Commercial Banking in

Pakistan.
Hammad Raza Sahoo.
Importance of Commercial banks
• Banks play a vital role in economic development of country.
• They accumulate the idle savings of the people and make them
available for investment.
• They facilitate trade both inside and outside the country by accepting
and discounting bills of exchange.
• Banks also increase the mobility of capital.
Continued…
• In a country like Pakistan which is still in the initial stage of economic
development, a well organized banking system is the need of the day.
• Banks can play an important part in capital formation.
• In Pakistan the rate of savings has varied from 6% to 17% only.
• The country can become independent of foreign capital by launching
a campaign in villages and cities to mobilize the idle saving.
Main reason for the deficiency of capital
accumulation in Pakistan.
• The per capita income is very low as such the margin of saving is very less.
• There is acute disparity of wealth in the country, A greater portion of the
country’s wealth is concentrated in a few well-placed families, the bulk of
population having meagre resources finds it difficult to meet the expenses,
so they do not have capacity to save.
• We do not have efficient organized banking system in our economy, our
75% population lives in villages. The banks have not been able to
mobilized desire savings from villages.
• The banks mainly rely on business accounts where the other avenues
particularly the personal deposits have not been properly tapped.
Growth of banking in Pakistan.
• At the time of partition, the total no. of commercial banks were
38.out of these Pakistani banks were 2 and Indian banks were 29.
• The total deposit of Pakistani banks stood at Rs. 800 million whereas
the advances were Rs. 198 million.
Effect of partition.
• Before the partition the entire banking business was controlled and managed by non-
Muslims .
• The Muslims were deliberately kept out of the banking profession by the wealthy
Hindu community.
• When Hindu capitalists became sure of division of sub-continent, they secretly began
to transfer their capital in safe places in India.
• There was a mass scale migration of non-Muslims from west Pakistan to India which
caused drain on the bank deposits.
• The Hindus in order to ruin the economy of Pakistan closed down many head offices
and branches of scheduled and non schedules banks
• The no. of scheduled bank branches were reduced from 619 to 213 only in both wings
of the country after independence.
Steps to restore Normal Banking facilities.
• The Pakistani Government was quite aware of the serious banking
situations caused by the withdrawals of deposits and migration of
bank staff to India. The steps detailed below were taken to
rehabilitate commercial banking immediately after partition.
• In order to create confidence and sense of security among the Hindu
banks and the non-Muslim banking staff, the Government of Pakistan
declared that all the banks properties of non-Muslims who wished to
continue banking functions would not be treated as evacuee
properties .
• The banks would be free to secure protection of police.
Commercial Banking in Pakistan

• Commercial banks as has already been stated play a key role in in the
regeneration of economic activity in the country.
Classification of banks.
• There are two categories.
• Scheduled banks: Scheduled banks are those, which have paid up capital
reserves of not less then Rs. 5 million in Pakistan, they are supervised by SBP
(state bank of Pakistan)
• The banks which are registered in the list of central bank under its charter are
called scheduled banks.
• Scheduled banks are bound to be performing their services under the policies of
central bank.
• Clearing facility, more advances are available and foreign transactions are
available for scheduled banks.
• Scheduled banks can easily take loans from the Central bank
Continued…
• Non-scheduled banks: Non-scheduled banks are those, which are not
included in second schedule of SBP Act 1956.
• They have a minimum paid up capital value of Rs. 50000 , but not
exceeds 5 million PKRs
• Non-scheduled banks are not registered in central bank.
• They are not liable to perform any instructions from central bank.
• Non-Scheduled banks are not able to transfer money
• Non-Scheduled banks cannot operate foreign transactions
Role of Commercial banks in economic
development of Pakistan.
• Saving mobilization: The commercial banks have opened up branches
in urban and rural areas to mobilize savings of the people.
• Financing development project: The banks and other development
finance institutions like IDBP, advance short and long term loans for
financing of development projects both in public and private sectors.
• Facilitating trade activities: The credit institutions collects the savings
of people and make them available for trade activities both inside and
outside the country.
• Creating climate for capital formation: A developed banking system
creates favorable climate for capital formation in the country.
Continued…
• Help SBP in achieving monetary policy: The commercial banks under the
supervision and guidance of the state bank help in implementing and
achieving the objectives of the monetary policy which vary from time to
time.
• Assisting in development: The commercial banks are profit seeking
enterprises.
• Making capital available for investment: The organized banking system helps
in directing physical resources into productive channel.
• Less reliance on foreign capital: A planned banking system by launching a
vigorous campaign of mobilizing idle saving in the country can meet the
capital development from within the country.
Continued..
• Export promotion cell: In order to boost the exports of country, the
banks have established for the information and guidance of the
exporters.
• Loans to agriculture sector: The commercial banks are now providing
credit to small farmers for the purchase of seeds, fertilizers pesticides
etc.
Challenges faced by commercial banking in
Pakistan.
• Change in market needs: Due to privatization of state owned
enterprises, the banks now focus greater attention on meeting the
market needs of customers.
• Service to customers: The banks which can provide speedy, accurate
and standard service in the delivery of products, loans will be success.
• Regulatory challenges: The banks shall have to work within a
regulatory frame work that protects the interests of depositors and
ensure the provision of capital to the customers.
Types Of banks
• Central bank
• Commercial banks
• Industrial banks
• Agricultural banks
• Exchange banks
Commercial Banks

• A commercial bank is a financial institution that is authorized by law

to receive money from businesses and individuals and lend money to
them
List of commercial banks in Pakistan

• National bank of Pakistan

• Sindh bank
• Bank of Khyber
• The bank of Punjab
• ABL
• HBL
• Bank Alfalah
Functions Of commercial banks
1. Primary Functions
• Accepting deposits
• Advancing loans
2. Secondary Functions
• Financing foreign trade
• General utility functions
• Agency Functions
• Miscellaneous Services
Deposits
• There are 3 types of deposits
• Saving deposits : It is good for small income earners . Banks pays small
interest to depositors
• Current accounts : Money can be withdrawn without notice at any
time
• Fixed deposits : Deposits are fixed for certain period of time, amount
cannot b withdrawn, the higher the time the higher will be the profit
rate
Loans
• The banks advances loan to its customers

• They lend the cash lying in deposits on a higher interest rate than it
pay to such deposits that is how they carry their business by profit
Financing foreign trade
• A commercial banks finances foreign trade of its customers by
accepting foreign bills of exchange and collecting them from foreign
banks
• Banks also buys and sells foreign currency
General utility Services
• Locker facility
• Traveler cheques
• Letter of credit
• Accepting bills of exchange
Agency Functions
• The banks render important services as agent on behalf of their
customers in return for a small commission
• Purchase and sale of govt securities
Miscellaneous functions
• Collection of utility bills
• Zakat collection : According to zakat and usher ordinance 1980
• Hajj services : provides hajj services by accepting applications ,
making of hajj groups