Central Banking Functions & dept.

Functions of Central BankBy AsHra ReHmat

Functions of Central Bank

Secondary Functions:• Public Debt Management

• Management of Foreign Exchange

• Advisor to Government

• Relationships with International Financial Institutions

Non-traditional Functions:• Development of the Banking System

• Training Facilities to Bankers

• Credit to Priority Sectors

• Islamization of the Banking System

Public Debt Management

Public debt refers to all the money that the government is liable to pay. The following actions are involved in this regard:

• Subscribing Federal and Provincial governments’ securities at the time of their issue

• Sale/purchase of such securities in the Money Market (through auction, OMO or discount window)

• Payments of interest to holders of public debt instruments

Management of Foreign Exchange

• Being responsible for maintaining the external value of the currency.

• The Bank is responsible to keep the exchange rate of the currency at an appropriate level and prevent it from wide fluctuations. As the custodian of country’s external reserves, State Bank is also responsible for the management of the foreign exchange reserves.

Bankers, Agent and Adviser to the Government

• As banker to the government, central bank provides all those service and facilities to the government which public gets from the ordinary banks.

• It operates the account of the public enterprise. It mangers government departmental undertaking and government funds and where there is a need gives loan to the government.

• From time to time, central bank advice the government on monetary, banking and financial matters.

Monetary and Fiscal Policies Coordination Board (MFPCB)

• The State Bank also participates in economic policy making as a member of various government agencies and committees.

• In order to coordinate fiscal, monetary, foreign trade and exchange rate policies, a “Monetary and Fiscal Coordination Board” has been set up under Section 9B of the SBP Act 1956.

• The Board is responsible for ensuring consistency among macro targets and to determine, in consultation with the Federal Government, the limits of credit to be extended to the Federal and Provincial governments and review, on a quarterly basis, Government’s borrowings in relation to pre-determined or revised targets.

Reports on the State of the Economy

• The Bank submits its review of the economy to the Parliament through its annual and quarterly reports.

• The advisory function of the State Bank has been assigned to it by sub-sections (d), (e) and (f) of Section 9A of the SBP Act, 1956.

• It submit a quarterly report to the Majlis-e-Shoora(Parliament) on the state of the economy with special reference to economic growth, money supply, credit, balance of payments and price developments.

Relationships with International Financial Institutions

It maintains relation with international agencies such as IMF, World bank etc.

The Central Bank deals with the IMF on behalf of the Government.

As a member of the Fund, the Government accepted the obligations of Article-VIII, Sections 2, 3 and 4 of the IMF Articles of Agreement July 1, 1994.

Pakistan is also the member of International Monetary Fund.

Non-traditional Functions

Development of the Banking System

The most significant contribution made by the Central Bank towards facilitating and fostering economic development is the rehabilitation of the banking system.

Micro Finance

In order to expand the banking services at grass root leveland to enable the financial sector to play its role in povertyalleviation, the State Bank of Pakistan is also promoting microbanking in the country.

It has facilitated two micro finance banks namely KhushaliBank and the First Micro Finance Bank (FMFB) Limited.

Promotion of Islamic Banking

In order to meet the latent demand for Shariah compliantsolutions of various financial needs of masses.

Conferences, workshops, seminars and presentations arebeing conducted to create public awareness and developbetter coordination among various stakeholders of Islamicbanking.

Training Facilities to Bankers

• It provides training facilities to the staff working in various banking institutions.

• They have been specifically designed to equip you with the means to tackle the challenges you face and allow free debate of sensitive issues in a confidential environment.

• Every year, the courses are refreshed and updated to cover the topics which matter the most to central bankers and regulators.

Training Institutions in Pakistan

• Institute of Bankers Pakistan

• Training Department/Division

• National Institute of Banking and Finance (NIBAF),

• SEANZA (South East Asia Region comprising Australia, Bangladesh, China, India, Indonesia, Iran, Japan, Korea, Malaysia, Nepal, New Zealand, Pakistan, Papua New Guinea, Philippines, Singapore, Sri Lanka and Thailand).

Credit to Priority Sectors

• The Bank has also introduced various credit schemes to channel resources towards priority sectors like export finance scheme, mandatory credit for agriculture, small business and small industries, etc.

Islamization of the Banking System

• The State Bank has also been involved in the process of Islamization of the economy in general and the banking system in particular.

• Considerable amount of research work is undertaken in Islamic Economics Division which includes the nature and connotation of „Riba‟, the Shari” a position of present day interest based financial system, various alternatives to interest and the fiscal system of Islam.

Collection of DataCentral banks in almost all the countries collects statistical data regularly relating to economic aspects of money, credit, foreign exchange, banking etc. from time to time, committees and commission are appointed for studying various aspects relating to the aforesaid problem.

Central Banking in Developing CountriesThe basic problem of underdeveloped countries is the problem of lack of capital formation whose main causes are lack of saving and investment. Therefore, central bank can play an important role by promoting capital formation through mobilizing savings and encouraging investment.

Departments of SBP

• The organization of the Bank has been divided into sixteen departments.

1. Accounts Department

Provides effective & efficient accounting services & information for planning, control and decision-making regarding annual budget and balance sheet of the Bank.

2. Agricultural Credit Department (ACD)

ACD coordinates the operations of the Bank inconnection with agricultural credit and itsrelations with the provincial co-operativebanks and any other organizations engaged inthe business of agricultural credit.

3. Banking Inspection Department (BID)

BID achieves the regulatory goals of StateBank of Pakistan, i.e., ensuring the safety andsoundness of the financial system andsafeguards the interests of the

depositors.

4. Banking Policy Department

BPD reviews and formulates proactive policy framework for Banks concerning diligent licensing, proposals for mergers/acquisition, privatization matters, management of the banks and conducting special studies for improvement in the banking sector with a view to safe guard the depositor’s interest.

5. Banking Supervision Department

Banking Supervision Department ensures enforcement of regulatory and supervisory policies, monitors risk profiles, and evaluates

operating performance of individual

banks and DFIs as also of the overall

banking system.

6. Economic Policy Department

Prepares monetary survey, credit plans, working papers for National Credit Consultative Council (NCCC) and M&FCB meetings, keeps constant watch and analyses developments in the financial markets and matters relating to Pakistan’s relationship with IFIs.

7. Exchange & Debt Management Dept.

Its function is effective and efficient execution of monetary and exchange rate policies through money market and foreign exchange operations.

It also performs domestic debt management function.

8. Exchange Policy Department

Its functions include formulation and regulation of policies relating to foreign exchange matters.

9. Islamic Banking Department

IBD has been set up recently with the objective of promoting and regulating Islamic banking in the country. Its vision is “Make Islamic Banking the banking of first choice for the providers and users of financial services”.

10. Payment System Department

It is set up recently to implement Real Time Gross Settlement (RTGS) project, and to oversee the existing payment and settlement system in place and develop a strategy with the banking industry for improvement in the banking system.

11. Research Department

Makes objective analyses of economic developments; explore inter-linkages between macroeconomic policies; and examine their relationships with overall economic growth, with a view to initiating informed public debates on national issues, and guiding formulation of sound economic policies.

12. Statistics Department

The Department is responsible for collection, compilation, dissemination and publication of statistics on economic, financial and monetary aspects most pertinent to the central banking.

13. Human Resources Department

Its objective is excellence at acquiring, developing and retaining the right talent for SBP by continuous innovation & improvement of the HR policies & procedures, providing effective facilitation and advisory services to line departments and efficient and timely

delivery of HR services.

14. Audit Department

It provides independent appraisal of all the activities of SBP aiming to add value, improve operational efficiency, risk management & internal control systems.

15. Information Systems Department

It is responsible for oversight and management of the technology operations, development and implementation, including all corporate systems, LANs, WANs, databases, websites, system administration

and desktop support for the SBP.

16. Corporate & Media Affairs Department

This department is entrusted to arrange Central Board meetings. It takes care of all the affairs related with Board of the Bank, acts as spokesman of the Bank for media and other external stakeholders, and manages publications of the State Bank of Pakistan