Key Functional and Operational Areas

1 Currency Management
2 Foreign Exchange Operations & Adjudication
3 Export Finance Scheme
4 Payment & Settlement System
5 Banking Services to the Government
1 CURRENCY MANAGEMENT
1.1 Overview

Currency management is one of the core functions of SBP Banking Services Corporation.
Under Section 5 (b) of SBP Banking Services Corporation Ordinance 2001, SBP-BSC is
entrusted with the responsibility of handling receipt, supply and exchange of banknotes
and coins on behalf of the State Bank of Pakistan. This function basically relates to issue
of banknotes and coins and withdrawal of unfit notes from the circulation. Currency
management encompasses activities with the estimation of the requirement of notes of
various denominations for issuance in the coming year, placing the indent for supply of
fresh notes with Pakistan Security Printing Corporation (PSPC) through SBP, receipt of
fresh notes from the PSPC, examination and storage of these notes in a systematic
manner, taking measures to curb counterfeiting, issuing notes to commercial banks /
chests and finally withdrawal of soiled notes from circulation and their destruction.

During FY07, SBP-BSC continued its efforts to improve the currency management
system through close monitoring of the currency requirements. It maintained a steady
supply of currency notes and coins of all denominations through its cash supply chain i.e.
sixteen field offices, currency chests / sub-chests established at the designated branches
of National Bank of Pakistan (NBP), government treasuries and commercial banks spread
all over the country. Currency Management Department of SBP-BSC is vigorously
monitoring and controlling the availability of banknotes and coins to meet the need of
historical usage, seasonal and cultural events and growing demand for Automated Teller
Machines (ATM). Management of currency is a big task as the value of currency in
circulation increased from Rs784.4 billion as on 30th June 2006 to Rs893.4 billion as on
30th June 2007, which accounts for an overall increase of around 14 percent. The
complexity and vastness of this task is also due to dependency of the general public on
cash transactions as the share of electronic banking is quite small in total transactions in
the economy. In addition, SBP-BSC also promoted awareness of the security features of
currency notes among officials of commercial banks and general public as well as
effectively assisted the law enforcement authorities in combating counterfeiting of
banknotes during the year under review.
Annual Performance Review of SBP-BSC – FY07

1.2 Implementation of Clean Note Policy

The strict implementation of clean note policy of SBP by the field offices of SBP-BSC
continued during FY07. SBP-BSC focused on improvement of the quality of banknotes in
circulation. In addition to regular supply of fresh notes, the speedy disposal of soiled
notes, mechanization of cash processing activities and discontinuation of the practice of
stapling banknotes have all contributed to improved quality of banknotes in circulation.
SBP-BSC issued instructions to commercial banks to sort out banknotes into issuable and
non-issuable categories. Only clean banknotes are to be issued to public, account holders
and return the soiled notes to SBP-BSC field offices. To ensure that only clean notes
remain in circulation, the field offices of SBP-BSC vigilantly kept on withdrawing the
unfit notes from circulation. During FY07, a total number of 1.024 billion pieces of soiled
banknotes of different denominations were processed and destroyed.

As a part of clean note policy, new design banknotes of Rs100, Rs500 and Rs1000
denominations with advanced security features have been put into circulation in the year
under review in addition to introduction of Rs10, Rs20 and Rs5000 denomination notes
during the previous year. Besides, plans are under way for introduction of new design
banknotes of Rs5 and Rs50 denominations with advanced security features in near future
while arrangements for issuance of Rs20 denomination notes in a new colour are in final
stages. In order to implement clean note policy and to ensure quick removal and disposal
of unfit notes from circulation, the special procedure for verification and destruction of
soiled notes, at offices of SBP-BSC, has been extended up to Rs50 denomination notes.

1.2.1 Issuance of Fresh Notes and Coins

During FY07, the Issue Offices of SBP-BSC functioning at provincial headquarters

continued to inject fresh notes in the market in response to increasing demand, through
various channels viz., BSC’s field offices, 226 currency chests / sub-chests established at
designated branches of NBP and commercial banks. The demand of fresh currency notes
of higher denominations from the commercial banks increased during the period under
review due to increase in the number of ATMs. It is worth mentioning that the total
number of ATMs has increased from 1,612 as on 30th June 2006 to 2,293 as on 30th June
2007 depicting an overall increase of 42.2 percent. Although the number of ATMs have
increased but in overall context of automated banking in the country the share is very
small compared to the number of un-automated transactions in banking sector. The
demand of coins from public has also showed an increasing trend. During the year under
review, around 1,633.8 million pieces of fresh banknotes and 698 million pieces of coins
of various denominations were issued to public as compared to around 1658.8 million
pieces of fresh banknotes and 568 million pieces of coins during the preceding year.

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Table 1.2.1 (a) Issuance of Fresh Banknotes

(Figures in million)
Year
Denomination of Banknote (Rs.)
10 20 50 100 500 1000 5000 Total Total
Pieces Value
2005-06 622.036 210.124 168.733 413.495 104.685 139.809 - 1,658.882 252,360.490

2006-07 594.108 188.520 151.575 381.848 137.844 145.863 34.074 1,633.832 440,630.030

Table 1.2.1 (b) Issuance of Coins to the Public

(Pieces in million)
Year Re.1 Rs.2 Rs.5 Total
2005-06 207.522 137.403 222.638 567.563
2006-07 286.807 165.049 246.089 697.945

1.2.2 Distribution of Notes to Public through Commercial Banks

SBP-BSC has taken appropriate measures for proper distribution of banknotes to general
public through designated branches of commercial banks. Resultantly, the availability of
fresh and good quality banknotes at commercial banks counters has improved
considerably. Further, in order to ensure distribution of fresh currency notes on equitable
basis and to facilitate the public and account holders in their vicinity following measures
have been adopted from time to time:

All commercial banks are provided with fresh notes in sufficient quantity for the
purpose of issuance of fresh notes to general public.

Process of distribution of fresh notes is being monitored by the Cash Monitoring

Teams of the SBP-BSC field offices.

While issuing fresh notes to commercial banks the series of fresh notes is being
recorded to monitor proper distribution of banknotes and to check that fresh notes are
not misused by the money changers and garland makers.

1.2.3 Automation of Currency Operations

A computerized system for issue and accounting of banknotes is operational in four Issue
Offices of SBP-BSC. Automation of currency operations at SBP-BSC offices has ensured
reliability and integrity of the processes relating to management of currency. Field offices
share information with SBP-BSC Head Office and SBP through on-line system which is
essential for quick decision, timely action and ensuring efficiency in cash operations. All
the field offices have been interlinked through a wide area network (WAN) which

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Annual Performance Review of SBP-BSC – FY07

facilitates a secured and authenticated mode of data / information transmission without

any time lag. The system is providing not only a control mechanism for minimizing risks
but also help the senior management in decision making in currency management.

The process of automation has made further progress in the year under review. The
Currency Globus system has been fully implemented except in certain areas like forged
notes where efforts are underway to achieve full automation level. In most of the areas of
currency operations, the manual work has been replaced with the automated work
processes. All manual ledgers and books relating to currency operations have been
discontinued in the Issue and Treasury (Cash) Division and the currency management
units of the offices. The system generated statements / reports are now obtained at the
close of banking hours thereby saving time and labour. Reports and statements of
accounts generated through the system are providing accurate results. Further, end of the
day (EOD) signal process is being executed efficiently without compromising any
internal control. A log book relating to system problems causing delay in EOD is being
maintained and reviewed for continuous improvement. As the users have become more
proficient in working on the automated system, the element of human error has been
minimized. With the continuous support of ISTD, all offices have benefited from
automation. Major achievements included implementation of Management Information
System (MIS) and reports generation relating to Currency matters.

1.2.4 Establishment of Automated Currency Sorting Cell

The establishment of Automated Currency Sorting Cell (CSC) is another milestone for
improving the quality of banknotes in circulation. To accelerate the pace of sorting of
currency notes, the CSCs have been established at Lahore and Peshawar offices during
the year under review in addition to CSCs already working at Karachi and Multan offices.
These Cells are engaged in sorting the notes into soiled and re-issue category, banding the
packets and making bundles. The CSCs are also performing the function of segregation
of the banknotes into different categories as under:

a) ATM fit notes of Rs100 and above denominations.

b) Re-issuable banknotes of all denominations.
c) Machine detectable cut and claim banknotes of all denominations.
d) Detection of forged / counterfeit notes
e) Non-issuable banknotes due to graffiti.

Although CSCs are instrumental in providing services to the commercial banks for
sorting of cash but their performance has not been satisfactory. The main reason for their
low productivity is establishment of cash sorting cell by some of the commercial banks in
their own premises and manual sorting of small denomination notes instead of sorting
them on machines. SBP-BSC is continuously in dialogue with CSCs for improvement in
the productivity but so far CSCs have not been able to increase efficiency and instead

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asking for increase in per bundle rate of sorting of currency. The performance and
demand of CSCs is under examination at CMD and matter may be decided on merit and
as per terms of agreement executed for continuation or otherwise of the CSCs.

1.2.5 Mechanization of Currency Operations

Apart from establishment of Currency Sorting Cells at some of the offices of SBP-BSC,
various efforts have been made to automate the currency operations in line with the
technologies being used by the advanced countries. Up till now all the processes linked
with counting of notes and coins have been mechanized in all the field offices. Besides,
the process of destruction of cancelled notes has also been mechanized at offices, where
possible. Further requirements of field offices for various machines / equipments for the
year 2007-08 have been included in their business plans so that the process of
mechanization could be documented and followed in an orderly and systematic manner.
Presently the following machines / equipments are available with the field offices.

Table 1.2.5 Distribution of Machines / Equipments to Field Offices

Coin Note Tri Color Note Note
S# Office Counting Counting Stamping Banding Shredding
Others Total
1 Bahawalpur 2 2 2 1 - 2 9
2 D. I. Khan 2 2 1 1 - 5 11
3 Faisalabad 2 4 2 4 1 20 33
4 Gujranwala 2 3 1 1 - 3 10
5 Hyderabad 1 2 1 2 2 8 16
6 Islamabad 2 4 1 2 1 7 17
7 Karachi 4 20 3 5 4 7 43
8 Lahore 2 9 2 2 2 17 34
9 Multan 2 6 1 2 2 5 18
10 Muzaffarabad 2 1 1 - - 3 7
11 N. N. Karachi 2 4 1 2 1 2 12
12 Peshawar 3 7 1 2 2 17 32
13 Quetta 2 4 1 3 1 11 22
14 Rawalpindi 2 4 1 2 1 11 21
15 Sialkot 2 3 1 1 1 7 15
16 Sukkur 1 2 1 1 1 2 8
Total 33 77 21 31 19 127 308

1.2.6 Establishment of Quality Assurance Unit and Banknote Research Wing

With a view to adopt best practices in currency operations, a Quality Assurance Unit and
Banknote Research Wing have been established at HOK and four Issue offices of SBP-
BSC. The main objective of these units is to monitor components adopted in the series of
new design banknotes / coins including quality of paper / metal, ink and security features
thereof, identify their merits / demerits and submit their recommendations to higher
authorities for consideration and taking up the matter with PSPC / Pakistan Mint through

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Annual Performance Review of SBP-BSC – FY07

Finance Department, SBP. Counterfeit notes detected / reported at SBP-BSC field offices
are thoroughly examined at the Quality Assurance Unit and a detailed report thereon is
prepared and conveyed to concerned quarters including the relevant field office.

1.2.7 Training on Security Features of Banknotes

Quality Assurance Unit has arranged training programs on security features of banknotes
in collaboration with the PSPC. During the year under review, a total number of 115
officials of SBP-BSC offices were imparted training at PSPC. In order to improve the
awareness and enhance the capacity building of the staff for quality assurance and
detection of counterfeit notes the training process is continued on Training of Trainers
(TOT) basis.

1.3 Combating Counterfeit / Forged Notes

SBP-BSC has taken various steps to minimize the threats of counterfeit / forged
banknotes of various denominations. The introduction of new design banknotes
embedded with advanced security features of internationally accepted standards is one of
the strategies in this direction. To combat counterfeit currency notes / government bills
the Prime Minister also constituted a ‘Task Force’ whose recommendations are being
implemented. These recommendations included training of law enforcing agencies at
PSPC to enable them to identify the difference between the genuine and a counterfeit
note, supply of counterfeit detector equipments at all SBP-BSC offices, training of
commercial banks’ staff in detection of counterfeit notes and interaction of officials of
SBP-BSC with business community and market associations on currency management
issues and counterfeit threats. Besides, to create awareness among the general public,
pamphlets / posters containing security features of new design banknotes have been
published and distributed among them as well as displayed at prominent places of all
cities and villages of the country including field offices of SBP-BSC and selected
branches of commercial banks.

1.4 Monitoring of Currency Chests / Sub-chests

National Bank of Pakistan is a service provider to all the stakeholders of SBP-BSC in the
areas where a field office of SBP-BSC is not situated. For this purpose, a network of 226
currency chests / sub-chests has been established at different places in rural and urban
areas (details are given in Annexure-XIV). SBP-BSC field offices consistently supply
fresh / re-issuable banknotes according to their requirements and holding capacity and
withdraw the soiled and defective notes from them for destruction. All these activities are
carried out in a timely fashion to ensure seamless business continuity and efficient service
delivery. These chests / sub-chests provide banking facilities to federal, provincial and
local governments, financial institutions and other organizations / corporations. They also
provide exchange facilities to general public. During FY07 the field offices carried out
on-site examination of 187 chests / sub-chests in the area of their jurisdiction.

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Table 1.4 Currency Chests/Sub-chests at NBP branches examined during 2006-07

S# Office Branches Examined S# Office Branches Examined
1 Bahawalpur 5 9 Muzaffarabad 3
2 D. I. Khan 5 10 N. N. Karachi 1
3 Faisalabad 14 11 Peshawar 17
4 Hyderabad 28 12 Quetta 26
5 Islamabad 6 13 Rawalpindi 10
6 Karachi 12 14 Sialkot 3
7 Lahore 9 15 Sukkur 25
8 Multan 23
Total 187

1.5 Monitoring of Cash Operations at Commercial Banks

SBP-BSC offices are responsible for conducting on-site examination of the designated
branches of commercial banks to ensure meticulous compliance of SBP / SBP-BSC
directives with regard to clean note policy. During FY07, the cash monitoring teams of
the field offices have conducted on-site examination of a total numbers of 3,335 branches
of commercial banks as compared to 2,437 branches in the preceding year. The field
offices have also recovered an amount of Rs4,407,000/- during FY07 on account of
penalties imposed on commercial banks on violation of various instructions issued by the
SBP-BSC as compared to a fine of Rs4,400,500/- recovered during the preceding year.
Table 1.5 On-site Examination of Commercial Banks by SBP-BSC Field Offices
2005 - 06 2006 - 07
S # Office Penalties Penalties
No. of No. of No. of No. of
Realized Realized
Banks Branches Banks Branches
(Rs.) (Rs.)
1 Bahawalpur 9 24 8,000 13 35 155,000
2 D. I. Khan 10 32 - 10 3 -
3 Faisalabad 29 208 77,500 30 238 996,000
4 Gujranwala - - - 11 19 -
5 Hyderabad 22 164 53,500 22 117 -
6 Islamabad 16 47 2,500 32 112 97,500
7 Karachi 31 315 2,518,000 42 744 2,552,500
8 Lahore 34 1,033 294,000 40 1,356 69,500
9 Multan 20 145 347,500 20 69 21,500
10 Muzaffarabad 6 24 5,500 6 27 -
11 N. N. Karachi 21 140 264,500 19 149 155,500
12 Peshawar 19 25 1,000 14 293 48,000
13 Quetta 12 39 15,500 12 40 41,000
14 Rawalpindi 14 106 257,000 22 74 53,500
15 Sialkot 4 7 47,000 3 15 156,000
16 Sukkur 16 128 509,000 16 44 61,000
Total 263 2,437 4,400,500 312 3,335 4,407,000

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Annual Performance Review of SBP-BSC – FY07

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