Chapter 4

SBP
THE CENTRAL BANK OF PAKISTAN

Class BBA-II
Teacher: Miss Qurat-ul-ain

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MONEY & BANKING
 CENTRAL BANK

A national bank that provides financial and

banking services for its country's
government and commercial banking
system, as well as implementing the
government's monetary policy and issuing
currency.

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MONEY & BANKING
 SBP
Introduction

The State Bank of Pakistan (SBP) is incorporated under the State

Bank of Pakistan Act, 1956, which gives the Bank the authority to
function as the central bank of the country. The SBP Act mandates
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. 

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MONEY & BANKING
Subsidiaries of the SBP
The SBP holds “three” fully owned subsidiaries to augment its functions.
These are:
SBP-Banking Services Corporation (SBP-BSC)

Established under the SBP-BSC Ordinance 2001, SBP-BSC supports SBP in

performing functions such as handling of currency and credit
management, facilitating the inter-bank settlement system, and
sale/purchase of savings instruments of the Government on behalf of
Central Directorate of National Savings. SBP-BSC also collects revenue
and makes payments for and on behalf of the Government. It also carries
out operational work relating to development finance, management of
public debt, foreign exchange operations and export refinance. The
Board of Directors of SBP-BSC, chaired by the Governor SBP, comprises of
all members of the Central Board of SBP and the Managing Director of
SBP-BSC. 

SBP-BSC consists of 16 field offices in Pakistan with the head office in

Karachi.
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MONEY & BANKING
National Institute of Banking and Finance (NIBAF)

NIBAF is the training arm of SBP, providing executive

development trainings to new inductees and various levels
of SBP employees. The subsidiary also conducts
international courses on central and commercial banking in
collaboration with the federal Government. Furthermore,
NIBAF offers training to SBP-BSC and other financial
institutions. NIBAF is incorporated under Companies
Ordinance, 1984 and has a separate Board of Directors.
NIBAF is located in Islamabad with an office in Karachi.

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MONEY & BANKING
 Legal Framework

1.

SBP’s Functions are mainly governed by:SBP Act, 1956 (as amended up to November
19, 2015)
2.Banking Companies Ordinance, 1962
3.Foreign Exchange Regulations Act, 1947
4.Payment System and Electronic Fund Transfer Act, 2007
Under the State Bank of Pakistan Order 1948, the Bank was charged with the duty to
"regulate the issue of Bank notes and keeping of reserves with a view to securing
monetary stability in Pakistan and generally to operate the currency and credit system
of the country to its advantage". 

The scope of the Bank’s operations was considerably widened in the State Bank of
Pakistan Act 1956, which required the Bank to "regulate the monetary and credit
system of Pakistan and to foster its growth in the best national interest with a view to
securing monetary stability and fuller utilisation of the country’s productive resources". 

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MONEY & BANKING
The changes in the State Bank Act gave full and exclusive authority
to the State Bank to regulate the banking sector, to conduct an
independent monetary policy and to set limit on government
borrowings from the State Bank of Pakistan. The amendments in
Banks Nationalization Act abolished the Pakistan Banking Council
(an institution established to look after the affairs of NCBs) and
institutionalized the process of appointment of the Chief Executives
and Boards of the nationalized commercial banks (NCBs) and
development finance institutions (DFIs), with the Sate Bank having
a role in their appointment and removal. The amendments also
increased the autonomy and accountability of the Chief Executives
and the Boards of Directors of banks and DFIs.

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MONEY & BANKING
 Function OF SBP
Like a central bank in any developing country the state bank
of Pakistan performed both the traditional function and
developmental function to achieve the macroeconomic
goals. The traditional function generally performed by SBP
are classified into two groups.
Primary traditional function: to issue the notes regulate n
and supervise the financial system , bankers bank,lender of
the last resort, bankers to government & conduct the
monetary policy.

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MONEY & BANKING
Secondary traditional function: including agency function,
like management of debts , management of foreign
exchange other function advising government on policy
matters and maintaining close relationship with
international financial institutions.
Non-traditional/ promotional function: Development of
financial frame work institutionalization of saving and
investment, provision of training facility to bankers,
provision of credit to priority to sector. State bank of
Pakistan also actively taking part in Islamic banking
system. Main function and responsibility of state bank of
Pakistan cab be broadly categorized as under.

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MONEY & BANKING
Regulation of liquidity: being the central bank of country the state bank of Pakistan has been entrusted with the responsibility to formulate and
conduct monetary and credit policy in consistent with the government’s target for growth and inflation and recommendation for monetary and
fiscal policies coordination board with respect to macroeconomic policy objectives. The basic objective underlining its function is two folded i.e.
the maintenance of monetary stability, thereby leading towards the stability in domestic prices, as well as promotion of economic growth.
To regulate the volume and the direction of flow of credit to different uses and sectors, the bank makes use of both direct and indirect
instruments of monetary management.

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MONEY & BANKING
Ensuring the Soundness of Financial System:
1. Regulation & Supervision one of the fundamental
responsibility of state bank of Pakistan is to regulate and
supervise the financial system to ensure its soundness
stability as well as to protect the interest of depositors.
The rapid advancement in the information together with
growing complexities of modern banking operation has
made the supervisory role more difficult and challenging.
The institutional complexities are increasing technical
sophistication is improving technical base of banking
activities is expanding. All this required the state bank of
Pakistan endeavoring hard to keep pace with the fast
changing financial landscape of the country. The out
dated inspection techniques has been replaced with the
new one has for better inspection and supervision of
financial institution.MissThe banking activities are monitored
Qurat-ul-ain
through off-site & on-siteMONEY surveillance
& BANKING
The banking activities are monitored through off-site & on-site surveillance. The off-site surveillance is monitor through regular checking of various
returns regularly received from the different banks. On other hand, on-site inspection is undertaken by state bank of Pakistan in premises of the
concerned banks when required.
Exchange Rate & Balance of Payment
One of the major responsibility of state bank of Pakistan is to maintain the external value of currency . In this regard THE BANK is required among the
other measures taken by it, to regulate the foreign exchange reserve with country in line with the stipulation of foreign exchange Act 1947. As an
AGENT TO Government the bank has been authorized to purchased and sale gold, silver or approved foreign exchange and transaction of special
drawing rights with the international monetary funds under sub section 13(a) and 13 (f) of section 17 of the state bank of Pakistan Act 1956.

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The bank is responsible to keep the exchange rate at
appropriate level and prevent it from the wide fluctuation
in order to maintain competitiveness of our export and
maintain stability in foreign exchange market.
As custodian of country’s external reserves, the state bank
is responsible for management of foreign exchange
reserves. The task is being performed by an investment
committee.
Development role of State bank of Pakistan
The responsibility of central bank of Pakistan in a
developing countries goes well beyond the
regulatory duties of managing the monetary
policy in order to achieve the macro-economics
goals. The role not only covers development of
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MONEY & BANKING
Important components of monetary and capital markets but
also to assist the process economic growth and promote the
fuller utilization ]s of country resources.
Since its establishment, the state bank of Pakistan,
discharging its traditional functions of regulating money and
credit, has played an active developmental role on order to
promote the realization of macro-economic goals. The
promotional role of central bank evidently stems from a
desire to re-orientate all policies towards the goal of rapid
economic growth. The scope of bank’s operations has been
widened considerably by including the economic growth
objectives I its statute under the state bank of Pakistan Act
1956. The Bank’s participation in the development process has
been in the form of rehabilitation of banking system in
Pakistan, development of new financial institutions and debt
instrument in order to promote financial intermediation,
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Establishment of development financial institutions
(DFIs), directing the use of credit according to
selected development priorities subsidized credit,
and development of capital market

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