Group Members

Taous Baloch (Qurtuba University)

Sundas Tanveer (Qurtuba University)
Muhammad Umair Qureshi (Gomal University)
 CHAPTER#1
INTRODUCTION
 INTRODUCTION
The State Bank of Pakistan (SBP) is incorporated under the State Bank of
Pakistan Act, 1956, which gives the Bank the authority to function as the central
bank of the country. The SBP Act mandates the Bank to regulate the monetary and
credit system of Pakistan and to foster its growth in the best national interest with a
view to securing monetary stability and fuller utilization of the countrys
productive resources.

Subsidiaries of the SBP

The SBP holds two fully owned subsidiaries to augment its functions. These
are:

1) SBP-Banking Services Corporation (SBP-BSC)

Established under the SBP-BSC Ordinance 2001, SBP-BSC supports SBP in

performing functions such as handling of currency and credit management,
facilitating the inter-bank settlement system, and sale/purchase of savings
instruments of the Government on behalf of Central Directorate of National
Savings. SBP-BSC also collects revenue and makes payments for and on behalf of
the Government. It also carries out operational work relating to development
finance, management of public debt, foreign exchange operations and export
refinance. The Board of Directors of SBP-BSC, chaired by the Governor SBP,
comprises of all members of the Central Board of SBP and the Managing Director
of SBP-BSC.

SBP-BSC consists of 16 field offices in Pakistan with the head office in

Karachi.

2) National Institute of Banking and Finance (NIBAF)

NIBAF is the training arm of SBP, providing executive development trainings

to new inductees and various levels of SBP employees. The subsidiary also
conducts international courses on central and commercial banking in collaboration
with the federal Government. Furthermore, NIBAF offers training to SBP-BSC
and other financial institutions. NIBAF is incorporated under Companies
Ordinance, 1984 and has a separate Board of Directors. NIBAF is located in
Islamabad with an office in Karachi.
 1.1 HISTORICAL BACKGROUND
Before independence on 14 August 1947, during British colonial regime the
Reserve Bank of India was the central bank for both India and Pakistan. On the
30th of December 1948 the British Government's commission distributed the
Reserve Bank of India's reserves between Pakistan and India -30 percent (750 M gold)
for Pakistan and 70 percent for India.

The losses incurred in the transition to independence, small amount taken from
Pakistan's share (a total of 230 million). In May, 1948 Muhammad Ali Jinnah (Founder
of Pakistan) took steps to establish the State Bank of Pakistan immediately. These
were implemented in June 1948, and the State Bank of Pakistan commenced
operation on July 1, 1948

Under the State Bank of Pakistan Order 1948, the state bank of Pakistan was
charged with the duty to "regulate the issue of bank notes and keeping of reserves
with a view to securing monetary stability in Pakistan and generally to operate the
currency and credit system of the country to its advantage".

A large section of the state bank's duties were widened when the State Bank of
Pakistan Act 1956 was introduced. It required the state bank to "regulate the
monetary and credit system of Pakistan and to foster its growth in the best national
interest with a view to securing monetary stability and fuller utilization of the
countrys productive resources". In February 1994, the State Bank was given full
autonomy, during the financial sector reforms.

On January 21, 1997, this autonomy was further strengthened when the
government issued three Amendment Ordinances (which were approved by the
Parliament in May 1997). Those included were the State Bank of Pakistan Act, 1956,
Banking Companies Ordinance, 1962 and Banks Nationalization Act, 1974. These
changes gave full and exclusive authority to the State Bank to regulate the banking
sector, to conduct an independent monetary policy and to set limit on government
borrowings from the State Bank of Pakistan. The amendments to the Banks
Nationalization Act brought the end of the Pakistan Banking Council (an
institution established to look after the affairs of NCBs) and allowed the jobs of the
council to be appointed to the Chief Executives, Boards of the Nationalized
Commercial Banks (NCBs) and Development Finance Institutions (DFIs). The
State Bank having a role in their appointment and removal. The amendments also
increased the autonomy and accountability of the chief executives, the Boards of
Directors of banks and DFIs.

The State Bank of Pakistan also performs both the traditional and developmental
functions to achieve macroeconomic goals. The traditional functions may be classified
into two groups:

1) The primary functions including issue of notes, regulation and supervision of

the financial system, bankers bank, lender of the last resort, banker to
Government, and conduct of monetary policy.

2) The secondary functions including the agency functions like management of

public debt, management of foreign exchange, etc., and other functions like
advising the government on policy matters and maintaining close relationships
with international financial institutions.

The non-traditional or promotional functions, performed by the State Bank

include development of financial framework, institutionalization of savings and
investment, provision of training facilities to bankers, and provision of credit to
priority sectors. The State Bank also has been playing an active part in the process
of islamization of the banking system.

The Bank is active in promoting financial inclusion policy and is a leading member
of the Alliance for Financial Inclusion. It is also one of the original 17 regulatory
institutions to make specific national commitments to financial inclusion under the
Maya Declaration during the 2011 Global Policy Forum held in Mexico.

1.2 VISION STATEMENT

To transform SBP into a modern and dynamic central bank, highly professional
and efficient, fully equipped to play a meaningful role, on sustainable basis, in the
economic and social development of Pakistan.
 1.3 MISSION STATEMENT
To promote monetary and financial stability and foster a sound and dynamic
financial system, so as to achieve sustained and equitable economic growth and
prosperity in Pakistan.

1.4 Functions of SBP

CHART: Functions of SBP

Functions of SBP

Traditional Non-Traditional

Primary
Development of
Secondary
Financial
Institution

Sole right of
Issue Notes
Public Debt
MGT

Conduct and Training

Monetary Policy Facilities To
Banker

Advisor to Govt
Banker's Bank

Management of
Banker to Govt Foreign
Exchange Credit To
Priority Sectors

Lender of Last
Resort
Sole Authority to Issue Notes

One of the primary responsibilities of the State Bank is the regulation of

currency in accordance with the requirements of business and the general public.
For this purpose the Bank has been granted the sole right of issuing notes in the
country under Section 24 of the State Bank of Pakistan Act, 1956. The overall
affairs with respect to the issuing of notes are conducted through two notionally
separate departments of SBP, viz., Issue Department which deals with the issue of
notes, and the Banking Department which undertakes general banking business2.
There are four issue departments one each in four provincial capitals viz., Karachi,
Lahore, Peshawar and Quetta.

Conduct of Monetary and Credit Policies

The State Bank of Pakistan is responsible to regulate the monetary and credit
system of the country in such a manner that ensures monetary stability in the
economy4. Section 9A of SBP Act, 1956 entrusts the Central Board of the Bank to
formulate and monitor monetary and credit policy by taking into account the
Federal Government's targets for growth and inflation, in accordance with the
recommendation of the Monetary and Fiscal Policies.

Bankers' Bank

The Bank also functions as the bankers bank. Banks are classified as scheduled
and non-scheduled. The Bank maintains an updated list of all scheduled banks at
its various offices. These banks are entitled to certain facilities from the State Bank
and in return they have some obligations to it. State Bank provides the following
three important services to the scheduled banks;

a. It keeps the deposits of commercial banks, which primarily constitute the

statutory reserves of scheduled banks. Scheduled banks are required to keep with
the State Bank certain percentage of their demand and time liabilities under
Section 36 of SBP Act, 1956. Normally, the statutory reserves are kept with the
Bank free of any return. However, the Bank can offer some interest on certain
fraction of these reserves. Scheduled banks also keep a certain amount of excess
reserves with the Bank, which not only facilitate inter-bank payments but also
provide buffer for statutory reserves in case of fluctuations in banks demand and
time liabilities.

b. The State Bank also provides extensive remittances facilities to banks at a

concessional rate under the Remittance Facilities Scheme introduced since 1948.
This facility helps the flow of funds smoothly and efficiently between various
centres in the country. The Bank provides this facility through the media of its own
offices, the branches of National Bank of Pakistan acting as its agents, and
treasuries and sub-treasuries holding permanent currency chests at places where
the State Bank has no office. Telegraphic Transfers (T.T.), Mail Transfers (M.T.),
Demand Draft (D.D.) and Government Draft (G.D.) are the principal instruments
used for remittances.

c. In order to streamline payments through the financial system, the Bank also
manages the operations of clearing houses. In the five major cities, the functions of
SBP clearing house has been handed over to a private agency namely National
Institutional Facilitation Technologies Private Limited (NIFT) to the extent of
sorting of payments instruments and preparing clearing schedules. Presently NIFT
covers 80 percent of clearing services. However, the settlement of accounts is still
undertaken at SBP. In other financial centres of the country, the Bank performs all
the functions of the clearing house which are now managed by SBPBSC.

Lender of the Last Resort

One of the important characteristics of a central bank is its being the lender of
the last resort. The State Bank provides loan and re-discount facilities to scheduled
banks in times of dire need when they find no other source of funds. These
facilities are ordinarily provided by the Bank against government securities, trade
bills, agriculture bill, etc. These loans are essentially short-term in nature and are
advanced to enable the banks to meet their temporary requirements of funds arising
out of seasonal expansion in trade, commerce, agricultural operations, and other
economic activities. These operations are carried out in accordance with the
provisions of Section 17 of the State Bank of Pakistan Act, 1956. Notwithstanding
any limitations contained in different sub-clauses of the Section 17, the Section 18
of the act gives the Bank the power of direct discount for undertaking this function.

In order to bring flexibility in accommodating short term liquidity requirements

of financial institutions and to implement market oriented monetary policy, a 3-
Day Repo facility was introduced by the State Bank of Pakistan with effect from
1st February, 1992, and the earlier arrangement of re-discount was discontinued
effective from February 15, 1992. Against the 3-day repo facility, funds are
allowed by accepting Market Treasury Bills/ Federal Investment Bonds/ Pakistan
Investment Bonds.

Banker to Government

The State Bank conducts the banking business of Federal and Provincial
Government and some government agencies. These functions performed by the
Bank are akin to those ordinarily performed by commercial banks for their
customers. The Bank provides the following services to the governments:

a. It accepts the deposits of cash, cheques and drafts by the Government and
undertakes the collection of cheques and drafts drawn on other banks. The Bank
transfers government funds from one account to another or from one centre to
another as advised by them. The statutory provisions for this function were made
first in the State Bank of Pakistan Order, 1948 and then in the SBP Act, 1956.
Federal and Provincial governments keep their deposits with the Bank free of
interest. In turn, the Bank does not charge any commission to the governments for
the banking services rendered to them.

b. The Federal and Provincial governments can obtain advances from the Bank
subject to mutual agreements in respect of the terms and conditions for such
advances. The Bank makes ways and means advances to the Federal as well as to
the Provincial governments without any collateral security. However, sometime
loans are also granted to the Provincial governments against the collateral of
Federal Government securities.

c. On behalf of Federal, Provincial or Local governments the Bank also

undertakes sale/purchase of gold, silver, approved foreign exchange, securities or
shares in any company, collection of return on these shares/securities, transaction
of SDR, etc. (Section 17(13) of the act).

Secondary Functions
Public Debt Management:

The Bank is responsible for the management of government debt under

subsection 13(e) of section 17, and section 21 of the SBP Act, 1956. The Public
Debt Act 1944 also defines the responsibilities of SBP for public debt
management. 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

In order to efficiently manage the public debt, a department namely, Securities

Department was set up in December, 1990 for the business of government
securities7. This department was subsequently merged with foreign exchange
dealing room and a new department Exchange & Debt Management Department
(EDMD) was created in February, 2000.
 For the auction of Treasury Bills and government bonds, a primary dealer
system is developed. The securities are offered for sale on fortnightly basis in case
of Market Treasury Bills (MTBs) and on quarterly basis in case of Pakistan
Investment Bonds (PIBs) to primary dealers8. Primary dealers are then allowed to
undertake the business of government securities in secondary market9.

The State Bank undertakes draws of prize bonds along with their sale/purchase.
It also carries out the sale, purchase and interest payments on some of the saving
schemes, however the overall management of prize bonds and saving schemes lies
with the Central Directorate of National Savings. The State Bank is entitled to
receive commission on the transactions of government savings certificates. The
State Bank also has an advisory role with regard to government loans, terms and
timings for their floatation.

Management of Foreign Exchange:

Being responsible for maintaining the external value of the currency, the State
Bank of Pakistan assumed the charge of management and administration of the
exchange system of the country in line with the Foreign Exchange Regulation Act,
1947 which was originally enacted by the British Government and subsequently
adopted by Pakistan. As an agent to the Government, the Bank has been authorized
to purchase and sell gold, silver or foreign exchange and transactions of special
drawing rights with the International Monetary Fund under sub-sections 3(a) and
13(a,f) of section 17, and section 23 of the SBP Act, 1956.

Advisor to Government

The State Bank of Pakistan, also acts as an advisor to the Government on

financial and economic matters particularly with reference to their monetary
aspects. The Bank counsels the Government on loan operations and advises it with
regard to the timings, terms and conditions and rate of return on these loans. The
advice is also tendered on matters like agricultural credit, cooperative credit,
industrial finance, exchange regulations, banking and credit control, mobilization
of savings, financial aspects of planning and development and similar other
economic issues. State Bank of Pakistan also tenders advice to the Government on
debt management issues. The advisory role of the Bank has been made mandatory
in accordance with the Section 9A(d,e) of the SBP Act 1956.

Non-traditional Function

Development of the Banking System

The most significant contribution made by the State Bank of Pakistan towards
facilitating and fostering economic development in Pakistan was the rehabilitation
of the banking system in Pakistan. At the time of independence the commercial
banking system in Pakistan had virtually collapsed with the closure of large
number of bank offices which were run and managed by non-Muslims who
migrated en-mass to India. Also there was no independent monetary authority, and
the Government of Pakistan had to resort to the Reserve Bank of India for its
currency and monetary affairs. Thus a tremendous task before the State Bank was
to strengthen its own institution as a central bank besides overall development of
banking industry in the country.

Commercial banking

For promotion of overall banking services in the country the Bank initiated a
scheme for setting up the National Bank of Pakistan with a broader outlook and a
bold branch expansion programme in 1949. A year later, it was decided to reserve
internal banking for Pakistani banks and allow the foreign banks to open new
offices only in port towns or in other large cities where substantial trade was
carried on with foreign countries.
 This policy gave a powerful fillip to Pakistani enterprise in the field and there
was a remarkable growth in the number of offices of Pakistani scheduled banks in
early days of the state of Pakistan. In recent years (1990s), as a move towards
financial sector liberalization, private sector has been encouraged to enter into the
banking industry. Foreign banks have also been allowed to expand their branch
network across the country. This policy has promoted healthy competition among
banking companies, and has significantly improved the quality of banking services
in Pakistan.

Micro Finance

In order to expand the banking services at grass root level and to enable the
financial sector to play its role in poverty alleviation, the State Bank of Pakistan is
also promoting micro banking in the country. It has facilitated two micro finance
banks namely Khushali Bank and the First Micro Finance Bank (FMFB) Limited.
Khushhali Bank is in public sector and FMFB is set up in private sector. Contrary
to the requirement of paid up capital of Rs 1 billion for commercial banks, SBP has
fixed a reduced limit of minimum paid up capital for microfinance banks. In order
to commence business the MFB/MFI shall have a minimum paid up capital of
Rs.500 million, Rs.250 million and Rs.100 million respectively for countrywide,
specific province-wide and specific district-wide operations.

A set of prudential regulations has also been issued to keep the activities of
these banks within the norms of banking business and to safeguard the interest of
their clients. The Micro Finance Bank can also engage in mobile banking within
their area of business so that banking facilities can be spread to the grass root level.

Training Facilities to Bankers

Keeping in view an acute shortage of trained bankers at the time of the

independence, the State Bank introduced "Bank Officers Training Scheme" within
one month of its establishment. On July 2 1948, the Central Board of Directors of
the Bank approved a comprehensive scheme for university graduates especially
with mathematics, economics and commerce backgrounds. For clerks, State Bank
introduced departmental examinations system in 1950 to enhance the capabilities
of the existing staff in the banking industry.

Institute of Bankers Pakistan

On the initiative of the Bank's Governor, the Institute for Bankers Pakistan
(IBP) was established for conducting examinations in prescribed banking courses
for augmenting the strength of qualified banking staff in the country. The Institute
started functioning from September 17, 1951. The Governor was elected the first
president of the council of the Institute of Bankers Pakistan. The Institute
contributed significantly towards the improvement of operational efficiency of
commercial banking system and providing better facilities for training and
education in banking. All the branches of SBP (BSC) have local offices of the
Institute which organize seminars and short courses on current and important
issues in banking industry of Pakistan. The institute also conducts annual essay
competition on various economic issues and awards prizes to the four best essays.

Training Department/Division

State Bank also strengthened its training area. Training courses on central and
commercial banking for both domestic and international participants were
designed. Under the domestic training programme, the in-service training schemes
have always remained on high priority in the training strategy of the Bank. During
1981-82, two Training Units were established - one each at Karachi and Lahore to
cater to the training needs of the Bank's staff of different categories attached to
various offices. The Training Department of the Bank also tries to secure training
placements for Bank officials in different training institutions both at home and
abroad like NIPA, PIDE, IMF, ADB, IDB, World Bank, etc. Recently Training
Department has been merged with Human Resource Department in order to make
human resource managements more efficient at SBP.

NIBAF
 In 1997, with the abolition of Pakistan Banking Council, the State Bank
assumed the charge of National Institute of Banking and Finance (NIBAF),
Islamabad. At NIBAF excellent training facilities are available for participants on
commercial banking, central banking and other areas related with the financial
sector. The NIBAF was converted into an independent subsidiary of SBP in 2003
under a fulltime Managing Director. It operates two campuses one at Islamabad
and the other at Karachi (North Nazimabad). In pursuance of the Bank's objective
to promote technical cooperation among developing countries, international
training courses for the benefit of bankers from Afro-Asian, Latin American,
Commonwealth and Central Asian States are also organized each year at NIBAF.

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. Before 1990s, mandatory and
concessionary credit to priority sectors remained about 50 per cent of the total
private sector credit. However, with the start of liberalization process in the
financial sector, its share is declining as a result of deliberate policy stance. The
underlying objectives are to increase efficiency in all the sectors of the economy
and to let the market forces decide the proper allocation of resources.

Credit for Agriculture

The Agriculture Credit Scheme was introduced in 1972 by the SBP under SBP
Act 1956 read with Loan For Agricultural Purposes Act 1973. Later on, to increase
the involvement of commercial banks, the scheme was reviewed and renamed as
Supervised Agricultural Credit Scheme in 1986. The spirit of the scheme was to
provide maximum credit availability through banking credit to small farmers,
having cultivable land up to Subsistence Level. The Supervised Agricultural Credit
Scheme was once again entirely revamped in 2001, which included a complete
value chain of farm & non-farm activities, like production, transportation, packing,
polishing, grading, crating, godowns, cold storage, silos, steel / metal capsules,
along with forestry, poultry, fisheries (inland & marine), livestock, dairy products,
fruits, vegetables, floriculture, sericulture, apiculture, marketing & exports.

In order to enhance the volume and scope of Agricultural Credit, SBP during
the last few years included 150 new items in the list of items eligible for
Agricultural Credit, established Local Credit Advisory Committees at each SBP
(BSC) office, inducted 14 new Domestic Private Commercial Banks into the
scheme, issued Master / Comprehensive Circular on the Agricultural Loans
Schemes, standardized and simplified loan documents, withdrew the Territorial
Jurisdiction, published brochures on Agricultural Loans Scheme & Revolving
Credit Scheme in English, Urdu and other regional languages. Besides these efforts
SBP recently, with the consensus of all banks, introduced the Revolving Credit
Scheme. It provides, sanction of limit for 3 years with one time documentation,
automatic renewal, partial repayments, multiple operation as per needs of the
farmers, no frequent visits of revenue department and attracting mark-up only on
such amounts which are actually withdrawn and utilized on daily product basis.
 1.5 INTRODUCTION SBP Banking Services Corporation

The SBP Banking Services Corporation (SBP-BSC) was established as a wholly

owned subsidiary of State Bank of Pakistan in January, 2002, under the SBP Banking
Services Corporation Ordinance 2001.

As an operational arm of the Central Bank, SBP Banking Services Corporation

is engaged in managing currency, foreign exchange operations and foreign
exchange adjudication; providing banking services to the federal and provincial
governments and financial institutions regulated by State Bank of Pakistan,
conducting development finance activities in support of the development finance
group of the SBP, implementing export refinance schemes, and performing agency
functions like sale/purchase of national prize bonds including managing prize
money draws, sale and purchase of national saving schemes or any other functions
assigned by State Bank of Pakistan.

Vision Mission

To develop SBP-BSC into a To provide excellent banking and

dynamic and efficient financial services to stakeholders
organization equipped with besides ensuring implementation
requisite technology and human of SBP policies in order to
resource capable of extending command their trust and respect.
sustainable support to the State
Bank of Pakistan in achieving its
objective.
 REGIONAL OFFICES OF BANKING SERVICES CORPORATION

REGIONAL OFFICES:
The sixteen (16) Field Offices of the Bank are structured into the following three
Regions:-

S. No. Regions Regional / Field Offices

Karachi
North Nazimabad
Southern Region (5 Field
1. Hyderabad
Offices)
Sukkur
Quetta
Lahore
Faisalabad
Central Region (6 Field Sialkot
2.
Offices) Gujranwala
Multan
Bahawalpur
Islamabad
Rawalpindi
Northern Region (5 Field
3. Peshawar
Offices)
D.I. Khan
Muzaffarabad

Regional / Field Offices of the Bank typically provide the following Banking
Services:-

Currency Management Services (Issuance, Exchange & Destruction of

Currency Notes).
Coins Management (Supply & Receipt).
Receipts of Governments Taxes & Levies.
Management of Governments Payments (Salaries, Pensions & Suppliers).
Public Debt Management (Management of National Prize Bonds &
SSCs/DSCs Schemes on behalf of Central Directorate of National Savings
(CDNS), National Savings, Ministry of Finance, Government of Pakistan,
Islamabad.
 Provision of Governments Funds Transfer Facility.
Locker facilities to the Government for Safe Deposit of Articles.
Customers Facilitation for General Banking Complaints.
Other Banking Services as and when required by the Government
Departments.
In addition, for proper and efficient management of the business relating to
the issue of notes / currency, there exist four Currency Issue Circle Offices
of the Bank. The location of these Offices and their geographical limits are
as under:

Currency
Issue Circle Geographical limits of each circle
Offices
1
Karachi Province of Sindh
.
2 Province of Punjab including Government of Azad
Lahore
. Jammu and Kashmir
3 Province of Khyber Pakhtunkhwa and
Peshawar
. Government of Gilgit- Baltistan
4
Quetta Province of Balochistan
.

Dera Ismail Khan (D. I. Khan) is situated on the west bank of River Indus in
KhyberPakhtunkhwa Province. D.I. Khan produces agricultural crops like wheat,
sugarcane, rice and a famous variety of mango called Langra. However, its most
famous produce is Dhakki date, which has a unique sweet taste and is also
exported to different parts of the world. Another sweet delicacy is Sohan Halwa
which is famous all over the country. Major industries in the city include sugar,
soap, textile, oil milling, etc.

D.I. Khan Office started its working on 1st August, 1983 and initially operated
as a Foreign Exchange Control office only. Subsequently its status was changed to
a skeleton Office on 1st January, 1995 in order to make arrangements for the
opening a full-fledged Office, which started functioning from 16th April, 1995. On
establishment of SBP BSC (Bank) as subsidiary of State Bank of Pakistan with
effect from 2nd January, 2002, the Office has been discharging its statutory
responsibilities as one of the 16 Field Offices of SBP BSC (Bank).
CHAPTER#2
DEPARTMENTS
DEPARTMENTS OF SBP-BSC D.I.KHAN
2.1 Banking Department:
Banking department further divided into two units:

a) Deposit Account Unit:

It deals with commercial banks
It directs the working criteria of commercial banks
Balances and stock reports preparation
Bank accounts maintenance
Transfer of funds
Closing of bank daily operations.

Public Account Unit:

Dealing in Govt accounts
Collection of tax and Providing short term loan
Payment of salaries to employees of the Govt
Dealing with the receipts and & payment of Govt sectors
Balances and stock report preparation with DAU data
Govt accounts maintenance & transferring of funds on transaction
Daily closing of accounts at DAU with the record of PAU

Payment and receipt at PAU:

1. Through Cash
2. Through transfer
3. Through clearing

2.2 General Services Unit (GSU)

Makes and forecast a broad plan keeping in view the whole budged of
concerned office of SBP BSC
Management of HR resource
Training
 Procurement of all the assets of the office and maintain their record
Internal bank security
Repair and maintenance of office building and equipments

2.3 Staff Matter Unit (SMU)

Dealing with the cases of transfer & posting
Deals with disciplinary matters
Staff is promoted on the grounds of Points Based System
Retired, dismissed, resigned and transferred employees
information/record maintenance
Leave record is also maintained here
Payment of salary, pension and increment record
Medical section is also looking after by SMU

2.4 Internal Monitoring Unit (IMU)

IMU is responsible to check and authorize all the work to become it flawless
To check the daily record done by PAU & DAU
To check the enter and exit time of all the employees
To check the work done by SMU
To check the medical facilities and procurement of medical assets
To check and authorize the work done by GSU
To assist regional Hub Audit and Annual Audit.

2.4 Currency Management and Examination Department (CMED)

Note Design
Issue and distribution of fresh notes and coins
Withdrawal of soiled notes from circulation and their destruction
Note exchange facilities and anti-counterfeit measures
Facilitate to General Public to know about the Forge Note
Clean Note Policy
National Prize Bonds
Defense Savings Certificates And Special Savings Certificates
 Organogram of DIK SBP BSC

Chief Manager

Dy.Chief Manager Dy.Chief Manager

Security (Banking/Issue &
(Admn/ Officer ACM(IMU)
PBU/FEOU/SPU) Try/AFU)

**ACM ACM
ACM ACM (GSU/ ACM ACM ACM
(PBU/ SSC & Engineering/ IBSU (CMU &
(Admn) Banking (Cash ) CMED (Vault)
DSC) SPU/CFC)
/CCM)AFU
Public
GSU/ Engineering / Accounts
CMU
Procurement Unit

Staff Matters Deposit

Sty & Record Accounts CMED
Unit
Unit
Salary/Advan
ces/ Pension/ Currency
CLU Claim

MWU &
AFU
Dispensary
Customer
Facilitation
Centre
#Chapter 3
 Currency Management Unit (CMU)
Currency Management Unit

Mission Statement

To establish efficient currency management system by using latest technology

from initial printing to finally destruction of banknotes including curbing of
counterfeit currency.

Vision Statement

Providing securer and better quality banknotes to command respect and trust of
our stakeholders.

1 Overview

An important responsibility of the SBP Banking Services Corporation (Bank) is

to ensure adequate supply of bank notes and coins and to maintain the quality of
notes in circulation in predominantly cash-based economy. Therefore currency
management system and relevant procedures are reviewed regularly to meet the
requirement of currency in the economy. The responsibility for bank note security
and distribution rests with the Accounts Department of BSC, which performs this
important function through 16 field offices which in turn interact with clients
within their respective jurisdiction. In addition, BSC also promotes awareness of
the security features through print media and posters so that financial institutions,
retail sector and general public can confidently recognize and use genuine bank
notes. This approach works effectively to counterfeiting and other infringements of
bank notes. The retail business of bank notes and coins which was earlier handled
manually is now being automated and modernized. Computerized systems of issue
accounting function are operational in four Issue Offices. BSC has taken up project
for computerizing the work of cash operations, planning and management
information system (MIS) for currency management in all its field offices. Broadly
speaking, major functions of currency management relates to:
 Note Design

Issue and distribution of fresh notes and coins

Inventory management and accounting

Withdrawal of soiled notes from circulation and their destruction

Note exchange facilities and anti-counterfeit measures

BSC performs these activities through its field offices and a wide network of
currency chests spread across the country. At present, BSC has Issue Departments
at Karachi, Lahore, Peshawar and Quetta to perform the work relating to currency
management throughout the country in an efficient and effective manner.

Services perform by CMU under the CMD on the

instructions of HOK

2 Measures taken to Improve Currency Management System

BSC has taken various measures for improving the quality of notes in
circulation during FY05. These measures include the widening of the currency
chest network, speeding up the process of handing over and taking over of
remittances by the chests, non-stapling of note packets, withdrawal of soiled notes
from circulation and their disposal, mechanization of note processing and
environment friendly destruction of soiled notes. Anti-counterfeit measures are
being taken in coordination with the Government and through public awareness
campaigns.
 2.1 Supply of Fresh Currency Notes & Coins

The supply of fresh notes is done through the process of indent preparation
process and that information then sent to the PSPC and it has increased during the
year through utilization of full capacity of the Pakistan Security Printing
Corporation (PSPC). A large number of branches of commercial banks were
designated in different areas for issuance of fresh notes to the general public. The
series and numbers of the fresh notes issued to the designated branches of
commercial banks are also recorded for monitoring their proper distribution and to
check their use by currency brokers and garland makers. As a result of intensive
efforts of BSC, the persistent shortage of fresh bank notes was by and large
reduced during the FY05.

The gradual increase of share of higher denomination bank notes (Rs.500 and
above) in circulation, both in terms of volume and value, continued during the
period under review. The qualitative check is the responsibility of PSPC.

Coins are received from the Pakistan Mint and issued through Issue / field
offices of BSC and a wide network of currency chests and coin depots maintained
by banks and Government treasuries across the country.

2.2 Common Security Features of Notes

a. Portrait Watermark: When the note is held against the light, an image of
Quaid-e-Azam can be seen
b. Numerical 20 Watermark: When the note is held against the light, the
numerical 20 can be seen.

c. Security Thread: A vertical Security Thread, almost in the center of the note
 can be seen when held against the light. On the thread State Bank of
Pakistan and the numerical 20 is printed
d. See Through Numerical 20: The numerical 20 printed in Urdu with one half
of the digit on one side and the other half on the other side can be seen as a
complete digit when held against the light

e. Hidden 20 Numerical: On tilting the note, a hidden 20 numerical can be seen

f. Intaglio Printing: Security lines on both the sides of the note, 20 numerical
and Quaid-e-Azams portrait are printed in intaglio. One can easily feel the
raised printing by touching them.

g. Intaglio Printed Sign: A Special raised printing sign for the blind people,
which can be felt with a touch.
h. Coloured Signature: Governors signature in colour is appearing on the note
for the first time.
i. Year of Production: Year of production has been printed on the note for the
first time.
j. Name of the Location: The picture and name of Mohenjodaro appear on the
reverse of note.

2.3 Enhanced Role of Currency Chests

The network of currency chests maintained by National Bank of Pakistan (NBP)

and by the Government treasuries plays a key role in carrying out currency
management function in an effective manner. The stock of bank notes and coins
held by the currency chests is also taken into account for working out the cash
reserve requirements of BSC concerned. The chest/ sub-chests maintained with
NBP branches are authorized to accept claim notes from commercial banks and
deposit them with BSC field offices under whose jurisdiction they fall.

With a view to minimize the expenditure on frequent dispatch on remittance,

the holding capacity of NBP chests / sub-chests have been enhanced, in addition to
setting up of more chests at different locations across the country, ensuring the
supply of bank notes both new and re-issuable with ease and less time. Detailed
information about the chests / sub-chests is available in the Annexure of this report.

3 Clean Note Policy

BSC has taken a number of steps to improve the quality of bank notes in
circulation. In order to increase the circulation of fresh notes, it is also essential
that soiled notes are withdrawn simultaneously from the circulation. For this
purpose, BSC has introduced various changes in the systems and procedures
related to currency management mechanization. These measures resulted in
significant improvements in the quality and availability of notes. The technological
up-gradation in currency verification and destruction process has also improved
currency management system.

3.1 Non-Stapling of Note Packets

In order to improve currency management system, in the first phase BSC has
instructed the PSPC to stop stapling wads in Rs.10 denomination notes. Later in
July 2004 non-stapling of fresh notes was extended to Rs.50 and Rs.100
denominations. To achieve a prolong life of bank notes, BSC has issued a
comprehensive circular to all its field offices, commercial banks and chests / sub-
chests of the NBP, prohibiting stapling of currency notes up to Rs.100
denomination and instead issues these notes in the paper banding form. All
commercial banks have been instructed to arrange for necessary banding
equipment for this purpose. They have also been asked to provide a detailed plan
for procurement of this equipment. The currency chest branches are required to
send soiled note remittances to the Issue offices in unstapled form as it is a
prerequisite for processing of notes on the machines. They are also required to
issue clean and unstapled notes to the public and to ensure that no currency vault
holds stapled notes in its stock. A press release in this regard was also issued in
leading newspapers for public awareness. It is planned to gradually eliminate the
practice of stapling bank notes of higher denominations (ie Rs.500 and Rs.1000) in
future.
 3.2 Exchange of Soiled and Claim/Mutilated Notes

A note which has become limp or which has developed partially cuts / damage
due to wear and tear, slightly burnt (provided 3/4 th portion thereof remains intact),
disfigured by oil, color, ink, etc is treated as soiled note. Full cut notes in two
pieces (whether vertically or horizontally) have been taken out from the category
of defective notes and treated as soiled notes and are processed accordingly. To
facilitate easy exchange, bank notes which have been divided vertically through or
near the center with numbers intact are also treated as soiled notes. Notes on which
political or religious slogans are written are not exchangeable.

A mutilated bank note is a note of which a portion is missing or a note which is

composed of pieces, provided that the note presented is not less than half of the
area of the note and that, if the note is composed of a note joined together, each
piece is, in the opinion of the 'Prescribed Officer' (as defined in the Note Refund
Rules) identifiable as part of the same note. In order to eliminate difficulties faced
by the general public in getting the defective/claim notes passed/exchanged and
also to cut down labour and processing time involved, the ceiling of total value of
Rs.500 under one window operation has been enhanced to the total value of
Rs.1,000 (Rs.10 to Rs.100 denominations notes) per person per case. Claim notes
of all denominations tendered by commercial banks are being accepted without
going into the claim process. In the same manner, notes under guarantee are
accepted and credit is afforded to them immediately while recovery against
rejection or shortage of notes, if any, is being made from the respective banks
subsequently. In order to facilitate the stakeholders BSC has deputed a large
number of officers at its all field offices for settling these cases efficiently and
swiftly.

The commercial banks have been directed to make arrangements for the
provision of facilities such as exchange of soiled notes, exchange of notes to coins
and coins to notes at their branches. Accordingly, there was a perceptible
improvement in the quality of notes in circulation as reflected by the decline in
public complaints in respect of soiled notes.

4 Forged and Counterfeit Notes

Notes/coins which are found to have been forged/ counterfeited are impounded
and no value thereof is paid. Such notes/coins are retained by BSC after issue of
advice to the tenderer.

5 Currency Verification & Destruction Process

In view of the growing volume of notes in circulation and the limitations of

existing manual systems, BSC embarked upon mechanization of currency
processing operations in the Issue Offices. In the first phase of mechanization,
Coin Counting, Note Counting, and Note Banding Machines have been installed in
16 field offices of the BSC. Further Note shredding machines have been provided
to 11 field offices of BSC. In the next phase M/s. NIFT, House of Business
Machines (Pvt) Limited and Rayanco Business System Karachi have been allowed
to establish Sorting Cell on rental basis at Karachi, Lahore, Peshawar, Faisalabad,
Rawalpindi, Islamabad and Multan Offices to introduce Bank Note Processing
System which will start functioning very soon. It is pertinent to mention here that
the introduction of shredding machines in the field offices of BSC have replaced
the environmentally unfriendly incineration of notes. The new system first cuts the
notes into small pieces and then converts them into fine shreds. In order to ensure
speedy disposal of accumulated balances of cut/soiled notes, the cut notes of Rs.5
and Rs.10 denominations are destroyed through special procedure along with the
soiled notes at the same rate ie 15,000 pieces to be counted and 85,000 as relaxed
portion. The quota of verification of cancelled notes of Rs.100 denomination is
fixed at 24,000 pieces. The rate of verification of the said notes is reduced from
100 percent to 50 percent as in the case of Rs.50 denomination.

6 Exchange of Currency Notes

 The exchange facility over Bank's counters is available free of cost during the
business hours of the respective field office. The serial numbers of counters are
displayed in banking hall of each field office where exchange facility is available.
The mutilated/cut notes are exchanged by BSC as of grace under the Note Refund
Rules. However, when the mutilated/cut note is not found payable under the
Rules, the same is rejected and rejection advice issued to the tenderer. The rejected
note is retained by BSC and destroyed after six months.

The staff and officers of the BSC are required to treat each member of the
public with courtesy. They are advised to be helpful and attend promptly to the
customer's enquiries and complaints. In case any member of the public faces any
difficulty in getting the above exchange facilities at any BSC offices or is asked for
any reward, he may record a complaint in the complaint box placed at the enquiry
counter of the office or bring it to the notice of the incharge of the Cash
Department of the respective office. The designation and addresses of the in-
charges are also given in the Annexure of this report. The field offices were
advised to implement the one window system for providing all the services like
receipt and issue of bank notes / coins, exchange of bank notes to coins and vice
versa, exchange of defective notes etc.

7 Expansion of Exchange Facility

The offices of BSC are located at selected centers and BSC has, therefore, made
arrangement for provision of the facility of exchange of soiled notes, exchange of
notes to coins and coins to notes at the branches of scheduled commercial banks.
While the facility for exchange of soiled notes is available at all branches of
commercial banks and currency chest branches of NBP, the facility of exchange of
mutilated / cut notes is available only at the currency chest branches of NBP. A list
of the currency chest branches where the mutilated notes can be exchanged is
available at the enquiry counter of all field offices. Such currency chest branches
have been instructed to display notice board regarding availability of mutilated
notes exchange facility. In case any such branch refuses to provide the exchange
facility, aggrieved person can complain to the high ups of the commercial bank
concerned. In case the grievance is not redressed, the matter may be brought to the
notice of the Chief Manager of the concerned field office or the Managing Director
of BSC at Karachi.

7 SBP Note Refund Rules Delegation of Powers to Commercial Banks

Under the SBP Note Refund Rules powers have been delegated to the
commercial bank branches for exchange of defective notes. The field offices were
advised to bring to the notice of Chambers of Commerce/ Trade Associations in
their regions the availability of exchange facility for defective notes at all branches
of the commercial banks and also provide a list indicating the names of the
commercial bank branches where the full note exchange facility is available. NBP
has also been directed to ensure that the facility for exchange of mutilated notes is
provided by all of their currency chest branches. The adjudication of mutilated
notes under the said rules involves designating an officer as "Prescribed Officers".
All such Officers are required to be trained for the provisions of the Note Refund
Rules and the procedure of the scheme. The Officers are accountable for recovery
on account of wrongly passed notes. Further, the exchange value of mutilated notes
paid by the currency chest branches is obtained by them through currency chest
mechanism. The facility for obtaining reimbursement of the paid mutilated notes is
not available to the non-currency chest branches. They have to make payments
from their own funds and then approach the nearby currency chest offices for
reimbursement. In view of this, it has been made mandatory for the currency chest
of NBP to accept and exchange mutilated notes.

8 Training and Awareness Programmes for the Exchange of Currency Notes

During the year under review the field offices of BSC have arranged training
programs on exchange of soiled and mutilated notes for the benefit of officers of
commercial banks. The filed offices of BSC also distributed posters among
commercial banks, informing general public about the exchange facility available
at that bank branch. Subsequently, the commercial banks were advised to get these
posters printed in local regional languages which displayed at a prime place in the
branches. All commercial banks were also advised to send their Prescribed Officers
to the training programs organized by the Accounts Departments, BSC to provide
knowledge and inculcate skills required for adjudication of defective notes.

Chief Managers of the field offices of BSC visited main trade centers in person
to interact with the general public and inform them about the steps taken by BSC
with regard to its Clean Note Policy. They have been advised to hold monthly
meetings with Trader/Merchant Associations to educate them about the policies of
BSC. Regular press conferences/ briefings were also held by the Managing
Director BSC on this issue. The whole spirit of the policy and efforts of BSC have
widely been appreciated by the stakeholders

9 Acceptance of Coins and Availability of Currency Notes

All commercial banks were advised to instruct their branches to accept coins of
all denominations without any restriction and pay the value in notes. Branches
were instructed to give adequate publicity and be more proactive in issuing coins
specially wherever there are deficiencies and monitor their performance in this
regard. The field offices of BSC were also advised to arrange and ensure that all
BSC branches in their region accept coins for exchange from the public without
any restriction preferably through single window system.