MONEY AND

BANKING

PROJECT REPORT

SUBMITTED ON:
22 APRIL 2024
 Bahauddin Zakariya
University, Multan
Department

Institute of Management Sciences

Project Report

On

“BANKING”

SUBMITTED BY:
MUHAMMAD UMAIR AHMED BBAM-23-13

AHSAN JAMEEL BBAM-23-33

MUHAMMAD IFTIKHAR BBAM-23-37

MUHAMMAD ALI BBAM-23-38

FAISAL RAHMAN BBAM-23-40

ABDUL MOAIZ KHAWAR BBAM-23-43

SUPERVISED BY:

MADAM. MARIA FAISAL

 PREFACE

Since its inception, the banking industry in Pakistan has navigated a transformative journey,
shaping the nation's economic landscape. From humble beginnings to the present day, banks
have evolved as pillars of financial stability, fostering growth and development. This narrative
delves into the rich history of banking in Pakistan, exploring the genesis of banks, their
multifaceted functions, and the remarkable growth trajectory.

The story unfolds with the early days of banking in Pakistan, marked by the establishment of
the State Bank of Pakistan (SBP) in 1948, The industry's expansion is recounted, highlighting
the pivotal role of nationalization in 1974 and subsequent privatization in the 1990s.

The preface also touches upon the diverse range of credit facilities extended by banks, catering
to the varied needs of individuals and businesses. Furthermore, it spotlights the innovative
products and services introduced by banks to stay abreast with evolving customer demands.

Through this account, we commemorate the banking industry's unwavering commitment to

Pakistan's progress, its adaptability in the face of challenges, and its continued pursuit of
excellence in serving the nation's financial needs. As we reflect on the past, we look forward to
a future where banks continue to play a vital role in shaping Pakistan's economic destiny.
 TABLE OF CONTENTS

EXECUTIVE SUMMARY ................................................................................................................................. 0

"BANKING" ................................................................................................................................................... 2
EVOLUTION OF BANKING: A HISTORICAL OVERVIEW ................................................................................. 2
CLASSIFICATION OF BANKS .......................................................................................................................... 3
COMMERCIAL BANK ..................................................................................................................................... 7
FUNCTIONS OF COMMERCIAL BANKS ......................................................................................................... 7
ROLES OF COMMERCIAL BANKS IN ECONOMIC DEVELOPMENT ................................................................ 8
CREDIT......................................................................................................................................................... 12
FUNCTION OF CREDIT ................................................................................................................................. 12
CASH RESERVE OF A BANK ......................................................................................................................... 13
IMPORTANCE OF THE BANKING SECTOR IN PAKISTAN VS DEVELOPED COUNTRIES ............................... 16
GROWTH OF BANKING IN PAKISTAN ......................................................................................................... 16
PRODUCTS OF COMMERCIAL BANKS ........................................................................................................ 19
NATIONALIZATION OF BANKS IN PAKISTAN ............................................................................................. 20
PRIVATIZATION OF BANKS IN PAKISTAN ................................................................................................... 21
NATIONAL BANK OF PAKISTAN (NBP) ....................................................................................................... 24
ZARAI TARAQIATI BANK LIMITED (ZTBL) ................................................................................................... 25
MICROFINANCE BANK ................................................................................................................................ 26
REFERENCE.................................................................................................................................................. 28
 ACKNOWLEDGEMENT

The success of this project is an outcome of sincere efforts challenged in the right direction,
efficient supervision and most valuable technical assistance.

The project wouldn't have been completed without the help and guidance of our leader
(MUHAMMAD UMAIR AHMED) of project and (AHSAN JAMIL).

We express our deep gratitude to project in charge MADAM MARIA FAISAL With great

pleasure, we would like to opportunity to thank my practical in charge for his valuable guidance,
support he gave to me for the completion of the project on "BANKING IN DETAIL "

He provided with me the necessary resources, encouragement for better understanding and
learning. We will always carry the memories of my training period.

Last, but not least we will fail in my duty if we don't express regards and grateful to my parents
and friends.

Bachelor of Business Administration

 EXECUTIVE SUMMARY

Commercial banks have a rich history dating back to ancient times, with early forms of banking
emerging in Mesopotamia and Egypt. Over time, banking evolved and spread globally, with
different types of commercial banks emerging, including retail banks, community banks, and
investment banks. In Pakistan, commercial banks play a vital role in the country's economy,
with major players like National Bank of Pakistan (NBP) and Zarai Taraqiati Bank Limited (ZTBL)
leading the way.

Commercial banks perform various functions, including accepting deposits, providing loans and
credit, and facilitating transactions. They play a crucial role in the economy by mobilizing
savings, allocating resources, and providing financial services to individuals and businesses. In
Pakistan, commercial banks have contributed significantly to the country's economic growth,
with products like credit cards, personal loans, and mortgages becoming increasingly popular.
The importance of commercial banks lies in their ability to stimulate economic activity, create
employment opportunities, and support financial inclusion.

The growth of commercial banks in Pakistan has been remarkable, with the sector expanding
rapidly over the past few decades. The government has implemented various policies to promote
the growth of commercial banks, including nationalization and privatization. Nationalization in
the 1970s aimed to increase state control, while privatization in the 1990s aimed to increase
efficiency and competition. Today, commercial banks in Pakistan offer a range of products and
services, including microfinance initiatives aimed at supporting small businesses and low-income
individuals. The growth and development of commercial banks have been instrumental in
promoting financial stability and economic growth in Pakistan

0
 MONEY AND
BANKING
MUHAMMAD UMAIR AHMED

OBJECTIVE
OUTLINES

 BANKING
 HISTORY OF BANKS
 TYPES OF BANKS
1
 "BANKING"

"Banking" means the business of accepting, for the purpose of lending or investment, deposits
of money from the public, repayable on demand or otherwise, and withdrawable by cheque,
draft, order or otherwise.
[Source: Section 2(1)(a) of the Banking Ordinance, 1962

EVOLUTION OF BANKING: A HISTORICAL OVERVIEW

The evolution of banking has undergone

significant transformations over the centuries.
From ancient times to modern days, banking
has adapted to changing societal needs,
technological advancements, and economic
conditions. Here are the stages of evolution
with headings, definitions, and examples:

1. King's Treasury

In ancient civilizations, rulers and monarchs

managed their wealth and resources through a
central treasury. This marks the beginning of
banking, where the king's treasury served as a
repository for gold, silver, and other valuable assets.

Examples:

 Some of the kings named king hummurabi of Iraq, king ramous of Egypt

2. Merchant Bankers

During the medieval period, merchant bankers emerged as a class of wealthy traders who provided
financial services to monarchs, nobles, and fellow merchants. They managed trade finances, exchanged
currencies, and offered loans.

Examples:

 Ancient Rome: Merchant bankers like the Medici family financed trade and commerce.

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3. Money Lenders

As trade and commerce expanded, money lenders became a prominent group, offering loans to
individuals and businesses. They charged interest on their loans, often at exorbitant rates.

Examples:

 Ancient China: Money lenders like the Shanxi merchants provided loans to traders and
merchants.

4. Goldsmiths

Goldsmiths, who were skilled craftsmen

and jewelers, began to offer banking
services, storing gold and silver for clients.
They issued receipts for deposited metals,
which became an early form of currency.

Examples:

 17th-century England: Goldsmiths

like Charles II's goldsmith, Edward
Backwell, stored gold and issued
receipts.

 18th-century America: Goldsmiths like the Land Bank of Massachusetts issued paper money
backed by gold reserves.

These stages mark significant milestones in the evolution of banking, from the king's treasury to modern
banking systems. Each stage built upon the previous one, adapting to changing economic conditions and
technological advancements. The modern banking system developed in the 19th century.

CLASSIFICATION OF BANKS

1. According to Incorporation:

 Chartered Bank: These banks are

established under a special order of
king (royal order). They are often
larger and have a wider range of
services like commercial banks.
Example: Standard Chartered Bank
Pakistan.

3
  Statutory Bank: These banks are established by an Act of Parliament or through
legislation. They operate under specific regulations set by the government. Example:
National Bank of Pakistan.

2. According to Registration:

 Scheduled Bank: These banks are listed in the Second Schedule of the State Bank of
Pakistan Act, 1956. They have specific criteria to fulfill, such as maintaining reserve
requirements. Example: Habib Bank Limited.

 Non-Scheduled Bank: Banks not listed in the Second Schedule are considered non-
scheduled banks. Example: Punjab Cooperative Bank Limited.

3. Money Creatives:

 Central Bank: The central bank is responsible for regulating the country's money supply
and monetary policy. It also acts as a banker to the government and other banks.
Example: State Bank of Pakistan.

 Commercial Bank: These banks primarily provide services to businesses and individuals,
such as deposits, loans, and basic financial services. Example: MCB Bank Limited.

4. According to Ownership:

 Government Bank: These banks are owned wholly or partially by the government.
Example: National Bank of Pakistan.

 Private Bank: These banks are owned by private individuals or corporations. Example:
Habib Bank Limited.

5. Development Banks:

 Agricultural Development Bank: These banks focus on providing financial services and
support to the agriculture sector. Example: Zarai Taraqiati Bank Limited.

 Industrial Development Bank: These banks aim to promote and finance industrial
development within the country. Example: Industrial Development Bank of Pakistan.

 International Development Bank: These banks focus on providing financial assistance

and support for international development projects. Example International bank of
reconstruction and development

6. According to Domicile:

 Home Bank: Banks that are originally based and established in Pakistan. Example:
United Bank Limited.

 Foreign Bank: Banks that are headquartered in another country but operate branches or
subsidiaries in Pakistan. Example: Citibank Pakistan.

4
7. According to Functions:

 Saving Banks: These banks primarily focus on accepting savings deposits and providing
interest on those deposits. Example: National Savings.

 Exchange Banks: These banks specialize in currency exchange services. Example:

western union bank

 Mortgage Bank: These banks provide loans specifically for purchasing real estate.
Example: mortgage bank of Australia

 Consumer Bank: Banks that offer a wide range of

consumer financial services for purchasing consumer
goods.

 Microfinance Bank: These banks provide financial

services, including small loans, to individuals and small
businesses in underserved communities. Example:
Khushhali Microfinance Bank. Dr. younas of Bangladesh
was the pioneer of micro banking

 Islamic Banks: Banks that operate according to Islamic

principles, which prohibit interest (riba) and promote risk-sharing. Example: Meezan
Bank Limited.

8. Other Banks:

 School Bank: These are usually small-scale banks established within educational
institutions to promote financial literacy among students. Example: Beacon house
School System operates school banks in some of its campuses.

 Labour Bank: Banks established to cater specifically to the financial needs of laborers
and workers. Example: saving bank of Chicago.

 Consortium Bank: A bank formed by a group of several banks, often to finance large
projects or deals collectively. Example: Orion bank

5
 MONEY AND
BANKING

AHSAN JAMIL

OBJECTIVE
OUTLINES

 Commercial banks
 Function of commercial banks
 Role of commercial bank in economy
6
 COMMERCIAL BANK
“A commercial bank collects money from those who have it to spare or who are saving it out of
their income and lends the money to those who require it. (Crowther)

FUNCTIONS OF COMMERCIAL BANKS

Primary Functions of Commercial

Banks

1. Acceptance of Deposits
Commercial banks accept various
types of deposits from individuals,
businesses, and other entities. These
deposits are repayable on demand or
after a specified period, depending on
the type of deposit account.
 Examples:
 Current Deposits: These are accounts where depositors can deposit and
withdraw money frequently. Current accounts typically do not earn interest but
offer convenience for regular transactions.
 Savings Deposits: Savings accounts are designed to encourage saving by offering
interest on deposited funds while allowing limited withdrawals. They serve
individuals and are often the first banking product individuals open.
 Fixed Deposits: Also known as time deposits or term deposits, these accounts
require depositors to lock in their funds for a predetermined period at a fixed
interest rate. Withdrawals before maturity may incur penalties.
2. Making Loans
Commercial banks extend credit in various forms to individuals, businesses, and other
entities based on their creditworthiness and collateral.
 Examples:
 Overdraft Facility: Banks allow customers to withdraw more money than what
is available in their accounts, up to a specified limit. Interest is charged on the
overdraft amount.
 Cash Credit: This is a type of short-term loan extended to businesses, where the
bank provides a credit limit against the borrower's assets. Interest is charged
only on the amount utilized.
 Term Loans: These are loans provided for a specific purpose and a
predetermined period, with fixed or floating interest rates. They can be secured
or unsecured, depending on the borrower's creditworthiness.

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  Discounting of Bills: Banks purchase bills of exchange or promissory notes from
businesses or individuals at a discount, providing immediate cash to the holder.
The bank collects the full amount when the bill matures.
Secondary Functions of Commercial Banks
1. Agency Services
Commercial banks offer various agency services on behalf of their customers, facilitating
transactions and financial activities.
 Examples:
 Collection of Cheque: Banks collect cheque and other negotiable instruments
on behalf of their customers and credit the proceeds to their accounts.
 Payment of Bills: Banks facilitate bill payments such as utility bills, insurance
premiums, taxes, etc., on behalf of customers through various channels like
online banking, ATMs, or branches.
 Standing Instructions: Banks execute standing instructions provided by
customers, such as periodic transfers, bill payments, and investment
instructions.
2. Utility Services
Commercial banks offer a range of utility services that cater to the diverse financial
needs of individuals and businesses, beyond traditional banking services.
 Examples:
 Locker Facilities: Banks provide safe deposit lockers to customers for storing
valuables, documents, and important items securely.
 Forex Services: Banks facilitate foreign exchange transactions for individuals and
businesses, including currency exchange, remittances, and travel cards.
 Investment Advisory: Some banks offer investment advisory services to help
customers make informed decisions about various investment options, including
stocks, bonds, mutual funds, etc.
 ATM and Debit Cards: Banks provide ATM and debit cards for customers to
access their accounts.
 Online Banking: Banks offer online banking services, allowing customers to
manage their accounts and conduct transactions online.
 Credit Cards: Banks issue credit cards, allowing customers to make purchases
and borrow money.

ROLES OF COMMERCIAL BANKS IN ECONOMIC DEVELOPMENT

Commercial banks play a vital role in the economic development of a country by providing
financial services to individuals, businesses, and governments. Here are key roles of commercial
banks in economic development:

 Mobilization of Savings

8
 Commercial banks mobilize savings from individuals and businesses, providing a safe and
secure place to deposit funds. This pool of funds is then used to make loans to other customers.
Example: In Pakistan, commercial banks like Habib Bank Limited and MCB Bank Limited offer
various savings accounts and deposit schemes to mobilize savings.
 Provision of Credit
Commercial banks provide credit to individuals, businesses, and governments, enabling them to
invest in economic activities.
Example: In the United States, commercial banks like JPMorgan Chase and Bank of America
provide loans to small businesses and entrepreneurs.
 Payment Services
Commercial banks provide payment services, such as checks, credit cards, and electronic funds
transfers, facilitating transactions and commerce.
Example: In India, commercial banks like ICICI Bank and HDFC Bank offer digital payment
solutions like mobile banking and internet banking.
 Foreign Exchange Services
Commercial banks provide foreign exchange services, enabling international trade and
investment.
Example: In Singapore, commercial banks like DBS Bank and OCBC Bank offer foreign exchange
services to support international trade.
 Economic Growth and Development
Commercial banks contribute to economic growth and development by financing infrastructure
projects, supporting small and medium-sized enterprises (SMEs), and providing financial
services to underserved communities.
Example: In Africa, commercial banks like Eco bank and Standard Bank are providing financial
services to support economic growth and development.
 Job Creation
Commercial banks create jobs directly and indirectly through their operations and lending
activities.
Example: In the United Kingdom, commercial banks like Barclays and HSBC employ thousands
of people directly and indirectly.
.
 Agricultural Development
Commercial banks provide financial
services to the agricultural sector,
supporting farmers and agricultural
businesses.
Example: In China, commercial banks like
Agricultural Bank of China and Bank of
China provide financial services to support
agricultural development.
 Industrial Development

9
 Commercial banks provide financial services to the industrial sector, supporting businesses and
industries.
Example: In Germany, commercial banks like Deutsche Bank and Commerzbank provide
financial services to support industrial development.
 Infrastructure Development
Commercial banks finance infrastructure projects, such as roads, bridges, and buildings.
Example: In the United States, commercial banks like Goldman Sachs and Morgan Stanley
provide financing for infrastructure projects.
 Export-Import Finance
Commercial banks provide financial services to support international trade, including export-
import finance.
Example: In Japan, commercial banks like Mitsubishi UFJ Financial Group and Sumitomo Mitsui
Financial Group provide export-import finance services.
 Risk Management
Commercial banks provide risk management services, such as insurance and hedging, to
individuals and businesses.
Example: In Australia, commercial banks like Commonwealth Bank and Westpac Banking
Corporation offer risk management services.
 Financial Advisory Services
Commercial banks provide financial advisory services, such as investment advice and portfolio
management.
Example: In Switzerland, commercial banks like UBS and Credit Suisse offer financial advisory
services to individuals and businesses.
 Transaction Services
Commercial banks provide transaction services, such as cash management and trade finance.
Example: In Hong Kong, commercial banks like HSBC and Standard Chartered offer transaction
services to support international trade.
 Digital Banking
Commercial banks provide digital banking services, such as online banking and mobile banking,
to individuals and businesses.
Example: In South Korea, commercial banks like KB Kookmin Bank and Shinhan Bank offer
digital banking services to customers

10
 MONEY AND
BANKING

ABDUL MOAIZ KHAWAR

OBJECTIVE
OUTLINES

 Credit
 Function of credit
 Cash reserves of banks
11
 CREDIT
"Credit is the temporary use of another person's wealth, with the promise to return it, usually
with an additional payment for the use of it." According to Charles Gide, a French economist,

FUNCTION OF CREDIT

1. Facilitating Purchases: Credit allows individuals

to make purchases without having to pay the full
amount upfront. For example, using a credit
card to buy groceries or electronics.
2. Investment: Credit enables individuals and
businesses to invest in assets such as real estate,
stocks, or businesses, which can potentially
generate returns higher than the cost of credit.
For instance, taking out a mortgage to buy a
house or a business loan to expand operations.
3. Smoothing Consumption: Credit helps smooth out fluctuations in income by allowing individuals
to borrow during periods of low income and repay during periods of high income. For example,
using a credit card to cover unexpected medical expenses.
4. Building Credit History: Responsible use of credit can help individuals establish a positive credit
history, which is important for obtaining future credit at favorable terms. An example is making
timely payments on a credit card to build a good credit score.
5. Emergency Funding: Credit provides a safety net during emergencies when immediate funds are
needed but savings are insufficient. For instance, using a personal line of credit to cover
unexpected car repairs.
6. Convenience: Credit offers convenience in transactions, eliminating the need to carry large sums
of cash. For example, using a credit card for travel expenses instead of carrying cash.
7. Leverage: Credit allows individuals and businesses to leverage their existing resources to access
more significant opportunities. For example, using a business line of credit to purchase
inventory for a seasonal sale.
8. Business Growth: Credit can fuel business growth by providing the necessary funds for
expansion, hiring, and investment in new technologies. An example is securing a business loan
to open a new location.
9. Interest Arbitrage: Credit can be used to take advantage of interest rate differentials between
borrowing and investing. For instance, borrowing at a lower interest rate to invest in assets with
higher returns.
10. Hedging Against Inflation: Borrowing at a fixed interest rate allows individuals and businesses to
hedge against future inflation, as the real value of debt decreases over time. An example is
taking out a fixed-rate mortgage in anticipation of rising housing prices.

12
11. Facilitating International Trade: Credit instruments such as letters of credit and trade finance
facilitate international trade by providing payment guarantees between buyers and sellers in
different countries.
12. Promoting Consumer Spending: Credit encourages consumer spending, which drives economic
growth by increasing demand for goods and services. For example, offering promotional
financing on big-ticket items like furniture or electronics.
13. Bridge Financing: Credit provides short-term financing to bridge the gap between the timing of
expenses and the receipt of funds. An example is using a short-term loan to cover payroll
expenses before receiving payment from clients.
14. Education Funding: Credit helps finance education expenses such as tuition, books, and living
expenses, enabling individuals to invest in their future earning potential. For instance, taking out
student loans to attend college or vocational training programs.
15. Insurance: Credit can serve as a form of insurance against income loss or unexpected expenses,
providing a financial cushion in times of need. An example is using a personal line of credit to
cover living expenses during a period of unemployment.

CASH RESERVE OF A BANK

The cash reserve of a bank, also known as

the reserve ratio, is the portion of
monetary reserves that central banks
require commercial banks to keep with
them ¹. This is done to control the liquidity
of the financial banking system ². The cash
reserve is calculated by multiplying the
total deposits by the reserve ratio ³.

CASH RESERVE

Cash reserve is the amount of money that banks are required to hold in their vaults or in their
accounts at the central bank ¹. The cash reserve is calculated by multiplying the total deposits
by the reserve ratio ². In Pakistan, the cash reserve requirement is set by the State Bank of
Pakistan ³.

Cash reserve of bank include these types

1. Cash in hand
2. Cash kept with central bank
3. Cash kept with other banks

FACTORS THAT TYPICALLY GOVERN THE CASH RESERVE OF A COMMERCIAL BANK:

13
 The cash reserve of a commercial bank is influenced by several factors, including regulatory
requirements, economic conditions, and bank-specific considerations. Here are factors that
typically govern the cash reserve of a commercial bank:

1. Regulatory Requirements: Central banks often impose reserve requirements that dictate the
minimum amount of reserves banks must hold against deposits. These requirements vary from
country to country and can change over time.
2. Monetary Policy: Central bank monetary policies, such as changes in interest rates and open
market operations, can influence the liquidity needs of commercial banks, affecting their cash
reserve holdings.
3. Economic Conditions: The state of the economy, including factors like inflation, unemployment,
and GDP growth, can impact the demand for loans and deposits, which in turn affects a bank's
cash reserve requirements.
4. Deposit Inflows and Outflows: Fluctuations in customer deposits affect the liquidity position of
a bank. High deposit inflows may lead to an increase in cash reserves, while significant
withdrawals may deplete reserves.
5. Loan Demand: The demand for loans from businesses and individuals influences a bank's
lending activities and, consequently, its reserve levels. Higher loan demand may reduce cash
reserves as banks extend credit.
6. Interest Rates: Changes in interest rates affect the cost of funds for banks and can impact their
profitability and liquidity management strategies, including cash reserve levels.
7. Liquidity Stress Testing: Banks conduct liquidity stress tests to assess their ability to withstand
adverse liquidity shocks. The results of these tests may influence decisions regarding cash
reserve holdings.
8. Risk Appetite: Each bank has its risk appetite based on its business model, market positioning,
and risk management practices. A bank with a conservative risk appetite may hold higher cash
reserves as a precautionary measure.
9. Market Volatility: Volatility in financial markets can affect the availability of funding sources for
banks and may prompt them to hold higher cash reserves to mitigate liquidity risks.
10. Interbank Market Conditions: Banks often rely on the interbank market for short-term funding.
Conditions in this market, such as the availability and cost of funds, influence a bank's liquidity
management and reserve levels.
11. Technology and Payment Systems: Advances in technology and changes in payment systems
can impact the velocity of money and the speed at which funds move through the banking
system, influencing cash reserve needs.
12. Capital Adequacy: Banks must maintain adequate capital levels to absorb losses and meet
regulatory requirements. The capital adequacy ratio may influence a bank's decision on how
much cash to hold as a buffer against unexpected events.

14
 MONEY AND
BANKING

FAISAL RAHMAN

OBJECTIVE
OUTLINES

 IMPORTANCE OF BANKING IN PAKISTAN VS

DEVELOPED COUNTRY
 GROWTH OF BANKING IN PAKISTAN
15
IMPORTANCE OF THE BANKING SECTOR IN PAKISTAN VS DEVELOPED COUNTRIES

1. Level of Financial Inclusion: Pakistan has a lower level of financial inclusion compared to
developed countries.
2. Range of Financial Services: Developed countries offer a wider range of sophisticated financial
services.
3. Economic Stability: Developed countries have a more stable financial system.
4. Innovation and Technology: Developed countries have a higher level of technological adoption
in banking.
5. Focus: Pakistan's banking sector focuses on basic financial services, while developed countries'
banking sectors focus on providing sophisticated financial services.
6. Poverty Reduction: Pakistan's banking sector plays a crucial role in poverty reduction, while
developed countries' banking sectors focus on wealth management.
7. Credit Availability: Developed countries have easier access to credit, while Pakistan's banking
sector faces challenges in providing credit to small and medium-sized enterprises.
8. Financial Literacy: Developed countries have a higher level of financial literacy, while Pakistan's
banking sector faces challenges in educating customers about financial services.
9. Regulatory Framework: Developed countries have a more robust regulatory framework, while
Pakistan's banking sector faces challenges in implementing effective regulations.
10. Global Integration: Developed countries' banking sectors are more integrated into the global
financial system, while Pakistan's banking sector faces challenges in international trade and
finance

GROWTH OF BANKING IN PAKISTAN

PARTITION OF RESERVE BANK

1. Division of Assets: The Reserve Bank of India's assets and liabilities were divided between India
and Pakistan in a 56:44 ratios.
2. Creation of State Bank of Pakistan: The State
Bank of Pakistan was established on July 1,
1948, as the central bank of Pakistan.
3. Transfer of Offices: The Reserve Bank of
India's offices in Pakistan were transferred to
the State Bank of Pakistan.
4. New Currency: The Pakistani rupee was
introduced, replacing the Indian rupee.

16
 EFFECT OF PARTITION
1. Disruption of Banking Services: Partition led to a complete disruption of banking services,
causing economic instability.
2. Lack of Banking Infrastructure: Many bank branches were forced to close, leaving a shortage of
banking infrastructure.
3. Shortage of Trained Personnel: Many trained banking personnel left Pakistan, leading to a
shortage of skilled staff.
4. Economic Instability: Partition led to a significant decline in economic activity, causing
widespread unemployment and poverty.

STEPS TO RESTORE NORMAL BANKING FACILITIES

1. Establishment of New Banks: New banks were established, including the National Bank of
Pakistan and the Habib Bank.
2. Nationalization of Banks: Several banks
were nationalized to restore public
confidence and stability.
3. Rehabilitation of Banking Infrastructure:
Efforts were made to rebuild and restore
banking infrastructure.
4. Training and Development of Personnel:
Initiatives were launched to train and
develop the skills of banking personnel.

INTER-DOMINION AGREEMENT ON
BANKING

1. Facilitating Trade and Commerce: The agreement enabled the smooth exchange of goods and
services between India and Pakistan.
2. Settling Accounts: The agreement allowed for the settlement of accounts between banks in
India and Pakistan.
3. Regulating Currency Exchange: The agreement regulated the exchange of currency between the
two countries.
Promoting Economic Cooperation: The agreement aimed to promote economic cooperation
and stability between India and Pakistan

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 MONEY AND
BANKING

MUHAMMAD ALI

OBJECTIVE
OUTLINES

 PRODUCT OF COMMERCIAL BANKS

 NATIONALIZATION
 PRIVATIZATION 18
 PRODUCTS OF COMMERCIAL BANKS

 Deposit Accounts
Deposit accounts allow customers to store and manage their money, with options like savings
accounts for everyday spending, current accounts for businesses, and fixed deposits for long-
term savings with interest. Recurring deposits enable customers to save a fixed amount
regularly.
 Loans and Credit
Commercial banks offer various loan options, including personal loans for individuals, home
loans for mortgages, car loans for vehicle purchases, credit cards for short-term credit, and
business loans for entrepreneurs and companies. These loans help customers finance their
needs and goals.
 Transaction Services
Transaction services enable customers to manage their accounts, with cheque books for physical
transactions, debit cards for ATM and point-of-sale transactions, credit cards for credit-based
transactions, online banking for digital transactions, and mobile banking for banking on-the-go.
These services provide convenience and flexibility.
 Investment Products
Investment products help customers grow their wealth, with fixed deposits offering fixed
returns, treasury bills providing short-term investment options, and investment advisory
services guiding customers on investment decisions. These products cater to different risk
appetites and financial goals.
 Payment Services
Payment services facilitate fund transfers, with remittances enabling international money
transfers, wire transfers allowing domestic and international transactions, and bill payment
services enabling customers to pay utility bills and other expenses. These services simplify
transactions.
 Card Services
Card services offer customers convenient payment
options, with debit cards deducting funds directly
from accounts, credit cards providing short-term
credit, and prepaid cards allowing customers to
load funds for specific expenses. These cards are
widely accepted globally.
 Digital Banking
Digital banking provides customers with online
access to their accounts, enabling internet banking,
mobile banking, and mobile wallets for

19
 transactions, account management, and financial services. Digital banking offers convenience
and time-saving.
 Trade Finance
Trade finance services support international trade, with letter of credit ensuring secure
transactions, bill discounting providing short-term financing, and export-import financing
facilitating global trade. These services help businesses manage trade risks.
 Treasury Services
Treasury services manage customers' foreign exchange needs, with foreign exchange services
converting currencies, currency exchange providing exchange rates, and treasury management
optimizing cash flow. These services help customers navigate global markets.
 Insurance Services
Insurance services protect customers from risks, with life insurance providing financial security
for dependents, general insurance covering assets and liabilities, and health insurance ensuring
medical coverage. These services offer peace of mind.
 Wealth Management
Wealth management services help customers achieve their financial goals, with investment
advisory services providing expert guidance, portfolio management optimizing investments, and
wealth protection ensuring asset security. These services cater to high net worth individuals.
 Business Banking
Business banking services support entrepreneurs and companies, with business loans financing
growth, cash management optimizing liquidity, and trade finance services facilitating
international trade. These services help businesses succeed.
 Agricultural Banking
Agricultural banking services support farmers and rural communities, with agricultural loans
financing farm activities, crop insurance protecting against crop failures, and rural development
schemes promoting financial inclusion. These services contribute to food security.
Microfinance
Microfinance services empower low-income individuals, with small loans financing micro-
enterprises, savings accounts promoting financial inclusion, and
financial literacy programs educating customers on money
management. These services promote financial stability.

NATIONALIZATION OF BANKS IN PAKISTAN

Nationalization of banks refers to the process of transferring

ownership and control of private banks to the state or
government. In Pakistan, this process took place in 1974 under the government of Zulfiqar Ali
Bhutto.

PROCESS OF NATIONALIZATION

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1. Announcement: On January 1, 1974, the government announced the nationalization of 13 major
private banks in Pakistan.
2. Legislation: The government passed the "Banking Companies (Nationalization) Ordinance, 1974"
to legalize the nationalization process.
3. Takeover: The government took control of the management, assets, and liabilities of the
nationalized banks.
4. Merger: Some banks were merged to form new entities, such as the National Bank of Pakistan
and Habib Bank Limited.
5. Reorganization: The nationalized banks were reorganized and restructured to improve their
operations and services.

CHARACTERISTICS OF NATIONALIZED BANKS IN PAKISTAN

1. State Ownership: Nationalized banks are owned and controlled by the government.
2. Public Sector Entity: Nationalized banks are considered public sector entities, working under the
Ministry of Finance.
3. Social Welfare Orientation: Nationalized banks prioritize social welfare and development goals
alongside commercial objectives.
4. Monopoly: Nationalized banks held a monopoly in the banking sector until the 1990s when
private banks were allowed to operate.
5. Large Branch Network: Nationalized banks have an extensive branch network across the
country.
6. Priority Sector Lending: Nationalized banks are required to lend to priority sectors such as
agriculture, industry, and exports.
7. Regulatory Compliance: Nationalized banks are subject to strict regulations and oversight by the
State Bank of Pakistan.
8. Social Responsibility: Nationalized banks are expected to contribute to social development and
poverty reduction.
9. Economies of Scale: Nationalized banks benefit from economies of scale due to their large size
and operations.
10. Government Support: Nationalized banks receive support and guarantees from the
government, ensuring their stability and solvency

PRIVATIZATION OF BANKS IN PAKISTAN

Privatization of banks refers to the process of transferring ownership and control of state-
owned banks to private entities, aiming to increase efficiency, competition, and economic
growth. In Pakistan, bank privatization began in the 1990s as part of broader economic reforms.

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 PROCESS OF PRIVATIZATION

1. Policy Decision: The government decides to privatize state-owned banks to promote private
sector growth and efficiency.
2. Legislative Framework: The government passes laws and regulations to facilitate privatization,
such as the Privatization Commission Ordinance (1991).
3. Valuation: The government determines the value of the banks to be privatized, considering
factors like assets, liabilities, and market conditions.
4. Bidding Process: Private investors and banks bid for the ownership and management of the
state-owned banks.
5. Sale and Transfer: The successful bidder acquires the ownership and control of the bank, and
the government transfers the assets, liabilities, and management to the new owner.

CHARACTERISTICS OF PRIVATIZED
BANKS IN PAKISTAN

1. Private Ownership: Privatized banks

are owned and controlled by private
entities, individuals, or companies.
2. Commercial Orientation: Privatized
banks prioritize profit maximization
and commercial goals over social
welfare objectives.
3. Increased Efficiency: Privatized banks
aim to reduce costs, improve services,
and enhance productivity.
4. Competition: Privatized banks
compete with other private banks,
promoting innovation and better
customer services.
5. Market-Based Decision Making: Privatized banks make decisions based on market forces and
commercial considerations.
6. Risk Management: Privatized banks manage risks and assets more effectively, reducing the
burden on taxpayers.
7. Innovation and Technology: Privatized banks invest in modern technology and innovative
products to stay competitive.
8. Customer Focus: Privatized banks prioritize customer satisfaction and loyalty to attract and
retain business.
9. Regulatory Oversight: Privatized banks are subject to regulation and supervision by the State
Bank of Pakistan.
Increased Financial Inclusion: Privatized banks aim to expand financial services to a wider
population, promoting financial inclusion

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 MONEY AND
BANKING

MUHAMMAD IFTIKHAR

OBJECTIVE
OUTLINES

 NBP
 ZTBL
 MICRO FINANCE BANK
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 NATIONAL BANK OF PAKISTAN (NBP)

FORMATION OF NBP

 Established on November 7, 1949, under the National Bank of Pakistan Act of 1949
 Headquartered in Karachi, Pakistan
Capital of NBP
 THE TOTAL ASSETS OF NBP AS ON
31 DEC, 2018 ARE $ 20.1 BILLION
Agent of SBP (State Bank of
Pakistan)
 Acts as an agent of the central
bank (State Bank of Pakistan) in
performing various functions

MAIN FEATURES AND

FUNCTIONS

1. Commercial Banking
NBP provides a range of
commercial banking services to individuals, businesses, and corporations.
2. Development Finance
NBP plays a crucial role in promoting economic development in Pakistan through financing
industries, agriculture, and other sectors.
3. Industrial Finance
NBP provides financing for industrial projects, expansion, and modernization.
4. Agricultural Finance
NBP offers financing for agricultural development, including farm mechanization, livestock, and
crop production.
5. Housing Finance
NBP provides financing for housing schemes, construction, and renovation.
6. Export Finance
NBP offers financing for export-oriented businesses, including pre-shipment and post-shipment
credit.
7. Treasury Operations
NBP deals in government securities, foreign exchange, and money market instruments.
8. Remittances
NBP facilitates inward and outward remittances, including home remittances and foreign
currency accounts.
9. Credit Schemes

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 NBP offers various credit schemes for small and medium enterprises (SMEs), women
entrepreneurs, and students.
10. Digital Banking
NBP provides online banking, mobile banking, and e-banking services for convenient
transactions.
11. Branch Network
NBP has an extensive branch network across Pakistan, with over 1,500 branches and ATMs.
12. Social Responsibility
NBP is committed to social responsibility initiatives, including education, healthcare, and
community development programs.
I hope this helps! Let me know if you need further information

ZARAI TARAQIATI BANK LIMITED (ZTBL)

FORMATION OF ZTBL

 Established on December 14, 1961, under the Zarai Taraqiati Bank Limited Act of 1961
 Headquartered in Islamabad, Pakistan
Agent of ZTBL
 Acts as an agent of the Government of Pakistan for implementing agricultural credit policies and
programs

MAIN FEATURES AND FUNCTIONS

1. Agricultural Finance
ZTBL provides financing for
agricultural development,
including farm mechanization,
livestock, and crop production.
2. Rural Development
ZTBL works towards improving the
socio-economic conditions of
rural communities through
various development
initiatives.
3. Microfinance
ZTBL offers microfinance
services, including small loans and
savings accounts, to low-

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 income individuals and households.
4. Crop Loans
ZTBL provides financing for crop production, including seeds, fertilizers, and pesticides.
5. Livestock Financing
ZTBL offers financing for livestock development, including dairy farming and poultry.
6. Farm Mechanization
ZTBL provides financing for farm mechanization, including tractors, harvesters, and other
agricultural equipment.
7. Agricultural Marketing
ZTBL assists in the marketing of agricultural products, including grains, fruits, and vegetables.
8. Extension Services
ZTBL provides technical assistance and training to farmers for improved agricultural practices.
9. Credit Schemes
ZTBL offers various credit schemes for small and medium farmers, including subsistence
farmers.
10. Digital Banking
ZTBL provides online banking and mobile banking services for convenient transactions.
11. Branch Network
ZTBL has a network of over 450 branches and ATMs across Pakistan, with a focus on rural areas.
12. Social Responsibility
ZTBL is committed to social responsibility initiatives, including education, healthcare, and
community development programs, with a focus on rural communities.
I hope this helps! Let me know if you need further information.

MICROFINANCE BANK

A microfinance bank is a financial institution that provides financial services, including savings
accounts, loans, and other financial products, to low-income individuals, households, and small
businesses who lack access to traditional banking services.
Pioneer
 Muhammad Yunus, a Bangladeshi economist and founder of Grameen Bank, is considered the
pioneer of modern microfinance.
Purpose
 To provide financial inclusion to underserved communities
 To empower low-income individuals and households to improve their economic well-being
 To promote entrepreneurship and small business development

Example in Pakistan
 Khushhali Microfinance Bank (KMBL) is one of
the leading microfinance banks in Pakistan,
established in 2000.

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 KMBL provides a range of financial services, including:
o Small business loans
o Agricultural loans
o Microenterprise loans
o Housing loans
o Savings accounts
o Insurance services
 KMBL has a network of over 150 branches and serves over 2 million customers across Pakistan.
Other examples of microfinance banks in Pakistan include:
 FINCA Microfinance Bank
 Telenor Microfinance Bank (Easy paisa)
 U Microfinance Bank
 NRSP Microfinance Bank

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 REFERENCE
MONEY BANKING AND FINANCE (PORF. M.SAEED NASIR)

PRINCIPLES OF BANKING (QAZI SHAHZAD EHTESHAM)

https://en.wikipedia.org/wiki/National_Bank_of_Pakistan

https://theconversation.com/indias-economy-has-outpaced-pakistans-handily-since-partition-in-1947-
politics-explains-why-187053

https://www.jstor.org/stable/24363272

https://tribune.com.pk/story/286458/history-of-banking-inpakistan--of-humble-origins-and-
vastpotential

https://en.wikipedia.org/wiki/State_Bank_of_Pakistan

https://en.wikipedia.org/wiki/Five-Year_Plans_of_Pakistan

https://www.economy.pk/economic-status-of-pakistan-from-1947-2020/

https://journals.plos.org/plosone/article?id=10.1371%2Fjournal.pone.0265349

https://propakistani.pk/2021/11/13/sbp-revises-cash-reserve-requirement-for-banks/

https://www.sbp.org.pk/about/ordinance/statutor.htm

https://www.wallstreetmojo.com/cash-reserve-ratio/

https://www.investopedia.com/terms/b/bank-reserve.asp

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