Appoint its officers to observe the manner in which affairs of bank/its branches/office are conducted.

at the minimum. 2003 banks are required to maintain a minimum paid up capital level of Rs. While the off-site monitoring aspect is looked after by the State Bank of Pakistan’s Banking Supervision Department the responsibility for the on-site examination of the banking system in Pakistan lies on the shoulders of the Banking Inspection Department. review and analysis of periodic financial statements and returns submitted to the State Bank. The system also works as an early warning to STATE BANK OF PAKISTAN . and to target scarce on-site supervisory resources to areas or activities of greater risk. Off-Site Monitoring at Banking Sector Development: The objectives of off-site surveillance over the banking system are to monitor the condition of individual banks. The process thus assists in making the most effective use of scarce on-site inspection resources. 8% of their risk weighted assets. so that problems may be identified as soon as these emerge. The off-site analysis facilitate monitoring of each bank’s performance and its observance of supervisory requirements over time.in a way that their capital and unencumbered general reserves are.1 Billion. Off-site surveillance system revolves around receipt. to provide early identification of problems so that corrective action can be effected. This has been designed to ensure that institutions operate in a safe and sound manner. and effective from 1st January. The focus of the supervisory efforts by the State Bank of Pakistan is on the health and stability of the banking system in Pakistan. as well as condition within the banking system.

While regulations have existed for some time aimed at convergence of the essential industry indicators to the globally accepted criteria. The policy provides a framework within which supervisory ratings. and other appropriate indicators of banks soundness. The State Bank of Pakistan’s policy for frequency of inspection of banks and DFIs is designed to provide flexibility in scheduling inspections consistent with the need to maintain safety and soundness. surveillance and financial monitoring results. which reflect high probability of financial difficulties so that policies and corrective actions can be designed and implemented accordingly. which support Banking Supervision Departments in maintaining a proactive approach in discharge of the statutory responsibilities. In consonance with the responsibilities envisaged under the Core Principles recommended by the Basle Committee. With a view to streamline the approach and the underlying procedures for effective and efficient banking supervision State Bank of Pakistan STATE BANK OF PAKISTAN . the On-Site examination capabilities at the State Bank of Pakistan have been substantially augmented to bring them at par with the expected international standards. are to be considered in carrying out the State Bank of Pakistan’s fundamental policy of subjecting each bank and non-bank financial institution under its supervision to a periodic on-site inspection. Periodic On-Site examinations of the financial condition of institutions. falling within SBP’s jurisdictions. the bank in all its assessments has adopted a risk-based approach to evaluations.identify those areas. remains the most effective supervisory tool.

As a result of these close coordination bank ratings reflects as accurately as possible. the true financial condition of a bank and the banking system as a whole. 1997 (copy enclosed).has embarked upon a major overhauling of its own capabilities so as to bring them at par with international practices. With the shift bank in supervisory rating focus from in ‘compliance conformity oriented’ with to ‘Risk Assessment Approach’ State Bank of Pakistan has developed a uniform system international standards/benchmarks. The modified law interlay states that 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 STATE BANK OF PAKISTAN . This entailed hiring of services of consultants of world repute (M/s. MINIMUM CAPITAL REQUIREMENTS: Banks are aware that Section 13 of the Banking Companies Ordinance. Arthur Andersen) under the FSID Project of the World Bank. In order to portray a legitimate and true financial condition of a bank the off-site surveillance system and the on-site inspection functions of banking supervision work extremely close together. 1962 relating to requirement of minimum paid up capital and reserves has recently been modified through the Banking Companies (Second Amendment) Ordinance. Now each bank is appraised under the CAMELSS/CAELS Rating System. These Consultants have compiled extensive on-site and off-site manuals. Besides qualified and professional trained human resource have been recruited and rigorous theoretical and hands-on training has been provided to them.

the State Bank shall. Accordingly. it shall meet shortfall by 31st December. on request from the banking company concerned. No banking company incorporated in Pakistan shall commence and carry on banking business unless it has a minimum paid up capital or Rs 500 million. 1997. Effective from where the capital and unencumbered general reserves maintained by a banking company are found short of the minimum required capital and unencumbered general reserves (MCR) on December 31st. Similarly. Provided that where a banking company already in existence is found short of the minimum required paid up capital on 31st December. no banking company incorporated outside Pakistan shall commence and carry on banking business in Pakistan unless it has a minimum paid up capital of the value of Rs 500 million. 1998. The capital and unencumbered general reserves for the purposes of the minimum requirement of 8% of risk weighted assets shall mean and include:- STATE BANK OF PAKISTAN . 3. in exercise of the powers vested under the above provisions of law it has since been decided that effective from December 31. 4. 1997 all banks shall maintain minimum capital as laid down in the enclosed Annexure. 2. INSTRUCTIONS ON CALCULATION OF MINIMUM CAPITAL Requirements Based On Risk Weighted Assets 1. 1997.unencumbered general reserves so of such minimum value within such period as may be determined and notified by the State Bank from time to time. consider grant of extension in time for meeting the required capital adequacy.

A) Equity: i. iv. STATE BANK OF PAKISTAN . iv. v. if any) IN THE CASE OF FOREIGN BANKS OPERATING IN PAKINSTAN. While calculating the amount of equity the followings shall be deducted: Book value of intangible assets such as goodwill. The sum total of the different components of the Supplementary Capital will be limited to the sum total of the various components of the Equity. The Supplementary Capital shall be subject to the following limitations and restrictions:i. Fully paid up capital / capital deposited with SBP* Balance in share premium account Reserve for Bonus Shares General Reserves as disclosed on the balance-sheet Unappropriate/unremitted* profits (net of accumulated losses. iii. General Provisions or Reserves for loan losses Revaluation Reserves Undisclosed Reserves Subordinate debt. computation of the amount of Equity and 1. ii. ii. Shortfall in provisions required against classified assets irrespective of any relaxation allowed by the State Bank. etc. ii. iii. Supplementary Capital: i. A.

postal services. participants. The spacious training rooms. arranging of training material. STATE BANK OF PAKISTAN . photocopies. banking journals and periodicals besides providing a client and congenial atmosphere for all the participants to get benefit of learning. Facilities Available All major training activities /courses and State Bank ’s Training Programmes are held at NIBAF. reading material. hospitals are located quite close to institute. The Publication Wing housed in the Academic Block provides all sort of published material which includes course books. trainers. and Syndicate rooms are suitable for any type of training program /courses. The institute provides the residential facilities equivalent to four-star hotel. The library of the institute contains a rich collection of books. hand books of training and other publications of NIBAF to the trainees.It is situated at Sector H –8 Pittras Bukahri Road near Zero Point.5 acres. The institute has a modern complex constructed on a plot of land measuring 2. Government offices at Islamabad are situated at a distance of 6/7 kilometers from the institute. Auditorium. The Public transport is easily available while other facilities like telephone. The Academic block of the institute is well equipped with all latest state of all audio visual aids & a computer laboratory. The sector H is famous for educational and vocational institutions and offices. having academic and hostel blocks.NIBAF Files and Information’s Location National Institute of Banking and Finance is also referred as State Bank Training Institute (SBTI) NIBAF Islamabad .

To promote healthy competition tournaments are held for each course participants. The top international institutions like IMF.He is assisted by two Directors one is looking after Academic and the other Logistics side. electronic equipment for scanning. 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. development and review of relevant training programmed for both STATE BANK OF PAKISTAN . 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. etc on weekends /holidays. providing catering services to trainers & participants. Indoor games and other recreational facilities like TV. Bank Negra Malaysia has appreciated NIBAF for its arrangements. The institute now has it own in house capacity to organize the design. Taxilla. NIBAF is now regarded as an institution of excellence in the area of training of Banking & Finance in Pakistan. Internet exploring etc. VCR is available in the lounge of the block. typing. Sight seeing trips are also arranged to visit hill stations like Murree. It is also equipped with modern.training managers and other senior officials from SBP and other institutions as well. Kaghan. The hostel block of NIBAF consists of 120 single occupancy rooms and 4 executives suits that are fully furnished having all facilities of fourstar hotel providing homely environment. word processing of documents. Nathiagalli. There is also a wellmaintained cafeteria supported by a modern commercial kitchen. Director General NIBAF is the overall in charge of the Academic Side of the Institute . Bhourbon. Naran.

Foreign Exchange. The institute has conducted a number of training programmes. STATE BANK OF PAKISTAN . 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 • • • Institutional Arrangements: 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. Macro Finance. Bankers of the commercial banks and custodian of their cash reserves. Commercial Banking etc. 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.domestic and foreign institutions in the field of banking and finance. Account Department: A Brief Of The Working Of The accounts Department Functions of the Department: • • • Issuance of notes and coins in Pakistan Bankers of the Federal and Provincial Governments.

• • and Issue departments. Issue Department deals with management of currency operations. • • bank. 1956. • The Accounts Department is responsible to perform and manage the functions detailed on pre-page. Preparation of Balance Sheet and P/L account of the Preparation of annual budget of the bank. • the government. Operational control of working of offices by framing policies and STATE BANK OF PAKISTAN . preparation of Profit and Loss Account and Balance Sheet on yearly basis. formulation of budget estimates of revenue and capital expenditure. Banking Department relates to the operation of offices of the Bank. exchange. which includes designing. maintenance of Federal and Provincial Government Accounts. • balances.• Custodian of Pakistan’s reserves of approved foreign Sale purchase of foreign currencies. Issuance of weekly statement of affairs of Banking Management of Provident/General Provident Fund Management of Prize bonds and saving schemes of Functional control of the offices of the bank. printing of currency notes and its circulation. Management of General Provident Fund and Provident Fund balances of all employees of the Bank. It controls the working of the Offices under the provisions of Issue and Banking Department Manuals. booking of financial transactions in the books of accounts of Central Directorate and issue of weekly Statement of Affairs as required under the provisions of SBP Act.

• Regulate the withdrawal of old notes from circulation and maintenance of its account etc.procedures under the provisions of Banking/Issue Department Manuals. its printing through Pakistan Security Printing Corporation and its issue through our offices of issue i. the Department has been divided into six divisions as detailed below:• • • • • Currency Division International Division Accounts Division Audit Division Support Services Division Prize Bonds & Savings Scheme Division: Brief Functions Of The Divisions 1. CURRENCY DIVISION • Arrange currency operation in the country which relates to designing of currency notes. Sale/ purchase of foreign currencies.e. Issuance of weekly statement of Affairs and preparation of Balance Sheet of Issue Department. Peshawar and Quetta. To achieve the above objectives. Arrange purchase of confiscated Gold from Government • • Departments. Karachi. Lahore. maintenance of foreign reserves of the country. STATE BANK OF PAKISTAN . Accounts Department is also responsible for management of Prize Bonds and Savings Schemes of the Government of Pakistan.

IBRD. Making payments to parties/executing agencies under various etc. Iran. Placement of Bank’s Foreign Reserve as per decision of Investment Committee in term deposits with of Payments to Commercial banks of International repute. SDR’s/receiptof IMF. Issue of payment guarantees in respect of foreign currency loans negotiated by the Federal Government/Provincial Government. by the International Donor Agencies viz. ACCOUNTS DIVISION (Accounts (Main) Section): STATE BANK OF PAKISTAN .. Government of Pakistan. Sale/Purchase of approved foreign currency through the authorised dealers. Realisation of interest income on our investments in foreign and domestic securities and maintenance of their respective record. and Allocations/distributions of Government’s Letters of Credit of Pakistani Commercial Banks as per ratio prescribed by Ministry of Finance. Receipt/payments under ACU arrangements and settlement thereof with ACU Secretariat. autonomous bodies and approved organization on the strength of counter guarantee from the Ministry of Finance.ADB etc. INTERNATIONAL DIVISON:This Division is responsible for investment of Bank’s funds in foreign as well as local currencies.Make arrangements for opening of new offices of State Bank of Pakistan. Dealing with IMF transactions in respect of acquisition/allocatio tranches/Purchase/Repurchases.

Consolidation of accounts received from offices. • • Reconciliation of State Bank of Pakistan General Account relating to Inter-Office transactions. Monitoring of debtor balances of Provincial Governments AUDIT DIVISION: STATE BANK OF PAKISTAN . • Preparation of daily balance position and communication thereof to the Federal Finance Division and Provincial Finance Departments.1956. Preparation of weekly statement of Affairs for issuance in the Government Gazette as provided in the State Bank of Pakistan Act.• • • Maintenance of Accounts of Central Directorate. Government Accounts Section • Maintenance of Federal & Provincial Government Account on the basis of receipt and payments effected at our offices and National Bank of Pakistan. • Preparation of Profit and Loss Account and Balance Sheet (Banking Department) as on 30th June each year. Monitoring of contraction and expansion of Currency operations. • Central and Provincial Zakat Funds Account are also maintained on the basis of financial and lunar year. Preparation of Annual Budget of the Bank for Revenue and Capital expenditure under different heads of Charges/Dead stock Accounts.

printing and circulation to the Offices. • Specimen signature of Officers. Implementation on the audit inspection reports submitted by Audit Department after annual audit of Offices and Departments of Central Directorate. SUPPORT SERVICES DIVISION Policy Regulation Section • & Framing rules and regulations relating to the working of Offices. • • Amendment in Banking Department Manual. interpretation of provisions of Banking Department and Issue Department Manuals. • Monitor the expenditure budgetary limit under various heads of charges Account by the offices of the Bank and Departments of Central Directorate. Administration Section: STATE BANK OF PAKISTAN . Fraud Forgery cases.• Responsible for internal audit control on the expenditure of the Bank incurred in Central Directorate as also the expenditure incurred in various offices of the Bank on monthly basis. Matters relating to Government Audit Report on working of Office and meetings of Public Accounts Committee.

on the basis of annual indent received from Offices and Departments of Central Directorate. Maintenance of BF Account and payment thereof. i. Receipt and supply of Stationery articles. Private insurance policies financed from PF/GPF. Special Cell (Menual): • Looking after the work of updating of Banking Department Manual etc. death claim in respect of GTA. (Central Accounts {Remittance/ Audit & Record} STATE BANK OF PAKISTAN . its costing. Forms. billing and dealing with other affiliated work. Payment of GTA premia to State Life Insurance Corporation. deals with the cases of Payment Unit. Registers and papers etc.• Internal administrative control of the Department. • Maintenance of leave record of Officers/Staff of the Department. • Arrange its supply to outstation Offices in annual basis and Offices in Karachi and Departments of Central Directorate on monthly basis. Funds Section: • Management of PF/GPF balances and retirement benefits of the retired employees of the Bank. maintenance of Petty Cash/ Imprest Account. • • Stationery Management Section: • Procurement of Stationery articles.

P and payment of commission to them on Intra-Provincial Government drafts/drawings and encashment. • Drawing and encashment received from Treasury Agencies. Dealing with the cases of frauds and forgeries in the Prize Bonds Scheme. Management and control under the provisions of Prize Bonds Rules/Procedure of sale/ encashment of Prize Bonds. Payment of expenditure incurred in connection with the • dispatch/receipt of remittance of treasury by the N. Preparation of consolidated position of sales/ encashment of Prize Bonds on fortnightly basis or such intervals as required by • • • • STATE BANK OF PAKISTAN . Maintenance of Record of Intra Provincial NBP / SBP drafts. Its distribution to our offices through respective Public Debt Offices.B.Sections) • Deal with the adjustment of Remittance transactions under the Remittance facilities scheme under section17 (7) of SBP Act1956. PRIZE BONDS AND SAVINGS SCHEMES DIVISION: • Printing of Prize Bonds through Pakistan Security Printing Corporation. • Payment of freight/ commission to Railway authorities in connection with the dispatch of treasure etc. SBP Offices and National Bank of Pakistan-Scrutiny of advises. and deal with other affiliated work. sorting of paid instruments and application Forms etc.

Preparation of Annual Credit Plan. public sector enterprises including (major STATE BANK OF PAKISTAN . These include: • • • • • • • • Preparation of Monetary Policy Statement. commodity operations. Management and control of Saving Schemes of the Government effected at our offices and branches of Commercial Banks. Computation of REER index. the Department has been divided into the following four groups: Monetary Survey & IMF Consultations Group: This group is responsible for preparation of Monetary Survey. Preparation of Monetary Surveys. • Making arrangements for prize bonds draws as per schedule proposed by the Central Directorate of National Savings. Government of Pakistan. For operational purposes. Economic Department: Economic Policy Department is primarily engaged in eight fundamental activities. bank credit to private sector. Consultations with the IMF.the Central Directorate of National Savings. Analysis of financial markets. The Department also deals with external sector issues and references on money. credit and exchange rates management. details of Government budgetary borrowings. Computation of domestic public debt. and Empirical research papers.

The group also prepares periodic reports/reviews on Credit assessment of Private sector. banking issues and reforms. STATE BANK OF PAKISTAN . Financial Market & Exchange Rates Group This group is responsible to keep constant watch and analyze developments in the financial markets. and working papers relevant to financial markets on issues as identified by the MERPC. In addition to this. credit assessment of govt.autonomous bodies) and other items separately for SBP and Scheduled banks. domestic debt and impact analysis of various policy initiatives. analysis of lending rates. the group is also assigned the task of preparation of material for IMF Consultations. credit monitoring. analysis of tax revenue. it is also assigned the task of dealing with the matters relating to exchange rate and foreign exchange reserves. NSS rates. World Bank and Ministry of Finance. Further. The group also intends to initiate work on micro credit and SMEs. Money. Besides. large scale manufacturing developments & disposal of references on credit allocation. working papers for NCCC meetings and performs Secretariat work for NCCC. Inflation watch. it deals with references/queries relating to financial markets and exchange rate issues. sector. The group prepares analytical reports. It prepares and supplies variety of background information for circulation in MERPC meetings. Credit & Prices Group The group is responsible for preparing credit plans. The other assignments include supplying of information/data relating to Exchange Rate/Forex Reserves/FCAs to World Bank. Other assignments include credit targeting. monitoring of Performance Criteria and disposal of queries and references. It also prepares NEER and REER Indices for submission to Governor.

is working to manage/monitor the foreign exchange activities in the country.External Sector Group: The group deals with the matters relating to Pakistan’s relationship with IFIs like IMF. etc. Foreign exchange business in Pakistan is regulated under Foreign Exchange Regulations Act. one of the core departments of the State Bank. authorised by FED to carry out foreign exchange business. There are. and impact of policy changes. workers remittances. of World various Economic Forum. 2. IBRD. there are general instructions. Foreign Exchange Policy: Foreign Exchange Department (FED). Mostly. There exist a Foreign Exchange Manual for guidance of Authorised Dealers (ADs). the group is also assigned the task of dealing with the matters relating to foreign trade. Further. 1947). it prepares briefs on international trade. In addition. balance of payments. Circulars/Circular letters. Their policies and likely impact on Pakistan is also evaluated. meant for Pakistan’s delegations attending the IMF/World Bank meetings and other International fora e. It also prepares comments on Fund Documents. and general public including local/foreign investors. and foreign investment. ADB along with the issues of WTO and SAARCFINANCE. payments & economic issues. certain areas for which FED's approval is necessary. Commonwealth received Finance from Ministers’ meetings. however. The nature of the work of the Department is of policy as well as operational for which the head office in Karachi is supported by 16 STATE BANK OF PAKISTAN . The change in instructions/policies/procedures is brought through F. 1947(FER Act.E. and replies references/queries international organizations/agencies etc.g.

• • • • commercial remittances. 3. • Banking Supervision Departments in foreign exchange matters of the banks. the Opening of foreign currency accounts with banks in Pakistan under new scheme: Under the existing instructions. Policy Division is responsible for issuance of F. General and Operations. Exchange Risk Cover Fee on Medium & Long Term Institutional SWAP Deposits under FE. • Courts cases concerning any of above matter.E. it deals with the following matters:• • • Foreign Currency Accounts Scheme Rates of forward cover fee-FCAs.offices set up in major cities of Pakistan. In short. Policy. 1947/Foreign Exchange Manual. Investment. Foreign Exchange Reserve Position. Home Remittances. Broadly.45 of 1985. open foreign currency accounts in Pakistan of Pakistan nationals resident in or outside Pakistan including those having dual nationality. the Authorised Dealers (Bank authorised to deal in foreign exchange) without the prior approval of the state Bank. These accounts can also be opened in the joint names of STATE BANK OF PAKISTAN .Circulars/Circular Letters and revision of FER Act. Investment Department concerned with the investment in Pakistan and corresponds to local as well as foreign investors. Policy Follow matters up of regarding inspection commercial reports of and non- Loans. The Department is divided into four divisions namely. Division liases with the other Government 5.

Foundations etc. which are exempt from payment of income tax can also open foreign currency accounts in Pakistan. Foreign nationals residing in Pakistan and foreign firms and companies registered abroad and operating in Pakistan can also open and maintain foreign currency accounts with the Authorized Dealers provided the foreign exchange credited to such accounts does not represent their earnings abroad in respect of business conducted in Pakistan or services rendered by such foreign nationals and firms/companies while in Pakistan. Residents firms and resident companies including investment banks and the companies incorporated in Pakistan with foreign share holding are also eligible to open and maintain foreign currency accounts.residents and non-residents. Withdrawals from these accounts in the shape of cash currency notes is allowed and account holder is at liberty to make remittances from his account to the extent of his balance in his account. They are also free to recover reasonable bank charges on handling cash transactions in foreign currencies received into or paid out of such accounts. Accounts of diplomatic missions and international organizations etc. Charitable Trust. This facility is also available to all foreign nationals residing abroad. all foreign firms/corporation s other than banks incorporated and operating abroad provided these are owned by persons who are otherwise eligible to open foreign currency accounts. The non-residents are exempted from payment of withholding tax and compulsory deduction of Zakat. The Authorized Dealers are free to decide the rate of return on these accounts payable to the depositors. These accounts can be fed by remittances received from abroad as well as cash deposits locally. STATE BANK OF PAKISTAN .

withdrawal in the shape of cash is not allowed from the official accounts of diplomatic missions and International Organizations. their Diplomatic Officers and home based members of the Missions' staff in Pakistan. The diplomatic officers and home based members of the mission's staff in Pakistan and the expatriate employees of International Organizations can withdraw in the shape of foreign currency notes from their foreign currency accounts without any restrictions. IBD will be fully responsible of all matters related to Islamic Banking and Finance. Mr. The Director will also be Member/Secretary of the Shariah Board that is being established in the State Bank. as also all international organizations in Pakistan and their expatriate employees are allowed to open special foreign currency accounts outside the scope of Foreign Currency Accounts Scheme for the purpose of receiving funds from abroad.The Diplomatic Missions' staff in Pakistan. Pervez Said has joined the Bank as Director (IBD) and Advisor to the Governor on Islamic Banking. STATE BANK OF PAKISTAN . However. Islamic Baking: General Information on Islamic Banking Department Islamic Banking Department (IBD) has been created in the State Bank of Pakistan by merging Islamic Economics Division of the Research Department and Islamic Banking Division of the Banking Policy Department.

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