The State Bank of Pakistan (SBP; Urdu: بینک دولت پاکستان) is the central bank of Pakistan. While its constitution, as originally laid 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,[2] with subsequent amendments, forms the basis of its operations today. The headquarters are located in the financial capital of Pakistan, Karachi with branch offices in 15 cities across Pakistan, including the capital city, Islamabad and the four provincial capitals.
Before independence on 14 August 1947, during British colonial regime the Reserve Bank of India was the central bank for both India and Pakistan. On 30 December 1948 the British Government's commission distributed the Reserve Bank of India's reserves between Pakistan and India -30 percent (750 M gold) for Pakistan and 70 percent for India.[3]
The losses incurred in the transition to independence, small amount taken from Pakistan's share (a total of 230 million). In May, 1948 Muhammad Ali Jinnah (Founder of Pakistan) took steps to establish the State Bank of Pakistan 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".
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 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". In February 1994, the State Bank was given full autonomy, during the financial sector reforms.[4]
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 Companies 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. The amendments to the Banks Nationalization Act brought the end of the Pakistan Banking Council (an institution established to look after the affairs of NCBs) and allowed the jobs of the council to be appointed to the Chief Executives, Boards of the Nationalized Commercial Banks (NCBs) and Development Finance Institutions (DFIs). The State Bank having a role in their appointment and removal. The amendments also increased the autonomy and accountability of the chief executives, the Boards of Directors of banks and DFIs.
The State Bank of Pakistan also performs both the traditional and developmental functions to achieve macroeconomic goals. The traditional functions, may be classified into two groups: 1) The 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. 2) The secondary functions including the agency functions like management of public debt, management of foreign exchange, etc., and other functions like advising the government on policy matters and maintaining close relationships with international financial institutions.
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, and provision of credit to priority sectors. The State Bank also has been playing an active part in the process of islamization of the banking system.
The Bank is active in promoting financial inclusion policy and is a leading member of the Alliance for Financial Inclusion. It is also one of the original 17 regulatory institutions to make specific national commitments to financial inclusion under the Maya Declaration[5] during the 2011 Global Policy Forum held in Mexico.
Origins http://www.sbp.org.pk/about/history/Origins.pdf
At the time of Partition, the new state was without a central bank and a proper banking system was almost non-existent. Most of the banks had their head offices in India. Out of 3,496 branches of the scheduled banks, only 631 were situated in Pakistan. To complete the picture of misery, the entire banking structure was dominated by Hindus. With the announcement of the Partition Plan of June 3, 1947, the Hindu started to withdraw their deposits from the banks located in Pakistan. As a result, many banks had to close down their operations. Since Pakistan had no central bank of its own, it was decided to assign the monetary operations of the new state to the Reserve Bank of India for a period of one year (till September 30, 1948). However, it was soon realized that if this situation continued for too long, the country’s interests would be hurt. Accordingly, the State Bank of Pakistan Order was issued on May 12, 1948 and Pakistan (Monetary System and Reserve Bank) Order, 1947 was amended according to which the Reserve Bank of India was to stop functioning in Pakistan on June 30, 1948, with the new central bank taking over on the next day. At the time of its formation, the State Bank of Pakistan neither had any building for housing its offices nor was there sufficient time for purchase and construction of new premises. Therefore, Victoria Museum Building at the Ingle Road was rented from the Karachi Municipal Corporation and swiftly refurbished. The Bank was inaugurated on July 1, 1948 by Quaid-e-Azam Muhammad Ali Jinnah, who thus observed on the guiding principles of the newly-created central bank: “I need hardly dilate on the important role that the State Bank will have to play in regulating the economic life of our country. The monetary policy of the bank will have a direct bearing on our trade and commerce, both inside Pakistan as well as with the outside world and it is only to be desired that your policy should encourage maximum production and a free flow of trade.”
The State Bank of Pakistan has also been entrusted with the responsibility to carry out monetary and credit policy in accordance with Government targets for growth and inflation with the recommendations of the Monetary and Fiscal Policies Co-ordination Board without trying to effect the macroeconomic policy objectives.
The state bank also regulates the volume and the direction of flow of credit to different uses and sectors, the state bank makes use of both direct and indirect instruments of monetary management. During the 1980s, Pakistan embarked upon a program of financial sector reforms, which lead to a number of fundamental changes. Due to these changed the conduct of monetary management which brought about changes to the administrative controls and quantitative restrictions to market based monetary management. A reserve money management programme has been developed, for intermediate target of M2, that would be achieved by observing the desired path of reserve money - the operating target.
State Bank of Pakistan has changed the format and designs of many bank notes which are currently in circulation in Pakistan. These steps were taken to overcome the problems of fraudulent activities.
The State Bank of Pakistan looks into many ranges of banking to deal with changes in the economic climate and different purchasing and buying powers. Here are some of the banking areas that the bank looks into:
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/DFIs
Banking sector supervision in Pakistan
Microfinance
Small and medium enterprises (SMEs)
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
This is a chart of trend of major assets and liabilities reported by scheduled commercial banks to the State Bank of Pakistan with figures in millions of Pakistani rupees.[6][7][8]
Year Deposits Advances Investments
2002 1,466,019 932,059 559,542
2006 2,806,645 2,189,368 799,285
Legal services
Library
Payment system
Real time gross settlement system (RTGS system)
Small and medium enterprises
Training and Development Department (TDD)
Treasury operations
Strategic and corporate planning
Microfinance
Pakistan remittance initiative
Remittances
Information Systems and Technology Department
Risk Management Department
