State Bank of Pakistan
||It has been suggested that Sabah uz Zaman be merged into this article. (Discuss) Proposed since May 2015.|
|Governor||Ashraf Mahmood Wathra|
|Central bank of||Pakistan|
PKR (ISO 4217)
|Reserves||US$ 19.8 billion |
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, 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.
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.
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 during the 2011 Global Policy Forum held in Mexico.
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.”
Regulation of liquidity
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
- 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
Bank assets and liabilities
- Legal services
- Payment system
- Real time gross settlement system (RTGS system)
- Small and medium enterprises
- Training and Development Department (TDD)
- Treasury operations
- Strategic and corporate planning
- Pakistan remittance initiative
- Information Systems and Technology Department
- Risk Management Department
The Board of Directors
The Board (previously known as the Central Board) consists of ten members: the Governor (who is Chairman), the Secretary, Finance Division, Government of Pakistan – and eight Directors, including one Director from each Province, to be nominated by the Federal Government. The Directors (and the Governor) are appointed for a term of three years. Traditionally, these directors (other than Secretary, Finance Division) are re-appointed for a second term, though this is not a requirement of the law, and there have been a few exceptions to this practice.
The current Board of Directors consists of the following (there being two vacancies):
- Chairman: ( Governor SBP);
- Dr. Waqar Masood Khan (Secretary Finance);
- Mr. Mehmood Mandviwalla;
- Mr. M. Nawaz Tiwana;
- Mr. Iskander Mohammed Khan;
- Khawaja Iqbal Hassan;
- Mr. Muhammad Hidayatullah;
- Mr. Zafar Masud;
- Governor of State Bank of Pakistan
- National Bank of Pakistan
- Zarai Taraqiati Bank Limited
- Pakistani Rupee
- Banking in Pakistan
- Payment system
- Real-time gross settlement
- "History of banking in Pakistan – of humble origins and vast potential". The Express Tribune. 4 November 2011.
- "State Bank focuses on food security". The News International, Pakistan. 7 April 2012.
- Alliance for Financial Inclusion (30 September 2011). "Maya Declaration Urges Financial Inclusion for World's Unbanked Populations". prnewswire.com.
- "Ashraf Wathra appointed as State Bank governor". The Express Tribune. April 28, 2014. Retrieved 2015-02-28.
-  Central Board of Directors Information page. Retrieved 23 November 2015