Central bank and state bank of pakistan, Functions, Prudential regulation

Central Bank

State Bank of Pakistan State Bank of

Pakistan

By:• Hijrat ullah

• Huma gul

Presentation theme:

• Origin • Definition• purpose

Bank

• Definition• Purpose• function

Central bank

• Definition• Aim of the bank• Functions of the

bank• Constitution• perdulation

State Bank of Pakistan

Conclusion

1. What is Bank?

Definition:1. According Prof. Crowther;

• Institution

• Providing loans to lend

• And create the credit money2. According to Prof. R. Kent;

Accumulate the surplus

Advance to deficit

The difference between surplus and

deficit called spread earning or profit

organization

1. What is Bank?

Origin of Bank:

o Italian word;

• Derived from “BANCUS”

• Means “BENCH”

o German word;

• Derived from “BANQUE”

• Means Firm

2. What is Central Bank?

Definition;o Institute which manage the following activities

• Nation’s currency

• Money supply

• Interest rate

o Oversee, their country commercial banking system

o Also called Reserve Bank Monitory Authority


Origin of Central Bank:

a. Nuremberg conference:

• In 1548, held in Nuremberg, Germany

• To cover the loop holes in banking system

• In 1578, First Central bank was established,

in Geneva, Switzerland


Origin of Central Bank Cont.…

b. Brussels conference:

• Before WW1 (1914-18),there was few central banks

• After “WW1” confusion in currency & exchange market

• Which become cause for some banking failure

• So, the conference held in held at Brussels in 1920

• That every state must have their own central bank

Constitutions and Functions of Central Bank

By-Huma Gul

Student of MBA 6th HR,

Department of Management SciencesAbdul Wali Khan University Mardan

3. Functions of Central Bank:

Monopoly of note issue

Bankers, Agent and Adviser to the Government

Custodian of Cash Reserve of Commercial Bank

Custodian of Nation’s Reserve of International

Lender of The Last Resort

3. Functions of Central Bank:

Collection of Data

Central Banking in Developing Countries

Clearing House Function

Credit Control

Other Functions

State bank of Pakistan & Prudential regulationsBy-

Hijrat ullahStudent of MBA 6th, HR

Department of management sciencesAbdul Wali Khan University Mardan

4. State Bank of Pakistan:

History of SBP:

o Before independence, FRBI was the Central bank, Sub-continent

o After independence, FRBI divided,

o Ratio of 70:30 in between India and Pakistan

o And 30% reserve was equal to Rs. 750 million

o Muhammad Ali Jinnah inaugurated SBP,

o Commenced operation in July 1, 1948

o SBP work under State bank act 1956

o Before , Nationalization ordinance 1974

o SBP share capital was 51% Government contribution and

49 % by private investors

5. Functions of SBP:

Core functions

Non-traditional functionsTraditional functions

Primary functions Secondary functions

Primary functions of SBP.

Primary functions of SBP

A. Issuing Currency Notes:

Monopoly of Note Issue.

o Sole authority of notes issues, except coins

o Work under act of 1956

o Issue offices: located in Karachi, Peshawar & Lahore

o Brings uniformity in the system

o Better control over the money supply

o Increases public confidence

Primary Functions of SBP:


Methods for issuing notes

1. Fixed fiduciary system 1956-1965o New form of currency principle

o Central government, issue notes, fixed by Government

o This fixed amount, backed by government Securities

and bonds

o So, if government, issue more currency

o Then, should be backed by Metallic reserve

o Advantage:• Control over inflation• No chance of currency over issue




2. Proportional reserve system:

o Notes issues is backed by metallic reserve

o Rest of amount backed by Govt Bonds and securities

o 25%- 40% backed by gold

o 60%-75% backed by Govt securities and bonds

o In Pakistan; • 30% against Gold reserve

• 70% against Govt securities and bonds




3. Minimum reserve system:

• Increase or decrease currency supply

• according to economy climate

• Notes issues shows

• Demand for money in the economy

• Price set by= by aggregate demand and

aggregate supply


B. Controller of Credit: To control the availability and cost of credit in the

country through

Purpose; full employment, price stability, increase in production etc.

• Open market

operations

• Variation in bank rate

• Credit rationing

• Varying reserve

requirements

Quantitative control Qualitative control

• Varying margin

Requirements

• Consumer’s credit

regulation

• Use of moral persuasion

• Direct action


C. Regulations and Supervision of banks:

Full power to supervise and control the banks

Banks liquidation

Banks restructuring

Banks performance

Banks valuation

Primary functions of SBP:

D. State bank as Clearing house:

Where representatives of different banks meet

To exchange cheques withdrawn

The state bank then settle the difference


E. Lender of last resort:

• Act as last lender of resort for commercial banks

• Used when banks have shortage of cash reserve

• Then, the state bank rescue them, from the danger

situation

• Method used is;o Provide cash by discounting bill of exchange

o And treasury bills

• Safe guard the banks from the liquidation


F. Bankers and Agent to the government:

As Financial Agent:

Collects Taxes and other payments.

Repaying external debts

Keep government deposits

Short-term advances to the Govt

Provides foreign exchange for purchasing foreign

goods, repaying goods etc.

Repaying external debts

As banker to the Government:

Secondary Functions of SBP:

Public Debt Management

Management of Foreign Exchange

Advisor to Government

Relations with IFI’S


A. Public Debt Management:

o Also called Government debt or national debts

o This may be own by either Federal or provincial government

o The budget deficit actually shows, public debts for particular period

o Method for debts are: Issuing bonds

Issuing securities

By offering bills

Low economy countries, get the loan from super-nation


B. Management of Foreign exchange: State bank is custodian of foreign exchange

Reserve and manage the exchange control

Fixing value of currency

Check currencies flight in and out

Agent of government, Pakistan's representative

with IMF and world bank


C. Advisor to the Government:o maintains deposit accounts,

o effects domestic and foreign currency transactions

and provides advice relative to financial matters

o Government holds deposit accounts at central bank

o The account are using for:

For receiving funds

Making payment

Clearing cheques issued by government


D. Relationship with IFI’S:

Relationship with

Relationship with

World bank

IMF

ADB

Non-traditional Functions of SBP:

Development of Financial Institutions

commercial bank, Micro finance and Islamic banking

Training Facilities to Banker

Development of Specialized Financial Institutions

Credit to Priority Sector

Industrial, Agriculture, Exportation

Aim of SBP functions:

State bank and Economic Growth:

Crucial role in the economic growth

Facilitating and boosting the economy development

Improving financial market( banks and financial inst.)

Also contribution, capital market improvement(PIBs)

Also help, commercial banks, through export scheme,

by offering export at low rate

Establishing special credit institution, for meeting

medium and large term financial needs

Prudential regulations:

o Code of conduct or guide lines through which state bank

supervise the institutions

o Shows standard format for activities

o To decrease their risk-taking

Definition:

Purpose: Provide safety to depositor’s funds

Keep financial stability

Uniformity in the sector

Perdulation of regulations:

Example:

REGULATION-XVIWINDOW DRESSING

Banks shall refrain from adopting any measures or practices

where by they would either artificially or temporarily show an

apparently improved position of bank’s accounts as given in their

Balance Sheet and Profit & Loss Accounts specially in relation to

its deposits and profit. Particular care shall be taken in showing

inter-branch and inter-bank accounts accurately and strictly

according to their true nature.

Conclusion:

o Bank

o Central bank

o Functions of central bank

o State bank of Pakistan

o Functions of state bank of Pakistan

o Constitution of state bank of Pakistan

o Prudential regulations of state bank of Pakistan

Central bank and state bank of pakistan, Functions, Prudential regulation

Economy & Finance

bank functions

functions of central

currency o

pakistan o

government o

securities o

bonds o

origin of bank