Introduction and History

1. Assignment
State Bank of Pakistan
IntroductionandHistory
Yasir Hussain Khan
B.BA (R3) Roll # 233
[Pickthe date]

2. State Bank of Pakistan:
Introduction:
The state bank of Pakistan (SBP) is the central bank of Pakistan. While its constitution, as
originally lay down in the state bank of Pakistan order 1948, remained basically unchanged
until January 1, 1974, when the bank was nationalized, the scope of its functions was
considerably enlarged. The state Bank of Pakistan act 1956, with subsequent amendments,
forms the basis of its operations today. The headquarters are located in the financial capital of
Pakistan, Karachi with its second headquarters in the capital, Islamabad.
History:
Before independence on 14 August 1947, the reserve bank of India was the
central bank for what is now Pakistan.
On 30 December 1948 the British Government's Commission distributed the
Bank of India’s reserves between Pakistan and India 30 percent for Pakistan
and 70 percent for India.
The losses incurred in the transition to independence were taken from
Pakistan’s share (a total of 230 million). In May, 1948, Mr. Jinnah took steps
to establish the SBP immediately. These were implemented in June 1948, and
the state bank of Pakistan commenced operation on July 1, 1948.
Under the state bank of Pakistan order 1948, the State Bank of Pakistan 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".

3. A large section of the state bank's duties were widened when the State Bank of
Pakistan Act 1956 was introduced. It required the state bank to "regulate the
monetary and credit systemof 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".
In February 1994, the State Bank was given full autonomy, during the
financial sector reforms.
On January 21, 1997, this autonomy was further strengthened when the
government issued three amendment ordinances (which were approved by
the parliament in May 1997). Those included were the State Bank of
Pakistan Act, 1956, banking company’s ordinance, 1962 and Banks
Nationalization Act, 1974.
These changes 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.
Nationalization:
1974, government took charge of all financial institutions.
Duty is monitor this organization; however govt. Is not liable for monitoring
those results in de-nationalization that is major financial institution came
under the control of Pvt. Organization.

4. Functions of SBP:
Like any other Central Bank, State Bank of Pakistan have its roles and functions to perform.
1. Primary Functions
2. SecondaryFunctions
Primary Functions:
Including Issue of Notes.
Regulation and Supervision of the Financial System.
Bankers’ Bank.
Lender of the Last Resort.
Banker To Government, And
Conduct of Monetary Policy.
The SecondaryFunctions:
Functions like Management of Public Debt.
Management of Foreign Exchange. Etc
Advising the Government on Policy Matters.
Maintaining Close Relationships with International Financial Institutions.
Some Other Important Functions of SBP:
State Bank of Pakistan Act 1956 requires 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".
1st and foremost requirement for monetary stability is ensuring price stability, which, in State
Bank of Pakistan, is achieved through stable Interest and Foreign Exchange (Forex) rates.
Stability in Interest rates and Forex Markets is achieved through intervention in money
market and Forex market, while nature of intervention varies in both markets.

5. To achieve desired interest rates, SBP uses two types of instruments, namely:
1. Direct Instruments
2. Indirect Instruments
DirectInstruments:
Direct instruments are typically directives given by the central bank to control the quantity or
price (interest rate) of money deposited with commercial banks (and sometimes other
financial institutions) and credit provided by them.
Examples of Direct Instruments are:
Interest Rate Controls
Credit Ceilings
Directed Lending
Statutory Liquidity Requirements
Pros and Cons of Direct Instruments:
Advantages:
They are perceived to be reliable, at least initially, in controlling credit
aggregates or both the distribution and the cost of credit.
They are attractive to government that wants to channelize credit to meet
specific objectives.
They may constitute the most effective or practicable approach in
circumstances of underdeveloped financial markets or where the central bank
has inadequate techniques of indirect monetary control.
Disadvantages:
Bank-by-bank controls hold back competition in financial markets which
could benefit both borrowers and depositors.
Selective credit controls-credit controls on some banks but not on favored
ones, distort markets and impose a cost on society.
Direct controls encourage disintermediation into non-controlled markets or
abroad. So, overtime, they become less effective as lenders and savers search
for ways to circumvent them.

6. Indirect Instruments:
SBP uses targeting monetary aggregates for its monetary management function, So Indirect
instruments are used for controlling price or volume of the supply of its own liabilities.
Examples of Indirect instruments are
1. T-Bill Auctions:
Treasury bills are sold through auction system
The cut off yield is determined by the Auction Committee, keeping in view
monetary targets, prevailing economic and financial conditions and expected
market response. The Six months’ T-bill is considered the most important
benchmark by the money market and is considered to be the signaling tool of
SBP for interest rate movements.
T-Bills are issued in 3, 6 and 12 months’ tenors.
Pakistan Investment Bond (PIB) Auction:
PIB are issued in tenors of 3, 5, 10, 15, 20 and 30 years in auctions, according
to the quarterly targets given by MOF.
PIBs are sold to meet the GOP long term requirements and to provide
benchmark rates to the Capital Market Transactions.
15 days prior to the auction, targets are announced on Reuters and sealed bids
are invited.
The 15 days period, i.e. from the day of announcement to the auction day, is
called short selling period.
Auction committee decides the cut-off yields.

7. 2. Open MarketOperations (OMOs):
Using computerized reporting system SBP monitors the daily liquidity
position of the market and on the basis of those reports SBP either injects
money to the market by lending against collateral through reverse repo
transaction or by an outright purchasing, or mops-up money from the market
by selling securities or by conducting repo transaction.
OMOs are conducted on as and when market desires. Is issued through
Reuters and bids are received through fax. Only banks are allowed to
participate in OMOs and T-Bill auctions.
3. Discounting Facility (3-DayRepo):
In Pakistan, SBP has extended a 3-day Repo facility to schedule and
investment banks. This is an overnight lending facility provided to banks,
through which SBP provides cash accommodation at a penal rate (currently 10
%) to any needy bank by undertaking a reverse repo transaction with it.
Cash accommodation is normally for overnight; however transaction period
can be lengthened to 3-days or more to cover occasional long week-ends.
SBP also uses changes in discount rate primarily as a way of signaling a
change in monetary policy.
4. Exchange Rate Management:
In Pakistan, since 2000, free float regime is in place i.e. Exchange Rate is
determined on supply/demand position of the market.
Factors requiring Ex. Rate Management:
Appreciation / depreciation of rupee vs.US. $ in interbank market
Heavy Fluctuation in Forex market in interbank
Market sentiments
Heavy payment (Commercial and government)
Unforeseen events

8. Factors Affecting Exchange Rate:
Trade Activities (Imports & Exports)
Foreign Investment
Home Remittances
Market Saturation
Political Factors
The Non-Traditional or Promotional Functions:
Performed By The State Bank Include.
Development of Financial Framework.
Institutionalization of Savings and Investment.
Provision of Training Facilities to Bankers.
Provision of Credit to Priority Sectors.
Islamic Banking:
The state bank also has been playing an active part in the process of Islamization of
the banking system.

9. Banking:
The state bank of Pakistan looks into a lot of different ranges of banking to deal with the
changes in economic climate and different purchasing and buying powers.
State bank’s shariah board approves essentials and model agreements for
Islamic modes of financing.
Procedure for submitting claims with SBP in respect of unclaimed deposits
surrendered by banks/DFI.
Banking sector supervision in Pakistan.
Micro finance regulations.
Small Medium Enterprises (SMEs) regulations.
Minimum capital requirements for banks.
Remittance facilities in Pakistan.
Opening of foreign currency accounts with banks in Pakistan under new
scheme.
Handbook of corporate governance.
Guidelines on risk management.
Guidelines on commercial paper.
Guidelines on securitization.
SBP scheme for agricultural financing.

10. Legal framework in Pakistan:
SBP Act 1956.
Negotiable Instrument Act 1881.
Payment Systems and Electronic Funds Transfer Act 2007.
Electronics Transactions Ordnance 2002.
Cyber Crime Prevention Ordnance 2008.
Contract Act 1872.
Banking Companies Ordnance 1962.
Foreign Exchange Act 1947.
Public Debt Act 1944.
Companies Ordnance 1984.
Pakistan Telecommunication (Re-Organization) Act 1996.
Organizational Structure
Central Board of Directors

11. Governors of the state bank of Pakistan:
Here is a list of the governors of the state bank of Pakistan.
Zahid Hussain. 10-06-1948 To 19-07-1953
Abdul Qadir. 20-07-1953 To 19-07-1960
Shujaat Ali Hasnie. 20-07-1960 To 19-07-1967
Mahbubur Raschid. 20-07-1967 To 01-07-1971
Shahkur Ullah Durrani. 01-07-1971 To 22-12-1971
Ghulam Ishaq Khan. 22-12-1971 To 30-11-1975
S. Osman Ali. 01-12-1975 To 01-07-1978
A G N Kazi. 15-07-1978 To 09-07-1986
V.A. Jaffrey. 10-07-1986 To 16-08-1988
I.A. Hanfi. 17-08-1988 To 02-09-1989
Kassim Parekh. 05-09-1989 To 30-08-1990
Mohammad Yaqub. 25-07-1993 To 25-11-1999
Ishrat Husain. 02-12-1999 To 01-12-2005
Shamshad Akhtar. 02-01-2006 To 01-01-2009
Syed Salim Raza. 01-01-2009 To 02-06-2010
Yasin Anwer (Acting) 02-06-2010 To 08-09-2010
Shahid H. Kardar. 08-09-2010 To Present
List Of SBP’s Scheduled Banks:

12. NationalizedScheduled Banks:
First Women Bank Limited
National Bank of Pakistan
The Bank of Punjab
Industrial DevelopmentBankof Pakistan(IDBP)
PunjabProvincial Co-operativeBankLimited(PPCB)
Zarai Traqiati BankLimited
SME BankLtd.
Private ScheduledBanks:
Allied Bank of Pakistan, Karachi
Askari Bank, Rawalpindi
Atlas Bank, Karachi
Bank AL Habib, Karachi
Bank Alfalah, Karachi
BankIslami Pakistan Limited, Karachi
Barclays Bank, Karachi
Crescent Commercial Bank, Karachi
Faysal Bank, Karachi
Habib Bank, Karachi
Habib Metropolitan Bank, Karachi
HSBC
JS Bank
KASB Bank, Karachi
MCB Bank Limited (formerly Muslim Commercial Bank), Islamabad
Mybank Limited, Karachi
NIB Bank, Karachi
PICIC Commercial Bank, Karachi NIB Bank Limited has acquired PICIC
Group including Picic Commercial Bank Ltd.'
Royal Bank of Scotland (acquired by MCB Bank Limited)
Silk Bank formerly Saudi Pak Non-Commercial Bank, Karachi
Soneri Bank, Karachi
Union Bank, Karachi - Standard Chartered Bank has acquired Union Bank
United Bank, Karachi
Bank Of Punjab, Lahore
Islamic Banks:

13. Dawood Islamic Bank Limited (formerly First Dawood Islamic Bank Limited)
Dubai Islamic Bank Pakistan limited
Meezan Bank
AlBaraka Islamic Bank
BankIslami Pakistan Limited
Emirates Global Islamic Bank
Conclusion:
SBP has its role important in every sector of economy whether it is
Industrial Sector.
Agriculture Sector.
Consumer Sector.
“SBP provides guide lines to each of these Sectors to uplift the economy”.
OR
“SBP is fully involved in every walk of life”