Insurance News

State Bank of Pakistan | Functions

STATE BANK OF PAKISTAN 

Every country has a bank that is necessary for the uniformity of currency and which also serves as the government’s bank. The State bank of Pakistan is an example of this form of bank. When Pakistan came into being, the Reserve Bank of India served as its central bank. But, because of the war on Kashmir occupation, India had reservations in doing transactions through the Reserve Bank of India. As a result, Quaid-e-Azam Muhammad Ali Jinnah felt the need for a central bank of Pakistan, for this very reason State Bank of Pakistan was immediately formed. 

State Bank of Pakistan | Functions

Establishment of SBP: 

SBP was established as the central bank of the country on July 1, 1948, under Pakistan Ordinance 1948. The original share capital of the bank was 30 million rupees divided into 300,000 fully paid-up shares of the nominal value of 100 rupees each. Federal Government owns 51% of the paid-up capital whereas 49% of the share is held by the private sector. After the Nationalization of January 1974, the federal government assumed ownership of all privately held shares on payment of compensation to the shareholders. 

The present structure, operation, and authority of the State Bank are based upon the state bank of Pakistan Act, 1956, which has 55 sections, divided into 5 chapters. 

Management: Section 9 of SBP Act, 1956 

The general superintendence of the affairs and business of the SBP vests in hands of the Central Board of Directors. The BOD comprises of, 

a) The Governor, who is CEO and Chairman of Central Board.  

(One or more Deputy Governors may be appointed by the Federal 

Government.) 

b) Secretary, Finance Division, Government of Pakistan 

c) Seven Directors, including one director from each Province, to be nominated by the Federal Government ensuring representation to agriculture, banking, and industrial sectors.  

FUNCTIONS of STATE BANK OF PAKISTAN

According to the Preamble of State Bank of Pakistan Act, 1956, “State Bank has been constituted to regulate the monetary and credit system of Pakistan and to foster its growth in the best national interest to secure monetary stability and fuller utilization of the country’s productive resources.”  

SBP performs following functions, under SBP Act 1956; 

1. Monetary & Fiscal Policy: Section 9(A) 

Central Board of SBP performs functions of formulating monetary and credit policy, regulating the monetary system, secure monetary stability and soundness of the financial system. It takes into account the Federal Government’s targets for growth and inflation. Board also Determine and enforce the limit of credit to be extended by the Bank to the Government and private sector and government agencies for all purposes. 

2. Policies Co-ordination: Section 9(B) 

Another Board named the Monetary and Fiscal Coordination Board coordinates fiscal, monetary, and exchange rate policies. It also ensures consistency among macro-economic targets of growth, inflation, fiscal and monetary policy, and external accounts. It analyzes and advises the impact of various policies on the state of the economy and reviews the policies and revises limits and targets. 

3. Government Borrowing: Section 9(B) 

Monetary and Fiscal Coordination Board considers limits of the Government borrowing and reviews its level concerning the predetermined or revised targets after every quarter. It meets before the finalization of the budget to determine the extent of Government borrowing from commercial banks and connected expenditure, taking into account credit requirements of the private sector, liquidity expansion, and net foreign assets. 

4. Business Which the Bank May Transact. Section 17 

According to SBP Act 1956, the State Bank of Pakistan can transact the following business;  

  • Accepts deposits and collects money for the Government and other persons, without interest. 
  • Purchase, sell, and rediscount bills of exchange, promissory notes, shares, debentures, approved foreign exchange. 
  • The issue and purchase of telegraphic transfers, demand drafts, and other kinds of remittances made payable at its own branches, offices, or agencies.  
  • The custody of monies, securities, and other articles of value and the collection of the proceeds, whether principal or interest, profit, dividend, or other return of any such securities.  
  • The sale and realization of all property, whether movable or immovable which may in any way come into the possession of the Bank in satisfaction or part satisfaction of any of its claims.  
  • The drawing, accepting, making, and issue any bill of exchange, hundi, a promissory note in local or foreign currency payable. 

5. Loans and Advances: Section 17 

SBP makes loans and advances to Local Authorities, scheduled banks, or cooperative banks of advances and loans repayable on-demand or on expiry of fixed periods not exceeding 180 days against specified security. It also making of loans and advances out of the Rural Credit Fund, Industrial Credit Fund, Export Credit Fund. 

The making of loans and advances to specialized financial institutions for promoting agricultural or industrial development, construction of houses, cooperative banks is also under the purview of SBP. Who is also providing finances to scheduled banks or financing institutions based on participation in profits and losses and on any other terms as may be decided? 

6. Contributions and Donations by the Bank: Section 17(F) 

Notwithstanding anything contained in this Act or any other law for the time being in force, the Bank may contribute or donate funds to a body corporate in Pakistan. These are donated for the purpose of study, promotion, or research in banking, economics, and allied subjects. 

7. Declaration of Approved Foreign Exchange: Section 19 

The Federal Government may declare (by notification in the Official Gazette) the currency of any country or any monetary unit of account to be approved foreign exchange for all or any of the purposes of this Act on the recommendation of the Central Board. 

8. Government Business: Section 21 

SBP performs all financial transactions on the behalf of the Federal Government, any Provincial Government, or any Local Authority acting as their agent. These include accepting monies, making payments, purchase, selling, transfer, and custody of gold or silver or approved foreign exchange, bills of exchange, securities, or shares in any company. It manages public debt as well as the transaction of special drawing rights with the International Monetary Fund. On behalf of the Government, SBP must enter into clearing and payments arrangements with other countries, 

9. Service Charges: Section 22 

The Bank publishes the standard service charges at which it is prepared to provide financial accommodation to the borrowing entities. Moreover, these standard charges are revised from time to time. In respect of finance provided by the Bank, it may determine, from time to time, the terms and conditions either generally or especially. 

10. Purchase and Sale of Foreign Exchange: Section 23 

The Bank may buy from or sell to any person the approved foreign exchange at such rates of exchange, whether in Pakistan or abroad, at such places and on such conditions as it may determine from time to time. 

11. Sole Right to Issue Bank Notes. Section 24 

The Bank shall have the sole right to issue banknotes made payable to bearer on demand in Pakistan following the provisions hereinafter made, provided that on the recommendations of the Central Board the currency notes of the Government of Pakistan supplied to the Bank by the Government may be issued by it for a period which shall be fixed by the Federal Government. Any person contravening this authority or committing any other offense specified in Section 35, shall be liable to the penalties therein mentioned. 

12. Legal Tender: Section 25 

Subject to the provisions of sub-section (2) every banknote shall be legal tender at any place in Pakistan for the amount expressed therein and shall be guaranteed by the Federal Government. The Federal Government may declare any series of banknotes of any denomination shall cease to be legal tender and exchangeable after the specified date. 

13. Issue Department: Section 26 

The issue of banknotes shall be conducted by the Bank in an Issue Department which shall be separated and kept wholly distinct from the Banking Department and the assets of the Issue Department shall have only the liabilities of the Issue Department

14. Denominations and Form of Bank Notes: Section 27 

Banknotes made issued by the Bank shall be in such denominations and of such design, form, and material as may be approved by the Federal Government on the recommendations of the Central Board. 

15. Re-issue of Notes: Section 28 

Torn, defaced, or excessively soiled banknotes shall not be re-issued by The Bank. 

16. Lost, Stolen, Mutilated, or Imperfect Notes: Section 29 

No person shall as of right be entitled to recover from the Federal Government or the Bank the value of any lost, stolen, mutilated, or imperfect banknote. 

17. Assets of the Issue Department: Section 30 

The assets of the Issue Department shall not be less than the total of its liabilities and shall be maintained as per legal specifications 

18. Cash Reserve of Scheduled Banks to be Kept with the Bank: Section 36 

Every scheduled bank shall maintain a certain percentage of demand liabilities as determined by the State Bank. It shall send to the SBP returns about deposits and cash reserve, signed by two responsible officers. If it is below the minimum fixed ratio, the scheduled bank may be ordered by the SBP to pay the amount. In case of failure, the penalty may be imposed, which may be a fine that may extend to 500 rupees for each subsequent day on which the default continues or prohibition receiving any fresh deposit. 

19. Scheduled Banks: Section 37 

The SBP shall, by notification, in the official Gazette, declare any bank to be a scheduled bank that is carrying on the business of banking in Pakistan. SBP shall maintain an up-to-date list of scheduled banks that are declared as scheduled banks with SBP. 

SBP can direct the de-scheduling of any scheduled bank which ceases to fulfill the requirements mentioned in clause (a) or goes into liquidation or otherwise wholly or partly ceases to carry on banking business. SBP can also alter the description in the list of scheduled banks whenever any scheduled bank changes its name. 

20. Power to Require Returns from Corporations: Section 38 

The Bank may require any Corporation with which it has any transaction under Section 17 to furnish returns referred to it under sub-section (3) of Section 36, and if it does so require, the provisions of sub-section (6), (7), and (8) of Section 36 shall apply, so far as may be, to such Corporation as if it were a scheduled bank. 

21. Publication of Consolidated Statements by the Bank: Section 39 

The Bank shall compile and publish a consolidated statement from such information as may be received under this Act in such manner and at such times as the Federal Government may direct

22. Returns: Section 40 

The Bank shall prepare and transmit a weekly account of the Issue Department and of the Banking Department to the Federal Government. These are published weekly in an Official Gazette. The Bank shall also, within four months from the date on which the annual accounts of the Bank are closed, release to the public and Government. It should be signed by bank officials, certified by the auditors together with a report by the Central Board on the working of the Bank throughout the year. 

23. Business Which the Bank May Not Transact: (Section 20) 

The Bank shall not, except as authorized under this Act, 

  • Engage in trade except for the satisfaction of any of its claims. 
  • Purchase its own shares or the share of any other bank or of any company, or grant advances or loans upon the security of any such shares. 
  • Advance money on the mortgage of immovable property except where such advance is made to any of its officers or servants for building a house for his personal use. 
  • Become the owner of any immovable property except where ownership is necessary for the use of such property by the Bank, or for the use of welfare of its employees. 
  • Make unsecured advances and loans. 
  • Draw or accept bills payable otherwise than on-demand. 
https://feeder.co/discover/c296da6544/insurancepost-my-id

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button