stastate bank of pakistan

Project

State Bank of Pakistan

SBP Project by ASH GOVT. COLLEGE OF SECINCE

Table of Contents

Course Coordinator _________________________________________________________________________________ 3

Project Associates ___________________________________________________________________________________ 4

Outline _________________________________________________________________________________________________ 5

Introduction ___________________________________________________________________________________________ 6

Governor of State Bank ______________________________________________________________________________________ 6

Functions of State Bank of Pakistan _________________________________________________________________ 7

Primary Functions ___________________________________________________________________________________________ 7

Secondary Function _________________________________________________________________________________________ 10

Departments of State Bank _________________________________________________________________________ 11

Agricultural Credit Department ____________________________________________________________________________ 11

Domestic Market & Monetary Management Department ________________________________________________ 12

Banking Inspection Department ___________________________________________________________________________ 13

Human Resource Department ______________________________________________________________________________ 14

Information Technology Department ______________________________________________________________________ 15

Litigation Department ______________________________________________________________________________________ 15

Finance Department ________________________________________________________________________________________ 16

Statistics and Research Department _______________________________________________________________________ 17

Islamic Banking Department _______________________________________________________________________________ 18

Audit Department ___________________________________________________________________________________________ 19

Conclusion ___________________________________________________________________________________________ 20

COURSE COORDINATOR

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Course Coordinator

roject Objectives

Because of the following reasons, I prefer this project work to get the knowledge of the

banking system.

Banking is an essential industry.

It is where we often wind up when we are seeking a problem in financial crisis and

money related query.

Banking is one of the most regulated businesses in the world.

Banks remain important source for career opportunities for people.

It is vital system for developing economy for the nation.

Banks can play a dynamic role in delivery and purchase of consumer durables.

BASHARAT RAZA

Lecturer

Govt. College of Science

P

PROJECT ASSOCIATES

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Project Associates

ABDUL RAUF SHAKIR

SHAHBAZ HUSSAIN HASNAIN RAUF RAO

Bachelor in business Administration

Roll no: 54


Roll no: 06


Roll no: 50

Govt. College of Science

Wahdet Road Lahore

www.gcslahore.edu.pk

OUTLINE

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Outline

1) Introduction

2) Functions of SBP i) Primary functions

ii) Secondary functions

3) Departments under SBP i) Introduction

ii) Functions

iii) Objectives

Conclusion

INTRODUCTION

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Introduction

The State Bank of Pakistan ( بینک دولت پاکستان) is the central bank of Pakistan which was formed

on 1st July 1948. 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 its second headquarters in the capital, Islamabad.

Governor of State Bank Mr. Ashraf Mahmood Wathra has been appointed as Governor, SBP with effect from April 29,

2014, for a period of 3 years

http://en.wikipedia.org/wiki/Central_bank

http://en.wikipedia.org/wiki/Pakistan

http://en.wikipedia.org/wiki/Karachi

http://en.wikipedia.org/wiki/Islamabad

FUNCTIONS OF STATE BANK OF PAKISTAN

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Functions of State Bank of Pakistan

State bank of Pakistan plays an important role in the process of economic development with

the help of its function which are primary and secondary functions.

Primary Functions

1. Issue of Notes

State bank of Pakistan has monopoly in issuing currency notes. 5, 10, 50, 100 rupee notes are

issued by the bank on 12 July 1976. Note of 500 rupee was issued on 1st April 1986 and 1000

rupee note was issued on 18th July 1987. At present note of Rs.5000 is also issued by the state

bank of Pakistan. The state bank has three offices of issue, situated at Karachi, Lahore and

Peshawar. There are three methods of note Issuance which are.

2. Fixed Fiduciary Method

Under fixed fiduciary method the government fixes a fixed amount of notes without

keeping any metallic reserve. But this portion of currency must be backed by government

securities, which is called fiduciary limit. The notes issued other than fiduciary limit must be

fully backed by gold or silver reserves.

3. Proportional Reserve System

Under this system the central bank is required to keep only a certain percentage of note

issued in the form of gold and silver. The reserve proportion is usually from 30% to 40%. It means

a central bank can issue rupees Rs.100 note after keeping gold or silver valuing Rs.30 or 40.

4. Minimum Reserve System

Fixed minimum reserve system allows the central bank to keep only a fixed amount of

reserve against whatever the amount of note issue.

5. Banker to the Government

It is the bank of federal as well as provincial government. Its functions for the Govt. are;

Bank issued new notes on the behalf of government.

Bank also accepts the government cheques and drafts.


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State bank responsible for transferring government funds at international level .

Bank arranges the public debts of federal and provincial government.

Bank receives no commission form the government.

It holds federal and provincial government securities.

State bank is liable for the payment of salaries and pension to government employees .

6. Banker’s Bank

State bank of Pakistan is the bank of all commercial banks working in Pakistan. SBP started

to spend $ 24.00 million in October 2002, with the assistance of World Bank for data

warehousing, networking, application of software and other banking solutions.

State bank provides loans to commercial banks at the time of need

Commercial banks re-discount their bills of exchange from state bank

State bank can sell, purchase and hold debentures of any banking company or of any other

financing corporation.

7. Clearing House

State bank of Pakistan acts as the clearing-house for the commercial banks working within

the country.

It shows the financial position of various banks

Clearing-house helps commercial banks to settle inter-bank transactions

It reduces the excessive use of cash

It controls the harmful competition among banks

8. Advisor to Government

State bank of Pakistan works as an advisor to federal and provincial government.

It guides the government in financial and economic matters

State bank assists the government in various credit schemes

It informs the government about the monetary and fiscal situations of economy

State bank helps the government in making investments

9. Lender of Last Resort

The state bake of Pakistan also acts as the lender of the last resort for the commercial banks.

When commercial banks are in crisis and have shortage of cash, then state bank comes to their

help. State bank may help the commercial banks by rediscounting their bills of exchange and by

advancing loans against securities.


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10. Controller of Credit

A national credit consultative council was setup in 1972 for the purpose of monitoring and

controlling credit. Credit and investment are the most important economic and fiscal variable.

State bank helps to arrange the credit and investment facilities. State bank has adopted following

tools to control credit:

Open market operation

Bank rate policy

Changes in reserves ratio

Changes in margin requirements

Change in liquidity ratio

Moral persuasion and publicity


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Secondary Function

1. Debts Management

Our scarce resources and government policies are not able to run the mega projects which

needed heavy amount of resources. Due to shortage of resources government has to depend upon

other rich nations. All these arrangement are the responsibility of the state bank on the behalf of

government.

2. Foreign Exchange Reserves

State bank of Pakistan is also the custodian of gold, silver and foreign exchange reserves. It

regulates foreign exchange reserve in accordance with foreign exchange Act 1947. Pakistan has

shortage in foreign exchange reserves. Its volume of foreign exchange reserves is only $12.34

billion in 2007-08. In July 2007, foreign exchange reserves were $15.646 billion out of which

state bank of Pakistan has $ 4.3213 billion. At present foreign exchange reserves of Pakistan are

$ 17.1 billion.

3. Exchange Centre

State bank issued licenses to different commercial banks to hold foreign exchange. Such

license holders can also deal in foreign exchange at authorized rates. These exchange centers are

very helpful in mobilizing the resources.

4. International Relations

State bank of Pakistan maintains relations with different international financial institutions

such as IMF, WBG, etc. It negotiates different contracts with these institutions on the behalf of

government.

5. Economic Information

State bank collects the information all over the country and world throughout the year. It also

annually published its report, which is an extremely important document. This exact information

is very helpful in making economic planning which is necessary for the economic development.

DEPARTMENTS OF STATE BANK

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Departments of State Bank

There are different departments under the State Bank of Pakistan which can be defined

briefly. Following are the main departments which carried out under the control of State Bank

of Pakistan.

1. Agricultural Credit Department.

2. Domestic Market & Monetary Management Department.

3. Banking Inspection Department.

4. Human Resource Department.

5. Information Technology Department.

6. Litigation Department.

7. Foreign Exchange and debt Department.

8. Statistics and Research Department.

9. Islamic Banking Department.

10. Audit Department

Above said departments are controlled and managed by State Bank of Pakistan and can be

explained briefly as.

Agricultural Credit Department

Introduction

Established under Section 8(3) of SBP Act 1956, is mainly responsible to meet credit needs

of agriculture that being the mainstay of Pakistan’s economy generates nearly one fourth of the

total output and 44% of total employment and is the major source of foreign exchange earnings.

Functions

Followings are the functions performed by the agricultural credit department under the

control of State Bank of Pakistan.


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Assessment of Credit needs

Agricultural credit department simply assess the need of credit in agricultural sector as well

as rural area to utilize the maximum output. That is the main function performed by the

agricultural credit department.

Formulation of Agricultural finance polices

Agricultural credit department formulate polices regarding agricultural and rural credit and

make implementation of these policies and procedures to a better extent.

Building Agricultural finance capacity

Agricultural credit department build the finance capacity of State Bank of Pakistan with the

use of appropriate resources. Agriculture department itself mange reserve which is used to

finance the agricultural needs.

Analysis of Agricultural finance need

Agricultural credit department conduct an analysis by using the financial data to allocate the

need of finance in a specific segment.

Advise to Govt. & other financial institutions

Agriculture credit department also gives advises to local and provincial government as well

as financial institutions to strengthen the agriculture sector in Pakistan.

Domestic Market & Monetary Management Department

Introduction

DMMMD is a newly constituted department of SBP. The idea of constitution of this

department was to manage the money market activates under one roof.

Functions

Followings are the functions performed by the Domestic Market & Monetary Management

Department under the control of State Bank of Pakistan.

Exchange Rate policy management

Exchange rate policy management is a key function performed by the Domestic Market &

Monetary management department. Discount and exchange rate defined by the state bank of

Pakistan is carried out by the said department in operation market.


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Monetary policy implementation

Monetary policy is a well-known function performed by the central bank and

implementation of these measures are carried out by the said department. If any of commercial

bank fail to meet the monetary policy requirement the said department make a deal with it.

Reserve Management

Reserve generated for operational and foreign purposes are managed by the Domestic market

& monetary management department.

Debt Management

Well DMMMD deals with all domestic and international debts therefore management and

generation of the debts carried out by that department.

Banking Inspection Department

Introduction

Banking Inspection Department (BID) is one of the core departments at SBP. Its mission is

to strive for soundness & stability of the financial system and safeguard interest of stakeholders

through proactive inspection, compatible with best international practices.

Functions

Followings are the functions performed by the Banking Inspection Department under the


Assessment of financial institution

BID plays a pivotal role in meeting the SBPs main responsibility of supervising the financial

institution to maintain soundness of the system and protection the interest of depositors, thereby

ensuring public confidence in the system.

Assessment of risk & policies

Here the focus of inspection is generally on risk assessment policy and procedure of the banks

and control environment to keep attach risks within acceptable limits and compliance with laws,

regulations and supervisory directives.

On-site examination

The regular on-site inspection is conducted on the basis of CAMELS Framework. (Capital,

Asset Quality, Management, Earnings, Liquidity, Sensitivity and System & Controls). CAMELS


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is an effective rating system for evaluating the soundness of financial institutions on a uniform

basis and for identifying these institutions requiring special attention or concern.

Preparation of statuary reports

Beside the regular inspection report, BID also prepares statutory reports under Section 25-AA

of the Banking Companies Ordinance 1962 for banks regarding written-off loans, mark-up and

other dues, or financial relief through rescheduling & restructuring of loans, on yearly basis and

is submitted to Federal Government.

Human Resource Department

Introduction

Human resource management is a function in organizations designed to maximize employee

performance in service of their employer’s strategic objectives. HR is primarily concerned with

how people are managed within organizations, focusing on policies and systems.

Functions

Followings are the functions performed by the Human resource Department under the


Recruiting employees

Human resource department recruit the best qualified candidate within the organization

as well as outside the state bank of Pakistan.

Encouraging employees

Same as the other departments human resource department perform efficient its function

and encourage the employees in their respective field.

Employees’ relations

Human resource department plays a vital role to build the employees’ relation with the

firm as well as fellows.

Succession planning and development

Appraisal forms are maintained to judge the performance of employees in their relative

work. With the help of these forms and on job performance succession planning occurs and also

these measures taken by the HRD.


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Information Technology Department

Introduction

ITD with its capabilities, methodologies and experience aims at technological

advancement in SBP. Focusing on solution that intend to reduce operating cost, improve end

user and meet overall business goals.

Functions

Followings are the functions performed by the Information Technology Department

under the control of State Bank of Pakistan.

Technological advancement

Information technology department plays a vital role in the advancement of technology

and digital view of the State Bank of Pakistan.

High quality solutions and services

ITD provides solution to other departments in the field of Information technology.

And assemble the information of other departments in a digital hub.

Effective communication

ITD builds effective communication between all departments in terms of technological

effect which is helpful to gain timely information at end spot.

Smooth 24/7 operations

Generally it’s a services which is provided by the Information technology department to

State bank of Pakistan to provide help in the field of operations.

Litigation Department

Introduction

Litigation is the process of taking a case through court. The litigation or legal process is

most common in civil lawsuits. Litigation department perform all functions related to law suits,

defense and appeals by the state Bank of Pakistan in its Operations.

Functions


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Followings are the functions performed by the Litigation Department under the control

of State Bank of Pakistan.

Defense of suits

Litigation department perform measures against the suits which are filed by the outsider

as well as members of State Bank of Pakistan in its operations.

Measures against suits

It includes documentations, preparation of reports and furnishing of solicitor against the

suits which is expected to face. It is also a main function of litigation department to ensure that

every this is working exactly according to Law of the state as well as Central Bank.

Settlement of legal issues

Litigation Department generated for the settlement of legal issue in the field of operation

without effecting any part of the Business. This department make other department work

efficiently according to the constitution of Central bank.

Registration of Rules

Litigation department check the rules and regulations before there implementation to

ensure that every single rule have ethical value to be forced at law. It is gives the specification to

registration process regarding rules of Law.

Finance Department

Introduction

Finance Department is a department that manages its money. The business functions of a

finance department typically include planning, organizing, auditing, accounting for and

controlling its finances. The finance department also usually produces the financial statements.

Functions

Followings are the functions performed by the Finance Department under the control of

State Bank of Pakistan.

Maintenance of books of accounts

Its main function is Maintenance of Books of accounts and preparation of financial

statements of the bank in accordance with the international accounting standards as adopted by

the Bank.

Budget planning


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Finance department usually coordinate and facilitate in the business planning and

budgeting measures with the help of periodic reports to the management and to its board.

Maintenance of foreign currency accounts

Maintenance of foreign currency account, investments and execution of international

payments and receipts are also performed by the finance department of Central bank.

Currency issuance

It is the function of finance department to issue the currency and overall management .

Management of Donor Accounts

Finance department gives Maintenance of accounts related to international organizations

and donor agencies like international monitory fund, Asian development bank, Asian clearing

union etc.

Statistics and Research Department

Introduction

Statistics and research department under the state bank of Pakistan assumes an important

role by providing key inputs for economic policy formulation through its analytical reviews and

research work. Clearly, superior analysis of economic policy would be reflected in sounder

macroeconomic management by the State Bank.

Functions

Followings are the functions performed by the statistics and research Department under

the control of State Bank of Pakistan.

Analysis of economic policies

Statistics and research department analyses the economic policies, set and carried out by

economics policy department to ensure the impact of policy on the domestic as well as

international market.

Analysis of economic indicators

Analysis of economic indicators also performed by the statistics and research department

to give change in the policies.

Presenting the effective results

Statistics and research department present the results from the research to management

and to its board so that the effective steps should be taken quickly.


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Analysis of operational soundness

Statistics and research department usually conduct study to analyses that is organization

working efficiently? Is organization working according to the policies and procedures? Etc.

Islamic Banking Department

Introduction

Islamic banking department was established on 15th September, 2003 and has been

entrusted with the huge task of promoting & developing the shariah compliant Islamic banking

as a parallel and compatible banking system in the country.

Functions

Followings are the functions performed by the Islamic Banking Department under the


Supervision of Islamic Banks

Islamic Banking Department plays vital role in the supervision of all Islamic banks in the country.

All listed and registered Islamic banks under the state bank of Pakistan are supervised and managed by

the department particularly.

Introduction of Islamic tax, Zakat

It is also a main function performed by the Islamic banking department to introduce tax and Zakat

policy according to Islamic shariah.

Policies compliance with Islamic shariah

Islamic Banking department makes policies and procedures for the Islamic banking system which

is compliance with the Islamic shariah and context to Islam.

Advancement of Islamic banking

Advancement in the field of Islamic banking system is also a function which is carried out

by the Islamic banking department. This department not only direct the Islamic banks but also

gives them way to flourish their work.


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Audit Department

Introduction

Audit Department is a Department under the State Bank of Pakistan which examines and

evaluate whether the SBP’s frame work of risk management, control, and governance processes,

is adequate and functioning properly.

Functions

Followings are the functions performed by the Audit Department under the control of

State Bank of Pakistan.

Financial Audit

Audit Department’s main function is to conduct financial audit of different banks proposed by the

State Bank of Pakistan. All registered banks are not supposed to be audited but any bank under the eye

of central bank can be audited any time for the interest of general public.

Operational Audit

Operational Audit is also a function of Audit department in the organization. It examines that the

all operations are carried out according to rules and regulation.

Management Audit

Audit department also exams the management contribution in the affair of business of state bank

of Pakistan as well as member banks to ensure the soundness of operations.

Audit of Internal Control

Internal control is a system generated by a bank itself to manage all the operation of the bank to

check and maintain the job as it should be, and audit department gives it look to some extent which

become its function.

CONCLUSION

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Conclusion

All above points are showing that state bank of Pakistan has an important

position in our economic and financial infrastructure. Without an effective role of state bank,

economic development is impossible.

Good Luck

stastate bank of pakistan

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