Introduction:
Pakistan came into being as a state of Muslims in the Sub-Continent on 14th August, 1947. Pakistani banks follow the British pattern of banking system (Branch Banking). Before independence, there were 44 banks having 631 branches in the areas of Pakistan including east Pakistan (Now Bangladesh) and only 487 offices in the territories now comprising Pakistan.
At the time Pakistan was producing food grains and other agricultural raw material exports. There were particularly no important industries and agricultural produces were mostly being exported. However commercial banking facilities were provided fairly well here. But shortly after independence, the number of banks and their branches as the Hindu bankers migrated to India from Pakistan. In addition majority of Hindus residing in the territories now constitute Pakistan started transfering their assets to India. By 30th June, 1948, the number of offices of scheduled banks in Pakistan declined from 487 to only 195. Then this country faced a great banking crices.
There were 19 non-Indian foreign banks with the status of small branch offices which were engaged financing of exports of Pakistani crops. There were only two Pakistani banks i.e., Habib Bank which transfered its office from Bombay to Karachi and The Australasia Bank which was in existance in the Pakistani territory. There was a panic of uncertain economic future which shook the confidence of the people. The Government, therefore, promulgated the Banking Companies Ordinance, 1947, to safeguard the interest of both the bankers and the public.
Under the prevailing critical situation at that time the Father of Nation Hazrat Quaid-e-Azam Muhammad Ali Jinnah and his fellows in the Government felt much the need of sound was taken and the State Bank of Pakistan was established on 1st July, 1948.
After the opening the State Bank of Pakistan took initiative for the development of banking system. Many new commercial banks were established and they increased the number of their branches day by day. For the growth and development of agricultural and industrial sector specialized banks and other financial institutions were also setup and now the network of bank branches covers a very large segment of national economy. By June 1988 the number of bank branch office has increased to more than 7100 which are spreaded over in every nook and corner of Pakistan.
Nationalization of Banks
The Government of Pakistan nationalized all the Pakistani banks on June, 1974. The ownership, management and control of these banks stood transfered to and vasted in the Federal Government. The shareholders were compensated by 15 years Federal Government bonds.
By December 31, 1973, there were 14 scheduled Pakistani commercial banks with 3323 offices all over the country and 74 offices in foreign countries. Inspite of this tremendous growth and development of commercial banks and their prominent role of financing in the country’s economy, it was felt that these banks failed to ensure that the resources flow in those sectors of economy where they would produces goods and services needed badly by a very large number of people in Pakistan. Therefore the nationalization of banks was considered necessary. On January 01, 1974, Pakistani Banks were nationalized under the bank (Nationalization) Act, 1974, with following objectives:
1. To provide the fair distribution of credit. All the sector of economy will enjoy the credit facility.
2. The encourage and stimulate the effective nationalization of savings in the country.
3. To provide social justice in the country by proper allocation of credit and financial resources to different classes of the society.
4. To enable the Government to use the capital concentrated in the hands of a few rich bankers for the repaid economic development of the country and the more urgent social welfare projects.
5. To co-ordinate the banking policy in various areas of feasible joint activity without eliminating healthy competition among banks.
According to section 5 of this Act the State Bank of Pakistan; Industrial Development Bank of Pakistan, The Punjab Provincial Cooperative Bank and all commercial banks incorporated in Pakistan and carrying banking business in Pakistan or abroad have been nationalized and the number was brought down to five.
Banking Council
For coordinating the planning and operations of banks and monitoring the cost of operation the Pakistan Banking Council was set up under section 9 of the Bank (Nationalization) Act 1974.
The nationalized banks made good progress in expending the banking services in the nooks and corners of Pakistan despite very low level of domestic savings and heavy dependence on foreign borrowings. The number of branches which stood at 3397 on December 31, 1973, reached about more than 7,000 by June, 1988. Similarly, the bank deposits which stood at 1925 crores of 1973 reached the high mark of Rs. 23,867 crores by June, 1988.
Organization of Pakistani Banking
Pakistani banking system was expended remarkably and it can be compared with banking system of any developing country of the world. At present the banking structure in Pakistan comprises of the following:
1. Central Banking
State Bank of Pakistan is the central bank of the country with its offices at Karachi, Hyderabad and Sukkur in Sindh; Rawalpindi, Lahore, Faisalabad, Gujranwala, Sialkot and Multan in Punjab; Peshawar in N.W.F.P and Quetta in Balochistan. Central Office is located in Islamabad.
2. Commercial Banking
Commercial banks have been the most effective mobilizors of savings and have been providing short term requirements of working capital to trade, commerce and industry. After nationalization commercial banks have been providing short term finance to agricultural sector also.
After the nationalization in 1974 all the 14 commercial banks were reorganized and merged into the following five banks:
• National Bank of Pakistan
• Habib Bank Limited
• United Bank Limited
• Muslim Commercial Bank Limited
• Allied Bank of Pakistan Limited
The other banks were merged in these banks. Bank of Bahawalpur was merged with the National Bank of Pakistan; Habib Bank (Overseas) Limited, and Standard Bank Limited were merged with Habib Bank Limited; Premier Bank Limited with Muslim Commercial Bank Limited; Commerce Bank Limited with United Bank Limited and Sarhad Bank Limited and Pak Bank Limited with Australasia Bank Limited and renamed as the Allied Bank of Pakistan Limited.
3. Exchange Bank
Foreign bank generally have been engaged in financing the foreign trade but they are fully authorised to discharge normal banking functions including the acceptance of deposits from public. At present there are eighteen foreign banks with 64 branches. They are located in Karachi and other commercial cities of Pakistan. The State Bank of Pakistan does not allow them to open branches in small towns in the interior of the country.
4. Savings Banks
Post Office Savings Bank is the only Saving Bank in the country. It is controlled by the Government of Pakistan. It accepts deposits from public and invest them in various Government projects.
5. Co-operative Banks
Generally there are three systems of cooperative banking in Pakistan. They consist of primary cooperative societies at the base; Central Cooperative Banks and Banking Unions in the middle and Provincial Cooperative Banks at the top. There are four Provincial Cooperative Banks, one each in Punjab, Sindh, N.W.F.P and Balochistan; 52 central cooperative banks and Banking Unions and above 28,000 primary Agricultural and credit societies.
These cooperative banks are integrated taking a very active part in the promotion of thirft, self help and mutual aid among agriculturalists and others with common economic needs as as to bring about better living, business and production.
6. Specialized Financing Institutions
These institutions are Government sponsored corporations. The main objective of these institutions is to stimulate the development of country’s economy by providing capital resources and technical advice to industrial and commercial and agricultural sectors. They provide long term and medium term credit to these sectors.