Capital is to a nation what air is to life. The formation and growth of capital depend on the economic principle of savings and investment. Here comes in the role of Banking in the economy of a country. No industrial progress is possible without a sound Banking system, for industries are the backbone of the national economy.
When Pakistan came into existence in 1947, our opponents and non-well wishers predicted an early collapse of the country in the absence of any industrial base. The areas forming Pakistan were backward, underdeveloped and economically retarded. The populace was poor and uneducated. There were no industries worth the name. Habib Bank was only one bank with a few branches in the country. There was no central bank in the country. The branch of Reserve Bank of India soon folded its camp.
The first and the foremost need of the country was to establish the central bank. The country’s Central Bank-state Bank of Pakistan was established on 1st July 1948 according to Pakistan (Monetary system and Reserve Bank) Order 1947, with three branches at Karachi, Lahore, and Quetta.
It is the corporate body having succession and a common seal. It has been charged with the duty of regulating the issue of bank notes and keeping of reserves with a view to secure monetary stability, and generally to operate the currency and credit systems of the country to its advantage. The State Bank does not merely secure monetary stability but also fosters the growth of monetary and credit systems in the best national interests. It serves as Bankers Bank.
State Bank is governments Bank and also regulates foreign exchange. Beside the Central Bank, there are Schedule Banks with a network of branches all over the country and their foreign branches all over the world. Now Pakistan can be well proud of her Banking system. It is the index of our industrial and socio-economic progress. Industries, commerce, and trade draw their lifeblood from the Banking system.
The mechanics of expansion of money supply and bank credit by the banks and other agencies have widely determined the pattern of economic growth in the country. The State Bank controls, guides the five commercial banks HBL, NBP, MCB, UBL, and ABL. Some specialized credit institutions such as the Industrial Development Bank of Pakistan (IDBP) also come under the category of scheduled banks. The growth of schedule banks during the last two decades has been spectacular.
Besides the six Pakistan banks, there are sixteen Foreign banks operating in Pakistan. Four of them are American, two, British, four Middle-east banks, one Japanese and three other European. The M.E. Banks have posed a great challenge to Pakistani banks particularly in turnover of staff.
The banking system as per state-bank directions and control, renders following services.
- Financing by lending service: (lending & Qarz-e-Husna)
- Trade-related modes (four kinds of services)
- Industrial financing (four functions)
Various banking institutions commercial banks, agricultural and co-operative banks, and investment banking have put the country on road to quick progress in industrial, agricultural and social sectors. There are eleven institutions that provide long term industrial finance, the important are ICP, NIT, NDFC, ADBP and SBFC.
After nationalization, much corruption, bribery, heavy borrowing and shares business by senior officers, have crept in the system. Public services have become very poor. Trade unionism has sapped efficiency and destroyed discipline.