Class: BBA-IV

Section: A
Subject: Contemporary Practices In Banking & Finance
Submitted by:
Esha kulsoom
Muhammad Adil Javed
Muhammad Ahad
Moeez Murtaza
Sammiya Ali
Submitted to: Sir Mazhar Farid
STATE BANK OF PAKISTAN
 HISTORY:

• Reserve Bank of India was the central bank of both Pakistan and India.
• On 30th December 1948 British government commission distributed the reserve bank of India’s
reserve between Pakistan and India with ratio of 30:70.
• The losses incurred in the transition to independence were taken from Pakistan’s share a total of
230 million.
• In May,1948 M. Ali Jinnah took step to establish SBP.
• The idea was implemented in June 1948.
• SBP commenced operation on July 1st,1948
 INTRODUCTION:

• State bank of Pakistan is the central bank of a country. Central Bank is the national bank which
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.
• The headquarters are located in the financial capital of Pakistan which is Karachi and its second
headquarters in the capital, Islamabad
 FUNCTIONS OF STATE BANK
Sole right of Note Issue:
In every country state bank has the sole authority to issue notes. This
authority is given to them for:

 Uniformity of notes.
 To check undue expansion of notes.
 Regulate currency according to its demand.
 To make sure that the note issue is the liability of the bank and get full support of the state.
 Banker to the Government:
Function as a banker to the government are as follows:
 Keeping the deposits:

State bank keeps the deposits of the central and provincial governments. It also makes
payment on their behalf.
 Advances loans:
State bank also provide loan to the governments.
 Foreign loan:
State bank make arrangements to get foreign loans on the behalf of Govt.
 Transfer of capital:

State bank transfer the capital of central and provincial governments from one place to
another.
 Financial Advisor:
State bank also gives the advises to government on economic matters and to
control inflation, deflation, devaluation and BOT/BOP etc.

 Keeping of Accounts:
State bank keeps the accounts of different department of governments
without charging any sort of fee.

 Government securities:
State bank is not only the custodian of government securities but also deal
in the sale and purchase of securities.
Bankers Bank:
As a banker for commercial banks state bank perform following
functions:

 Custodian of cash revenue:

Commercial banks are required to keep their revenue in the state bank
by law.

 Clearing House:
State bank also act as a clearing house for the settlements of the mutual claims of
commercial banks.
 Lender of the last resort:
State bank lends to the member banks in the time of need to save their financial
structure.

 Advance Policy:
It also regulate the policies of advancing loans and also for the rate of interest to be charged.

 Growth of Bank:
It is the duty of the state bank to promote the growth of the banking system.
Leader of the Capital/Money market:
State bank also considered as the leader of the money
and capital market because it works for its establishment as well as for its growth. It makes policies
and make decisions regarding the controlling and contraction of credit in the country.

Controller of Foreign Exchange:

It also responsible for managing the foreign currency and
stabilizing the value of local currency. All foreign exchange reserves are also kept within state
bank.
Custodian of metallic Reserves:
State bank is the supervisor of the metallic reserves. Even the
metallic reserves of the commercial banks also kept within the state bank.

Financial Reports:
It publishes the periodical reports related to monetary and economic policies.
 DEPARTMENTS OF SBP

Deposit Accounts Dept:

• Commercial banks open their accounts with state bank. These accounts are maintained at deposit
account unit.
• Handle export refinance scheme.
• Accounts reconciliation.
• Also facilitate public remittance and fee is charged for that where as no fee is charged by the
government.
Currency Management Dept:
• Ensuring adequate supply of good notes across the country.
• Forecasting annual increase in currency demand.
• Timely placement of printing orders with Pakistan Security Printing Corporation.
• Maintenance of sufficient balance of currency notes/coins.

Prize Bond and Saving Certificate Dept:

• Sale and purchase of prize bonds.
• Maintenance of prize band stock.
• Giving the prize money.
• Help in organizing draws.
Internal Monitoring Dept:
• Conducting pre audit of all accounts of the office.
• Prize bond payment cases.
• Export refinance cases before making payments to banks.
• Pre audit the cases and vouchers received from various units under SBP Expenditure regulation,
budgetary limit and head of accounts.

Public Accounts Dept:

• Collection of revenue on behalf of governments.
• Making payments on the behalf of the government.
• This department is responsible for the maintenance of:
(Federal govt A/C, Provincial govt A/C, Local govt, Zakat A/C, Defense A/C)
 MONETARY POLICY:

• Monetary policy comprises the rules and actions adopted by the central bank to achieve its
objectives.
• The primary goal of monetary policy is price stability. However, the mandate of central banks
also comprises other objectives, including attainment of full employment, domestic financial
stability, and normal operation of foreign payments.
• Changes in monetary policy are triggered by domestic and external shocks. Central banks
implement policy changes by resetting their policy instrument.
• Hence a useful way to understand monetary policy is to focus separately on central bank policy
actions and the transmission mechanisms through which those actions work.
 ROLE OF SBP IN MONETARY POLICY MAKING

• Monetary policy involves the central’s bank use of instruments to influence interest rates and
money supply in the economy with the objective of keeping overall prices and financial markets
stable.

• The preamble to the SBP act 1956 envisages monetary policy to secure monetary stability and
fuller utilization of the economy’s productive resources.

• The core objective of monetary policy is maintaining price and monetary stability keeping in view
the inflation and growth targets set by the government.
• The SBP act 1956 was amended by the parliament in November 2015 to set up a Monetary
policy committee(MPC) with three external economic experts, three SBP senior executives and
three SBP Board members.

• The MPC was then given the responsibility to formulate, support, and recommend the monetary
policy.

• It can make decisions relating to monetary objectives, key interest rates, and the supply of
Reserves in Pakistan and can propose regulations for thein implementations.
• The data collected at SBP has regularly been provided to the MPC, together with data sets from
surveys.
• SBP communicates its monetary policy stance through its website and press releases.
• Thus, monetary policy will continue to play a dynamic role in relation to the country’s economic
stability and growth prospects and SBP remains committed to continually refining and upgrading
its approach and decision-making frameworks in order to achieve the stated objectives.
 SOME TERMS TO KNOW

• Authorised Dealer means a person for the time being authorized to deal in foreign exchange.
• Authorized Money Changer” means a person for the time being authorized to deal in foreign currency
notes and coins.
• Currency" includes all coins, currency notes, bank notes, postal notes, money orders, cheques, drafts,
traveler’s cheques, letters of credit, bills of exchange and promissory notes.
•Exchange Company” means a company authorized to deal in foreign currency notes, coins, postal notes,
money orders, bank drafts, traveler's cheques and transfers.
•Foreign Currency" means any currency other than Pakistan currency.
•Foreign Exchange" means foreign currency and includes any instrument drawn, accepted, made or issued.
•Exchange Rate Regime:
Since May 1999, Pakistan has been following a market-based flexible exchange rate system. Inter-bank rate
applies to all foreign exchange receipts and payments both in the public and private sectors. Exchange rate
is determined by the demand and supply conditions in the domestic interbank foreign exchange market.

–All foreign exchange requirements for all approved purposes, including imports, services and debt
repayment are met by the authorized dealers that form the inter-bank market. The authorized dealers are not
required to approach the SBP for release of foreign exchange for any purpose, nor are they required to
surrender it to the SBP. Each authorized dealer is free to fix their own buying and selling rates. The SBP
does not provide forward cover to the authorized dealers. However, authorized dealers may provide forward
cover for exports, imports and other permitted transactions, in accordance with the conditions prevailing in
the market.
 FX RESERVES

• Foreign Exchange Act 1947 authorizes State Bank of Pakistan to manage country’s foreign
exchange reserves. As an agent to the Government, the Bank has been authorized to purchase
and sale gold, silver or approved foreign exchange and transactions of Special Drawing Rights
with the International Monetary Fund.

As the custodian of country’s external reserves, the State Bank is responsible for the
management of the foreign exchange reserves and repayment of external debts. The reserves
management task is being performed by an Investment Committee which, after taking into
consideration the overall level of reserves, maturities and payment obligations, takes decision to
make investment of surplus funds in such a manner that ensures practical management of
Foreign Exchange Reserves with core objective of Safety, Liquidity and Optimum Return.
FACTORS INFLUENCING FOREIGN EXCHANGE

• Changes in price level:

• Price level of a country plays a significant role. For example take 2 countries Pakistan and
England. If the price level in Pakistan rise due to inflation , this means that its goods have now
become more expensive.
• Exports and Imports:
• Volume of exports and imports of aa country also produce significant changes on exchange rates.
• If ex[ports of a country are higher than its imports, then this means that demand for the currency
of this country is also high and vice versa.
• Stock Exchange Influence:
• Working and status of stock exchange markets also influence exchange rates. If a country, there
is an active cpital capital market, healthy business of stocks, shares, debentures is going on then
funds will prove valuable.
THANK YOU