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STATE BANK OF PAKISTAN

STATE BANK OF PAKISTAN

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11/05/2012

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Sections

  • STATUTORY CASH RESERVE
  • STATUTORY LIQUIDITY REQUIREMENT
  • MAINTENANCE OF LIQUIDITY AGANINST CERTAIN LIABILITIES
  • SUBMISSION OF ANNUAL AUDITED ACCOUNTS BY NBFIs
  • ANNUAL ACCOUNTS:
  • SUBMISSION OF RETURNS:
  • MINIMUM CAPITAL REQUIREMENTS:
  • 1. Fixed Fiduciary System:
  • REGULATION OF LIQUIDITY:
  • ENSURING THE SOUNDNESS OF FINANCIAL SYSTEM: REGULATION AND SUPERVISION
  • EXCHANGE RATE MANAGEMENT AND BALANCE OF PAYMENTS
  • Banking Sector Supervision in Pakistan:
  • Off-Site Monitoring at Banking Sector Development:
  • INSTRUCTIONS ON CALCULATION OF MINIMUM CAPITAL
  • IN THE CASE OF FOREIGN BANKS OPERATING IN PAKINSTAN
  • A. Supplementary Capital:
  • NIBAF Files and Information’s
  • Location
  • Facilities Available
  • Functional and Organizational Set Up:
  • 1. CURRENCY DIVISION
  • INTERNATIONAL DIVISON:-
  • (Accounts (Main) Section):
  • Government Accounts Section
  • Funds Section:
  • Stationery Management Section:
  • Special Cell (Menual):
  • Maintenance of Record of Intra Provincial NBP / SBP
  • drafts
  • PRIZE BONDS AND SAVINGS SCHEMES DIVISION:
  • Monetary Survey & IMF Consultations Group:
  • Financial Market & Exchange Rates Group

STATE BANK OF PAKISTAN

Report on state Bank of Pakistan

Acknowledgment
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.

STATE BANK OF PAKISTAN

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.

STATE BANK OF PAKISTAN:

Introduction:
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

STATE BANK OF PAKISTAN

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

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

The commercial banks are profit seeking companies where as the central bank does not compete with the commercial banks in the hunting of profits.to share the cash balance of the undivided India. 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. Earning of profits is the prime objectives of today STATE BANK OF PAKISTAN .  Firstly.” The objectives of establishing Central Bank: . According to the State Bank order 1948. 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. the objectives of establishing the central bank are different from that of commercial bank. It therefore decided to establish its own currency authority earlier then it was mutually agreed upon.

it deals with the member banks and supervises their work.  Thirdly. It controls the monetary as well as the banking system on the behalf of the government.commercial banks. Organizational Hierarchy Governor Deputy Governo r STATE BANK OF PAKISTAN Deputy Governo r . 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.  Secondly. while for the central bank it has only a secondary consideration. the central bank is subordinates to the government or state.

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

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

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

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

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

2. provision of training facilities to bankers. Proportionate Reserve System: According to Proportionate Reserve System. performed by the State Bank include development of financial framework. Fixed Fiduciary System: Under this system a fixed amount is laid down. the central bank is to keep a certain percentage of the total notes issued in gold. silver etc. The non-traditional or promotional functions. which need to be covered by government securities. 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. The supply of notes is tied down to the supply of gold available in the country.o Law regulates the right of note issue. Therefore it enhanced and increased public confidence in the monetary system of the country. This system also fails to take into consideration the commercial banks power to create credit. and provision of credit to priority sectors. institutionalization of savings and investment. Methods of Note Issue: There are two methods of note issue named as Fixed Fiduciary System and Proportionate Reserve System. this methods assures maximum safety for the notes without any doubt but it lacks elasticity. In Pakistan proportionate reserve system is prevailing at the moment. Note issued in excess of this amount must be fully backed gold and silver etc. And other functions like advising the government on policy matters and maintaining close relationships with international financial institutions. 1. The STATE BANK OF PAKISTAN .

the operating target. In terms of the programmed. The basic objective underlying its functions is twofold i.e. Until recently. REGULATION OF LIQUIDITY: Being the Central Bank of the country. While use in now being STATE BANK OF PAKISTAN . the Bank makes use of both direct and indirect instruments of monetary management. Pakistan embarked upon a program of financial sector reforms in the late 1980s. the intermediate target of M2 would be achieved by observing the desired path of reserve money . the monetary and credit scenario was characterised by acute segmentation of credit markets with all the attendant distortions. 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. as well as the promotion of economic growth. which essentially marked a departure from administrative controls and quantitative restrictions to market-based monetary management. thereby leading towards the stability in the domestic prices. A number of fundamental changes have since been made in the conduct of monetary management. A reserve money management programmed has been developed.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 categorized as under. the maintenance of monetary stability. To regulate the volume and the direction of flow of credit to different uses and sectors.

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 State Bank in the premises of the concerned banks when required undertakes on-site inspection. The rapid advancement in information technology. the program’s reliance is mainly on open market operations. The institutional complexity is increasing. The State Bank has also been STATE BANK OF PAKISTAN .made of such indirect instruments of control as cash reserve ratio and liquidity ratio. Accordingly. the out dated inspection techniques have been replaced with the new ones to have better inspection and supervision of the financial institutions. 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. together with growing complexities of modern banking operations. To deepen and broaden financial markets as also to diversify the sources of credit. On other hand. 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.

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

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

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

besides discharging its traditional functions of regulating money and credit. establishment of Development Financial Institutions (DFIs). 1956 and the Bank’s Nationalization Act. The Financial Institutions (Recovery STATE BANK OF PAKISTAN . Accordingly. 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.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. State Bank of Pakistan Act. The Bank’s participation in the development process has been in the form of rehabilitation of banking system in Pakistan. directing the use of credit according to selected development priorities. 1962. are contained in the Banking Companies Ordinance. Ever since its establishment. the State Bank with a well-recognised developmental role has combined the orthodox central banking functions. Besides. providing subsidized credit. the State Bank of Pakistan. 1974. 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. 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. The relevant provisions of law. which vest powers in State Bank of Pakistan (SBP) to carry out inspection of banks. 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.

Venture Capital Companies. Modaraba. Housing Finance Companies. Investment Banks. 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. Mutual Funds). However. At present there are 41 scheduled banks. 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. Development Finance Institutions (DFIs). which cover the activities concerning the banking sector. Under the prevalent legislative structure the supervisory responsibilities in case of Banks. The financial sector in Pakistan comprises of Commercial Banks.of finances) Ordinance. and Micro finance Banks (MFBs). Stock Exchange and Insurance Companies. 2001. existing foreign banks having less than 3 branches can have branches to the extent of maximum number of 3 only. 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. Development Finance Institutions (DFIs). New foreign banks desirous of entering banking business in Pakistan will now be required to incorporate as domestic bank under the local laws. The commercial banks comprise of 3 nationalized STATE BANK OF PAKISTAN . 1984 and Statutory Regulatory Orders (SROs) are the relevant legislations. Discount Houses. Companies Ordinance. 6 DFIs.1 billion provided foreign share holding is restricted to a maximum of 49%. Non-banking Finance Companies (NBFCs) (leasing companies. and 2 MFBs operating in Pakistan whose activities are regulated and supervised by State Bank of Pakistan.

director or chief executive. Caution or prohibit bank against entering STATE BANK OF PAKISTAN .banks. 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. directors. Remove chairman. Supersede the Board of Directors. interalia. exercise the following powers vested upon it under the Banking Companies Ordinance:- Prohibiting the bank from giving loans. chief executive or other managerial persons from the office and appoint a person as chairman. and banking rules & regulations. Give directions to the bank as it deem fit. 2 provincial scheduled banks. Under the Banking Companies Ordinance. and 4 specialized banks. the State Bank is empowered to take necessary remedial steps. The State Bank of Pakistan can. 1962 the State Bank of Pakistan is fully authorized to regulate and supervise banks and development finance institutions. chief executive or other officer. 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. Prohibiting the bank from accepting deposits. Direct prosecution of directors. advances & credits. 15 private sector banks. Cancel license of a bank. During the year 1997 some major amendments were made in the banking laws. 3 privatized banks. which gave autonomy to the State Bank in the area of banking supervision. 14 foreign banks.

Apply to Federal Government for an order of moratorium in respect of a bank and to prepare scheme of reconstruction or amalgamation. Additionally. DFIs are required to maintain SLR of 14% and Cash Reserve of 1% of their specified liabilities. The State Bank is empowered to determine Statutory Liquidity and Cash Reserve Requirements for banks/DFIs. 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. Appoint its officers to observe the manner in which affairs of bank/its branches/office are conducted. Similarly. In addition to that banks are required to maintain Statutory Liquidity Requirement (SLR) @ 15% of their Time & Demand Liabilities. Winding up the bank through high court. 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. In exercise of these powers the State Bank has laid down Minimum Capital Requirements for banks based on Basle capital structure. The banks have to maintain a Capital Adequacy Ratio STATE BANK OF PAKISTAN . Impose penalties including civil money penalties.into any particular transaction(s). Require bank to make changes in management. Presently the Cash Reserve Requirement is 5% on weekly average basis subject to daily minimum of 4% of Time & Demand Liabilities.

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.in a way that their capital and unencumbered general reserves are. The off-site analysis facilitate monitoring of each bank’s performance and its observance of supervisory requirements over time. as well as condition within the banking system. The process thus assists in making the most effective use of scarce on-site inspection resources. and effective from 1st January. 8% of their risk weighted assets. Off-site surveillance system revolves around receipt.1 Billion. 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. 2003 banks are required to maintain a minimum paid up capital level of Rs. at the minimum. to provide early identification of problems so that corrective action can be effected. 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 . so that problems may be identified as soon as these emerge. The focus of the supervisory efforts by the State Bank of Pakistan is on the health and stability of the banking system in Pakistan. This has been designed to ensure that institutions operate in a safe and sound manner.

remains the most effective supervisory tool.identify those areas. the bank in all its assessments has adopted a risk-based approach to evaluations. The policy provides a framework within which supervisory ratings. falling within SBP’s jurisdictions. 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. 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. While regulations have existed for some time aimed at convergence of the essential industry indicators to the globally accepted criteria. Periodic On-Site examinations of the financial condition of institutions. 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 . and other appropriate indicators of banks soundness. surveillance and financial monitoring results. 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. In consonance with the responsibilities envisaged under the Core Principles recommended by the Basle Committee.

These Consultants have compiled extensive on-site and off-site manuals. 1997 (copy enclosed). 1962 relating to requirement of minimum paid up capital and reserves has recently been modified through the Banking Companies (Second Amendment) Ordinance. MINIMUM CAPITAL REQUIREMENTS: Banks are aware that Section 13 of the Banking Companies Ordinance. As a result of these close coordination bank ratings reflects as accurately as possible. This entailed hiring of services of consultants of world repute (M/s. 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.has embarked upon a major overhauling of its own capabilities so as to bring them at par with international practices. 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 . 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. Now each bank is appraised under the CAMELSS/CAELS Rating System. Besides qualified and professional trained human resource have been recruited and rigorous theoretical and hands-on training has been provided to them. the true financial condition of a bank and the banking system as a whole.

1997. 4.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. 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. 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. INSTRUCTIONS ON CALCULATION OF MINIMUM CAPITAL Requirements Based On Risk Weighted Assets 1. 1997. Provided that where a banking company already in existence is found short of the minimum required paid up capital on 31st December. 2. 3. the State Bank shall. 1997 all banks shall maintain minimum capital as laid down in the enclosed Annexure. on request from the banking company concerned. in exercise of the powers vested under the above provisions of law it has since been decided that effective from December 31. Similarly. it shall meet shortfall by 31st December. consider grant of extension in time for meeting the required capital adequacy. 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. 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 . Accordingly. 1998.

v.A) Equity: i. iv. While calculating the amount of equity the followings shall be deducted: Book value of intangible assets such as goodwill. computation of the amount of Equity and 1. ii. General Provisions or Reserves for loan losses Revaluation Reserves Undisclosed Reserves Subordinate debt. iv. iii. Supplementary Capital: i. Shortfall in provisions required against classified assets irrespective of any relaxation allowed by the State Bank. ii. etc. ii. STATE BANK OF PAKISTAN . A. The Supplementary Capital shall be subject to the following limitations and restrictions:i. iii. 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. 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. if any) IN THE CASE OF FOREIGN BANKS OPERATING IN PAKINSTAN.

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

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

Foreign Exchange. 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. The institute has conducted a number of training programmes. Commercial Banking etc. 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. STATE BANK OF PAKISTAN .domestic and foreign institutions in the field of banking and finance. Bankers of the commercial banks and custodian of their cash reserves. 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.

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

CURRENCY DIVISION • Arrange currency operation in the country which relates to designing of currency notes. its printing through Pakistan Security Printing Corporation and its issue through our offices of issue i. STATE BANK OF PAKISTAN .e.procedures under the provisions of Banking/Issue Department Manuals. maintenance of foreign reserves of the country. Karachi. 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. • Regulate the withdrawal of old notes from circulation and maintenance of its account etc. Sale/ purchase of foreign currencies. Lahore. Arrange purchase of confiscated Gold from Government • • Departments. Peshawar and Quetta. Issuance of weekly statement of Affairs and preparation of Balance Sheet of Issue Department. Accounts Department is also responsible for management of Prize Bonds and Savings Schemes of the Government of Pakistan. To achieve the above objectives.

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

Consolidation of accounts received from offices. 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.• • • Maintenance of Accounts of Central Directorate. • Preparation of daily balance position and communication thereof to the Federal Finance Division and Provincial Finance Departments. • 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. Preparation of Annual Budget of the Bank for Revenue and Capital expenditure under different heads of Charges/Dead stock Accounts. Monitoring of debtor balances of Provincial Governments AUDIT DIVISION: STATE BANK OF PAKISTAN . Preparation of weekly statement of Affairs for issuance in the Government Gazette as provided in the State Bank of Pakistan Act.1956. • • Reconciliation of State Bank of Pakistan General Account relating to Inter-Office transactions. • Central and Provincial Zakat Funds Account are also maintained on the basis of financial and lunar year.

• Monitor the expenditure budgetary limit under various heads of charges Account by the offices of the Bank and Departments of Central Directorate. printing and circulation to the Offices. 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. interpretation of provisions of Banking Department and Issue Department Manuals.• 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. Administration Section: STATE BANK OF PAKISTAN . Matters relating to Government Audit Report on working of Office and meetings of Public Accounts Committee. Fraud Forgery cases. • Specimen signature of Officers. • • Amendment in Banking Department Manual.

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

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

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

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

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

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

These accounts can be fed by remittances received from abroad as well as cash deposits locally. The non-residents are exempted from payment of withholding tax and compulsory deduction of Zakat. which are exempt from payment of income tax can also open foreign currency accounts in Pakistan. Charitable Trust. 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. Accounts of diplomatic missions and international organizations etc. 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. STATE BANK OF PAKISTAN . They are also free to recover reasonable bank charges on handling cash transactions in foreign currencies received into or paid out of such accounts. 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. The Authorized Dealers are free to decide the rate of return on these accounts payable to the depositors.residents and non-residents. Foundations etc. This facility is also available to all foreign nationals residing abroad. 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.

their Diplomatic Officers and home based members of the Missions' staff in Pakistan. However. 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 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. Pervez Said has joined the Bank as Director (IBD) and Advisor to the Governor on Islamic Banking. 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. IBD will be fully responsible of all matters related to Islamic Banking and Finance. Mr.The Diplomatic Missions' staff in Pakistan. The Director will also be Member/Secretary of the Shariah Board that is being established in the State Bank. STATE BANK OF PAKISTAN . withdrawal in the shape of cash is not allowed from the official accounts of diplomatic missions and International Organizations.

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