Professional Documents
Culture Documents
Compiled by
S. Aijaz Husain
Looking back on the evolution and growth of the State Bank and
the banking and financial sector in Pakistan, it would not be
unreasonable to derive satisfaction from the successes achieved over
the years. It is noteworthy that expert opinion obtained by the
Government of Pakistan was not supportive of the idea of
establishment of a Central Bank in the early years of the country's
independence. The Government of Pakistan, however, did not
accept such opinion and decided in the larger interest of the country
to establish the Central Bank as from July 1948. Accordingly, the
State Bank of Pakistan commenced operations from July 1, 1948 and
besides performing the usual central banking functions it also played
a pioneering role in the promotion of a number of financial
institutions in the country to service its economic activities and
development objectives. We all owe a debt of gratitude to the
founding fathers of the Bank.
v
Preface
A comprehensive and authentic history of the State Bank was
long over due. This volume owes its origin to the decision of Mr. V .A.
Jafarey, the former Governor of the Bank, who had strongly felt its
urgency and importance of recording the eventful role the new
institution had played in shaping the economic destiny of the young
state. The assignment was entrusted to me in view of my long
association with the Bank as Secretary of the Central Board of
Directors. It was an ambitious and challenging assignment which
made me at once conscious of my limitations. The assurance of the
Governor that I would have the assistance and advice of an Editorial
Committee to be headed by a retired Governor or Deputy Governor
and composed of a University Professor and a member of the Board
of Directors gave me the confidence to assume the onerous
responsibility. I, however, told him that a 40-year history (1948-1988)
of the Bank could not be compressed into a single volume and that a
phasewise treatment would be more appropriate, the first phase
covering a period from 1948 to 1960-a suggestion he readily
accepted.
After Mr. Jafarey's transfer, his successor, Mr. I.A. Hanfi, was
equally keen on the completion of the project on which, in the
meantime, I had done a considerable amount of spadework. He
commissioned me from my retirement to pick up the threads where I
had left them to complete the task.
vii
viii PREFACE
to house its newly established offices, nor the trained staff to man
them. The banking system or whatever had remained of it in the wake
of Partition had to be set on its feet to get the economy going. These
are only a few of the numerous problems and their ad hoc and
improvised solutions which have been discussed at length in this
volume. To ensure its impartial and objective treatment I had to go to
the original sources and extensively quote from the documents,
reports, memoranda, speeches of the Finance Ministers and the
Governors of the Bank, besides several of the distinguished
personages in the realm of economics, finance and administration.
Mr. I.A. Hanfi, the Governor of the Bank has been a continuing
source of encouragement and inspiration to me in the completion of
the project in which he was profoundly interested because of his
position as the Chief Executive of the State Bank of Pakistan.
Foreword (v)
Preface (vii)
1 - Historical Background 1
2 - Formation of State Bank of Pakistan 33
3 - The Bank Commences Business 59
4 - Outstanding Issues with Reserve Bank 87
5 - Rehabilitation of Commercial Banking 115
6 - Credit System and Monetary Management 149
7- Agricultural Credit 193
8 - Exchange Control and Management 233
9 - Bank and the Government 299
10 - Building Projects 337
11 - The Bank as an Employer 347
Appendices 369
I. The Pakistan (Monetary System and
Reserve Bank) Order, 1947 371
II. Financial Agreement Between the Government
of the United Kingdom and the Government of
India (August 14, 1947) 389
III. The Pakistan Monetary System and Reserve
Bank (Amendment) Order, 1948 394
IV. The State Bank of Pakistan Order, 1948 400
xi
v. The Banking Companies (Pakistan)
Ordinance, 1947 432
VI. The Banking Companies (Inspection)
Ordinance, 1946) 436
VII. The Banking Companies (Restriction of
Branches)J\ct,1946 440
VIII. The Pakistan Banking (Prevention of Default
and Evasion of Liabilities) Ordinance, 1947 443
IX. The Banking Companies (Control) J\ct, 1948 447
X. Foreign Exchange Regulation J\ct, 1947 456
XI. The State Bank of Pakistan (J\mendment)
Order, 1949 476
XII. J\greement Between the State Bank of Pakistan
and the GovernmentofPakistan. 484
XIII. International Monetary Fund-Membership for
Pakistan 490
XIV. List of Scheduled Banks (as on June 30, 1949) 492
XV. The State Bank of Pakistan J\ct, 1956 495
XVI. Summary of the Report of the Credit Enquiry
Commission 523
XVII. List of Governors and Deputy Governors of the
State Bank of Pakistan 531
XVIII. Central Board of Directors 532
XIX. Local Boards: Karachi, Lahore and
Dacca J\reas (1948-1960) 534
XX. State Bank Offices/Branches 537
XXI. List of Scheduled Banks (as on June 30, 1960) 538
Historical Background
The new state of Pakistan was the culmination of a long and grim
struggle dating back to the middle of the nineteenth century. It was
carved out of what is now known as the Indo-Pakistan subcontinent,
which was a part of the British Indian Empire. The subcontinent was
partitioned in the middle of August, 1947. The announcement of the
June 3 Plan by the British Government, followed by the passage of
the Indian Independence Act in the British Parliament on July 16,
declaring August 15, 1947 as the deadline for the transfer of power to
the Dominions of India and Pakistan, gave a legal sanctity to a
political reality.
What the Prime Minister had not spelt out was the gravity of the
post-independence developments in Pakistan which were not of its
own making, but directly of India's choosing and indirectly with its
blessings. This was manifest from the haste with which the Partition
Plan was pushed through without preparatory homework and a fool-
proof arrangement to ensure a fair division of assets and liabilities
and a impartial international machinery to settle their disputes arising
out of so complicated an undertaking.
Sharing of the assets apart, the very existence of the new State
was imperilled by the outbreak of communal riots throughout India,
particularly in Pakistan's neighbouring provinces of East Punjab, the
United Provinces and New Delhi, followed by a massive wave of
migration unparalelled in the history. Within a span of few weeks,
nearly twelve million men, women and children were uprooted from
their hearths and homes. By whatever modes of transportation
available, railroad, trucks, buses and bullock carts, a sea of humanity
had flooded the road to Pakistan. Thousands trekked their way on
foot. Over five million arrived in Pakistan within five months under
4 HISTORY OF THE STATE BANK OF PAKISTAN
Wheat and cotton were the two major crops around which the
economy of West Pakistan had revolved. Neither ofthem was locally
consumed in its entirety, a sizeable quantity being exported to other
parts of the subcontinent in the Indian Union. The area used to
produce roughly forty per cent of the total wheat production of the
subcontinent, a considerable portion of which was marketed in East
Punjab, Delhi and regions further south. The story of cotton was no
different. Practically, the entire crop of twelve lakh bales travelled to
the manufacturing centres of Bombay and Ahmadabad, and the
surplus quantity was exported abroad. The Pakistan areas, in return,
imported manufactured goods, particularly textiles for their own
consumption.
The viability of the new state according to well informed
knowledgeable foreign sources was based on the assumption that it
produced nine tenth of India's wheat surpluses, one third of the rice
surplus and one third of total cotton production. The new country
could, in their opinion, prove itself a working proposition if it
achieved (a) a balanced foreign trade position; (b) a standard of living
atleast as good as its people have had in the past; and (c) relatively as
much development and technical progress as the rest of India.
- - --------------------------
HISTORICAL BACKGROUND 5
In the colonial era not only the commerce of the Punjab and the
Frontier was diverted from its natural route through Karachi but of
Sind itself was subjected to unnatural diversion. The British had left
one of the finest harbours in the region underdeveloped and given all
the encouragement and attention to Bombay which was also used as
a port of embarkation for the intending pilgrims to Makkah from the
regions of West Pakistan.
The share of the local Baloch and Pathans in the public and
private services of Baluchistan was very small indeed. In an
overwhelmingly Muslim majority area non-Muslim aliens, mostly
Christians, Hindus, Sikhs and Parsis dominated business, trade and
services. For this deplorable state of affairs the stereotyped reason
given was that the Muslims were not sufficiently educated and that
they had no knack for business and trade. Interestingly, non-Muslim
aliens found it easier to secure domicile certificates in Baluchistan
than did the Muslims from other provinces of India. Grants of such
certificates could, of course, be challenged in a court of law. Both
local and non-local Muslims were, however, put to serious
disadvantage because of the predominance of the non-Muslims in the
services. Discrimination in the administrative services was palpably
6 HISTORY OF THE STATE BANK OF PAKISTAN
------· -----------------------------------
HISTORICAL BACKGROUND 7
Between June 3 and August 14, 1947 was too brief a span for so
stupendous a task to be accomplished, for which Pakistan was
unprepared. The reason why the Muslims had lagged behind the
Hindus in economic advancement during the British rule were
believed to be equally valid now to falsify Muslims hopes of building
a state which was a far more challenging assignment.
----~-----------------
HISTORICAL BACKGROUND 9
Partition Arrangements
Following the announcement of Partition Plan, a committee of
the cabinet was formed to consider the memorandum on the
Administrative Consequences of Partition that had been presented
by Lord Mountbatten to the conference leaders the same day. The
committee was presided over by him. Sardar Patel and Rajendra
Prasad of the Congress, and Liaquat Ali Khan and Abdur Rub
Nishtar of the Muslim League, were its members. After the provinces
had voted in favour of Partition the committee was replaced by the
Partition Council on July 1, 1947. The Viceroy was Chairman of the
Council. Sardar Patel and Rajendra Prasad, with Rajgopalcharia as
alternate member, represented the Congress. In view of the
compelling importance of the issues which warranted a quick decision
by the Partition Council, Quaid-i-Azam decided to be on the Council
with Liaquat Ali Khan as its fullfledged member and Abdur Rub
Nisthar as an alternate member.
Points of Agreement
The Expert Committee's basic and supplementary reports
presented on July 28, and August 5, 1947 had produced more
disagreements than agreements on a wide range of issues which were
a product of India's underlying opposition to the Partition Plan. Its
Menon V.P: Transfer of Power in India, Calcutta Orient Longman, 1959, pp.397-398.
- ·------ ---·---------------------
HISTORICAL BACKGROUND 13
which was to form the basis of the determination of its share, its
refusal to part with the provident fund and gratuity to which its
employees who had opted for service in Pakistan, and at the same
time showing concern for the shortage of trained personnel in
Pakistan. And in the area of agreement, how unreasonable was its
attitude, became obvious from the manner in which it rejected the
suggestions of Pakistan with whose reasonableness no impartial
observer could possibly disagree:
Areas of Disagreement
the I. M.P. and the World Bank to decide whether India continued to
retain its original membership and whether its quota be reduced and
to what extent.
Supplementary Report on Sterling Balances
Banker to Government
The Reserve Bank was to continue to function as Banker to the
Central and Provincial Governments of Pakistan upto September 30,
1948.
HISTORICAL BACKGROUND 19
The Bank was to buy from and sell to any authorised person in
Pakistan foreign exchange upto March 30, 1948 at such rates of
exchange and on such conditions as the Government of Pakistan
would determine from time to time in consultation with Government
of India.
Imperial Bank
The Imperial Bank was to act as the agent of the Reserve Bank
of India in Pakistan upto September 30, 1948 on the terms and
conditions as contained in the agreement made between the Reserve
Bank and the Imperial Bank with suitable adaptations.
About its legal position the Order provided that the Reserve
Bank would cease to be a part of law in Pakistan, following
enforcement of this Order in the country. Its status would be that of
a corporation existing only by virtue of law of India and capable of
suing and being sued as such in Pakistan.
for the division of the cash balance between the two countries.
Nomination of Directors
- --- ------------------------
HISTORICAL BACKGROUND 27
financial crisis. The irony of the situation was, that with Pakistan's
sizeable funds in its custody, India's representatives on the Partition
Council expressed apprehension about Pakistan's ability to repay
Rs.50 million 'Ways & Means Advance' for a brief duration which
they had reluctantly agreed to make in response to our request for
Rs.lOO million. With such large balances in its possession, it was
presumptuous on the part of the Reserve Bank to ask for any further
guarantees for the temporary accommodation in the form of 'Ways &
Means Advance' amounting to only Rs.50 million against Rs.550
million in Pakistan's account held in its custody. The Bank also drew
Pakistan Government's attention to the fact that in the absence of an
agreement between the two Governments on the amount of ad hoc
treasury bills Pakistan could issue, no provision had been made in the
Reserve Bank of India Act for holding these securities in the Issue
Department of the Bank.
Since these ad hoes have, in any case, to be set off first against India
notes returned by the Government of Pakistan at the time .of division
of assets of the Bank on October 1, 1948, it is hardly necessary that the
treasury bills should necessarily be transferred to the Issue
Department of the Bank from its Banking Department. Even under
the Act, as it stands, therefore, there is nothing to prevent the Reserve
Bank from providing accommodation to the Government of Pakistan
against its ad hoc treasury bills. In the circumstances, we cannot
recognise any validity in the objection raised.
Floatation of Loans
Illustrative of the India's unhelpful attitude, the Governor of the Bank declined an
invitation extended to him by the Finance Minister at the end of January, 1948, to visit
Karachi for official talks.
2
In addition Raymond Newton Kershaw also sat on the East African, West African,
Palestine and Burma Currency Boards.
33
34 HISTORY OF THE STATE BANK OF PAKISTAN
Legislative Spadework
cover for the note issue. Turner who had already expressed grave
doubts about the soundness of the proposal in his communication to
the Bank of England reiterated his skepticism:
How many members should the Central Board of the Bank have
and who should appoint them? What should be the powers of the
Board?
Should the Reserve Bank accept deposits from sources other than
official bodies and banks?
Should the Bank keep in its portfolio only sterling securities or the
securities of other "approved countries" also?
(ii) The age limit for the retirement of Governor and Deputy
Governor should be fixed at 65 years instead of 75.
(ix) The shares of the Bank should be given the status of trustee
securities.
Special Division
1. Wahid-uz-Zaman Dacca
2. Jogesh Das Dacca area and
minority interest
3. HatimA. Alvi Karachi
4. Syed Maratib Ali Shah Lahore
5. Kasim Hussain Kassam Dada Karachi
23, 1948 and close on June 2, 1948 but subscribers could submit share
applications in advance of the opening date.
Inauguration Ceremony
Please accept the sincere good wishes of the Bank of England for the
success of State Bank of Pakistan and the assurance of our friendly co-
operation.
-------------------- ~------
Quaid-i-Azam performing the opening ceremony of the Bank
FORMATION OF STATE BANK OF PAKISTAN 49
I send you all our best wishes for success in the years to come. Our
Board of Directors join me in welcoming the State Bank of Pakistan to the
fraternity of central banks and wishes me to assure you of our desire to co-
operate with your institution in any way that lies in our power.
Please accept our sincere good wishes for your future prosperity and
offer of cooperation in all matters concerning our mutual interest.
Best wishes for success and prosperity and assurance that National
Bank Egypt will follow progress with great interest.
offer every assistance possible to cooperate with you for the interest of our
two countries which are bound by intimate friendship.
The State Bank of Pakistan has from today taken the place of the
Reserve Bank of India in Pakistan and we now enjoy complete
independence in the domain of banking and currency without which
our freedom to order our economic affairs would be very severely
restricted and circumscribed. The State Bank will be the Central Bank
of Pakistan as Bank of England is for the United Kingdom, the Federal
Reserve Bank for the United States and Reserve Bank of India for
India. It will be the banker of the Central and Provincial Governments
of Pakistan. It will be the bank with which other banks will maintain
their reserves of cash balances. It will have the sole right of issuing
currency notes in Pakistan and will be responsible for managing the
currency of Pakistan in the best interests of the country. It will be the
custodian of the monetary reserves of the country which includes the
reserves of foreign currencies earned by our trade and commerce. It
will be charged with the duty of maintaining the international stability
of our currency in accordance with the policy laid down by the
Government from time to time. It will be responsible for the floatation
and management of public loans on behalf of the Central and
Provincial Governments. Similarly, it will manage exchange control
for the Central Government of Pakistan. It will be the chief adviser of
the Government on all matters relating to credit, currency, floatation
of loans, exchange control, public debt and other monetary problems.
It will also have to see that the commercial banks are following sound
methods of business and maintain sound credit conditions in the
country so that trade and commerce should flow smoothly and add to
the happiness and prosperity of the country. It will be responsible for
taking all possible steps for ensuring stability in the economic sphere to
the extent that it is possible to do so by action in the monetary field.
The commercial banks will be entitled to look to the State Bank for
support and advice at all times.
One of the main tasks entrusted to the State Bank under the State
Bank of Pakistan Order, is to regulate credit to the best advantage of
---------------------------- -
FORMATION OF STATE BANK OF PAKISTAN 53
About 50 years ago, very few countries had central banks and
even where some banks had begun by force of events to discharge the
duties of central banks, the position had not fully crystallised and the
concept of central banking had not been clearly appreciated and
established. The Bank of England, since its formation more than 21;2
centuries ago, had been developing the characteristics of a central
bank. Progress took place in certain other countries also in the same
direction. Towards the beginning of this century, as banking spread
and the people began more and more generally to deposit their cash
with the banks, the possibilities of financial panics, if not of crises, with
unfortunate results on business and trade, forced themselves upon
public attention. The advantages of central banking became clear and
it came to. be recognised as an essential part of a banking and credit
structure. The usefulness of central banking became firmly established
during the First World War, after which one country after another
established its central bank. Today, there is hardly any country
without a central bank of its own. Central banks inspire confidence
among the people and ensure stability of their respective banking and
credit system. Chaos is replaced by order and fear of recurrent panics
by confidence in the stability of banking. They render international co-
operation possible and the countries are brought closer together
through them for dealing with their common problems in the monetary
field. After the Partition of India in August, 1947 we hesitated for
some time due to serious inadequacy of trained manpower but logic of
events re-inforced by our faith in our future brought us to the
54 HISTORY OF THE STATE BANK OF PAKISTAN
The Reserve Bank of India was opened on April1, 1935, but its
nucleus with the necessary complement of senior officers was formed
in February, 1934 and the Governor was appointed in December,
1934. We were able to appoint the Chief Accountant and the Secretary
of the State Bank barely a month ago.
The Muslim officers and staff of the Reserve Bank, who have
opted for service in Pakistan, are barely sufficient even for a few
essential branches of the Bank. We have, therefore, necessarily to
make generous plans for the training of staff and arrangements are
being made to this end. Till the Bank is provided with the full
complement of trained staff, its activities must remain limited and it
will have to confine itself to the performance of its basic and essential
duties.
surely the role assigned to it and thereby make its contribution in full
measure towards the development of banking on sound lines for the
greatness and prosperity of Pakistan.
It was less than 3 months ago that orders were given to take steps
for establishing this Bank. The few officers and other members of the
staff whom we were able to assemble have worked literally night and
day undeterred by the great magnitude of their task. They have set an
example on which the Bank will be able to look back with pride.
I also wish to thank our guests who have been kind enough to
accept our invitation to attend this ceremony to wish God speed to our
Bank on its career. We thank them all.
are in hand. I will watch their progress with interest and I am confident
that the State Bank will receive the co-operation of all concerned
including the banks and universities in pushing them forward. Banking
will provide a new and wide field in which the genius of our young men
can find full play. I am sure that they will come forward in large
numbers to take advantage of the training facilities which are proposed
to be provided. While doing so, they will not only be benefiting
themselves but also contributing to the well-being of our State.
I need hardly dilate on the important role that the State Bank will
have to play in regulating the economic life of our country. The
monetary policy of the Bank will have a direct bearing on our trade and
commerce, both inside Pakistan as well as with the outside world and
it is only to be desired that your policy should encourage maximum
production and a free flow of trade. The monetary policy pursued
during the war years contributed, in no small measure, to our present
day economic problems. The abnormal rise in the cost of living has hit
the poorer sections of society, including those with fixed incomes, very
hard indeed and is responsible to a great extent for the prevailing
unrest in the country. The policy of the Pakistan Government is to
stabilise prices at a level that would be fair to the producer, as well as
the consumer. I hope your efforts will be directed in the same direction
in order to tackle this crucial problem with success.
----·-----··--·-- ----
58 HISTORY OF THE STATE BANK OF PAKISTAN
May the State Bank of Pakistan prosper and fulfil the high ideals
which have been set as its goal.
In the end I thank you, Mr. Governor, for the warm welcome
given to me by you and your colleagues and the distinguished guests
who have graced this occasion as a mark of their good wishes and the
honour you have done me in inviting me to perform this historic
opening ceremony of the State Bank which I feel will develop into one
of our greatest national institutions and play its part fully throughout
the world.
After delivering his address, the Quaid unlocked the big silver
lock inscribed with the words "State Bank of Pakistan" with a silver
key and went round the building. The silver lock and key, which were
locally manufactured, were then presented to the Quaid.
------------------~----
3
The predicament in which the Bank was placed in its infancy was
difficult to appreciate in isolation from the conditions in which
Pakistan was born. The assets of the economy were iq a state of
complete disarry and disruption, and India was refusing to part with
59
60 HISTORY OF THE STATE BANK OF PAKISTAN
Branch Offices
Before Partition the Reserve Bank had only two branch offices
in the Pakistan areas, one at Karachi and the other at Lahore, and
none in the country's largest province which had more than half its of
population. It was as late as February 11, 1948 that an office at Dacca
was set up with limited functions and not until Aprilll, 1948 was the
Imperial Bank divested of its charge of handling government business
in Karachi, while in Lahore and Dacca it continued to hold it upto
October 18 and 25.
An Exchange Control Office was set up at Chittagong on July 1,
1948 to meet the fast growing requirements of foreign trade.
Chittagong was the only natural port of embarkation in East Pakistan
equipped with berthing facilities for large vessels. The Bank also
opened an office of its Issue Department at Peshawar in April, 1948.
Non-availability of experienced and trained staff was the Bank's
THE BANK COMMENCES BUSINESS 61
principal headache for a long time, which was only partially relieved
by supplementary recruitment of raw hands for on-the-job training.
Central Directorate
The Central Directorate began its operations through a Chief
Accountant's Department, a Secretary's Department, a Department
of Banking Operations and Exchange Control. The target set for the
share capital was not achieved before the inauguration ceremony
even till as late as October, 1948. The subscription received up to June
1, 1948 was only Rs. 352,800 as against the estimate of Rs .1 0 million.
Even after the extension of the closing date to June 12, 1948, public
response was disappointing, in view of the generally unsettled
economic conditions and in the absence of institutional investors.
After reviewing the position in the middle of June, the list was
indefinitely kept open. Provincial Governments were requested to
launch special publicity campaigns for sale promotion and active
support of Provincial Co-operative Banks was sought.
For the purpose of the issue and holding of shares of the Bank
the entire Pakistan territory had been divided into three areas
namely, Karachi, Lahore and Dacca. The jurisdiction of each share
register was as follows:-
THE BANK COMMENCES BUSINESS 63
Karachi
Karachi Division, Khairpur Division, Hyderabad Division,
Quetta and Kalat Division.
Lahore
Peshawar Division, Dera Ismail Khan Division, Rawalpindi
Division, Lahore Division, Multan Division and Bahawalpur
Division.
Dacca
The entire Province of East Bengal.
CENTRAL BOARD
Nominated Directors
Elected Directors
Karachi Area
1. Akberali M. Essaji
2. Fidahussin A. Lotia
3. Sheikh Mohammad Yaqub
4. Mohammad Siddique Dawood
Lahore Area
Dacca Area
1. Major Mohammad Nurul Ameen
2. Bahauddin Ahmad
(The remaining two members were yet to be
elected from the Dacca Area)
Nominatfon of Members
.I
THE BANK COMMENCES BUSINESS 69
Government of N. W. F. P.
(Lahore Area)
1. Shah"(ldul Haq
I
2. Khaq Bahadur Seraj-ul-Islam Names were telegraphically
3. Habib-ur-Rehman advised without indicating the
4. Rai Bahadur Khagendra official or professional status
Narayan Mitra ofthe persons nominated
5. NurulHuda
Govemm'f!nt of Sind
(Karachi H.rea)
Khairpur State
Karachi Area
Lahore Area
Dacca Area
The majority of trainees were absorbed by the State Bank and the
National Bank, while the Imperial Bank and the Muslim Commercial
Bank accommodated a few of them.
Departmental Examinations
i
To make the employees of the Bank more conversant with the
work of ban~ing, a scheme for holding Departmental Examinations
each year fpr bank clerks was introduced in 1950. The employees who
passed the examination had better prospects for promotion. The first
examinatiqn was held in April, 1951. One hundred candidates from
different offices took the test at Karachi, Lahore, Peshawar, Dacca
and Chitta¥ong centres.
-- ~-- - - --------------------
THE BANK COMMENCES BUSINESS 77
Departmental Promotions
Pakistan Coins
I
The issue of new designed Pakistan coins was at first to be
handled by Reserve Bank from April1, 1948 until arrangements for
the minting of new coins were taken over by Pakistan. There were
three mint$ at the time of Partition located at Bombay, Calcutta and
Lahore. The capacity of the Lahore Mint (now Pakistan Mint) to
meet its i~~tial requirements for new coins was limited. An estimate
made by t~e Reserve Bank of Pakistan's requirement during 1948-49
was:-
~fCoin
Number of pieces
Type (in Millions)
I thank you, Mr. Finance Minister, for the honour you have done me
by presenting the first Pakistan coins and notes to me today. I take this
opportunity of publicly expressing the appreciation of the
Government and people of Pakistan of the way in which you and your
Ministry have handled the finances of our young State and your
untiring zeal to put them on a sound footing. When we first raised our
demand for a sovereign and independent State of Pakistan there were
not a few false prophets who tried to deflect us from our set purpose by
saying that Pakistan was not economically feasible. They painted
extremely dark pictures of the future of our State and its financial and
economic soundness. The very first budget presented by you must
80 HISTORY OF THE STATE BANK OF PAKISTAN
The whole rupee, half rupee and quarter rupee coins were made of
pure nickel. The two annas, one anna and half anna pieces were made of
cupro-nickel alloy. The single pice coin was made of bronze alloy and was of
washer type which had been adopted during the Second World War as a
metal saving device. The details of the designs of these coins are given
below:-
Rupee Coins
These coins bore on the centre of obverse face a crescent moon and a
five pointed star with respective values of the coins inscribed in Urdu above
the design and in English below. Around the lower half of the periphery,
each coin was inscribed with a half wreath of stylised laurel leaves
surmounted by a circle of small beads. The centre of reverse face of these
coins bore a monogram in Urdu comprising the words "Hakumat-
e-Pakistan" and the date of year of issue in English figures. The
words 'Government of Pakistan' were inscribed in English around the
upper and the lower periphery, the coins bore a half wreath of stylised laurel
leaves, surmounted by stars of the type of the obverse face. The whole
design of the reverse face was also surmounted by a circle of small beads.
With the issue of Pakistan coins, India coins started returning from
circulation and after the establishment of the State Bank on July 1, 1948 the
pace of replacement of India coins was accelerated. All India coins other
than nickel, brass and quaternary silver coins, were disposed of by remitting
them to India against payment to the Government of Pakistan of their
bullion value.
Denomination Date of
Demonetization
Total India coins returned to India by the State Bank from July
1, 1948 amounted to Rs.25.4 million.
Denomination Objects
Rs.5 Front
Alternate (a) One of the famous tombs at
Thatta of Sukkur, Sind
Alternate (b) Attock Fort, Moghul Gun
Alternate (c) Juma Masjid, Lyallpur (view of
minarets from roof)
Back River scene, showing transpor-
tation of jute in East Pakistan
--""-- -----
THE BANK COMMENCES BUSINESS 83
Rue & Co. were asked to prepare the art work and offer suggestions
for making them more lasting than the ones in circulation and for
eliminating chances of forgery. The colour of the notes and proofs
received, were approved by the Central Board at the end of August,
1948 subject to minor amendments of Urdu calligraphy, location of
signature of the Governor, etc. The intaglio process of printing was
applied, using water marked paper with a star and crescent facing
north west and embodying a security line thread running vertically
down the notes and increasing the strength of the paper from 2000
mean double fold, used in printing of the Government of Pakistan
notes, to 2,500 mean double fold.
Approval of the Government was received on September 26,
1949 in case of notes of Rs.5 and Rs.10 denominations. They did not,
however, approve the blue colour for the notes of Rs.5 denomination
and left the decision to the Board. The design of the notes of Rs.lOO
denomination was not approved either as the Government was not in
favour of incorporating on the front side of the note the photograph
of a building which was being used by the State Bank on a rental basis.
Messrs. Thomas De La Rue & Co. London were, however, given a
green signal for the printing of notes of Rs.5 and Rs.lO
denominations with the following designs and their issue commenced
from September 15, 1951.
Rs.5 Front Picture of a boat in stream,
laden with jute, the golden fibre
of East Pakistan
Back Picture of Khyber Pass, the
natural access to Pakistan
through mountains in the north
west region of West Pakistan
Colour Purple
Face The general design of the face of all the notes was similar
to £.1 note of the Bank of England. On the right crescent and star in
white were superimposed on a background of protective geometrical
design. The denominational value was given in Urdu and English
numerals. The words (Hakumat-e-Pakistan' and other inscriptions
appeared in Urdu. The English signature of the Finance Minister was
printed on the left hand bottom.
Colour The main colour was deep blue for Rs.5/- notes, red for
Rs.10/- notes and rich green for Rs.lOO/- denomination notes.
87
----- -------------------------------------------------------
88 HISTORY OF THE STATE BANK OF PAKISTAN
grossly insufficient. These conditions made the task of the State Bank
far more difficult, compelling the adoption of special measures in
order to facilitate the exchange of the bulk of the people's India notes
holdings into Pakistan notes, before the appointed date.
The retirement of India notes from circulation was only the first
step in the programme designed for ensuring their delivery to the
Reserve Bank against the transfer of an equal amount of assets of its
Issue Department to Pakistan. Under clauses 4(2) and 9(1) of Part IV
of the Pakistan (Monetary System and Reserve Bank) Order, the
India notes and coins held in the Currency Chests in Pakistan on June
30, 1948 and the India notes encashed between July 1, 1948 and June
30, 1949 had to be returned to the Reserve Bank before the State
Bank could claim equivalent assets from the Reserve Bank. The
notes and coins were held in the Currency Chests located at the
Treasuries and Sub-Treasuries of the Government and the branches
of the Imperial Bank of India spread all over the country. They had
to be withdrawn to the State Bank's Issue Offices at Karachi, Dacca
and Lahore, counted, examined, packed and shipped to India. It was
an arduous job. Although the Bank's Cash Department was
desperately short of trained staff the entire operation was carried out
by a band of dedicated workers within the specified period.
2,13,29,000
~
c:l
retired India notes and coins were to be sent by State Bank to the
Reserve Bank at Bombay, from West Pakistan and to Calcutta from
East Pakistan and to be stored in the vaults of the Reserve Bank at
these places in joint custody of the Reserve Bank and a representative
of the State Bank until they were take~ over by the Reserve Bank
after detailed verification. For this purpose the State Bank posted an
officer and an Assistant Treasurer each at Bombay and Calcutta. The
counting process was, however, prolonged by the Reserve Bank on
the plea of shortage of staff, etc. In March, 1949 detailed verification
of India notes was stopped without any plausible grounds.
Shipment of Gold
(iv) The facility for the exchange of India one rupee notes was
provided on a meagre scale and terminated prematurely;
(iv) India's claim that facilities for the exchange of India one
rupee notes were provided on a meagre scale and discontinued
prematurely was untenable for, although Pakistan was required to
encash India one rupee notes only upto September 30, 1948,
extension of the facility upto January 31, 1949 was a concession to the
holders of these notes. This facility was provided despite the fact that
no safeguard existed in favour of Pakistan against import of one
rupee notes from India. India, on the other hand, was empowered
under the agreement of March, 1948 to impose a ban on import of one
rupee notes into India from Pakistan after June 30, 1948.
from circulation for which Pakistan was entitled to the assets of the
Issue Department. The arrangement made for their re-issue to
travellers in limited quantities was thus in the nature of a special
concession. India's complaint that a ban was imposed on the export
of the notes to India was consequently not correct. It could never
have been the intention that notes collected in Pakistan for claiming
assets should be re-issued to travellers proceeding to India which
would extinguish the claim, were the notes left in India.
The Reserve Bank made payment for the whole rupee coins and
one rupee notes withdrawn from Pakistan Government's Surplus
Stock for issue in Pakistan between April 1, and June 30, 1948 by
transferring from their reserves to Pakistan Government's Surplus
Stock, India one rupee notes of equivalent amount which could
hardly be regarded as payment in the real sense as these notes were
of no value to Pakistan. The Reserve Bank, however, maintained
that it was a good payment and that resort to this method of exchange
was intended to avoid expansion of currency against Pakistan coins.
This stand was, however, untirable in view of clear provision in the
Monetary Order.
a request to this effect was made, the Reserve Bank did not comply
on the pretext that without a final settlement of the question of
division of assets between the two countries against the note issue
liability of the Bank, Pakistan's share in the profits earned by the
Bank could not be correctly assessed as its profits largely represented
the rate of return earned by it on these assets. The Bank has
continued to withhold payment of Pakistan's share in the profits
eversince.
Restrictions on Transfer
of Shares and Securities
- - --- ---------
OUTSTANDING ISSUES WITII RESERVE BANK 99
The Reserve Bank and its agent, Imperial Bank of India, had
erroneously debited the Account of Government of Pakistan with
Rs.28.382 million in early October and November, 1948. When this
error was brought to the notice of the Bank, it credited a sum of
Rs.18.452 million to the account of Government of Pakistan on
October 13, 1948 while the balance of Rs. 9. 93 million was paid by the
Imperial Bank of India on December 30, 1948. The Reserve Bank
was, therefore, asked to pay to the Government of Pakistan interest
at the rate of 3 per cent per annum for the period during which these
amounts remained un-credited to the account of Government of
Pakistan. The Bank declined to entertain the claim without assigning
any reasons.
discussing this and other outstanding financial issues between the two
countries. Accordingly, the question was taken up by Indo-Pakistan
Conference in New Delhi in May, 1956. It was decided to give credit
in the debt settlement for Pakistan's share in Surplus Assets and
Reserve Fund in accordance with Partition Agreements. The dispute
thus remained pending till the negotiation of a settlement on the
overall debt question between the two governments.
- - - - ~--- ---~----
OUTSTANDING ISSUES WITH RESERVE BANK 103
Colour The main colour was deep blue for Rs.5/- notes, red for
Rs.lO/- notes and rich green for Rs.100/- denomination notes.
Payments Agreement
and so would the Reserve Bank to the same limit. It was further
agreed that an amount not exceeding £7.5 million in excess of Rs.150
million would be adjusted by payment into Sterling Account No.1
held in the Bank of England. Any amount exceeding this figure
would be paid into Sterling Account No.2 at the Bank of England. 1
Devaluation
We had not only to work out the new exchange rates of the Pakistani
rupee but also to consider as to what other measures had to be taken
in our Exchange Control Regulations in the light of Government of
Pakistan's decision. There was no exchange control between Pakistan
and India in the early stages, immediate regulations had to be framed
to introduce exchange control over all types of financial transactions
between the two countries. We set about drafting and finalising the
various consequential control devices and successfully completed
them for announcement and circulation when the bank opened for
business on the following day. The process of further tightening
control measures continued as the difference in the Pakistani rupee
exchange rate and the rate of the pound sterling and other currencies
afforded a powerful incentive to speculators to transfer funds abroad
through unofficial channels and it was found necessary to plug all holes
as far as possible.
India did not see her way to accept the position created by her
own decision to devalue its rupee. The Reserve Bank announced on
September 21, 1949 that it would not quote any rate for the purchase
and sale of Pakistan rupee. India wanted the two Banks to announce
their rates and commence business. The State Bank of Pakistan
suggested that before the announcement was made, it was desirable
for the two Banks to hold consultations in order, first, to reconcile the
balances in their respective accounts; and, secondly, to decide how
the 'intransit' transactions should be brought to the account by the
Banks. Meanwhile, the date by which Payments Agreement accounts
were required to be settled, arrived on September 30; Pakistan had a
favourable balance of Rs.265.8 million outstanding on that date, of
which the excess of over Rs.150 million was payable to it in free
sterling under the Payments Agreement. A telegraphic message
requesting the Reserve Bank to make this payment produced no
positive response. In reply to the suggestion of the Government of
India that the Banks should announce the rates at which they were
prepared to purchase and sell each other's currencies, the State Bank
proposed in addition to the reconciliation of acounts and settlement
of in transit transactions, the payment due to the State Bank should be
made. India declined to make the payment on the ground that the
Payments Agreement not being designed for the special situation
which had arisen as a resut of devaluation of the master currency and
- · - - · - - ----
OUTSTANDING ISSUES WITH RESERVE BANK 109
The deadlock lasted for seven months. It was in April, 1950 that
an agreement was signed with India, providing for opening of trade
on a limited scale. India was forced to negotiate this agreement since
the deadlock had adversely affected its jute mills which were heavily
dependent on supplies of raw jute from East Bengal. Consisting of
two parts, first the agreement provided for the delivery of raw jute by
Pakistan against the exports of a number of commodities by India,
such as jute goods, cotton and woollen textiles, steel, etc. on a
balanced basis in monetary terms. Transactions under the first part of
the agreement which were accounted for in India rupees were in
effect cleared at the official rate of exchange. The goods were
invoiced in India rupee and documents transacted through the
commercial banks were made out in its own currency, but for the
purpose of payments by Pakistani importers and to Pakistani
exporters, India rupees were converted into Pakistan rupees at the
official rate.
OUTSTANDING ISSUES WITH RESERVE BANK 111
Depreciation in Assets
------------------------------------------·----- .---
Face
SPECIMEN
Rs.lOO. Pakistan notes first issued by the Reserve Bank of India, as from April I, 1948
inscribed with the words 'Government of Pakistan' in English and Urdu on them.
Back
Face
SPECIMEN
Rs.S. Pakistan note issued by the Reserve Bank of India as from April I, 1948.
Back
OUTSTANDING ISSUES WITH RESERVE BANK 113
shown in the aforementioned item (iv) became due for being written
up when the India rupee was devalued. The Government of India did
not, however, agree to honour the terms of the Payments
Agreement. Consequently, State Bank suffered exchange losses
amounting to Rs.38.87 million which continued to appear in the
Balance Sheet of the Banking Department from year to year.
5
Few central banks in the world were confronted with a task more
exacting in its demands than the State Bank in its endeavour to
establish itself as the Bankers' Bank, Banker to the Government and
as the Controller of the country's monetary and credit mechanism.
From a state of nothingness it had to create a machinery for its own
operation as well as preside over the organisation of a banking system
which had completely collapsed in the wake of Partition. But for the
determination, drive and dedication of a small band of men in charge
of putting the country's economic house in order the problem would
have defied solution. How grim were the prospects was obvious from
the breakdown of the system, if system it could be called, under the
chaotic conditions in which Pakistan found itself at the very moment
of its birth.
Since the break-up of the figures for the two countries which had formed part of a single
unified economy until August 15, 1947, a discrepancy in the statistics quoted by
economists and banking experts on either side was inevitable.
Reserve Bank of India: Report of the 14th Annual General Meeting of Shareholders,
published in August, 1948.
Vakil, C.N.: Economic Consequence of Divided India, Vora & Co., Bombay, 1950,
p.SlO.
REHABILITATION OF COMMERCIAL BANKING 117
The Foreign Exchange Banks which had not shifted any of their
branches to India were also adversely affected by wholesale exodus of
Hindu trained banking staff and their offices shrivelled. The Imperial
Bank which, as agent of Reserve Bank was to act as agent to
Government of Pakistan, had to close down most of its offices in West
Pakistan while the few offices that remained had to work with only a
fraction of their normal staff. Zahid Husain who, prior to his
appointment as Governor of the State Bank was Pakistan's High
Commissioner in India, made the following comments:
It is believed in Pakistan and there is evidence in support of the belief
that the withdrawals were planned in the conviction that they would
lead to breakdown of all services and result in a collapse of the new
State. Disturbances and migrations started in the Punjab several days
before August 14, 1947 though they assumed their full intensity after
the date of independence. I was at that time in the Punjab as a member
of the Partition Committee and personally came to know from the
highest authority, who had information in his possession, that the riots
had been planned by the dominant political party across the border to
kill the State at birth. Subsequently, I had occasion to see Lord
Mountbetten in Delhi at a critical moment in the immediate post
partition period. He was in a state of excitement boardering almost
anger after an attack near Lahore on a train which was carrying Hindu
refugees to East Punjab. In these conditions banking like many other
services was completely paralysed and there seemed no hope of early
Wilson, J .S.G.: Money and Banking in Pakistan; Banking in the British Commonwealth,
edited by R.S. Sayers, Clardon Press, Oxford 1952, pp.276-277.
118 HISTORY OF THE STATE BANK OF PAKISTAN
other, it was decided that each bank should notify one of their
branches in each country to which their depositors could apply.
It was only when the back of refugee problem was broken and inter-
Dominion talks at government level resumed that it became possible
for us to organize a systematic salvage of our assets in West Punjab and
removal of essential records from the mofussil branches, which were
no longer functioning, to our main office in West Punjab-47, The
Mall, Lahore. Under the inter-Dominion Agreement, the Pakistan
Government, I am glad to say, is giving all help to our men in this task.
We have successfully evacuated the records, etc., of as many as ninety
offices from West Punjab and the task of recovery and realization of
our assets in West Pakistan is proceeding apace. 7
(iii) It was agreed that banks in both the countries should notify
the names and addresses of depositors who did not operate
their accounts during the period January, 1948 to March,
1949 to the Central Banks in order that this information
could be exchanged and the depositors traced.
Parakash Tandon: Banking Century, published by Penguin Book (India) Ltd., New
Delhi, 1989, p.316.
122 HISTORY OF THE STATE BANK OF PAKISTAN
~-- -----~-----------------
REHABILITATION OF COMMERCIAL BANKING 123
Agreed Decisions
Two meetings of the Implementation Committee were held in
July and September, 1956 for discussion of the outstanding issues. In
addition to reviewing the progress of implementation of the Agreed
Decisions of March-April, 1955, the Committee considered the
difficulties encountered in the realisation of assets of banks and
recommended the steps to be taken for their removal. It was agreed,
inter alia, that apart from giving the banks every facility for disposal
of immovable property owned by them, the Governments concerned
would expedite the sale of evacuee immovable property mortgaged
or chargeable in favour of banks in payment of their dues.
The Implementation Committee on the Movable Property
Agreement met twice at Karachi and New Delhi in the months of
January and April, 1958 respectively. The decisions arrived at in the
first meeting provided that no restrictions would be imposed on the
transfer of funds by banks from India to Pakistan to the extent
necessary, in cases where sufficient liquid assets were not available in
Pakistan to enable them to discharge their liabilities towards Pakistan
nationals, that on the March 1, 1958, India would supply bank-wise
totals of Muslim deposits and that on March 25, 1958, the delegations
of the two countries would meet to exchange the detailed lists of bank
accounts and of lockers and safe deposits. The delegations, however,
met on April16 and 17, 1958 to review the progress made by the two
Governments on the transfer of lockers and safe deposits. The
following decisions were taken at that meeting:-
(1) That Pakistan Government would supply the list of third
party claims against safe deposits/lockers by May 31, 1958.
- ---- --------------------
REHABILITATION OF COMMERCIAL BANKING 125
Banking Legislations
At the same time, the Bank gave high priority to filling in the
vacuum in the banking structure created by closing down of a large
REHABTUTATION OF COMMERCIAL BANKING 127
Ali Road in the heart of the city of Bombay. It was appointed by the
Quaid-i-Azam as a banker to the Bihar Relief Fund, the Muslim
League Fund and the Pakistan Fund. Soon after its migration to
Pakistan, the Habib Bank launched an ambitious programme of
extending the area of activities. For signal services it rendered to the
country in a critical period, the Governor of the State Bank paid
eloquent tribute. 'In a dismal picture this youthful institution, he said,
did its best to relieve the gloom.' The Government gave all possible
encouragement to the Bank to extend the network of its branches and
expand its field of activity and even seriously considered a proposal to
entrust the business of the Treasury to its care. Another Pakistani
bank which made its appearance on the scene, was the Muslim
Commercial Bank.
-- ---·--------------------------------------------------
Face
Rs.JOO. Pakistan Government had to arrange printing of its own notes with an English
Company and issued them as from October 1, 1948 when Reserve Bank of India
declined to supply Pakistan inscribed notes in sufficient quantity.
Back
Face
Back
REHABILITATION OF COMMERCIAL BANKING 129
From July 1, 1948 it also became the agent of the State Bank for
conducting the business of Central and Provincial Governments. It
had 28 branches and 53 sub-offices before Partition in areas which
were to become Pakistan of which only 19 branches were functioning
after Pakistan came into being. The stop gap arrangements made for
the conduct of Treasury business were far from satisfactory. For
example, in the Lahore Division in its 14 Treasuries and Sub-
Treasuries, the Bank was functioning only at one place. At the
remaining 13 stations, a Divisional Treasurer was appointed who
used a private bank as his agent for an estimated turnover of Rs.40 to
Rs.50 million.
--.--·--------------------
130 HISTORY OF THE STATE BANK OF PAKISTAN
decision on the question. The main difficulties of (i) capital and (ii)
staff, were underlined but these had to be faced and overcome.
To meet its staff requirement the Governor had already put into
force a training scheme for bank officers, which was intended to train
over 100 officers in a period of 18 months. Moreover, he expressed
his intention that in recruiting staff for the State Bank he would keep
in mind the requirements of the projected commercial bank.
1949 when he was relieved by M.A. Muhajir, who later became the
Managing Director of the National Bank of Pakistan.
Bank and its Governor must be responsible for it equally with others.
In actual fact therefore both the Governor and the State Bank have the
responsibility without the power to match it. The State Bank as such
has the power under the law, but as I will explain it is not in a position
to use it. This position I regard as unsatisfactory.
I feel, however, that I must warn the Government even at the cost of
my position being misunderstood, that there is a large amount of work
at the level of planning, organisation, training and implementation to
be done in the National Bank and unless it is attended to properly the
organisation of the National Bank will remain loose, weak and liable
to upsets under any special stress. In the circumstances of Pakistan it
is not sufficient that a bank should have an increasing number of offices
and a good profit and loss account at the end of the year. These would
satisfy a banker whose outlook is confined to banking and that also in
the very narrow field of his own particular institution. It is necessary to
view the progress of a national institution like the National Bank in the
general context of economic development, economic ascendency of
foreigners, training of high grade staff, the need of Pakistani bankers
to spread their services in foreign countries, particularly Muslim
countries, etc. In other words, the national bank of a country like
Pakistan should be developed with full regard to our political and
economic aspiration and as rapidly as possible. This cannot be
achieved as the present management seeks to do by importing British
and other foreigners. If the Governor of the State Bank ceases to be
President of the National Bank, the State Bank will be able to
discharge its normal responsibility to ensure regularity and compliance
with the law, but as to development of banking in consonance with the
aspirations of the country the responsibility shall have to be assumed
by the Government through its official directors serving on the
National Bank. I am satisfied that the bankers themselves will be
wholly unable to look beyond their narrow horizon and will remain
occupied with their petty business problems from day to day, as also
with appointments, transfers and promotions which to many are the be
all and end all of our national endeavours.
were opened by scheduled banks in both the wings of the country and
one by a non-scheduled bank. Of the total branches opened, 28 were
Pakistani, 12 Indian and 4 belonged to Exchange Banks.
Among the Indian banks, Imperial Bank had the largest number
of branches namely 28, of which 20 were in West Pakistan and 8 in
East Pakistan. The Central Bank of India had 14 branches of which 4
were in West Pakistan and 10 in East Pakistan, while Comilla
Banking Corporation and Comilla Union Bank had 16 and 13 each in
East Pakistan. In East Pakistan all the branches of the Exchange
Banks were concentrated at Chittagong Port except the ones at
N arayanganj whereas in West Pakistan 3 of the Exchange Banks had
branches at places other than Karachi, namely Lahore, Peshawar,
Quetta and Rawalpindi.
After the Partition due to lack of staff the banks were incapacitated
from embarking on a programme of expansion and all they could do
was to keep skeleton services in being in their main offices in the more
important towns. Gradually, the position improved and an increased
supply of trained staff became available. In these circumstances there
has been evidence of a desire on the part of foreign banks to expand in
the interior of the country. The policy of these banks in respect of the
employment of Pakistanis in responsible positions is uncertain. You
would agree that it would be idle on our part to expect that Pakistanis
employed by them will rise to the highest positions of power and
responsibility. There are obvious objections on economic grounds to
the extension of foreign banking institutions in the interest of the
country. Banks are very powerful institutions and their influence
which can be exerted as much against as in favour of our interests
makes itself felt in various forms which an ordinary observer is unable
to link with their ultimate sources. Having taken full account of
financial, economic and also political considerations your Board has
laid down that foreign banks should confine themselves to port towns
where foreign trade is concentrated. They recognise, however, that
adequate foreign banking services should be available in the more
important towns from where trade is carried on with foreign countries
140 HISTORY OF THE STATE BANK OF PAKISTAN
on an appreciable scale. I am sure you will all endorse the policy which
has been adopted by your Directors in this important matter. I wish to
take this occasion to express the hope that we will not be
misunderstood in this matter. There is a new spirit abroad in all
countries which have recently emerged from political subjugation or
which are still suffering from it. A spirit of dissatisfaction and
impatience is gripping the people, of which, due note must be taken.
New forces are arising which refuse to tolerate the presence of
remnants of political and economic domination, much less to allow
them to expand in any direction.
For ten years to follow, there was no attempt to amend the law
relating to the inspection of commercial banks. The experience
gained during these years, however, necessitated making further
provisions for enabling the State Bank to guide or help improve the
position of banks, which were found unsatisfactory through
inspections.
146 HISTORY OF THE STATE BANK OF PAKISTAN
Standardisation of Inspection
In the early years of the inspection by the Bank the set of returns
used by the Reserve Bank formed the basis of information called for
from a bank under inspection. Later, inspecting officers most of
whom came from commercial banks, made necessary additions and
modifications to suit the requirements. Earlier inspection reports
generally described only the adverse features noticed in a bank's
inspection which called for early attention and application of
rectifying measures. The statistical and other information and returns
obtained from the bank were not included in the inspection report,
though those were readily available to the Department for further
use. By 1953, need for standardising and improving the methods of
inspection was strongly felt. Arrangements were made to send
officers for training abroad. Services of two foreign experts were also
secured under the Technical Assistance Programme of the United
Nations. Of these, Neal T. Moore, of the Federal Deposit Insurance
Corporation of U.S.A. assisted the Inspection Division in
standardising the statistical information gathered by inspectors in the
course of inspection on the pattern followed by his own institution.
This method, considered among the best in the world, continued to
be followed by the Inspection Division after suitable modifications to
suit the country's requirements.
Liquidation Work
statement showing the details is given at page 148. While the State
Bank was able to make satisfactory progress in the case of banks in
liquidation in West Pakistan the progress was not equally satisfactory
in the case of banks in East Pakistan. The slow progress in liquidation
proceedings in large measures were due to the fact that these
proceedings were governed by the provisions of the Companies Act
relating to liquidation which was most unsuitable for banking
companies. The nature of business of banking is such that its winding
up involves a large number of debtors of a bank and official liquidator
had to file suits against them in several courts of the country. The
involvement of multiplicity of courts, heavy expenses in litigations,
etc. delayed the recovery of loans. Despite these obstacles the State
Bank was able to recover some funds from four banks in West
Pakistan.
f.-'
.J::>.
Banks in Liquidation in East & West Pakistan of which the State Bank of Pakistan was the Official Liquidator 00
Total
Date liabilities Dividend
Sl. Name of the Bank in Liquidation of on the date of paid present Remarks
No. Liquidation liquidation
Rs.
so far
Rs.
Liabilities
Rs.
-
::r:
...,
c;n
0
:;l:l
East Pakistan
1. Allied Bank Limited .. .. 6-6-1952 3,30,428 Nil 3,30,428 -<
2. Bank of Commerce Limited .. .. 25-11-1952 25,96,275 Nil 25,96,275 0
"TJ
3. Calcutta National Bank Limited .. .. 2-12-1952 7,10,312 Nil 7,10,312 ...,
4. Bengal Bank Limited .. .. 8-8-1952 3,18,686 Nil 3,18,686 ::r:
tr1
5. Jessore United Bank Limited .. .. 7-3-1952 69,483 Nil 69,483 c;n
6. Mohanpur Trading Bank Limited .. .. 1-2-1952 30,129 Nil 30,129
7.
8.
Pioneer Bank Limited
Sattar Bank Limited
..
..
..
..
24-2-1955
8-2-1952
59,04,510
80,268
Nil
Nil
59,04,510
80,268
~
tr1
9. Sylhet Loan & Banking Co. Ltd. .. .. 14-12-1951 3,76,799 Nil 3,76,799 c:l
10. Sylhet Commercial Bank Limited .. .. 17-1-1958 1,98,189 Nil 1,98,189
~~
West Paldstan
11. Punjab Commerce Bank Limited .. .. 13-5-1952 - Nil 23,727 0
12. Bharat Bank Limited .. .. 22-12-1959 36,92,869 Nil 36,92,869 "TJ
13. R.B. Kidar Nath & Sons Bank Ltd. .. 7-6-1958 4,38,336 Nil 4,38,157 '1:1
>
14.
15.
Central Exchange Bank Ltd.
8,39,753
4,78,671
Nil
20,12,764
8,39,753
-~
...,
c;n
>
z
16. National Savings Bank Limited .. .. 24-11-1955 25,711 Nil 25,711
Karachi
17. Bank of Bhopal Limited .. Prov. 27-8-1951
Final 7-4-1952 5,34,003 50,634 4,94,714
18. Sind Commercial Bank Limited .. Prov. 21-9-1951
Final 22-9-1954
19. Safe Bank Limited .. .. 24-8-1954 2,82,001 27,308 2,55,431
6
149
- ---------------------------------
150 HISTORY OF THE STATE BANK OF PAKISTAN
1. Jute Trade
The relationship between Pakistan and India tbat emerged after
Partition was, by and large, of supplier of raw materials and industrial
producer. In the absence of a worthwhile manufacturing sector,
Pakistan's economy was dependent on the two major cash crops, jute
and cotton. Almost all the jute produced in East Pakistan was sent to
India to be manufactured into hessian and other jute products in jute
mills at Calcutta or baled and shipped from there to foreign markets.
Jute being the most important cash crop of East Pakistan its price was
an important factor in the life of the farmers. All banking facilities,
too, were concentrated in Calcutta, from where credit flowed into
East Pakistan's jute trade. Immediately after Partition, the
Governments of India and Pakistan entered into an agreement th~t
jute from Pakistan may be exported in bonds through Calcutta port.
This agreement worked for sometime. But in September, 1949 when
India refused to recognise Pakistan exchange rate, suddenly the link
with Calcutta was snapped resulting in a lack of banking and
exchange services. The different groups of intermediaries between
the growers and exporters were mainly financed by exporters who
brought out funds from India through the banks.
To avert the collapse of this trade and arrest the dangerous fall
in prices the Government of Pakistan intervened by issuing an
Ordinance on October 22, 1949 to "safeguard international trade in
CREDIT SYSTEM AND MONETARY MANAGEMENT 151
In the first instance, the legal view was that the State Bank
Order did not permit the inclusion of the National Bank on the
Second Schedule of the State Bank of Pakistan as the former was not
a company, as defined in clause 2 of section 2 of the Companies Act,
1913 or a corporation or a company incorporated by or under any law
in force in any place outside Pakistan. Pending the inclusion of
National Bank in the Second Schedule by necessary amendment to
the State Bank of Pakistan Order, 1948 the State Bank allowed the
same remittance facilities to the National Bank as were enjoyed by
scheduled banks but this did not solve its financial problem.
At this stage, the legal position was examined again with the
help of Government's legal advisors and it was finally held that the
National Bank was a banking company as defined in the Banking
Companies Control Act, and, therefore, the State Bank could
advance loans to it on such security as it considered sufficient.
CREDIT SYSTEM AND MONETARY MANAGEMENT 153
2. Cotton Trade
Cotton in West Pakistan was the most important cash crop and
shared with jute the distinction of providing a major part of the
country's foreign exchange earnings. The cotton produced by West
Pakistan in undivided India used to be transported by rail to the
centres of textile industry in Ahmadabad and Bombay which, in tum
supplied cloth to Pakistan. But the Punjab disturbances and the
wholesale exchange of population that took place between West
Pakistan and Northern India, disrupted the normal channels of trade
and traffic and violently forced their diversion into other directions.
the U.S.A. The situation was met by the Government with the help
of increasing export duty to depress the internal market. However, to
ensure that similar crises were not repeated, a Cotton Ordinance was
promulgated in December, 1950 (replaced by the Pakistan Act,
1951). This empowered the Government to fix minimum prices for
cotton; to regulate ginning and pressing charges; to compel ginners to
buy and pay not less than the minimum prices fixed; to deal in and to
register and regulate the trading and movement of cotton. A Cotton
Board was set up to administer legislation. Government intervention
through the Board became necessary late in February, 1952, as prices
collapsed following the world textile recession. Special measures
were taken by the State Bank and the Government to meet the
situation created by the fall in the prices. These prices started
declining between January 28, 1952 and February 25, 1952, the
decrease in certain varieties was Rs.38 per maund. At this stage, the
Cotton Association closed the market. The reasons for this sharp
decline were partly domestic and partly international. One of the
important factors in this context was that as soon as prices began to
fall, financial stringency appeared both at Karachi and in the
mofussil. Banks began to call in the margins. In consequence weak
parties among the cotton dealers and ginners were compelled to
liquidate stocks in an already sinking market.
The Report dealt with the subject in depth, covering all possible
aspects which, among other things, contained information about the
cultivation of the crop, its transportation and marketing by growers;
ginning and pressing industry and marketing by ginners; Karachi
Cotton Market, its history and organisation; Price Support Scheme;
financing at growers and the ginners level, financing at Karachi and
export. The report served as a guide to financing of cotton and
158 HISTORY OF THE STATE BANK OF PAKISTAN
I think that the lack of credit facilities, in the measure in which it exists
in this country, by hampering production and creating bottle-necks in
distribution, acts as an ally of inflationary forces and not of
disinflation. I believe that by judicious and carefully planned
extensions of credit facilities in the country we will remove
impediments to production and open up the channels of distribution
which will help our anti-inflationary campaigns. I, therefore, make no
apology for drawing your attention to the comparative inadequacy of
credit facilities in this country.
I have always had the feeling that Pakistan has been starved in
the matter of credit and the preliminary studies that have been
conducted in the State Bank tend to confirm this feeling. Our studies
prove conclusively that in all sectors of our economy the amounts of
credit actually made available fall very short of what obtains in other
countries of comparable size in respect of production, trade and
general economic importance.
It would not be far wrong to say that the lack of credit is in fact
the measure of our backwardness. Historically, it seems that this
lamentable situation is directly due to the fact that modem banking in
pre-partition India developed under the inspiration and stimulus
provided by the financiers and bankers of the West who started
establishing early in the 19th century what were known as 'Eastern
Banks'. Their object was to finance the trade of dependent countries in
the East, or more precisely the export from these countries of raw
materials and the imports of manufactured goods. Their operations
were, therefore, limited largely to import and export trade and to the
provision of funds for European traders and businessmen in the East.
Production was not their concern nor the internal trade except to the
CREDIT SYSTEM AND MONETARY MANAGEMENT 159
The main objective of the PIFC was to make medium and long
term credit available at moderate rates of interest to industrial
concerns and co-operative societies registered in Pakistan and
engaged in the manufacture or processing of raw materials, in mining
or in the generation and distribution of electricity and other sources
of power. The Corporation was designed to run on commercial lines
and required to satisfy itself on the technical feasibility and financial
soundness of the undertaking before sanctioning of a loan. The
management was entrusted to a Board of nine Directors, of whom
three were elected by the shareholders and the remaining six,
including the Managing Director, were nominated by the
Government.
The State Bank was still not satisfied with the credit facilities
available for industries. The lending operations of commercial banks,
particularly the Pakistani banks, had increased significantly but they
could provide only a small proportion of the total working capital
requirements of industries. The First Five Year Plan estimated that
commercial banks advances contributed only 10.6 per cent of total
working capital invested in industry. The Central Board of Directors
in its meeting, held in December, 1954 considered the proposal of the
Governor, Abdul Qadir, for setting up an industrial credit bank. A
sound development of the Pakistan economy, he believed, required
the acceleration of the pace of industrialisation. Hitherto most of the
major industries had been sponsored and assisted in obtaining
CREDIT SYSTEM AND MONETARY MANAGEMENT 163
----·------
CREDIT SYSTEM AND MONETARY MANAGEMENT 165
1. Bank Deposits
Starting with Rs.1067 .2 million at the end of July, 1948 the bank
deposits stood at Rs.1714.9 million at the end of December, 1954,
representing an increase of Rs.647. 7 million or of roughly 61% over
this period of six years and a half. The increase was attributed in
general to (a) the revival of economic activity in the country after the
post-partition dislocation, (b) rehabilitation of banking, (c) inflow of
Muslim capital from other countries, (d) increasing tempo of
developmental activity, particularly in the industrial sector and the
consequent growth in money incomes especially in the urban areas,
which had better banking facilities, and (e) a generally favourable
balance of payments on private account.
The increase of Rs. 355.2 million in bank deposits during the two
years ending December, 1954 appeared to have resulted from the
170 HISTORY OF THE STATE BANK OF PAKISTAN
Textiles and Printing Presses. In East Pakistan, the list was headed by
Textiles, Beverages, the rest were much too insignificant to merit
attention. The Textile group at that time was a consolidated amalgam
of all industries based on fibres such as jute, cotton, wool, silk etc.
This grouping precluded the possibility of ascertaining precisely the
amount of credit flowing into cotton and jute, the two principal
nascent industries. Out of a total credit of Rs.17 .1 million, extended
to textile industry as a whole in Pakistan, West Pakistan accounted
for as much as Rs.12.7 million and East Pakistan the balance of
Rs.4.4 million. In other words, East Pakistan claimed about lAth of
the total.
Monetary Management
The rehabilitation and development of banking and credit
system on sound lines was the primary preoccupation of the State
Bank but the smooth functioning of the monetary and credit system
in the short term was also among its major responsibilities. With the
development of banking and extended use of bank credit, the
regulatory function of the Bank was beginning to assume increasing
importance. The first occasion for the State Bank's intervention
arose in August, 1950 soon after the issue of Open General Licence
CREDIT SYSTEM AND MONETARY MANAGEMENT 179
In the initial stages, the primary concern of the State Bank was
to create and establish the banking system in the country. It was
followed by expanding the credit structure to meet the requirements
of different sectors of the economy. Then the question of control and
reform of the credit system started assuming importance with the
growth of credit. The Government, then, appointed in February,
1959 a full fledged high powered Credit Enquiry Commission,
headed by Abdul Qadir, Governor of the State Bank. The
Commission was required to examine the scope and working of the
186 HISTORY OF THE STATE BANK OF PAKISTAN
--- -- - - - - - - -
CREDIT SYSTEM AND MONETARY MANAGEMENT 187
2. Mortgage Bank
ptoviding adequate credit to the sector could not be left out of the
Commission's purview. It suggested that Pakistan Industrial Finance
Corporation (PIFCO) be invested with the primary responsibility of
meeting the medium and long term needs of the mining industries.
5. Training Facilities
------ ------- - - - - - - - - - - - - - - - - - - - -
Face
Rs.lO. Pakistan started printing of its own notes at Pakistan Security Printing
Corporation in 1953.
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7
Agricultural Credit
193
194 HISTORY OF THE STATE BANK OF PAKISTAN
Soon after its inception in July, 1948 the State Bank realised that
under prevalent conditions it would have to meet a very substantial
portion of the credit requirements of the agricultural sector.
Speaking on the occasion of the first Annual Meeting of the State
Bank, held on September 29, 1948 at Karachi, the Governor
remarked:
the State Bank is a Bankers' Bank and a lender of the last resort. It is
not a field organisation in the sense that it does not directly deal with
individuals and has to channelise its operations through other related
agencies. The Bank was empowered under the law to provide loans for
seasonal agricultural operations and the marketing of crops through
Provincial Co-operative Banks.
the end of the nineteenth century but it was only under official
patronage that institutionalised credit made a beginning after the
enactment of the law for the establishment of co-operative societies
in 1904. The Act provided for the registration of co-operative
societies to combat the growing menace of rural indebtedness.
Sind nearly all the primary credit societies were lying defunct. No
fresh credits were advanced by the co-operative banks and no fresh
efforts were made to revive them. In East Pakistan most of the central
banks were languishing and for a long time had been doing no
business except for occasional trading in jute and rationed
commodities. In Punjab and N.W.F.P. as well, they followed the
same practice.
In a report to the Central Government in December, 1950 the
State Bank expressed its concern over these unhealthy developments
in co-operative banking and stressed the need for finding ways and
means of bringing about improvement:
(i) The attention of the Provincial Governments be drawn to
the undesirability of co-operative banks undertaking
trading in commodities or themselves running factories and
mills. The byelaws of banks should prohibit such activities.
(i) The Registrars and their staff do not generally have adequate
knowledge and experience of banking and the control vested in
the Registrars under the various Co-operative Societies Acts was
devised essentially with reference to co-operative finance which
was comparatively simple. The conditions have changed in view
of the fact that co-operative banks have departed from their
domain by accepting deposits and granting commercial loans and
advances. The control exercised by the Registrars has become
inadequate and bears little or no comparison with the banking
control required to be exercised by the State Bank.
Loans upto Rs.500 were granted against bond with one surety
while for higher amounts borrowers were required to pledge,
mortgage, hypothecate or assign their property. Borrowers were
required to satisfy the Corporation about the proper use of the loans
and the Corporation maintained its own machinery for verification.
Loans in cash were generally allowed in instalments and before the
release of the second and subsequent instalments, the borrowers had
to satisfy the Corporation that the previous amounts had been
actually utilised for the purpose for which they were meant. The
Corporation's loans were recoverable as arrears of land revenue.
Khaikhalashi Banks
Sind
Sources of Finance in N. W. F. P.
(3) The Premier Sugar Mills and the Takt-Bai Sugar Mill
210 HISTORY OF THE STATE BANK OF PAKISTAN
Objectives
Act, 1956, the State Bank could declare any co-operative bank as a
scheduled bank. The conditions on which scheduling could be done
were also less stringent for co-operative banks than for commercial
banks so that the State Bank could make an exception in the case of
co-operative banks in the matter of requirement of minimum paid-up
capital and reserves.
Under the State Bank of Pakistan Order, 1948 the Bank was
authorised to grant accommodation to co-operative banks and other
agricultural credit institutions for financing seasonal agricultural
operations and the marketing of crops for periods not exceeding nine
months. Detailed studies and experience showed that this period was
insufficient to cater adequately to the short-term credit requirements
of agriculturists. The State Bank of Pakistan Act, 1956 had,
therefore, raised the period to 15 months.
The traditional concepts of central banking functions had not
envisaged the granting of long term loans but with the increasing
demand for development finance it had become obvious by 1955 that
in the absence of a developed capital market in the country, the State
Bank had to play a positive role in the extension of long-term credit
to agricultural sector. The State Bank of Pakistan Act, 1956 had
authorised the Bank under Section 17(2)(d) to undertake:-
The Bank charged interest at the rate of 6 per cent on loans for
a period of 15 months and 5 per cent on other loans, for all borrowers
except the co-operatives. For co-operative societies for the period
not exceeding 15 months the rate was 2 per cent below the rate
charged by such societies to their members subject to a minimum of
5 per cent and a maximum of 6 per cent.
Socio-Economic Survey
Apart from conducting its own studies, the State Bank also
secured the services of other agencies for such work. In 1956 it
sponsored socio-economic surveys to be conducted by the Dacca and
the Punjab Universities. These surveys dealt with the credit problem
at some length. The information they collected was of considerable
value. The Bank also kept those interested in agricultural credit
informed of the developments in the field from time to time. It started
bringing out a quarterly under the title of "Credit (Rural and Co-
operative)" from 1953 which was distributed free of cost to interested
individuals and concerned institutions.
Deputation of Officers
The State Bank sought to assist the agricultural credit agencies
in other ways as well. Advisors of the rank of senior officers were
deputed to the co-operative banks in both wings of the country.
Officers in managerial capacity were sent to the Frontier Co-
operative Bank, Gilgit Co-operative Bank and The Agricultural
Development Bank of Pakistan. Trained personnel from the training
scheme were provided to the Agricultural Development Finance
Corporation, and the Agricultural Bank of Pakistan. Besides,
officials of the State Bank were nominated on the Boards of
Technical Advisory Committees of Co-operative Banks and
State Bank of Pakistan: Agricultural Credit in Pakistan, Karachi 1962, p.l17.
228 HISTORY OF THE STATE BANK OF PAKISTAN
Government and the Fund was set up by the State Bank in 1960 in
terms of requirement of an amendment (section 17A) to the State
Bank of Pakistan Act. The responsibility of initial contribution of
Rs.50 million by the Government and the State Bank to be shared
was assumed by the Bank with the Government's reluctance to
participate in raising the fund because of its financial constraints.
Remittance Facilities
- -- ----~----------------
8
233
234 HISTORY OF THE STATE BANK OF PAKISTAN
The State Bank of Pakistan, after its establishment took over all
central banking functions for Pakistan from the Reserve Bank of
India which also included the operation and management of the
Exchange Control in the country. The system of Exchange Control
continued almost unchanged as inherited, except that the
notifications of the Reserve Bank of India and the Government of
India had to be replaced by a new set of Notifications promulgated on
July 1, 1948 by the Government of Pakistan and the State Bank of
Pakistan. While Pakistan foreign exchange accounts were being
maintained by banks operating in West Pakistan, in view of lack of
banking facilities at Chittagong, in East Pakistan, Pakistan accounts
were being maintained at banks in Calcutta. This was an interim
arrangement to facilitate negotiations of bills by banks in Calcutta in
respect of shipments from Chittagong. With the development of
238 HISTORY OF THE STATE BANK OF PAKISTAN
The State Bank, unlike a central bank, had to assume the role of
a Government agency, using the services of police to enforce its
instructions and instituting prosecution cases in the competent courts
of law against those individuals and institutions who violated any of
the provisions of Foreign Exchange Regulation Act, 1947. In many
cases legal battles were fought in higher forums of justice viz. High
Courts and Supreme Court. Instructions issued by the Bank had to be
couched in legal language and simple application forms for obtaining
foreign exchange became more and more replete with legal jargons,
enough to scare even the most legal minded persons. The first edition
of the Exchange Control Manual, issued by the Reserve Bank of
India in 1940, contained 50 pages and about 14 application forms. At
that time, Exchange Control had been in operation in India for hardly
10 months. The Governor of the Reserve Bank of India, while
introducing the Exchange Control Manual, remarked that " ... these
(instructions) have been supplemented from time to time by
Exchange Control Circulars, Questions and Answers etc ... have
grown to such an extent that they are now somewhat difficult to
follow".
The year 1948 was, however, not a normal year in the case of
Pakistan. During the earlier part of the year, trade and banking were
still suffering from the aftermath of Partition and recovery came only
in the latter half of the year. The period from July, 1948 to June, 1949
was accordingly adopted as base year in the case of Pakistan for the
calculation of the 75% limit. In pursuance of this Agreement,
Pakistan's dollar expenditure during the year from July, 1949 to June,
1950 was restricted to £65 million.
Grant of Allowances
1. Travel Allowance
The period between February, 1957 and May, 1960 was of very
considerable strain for the Exchange Control Department.
Restrictions on travel were further tightened. For example, the
various travel quotas were abolished (there was no basic travel quota
by August, 1958 for any country). Moreover, the Exchange Control
Department imposed severe conditions regarding release of
exchange for travel abroad for different purposes, for which
applications were now required to be made. Although the imposition
of these restrictions was fully justified in view of the dwindling foreign
exchange position of the country, it was not always possible to satisfy
the applicants. They got the impression that their cases were not
being appreciated by the Department and an uncalled for rigid
control was practised. The Department, however, withstood these
pressures quite successfully.
2. Business Travel
3. Education Allowance
3. Barter Trade
Imports
2. /AlP-Procedure
To plug the loopholes in the import trade and to discharge its
obligations, the State Bank introduced with effect from September
25, 1950 the "IMP-Procedure" for remittances in exchange for
imports. Under this procedure the importers were obliged to
complete an IMP-form in quadruplicate, giving full details and
descriptions of the goods to be imported; the particulars of the
overseas suppliers; those of import licences, and their own addresses
in Pakistan. In this Form the importer had to give an undertaking to
submit to the State Bank, exchange control copy of the Bill of Entry
within two months from the date of remittance in the case of imports
from India and within four months in the case of other countries.
3. Registration of Importers
For some years after 1947, overseas firms used to sell the goods
in Pakistan and remit the sale proceeds, after deducting therefrom
their commission and other out of pocket expenses like Customs
duty, clearing charges, storage charges, etc. Thus, under this
arrangement, remittance was being made not only of the C. I .F. value
of the goods, but also of profits. Considering this as an undesirable
practice the facilities for imports on consignment account were
cancelled, the importers in Pakistan were allowed to import the
goods on their account and to remit to the overseas suppliers only the
C.I.F. and C. &F. orF.O.B. valueofthegoods.
5. Aid Imports
Exports
To ensure that the goods were exported at prices not less than
the prices obtaining in the international market, 'Export Price Check'
(E.P.C.) was introduced in December, 1950 in connection with the
export of raw cotton. A large scale under-invoicing was apprehended
when the prices of raw cotton shot up during the Korean Boom in
1950-51 and the export of raw cotton suddenly picked up. The State
Bank, therefore, issued instructions in December, 1951 that all
exporters of raw cotton should file with the Bank, certified copies of
the original contracts entered into with foreign buyers. The Bank,
after verification that the contract price was in alignment with the
market price, ruling on the date of contract, approved the EPC-form.
Authorised Dealers at the time of negotiation of bills were required
to satisfy that the prices mentioned in the invoice were in conformity
with the approved EPC-form. This procedure was extended to jute
and other items of exports as well.
2. Export Promotion
were in short supply in 1954 in the country. The profits made on sale
of these imported goods enabled the exporters to export the primary
commodities and articles of Pakistan manufacture at international
competitive prices, even in cases where the cost of production of such
goods was in excess of the international prices.
country's export trade had reached its lowest ebb. The foreign
exchange reserves held by the State Bank had touched the low level
of Rs.422.1 million as on October 7, 1958. The country had drawn
heavily on her foreign exchange reserves for meeting the continuous
deficits in her balance of payments. The level of the reserves was
seriously impairing its credit rating in the financial centres of the
world. In order to give the maximum boost to the country's export
trade as well as to create an area of free import trade, the
Government introduced the "Export Bonus Scheme" in January,
1959.
The Government referred the case to the State Bank for eliciting
its views which were communicated to the Government:
(2) The reason why certain industries buy bonus vouchers for
obtaining their import requirements, was prima facie
evidence of the fact that they expected to sell their goods to
the consumers at prices that will cover the premium paid.
In the absence of the facility provided by the Bonus
Scheme the industry would not have been able to obtain
the import at any price, i.e. the cost of foreign exchange to
such an industry would have been infinite. Further, major
portion of the vouchers was utilised by the original
exporters for importing raw material and machinery for
their own requirements. In this case the question of
inclusion of premium in the cost of production did not
arise. However, it was possible in case of industries which
produce luxury goods, import raw material against bonus
vouchers purchased by them at a premium. Industries
engaged in producing essential goods were provided
licences for raw material on a very liberal scale. The cost of
production of luxury goods affected a particular class of
consumers and in any case did not influence the prices of
goods in use by the common man.
3. Export Earnings
EXPORTS F.O.B.
1948-49 804.6
1949-50 869.6
1950-51 2271.7
1951-52 2137.2
1952-53 1297.5
1953-54 1268.1
1954-55 1180.3
1955-56 1812.3
1956-57 1621.4
1957-58 1425.3
1958-59 1440.5
1959-60 1759.4
(Source: State Bank of Pakistan: Pakistan's Balance of Payments July 1948---June 1959 and
July 1959-June 1960).
3. Examination of Declaration
Rs.S. Pakistan started printing of its own notes at Pakistan Security Printing
Corporation in 1953.
Back
EXCHANGE CONTROL AND MANAGEMENT 273
It has been stated earlier that the registrations done by the State
Bank were valid for a period of 6 months during which the payment
was expected to be made. The intention behind this condition was to
write off such commitments which were not liquidated within that
period. In practice, this period was found to be too short, since a large
number of import licences for industrial raw materials or capital
goods required Letters of Credit valid for as long as 12 months. With
the validity of the registration restricted to 6 months, it was not
possible for the Authorised Dealers to open Letters of Credit valid
for more than six months. The limit was later raised to twelve months.
Foreign Investment
(c) appreciation of any capital in (a) and (b) above may also
be treated as investment for repatriation purposes;
(ii) In cases where funds were brought into Pakistan for the
purchase of gilt-edged securities, or shares of local
bodies etc. necessary repatriation facilities may be
allowed as the funds were brought under an implicit
understanding that there would be no bar on
repatriation.
Enforcement Section
prescribed in legal form the manner and the period for realisation of
export proceeds. To rectify this situation, the Government was
approached by the State Bank to issue necessary instructions
authorising it to realise the value of goods exported. Prosecution for
contravention of the provisions of Foreign Exchange Regulation Act
were successfully launched for exports made after January, 1953 in
which the exporters had failed to realise the export proceeds.
299
300 HISTORY OF THE STATE BANK OF PAKISTAN
The need for keeping central banking free from interference was
realised as early as 1920 when a resolution to guarantee their
independence was adopted at the Brussels Conference. Two years
later the Geneva Conference, held under the auspices of the League
of Nations, gave expression to a similar view. In 1933 the MacMillan
Commission also recommended that they should be free from
political control in their sphere of operations without an infringement
of the ultimate sovereignty of the state. A special constitutional
position for the bank was implicit in its ability to create cash which is
"a standing temptation to improvident governments. The advantages
such governments enjoy when they resort to easy finance at the
central bank are immediate and obvious; the disadvantages are not so
readily perceived, but in the long run they are cumulative and can be
disruptive. In recognition of this, most of the developed countries did
not favour the idea of reducing their central banks to the position of
an ordinary department. The need to integrate the policy of the
central bank with the broad economic policy of the government was
generally accepted but the central bank was allowed to retain a
special status which is something rather more than freedom to
conduct its daily techincal operations unhindered. 1
The final aim, of course, is not that the Federal Reserve System
should be independent, but that the country should have a sound
economic policy. The independence of the Federal Reserve System is
a relative, not an absolute concept. It is good in so far as it contributes
to the formation of a sound policy and bad in so far as it detracts from
it. Measured by this standard the Sub-Committee is inclined to believe
that a degree of independence of the Board of Governors about equal
to that now enjoyed is desirable ........ the Board of Governors like all
other parts of the Government must play as part of a team, not as
outside umpire, and must ultimately abide by the decision of the
Congress.
In New Zealand, the law of 1936 laid down that the general
function of the Reserve Bank within the limit of its powers was to give
Sayers, R.S.: Modern Banking, Oxford 1967, p.67.
Ibid., pp.77-78.
BANK AND THE GOVERNMENT 303
it had the right and responsibility to direct the Bank to own and
implement policies pursued by the government.
For the purpose of this Act the Central Government may from time
to time give to the State Bank such general and special direction as it
thinks fit and the State Bank shall in the exercise of its functions under
this Act comply with any such directions.
The intention of the law obviously was that the Central
Government should give to the State Bank general directions on
matters of policy and principle leaving the day to day administration
and control in the hands of the Bank.
The State Bank worked in close co-operation with the
Government in formulating important economic policies of the
country. The Bank had the advantage of having a well organised
economic intelligence and research service to help tender advice to
the Government. The Research Department of the Bank had
become one of the most important centres for collecting, processing
The subject has been dealt with in detail in Chapter No. VIII.
308 HISTORY OF THE STATE BANK OF PAKISTAN
and analysing financial and economic data. While at the highest level
the Governor was being associated with all the important policy
decisions on financial and monetary matters the bureaucrats, lower
down, started questioning the autonomy of the Bank even on issues
that did not impinge on governmental authority. The competence of
the Bank to appoint a Legal Advisor was questioned and the
appointment already made was requested to be cancelled. It was
urged to utilise their Legal Division. After an interval the Bank
received another letter, this time from the Ministry of Finance,
objecting to the pay scales in Bank, which were higher than those
obtaining in the Government and, therefore, called for a downward
revision.
Again, in August, 1950 the Ministry, in a formal communication
asked the Bank to supply detailed information about the expenditure
under the heads: 'Establishment', 'Remittances', 'Security Printing'
and 'Miscellaneous Expenses' in different periods and also reasons
for their variations. The Ministry of Finance on yet another occasion
in October, 1951 took notice of a circular issued by the Karachi Office
about the pilferage of notes and advised the Bank to submit a full
report to them. The Deputy Governor called on the Finance
Secretary and explained to him that such circulars were issued by the
Managers concerned of the offices of the Bank and the Central
Directorate take full care of the working of all offices. The point of
view of the Bank did not meet with the approval of the Ministry of
Finance who insisted on submission of a full report, including the
findings of the Enquiry Committee appointed for this purpose.
For the purpose of this Act the Central Government may from
time to time give to the State Bank such general or special
310 HISTORY OF THE STATE BANK OF PAKISTAN
directions as it thinks fit and the State Bank shall in the exercise
of its functions under this Act comply with any such directions.
The purposes of the Act as laid down in the preamble to the Act
were:-
Channelisation of Bank's
Correspondence to the Government
by the State Bank was accepted by the Ministry of Finance and all the
Heads of Departments of the Bank were advised to deal with the
correspondence accordingly in the future.
During the first few years the behaviour of the accounts of the
Central Government and Provincial Governments remained
satisfactory. From 1953 onwards, the financial position of both the
Central and Provincial Governments started deteriorating showing a
continued decline in their balances. This put the State Bank in a very
difficult situation. On the one hand, it could not precipitate action by
refusing to honour bills and cheques of the Government, even though
there was no credit balance standing to their account; on the other, it
BANK AND THE GOVERNMENT 315
During the years between 1953 and 1957 the borrowings of both
the Central and Provincial Governments increased considerably. The
borrowings by the Central Government against Ad hoc Treasury
Bills jumped from Rs.150 million in 1953 to Rs.775 million in 1957,
while the maximum debit balance in the account of East Pakistan
Government increased from Rs.65 million to Rs.135.58 million and
for West Pakistan from Rs.56.75 million to Rs.83.39 million during
the same period.
It was pointed out that the prevalent Bank Rate was 4 per cent
per annum and so was it the money market rate. The loans floated at
that time by the Central Government earned interest at 4 per cent per
annum. Taking all these factors into account half per cent of interest
on Ad hoc Treasury Bills, the increase of at least 2 per cent per annum
was justifiable and realistic. If this was not done, the income of the
Bank would not be commensurate with its investment portfolio and
a doubt was likely to rise in the public mind about the correctness of
the investment policy of the Bank. If the interest on Ad hoc Treasury
Bills was raised to 2 per cent per annum, the rate was still favourable
to the Central Government, compared to what the Bank charged to
the Provincial Governments. For, in the case of Ways and Means
Advances to the Provincial Governments interest was charged at 3
per cent per annum while in the case of advances granted to the West
Pakistan Government against collateral of Government Securities
interest was charged at 4 per cent per annum.
Inflation
In June, 1956 when the Planning Board submitted the Draft Five
BANK AND THE GOVERNMENT 323
Year Plan, the Bank had clearly indicated through its various
Memoranda and representatives in inter-departmental committees
that it considered the size of the Plan in excess of the available
resources. The Bank had called attention to the dangers inherent in
excessive spending and large scale deficit financing. In fact, as a result
of the stand taken by the Bank and the efforts of its representatives,
the estimate of resources contained in the Plan was critically
scrutinised and the Finance Ministry's representatives agreed that
Planning Board had over-estimated the extent of available resources.
The case for arresting the process could not have been more
324 HISTORY OF THE STATE BANK OF PAKISTAN
The Bank Rate was raised from 3 per cent to 4 per cent in
January, 1959. This was the first time since the establishment of the
State Bank that it had been raised. The reversal of the policy of deficit
budgeting by the new Government placed the question of monetary
policy in a totally new setting. The task of countering the effects of an
expansionary fiscal policy gave place to the need for reinforced fiscal
action designed to curb excess demand. The rise in the Bank Rate was
followed by a rise in the advance rates of commercial banks and
certain other credit institutions. Deposit rates of commercial banks
and other savings institutions·also went up. The higher interest rate
pattern in the country intended to serve an anti-inflationary purpose
by stimulating savings and discouraging the demand for credit for
relatively inessential purposes.
BANK AND THE GOVERNMENT 329
Development Planning
Even before the publication of the First Five Year Plan, in the
Annual Speech for 1955, the Governor while discussing the role of
the State Bank in relation to economic development observed that as
capital accumulation and investment could be encouraged on sound
lines only in the framework of monetary stability, central banking
policies designed to achieve this objective played a vital role in
promoting economic development. The Central Bank's role would
not be merely to regulate the monetary and credit situation but would
be more positive towards economic development to ensure that the
various sectors of the economy were provided with adequate credit
facilities. At the same time, it did not necessarily mean that the
Central Bank would follow an expansionary monetary policy at all
times. Its functions as an agency for directly providing funds could at
best be extremely limited, for such financing would add to the
inflationary pressures already inherent in the process of rapid
development.
330 HISTORY OF THE STATE BANK OF PAKISTAN
When the First Five Year Plan was released for discussion, the
State Bank actively participated in the various Working Parties set up
by the Government for examining the resource estimates and drew
the attention of the Government to the over-estimation of financial
resources. It was pointed out that the projected magnitudes of the
private and public savings and of foreign exchange likely to be
available for development purposes during the Plan period were not
realistic and likely to fall short of expectations. The acceptance of this
resource picture as the basis of the Plan could lead to one of the two
consequences: either the development programme would have to be
cut half way or there would occur an accentuation of inflationary
pressure and lowering of living standards.
While stressing the need for realistic resource estimation and for
relating the size of the Plan to the real resources likely to be available
during the Plan period, the State Bank extended whole-hearted
support to the Plan. Addressing the Annual General Meeting of the
Bank in September, 1956 the Governor said that it was incumbent on
every one of us, whether in business, service, field or factory, to
regard its fulfilment as a personal obligation. He trusted that the
nation would rise as one man to meet the challenge of economic
development.
The State Bank had all along stressed the need for relating the
size of the Plan to the resources which could be made available,
including those which were generated as development proceeded. It
had been in favour of the largest development programme that was
consistent with the availability of real resources and had urged their
maximum diversion from non-development uses through taxation
and by encouraging of genuine savings for promoting economic
development in the environment of economic stability. The Bank was
convinced that in the long-run the maximum rate of growth could be
achieved only by ensuring that short-term programmes did not
overstrain the economy by inflicting on it the mounting tensions of a
continually rising price level and of recurrent foreign exchange crises.
Savings were maximised when people were confident that a rupee in
the future would have the same value as a rupee the day they save it;
inflation corroded this confidence and reduced both the ability and
willingness to save voluntarily. It would thus cut at the root of the
development process which could be accelerated only through a
rising volume of savings in the economy.
BANK AND THE GOVERNMENT 333
The State Bank had always been of the view that over-
estimation, however unintended, of the resources which could be
mobilised for development led to a false sense of complacency about
the size and intensity of the effort required for putting the programme
through. What was more, it inveigled the Government into
undertaking commitments which turn out to be insupportable by real
resources, thereby forcing it to cover up the shortfall through resort
to created money in order to keep up a predetermined rate of
spending. Needless to say, such a course could only be self-defeating
for it frustrated the development effort which it professed to foster.
External Balance
Building Projects
The main building of the Central Bank of the country must be built to
337
338 HISTORY OF THE STATE BANK OF PAKISTAN
The vacant site on McLeod Road, taken over by the State Bank
from the Reserve Bank of India was considered by the architects to be
BUILDING PROJECTS 339
dominating frontage and being near to the city and business area. The
Executive Committee was in favour of accepting the offer. The Board
also expressed its agreement with the Executive Committee's
recommendation to buy the land at a price fixed by the Government
and let the Central P.W.D. put up barbed wire to enclose the plot. In
addition, the Government was to be approached for the allotment of
the vacant plot in the vicinity of the site.
In July, 1954 the Architect was asked to prepare rough plans for
the main building making the best use ofthe space. The plan took the
final shape in early 1955 after a series of discussions with the
Architect and was formally approved by the Central Board on April
4, 1955. The building was designed in modern functional style.
The Board approved the selection of 14 firms of contractors for
the construction of the main building in January, 1956 for inviting
tenders. The tenders received were despatched to Ritchie for
examination and comments. The Architect recommended the
acceptance of the lowest tender submitted by Sheikh Guizar Ali. The
Central Board accepted the tender of Sheikh Guizar Ali amounting
to Rs.7.89 million, at its meeting held on October 29, 1956.
---------------
11
The Bank started its career with a skeleton staff for reasons
which have been repeatedly emphasised in earlier chapters. For its
effective functioning as the central bank of a new country, it had to
have both the manpower and material resources besides an
organisational set-up. Deficient and deprived in each of the three
sectors vital to its operation, it was a time-consuming and painstaking
process to build up an institution that could command prestige c:tnd
inspire confidence of the people in the economy, of which in a sense
the Bank was a caretaker and custodian.
347
Classification of Staff
Class I Officers
Class II Staff Assistants, Superintendents, Deputy
and Assistant Treasurers and other
employees on grades whose starting pay
exceeded Rs.200 p.m.
350 HISTORY OF THE STATE BANK OF PAKISTAN
Recruitment of Officers
The Board was reconstituted each time the need for recruitment
arose.
354 HISTORY OF THE STATE BANK OF PAKISTAN
Promotion Policy
The Bank had set a policy for promotion from lower grade to
higher grade. Seventy-five per cent of the posts of junior accountants
were filled in by promoting clerks grade-I on the basis of seniority and
suitability of the incumbent. Their suitability was judged on the basis
of confidential reports. The remaining 25 per cent were filled on
merit, irrespective of the position of incumbent on general seniority
list. For determining suitability of an employee against this merit
quota, academic and professional qualifications, etc. (passing of
Bankers' Institute Examination) and Confidential Report were taken
into account. An additional inducement for acquiring academic and
technical qualifications the Bank offered monetary benefits in the
scale of pay and also honorarium to members of the lower staff.
In 1948, scales of pay of senior staff in the State Bank were fixed
in confirmity with the general policy of the Government. Since young
and comparatively inexperienced officers were to be appointed to
high positions, it was considered advisable to be cautious in the
determination of their emoluments. Subject to these considerations
the Bank tried to maintain the structure handed over to it by the
Reserve Bank.
The Reserve Bank revised the pay scales of several senior posts
in the early fifties, giving higher emoluments to junior officers than
the counterparts of their seniors transferred to Pakistan were
receiving in the State Bank. Moreover, the Central Government had
also revised its own policy in respect of salaries of senior officers,
which it had followed in 1948. The Governor, therefore, suggested to
the Board in October, 1952 that senior officers had, during the last
four years, acquired experience and a measure of maturity, justifying
a review of the position and a consequent revision of their salaries.
He proposed to carry out an examination of the pay scales for senior
posts in the Bank and to collect all the relevant data. This proposal
was approved by the Central Board. Ultimately, in July, 1957 the
Board appointed a sub-committee, consisting of Deputy Governor as
Chairman and Directors, Vaqar Ahmad and Kassim Dada to
THE BANK AS AN EMPLOYER 357
Most of the employees of the State Bank came over from India,
had to fend for themselves in the matter of accommodation of which
358 HISTORY OF THE STATE BANK OF PAKISTAN
one female nurse. For the convenience of the families of the staff
residing in the Bank's colonies at Preedy Street and North
Nazimabad, separate dispensaries had also been established at those
places.
Provident Fund
Guarantee Fund
Tellers Rs.4,000
Assistant Treasurers Rs.5,000
Deputy Treasurers Rs.lO,OOO
Other Staff"
Gratuity Fund
That probably was one of the principal reasons why its working
had been extraordinarily smooth and free from turbulence that had
vitiated many a vital segments of the country's nascent economic
organisation. Precisely for this purpose it had taken appropriate steps
to encourage the formation of employees associations. The Central
Board, in one of its meetings, held on November 24, 1948 approved
their formation. The principles governing the recognition of
Employees Associations were circulated amongst the members of the
staff through a circular dated May 16, 1949. Under these principles
the employees of the Bank at each place were to have separate
associations, each association representing a distinct class of
employees. Three staff associations, representing officers class-II,
clerical staff and subordinate staff (class-IV employees) at different
offices of State Bank were recognised during the fifties.
------------------- - -
APP END ICES
APPENDIX-I
NOTIFICATION
PART I
Introductory
1. (1) This Order may be called the Pakistan (Monetary System and Reserve
Bank) Order, 1947.
(2) It shall come into force on the 15th day of August 1947.
371
372 HISTORY OF THE STATE BANK OF PAKISTAN
(b) "India notes" means currency notes of the Government of India and
bank notes of the Bank, other than Pakistan notes;
(c) "Pakistan notes" means bank notes of the Bank inscribed in the manner
provided in sub-section (2) of section 5 of Part II of this Order;
(d) "India rupee coin" means rupee coin which is for the time being legal
tender in India and includes one-rupee notes;
(e) "India subsidiary coin" means coin of a lower denomination than one
rupee which is for the time being legal tender in India;
(f) "Reserve Bank Act" means the Reserve Bank of India Act, 1934;
(g) "section" means a section of the Part of this Order in which the word
occurs;
and other expressions have the same meaning as in the Reserve Bank Act.
PART II
1. The provisions of this Part shall have effect as part of the law of Pakistan.
2. Subject to the provisions of this Part, the Bank shall, until the 30th day of
September, 1948, manage the currency of Pakistan and carry on the business of
banking in Pakistan.
3. Until the Pakistan Legislature otherwise provides, the standard monetary unit
of Pakistan shall be the India rupee.
(a) the Bank shall accept moneys for account of the Government of
Pakistan and the Provincial Governments in Pakistan, make payments
up to the amount standing to the credit of their accounts respectively,
carry out their exchange remittance and other banking operations,
including the management of the public debt, and generally afford to
them similar facilities to those which the Bank affords to the
Government of India, or as the case may be, the Provincial
Governments in India;
Pakistan shall entrust the Bank with the management of the public debt
and with the issue of any new loans;
Provided further that the provisions of this sub-section, so far as they relate to
management of the public debt, the issue of new loans and exchange operations,
shall not have effect after the 31st day of March 1948.
(2) The conditions on which the Bank shall perform the functions mentioned
in this section shall be the same as those regulating similar transactions between the
Bank and the Government of India, or as the case may be, a Provincial Government
in India, subject however to such adaptations and modifications as may be agreed
upon between the Government concerned and the Bank, or as may, in default of
agreement be prescribed by the Governor-General of Pakistan.
5. (1) India notes shall, until the 30th day of September 1948, be legal tender at
any place in Pakistan in payment or on account of the amount expressed therein.
(2) On and after the 1st day of April1948 the Bank may issue in Pakistan bank
notes of the Bank inscribed with the words "Government of Pakistan" in English and
Urdu, and such notes shall be legal tender in Pakistan in payment or on account of
the amount expressed therein;
(3) The Bank shall, up to the 30th day of September 1948, have the sole right
to issue bank notes in Pakistan, and before the expiry of that day, the Government
of Pakistan shall not issue any currency notes.
(4) No person in Pakistan other than the Bank shall draw, accept, make or
issue any bill of exchange, hundi, promissory note or engagement for the payment of
money payable to bearer on demand, or borrow, owe or take up any sum or sums of
money on the bills, hun dis or notes payable to bearer on demand of any such person;
374 HISTORY OF THE STATE BANK OF PAKISTAN
(2) The Bank may with the previous sanction of the Government of Pakistan
prescribe the circumstances in which, and the conditions and limitations subject to
which, the value of lost, stolen, mutilated or imperfect Pakistan notes may be
refunded as of grace.
(3) The value of lost, stolen, mutilated or imperfect India notes may be
refunded as of grace in Pakitan in the circumstances and subject to the conditions and
limitations prescribed for the time being in that behalf as respects India under section
28 of the Reserve Bank Act.
Coinage
7. (1) India rupee coin and India subsidiary coin shall continue to be legal tender
in Pakistan to the like extent and subject to the same conditions as immediately
before the 15th day of August 1947 for such period or periods, not expiring, in the
case of any coins, sooner than one year from the introduction of corresponding
Pakistan coins, as the Government of Pakistan may determine.
Provided that India one-rupee notes shall not be legal tender in Pakistan after
the 30th day of September 1948.
8. During the period in which the Bank is managing the currency of Pakistan-
(b) the Bank may deliver to the Government of Pakistan any Pakistan coins
which will not in its opinion be required for circulation in Pakistan
against payment of their nominal value, and no Pakistan coins shall be
disposed of by the Bank otherwise than for the purposes of circulation
or by delivery to the Government of Pakistan under this clause;
(c) the Bank shall on demand issue India or Pakistan rupee coin in exchange
for legal tender notes;
Provided that, if any Pakistan coins have been issued, the Bank shall not,
after the 31st day of March 1948, issue India coins, except to the extent that
Pakistan coins are not, in the opinion of the Bank, available in sufficient
quantities for the purposes of circulation;
(d) the Bank shall on demand issue legal tender notes in exchange for legal
tender coins;
(e) the Bank shall in exchange for legal tender notes of five rupees or
upwards supply legal tender notes of lower value or legal tender coins in
such quantities as may in the opinion of the Bank be required for
circulation;
(f) if the Government of India or, as the case may be, the Government of
Pakistan, at any time fails to supply coins to the Bank, the Bank shall be
released from its obligations under clause (c) or clause (e) to supply such
coins to the public.
10. (1) The Indian Coinage Act, 1906, shall, until other provision is made by a law
of Pakistan and subject to the provisions of this Order, apply to Pakistan, and in such
application-
(a) for section 1 there shall be substituted the following section, namely:-
376 HISTORY OF THE STATE BANK OF PAKISTAN
"1. Short title and extent.-(1) This Act may be called the Pakistan Coinage
Act.
(2) It extends to the whole of Pakistan.";
(2) Rules made under the Indian Coinage Act, 1906, and in force immediately
before the commencement of this Order shall be in force in Pakistan until they are
modified or rescinded under that Act as in force in Pakistan.
11. Up to the 31st day of March 1948, the Bank shall sell to or buy from any
authorised person who makes a demand in that behalf at its office in Karachi foreign
exchange at such rates of exchange and on such conditions as the Government of
Pakistan, in consultation with the Government of India, may, from time to time by
general or special order determine;
12. (1) Every Pakistan scheduled bank shall maintain with the Bank a balance the
amount of which shall not at the close of business on any day be less than five per cent
of the demand liabilities, and two per cent of the time liabilities, of that bank in
Pakistan as shown in the latest return made under sub-section (2).
Explanation.- For the purposes of this section liabilities shall not include the
paid-up capital or reserves, or any credit balance in the profit and loss account of the
scheduled bank or the amount of any loan taken by it from the Bank.
(2) Every Pakistan scheduled bank shall send to the Bank a return signed by
two responsible officers of the scheduled bank showing-
(a) the amounts of its demand and time liabilities, respectively in Pakistan,
(b) the total amount held in Pakistan in India notes and Pakistan notes,
respectively,
APPENDICES 377
(c) the amounts held in Pakistan in India rupee coin, India subsidiary coin
and Pakistan rupee and Pakistan subsidiary coin, respectively,
at the close of business on each Friday, or where Friday is a public holiday under the
Negotiable Instruments Act, 1881, at the close of business on the preceding working
day, and the return shall be sent not later than two working days after the date to
which it relates;
Provided that where the Bank is satisfied that the furnishing of a weekly return
under this sub-section is impracticable in the case of any Pakistan scheduled bank by
reason of the geographical position of the bank and its branches, the Bank may
require such bank to furnish in lieu of a weekly return a monthly return to be
despatched not later than fourteen days after the end of the month to which it relates,
giving the details specified in this sub-section in respect of such bank at the close of
business for the month.
(3) If at the close of business on any day before the day fixed for the next
return, the balance held at the Bank by any Pakistan scheduled bank is below the
minimum prescribed in sub-section (1), such bank shall be liable to pay to the Bank
in respect of each such day penal interest at the rate of three per cent above the bank
rate on the amount by which the balance with the Bank falls short of the prescribed
minimum, and if on the day fixed for the next return such balance is still below the
prescribed minimum as disclosed by this return, the rate of penal interest shall be
increased to a rate five per cent above the bank rate in respect of that day and each
subsequent day on which the balance held at the Bank at the close of business on that
day is below the prescribed minimum.
(4) Where under the provisions of sub-section (3) penal interest at the
increased rate of five per cent above the bank rate has become payable by a Pakistan
scheduled bank, if thereafter on the day fixed for the next return the balance held at
the Bank is still below the prescribed minimum as disclosed by this return.-
(a) every director and any managing agent, manager or secretary of the
Pakistan scheduled bank, who is knowingly and wilfully a party to the
default, shall be punishable with fine which may extend to five hundred
rupees and with a further fine which may extend to five hundred rupees
for each subsequent day on which the default continues.
(b) the Bank may prohibit the Pakistan scheduled bank from receiving after
the said day any fresh deposit,
378 HISTORY OF THE STATE BANK OF PAKISTAN
and, if default is made by the Pakistan scheduled bank in complying with the
prohibition referred to in clause (b), every director and officer thereof who is
knowingly and wilfully a party to such default or who through negligence or
otherwise contributes to such default shall in respect of each such default be
punishable with fine which may extend to five hundred rupees and with a further fine
which may extend to five hundred rupees for each day after the first on which a
deposit received in contravention of such prohibition is retained by the Pakistan
scheduled bank.
(5) Any Pakistan scheduled bank failing to comply with the provisions of sub-
section (2) shall be liable to pay to the Bank a penalty of one hundred rupees for each
day during which the failure continues.
(6) The penalties imposed by sub-sections (3) and (5) shall be payable on
demand made by the Bank, and in the event of a refusal by the defaulting bank to pay
on such demand, may be levied by a direction of the principal Civil Court having
jurisdiction in the area where an office of the defaulting bank is situated, such
direction being made only upon application made in that behalf to the Court by the
Bank with the previous sanction of the Government of Pakistan.
(a) has a paid up capital and reserves of an aggregate value of not less than
fivelakhsofrupees,and
and a bank so declared shall be a "Pakistan scheduled bank" within the meaning of
this section and shall be a like notification direct that any Pakistan scheduled bank
the aggregate value of whose paid-up capital and reserves becomes at any time less
than five lakhs of rupees, or which goes into liquidation or otherwise ceases to carry
on banking business, shall cease to be a Pakistan scheduled bank;
(8) The Bank may, with the previous sanction of the Government of Pakistan,
APPENDICES 379
(a) the relations of Pakistan scheduled banks with the Bank and the returns
to be submitted by Pakistan scheduled banks to the Bank;
(9) The provisions of this section shall have effect only up to the 30th day of
September 1948.
13. (1) The Bank may, until the 30th day of September 1948, require any Pakistan
provincial co-operative bank with which it has transactions under section 17 of the
Reserve Bank Act to furnish such returns as are referred to in sub-section (2) of
section 12 of this Part, and while such a requirement is in force the provisions of sub-
sections (5) and (6) of the said section 12 shall apply so far as may be to that co-
operative bank as if it were a Pakistan scheduled bank.
(b) any other central co-operative society declared for the time being by a
Provincial Government in Pakistan to be a Pakistan provincial co-
operative bank for the purposes of this Order.
Miscellaneous
14. (1) The Bank shall not be liable for the payment of any stamp duty in Pakistan
in respect of Pakistan notes or India notes.
(2) The Bank shall not be liable to pay Pakistan income-tax or super-tax on any
of its income, profits or gains:
Provided that nothing in this sub-section shall affect the liability of any
shareholder in respect of Pakistan income-tax or super-tax.
(3) For the purposes of any provisions of the Indian Income-tax Act, 1922, as
in force in Pakistan, which relate to the levy and refund of income-tax, any dividends
paid under section 47 of the Reserve Bank Act shall be deemed to be "Interest on
Securities".
380 HISTORY OF THE STATE BANK OF PAKISTAN
15. (1) The Reserve Bank Act shall cease to be part of the law of Pakistan, and the
status of the Bank in Pakistan shall be that of a corporation existing only by virtue of
the law of India and capable of suing and being sued as such in Pakistan; and
accordingly effect shall be given to the said Act by Courts in Pakistan only in so far
as under the rules and principles of law determininig the cases in which law other than
Pakistan law is to be applied in Pakistan, the proper law to be applied is the law of
India.
(2) Nothing in the Indian Companies Act, 1913, shall apply to the Bank.
16. (1) If any person in Pakistan makes a false declaration in any declaration
furnished by him in pursuance of a requisition under sub-section (1) of section 56 of
the Reserve ,Bank At, he shall be deemed in Pakistan to have committed the offence
of giving false evidence defined in section 191 of the Indian Penal Code, and shall be
punishable under the second paragraph of section 193 of the said Code.
(2) Nothing contained in any declaration furnished under the said sub-section
(1) shall operate to affect the Bank with notice of any trust, and no notice of any trust
express, implied or constructive shall be receivable by the Bank.
17. The Banking Companies (Restriction of Branches) Act, 1946, and the
Banking Companies (Inspection) Ordinance, 1946 shall until the 30th day of
September 1948 apply also to the whole of Pakistan, and in such application
references to the Central Government shall be construed as references to the
Government of Pakistan and for clause (b) of sub-section (1) of section 5 of the said
Ordinance, the following shall be substituted, namely:-
PART III
1. Until the 30th day of September 1948, the Reserve Bank of India Act, 1934
shall have effect as if-
(b) after clause (c) the following clause was inserted, namely:-
(3) in section 6. after the word "India" the words "or Pakistan" were
inserted;
(4) in sub-section (1) of section 10, after the word "India" in both places
where it occurs the words "or Pakistan" were inserted;
(a) for the words "the Federal Legislature, the Indian Legislature, a
Provincial Legislature or the Coorg Legislative Council" the
words "any Legislature in India or Pakistan" were substituted;
(6) insection17-
(a) in clauses (1), (5), (8) and (11) there were included references to
the Government of Pakistan and to the Provincial Governments
in Pakistan;
(i) for the words "and payable in India" the words "India or
382 HISTORY OF THE STATE BANK OF PAKISTAN
(ii) after the words "scheduled bank" the words "or a Pakistan
scheduled bank" were inserted;
(i) for the words "and payable in India" the words "in India or
Pakistan and payable in India or Pakistan" were
substituted;
(ii) for the words "or a provincial co-operative bank" the words
"a Pakistan scheduled bank, a provincial co-operative bank
or a Pakistan provincial co-operative bank" were
substituted;
(i) for the words "and payable in India" the words "in India or
Pakistan and payable in India or Pakistan" were
substituted;
(ii) after the words "scheduled bank" the words "or a Pakistan
scheduled bank" were inserted;
(iii) after the words "Provincial Government" the words "or the
Government of Pakistan or a Provincial Government in
Pakistan" were inserted;
(e) in sub-clause (a) of clause (3), after the word "banks" the words
"and Pakistan scheduled banks" were inserted;
(f) to sub-clause (b) of clause (3) the words "or in Pakistan except
with a scheduled bank or a Pakistan scheduled bank" were added:
(ii) after the words "scheduled bank" the words "or Pakistan
scheduled bank" were inserted;
(iii) after the word "India" where it occurs for the second and
third times, the words "and Pakistan" were inserted;
G) to clause (16) the words, brackets and figures "and the Pakistan
(Monetary System and Reserve Bank) Order, 1947" were added;
(a) after the word "India" the words "or Pakistan" were inserted;
(b) in clause (1), after the words "co-operative bank" the words "or a
Pakistan scheduled bank or a Pakistan provincial co-operative
bank" were inserted;
(9) in section 29, after the word "notes" the words "or Pakistan notes" were
inserted;
(10) in sub-section (1) of section 30, after the words "by or under this Act"
the words, brackets and figures "or the Pakistan (Monetary System and
Reserve Bank) Order, 1947," were inserted;
(11) in sub-sections (1) and (3) of section 33, for the words "rupee coin" the
words "India rupee coin, Pakistan rupee coin" were substituted;
384 HISTORY OF THE STATE BANK OF PAKISTAN
(12) in section 40, after the words "by general or special order determine,"
the words "in consultation with the Government of Pakistn and" were
inserted;
(13) after section 40, the following section were inserted, namely:-
"40A. Remittance between India and Pakistan.- The Bank shall, until the 31st
day of March 1948, provide any person who makes a demand in that behalf with
remittance at par between its offices in Pakistan and such office or offices in India as
may be prescribed by the Bank, in such amounts and subject only to such rate or rates
of commission as may be approved by the Government of India and the Government
of Pakistan."
(b) in sub-section (2) after clause (e) the following clauses were
inserted namely:-
(a) in clause (a), for the words "provincial co-operative banks" the
APPENDICES 385
(b) in clause (b), after the words "co-operative banks" the words
"Pakistan provincial co-operative banks" were inserted;
(a) in Part II, for the words "the Bengal Presidency" the words "East
Bengal, West Bengal" were substituted;
(b) in Part III, for the words "the Punjab" the words "East
Punjab, West Punjab" were substituted:
Provided that the modification made in section 40 of the Reserve Bank Act by
clause (12) of this section shall have effect only up to the 31st day of March 1948.
2. Until the 30th day of September 1948, the Government of India shall send as
soon as may be to the Government of Pakistan notice of any proposal to introduce,
or move an amendment to, a Bill in the Indian Legislature which affects the coinage
or currency of India or the constitution or functions of the Bank.
PART IV
1. (1) In this section "Government's Bank Profits" in respect of any period means
the sum of-
(b) any other profits accruing in that period to the Government of India by
reason of any revaluation of the gold held by the Bank,
less any amount debited to the Government of India in that period under sub-section
(2) of the said section 34:
1948 shall be deemed to be one-quarter of the said profits in respect of the year
ending on the 30th day of June 1949.
(2) The Government of India shall pay to the Government of Pakistan that
portion of the Government's Bank profits in respect of the period commencing on
the 1st day on July, 1947 and ending on the 30th day of September, 1948 which bears
to the total of such profits in respect of the said period the same proportion as the
total value of the Pakistan notes in circulation in Pakistan on the 30th day of
September 1948 plus the total value of India notes returning from circulation in
Pakistan in the period commencing on the 1st day of October 1948 and ending on the
31st day of March 1949 bears to the total value of India and Pakistan notes in
circulation in India and Pakistan on the 30th day of September, 1948:
2. (1) In respect of the period commencing on the 15th August 1947 and ending
on the 30th September 1948 the Government of India shall pay to the Government
of Pakistan the profit, as calculated by the Auditor General of India, on the net
amount of India subsidiary coins which are actually passed into circulation in
Pakistan during that period less the loss, as calculated by the Auditor General of
India, on the destruction of any India subsidiary coins returned from Pakistan during
that period and destroyed as not being fit for reissue.
(2) If in respect of the period mentioned in sub-section (1), the amount of India
subsidiary coins returning from circulation in Pakistan exceeds the amount of India
subsidiary coins actually passed into circulation in Pakistan during that period, the
Government of Pakistan shall pay to the Government of India the loss attributable
to that fact, as calculated by the Auditor General of India, together with the loss, as
calculated by the Auditor General of India, on the destruction of any India
subsidiary coins returned from Pakistan during that period and destroyed as not
being fit for reissue.
3. (1) Any India coins other than one-rupee notes retired from Pakistan (whether
from circulation, from the Bank's balances, from Treasury balances, or from small
coin depots) by reason of the introduction of corresponding Pakistan coins shall be
disposed of as follows:-
(a) Coins, other than nickel brass and quaternary silver coins, shall be
accepted against payment to the Government of Pakistan of their
APPENDICES 387
4. (1) As soon after the 30th September 1948 as practicable and subject to the
provisions of sub-section (3), there shall be transferred from the Issue Department
of the Bank to the Government of Pakistan assets, which, as valued for the purposes
of the Reserve Bank Act, have together a value equal to the total liability in respect
of the Pakistan notes outstanding on that day.
(2) India notes which may be legal tender in Pakistan on the 30th September
1948 or in respect of which the rights of encashment in Pakistan exist on that date
shall be accepted by the Government of Pakistan at par until the 31st March 1949,
and there shall from time to time on the demand of the Government of Pakistan be
transferred from the Issue Department of the Bank to the Government of Pakistan
assets which as valued for the purposes of the Reserve Bank Act, have together a
value equal to the amount of notes accepted by the Government of Pakistan under
this sub-section.
(3) In transferring assets under this section, Pakistan rupee securities and the
advances, if any, taken by the Government of Pakistan from the Bank shall first be
set off against the liability for Pakistan notes and India notes accepted by the
Government of Pakistan, and only in respect of the balance of that liability shall the
other assets of the Issue Department, consisting of gold, sterling securities, India
rupee coin, Pakistan rupee coin and Government of India securities, be transferred
in the proportions in which assets of those classes respectively may be held by the
Issue Department on the 30th day of September 1948.
(4) Any India rupee coin transferred under the foregoing provisions of this
section shall be disposed of in accordance with the provisions of section 3 as if it were
retired rupee coin, and any Pakistan rupee coin remaining with the Bank after the
transfers under this section shall be made over to the Government of India for
disposal otherwise than as coin.
(5) The Government of Pakistan shall, if the Bank so desires, take over from
the Bank all or any of the property held by the Bank in Pakistan for the purpose of
388 HISTORY OF THE STATE BANK OF PAKISTAN
carrying on its business against payment of the value of that property as shown in the
books of the Bank.
(a) the same fraction of the amount of the Reserve Fund of the Bank as on
the 30th day of September 1948 which would accrue to the Government
of India if the Bank went into liquidation on that date, as the fraction of
the uncovered debt of the Government of India for which the
Government of Pakistan becomes liable on the 15th day of August 1947;
(b) the same fraction of the other surplus assets of the Bank which would
exist on the 30th day of September 1948 if the Bank went into liquidation
on that date remaining after deducting therefrom the sums payable for
a proportionate period in respect of the financial year of the Bank
current on that date to the Government of India and the shareholders of
the Bank, as the fraction of the assets of the Issue Department which the
Government of Pakistan takes over:
Provided that any payment due under this sub-section shall be credited as a
capital payment in reduction of the debt, if any, due by the Government of Pakistan
to the Government of India.
MOUNTBATTEN OF BURMA,
Governor-General
K.V.K. SUNDARAM,
Officer on Special Duty
APPENDIX-II
Article I.- For the purposes of this Agreement the sterling assets· of the Reserve
Bank of India shalJ be taken at the figure of £1,160 million.
Article II. ...: (1) The Reserve Bank of India shall open With the Bank of England a
new account (hereinafter referred to as the ••No.2 Account';}; ·to which the baliffice
of the total assets referred to in Article I above, remaining at the close of business on
the date of the signature of this Agreement; shall be transferred:,
· (2) The Ne.2 Account ofthe Reserve Bank oflndia shall be operated upon in
accOrdance with the provisions of Article VI of this Agreement and any sums
standing to the credit of the said Account shall be available only for the purposes
prescribed in that Article.
Article IIL-(l) There shall also be established at the Bank of 'England in the name
of the Reser-ve Bank of India a new account (hereinafter referred to· as the "No.1
Account") to which any sterling received after the date of this Agreement by the
Reserve Bank of India in respect of current transactions ·and any sums transferred
from the No.2 Account shall be credited.
·.. (2) The Government of the United Kingdom shaH not restrict the availability
of sterling standing to the credit of the No.1 Account for payments·for current
389
390 HISTORY OF THE STATE BANK OF PAKISTAN
transactions in any currency area or for the purpose of any payment to residents of
the sterling area.
Article IV.-(1) There shall be transferred forthwith from the No.2 Account to the
No.1 Account £35 million less the amount by which the total of the Reserve Bank of
India's sterling assets, as established by Article I of this Agreement, exceeds the
amount transferred to the No.2 Account in accordance with paragraph I of Article
II of this Agreement.
from time to time to meet any temporary shortage in India's available means of
payment abroad.
(2) The level at which the working balance provided for in this Article has been
maintained during the currency of this Agreement shall be taken into consideration
in the consultation referred to in Article XI of this Agreement in the light of such data
as may then be provided.
Article VI.-(a) the No.2 Account referred to in Article II of this Agreement shall
be credited with-
(iii) the transfers from the No.1 Account being transfers provided for in
paragraph 3 of Article IV and paragraph 2 of Article VIII of this Agreement;
Article VIII. -(1) Such transfers of capital from India to the rest of the sterling area
and vice versa as may be agreed between the Reserve Bank of India and the Bank of
England shall be subject to the provisions of paragraph 2 of this Article.
392 HISTORY OF THE STATE BANK OF PAKISTAN
(2) The Reserve Bank of India and the Bank of England shall consult together
at agreed intervals in order to establish by reference to the best statistical data
available to them the net capital movement from India to the other countries of the
sterling area, or vice versa as the case may be, resulting from the agreed transfers of
capital. Thereafter an amount equal to the net capital movement so established shall
be transferred from the No.2 Account to the No.1 Account if the movement is one
from India to the other countries of the sterling area, or from the No.1 Account to
the No.2 Account if the movement is in the reverse direction.
(3) Notwithstanding anything in this Article the two Governments shall not
restrict transfers of capital from India to the United Kingdom representing-(a)
remittances of savings belonging to persons of United Kingdom origin leaving India
in order to take up permanent residence in the United Kingdom; and (b) the
voluntary repatriation of investments by persons regarded as resident in the United
Kingdom for purposes of exchange control in the United Kingdom.
Transfers of capital falling within the description in sections (a) and (b) of the
preceding paragraph shall be included in the computations for which paragraph 2
provides.
Article IX.-(1) The two Governments shall as often as may be necessary consult
together with a view to ensuring the smooth working of the present Agreement.
(2) The Reserve Bank of India and the Bank of England shall be entrusted with
the technical execution of this Agreement and shall consult together as often as may
be necessary in order to ensure its smooth working.
(b) the expression "sterling area" shall have the meaning from time to
time assigned to it by the Exchange Control Regulations in force in the United
Kingdom. After the coming into force in the United Kingdom of the Exchange
Control Act, 1947, the expression "sterling area" wherever it occurs in the
present Agreement shall be deemed to have been replaced by the expression
"scheduled territories" which shall have the meaning from time to time
assigned to it in the aforesaid Exchange Control Act, 1947;
(c) the expression "payments for current transactions" shall have the
APPENDICES 393
Article XI.- The present Agreement shall come into force on the 14th August, 1947.
It shall terminate on the 31st December, 1947. Further consultations shall be held
before the termination of this Agreement with a view to extending it or replacing it
by another Agreement or other Agreements.
MINISTRY OF LAW
(Reforms)
NOTIFICATION
New Delhi, the 31st March, 1948.
And whereas an agreement has been reached between the Dominions of India
and Pakistan that the provisions of the principal Order should be modified and
supplemented in certain respects;
Now, therefore, in the exercise of the powers aforesaid and of all other powers
enabling them in that behalf, the Governor-General of India and the Governor-
General of Pakistan, acting jointly, are pleased to make the following Order:-
394
APPENDICES 395
1. (1) This Order may be cited as the Pakistan Monetary System and Reserve
Bank (Amendment) Order, 1948.
2. In section 2 of Part I of the principal Order, after clause (e), the following
clause shall be inserted, namely:-
"(ee) 'Pakistan rupee coin' means rupee coin which is for the time being legal
tender in Pakistan, and not in India, and includes the one rupee notes referred to in
section 9 of Part II of this Order;".
"(4) The provisions of this section shall have effect only up to the 30th day of
June, 1948.";
(4) in sub-section (2) of section 7, for the word "October" the word "July" shall
be substituted; and
(5) in section 11 for the figures and words "31st day of March" the figures and
words "30th day of June" shall be substituted.
(2) in section 2, for the word "September" the word "June" shall be
substituted.
(a) in sub-section (1) the words "in respect of any period" and the proviso
396 HISTORY OF THE STATE BANK OF PAKISTAN
shall be omitted, and for the words "payable in respect of that period"
the words and figures "payable in respect of the year ending on the 30th
day of June, 1948" shall be substituted:
(2) in sub-section (1) of section 2 for the word "September" the word "June"
shall be substituted;
"(2) There shall be added to the debt due by the Government of Pakistan to the
Government of India an amount equal to the amount of one-rupee notes of the
Government of Pakistan issued up to the 30th day of June, 1948.
(4) The Government of Pakistan shall exchange at par all one-rupee notes of
the Government of India returning from circulation in Pakistan after the 30th day of
June, 1948, and shall return to the Government of India all notes so exchanged.
(5) The debt due to the Government of India by the Government of Pakistan
shall be deemed to be reduced by an amount equal to the amount of the notes
returned under sub-section (4) of this section before the 1st day of July, 1948, or to
the amount mentioned in sub-section (2) of this section, whichever is less.";
(4) in section 4-
(a) for the word "September," whereverit occurs, the word "June" shall be
substituted;
(b) in sub-section (2), for the words and figures "until the 31st March, 1949,
APPENDICES 397
and there shall from time to time on the demand of the Government of
Pakistan" the following shall be substituted, namely,:-
"until the 30th day of June, 1949, and on the delivery of such notes
to the Bank from time to time in instalments of not less than five crores
of rupees each, there shall";
and for the words "amount of notes accepted" the words "amount of
notes delivered" shall be substituted;
(c) in sub-section (3), for the word "accepted" the word "delivered" shall be
substituted, and after the figures "1948" the words "and in accordance
with the following provisions of this Part" shall be added; and
(5) sub-sections (5) and (6) of section 4 shall be made a separate section andre-
numbered respectively as sub-section and before the said sections 14 and 15 as sore-
numbered, the following sections shall be inserted, namely,
"5. All transfers of gold under the provisions of section 4 shall, except in the
last instalment, be in such number of gold bars as do not exceed in value the amount
due to be transferred in gold in that instalment.
(a) the amount of sterling securities held in the Issue Department of the Bank
on the 30th day of June, 1948, shall be deemed to be reduced, and the amount of
Government of India securities so held on that day shall be deemed to be increased
by the amount by which the amount of sterling held in the Banking Department of
the Bank on that day falls short of the aggregate of-
(i) the amounts payable in sterling to the Government of the United Kingdom
in pursuance of any agreement that may be reached as to the final settlement of the
sterling balances,
(ii) the amounts payable in sterling to the Government of Pakistan and the
Provincial Governments in Pakistan under the provisions of section 11, and
(iii) the amount of the balance at the credit ofthe Bank's account No.I with the
Bank of England; and
(b) the increase in each kind of Government of India securities under clause
(a) shall bear the same proportion to the total increase as the amount of that kind of
398 HISTORY OF THE STATE BANK OF PAKISTAN
securities held in the Issue Department of the Bank on the 30th day of June, 1948,
bears to the total amount of Government of India securities so held on that day.
8. Any Pakistan rupee coin remaining with the Bank after the transfers have been
effected in accordance with the provisions of section 4 shall be made over to the
Government of India for disposal otherwise than as coin.
(b) the Bank shall be entitled to withhold from the value of all or any of the
assets to be transferred thereafter to the Government of Pakistan from the Issue
Department of the Bank an amount equal to the value of the remainder of the said
notes and coins which are for the time being held in Pakistan.
10. (1) The cost of remittance from Pakistan to India of any notes or coins under
the provisions of section 9 shall be borne by the Bank.
(2) The cost of remittance of any notes, coins, gold and securities under the
provisions of sections 3 and 4 shall be borne by the Government of Pakistan.
11. (1) The amounts standing to the credit of the Government of Pakistan, or any
Provincial Government in Pakistan, with the Bank on the 30th day of June, 1948,
shall be paid by the Bank-
(a) in Pakistan currency, to the extent that such currency is available in the
APPENDICES 399
(b) the remainder, by transfer from the balance in the Bank's Pakistan account
with the Bank of England, and to the extent that such balance is insufficient, by
transfer from the Bank's No.II account with the Bank of England.
(2) Any amount that banks in Pakistan may require the Bank to transfer to the
Government of Pakistan out of their deposits with the Bank in order to comply with
the requirements of any law for the time being in force in Pakistan shall, if the
transfer is to be made after the 30th day of June, 1948, be paid by the Bank by
transfer from its No.II account with the Bank of England.
12. The transfer to the Government of Pakistan of the Government's Bank profits
under the provisions of section 1 and of the assets of the Issue Department of the
Bank under the provisions of section 4 shall be provisional pending the settlement of
Burma's claim to a share of the Bank's profits and assets and shall be subject to
readjustment when that claim is finally settled.
13. Unit! 30th day of June, 1948, there shall be no exchange control as between
India and Pakistan, nor shall any restriction be placed on the transfer of funds or
securities from one Dominion to the other, whether such transfers are on capital
account or current account."; and
(6) in section 15, as renumbered by clasue (5) above, after the words "the
context so permits" the words and figures "and until the 30th day of June, 1948,"
shall be inserted.
K.V.K. SUNDARAM,
Officer on Special Duty
APPENDIX-IV
Promulgated by
THE GOVERNOR-GENERAL
On the 12th May, 1948.
1. (1) This Order may be cited as the State Bank of Pakistan Order, 1948.
400
APPENDICES 401
2. (1) In this Order unless there is anything repugnant in the subject or context,
(a) "the Bank" means the State Bank of Pakistan constituted by this Order;
(b) "the Central Board" means the Central Board of Directors of the Bank
constituted under clause 6 of this Order;
(c) "scheduled bank" means a bank included in the Second Schedule to this
Order;
(d) "rupee coin" means silver rupees, nickel rupees and one rupee notes
which are legal tender in Pakistan;
3. (1) As soon as may be after the commencement of this Order, steps shall be
Substituted for the words "means such foreign currencies as may be notified under clause 14 of this
Order".
Inserted.
402 HISTORY OF THE STATE BANK OF PAKISTAN
taken to establish, in accordance with the provision ofthis Order, a bank to be called
the State Bank of Pakistan, [or Bank-e-Daulat-e-Pakistanp for the purposes of
taking over as from the first day of July, 1948, the management of the currency from
the Reserve Bank of India, and carrying on the business of Central Banking.
(2) The Bank shall be a body corporate by the name of the State Bank of
Pakistan [or Bank-e-Daulat-e-Pakistan]4 having perpetual succession and a common
seal, and shall by said name sue and be sued.
(2) The Bank may establish branches, offices and agencies in Pakistan, or, with
the prior approval of the Central Government, elsewhere.
Provided that the capital may be increased by a resolution of the Central Board
subject to the approval of the Central Government.
(2) The capital shall be divided into three hundred thousand shares of nominal
value of one hundred rupees each, which shall be fully paid up, and of which no less
than fifty one per cent shall be issued to the Central Government.
(3) The balance of the share capital remaining after deducting the amount of
the shares to be issued to the Central Government under sub-clause (2) shall be
offered for public subscription.
3· 4 Inserted.
Substituted for the word "No person, either singly or jointly with other persons shall, whether by
allotment or otherwise, hold more than five hundred shares.
Provided that any person holding at any time more than five hundred shares shall dispose of shares
in excess of the aforesaid limit of five hundred shares within a period of two months from the date of
his becoming owner thereof, failing which the excess shares, shall be forfeited to the Central
Government.
APPENDICES 403
and Dacca and a separate issue of shares assigned to each of the registers by the
Central Board shall be made in the respective areas served by those registers, as
defined in the First Schedule to this Order, and shares shall be transferable from one
register to another.
(b) a British subject ordinarily resident in Pakistan and domiciled in the United
Kingdom or in any part of his Majesty's Dominions, the Government of which does
not discriminate in any way against the subjects of Pakistan; or
(c) a company registered under the Indian Companies Act, 1913, as adapted
by the Pakistan (Adaptation of Existing Pakistan Laws) Order, 1947, or a society
registered under the Co-operative Societies Act, 1912, or any other law for the time
being in force in Pakistan relating to co-operative societies or a scheduled bank; or
a bank, company or co-operative society duly registered in a State which has acceded
or accedes to Pakistan; or a corporation or Company incorporated by or under an
Act of parliament or any law for the time being in force in any part of His Majesty's
Dominions, the Government of which does not discriminate in any way against the
subjects of Pakistan and having a branch in Pakistan;
[(6A) The shares of the Bank may be held under his official designation by the
holder of any public office which may be notified in the Gazette by the Local Board,
and in regard to transfers the following provisions shall apply, namely-
(b) when the holder of the office transfers the share to a party not being his
successor in office, the transfer shall be made in the prescribed manner;
404 HISTORY OF THE STATE BANK OF PAKISTAN
(c) the provisions of parts (a) and (b) of this sub-clause apply in the case of
an office of which there are two or more joint holders as they apply to
any office of which there is a single holder. ]6
6. (1) The general superintendence and direction of the affairs and business of
the Bank shall be entrusted to a Central Board of Directors which may exercise all
powers and do all acts and things which may be exercised or done by the Bank and
are not by this Order expressly directed or required to be done by the Bank in
General meeting.
(2) The Central Board shall consist of the Governor, one or more Deputy
Governors, if appointed, and [nine] 8 directors nominated or elected in accordance
with the provisions of clause 9 of this Order:
Provided that a Deputy Governor shall not be entitled to vote, except when he
is acting as Chairman at a meeting of the Central Board under the next succeeding
clause.
7. (1) Meetings of the Central Board shall be convened by the Governor at least
six times in each calendar year and at least once in each quarter:
Provided that the Central Board shall meet at least once, and if possible twice,
in Dacca, and at least once in Lahore, in each calendar year.
6· 7 Inserted.
Substituted for the word "Eight".
APPENDICES 405
(2) Any three Directors may require the Governor to convene a meeting of the
Central Board at any time and the Governor shall forthwith take steps to convene
meeting accordingly.
(5) At meetings of the Central Board, five members present shall form a
quorum:
Provided that pending the election of three Directors from amongst the
shareholders under sub-clause (1) of clause 9, of this Order, three members of the
Central Board present at a meeting shall form a quorum.
8. (1) The Governor of the Bank shall be the chief executive officer and shall, on
behalf of the Central Board, have the direction and control of the whole affairs of the
Bank:
(2) A Deputy Governor shall perform such duties as may be assigned to him
by the Central Board.
(3) In the event of absence or incapacity ofthe Governor from what-ever cause
arising, and in the event of there being no Deputy Governor to whom the duties of
the Governor may be assigned by the Central Board under sub-clause (2), the
Central Board shall authorise one of their members to act as Governor for the time
being, but no such person shall act as Governor for a period exceeding one month
without the approval of the Central Government.
(4) Subject to the provisions of sub-clause (9) of this clause, the Governor shall
be appointed by the Central Government for such term not exceeding five years and
on such salary as may be fixed by the Central Government at the time of
406 HISTORY OF THE STATE BANK OF PAKISTAN
Provided that the Central Government may require the Governor to hold an
office other than in the Bank, in which event, the Governor shall vacate his office,
and the period during which he holds the other office shall not count towards his
tenure of office as Governor:
Provided further that in the event of a vacancy occurring under the preceding
proviso, the Central Government shall make a temporary appointment of Governor
for such time as the Governor does not resume his office in the Bank.
(5) The Central Government may appoint one or more Deputy Governors,
and the provisions of the next preceding sub-clause shall apply to the Deputy
Governors so appointed.
(6) The Governor and Deputy Governor shall devote their whole time to the
affairs of the Bank:
[Provided that the Governor, or the Deputy Governor as the case may be, may
in addition to his duties as Governor or Deputy Governor, be entrusted by an Order
of the Central Government with such duties in relation to the National Bank of
Pakistan for such period as may be specified in the Order; and] 9
(7) The Governor and Deputy Governor shall on the expiry of their terms of
office be eligible for re-appointment.
[Provided that nothing in paragraph (c) of this clause shall apply where the
Inserted.
APPENDICES 407
(9) The Central Government may remove from office the Governor, a Deputy
Governor or any nominated or elected Director:
Provided that in the case of a nominated or elected Director this power shall
be exercised only on a resolution passed by the Central Board in that behalf by a
majority or not less than six Directors.
[(10) The Central Government may grant leave to the Governor and Deputy
Governor for such period and on such terms and conditions as may be specified by
the Central Government.
9. (1) [Six Directors, one of whom shall be a Government official holding office
at the pleasure of the Central Government, shall be nominated by the Central
Government for a period of three years and one Director to hold office for three
years shall be elected from amongst themselves by each group of the shareholders
registered in each of the three share registers provided for in clause 5 of the Order. ]1 2
Provided that, pending the election of the three Directors from amongst the
shareholders as aforesaid, the [six] 13 Directors nominated by the Central
Government and the Governor and Deputy Governor, if appointed, shall constitute
the Central Board for the purposes of this Order.
(2) (a) In the event of a vacancy occurring amongst the Directors appointed by
the Central Government before the expiry of the term of office, the Central
Government shall appoint another Director to hold office for the remainder of the
term.
10· 11 Inserted.
12 Substituted for the words "The Central Government shall nominate five Directors each for a term of
three years, and one Director to hold office for three years shall be elected from amongst themselves
by each group of the shareholders registered in each of the three share registers provided for in clause
5 of this Order".
13 Substituted for the word "five".
408 HISTORY OF THE STATE BANK OF PAKISTAN
(b) In the event of a vacancy occurring amongst the Directors elected by the
shareholders before the expiry of the term of office, a new Director shall be elected
for the remainder of the term by and from amongst the shareholders registered on
the same share register as that from which the vacating Director was elected.
(3) The Directors shall, on the expiry of their term, be eligible for re-
nomination or re-election.
(4) In any election under sub-clause (1) and sub-clause (2) of this clause,no
shareholder shall have more than ten votes as provided for in sub-clause (3) of clause
II of this Order.
(5) No person shall be or shall continue to be, a Director of the Bank who-
(c) is,or at any time has been, adjudicated an insolvent or has suspended
payment or has compounded with his creditors, or
(f) is a director of any bank, other than a bank which is a society registered
under the Co-operative Societies Act, 1912, or any other law for the time being in
force in Pakistan.
[Provided that nothing in paragraph (b) shall apply to the Government Official
nominated as a Director by the Central Government.]! 4
(6) If in the opinion of the Central Board, any Director becomes permanently
incapacitated, he may, subject to the approval of the Central Government, be
removed from office by a resolution of the Central Board.
(7) In the transaction of the business of the Central Board each Director shall
have one vote.
(8) The Directors shall be entitled to receive such remuneration for attendance
at meetings of the Central Board, or of the Executive Committee constituted under
14 Inserted.
APPENDICES 409
the next succeeding clause, as may be prescribed by regulations made under this
Order.
(2) A Director removed under sub-clause (1) shall not be eligible to become a
. Director again until the expiry of the term for which he would have held office had
he not been removed.
(3) A Director may resign his office by a statement to that effect in writing
signed by him and addressed to the Central Government, and on the acceptance of
his resignation his office shall be vacant. ) 15
Executive Committee
(2) Except when the Central Board is in session, the Executive Committee
shall:-
(a) deal with and decide any matter within the competence of the Central
Board; and
(b) determine the minimum rates at which the Bank is prepared to discount
or re-discount bills or to make advances.
(3) the Executive Committee shall keep full minutes of its proceedings which
shall be submitted to the Central Board at its next meeting for ratification.
General Meetings
11. (1) A general meeting (hereinafter referred to as the annual general meeting)
15 Inserted.
16 Substituted for the word "two".
17 Inserted.
410 HISTORY OF THE STATE BANK OF PAKISTAN
Provided that a general meeting be held within six months after the
commencement of this Order, a shareholder shaH be entitled to vote as provided in
sub-clause (3) of this clause, notwithstanding that he has been registered as a
shareholder for a period less than six months.
12. (1) A Local Board shall be constituted for each of the three areas specified in
the First Schedule, and shall consist of-
(a) four members elected from amongst themselves by the shareholders who
are registered on the register for that area and are qualified to vote, and
(b) not more than five members nominated by the Central Government. 18
18 Deleted the words "from amongst the shareholders registered on the register for that area".
----·-----·
APPENDICES 411
Provided further that any shares sold at par by the Central Government to a
member seeking to obtain the minimum share qualification required under this
paragraph shall not be disposed of by such member otherwise than by resale to
Government at par, and Government shall be entitled to repurchase at par all such
shares held by any member on his ceasing from any cause to hold office as a member
of a Local Board. ) 19
(2) At an election of members of a Local Board for any area, any shareholder
who has been registered on the register for that area for a period of not less than six
months ending with the date of the election, as holding five shares, shall have one
vote, and each shareholder so registered as having more than five shares shall,
subject to a maximum of ten votes, have one vote for each five shares, and such votes
may be exercised by proxy appointed on each occasion for that purpose, such proxy
being himself a shareholder entitled to vote at the election and not being an
employee of the Bank.
Provided that at the first election held under this Order, a shareholder shall be
entitled to vote as provided for in sub-clause (2) of this clause, notwithstanding that
he has been registered as a shareholder for a period less than six months.
(3) The members of a Local Board shall hold office until they vacate it under
sub-clause (6) and shall be eligible for re-election or re-nomination, as the case may
be:
19-20 Inserted.
412 HISTORY OF THE STATE BANK OF PAKISTAN
(4) At any time within three months of the day on which the Director
representing the shareholders on any register are due to retire under the provisions
of this Order, the Central Board shall direct an election to be held of members of the
Local Board concerned, and shall specify a date from which the registration of
transfers from and to the register shall be suspended until the election has taken
place.
(5) On the issue of such direction the Local Board shall give notice of the date
of the election and shall publish a list of shareholders holding five or more shares with
the dates on which their shares were registered, and with their registered addresses,
and such list shall be available for purchase not less than three weeks before the date
fixed for the election.
(6) The names of the persons elected shall be notified by the Central Board to
the Central Government which shall thereupon proceed to make any nominations
permitted by para (b) of sub-clause (1); it shall then fix the date on which the
outgoing members of the Local Board shall vacate office, and the incoming members
shall be deemed to have assumed office on that date.
(7) A Local Board shall advise the Central Board on such matters as may be
generally or specifically referred to it and shall perform such duties as the Central
Board may, by regulations delegate to it.
[12A. (1) The Central Board shall remove from office any member of a Local
Board becoming subject to any disqualification referred to in the proviso to sub-
clause (3) of clause 12 or ceasing to be a qualified voter under sub-clause (2) of clause
12.
(2) A member of a Local Board removed under sub-clause (2) shall not be
eligible to become a member of a Local Board until the expiry of the term of office
during which he was removed.
(3) A member of a Local Board may resign his office by a statement in writing
21 Inserted.
APPENDICES 413
signed by him and addressed to the Central Board and on the acceptance of his
resignation his office shall become vacant. ]22
(a) stocks, funds and securities other than immovable property, in which a
trustee is authorised to invest trust money by any law for the time being in force in
Pakistan;
(c) such bills of exchange and promissory notes as are eligible for purchase or
rediscount by the Bank;
(6) The issue of demand drafts made payable at its own offices or agencies and
making, issue and circulation of bank post bills.
[(6a) The drawing, accepting, making and issue, on its own account or on
account of the Central Government as the case may be, of any bill of exchange,
hundi, promissory note or engagement for the payment within or without Pakistan
of Pakistan or foreign currency payable to bearer or to a banker on demand.
Provided that the business mentioned in this sub-clause shall not be carried on
or transacted without the previous approval of the Central Government in each
case.J23
zz.zJ In~erted.
414 HISTORY OF THE STATE BANK OF PAKISTAN
Provided further that the amount of such securities held at any time in the
Banking Department shall be so regulated that-
(a) the total value of such securities shall not exceed the aggregate amount of
the share capital of the Bank, the Reserve Fund and three-fifths of the liabilities of
the Banking Department in respect of deposits;
(b) the value of such securities maturing after one year shall not exceed the
aggregate amount of the share capital of the Bank, the Reserve Fund and two-fifths
of the liabilities of the Banking Department in respect of deposits;
(c) the value of such securities maturing after ten years shall not exceed the
aggregate amount of the share capital of the Bank and the Reserve Fund and one-
fifth of the liabilities of the Banking Department in respect of deposits.
(9) The custody of monies, securities and other articles of value, and the
collection of the proceeds, whether principal, interest or dividends, of any such
securities.
(10) The sale and realisation of all property, whether movable or immovable
which may in any way come into the possession of the Bank in satisfaction, or part
satisfaction of any of its claims.
(11) The acting as agent for the Central Government, any Provincial
Government, the Government of a State, or any Local Authority in the transaction
of any of the following kinds of business, namely:-
(a) the purchase and sale of gold or silver, or approved foreign exchange;
(b) the purchase, sale, transfer and custody of bills of exchange, securities or
shares in any company;
(d) the remittance of such proceeds at the risk of the principal, by bills of
exchange payable either in Pakistan or elsewhere;
(12) The purchase and sale of gold coin and gold or silver bullion. 24
(14) The borrowing of money for a period not exceeding three months for the
purposes of the business of the Bank, and the giving of security for money so
borrowed:
Provided that no money shall be borrowed under this sub-clause from any
person in Pakistan other than a scheduled bank or from any person outside Pakistan
other than bank which is the principal currency authority of any country under the
law for the time being in force in that country;
Provided further that the total amount of such borrowings from persons in
Pakistan shall not at any time exceed the amount of the share capital of the Bank.
(15) The making and issue of bank notes subject to the provisions of this
Order.
[(15A) the performance of the functions of the Bank under the International
Monetary Fund and Bank Act, 1950]27
(16) Generally, the doing of all such matters and things as may be incidental to
or consequential upon the exercise of its powers or the discharge of its duties under
this Order.
24
Deleted the words "and approved foreign exchange".
25 Substituted the words "the opening of an account or the making of an agency agreement with, and the
acting as agent or correspondent of, a bank which is the principal currency authority of any country
under the law for the time being in force in that country or any international bank formed by such banks
and the investing of the funds of the banks in the shares of any such international banks".
26-27
Inserted.
416 HISTORY OF THE STATE BANK OF PAKISTAN
(a) purchase, sell or discount any of the bills of exchange or promissory notes
specified in paragraph (a) or (b) of sub-clause (2) or paragraph (b) of sub-clause (3)
of the clause, though such bill or promissory note does not bear the signature of a
scheduled bank or a provincial co-operative bank; or
(2) Where a banking company, to which a loan or advance has been made
under the provisions of paragraph (b) of sub-clause (1) of this clause, is wound up,
any sums due to the Bank in respect of such loan or advance shall subject only to the
claims, if any, of any other banking company in respect of any prior loan or advance
made by such banking company against any security, be a first charge on the assets
of the banking company. ]28
14. (1) The Central Government may, on the recommendation of the Central
Board, by notification in the Official Gazette, declare the currency of any country to
be approved foreign exchange for all or any of the purposes of this Order.
28 Inserted.
APPENDICES 417
Provided that all such interest shall be disposed of at the earliest possible
moment;
(2) purchase its own shares or the shares of any other bank or of any company,
or grant loans upon the security of any such shares;
Government business
16. [(1))29 The Bank shall undertake to accept monies for account of the Central
Government, Provincial Governments and Governments of States, and to make
payments up to the amount standing to the credit of their account respectively, and
to carry out their exchange, remittance and other banking operations, including the
management of public debt.
[(2) (a) The Central Government and Provincial Governments shall entrust
the Bank, on such conditions as may be agreed upon between the Government
concerned and the Bank, with all their money, remittance, exchange and banking
transactions in Pakistan, and, in particular, shall deposit free of interest all their cash
balances with the Bank:
Provided that nothing in this sub-clause shall be deemed to prevent the Central
Government and any Provincial Governments from carrying on money transactions,
at places where the Bank has no branch or agency or from holding at such places such
balances as they may require.
(b) The Central Government and each Provincial Government shall entrust
the Bank, on such conditions as may be agreed upon between the Government
concerned and the Bank, with the management of the public debt and with the issue
of any new loans.
(c) In the event of any failure to reach agreement on the conditions referred to
in this clause the Central Government shall decide the conditions and its decisions
shall be final. po
z,_,o Inserted.
418 HISTORY OF THE STATE BANK OF PAKISTAN
Bank Rate
17. [The Bank shall make public from time to time the standard rate at which it is
prepared to buy or rediscount bills of exchange or other commercial paper eligible
for purchase under this Order. ]3 1
18. On and after the first day of July 1948, the Bank shall have the sole right to
issue bank notes in Pakistan and may, for a period which shall be fixed by the Central
Government on the recommendation of the Central Board, issue currency notes of
the Government of Pakistan supplied to it by the Central Government and the
provisions of this Order applicable to bank notes shall, unless a contrary intention
appears, apply to all currency notes of the Government of Pakistan in like manner as
if such currency notes were bank notes and references in this Order to bank notes
shall be construed accordingly.
Issue Department
19. (1) The issue of bank notes shall be conducted by the Bank in an Issue
Department which shall be separated and kept wholly distinct from the Banking
Department and the assets of the Issue Department shall not be subject to any
liability other than the liabilities of the Issue Department as hereinafter defined in
clause 25.
(2) The Issue Department shall not issue bank notes to the Banking
Department or to any person except in exchange for other bank notes or for such
coin, bullion, approved foreign exchange, or securities as are permitted by this Order
to form part of the assets of the Issue Department.
20. (1) Notes of the Bank shall be in such denominations and shall be printed and
signed or otherwise executed in such manner as may be determined by the Central
Government on the recommendations of the Central Board.
(2) The design, form and material of bank notes shall be such as may be
approved by the Central Government after consideration of the recommendations
made by the Central Board.
31 Substituted for the words "The Bank shall make public the rates at which it is prepared to discount or
rediscount bills or to make advances".
APPENDICES 419
Re-issue of notes
21. (1) The Bank shall not re-issue bank notes which are tom, defaced or
excessively soiled.
Provided that the Bank may, with the previous approval of the Central
Government, prescribe the circumstances and the conditions and limitations subject
to which the value of such currency note or bank note may be refunded as of grace. ]32
Legal tender
22. (1) Subject to the provisions of sub-clause(2) every bank note shall be legal
tender at any place in Pakistan in paymet or on account for the amount expressed
therein and shall be guaranteed by the Central Government.
23. (1) The assets of the Issue Department shall consist of gold coin, gold bullion,
silver bullion, sterling securities, approved foreign exchange, rupee coin and rupee
securities to such aggregate amount as is not less than the total of the liabilities of the
Issue Department as hereinafter defined:
Provided that the assets falling to the [share of the Government of Pakistan ]33
under the provisions of the Pakistan (Monetary System and Reserve Bank) Order
1947, as modified by the Pakistan Monetary System and Reserve Bank
(Amendment) Order, 1948, which are held by the Reserve Bank of India pending
their physical transfer to the Bank, shall form part of the assets under this clause.
(2) Of the total amount of the assets not less than thirty per cent shall consist
of gold coin, gold bullion, silver bullion, sterling securities or approved foreign
exchange.
32 Substituted for the words "The Central Board may, from time to time, make regulations in respect of
the refund of the value of notes lost, stolen, mutilated or imperfect".
33
Substituted for the words "Share of the Bank".
420 HISTORY OF THE STATE BANK OF PAKISTAN
(3) The remainder of the assets shall be held in rupee coin, rupee securities of
any maturity and such bills of exchange and promissory notes payable in Pakistan as
are eligible for purchase by the Bank, under para (a) or para (b) of sub-clause (2) of
clause 13.
(4) For the purposes of this clause, gold coin and gold bullion shall be valued
at 0.268601 grams of fine gold per rupee, silver bullion shall be valued at the market
value of the fine silver content thereof, rupee coin shall be valued at its face value,
and securities shall be valued at the market rate for the time being obtaining.
(5) Of the gold coin and gold or silver bullion held as assets not less than
seventeen-twentieths shall be held in Pakistan and all gold coin and gold and silver
bullion held as assets shall be held in the custody of the Bank including its branches,
offices or agencies:
Provided that gold or silver belonging to the Bank which is in any other bank
or in any mint or treasury or in transit may be reckoned as part of the assets.
(6) For the purposes of this clause the approved foreign exchange which may
be held as part of the assets shall be in any of the following forms, namely:-
(a) balances at the credit of the Issue Department with the bank of the country
of issue;
(b) bills of exchange bearing two or more good signatures and drawn on and
payable at any place in the country of issue and having a maturity not exceeding
ninety days;
(c) Government securitie~ of the country of issue maturing within five years.
24. Notwithstanding any thing contained in the foregoing provisions, the Bank
may, with the previous sanction of the Central Government, for periods not
exceeding thirty days in the first instance, which may, with the like sanction, be
extended from time to time by periods not exceeding fifteen days, hold as assets gold
coin, gold or silver bullion, sterling securities or approved foreign exchange of less
aggregate amount than that required by sub-clause (2) of clause 23.
[24A. On and after the 1st day of July 1948 the Issue Department shall take
over from the Reserve Bank of India the liability for all the bank notes of the Reserve
Bank of India inscribed with the words "Government of Pakistan" and issue before
APPENDICES 421
the first day of July 1948 and for the time being in circulation and the Central
Government shall transfer to the Issue Department assets falling to the share of the
Government of Pakistan under the provisions of Pakistan (Monetary System and
Reserve Bank) Order, 1947 equal to the amount of the liability taken over by that
Department from the Reserve Bank of India.
24B. (1) The Bank shall issue rupee coin on demand in exchange for bank
notes and currency notes of the Government of Pakistan and shall issue currency
notes or bank notes on demand in exchange for coin which is legal tender under the
Pakistan Coinage Act.
(2) The Bank shall in exchange for currency notes or bank notes of five rupees
or upwards supply currency notes or bank notes of lower value or coins which are
legal tender under the Pakistan Coinage Act, in such quantities as may in the opinion
of the Bank be required for circulation; and the Central Government shall supply
such coins to the Bank on demand and for so long as the Central Government fails
at any time to supply such coins to the Bank the Bank shall be released from its
obligation to supply them to the public. p4
25. (1) The liabilities of the Issue Department shall be an amount equal to the total
of the amount of the currency notes of the Government of Pakistan and notes of the
Bank for the time being in circulation.
(2) For the purposes of this clause, any currency note of the Government of
Pakistan or Bank note which has not been presented for payment within forty years
from the first day of April following the date of its issue shall be deemed not to be in
circulation and the value thereof shall notwithstanding anything contained in sub-
clause (2) of clause 19 be paid by the Issue Department to the Central Government
or the Banking Department, as the case may be; but any such note, if subsequently
presented for payment, shall be paid by the Banking Department, and any such
payment in the case of a currency note of the Government of Pakistan shall be
debited to the Central Government.
26. (1) Every bank included in the Second Schedule shall maintain with the Bank
a balance the amount of which shall not at the close of business on any day be less
than five per cent of the demand liabilities and two per cent of the time liabilities of
such bank in Pakistan as shown in the return referred to in sub-clause (2).
J4
Inserted.
422 HISTORY OF THE STATE BANK OF PAKISTAN
Explanation. -For the purposes of this clause liabilities shall not include the
paid up capital or the reserves, or any credit balance in the profit and loss account of
such bank or the amount of any loan taken from the Bank.
Every scheduled bank shall send to the Central Government and to the Bank
a return signed by two responsible officers of such bank showing-
(a) the amounts ofits demand and time liabilities, respectively, in Pakistan,
(c) the total amount of money held by it in Pakistan, in the form of notes and
coins;
(e) the balances held by it at other banks in current account and the money
at call and short notice in Pakistan;
(g) the amount of advances made and of the bills discounted in Pakistan,
separately. ]36
at the close of the business on each Friday; or if Friday is a public holiday under the
Negotiable Instruments Act, 1881, at the close of business on the preceding working
day and such return shall be sent not later than two working days after the date to
which it relates:
Provided that where the Bank is satisfied that the furnishing of a weekly return
under this sub-clause is impracticable in the case of any scheduled bank by reason of
35 Inserted.
36 Substituted for "(b) the total amount held in Pakistan in currency notes of the Government of Pakistan
and Bank notes, (c) the amounts held in Pakistan in rupee, coin and subsidiary coin, respectively (d)
the amount of advances made and of the bills discounted in Pakistan respectively, (e) the balance held
at the Bank..
APPENDICES 423
the geographical position of such bank and its branches, the Bank may require such
bank to furnish in lieu of a weekly return a monthly return to be despatched not later
than fourteen days after the end of the month to which it relates giving the details
specified in this sub-clause in respect of such bank at the close of business for the
month.
(3) If at the close of business on any day before the day fixed for the next
return, the balance held at the Bank by any scheduled bank is below the minimum
prescribed in sub-clause (1), such scheduled bank shall be liable to pay to the Bank
in respect of such day penal interest at a rate of three per cent above the bank rate
on the amount by which the balance with the Bank falls short of the prescribed
minimum, and if on the day fixed for the next return, such balance is still below the
prescribed minimum as disclosed by this return, the rates of penal interest shall be
increased to a rate five per cent above the bank rate in respect of that day and each
subsequent day on which the balance held at the Bank at the close of business on that
day is below the prescribed minimum.
(4) When under the provisions of sub-clause (3) penal interest at the increased
rate of five per cent above the bank rate has become payable by a scheduled bank,
if thereafter on the day fixed for the next return the balance held at the Bank is still
below the prescribed minimum as disclosed by this return-
(a) every director and officer of the scheduled bank, who is knowingly and
wilfully a party to the default, shall be punishable with fine which may extend to five
hundred rupees and with a further fine which may extend to five hundred rupees for
each subsequent day on which the default continues, and
(b) the Bank may prohibit the scheduled bank from receiving after the said day
any fresh deposit and if default is made by the scheduled bank in complying with such
prohibition, every director and officer of the scheduled bank who is knowingly and
wilfully a party to such default or who through negligence or otherwise contributes
to such default shall in respect of each default be punishable with fine which may
extend to five hundred rupees and with a further fine which may extend to five
hundred rupees for each day after the first on which a deposit received in
contravention of such prohibition is retained by the scheduled bank.
(5) Any scheduled bank failing to comply with the provisions of sub-clause (2)
shall be liable to pay to the Central Government or the Bank, as the case may be, or
to each, a penalty of one hundred rupees for each day during which the failure
continues.
(6) The penalties imposed by sub-clause (3), (4) and (5) shall be payable on
424 HISTORY OF THE STATE BANK OF PAKISTAN
demand made by the Bank and in the event of a refusal by the defaulting bank to pay
on such demand, may be levied by a direction of the principal Civil Court having
jurisdiction in the area where an office of the defaulting bank is situated, such
direction to be made only upon application made in this behalf to the Court by the
Central Government in the case of a failure to make a return under sub-clause (2) to
the Central Government, or by the Bank, with the previous sanction of the Central
Government, in other cases.
(7) The Central Government may by notification in the Official Gazette, direct
the inclusion in the Second Schedule of any bank not already so included which
carries on the business of banking in Pakistan and which:
(a) has a paid up capital and reserves of an aggregate value of not less than
five lakhs of rupees, and
VII of1913
and shall, by a like notification, direct the exclusion from that Schedule of any
scheduled bank the aggregate value of whose paid up capital and reserves become at
any time less than five lakhs of rupees, or which goes into liquidation or otherwise
ceases to carry on banking business.
[(8) Whoever in any return under this clause wilfully or recklessly makes a
statement false in any material particular or wilfully or recklessly omits to state a
material particular shall be punishable with fine which may extend to one thousand
rupees in respect of each such return.p 8
27. (1) No person in Pakistan other than the Bank or, as expressly authorised by
this Order, the Central Government shall draw, accept, make or issue any bill of
exchange, hundi, promissory note or engagement for the payment of money payable
to bearer on demand, or borrow, owe or take up any sum or sums of money on the
bills, hundis or notes payable to bearer on demand of any such person:
37 Substituted for the words "is a company as defined in clause (2) of the Section 2 of the Indian
Companies Act, 1913, or a corporation or a company incorporated by or under any law in force in any
place outside Pakistan.
Inserted.
APPENDICES 425
(3) Any person contravening the provisions of this clause shall be punishable
with fine which may extend to double the amount of the bill, hundi, note or
engagement in respect whereof the offence is committed.
28. The Bank may require any Provinial co-operative bank with which it has any
transactions under clause 13 to furnish the return referred to in sub-clause (2) of
clause 26, and if the Bank does so require the provisions of sub-clauses (4), (5) and
(6) of clause 26 shall apply, so far as may be, to such co-operative bank as if it were
a scheduled bank.
29. The Bank shall compile and shall cause to be published each week a
consolidated statement showing the aggregate of the amounts under each para of
sub-clause (2) of clause 26 exhibited in the returns received from scheduled banks
under that clause.
[30. The Bank shall sell to or buy from any authorised person who makes a demand
in that behalf at its office in Karachi, Lahore, Dacca or Chittagong foreign exchange
in such amounts, at such rates of exchange and on such conditions as the Central
Government may from time to time by general or special order determine.
may be, sell the foreign exchange to which his demand relates. )39
Allocation of surplus
31. After making provision for bad and doubtful debts, depreciation in assets,
contributions to staff and superannuation funds, and such other contingencies as are
usually provided for by bankers, there shall be paid to the shareholders out of the net
annual profits a cumulative dividend at the rate of four per cent per annum on the
share capital and any surplus remaining thereafter shall be [paid to the Central
Government ]40
[31-A. The Central Government shall transfer to the Bank rupee securities of
the value of three crores of rupees to be allocated by the Bank to the Reserve
Funds] 41
Auditors
32. (1) Not less than two auditors shall be elected and their remuneration fixed at
the annual general meeting. The auditors may be shareholders, but no Director or
other officer of the Bank shall be eligible during his continuance in office to be so
elected. Any auditor so elected shall be eligible for re-election on vacating office.
(2) The first auditors of the Bank may be appointed by the Central Board
before the first annual general meeting, and, if so appointed, shall hold office only
until that meeting. All auditors elected under this clause shall severally be, and
continue to act as, auditors until the first annual general meeting after their
respective elections:
39 Substituted for the words "The Bank shall sell to or buy from any authorised person who makes a
demand in that behalf at its office in Karachi, Lahore or Dacca, foreign exchange at such rates of
exchange and on such conditions as the Central Government may from time to time by general or
special order determine, having regard, so far as rates of exchange are concerned, to its obligation to
the International Monetary Fund:
Provided that no person shall be entitled to demand to buy or sell foreign exchange of a value less
than two lakhs of rupees.
Explanation. -In this clause "authorised person" means a person who is entitled "by or under the
Foreign Exchange Regulation Act, 1947, as adapted to buy or as the case may be, sell the foreign
exchange to which his demand relates."
40 Substituted for the words "Allocated to the Reserve Fund so long as the latter is less than the share
capital:" and the following words were omitted:·
"Provided that whenever Reserve Fund is not less than the share capital the whole of any surplus
remaining after payment of the cumulative dividend as aforesaid shall be paid to the Central
Government."
41 Inserted.
APPENDICES 427
Provided that any casual vacancy in the office of any auditor elected under this
clause may be filled by the Central Board.
33. Without prejudice to anything contained in clause 32, the Central Government
may at any time appoint the Auditor General or such auditors as it thinks fit to
examine and report upon the accounts of the Bank.
34. (1) Every auditor shall be supplied with a copy of the annual balance-sheet,
and it shall be his duty to examine the same, together with the accounts and vouchers
relating thereto; and every auditor shall have a list delivered to him of all books kept
by the Bank, and shall at all reasonable times have access to the books, accounts and
other documents of the Bank, and may, at the expense of the Bank, if appointed by
it, or at the expense of the Central Government, if appointed by that Government,
employ accountants or other persons to assist him in investigating such accounts and
may, in relation to such accounts, examine any director or officer of the Bank.
(2) The auditors shall make a report to the shareholders or to the Central
Government as the case may be, upon the annual balance sheet and accounts, and in
any such report they shall state whether in their opinion, the balance sheet is a full
and fair balance sheet containing all necessary particulars and properly drawn up so
as to exhibit a true and correct view of the state of the Bank's affairs, and in case they
have called for any explanation, or information from the Central Board, whether it
has been given and whether it is satisfactory. Any such report made to the
shareholders shall be read, together with the report of the Central Board, at the
annual general meeting.
Returns
35. (1) The Bank shall prepare and transmit to the Central Government a weekly
account of the Issue Department and of the Banking Department in such form as the
Central Government may, by notification in the Official Gazette, prescribe. The
Central Government shall cause these accounts to be published weekly in the Official
Gazette:
Provided that the first weekly account under this sub-clause shall fall due in the
second week after the commencement of business by the Bank.
(2) The Bank shall also within two months from the date on which the annual
accounts of the Bank are closed, transmit to the Central Government a copy of the
annual accounts signed by the Governor, the Deputy Governor if any, and the chief
accounting officer of the Bank, and certified by the auditors, together with a report
428 HISTORY OF THE STATE BANK OF PAKISTAN
by the Central Board on the working of the Bank throughout the year, and the
Central Government shall cause such accounts and report to be published in the
Official Gazette.
(3) The Bank shall also, within two months from the date on which the annual
accounts of the Bank are closed, transmit to the Central Government a statement
showing the name, address and occupation of, and the number of shares held by each
shareholder of the Bank.
36. (1) The Cer.tral Board may, with the previous approval of the Central
Government, make regulations consistent with this Order to provide for all matters
for which provision is necessary or convenient for the purpose of giving effect to the
provisions of this Order.
(c) the maintenance of the share registers, the manner in which and the
conditions subject to which shares may be held and transferred, and, generally, all
matters relating to the rights and duties of shareholders;
(d) the manner in which general meetings shall be convened, the procedure to
be followed thereat and the manner in which votes may be exercised;
(e) the manner in which notices may be served on behalf of the Bank upon
shareholders or other persons;
(f) the manner in which the business of the Central Board shall be transacted,
and the procedure to be followed at meetings thereof;
(g) the conduct of business of Local Boards and the delegation to such Boards
of powers and functions;
(h) the delegation of powers and functions of the Central Board to the
Governor or to Deputy Governor, Directors or Officers of the Bank;
(i) the formation of committees ofthe Central Board, the delegation of powers
APPENDICES 429
and functions of the Central Board, to such committees, and the conduct of business
in such committees;
(j) the recruitment of officers and staff of the Bank including the terms and
conditions of their service, and the constitution and management of staff and
superannuation funds for the officers and servants of the Bank;
(k) the manner and form in which contracts binding on the Bank may be
executed;
(1) the provision of an official seal of the Bank and the manner and effect of its
use;
(m) the manner and form in which the balance-sheet of the Bank shall be
drawn up and in which the accounts shall be maintained;
(o) the relations of the scheduled banks with the Bank and the returns to be
submitted by the scheduled banks to the Bank;
(q) the circumstances in which, and the conditions and limitations subject to
which, the value of any lost, stolen, mutilated or imperfect currency note may be
refunded;
(r) generally for the efficient conduct of business, discharge of functions and
management of the Bank.
(3) Copies of all regulations made under this clause shall be available to the
public on payment.
37. (1) If in the opinion of the Central Government the Bank fails to carry out any
of the obligations imposed on it by or under this Order, the Central Government
may, by notification in the Official Gazette declare the Central Board to be
superseded, and thereafter the general superintendence and direction of the affairs
42 Inserted.
430 HISTORY OF THE STATE BANK OF PAKISTAN
of the Bank shall be entrusted to such agency as the Central Government may
determine and such agency may exercise the powers and do all acts and things which
may be exercised or done by the Central Board under this Order.
(2) When action is taken under sub-clause (i) the Central Government shall
cause a full report of the circumstances leading to such action and of the action taken,
to be laid before the Central Legislature at the earliest possible opportunity, and in
any case within three weeks of the reassembly thereof after the issue of the
Notification superseding the Central Board.
[38. The Bank shall not be liable to the payment of any stamp duty under the
Indian Stamp Act, 1899, as adapted by the Pakistan (Adaptation of Existing Pakistan
Laws) Order, 1947.
39. (1) Notwithstanding anything contained in the Indian Income Tax Act, 1922,
or the Business Profits Tax Act, 1947, or any other enactment for the time being in
force relating to income-tax, super tax or business profits tax, the Bank shall not be
liable to pay income-tax, super-tax or business profits tax on any of its income, profits
or gains;
Provided that nothing in this clause shall affect the liability of any shareholder,
other than the Central Government, in respect of income tax, super-tax or business
profits tax.
(2) For the purposes of section 18 of the Indian Income Tax Act, 1922 or of any
other relevant provisions of that Act relating to the levy and refund ofthe income-tax
any dividend paid under clause 31 shall be deemed to be interest on securities.]
(See clause 5)
Areas served by the various Share Registers
1. The Dacca area, served by the Dacca Register shall consist of the Province of
East Bengal.
2. The Karachi area, served by the Karachi Register shall consist of the Province
of Sind and the Province of Baluchistan, Kalat State, Las Bela State, Kharan State,
Mekran State and Khairpur State.
------------
APPENDICES 431
3. The Lahore area, served by the Lahore Register shall consist of the North
West Frontier Province, the Province of the West Punjab, Bahawalpur State, Chitral
State, Dir State, Swat State and Amb State.
43
Corrc~tcd upto lJtll July, 1953.
APPENDIX-V
[1947: Ord. 1]
26 Geo, S,c. 2.
432
APPENDICES 433
Interpretation
2. In this Ordinance-
VII of 1913
(a) "banking company" has the meaning assigned to it in section 277F of the
Companies Act, 1913; and shall include any branch operating in
Pakistan of a banking company incorporated in or outside Pakistan;
(b) "initial order" means an order first made under section 3 of this
Ordinance in respect of a banking company;
(a) shall, on demand duly made, pay to any depositor at each branch in
which the depositor has a current or deposit account or both, such
amounts not exceeding in any month ten per centum of the total
unencumbered amount in the depositor's current or deposit account or
both with the branch on the date of the notification of the order, or two
hundred and fifty rupees, whichever is less, and may make at a branch
situated within the territories of Pakistan, payments similarly limited in
amount to any person making a demand therefor at the branch, if he
satisfies the banking company both that he has a current or deposit
All actions and proceedings against the New Bank of India, Ltd., New Delhi shall be stayed upto the
25th day of January, 1948, s~:~: Gazette of Pakistan, 1948, Pt.l, p.l.
434 HISTORY OF THE STATE BANK OF PAKISTAN
2 [(aa) shall, on presentation for payment of a draft, pay to the payee or the
person entitled to receive payment of the amount thereof at the branch
on which the draft is drawn, such amount not exceeding 30 per cent of
the amount of the draft or seven hundred and fifty rupees, whichever is
less, and may make, at a branch situated within the territories of
Pakistan, payment similarly limited in amount to any person presenting
a draft at the branch who satisfies the banking company that he is the
payee or the person entitled to receive payment of the amount of the
draft drawn on a branch of the banking company situated outside the
territories of Pakistan.]
(b) shall not accept any deposits, whether in current or deposit account;
(c) shall not, save as provided in clause (a) 3[or clause (aa)] and save for the
purpose of meeting its normal running expenses, dispose of any of its
assets situated in Pakistan on the date of this Ordinance.
5. Every banking company in respect of which an order has been made under
section 3 shall, while the order remains in force, maintain such accounts, and submit
to 4[the State Bank of Pakistan] and the Government of Pakistan such true returns
at such intervals as may be prescribed.
Penalties
Clause (aa) ins. by the Banking Companies (Pakistan) Amendment Ordinance, 1948 (7 of 1918), s.2.
Ins. ibid.
Subs. by G.G.O.l8 ofl948 for "the Reserve Bank ofindia".
APPENDICES 435
for a term which may extend to three years and shall also be liable to
fine;
(b) In any other case, be punishable with fine not exceeding five hundred
rupees, or where the contravention or default is a continuing one, with
a further fine not exceeding fifty rupees for every day during which it
continues.
Cognizance of offence
Xof1897
9. On the expiry of this Ordinance, section 6 of the General Clauses Act, 1897,
shall apply as if this Ordinance were an enactment then repealed by a Central Act.
APPENDIX-VI
[1946: Ord.IV]
26 Geo. 5.c.2
The Ordinance has been applied to Baluchistan, see Notification No.7-W., dated the 30th January,
1946, Gazette of India, 1946, Pt. I, p.173.
The Ordinance has been extended to and brought into force in the State of Bahawalpur, see the
Bahawalpur (Extension of Laws) (Second) Order, 1952 (G.G.O. 5 o£1952).
436
APPENDICES 437
(2) It extends to 2 [ all the Provinces and the Capital of the Federation].
Definitions
2. In this Ordinance,-
XXIIof1948
VII of1913
6[3. (1) Notwithstanding anything to the contrary contained in section 138 of the
Companies Act, 1913, the State Bank at any time may, and on being directed so to
do by the Central Government shall, inspect any banking company, its books and
accounts.
(2) The State Bank shall, if it has been directed by the Central Government to
make an inspection, and in any other case may, submit a report to the Central
Government on any inspection made under this section.
(3) The inspection shall be carried out by such class I officer or officers of the
State Bank as the State Bank may direct.]
7 [4. (1) It shall be the duty of every director or other officer of the banking
company to produce to any officer, hereinafter in this section called the inspecting
officer, making an inspection under section 3, all such books, accounts and other
documents in his custody or power and to furnish him with such statements and
information relating to the affairs of the banking company and within such time as
the inspecting officer may require.
(2) The inspecting officer may examine on oath any director or other officer of
the banking company in relation to its business and may administer an oath
accordingly.
5. (1) If after consideration ofthe report of 8[the State Bank] under section 3, the
Central Government is of opinion that the affairs of a banking company are being
conducted to the detriment of the interest of its depositors, the Central Government
may-
(a) by order in writing prohibit the banking company from receiving fresh
deposits, or
Subs. by the Pakistan Banking Companies (Inspection) (Amendment) Act, 1952 (60 of 1952), s.2, for
the original section 4.
Subs. by the Pakistan (Adaptation of Existing Pakistan Laws) (State Bank of Pakistan) Order, 1948
(G.G.O. 18 of 1948), for "the Reserve Bank".
This clause was substituted temporarily (for the period from 14th August, 1947 to 30th June, 1948) by
the Pakistan (Monetary System and Reserve Bank) Order, 1947 (G.G.0.21 of 1947), Art.17.
10
Subs. by the Federal Laws (Revision and Declaration) Act, 1951 (26 of 1951), s. 4 and Third Sch., for
"sub-section (6) of section 42 of the Reserve Bank of India Act, 1934".
APPENDICES 439
11 [Provided that the Central Government may defer for such period as it thinks
fit the passing of an order under this sub-section or cancel or suspend or modify any
such order upon such terms and conditions as it thinks fit to impose.]
11 Subs. by the Banking Companies (Control) Act, 1948 (22 of 1948), s.18, for the original proviso.
APPENDIX-VII
(2) It extends to 2(all the Provinces and the Capital of the Federation).
Interpretations
2. In this Act,-
For statement of Objects and Reasons, see Gazette oflndia, 1946, Pt.V, p.246.
The Act has been applied to British Baluchistan, see Notfn. No.374/B.P.G., dated 22-12-46,
Gazette oflndia, 1946, Pt.1, p.1913.
2 Subs. by G.G.O. 4 of1949, Arts.3(2) and4, for "the whole of British India".
440
APPENDICES 441
277F of the Companies Act, 1913 3 ( and includes every banking company
incorporated in any place outside Pakistan and carrying on or intending
to carry on business as a banking company in any province of Pakistan);
3. (1) No banking company shall open a new branch or change the location of an
existing branch without obtaining prior permission in writing from (State Bank).
(2) (The State Bank) may, before giving the permission referred to in sub-
section (1) to any banking company, take into consideration its financial condition
and history, the general character of its management, the adequacy of its capital
structure and earning prospects and the public interest to be served by the branch.
(3) For all or any of the purposes referred to in sub-section (2), (the State
Bank) may, with the previous approval of the Central Government, cause an
inspection to be made of the books, accounts and other documents of the banking
company by any competent person authorised by (the State Bank), and it shall be the
duty of every director or other officer of the banking company to produce to any
person so authorised all such books, accounts and other documents in his custody or
power relating to the affairs of the banking company as the person so authorised may
require of him.
(4) Any person making an inspection under sub-section (3) may examine on
oath any director or other officer of the banking company in relation to its business,
and may administer an oath accordingly.
Penalty
(2) If any person refuses to produce any book, account or other document
which under section 3 it is his duty to produce, or to answer any question relating to
the business of the banking company, he shall be liable to a fine which may extend
to five hundred rupees in respect of each offence, and if he persists in such refusal,
to a further fine which may extend to fifty rupees for every day during which the
offence continues.
APPENDIX-VIII
26 Geo 5.c.2.
1. (1) This Ordinance may be called the Pakistan Banking (Prevention of Default
and Evasion of Liabilities) Ordinance, 1947.
443
444 HISTORY OF THE STATE BANK OF PAKISTAN
Definitions
2. In this Ordinance-
(a) "Bank" means [the Imperial Bank of India and] any banking company
as defined in section 277F of the Companies Act, 1913 and includes any
branch of a bank.
VII of1913
(b) "Manager" includes the term Agent or Sub-Agent and any other officer
having charge of any branch or agency of any bank in Pakistan.
(2) If the Bank refuses or fails to comply with an order made under sub-section
(1) of this section by the date specified or if the Central Government is not satisfied
with the correctness or completeness of the statement submitted thereunder, the
Central Government may authorise any officer of the Central Government or of a
Provincial Government to inspect the books, accounts and other documents of the
Bank and to conduct a search of its vaults, coffers and premises which the officer may
consider necessary to inspect or search in order to obtain the information required or
to verify the statement furnished.
APPENDICES 445
(3) An officer authorised in this behalf may enter any premises at any time and
if necessary break open any door or lock for the purpose of carrying out the order
made under this section.
Seizure of assets
6. (1) If the Central Government after considering such explanation as the Bank
concerned may have given, the information secured by any action taken under sub-
sections (2) and (3) of section 4 and such further enquiry as it may deem necessary,
is satisfied that the Bank has wrongfully withheld payment of a cheque wholly or
partially or the delivery of any thing held in deposit or safe custody, the Central
Government may order the Bank to make payment of the cheque to such extent as
in the opinion of the Central Government payment has been wrongfully withheld, or
make delivery of the thing held in deposit or safe custody as the case may be, by a
specified date to the person named in the order.
(2) If the Bank fails to comply with the order made under sub-section (1) the
Central Government may as the case may be order-
(a) the seizing of the thing held in safe custody and its transfer to the person
named in the order,
(b) the seizing of assets of the Bank sufficient to cover the amount of the
Bank's liability as determined under sub-section (1) and the transfer to
the person named in the order under sub-section (1) of such part of these
assets or so much of their value on realization as will discharge the
Bank's liability to him.
(3) If after discharging the liability of the Bank referred to in sub-section (2)
above there is a surplus it shall be returned to the Bank after deducting such
incidental expenses as may have been incurred by the Central Government.
witnesses and the order shall then be deemed to have been duly served.
Penalties
he shall be punishable with imprisonment which may extend to three years or with
fine or with both.
10. No suit, prosecution or other legal proceedings shall lie against any person or
against the Central Government for anything done or in good faith intended to be
done under this Ordinance.
11. The Central Government may make rules for the purpose of giving effect to
this Ordinance.
APPENDIX-IX
1Act to provide for the control of banking companies by the State Bank of
Pakistan.
Whereas it is expedient to provide for the control of banking companies by the
State Bank of Pakistan;
1. (1) This Act may be called the Banking Companies (Control) Act, 1948.
(2) It extends to all the Provinces and to the Capital of the Federation and to
every Acceding State to the extent to which the Central Legislature has power to
make laws for that State as regards Banking.
(3) It shall come into force at once.
2. Nothing in this Act shall apply to a co-operative bank registered under the Co-
For Statement of Objects and Reasons see Gazette of Pakistan, 1948. Pt. V, p.157.
447
448 HISTORY OF THE STATE BANK OF PAKISTAN
operative Societies Act, 1912 or any other law for the time being in force in any
Province relating to co-operative societies.
3. The State Bank may with the previous approval of Central Government
exempt any banking company from all or any of the provisions of this Act or any rule
made thereunder subject to such terms and conditions as it may consider proper.
Vllof1913
4. The provisions of this Act shall be in addition to, and not, save as otherwise
expressly provided herein, in derogation of the Companies Act, 1913, and any other
law for the time being in force applicable to banking companies.
Definitions
5. In this Act,-
VII of1913
VII of1913
(b) "Court" means the Court having jurisdiction under the Companies Act,
1913;
(d) "the Provinces" means the Provinces of Pakistan, and except in sub-
section (2) of section 1 includes the Capital of the Federation;
(f) "secured loan or advance" means a loan or advance made on the security
of assets the market value of which is not at any time less than the
amount of such loan or advance;
APPENDICES 449
II of1882
0.11 of 1948
(i) "scheduled bank" means a bank included in the Second Schedule to the
State Bank of Pakistan Order, 1948;
(k) "gold" includes gold in the form of coin, whether legal tender or not, in
the form of bullion or in ingot whether refined or not.
6. (1) Whenever the State Bank is satisfied that it is necessary or expedient in the
public interest so to do, it may determine the policy in relation to advances to be
followed by banking companies generally or by any banking company in particular,
and when the policy has been so determined all banking companies or the banking
company concerned, as the case may be, shall be bound to follow the policy as so
determined.
(2) Without prejudice to the generality of the power vested in the State Bank
under sub-section (1), the State Bank may give directions to banking companies
either generally or to any banking company or any group of banking companies in
particular as to tlhe purposes for which advances may or may not be made, the
margins to be maintained in respect of secured advances and the rates of interest to
be charged on advances, and each banking company shall be bound to comply with
any directions as so given.
(2) Every banking company shall, before the close of the month succeeding
that to which the return relates, submit to the State Bank a return in the prescribed
form and manner, showing particulars of all unsecured loans and advances granted
by it to companies, other than private companies, in which it or any of its directors
is interested as director or managing agent or guarantor.
8. (1) After the expiry of three months from the commencement of this Act,
every banking company shall maintain within the Provinces in cash, gold, or
unencumbered approved securities valued at a price not exceeding the current
market price, an amount which shall not at the close of business on any day be less
than twenty per cent of the total of its time and demand liabilities within the
Provinces.
Explanation.- For the purposes of this section liabilities shall be deemed not
to include the paid-up capital or the reserve or any credit balance in the profit and
loss account of the company or the amount of any loan taken from the State Bank.
0.11 of 1948
(2) In computing the amount provided for in sub-section (1) any balance
maintained by a banking company with the State Bank, including, in the case of a
scheduled bank, the balance required to be so maintained under sub-clause (1) of
clause 26 of the State Bank of Pakistan Order, 1948, shall be deemed to be cash
maintained.
XXVof1881
(3) Every banking company shall, 2[before the close of the month succeeding
Subs. by the Banking Companies (Control) (Arndt.) Act, 1950 (28 of 1950), s. 2, for the original words
"not later than fifteen days after the end of the month".
APPENDICES 451
the month] to which the return relates, furnish to the State Bank a monthly return in
the prescribed form and manner showing particulars of the company's assets
maintained in accordance with this section and its time and demand liabilities in the
Provinces at the close of business on every Friday, or if any Friday is a public holiday
under the Negotiable Instruments Act, 1881, at the close of business on the
preceding working day.
9. (1) At the close of 3[business on any day] the assets in the Provinces of every
banking company shall not be less in value than an amount representing such
percentage of its time and demand liabilities within the Provinces as may be
prescribed by the State Bank from time to time provided that the percentage so
prescribed shall not exceed 4[eighty-five] per cent.
XXVof1881
5[(2) Every banking company shall, before the close ofthe month succeeding
that to which the return relates, furnish to the State Bank, in the prescribed form and
manner, a monthly return showing particulars of the company's assets maintained in
accordance with this section and its time and demand liabilities in the Provinces at the
close of business on every Friday or if any Friday is a public holiday under the
Negotiable Instruments Act, 1881, at the close of business on the preceding working
day.]
Ord. of19
(3) For the purposes of this section, the expression "assets" shall be deemed to
include such promissory notes, bills of exchange and securities as the State Bank is
under the State Bank of Pskistan Order, 1948, empowered to purchase, discount or
make advances against, and export bills drawn in Pakistan and expressed in such
currencies as the State Bank may from time to time approve in this behalf, but shall
not include such loans and advances as in the opinion of the State Bank cannot
properly be regarded as assets.
6* * * * * * * * *
Submission of returns and information
7[10. (1) Every banking company shall, before the close of the month
Subs. by the Banking Companies (Control) (Arndt.) Act, 1950 (28 of 1950) s.3, for the original words
"the last working day of every quarter".
Subs. ibid., for "seventy-five".
Subs. ibid., for the original sub-section (2)
Sub-section (4) omitted ibid.
Subs. lbld., s.4, for original section 10.
452 HISTORY OF THE STATE BANK OF PAKISTAN
succeeding the half year to which the return relates, submit to the State Bank a half-
yearly return in the prescribed form and manner showing particulars of its assets and
liabilities in the Provinces as they stood at the close of business on the thirtieth day
of June in the first half and on the thiry-first day of December in the second half of
the year.
(2) Every banking company shall also submit to the State Bank information
every half year regarding the classification of the advances and investments of such
banking company in respect of industry, commerce and agriculture, ifthe State Bank
so desires.]
(c) on a request from the banking companies concerned and subject to the
provisions of section 14, assist, as intermediary or otherwise, in
proposals for the amalgamation of banking companies;
Ord. IV of 1946
(d) after a banking company has been inspected under section 3 of the
Banking Companies (Inspection) Ordinance, 1946, by order in writing
require the company-
(ii) to make, within such time as may be specified in the order, such
changes in its management as the State Bank may consider
necessary in consequence of the inspection; and
(e) by notice in writing require any banking company at any time to furnish
it, within such time and in such manner as may be specified in the notice,
APPENDICES 453
12. The State Bank, if it considers it in the public interest so to do, may publish any
information obtained by it under section 8[10] or section 11 in such form as it thinks
fit.
VII of1913
Restriction on amalgamation
14. Notwithstanding anything contained in any law for the time being in force,-
(b) no banking company shall enter into any agreement or arrangement for,
or be a party to, any scheme for the amalgamation of such company with
any other banking company without the previous sanction in writing of
the State Bank.
Penalties
Subs. by the Banking Companies (Control) (Arndt.) Act. 1950 (28 of 1950) s.5 for the figure "9".
454 HISTORY OF THE STATE BANK OF PAKISTAN
(2) If any other provision of this Act is contravened, or if any default is made
in complying with any requirement of this Act or any rules made under this Act or
any order made thereunder, every director and other officer of the banking company
who is knowingly a party to the contravention or default shall be punishable with fine
which may extend to five hundred rupees, and where the contravention or default is
a continuing one, with a further fine which may extend to fifty rupees for every day
during which it continues.
Cognizance of offences
16. No Court shall take cognizance of any offence punishable under section 15
except upon a complaint in writing made by an officer of the State Bank generally or
specially authorised in writing in this behalf by the State Bank, and no court inferior
to that of a Magistrate of the first class shall try any such offence.
17. (1) The Central Government may, by notification in the official Gazette, make
rules for carrying into effect the purposes of this Act.
10[17A. No suit or other legal proceeding shall lie against the Central
Government, the State Bank or any officer of the said Government or Bank for
Subs. by the Banking Companies (Control) {Amendment) Act, 1950 (28th of 1950) s.6, for the original
sub-section {2).
10 S, 17A ins., ibid., s.7.
APPENDICES 455
anything which is in good faith done or intended to be done in pursuance of this Act
or of any rules or orders made thereunder, or for any damage caused or likely to be
caused by any such thing as aforesaid.]
(1) in section 2, for clause (a), the following clause shall be substituted,
namely:-
(2) in section 5 for the proviso to sub-section (1), the following proviso shall be
substituted, namely:-
"Provided that the Central Government may defer for such period as it thinks
fit the passing of an order under this sub-section or cancel or suspend or modify
any such order upon such terms and conditions as it thinks fit to impose."
APPENDIX-X
1. (1) This Act may be called the Foreign Exchange Regulation Act, 1947.
(2) It extends to all the Provinces and the Capital of the Federation and applies
also to British subjects and servants of the Crown in any part of Pakistan and to
British subjects who are domiciled in any part of Pakistan wherever they may be.
(3) It shall come into force on such date as the Central Government may, by
notification in the official Gazette, appoint in this behalf.
Interpretation
456
APPENDICES 457
(a) "Authorised Dealer" means a person for the time being authorised
under section 3 to deal in foreign exchange;
(b) "currency" includes all coin, currency notes, bank notes, postal notes,
money orders, cheques, drafts, traveller's cheques, letters of credit, bills
of exchange and promissory notes;
(c) "foreign currency" means any currency other than Pakistan currency;
(e) "foreign security" means any security issued elsewhere than in Pakistan
and any security the principal of or interest on which is payable in any
foreign currency or elsewhere than in Pakistan;
(f) "gold" includes gold in the form of coin, whether legal tender or not, or
in the form of bullion or ingot, whether refined or not;
(h) "owner", in relation to any security, includes any person who has power
to sell or transfer the security or who has the custody thereof or who
receives, whether on his own behalf or on behalf of any other person,
dividends or interest thereon and who has any interest therein and in a
case where any security is held on any trust or dividends or interest
thereon are paid into a trust fund, also includes any trustee or any person
entitled to enforce the performance of the trust or to revoke or vary,
with or without the consent of any other person, the trust or any terms
thereof, or to control the investment of the trust moneys;
of unit trusts, but does not include bills of exchange or promissory notes
other than Government promissory notes;
(I) "silver" means silver bullion or ingot, silver sheets and plates which have
undergone no process of manufacture subsequent to rolling and
uncurrent silver coin which is not legal tender in Pakistan or elsewhere;
3. (1) The State Bank may, on application made to it in this behalf, authorise any
person to deal in foreign exchange.
(3) An authorised dealer shall in all his dealings, in foreign exchange comply
with such general or special directions or instructions as the State Bank may from
time to time think fit to give, and, except with the previous permission of the State
Bank, an authorised dealer shall not engage in any transaction involving any foreign
exchange which is not in conformity with the terms of his authorisation under this
section.
4. (1) Except with the previous general or special permission of the State Bank,
no person other than an authorised dealer shall in the Provinces and the Capital of
the Federation, and no person resident in the Provinces and the Capital of the
Federation other than an authorised dealer shall outside the Provinces and the
Capital of the Federation, buy or borrow from, or sell or lend to, or exchange with,
any person not being an authorised dealer, any foreign exchange.
(2) Except with the previous general or special permission of the State Bank,
no person whether an authorised dealer or otherwise, shall enter into any transaction
which provides for the conversion of Pakistan currency into foreign currency or
foreign currency into Pakistan currency at rates of exchange other than the rates for
the time being authorised by the State Bank.
(3) Where any foreign exchange is acquired by any person other than an
authorised dealer for any particular purpose, or where any person has been
permitted conditionally to acquire foreign exchange, the said person shall not use the
foreign exchange so acquired otherwise than for that purpose or, as the case may be,
fail to comply with any condition to which the permission granted to him is subject,
and where any foreign exchange so acquired cannot be so used or, as the case may
be, the conditions cannot be complied with, the said person shall without delay sell
the foreign exchange to an authorised dealer.
(4) Nothing in this section shall be deemed to prevent a person from buying
from any post office, in accordance with any law or rules made thereunder for the
time being in force, any foreign exchange in the form of postal orders or money
orders.
Restrictions on payments
5. (1) Save as may be provided in and in accordance with any general or special
exemption from the provisions of this sub-section which may be granted
conditionally or unconditionally by the State Bank, no person in or resident in the
Provinces and the Capital of the Federation shall-
(a) make any payment to or for the credit of any person resident outside
Pakistan;
(c) make any payment to or for the credit of any person by order or on
behalf of any person resident outside Pakistan;
(d) place any sum to the credit of any person resident outside Pakistan;
(e) make any payment to or for the credit of any person as consideration for
or in association with-
(a) the making of any payment already authorised, either with foreign
exchange obtained from an authorised dealer under section 4 or with
foreign exchange retained by a person in pursuance of an authorisation
granted by the State Bank;
(b) the making of any payment with foreign exchange received by way of
salary or payment for services not arising from business in, or anything
done while in Pakistan.
(3) Nothing in this section shall restrict the doing by any person of anything
within the scope of any authorisation or exemption granted under this Act.
(4) For the purposes of this section "security" also includes coupons or
warrants representing dividends or interest and life or endowment insurance
policies.
Blocked Accounts
6. (1) Where an exemption from the provisions of section 5 is granted by the State
Bank in respect of payment of any sum to any person resident outside Pakistan and
the exemption is made subject to the condition that the payment is made to a blocked
account,
APPENDICES 461
(a) the payment shall be made to a blocked account in the name of that
person in such manner as the State Bank may by general or special order
direct, and
(b) the crediting to that sum to that account shall, to the extent of the sum
credited, be a good discharge to the person making the payment.
(2) No sum standing at the credit of a blocked account shall be drawn on except
in accordance with any general or special permission which may be granted
conditionally or otherwise by the State Bank.
Special Accounts
(2) The credit of a sum to a special account shall, to the extent of the sum
credited, be a good discharge to the person making the payment:
Provided that where the liability of the person making the payment is to make
the payment in foreign currency, the extent of the discharge shall be ascertained by
converting the amount paid into that currency at such rate of exchange as is for the
time being fixed or authorised by the State Bank.
(3) The sum standing to the credit of any special account shall from time to
time be applied-
(a) where any agreement is entered into between the Central Government
and the Government of the territory to which the aforesaid notification
relates for the regulation of payments between persons resident in the
Provinces and the Capital of the Federation and in that territory, in such
manner as the State Bank having regard to the provisions of such
agreement, may direct, or
(b) where no such agreement is entered into, for the purpose of paying
wholly or partly, and in such order of preference and at such times as the
462 HISTORY OF THE STATE BANK OF PAKISTAN
Central Government may direct; debts due from the persons resident in
the said territory to persons resident in the Provinces and the Capital of
the Federation or in such other territories as the Central Government
may, by order, specify in this behalf.
8. (1) The Central Government may, by notification in the official Gazette, order
that, subject to such exemptions if any, as may be contained in the notification, no
person shall, except with the general or special permission of the State Bank and on
payment of the fee, if any, prescribed bring or send into the Provinces and the Capital
of the Federation any gold or silver or any currency notes or bank notes or coin
whether Pakistan or foreign.
Explanation.- The bringing or sending into any part or place in the territories
of Pakistan of any such article as aforesaid, intended to be taken out of the territories
of Pakistan without being removed from the ship or conveyance in which it is being
carried, shall nonetheless be deemed to be bringing or as the case may be sending,
into the territories of Pakistan of that article for the purposes of this section.
(2) No person shall, except with the general or special permission of the State
Bank or the written permission of a person authorised in this behalf by the State
Bank, take or send out of the Provinces and the Capital of the Federation any gold,
jewellery or precious stones, or Pakistan currency notes, bank notes or coin or
foreign exchange.
VIII of1878
(a) who owns such foreign exchange as may be specified in the notification,
to offer it, or cause it to be offered for sale to the State Bank on behalf
of the Central Government or to such person, as the State Bank may
authorise for the purpose, at such price as the Central Government may
fix, being a price which is in the opinion of the Central Government not
APPENDICES 463
less than the market rate of the foreign exchange when it is offered for
sale;
(b) who is entitled to assign any right to receive such foreign exchange as
may be specified in the notification, to transfer that right to the State
Bank on behalf of the Central Government on payment of such
consideration therefor as the Central Government may fix:
Provided that the Central Government may by the said notification or another
order exempt any person or class of persons from the operation of such order:
Provided further that nothing in this Section shall apply to any foreign
exchange acquired by a person from an authorised dealer and retained by him with
the permission of the State Bank for any purpose.
10. (1) No person who has a right to receive any foreign exchange or to receive
from a person resident outside Pakistan a payment in rupees shall, except with the
general or special permission of the State Bank, do or refrain from doing any act with
intent to secure-
(a) That the receipt by him of the whole or part of that foreign exchange or
payment is delayed, or
(2) Where a person has failed to comply with the requirements of sub-section
(1) in relation to any foreign exchange or payment in rupees, the State Bank may give
to him such directions as appear to be expedient for the purpose of securing the
receipt of the foreign exchange or payment as the case may be.
11. The Central Government may, by notification in the official Gazette, impose
such conditions as it thinks necessary or expedient on the use of disposal of or
dealings in gold and silver prior to, or at the time of, import into the Provinces and
the Capital of the Federation.
12. (1) The Central Government may, by notification in the official Gazette,
prohibit the export of any goods or class of goods specified in the notification from
464 HISTORY OF THE STATE BANK OF PAKISTAN
the Provinces and the Capital of the Federation directly or indirectly to any place so
specified unless a declaration supported by such evidence as may be prescribed or so
specified, is furnished by the exporter to the prescribed authority that the amount
representing the full export value of the goods has been or will within the prescribed
period be, paid in the prescribed manner.
(2) Where any export of goods has been made to which a notification under
sub-section (1) applies, no person entitled to sell, or procure the sale of, the said
goods shall, except with the permission of the State Bank, do or refrain from doing
any act with intent to secure that-
(3) Where in relation to any such goods the said period has expired and the
goods have not been sold and payment therefor has not been made as aforesaid, the
State Bank may give to any person entitled to sell the goods or to procure the sale
thereof, such directions as appear to it to be expedient for the purpose of securing the
sale of the goods and payment therefor as aforesaid, and without prejudice to the
generality of the foregoing provision, may direct that the goods shall be assigned to
the Central Government or to a person specified in the directions.
(4) Where any goods are assigned in accordance with sub-section (3), the
Central Government shall pay to the person assigning them such sum in
consideration of the net sum recovered by or on behalf of the Central Government
in respect of the goods as may be determined by the Central Government.
(5) Where in relation to any such goods the value as stated in the invoice is less
than the amount which in the opinion of the State Bank represents the full export
value of those goods, the State Bank may issue an order requiring the person holding
the shipping documents to retain possession thereof until such time as the exporter
of the goods has made arrangements for the State Bank or a person authorised by the
State Bank to receive on behalf of the exporter payment in the prescribed manner of
an amount which represents in the opinion of the State Bank the full export value of
the goods.
APPENDICES 465
(6) For the purpose of ensuring compliance with the provisions of this section
and any orders or directions made thereunder, the State Bank may require any
person making any export of goods to which a notification under sub-section (1)
applies to exhibit contracts with his foreign buyer or other evidence to show that the
full amount payable by the said buyer in respect of the goods has been, or will within
the prescribed period be, paid in the prescribed manner.
13. (1) No person shall, except with the general or special permission of the State
Bank:-
(c) transfer any security from a register in the Provinces and the Capital of
the Federation to a register outside Pakistan or do any act which is
calculated to secure, or forms part of a series of acts which together are
calculated to secure, the substitution for any security which is either in,
or registered in, the Provinces and the Capital of the Federation, of any
security which is either outside or registered outside Pakistan;
(d) issue, whether in the Provinces and the Capital of the Federation or
elsewhere, any security which is registered or to be registered in the
Provinces and the Capital of the Federation, to a person resident outside
Pakistan.
(2) Where the holder of a security is a nominee, neither he nor any person
through whose agency the exercise of all or any of the holder's rights in respect of the
security is controlled shall, except with the general or speical permission of the State
Bank, do any act whereby he recognises or gives effect to the substitution of another
person as the person from whom he directly recieves instructions, unless both the
persons previously instructing him and the person substituted for that person were,
immediately before the substitution, resident in Pakistan.
(3) The State Bank may, for the purpose of securing that the provisions of this
section are not evaded, require that the person transferring any security and the
person to whom such security is transferred shall subscribe to a declaration that the
transferee is not resident outside Pakistan.
(a) enter any transfer of securities in any register or book in which securities
are registered or inscribed if he has any ground for suspecting that the
transfer involves any contravention of the provisions of this section, or
(b) enter in any such register or book, in respect of any security, whether in
connection with the issue or transfer of the security or otherwise, an
address outside Pakistan except by way of substitution for any such
address in the same country or for the purpose of any transaction for
which permission has been granted under this section with knowledge
that it involves entry of the said address.
(d) "A person resident outside Pakistan" includes a foreign national for the
time being resident in Pakistan.
Custody of securities
14. (1) The Central Government may, by notification in the official Gazette, order
every person by whom or on whose behalf a security or document of title to security
specified in the order is held in the Provinces and the Capital of the Federation to
cause the said security or document of title to be kept in the custody of an authorised
depository named in the order:-
APPENDICES 467
Provided that the State Bank may by order in writing permit any such security
to be withdrawn from the custody of the authorised depository subject to such
conditions as may be specified in the order.
(3) Except with the general or special permission of the State Bank, no
authorised depository shall;
(a) accept or part with any security covered by an order under sub-section
(1) whereby the security is transferred into the name of a person resident
outside Pakistan, or
(4) Except with the general or special permission of the State Bank, no person
shall buy, sell or transfer any security, or document of title to a security, covered by
an order under sub-section (1) unless such security or document of title has been
deposited in accordance with the order.
(5) Except with the general or special permission of the State Bank, no capital
moneys, interest or dividends in respect of any security covered by an order under
sub-section (1) shall be paid in the Provinces and the Capital of the Federation except
to or to the order of the authorised depository having the custody of the security.
15. The Central Government may, by notification in the official Gazette, order
that except with the general or special permission of the State Bank no person shall
in the Provinces and the Capital of the Federation issue any bearer security or
468 HISTORY OF THE STATE BANK OF PAKISTAN
16. (1) Subject to any exemptions that may be contained in the notification, the
Central Government may if it is of opinion that it is expedient so to do for the purpose
of strengthening its foreign exchange position by notification in the official Gazette:-
(a) order the transfer to itself of any foreign securities specified in the
notification at a price so specified, being a price which is, in the opinion
of the Central Government not less than the market value of the
securities on the date of the notification, or
(b) direct the owner of any foreign securities specified, in the notifiction to
sell or procure the sale of the securities and thereafter to offer or cause
to be offered the net foreign exchange proceeds of the sale to the State
Bank on behalf of the Central Government or to such person as the State
Bank may authorise for the purpose, at such price as the Central
Government may fix, being a price which is in the opinion of the Central
Government not less than the market rate of the foreign exchange when
it is offered for sale.
(a) the securities to which the notification relates shall forthwith vest in the
Central Government free from any mortgage, pledge or charge, and the
Central Government may deal with them in such manner as it thinks fit;
(b) the owner of any of the securities to which the notification relates and
any person who is responsible for keeping any registers or books in
which any of these securities are registered or inscribed, or who is
otherwise concerned with the registration or inscription of any of those
securities, shall do all such things as are necessary or as the Central
Government or the State Bank may order to be done, for the purpose of
securing that-
(i) the securities and any documents of title relating thereto are
delivered to the Central Government and, in the case of
registered or inscribed securities, that the securities are registered
or inscribed in the name of the Central Government or of such
nominee of the Central Government as it may specify, and
Provided that where the price specified in the notification in relation to any
security is ex-dividend or ex-interest, this sub-clause shall not apply to the dividend
or interest or to any coupon representing it.
(3) A certificate signed by any person authorised in this behalf by the Central
Government that any specified securities are securities transferred to the Central
Government under this section shall be treated by all persons concerned as
conclusive evidence that the securities have been so transferred.
Restriction on settlement
17. (1) No person resident in the Provinces and the Capital of the Federation shall,
except with the general or special permission of the State Bank, settle any property,
otherwise than by will upon any trust under which a person who at the time of the
settlement is resident outside Pakistan elsewhere than in territories notified in this
behalf by the State Bank, will have an interest in the property or exercise, other than
by will any power for payment in favour of a person who at the time of the exercise
of the power is resident outside Pakistan elsewhere than in such notified territories.
18. (1) Except with the general or special permission of the State Bank, no person
resident in the Provinces and the Capital of the Federation shall do any act whereby
a company, which is controlled by persons resident in Pakistan ceases to be so
controlled.
(2) Except with the general or special permission of the State Bank, no person
resident in the Provinces or the Capital of the Federation shall lend any money or
security to any company, not being a banking company, which is by any means
controlled, whether directly or indirectly, by persons resident outside Pakistan
elsewhere than in the territories notified in this behalf by the State Bank.
HISTORY OF THE STATE BANK OF PAKISTAN
470
19. (1) The Central Government or the State Bank may, at any time by
notification in the official Gazette direct owners subject to such exceptions, if any, as
may be specified in the notification, of such foreign exchange or foreign securities as
may be so specified, to make a return thereof to the State Bank within such period,
and giving such particulars, as may be so specified.
(2) The Central Government may by order in writing require any person to
furnish it or any person specified in the order with any information, book or other
document in his possession, being information, book or document which the Central
Government considers it necessary or expedient to obtain and examine for the
purposes of this Act and may, at any time, by notification in the official Gazette,
direct that the power to make such order shall for such period as may be specified in
the direction, be exercised by the State Bank.
(a) to enter and search anyplace in the manner specified in the warrant, and
(3A) A police officer authorised under sub-section (3) may search any person
who is found in or whom he has reasonable ground to believe to have recently left or
to be about to enter such place and to seize any article found in the possession of or
upon such person and believed by the police officer so authorised to be evidence of
the commission of any offence under this Act.
Vof1898
(3B) A police officer authorised under sub-section (3) shall conduct any search
under that sub-section or under sub-section (3A) in accordance with the provisions
APPENDICES 471
XI of1922
(4) The provisions of sub-sections (1), (2) and (3) of section 54 of the Income-
tax Act, 1922, shall apply in relation to information obtained under sub-section (2)
of this section as they apply to the particulars referred to in that section, and for the
purposes of such application-
(a) the said sub-section (3) shall be construed as if in clause (a) thereof there
was included reference to a prosecution for an offence under section 23
ofthis Act, and
Supplementary Provisions
20. (1) For the purposes of this Act and of any rules, directions or orders made
thereunder:-
(a) until the State Bank by general or special order otherwise directs, any
person who has at any time after the commencement of this Act been
resident in Pakistan shall be treated as still being resident in Pakistan
and if such direction is given in relation to any such person the State
Bank may be the same or a subsequent direction, declare the territory in
which he shall be treated as being resident;
(b) in the case of any person to whom clause (a) does not apply the State
Bank may by general or special order declare the territory in which he
shall be treated as being resident;
(c) in the case of any person resident in the Provinces and the Capital of the
Federation who leaves Pakistan, the State Bank may give a direction to
any bank that until the direction is revoked, any sum from time to time
standing to the credit of that person and any security held on his behalf
at any office or branch of that bank in the Provinces and the Capital of
the Federation specified in the direction shall, not be dealt with except
with the permission of the State Bank-
(e) the making of any book entry or other statement recording a debt
against a branch of any business in favour of the head office or any other
branch of that business shall be treated as the acknowledgement of a
debt whereby a right is created in favour of a person resident where the
head office or other branch is situated.
(2) Nothing in this Act relating to the payment of any price or sum by the
Central Government shall be construed as requiring the Central Government to pay
that price or sum otherwise than in Pakistan currency or otherwise than in Pakistan.
(3) The State Bank may give directions in regard to the making of payments
and the doing of other acts by bankers, authorised dealers, travel agents, carriers,
whether common or private stock brokers and other persons who are authorised by
the State Bank to do anything in pursuance of this Act in the course of their business,
as appear to it to be necessary or expedient for the purpose of securing compliance
with the provisions of this Act and any rules, orders or directions made thereunder.
21. (1) No person shall enter into any contract or agreement which would directly
or indirectly evade or avoid in any way the operation of any provision of this Act or
of any rule, direction or order made thereunder.
(2) Any provision of, or having effect under this Act, that a thing shall not be
done without the permission of the Central Government or the State Bank, shall not
render invalid any agreement by any person to do that thing, if it is a term of the
agreement that thing shall not be done unless permission is granted by the Central
Government or the State Bank as the case may be; and it shall be an implied term of
every contract governed by the law of any part of the Provinces and the Capital of the
Federation that anything agreed to be done by any term of that contract which is
prohibited to be done by or under any of the provisions of this Act except with the
permission of the Central Government or the State Bank, shall not be done unless
such permission is granted.
(3) Neither the provisions of this Act nor any term (whether expressed or
implied) contained in any contract that anything for which the permission of the
Central Government or the State Bank is required by the said provisions shall not be
done without that permission, shall prevent legal proceedings being brought in the
Provinces and the Capital of the Federation to recover any sum which, apart from the
said provisions and any such term, would be due, whether as a debt, damages or
otherwise, but-
(a) the said provisions shall apply to sums required to be paid by any
judgement or order of any Court as they apply in relation to other sums;
and
APPENDICES 473
(b) no steps shall be taken for the purpose of enforcing any judgement or
order for the payment of any sum to which the said provisions apply
except as respects so much thereof as the Central Government or the
State Bank, as the case may be, may permit to be paid; and
(c) for the purpose of considering whether or not to grant such permission,
the Central Government or the State Bank,as the case may be, may
require the person entitled to the benefit of the judgement or order and
the debtor under the judgement or order to produce such documents
and to give such information as may be specified in the requirement.
XXVI of1881
22. No person shall, when complying with any order or direction, under Section
19, or when making any application or declaration to any authority or person for any
purpose under this Act, give any information or make any statement which he knows
or has reasonable cause to believe to be false, or nottrue, in any material particular.
(3) A tribunal shall not take cognizance of any offence punishable under this
Section and not declared by the Central Government under the preceding sub-
474 HISTORY OF THE STATE BANK OF PAKISTAN
sectiion to be cognizable for the time being or of an offence punishable under Section
54 of the Income-tax Act, 1922 (XI of 1922), as applied by Section 19, except upon
complaint in writing made by a person authorised by the Central Government or the
State Bank in this behalf.
Provided that where any such offence is the contravention of any of the
provisions of this Act or of any rule, direction or order made thereunder which
prohibits the doing of an act without permission and is not declared by the Central
Government under the preceding sub-section to be cognizable for the time being, no
such complaint shall be made unless the person accused of the offence has been given
an opportunity of showing that he had such permission.
(4) Where the person guilty of an offence under this Act is a company or other
body corporate, every Director, Manager, Secretary and other officer thereof who
is knowingly a party to the offence shall also be guilty of the same offence and liable
to the same punishment.
23A. Tribunal, its powers, etc. -(1) Every Sessions Judge shall, for the areas within
the territorial limits of his jurisdiction be a Tribunal for trial of an offence punishable
under Section 23.
(2) A Tribunal may transfer any case for trial to an Additional Sessions Judge
within its jurisdiction who shall, for trying a case so transferred be deemed to be a
Tribunal constituted for the purpose.
(3) A Tribunal shall have all powers of a Magistrate of the First Class in
relation to criminal trials, and shall follow as nearly as may be the procedure
provided in the Code of Criminal Procedure, 1898 (Act V of 1898), for trials before
such Magistrate, and shall also have powers as provided in the said Code in respect
of the following matters, namely:-
1898 (Act V of 1898) shall, so far as may be, apply to orders and sentences passed by
a Tribunal.
(6) The State Bank of Pakistan or any other person aggrieved by a judgement
of a Tribunal may, within three months from the date of the judgement, appeal to the
High Court.
(7) Save as provided in the preceding sub-section, all judgements and orders
passed by a Tribunal shall be final.
24. (1) Where any person is tried for contravening any provision of this Act or of
any rule, direction or order made thereunder which prohibits him from doing any act
without permission, the burden of proving that he had the requisite permission shall
be on him.
25. For the purposes of this Act the Central Government may from time to time
give to the State Bank such general or special directions as it thinks fit, and the State
Bank shall, in the exercise of its functions under this Act, comply with any such
directions.
26. No suit, prosecution or other legal proceedings shall lie against any person for
anything in good faith done or intended to be done under this Act or any rule,
direction or order made thereunder.
27. The Central Government may, by notification in the official Gazette, make
rules for carrying into effect the provisions of this Act.
APPENDIX-XI
And whereas subsection (5) of section 19 of the said Act provides that any
power conferred by that Act to make any Order includes power to revoke or vary any
Order previously made in exercise of that power;
And whereas it is expedient to vary the provisions of the Principal Order in the
manner hereinafter appearing;
1. Short title and commencement.-(!) This Order may be cited as the State
Bank of Pakistan (Amendment) Order, 1949.
2. The amendments shown in the Schedule annexed hereto shall be made in the
Principal Order.
476
APPENDICES 477
THE SCHEDULE
(Amendments)
1. After paragraph (f) of sub-clause (1) of clause 2 add the following paragraphs:-
II. In clause 3, after the words "State Bank of Pakistan" wherever they occur,
insert the words "or Bank-e-Daulat-e-Pakistan."
III. In sub-clause (2) of clause 6, for the word "eight" substitute the word
"nine".
IV. In clause 8, after sub-clause (9), the following sub-clauses shall be added,
namely:-
"(10) The Central Government may grant leave to the Governor and Deputy
Governor for such period and on such terms and conditions as may be specified by
the Central Government.
In the proviso to sub clause (1) of clause 9 for the word "five" substitute the
word "six" and at the end of sub-clause (5) of clause 9, add the following proviso:-
"Provided that nothing in paragraph (b) shall apply to the Government official
nominated as a Director by the Central Government."
(2) A Director removed under sub-clause (1) shall not be eligible to become a
Director again until the expiry of the term for which he would have held office had
he not been removed.
(3) A Director may resign his office by a statement to that effect in writing
signed by him and addressed to the Central Government, and on the acceptance of
his resignation his office shall be vacant."
VII. In sub-clause (1) of clause 10 for the word "two" substitute the word
"three" and after the words "the Central Board" insert the words "to represent
respectively the areas mentioned in sub-clause (5) of clause 5."
(1) In paragraph (b) of sub-clause (1) omit the words "from amongst the
shareholders registered on the register for that area" and add the following after the
proviso to this paragraph:-
Provided further that any shares sold at par by the Central Government to a
member seeking to obtain the minimum share qualification required under this
paragraph shall not be disposed of by such member otherwise than by resale to
Government at par, and Government shall be entitled to repurchase at par all such
shares held by any member on his ceasing from any cause to hold office as a member
of a Local Board."
APPENDICES 479
(3b) In the event of vacancy occurring amongst the elected members of a Local
Board before the expiry of the term of office, a new member shall be elected for the
remainder of the term by and from amongst the shareholders registered on the share
register for the appropriate area and":
(2) A member of a Local Board removed under sub-clause (1) shall not be
eligible to become a member of a Local Board until the expiry of the term of office
during which he was removed.
(3) A member of Local Board may resign his office by a statement in writing
signed by him and addressed to the Central Board and on the acceptance of his
resignation his office shall become vacant."
X. In clause 13-
"(2) in sub-clause (12) omit the words "and approved foreign exchange"
occurring after the words "gold coin and gold or silver bullion."
480 HISTORY OF THE STATE BANK OF PAKISTAN
(a) purchase, sell or discount any of the bills of exchange or promissory notes
specified in paragraph (a) or (b) of sub-clause (2) or paragraph (b) of sub-clause (3)
of the clause, though such bill or promissory note does not bear the signature of a
scheduled bank or a provincial co-operative bank; or
(2) Where a banking company, to which a loan or advance has been made
under the provisions of paragraph (b) of sub-clause (1) of this clause, is wound-up,
any sums due to the Bank in respect of such loan or advance shall, subject only to the
claims, if any, of any other banking company in respect of any prior loan or advance
made by such banking company against any security, be a first charge on the assets
of the banking company."
APPENDICES 481
XII. Renumber the existing clause 16 as sub-clause (1) of clause 16 and add the
following sub-clause:-
"(2) (a) The Central Government and Provincial Governments shall entrust
the Bank, on such conditions as may be agreed upon between the Government
concerned and the Bank, with all their money, remittance, exchange and banking
transactions in Pakistan, and, in particular, shall deposit free of interest all their cash
balances with the Bank:
Provided that nothing in this sub-clause shall be deemed to prevent the Central
Government and any Provincial Government from carrying on money transactions
at places where the Bank has no branch or agency or from holding at such places such
balances as they may require.
(b) The Central Government and each Provincial Government shall entrust
the Bank, on such conditions as may be agreed upon between the Government
concerned and the Bank, with the management of the public debt and with the issue
of any new loans.
(c) In the event of any failure to reach agreement on the conditions referred to
in this clause the Central Government shall decide the conditions and its decision
shall be final."
"17. Bank rates.- The Bank shall make public from time to time the standard
rate at which it is prepared to buy or rediscount bills of exchange or other commercial
paper eligible for purchase under this Order."
Provided that the Bank may, with the previous approval of the Central
Government, prescribe the circumstances and the conditions and limitations subject
to which the value of such currency note or bank note may be refunded as of grace."
XV. In the proviso to sub-clause (1) of clause 23, for "share of the Bank"
substitute "share of the Government of Pakistan".
482 HISTORY OF THE STATE BANK OF PAKISTAN
"24A. Initial assets and liabilities. -On and after the first day of July 1948, the
Issue Department shall take over from the Reserve Bank of India the liability for all
the bank notes of the Reserve Bank of India inscribed with the words "Government
of Pakistan" and issued before the first day of July, 1948, and for the time being in
circulation and the Central Government shall transfer to the Issue Department assets
falling to the share of the Government of Pakistan under the provisions of the
Pakistan (Monetary System and Reserve Bank) Order, 1947, equal to the amount of
the liability taken over by that Department from the Reserve Bank of India.
(2) The Bank shall in exchange for currency notes or bank notes of five rupees
or upwards supply currency notes or bank notes of lower value or coins which are
legal tender under the Pakistan Coinage Act, in such quantities as may in the opinion
of the Bank be required for circulation; and the Central Government shall supply
such coins to the Bank on demand and for so long as the Central Government fails
at any time to supply such coins to the Bank, the Bank shall be released from its
obligation to supply them to the public."
"(8) Whoever in any return under this clause wilfully or recklessly makes a
statement false in any material particular or wilfully or recklessly omits to state a
material particular shall be punishable with fine which may extend to one thousand
rupees in respect of each such return."
"The Bank shall sell to or buy from any authorised person who makes a
APPENDICES 483
demand in that behalf at its office in Karachi, Lahore, Dacca or Chittagong, foreign
exchange in such amounts, at such rates of exchange and on such conditions as the
Central Government may from time to time by general or special order determine.
(1) for the words and colon "allocated to the Reserve Fund so long as the latter
is less than the share capital:" occurring after the words "and any surplus remaining
thereafter shall be" substitute the following:-
"39. Exemption of Bank from Income-Tax, Super Tax, and Business Profits
Tax and provision for deduction at source of income-tax on dividends.-(1)
Notwithstanding anything contained in the Indian Income-tax Act, 1922 or the
Business Profits Tax Act, 1947, or any other enactment for the time being in force
relating to income-tax, super-tax, enactment for the time being in force relating to
income-tax, super-tax, or business profits tax, the Bank shall not be liable to pay
income-tax, super-tax or business profits tax on any of it~ income, profits or gains:-
Provided that nothing in this clause shall affect the liability of any shareholder,
other than the Central Government, in respect of income-tax, super-tax or business
profits tax.
(2) For the purposes of section 18 of the Indian Income-tax Act, 1922, and of
any other relevant provisions of that Act relating to the levy and refund of the
income-tax any dividend paid under clause 31 shall be deemed to be interest on
securities."
APPENDIX-XII
(1) generally to operate the currency and credit system of the country to the
country's advantage and
(2) for the Bank to accept monies for account of the Central Government and
to make payments up to the amount standing to the credit of its account and to carry
out its exchange remittance and other banking operations, including the
management of the public debt and
(3) so that the Central Government should entrust the Bank with all its money,
remittance, exchange and banking transactions in Pakistan and in particular should
deposit free of interest all its cash balances with the Bank excepting that the Central
Government should be at liberty to carry on money transactions at places where the
Bank has no branches or agencies and the Central Government might hold at such
places such balances as it may require and
(4) so that the Central Government may entrust the Bank with the
management of the public debt and with the issue of new loans.
484
APPENDICES 485
Commencement
1. This agreement shall come into force on the first day of July, one thousand
nine hundred and forty eight.
2. The general banking business of the Central Government (in which business is
included the payment, receipt, collection and remittance of money on behalf of the
Central Government and of such Local Governments as may not have the custody
and management of their own provincial revenues) shall be carried on and transacted
by the Bank in accordance with and subject to the provisions of this agreement and
of the Order and with and to such orders and directions as may from time to time be
given to the Bank by the Central Government through and Government Officer or
Officers authorised by him in that behalf and at any of the offices, branches or
agencies of the Bank for the time being in existence as may from time to time be so
directed and for this purpose such accounts shall be kept in the books of the Bank and
at such offices, branches or agencies of the Bank as shall be necessary or convenient
or as the Central Government from time to time direct in the manner aforesaid.
Deposits
3. Government of Pakistan shall employ the Bank as the sole Banker in Pakistan
of the Central Government who shall deposit or cause to be deposited with the Bank
or allow the Bank to receive and hold as banker the whole of his cash balances at any
places at which for the time being the Bank shall have an office, branch or agency and
the Bank shall subject to such orders as may from time to time be given by the Central
Government in the manner aforesaid receive and hold for the Central Governments
all such monies as may be or become payable to him or on his account and the Bank
shall transact at its offices, branches and agencies for the time being existing
respectively all such business for the Central Government regarding the receipt,
collection, payment and remittance of money and other matters, as is usually
transacted by bankers for their customers. The Bank shall make the said monies at
the said offices, branches and agencies available for transfer to such places and at
such times as the Central Government may direct. No interest shall be payable to the
Central Government on any of the monies for the time being held by the Bank.
Public Debts
4. The management of the public debt and the issue of new loans by the Central
Government and the performance of all the duties relating thereto respectively
486 HISTORY OF THE STATE BANK OF PAKISTAN
including the collection and payment of interest and principal and the consolidation,
division, conversion, cancellation and renewal of securities of the Central
Government and the keeping of all registers, books and accounts and the conduct of
all correspondence incidental thereto shall be transacted by the Bank at its office in
Karachi, and at any of its offices, branches or agencies at which respectively the
administration of any portions of the public debt is for the time being conducted or
interest thereon is for the time being payable and the Bank shall also keep and
maintain such registers, books and accounts in respect of the said public debt as the
Central Government may from time to time direct and shall audit all payments of
such interest and act generally as agents in Pakistan for the Central Government in
the management of the said public debt and shall conduct such agency subjected to
such orders and directions with regard to the general management thereof as may
from time to time be given to the Bank by the Governor-General.
5. The Bank shall not be entitled to any remuneration for the conduct of the
ordinary banking business of the Central Government other than such advantage as
may accrue to it from the holding of his cash balances free of obligation to pay
interest thereon.
(a) The amounts of loan discharged outstanding after one year from the
date of a notice of discharge.
(b) The amount of stock certificates for Rs.SO,OOO and upwards held by the
Governor-General or by a Local Government or by any officer or
officers of the Goverment of Pakistan or of a Local Government
authorised in that behalf provided that such amount exceeds one crore.
(c) The amount of the Government of Pakistan rupee securities held in the
Issue Department of the Bank.
(d) The amount of stock and notes outstanding in the London register.
And in addition to the charge of Rs.2,000 per crore per annum the Bank shall
be entitled to charge to the Central Government a fixed sum of Rs.2,000 a year on
account of the stock certificates referred to in head.
APPENDICES 487
(b) of this clause and the Bank shall be also entitled to charge the public (but
not the Central Government or a Local Government) all such fees and charges as are
now or may hereafter from time to time be prescribed by the Central Government
under the powers conferred upon them by the Indian ~ecurities Act, 1920 (Act No.X
of 1920) as in force in Pakistan for duplicate securities and fm the ren<;wal,
consolidation division or otherwise of all Government Securities which the Bank
issues.
Currency Chests
7. The Bank shall maintain currency chests of its Issue Department at such places
as the Central Government may prescribe and the Central Government shall provide
sufficient accommodation for such chests as may be required for the deposit of notes
or coins and shall be responsible to the Bank for the safe custody of the said chests,
notes and coins. The Bank shall keep the said chests supplied with sufficient notes
and coins to provide currency for the transactions of the Central Government and
reasonable remittance facilities to the public at the said places. The Central
Government shall supply the Bank with such information and returns as the Bank
may from time to time require as to the composition of the balances in the said chests
and the amount and nature of the transfers to and from the said chests. The Bank
shall have access to the said chests at all reasonable times for the purpose of
inspecting and checking the contents. The Central Government shall be responsible
to the Bank for the examination and correctness of coins or notes at the time of
deposit in or withdrawal from the said chests.
8. The Bank shall not be at liberty to close any of its offices or branches except
on such days as are public holidays under Section 25 of the Negotiable Instruments
Act and on any other day declared to be a public holiday by any notification
published in pursuance of the said Act subject nevertheless and notwithstanding the
provisions of that Act to any special orders or directions which may be issued by the
Central Government and the Bank shall be responsible that no one of its agencies
doing Government business for the time being existing shall be closed except on
Sundays and on public holidays authorised by the Local Governments within whose
jurisdiction such agencies may be respectively situated.
9. The responsibility for all loss or damage to the Government of Pakistan and
the Central Government which may result from any act or negligence or omission of
the Bank in conducting the business of the public debt aforesaid or the payment of
interest or discharge value thereon or the renewal, conversion, consolidation,
subdivision or cancellation of any Government security shall rest with and be borne
488 HISTORY OF THE STATE BANK OF PAKISTAN
by the Bank provided however that it shall not be incumbent on the Bank to verify
signature and endorsements on Government securities which prima facie appear to
be in order and in the acceptance of which the Bank shall not be guilty of any
negligence and in such cases no liability shall be incurred by the Bank in respect
thereto PROVIDED ALSO THAT in regard to the ordinary banking business at the
offices, branches and agencies of the Bank of receiving and realising money and
securities for money on account of the Central Government and paying cheques,
orders, draft, bills and other documents whether negotiable or not in the Bank's
capacity of bankers for the Central Government and whether such business be done
by the Bank or by agencies on its behalf the responsibility to the Government of
Pakistan and the Central Government shall be that of the Bank and such
responsibility shall be that of a banker to an ordinary customer.
Remittance of Account
10. The Bank shall remit on account of the Central Government between Pakistan
and London such amounts as may be required by him from time to time at the market
rate of the day for telegraphic transfers, subject to the proviso that if a large transfer
has to be effected in connection with the floatation or repayment of a sterling loan or
analogous operation, and if it is considered by either party to be inappropriate to
apply the rate of a single day, an average rate based on a longer period may be fixed
by agreement between the two parties.
Termination of Agreement
11. This agreement may be terminated by either party giving to the other party one
year's notice in writing expiring on the 31st day of March in any year, such notices if
given by or on behalf of the Government of Pakistan to be addressed to the Governor
of the Bank and to be served by being left at the Head Office of the Bank and if given
by the Bank to be served by leaving the same with or addressing the same by
registered post to the Secretary to the Government of Pakistan in the Finance
Ministry and immediately upon the expiration of such notice this agreement shall
absolutely cease and determine save as to rights or liabilities acquired or incurred
prior to such termination.
12. Nothing in this agreement shall operate to affect in any way the obligations
imposed either on the Central Government or on the Bank by or under the Order or
any subsequent amendment or amendments of the Order.
13. The Bank shall be entitled to perform all or any or the matters contained in this
agreement through such agency or agencies as may be prescribed by the Order or any
amendment thereof or as may be approved by the Central Government.
APPENDICES 489
Abdul Qadir was temporarily appointed as Governor in the absence of Zahid Husain for about
two months.
APPENDIX-XIII
(2) That its subscription shall be equal to its quota and not less than 3lh per
cent of the subscription shall be paid in gold and the balance in the
currency of Pakistan;
(3) That the portion of the subscription to be paid in gold shall be paid not
later than the day the Article of Agreement are signed on behalf of
Pakistan;
490
(4) That within thirty days after the Fund so requests, Pakistan shall
communicate to the Fund the par value of its currency based on the rates
of exchange prevailing on the date Pakistan becomes a member of the
Fund, and within sixty days following the Fund's receipt of the
communicated par value Pakistan and the Fund shall agree on an initial
par value for the currency; provided that the Fund may extend the
period of sixty days, and that Pakistan shall be deemed to have
withdrawn from the Fund if agreement on a par value has not been
reached when the extended period expires;
(5) That Pakistan may not engage in exchange transactions with the Fund
before the thirtieth day after the par value of its currency has been
agreed in accordance with (4) above and its subscription shall be paid in
full before such thirtieth day;
(6) That Pakistan shall become a member of the Fund subject to the terms
and conditions set forth in this resolution as from the date when Pakistan
has complied with both of the following requirements.
(7) That Pakistan may accept membership in the Fund pursuant to this
resolution until July 31, 1950; provided, however, that, if extraordinary
circumstances are deemed by the Executive Directors to warrant an
extension of the period during which Pakistan may accept membership
pursuant to this resolution, the Executive Directors may extend such
period until such later date as they may determine, but in no event
beyond January 31, 1951.
6. Bank of China
492
APPENDICES 493
Included in the Second Schedule during the year ended June 30, 1949. The Hyderabad State Bank
which was iincluded in the Second Schedule during the year was excluded from the Schedule in the same
year.
CHAPTER I-PRELIMINARY
1. Short title, extent and commencement.- (1) This Act may be cited as the State
Bank of Pakistan Act, 1956.
(3) It shall come into force at once and except section 46, shall be deemed to
have taken effect on and from the twelfth day of May 1948.
495
496 HISTORY OF THE STATE BANK OF PAKISTAN
(a) "annual general meeting" means the annual meeting of the shareholders of
the Bank;
(b) "approved foreign exchange" means currencies declared as such by any
notification under section 19;
(d) "bank notes" means notes made and issued by the Bank in accordance with
section 24 and include currency notes of the Government of Pakistan issued by the
Bank;
(e) "Central Board" means the Central Board of Directors of the Bank;
(g) "Director" means a Director for the time being of the Central Board;
(h) "general meeting" means the meeting of the shareholders of the Bank
convened for transacting such business as may be specified in the notice convening
the meeting;
(i) "Governor" and "Deputy Governor" mean respectively the Governor and
Deputy Governor of the Bank;
(k) "member" means a member for the time being of a Local Board;
(!) "rupee coin" means one-rupee coin and one rupee notes which are legal
tender in Pakistan;
(m) "scheduled bank" means a bank for the time being included in the list of
banks maintained under subsection (1) of section 37.
the management of the currency from the Reserve Bank of India, and carrying on the
business of Central Banking.
(2) The Bank shall be a body corporate by the name of the State Bank of
Pakistan or Bank-e-Daulat-e-Pakistan, having perpetual succession and a common
seal, and shall by the said name sue and be sued.
4. Share capital. -(1) The original share capital of the Bank shall be three crores
of rupees divided into three hundred thousand fully paid up shares of the nominal
value of one hundred rupees each, out of which not less than fifty-one per cent shall
be held by the Central Government and the balance by the public.
(2) The share capital may be increased by a resolution of the Central Board
subject to the approval of the Central Government, but not less than fifty-one per
cent of the additional share capital shall be issued to the Central Government.
(3) The nominal v.alue, issue price, the manner in which the new shares may be
issued and allotted and their assignment to the registers of shareholders maintained
under subsection (1) of section 7 shall, subject to the approval of the Central
Government, be determined by the Central Board.
6. Notice of trust. -(1) No notice of any trust in respect of any share ofthe Bank
shall be receivable by the Bank nor shall the Bank be bound by any such notice given,
expressly or otherwise, nor shall the Bank be regarded as a trustee in respect of any
such share.
(2) Without prejudice to the provisions of sub-section (1), the Bank may,
without any liability to the Bank, record in its books such directions given by the
holder of a share for the payment of dividend or transfer or any other matter relating
to such share as the Bank may think fit.
shall be registered as a shareholder in more than one register and no person who is
not-
(e) a corporation or company incorporated by or under any law for the time
being in force, any other country and having a branch in Pakistan;
(4) The shares of the Bank may be held under his official designation by the
holder of any public office which may be notified in the Gazette by the Local Board
and in regard to transfers the following provisions shall apply, namely:-
(b) when the holder of the office transfers the shares to a party not being his
successor in office, the transfer shall be made in the prescribed manner.
Explanation. -The provisions of clauses (a) and (b) of this sub-section apply in
the case of an office of which there are two or more joint holders in the same manner
as they apply to an office of which there is a single holder.
APPENDICES 499
CHAPTER III-MANAGEMENT
8. Offices, branches and agencies.-(!) The head office of the Bank shall be
situated in Karachi.
(2) The Bank may establish branches, offices, and agencies in Pakistan, or,
with the prior approval of the Central Government anywhere outside Pakistan.
(3) The Bank shall create a special Agricultural Credit Department, the
functions of which shall be:-
(a) to maintain an expert staff to study all questions of agricultural credit and
be available for consultation by the Central Government, Provincial Governments,
Provincial Co-operative Banks and other banking organisations;
(c) six Directors nominated by the Central Government, one of whom shall be
a Government official; and
(d) one Director elected in the manner prescribed by regulations made under
this Act from amongst themselves by each group of the shareholders registered in
each of the three registers.
10. Governor and Deputy Governor.- (1) The Governor of the Bank shall be the
chief executive officer and shall, on behalf of the Central Board, direct and control
the whole affairs of the Bank.
(2) In the matters not specifically required by this Act or by regulations made
thereunder, to be done by the Central Board or by the Bank in general meeting, the
500 HISTORY OF THE STATE BANK OF PAKISTAN
Governor shall have authority to conduct the business, control the functions and
manage the affairs of the Bank.
(3) Subject to the provisions of subsection (11) of this section the Governor
shall be appointed by the Central Government for such term (not exceeding five
years) and on such salary and terms and conditions of service as the Central
Government may determine, except that neither the salary of the Governor nor his
other terms and conditions of service shall be varied to his disadvantage after his
appointment.
(5) A Deputy Governor shall perform such duties as may be assigned to him
by the Central Board.
(6) The Central Government may require the Governor or a Deputy Governor
to hold an office other than in the Bank, in which event the Governor or the Deputy
Governor shall vacate his office, and the period during which he holds the other
office shall not count towards his tenure of office as Governor or Deputy Governor
as the case may be.
(7) The Governor and a Deputy Governor shall devote their whole time to the
affairs of the Bank.
(8) The Governor, or a Deputy Governor, as the case may be, may, in addition
to his duties of the Governor or a Deputy Governor, be entrusted by an order of the
Central Government with such duties for such period as may be specified in the
order.
(9) The Governor and a Deputy Governor shall on the expiry oftheir terms of
office be eligible for reappointment.
(b) who is employed in any capacity in the public service of Pakistan or of any
Province of Pakistan or holds any office or position for which any salary or other
remuneration is payable out of public funds;
APPENDICES 501
(11) The Central Government may grant leave to the Governor and a Deputy
Governor for such period and on such terms and conditions as may be specified by
the Central Government.
(12) Where the Governor or a Deputy Governor during his term of office is
incapacitated or is absent on deputation, leave or otherwise, the Central
Government may appoint any person qualified under sub-section (10) but who may
not be qualified under clause (b) of that subsection to act for the time being as the
Governor or a Deputy Governor, as the case may be, in his place.
(2) Except when the Central Board is in session, the Executive Committee
shall deal with and decide any matter within the competence of the Central Board.
12. Local Boards, their constitution and functions.-(!) A Local Board shall be
constituted for each of the three areas specified in the Schedule and shall consist of-
(a) two members elected in the manner prescribed by regulations made under
this Act from amongst themselves by the shareholders registered on the register for
that area; and
(b) not more than three members nominated by the Central Government.
(3) A Local Board shall advise the Central Board on such matters as may be
generally or specifically referred to it, and shall perform such duties as the Central
Board may, by regulations, delegate to it.
(c) who is, or at any time has been, adjudicated an insolvent or has suspended
payment or has compounded with his creditors; or
(f) who is a director of any bank other than the Bank, but he shall not be
disqualified or cease to be a director if he is a director of a bank which is a society
registered under the Co-operative Societies Act, 1912, or any other law for the time
being in force in Pakistan relating to co-operative societies; or
(g) who is not within six months from the date of his becoming a director or
member, as the case may be, registered as a holder of unencumbered shares of the
Bank of the nominal value of five hundred rupees; or
(h) who absents himself from three consecutive meetings of the Central Board
or Local Board without leave from the Central Board or Local Board, as the case
maybe.
(2) Nothing in clauses (b) and (g) of subsection (1) shall apply to the
Government official nominated as a director by the Central Government.
(3) The Central Government shall sell shares at par to a director or a member
nominated by it under sections 9 and 12, seeking to obtain the minimum share
qualification required under this section, but no such share shall be disposed of by
such director or member otherwise than by resale to the Central Government at par,
and the Central Government shall have the right to order the retransfer at par of all
or any of such shares to itself, whereupon all or any of such shares shall be deemed
to have been transferred to it.
14. Term of office of directors and members.-(1) The elected directors and
members shall hold office for three years and thereafter until their successors shall
have been duly elected.
APPENDICES 503
(2) The directors and members nominated by the Central Government shall
hold office at the pleasure of the Central Government.
(3) Directors and members shall on the expiry of their term of office be eligible
for re-election or re-nomination as the case may be.
15. Removal from and vacation of office of the Governor, Deputy Governor,
directors and members. -(1) Subject to subsection (2) the Central Government may
remove from office-
(2) An elected director or member shall not be removed from his office except
upon a resolution passed by the Central Board in that behalf by a majority of not less
than six directors.
(3) (a) The Governor, a Deputy Governor or a director may resign his office
by statement to that effect in writing signed by him and addressed to the Central
Government.
(c) A member may resign his office by a statement to that effect in writing
signed by him and addressed to the Central Board.
(4) Any director or member vacating office under this section shall not be
eligible to become a director or member, as the case may be, until the expiry of the
term of office for which he was nominated or elected.
case may be, shall be elected for the remainder of the term by and from amongst the
share-holders registered on the same register as that from which the vacating director
or member was elected.
16. General and annual general meetings.-(1) The annual general meeting shall
be held annually at Karachi, or a place in Pakistan where there is an office or branch
of the Bank, within three months from the date on which the annual accounts of the
Bank are closed.
(2) In the said meeting the share-holders present shall be entitled to discuss the
annual accounts, the report of the Central Board on the working of the Bank
throughout the year, and the auditors' report on the annual balance sheet and
accounts.
(3) A general meeting may be convened by the Central Board at any other
time.
(4) Every shareholder shall be entitled to attend at any general meeting; and
each share-holder who has been registered on a register maintained under section 7
for a period of not less than six months ending with the date of the meeting, as
holding five or more shares shall have one vote, and on a poll, each share-holder so
registered shall, subject to a maximum of ten votes, have one vote for each five
shares, and such votes may be exercised either personally or by proxy; but the
Central Government as a shareholder may appoint any authority or person to be
present at any general meeting or annual general meeting in which event the
restriction of the maximum of ten votes shall not apply to the authority or person so
appointed.
17. Business which the Bank may transact.-The Bank is authorised to carry on
and transact the several kinds of business hereinafter specified, namely:-
(1) The accepting of money on deposit without interest from, and the
collection of money for the Central Government, the Provincial Governments,
Local Authorities, banks and other persons;
(2) (a) The purchase, sale and rediscount of bills of exchange and promissory
notes drawn on and payable in Pakistan and arising out of bona fide commercial or
trade transactions bearing two or more good signatures one of which shall be that of
a scheduled bank, and maturing within ninety days from the date of such purchase or
rediscount, exclusive of days of grace;
APPENDICES 505
(b) The purchase, sale and rediscount of bills of exchange and promissory
notes, drawn on and payable in Pakistan and bearing two or more good signatures
one of which shall be that of a scheduled bank, and drawn or issued for the purpose
of financing seasonal agricultural operations or the marketing of crops, and maturing
within fifteen months from the date of such purchase or rediscount, exclusive of days
of grace;
(iii) the expression "marketing of crops" includes the processing of crops prior
to marketing by agricultural producers or any organisation of such producers;
(c) The purchase, sale and rediscount of bills of exchange and promissory
notes drawn on and payable in Pakistan and bearing the signature of a scheduled
bank, and issued or drawn for the purpose of holding or trading in securities of the
Central Government, a Provincial Government or the Governments of such
Acceding States, as may be approved by the Central Government and maturing
within ninety days from the date of such purchase or rediscount, exclusive of days of
grace;
(d) The purchase, sale and rediscount of bills of exchange and promissory
notes drawn and payable in Pakistan and bearing two or more good signatures one
of which shall be that of a scheduled bank, or any corporation approved by the
Central Government and having as one of its objects the making of loans and
advances in cash or kind, drawn and issued for financing the development of
agriculture, or of agricultural or animal produce or the needs of industry, having
maturities not exceeding five years from the date of such purchase of rediscount:
Provided that the total amount of such bills of exchange and promissory notes
purchased, sold, and rediscounted shall not at any time exceed the limit fixed each
year by the Bank:
Provided further that the Bank may from time to time issue to a corporation
which may have dealings with the Bank under this sub-section any directions which
can be issued to a banking company under the Banking Companies (Control) Act,
1948 and in the event of anybody, while carrying out any direction hereunder, either
wilfully making a false statement or wilfully omitting to make a material statement
shall be punishable under subsection (1) of section 15 of the said Act and in the event
of any contravention or default in compliance with any direction, any director or
506 HISTORY OF THE STATE BANK OF PAKISTAN
(b) The purchase, sale and rediscount of bills of exchange including treasury
bills, drawn in or on any place in countries whose currency has been declared as
approved foreign exchange and maturing within ninety days from the date of
purchase, provided that no such purchase, sale or rediscount shall be made in
Pakistan except with a scheduled bank;
(c) The keeping of balances with banks in countries whose currency has been
declared as approved foreign exchange;
(4) The making to Local Authorities or scheduled banks of advances and loans
repayable on demand or on the expiry of fixed periods not exceeding ninety days
against the security of-
(a) stocks, funds and securities, other than immovable property, in which a
trustee is authorised to invest trust money by any law for the time being in force in
Pakistan;
(c) such bills of exchange and promissory notes as are eligible for purchase or
rediscount by the Bank; and
(6) The making to institutions or banks, specially established for the purpose
of promoting agricultural or industrial development in the country or co-operative
banks of advances and loans for such amounts and on such terms and conditions as
the Central Board may decide from time to time.
APPENDICES 507
(7) The issue and purchase of telegraphic transfers, demand drafts and other
kinds of remittances made payable at its own branches, offices or agencies;
(8) The drawing, accepting, making and issue on its own account or on account
of the Central Government, as the case may be, of any bill of exchange, hundi,
promissory note or engagement for the payment within or without Pakistan, of
Pakistan or foreign currency payable to bearer or to a banker on demand; but no such
business shall be carried on or transacted without the previous approval of the
Central Government;
(9) (a) Subject to clause (b) the purchase and sale of securities of countries
whose currency has been declared as approved foreign exchange with an unexpired
currency of not more than ten years;
(b) The restrictions relating to maturity shall not apply to securities held by the
Bank on the date on which this Act comes into force or any securities that may be
received as assets under the Pakistan (Monetary System and Reserve Bank) Order,
1947;
(10) (a) The purchase and sale of securities of the Central Government, a
Provincial Government or the Government of an Acceding State of any maturity or
of such securities of a Local Authority as may be specified in this behalf by the
Central Government by notification in the official Gazette on the recommendation
of the Central Board;
(c) The amount of such securities held at any time in the Banking Department
shall be so regulated that-
(i) the total value of such securities shall not exceed the aggregate amount of
the share capital of the Bank, the Reserve Fund and three-fifths of the liabilities of
the Banking Department in respect of deposits;
(ii) the value of such securities maturing after one year shall not exceed the
aggregate amount of the share capital of the Bank, the Reserve Fund and two-fifths
of the liabilities of the Banking Department in respect of deposits;
(iii) the value of such securities maturing after ten years shall not exceed the
aggregate amount of the share capital of the Bank and the Reserve Fund and one-
fifth of the liabilities of the Banking Department in respect of deposits;
508 HISTORY OF THE STATE BANK OF PAKISTAN
(11) The custody of monies, securities and other articles of value and the
collection of the proceeds, whether principal, interest or dividends of any such
securities;
(12) The sale and realisation of all property, whether movable or immovable
which may in any way come into the possession of the Bank in satisfaction, or part
satisfaction of any of its claims;
(b) the purchase, sale, transfer and custody of bills of exchange, securities or
shares in any company;
(d) the remittance of such proceeds at the risk of the principal, by bills of
exchange payable either in Pakistan or elsewhere; and
(14) The purchase and sale of gold coin and gold or silver bullion;
(15) The opening of an account with or the making of any agency arrangement
with, and the acting as agent or correspondent of bank incorporated in any country
outside Pakistan or the principal currency authority of any country under the law for
the time being in force in that country or any international bank formed by such
principal currency authorities, and the investing of the funds of the Bank in the
shares of any such international bank;
(16) (a) Subject to clauses (b) and (c) the borrowing of money for period not
exceeding three months for the purpose of the business of the Bank, and the giving
of security for money so borrowed;
(b) No money shall be borrowed under this subsection from any person in
Pakistan other than a scheduled bank or from any person outside Pakistan other than
a bank which is the principal currency authority of any country under the law for the
time being in force in that country;
(c) The total amount of borrowings from persons in Pakistan shall not at any
time exceed the amount of the share capital of the Bank;
APPENDICES 509
( 17) The making and issue of bank notes subject to the provisions of this Act;
(18) The performance of the functions of the Bank under the International
Monetary Fund and Bank Act, 1950;
(20) Generally, the doing of all such matters and things as may be necessary,
incidental to or consequential upon the exercise of its powers or the discharge of its
duties or functions under this Act.
18. Power of direct discount. -(1) Where, in the opinion of the Central Board or
of the Governor, circumstances so warrant, the Bank may, notwithstanding any
limitation contained in paragraphs (a) and (b) of subsection (2) or paragraphs (a) and
(b) of subsection (3) or subsection (4) of section 17-
(a) purchase, sell or discount any of the bills of exchange or promissory notes
specified in paragraph (a) or paragraph (b) of subsection (2) or paragraph (b) of
subsection (3) of section 17, though such bill or promissory note does not bear the
signature of scheduled bank; or
(2) Where a banking company, to which an advance or loan has been made
under the provisions of paragraph (b) of subsection (1) of this section, is wound up,
any sums due to the Bank in respect of such advance or loan shall, subject only to the
claims, if any of any other banking company in respect of any prior claim or advance
made by such banking company against any security, be a first charge on the assets
of the banking company.
20. Business which the Bank may not transact.-The Bank shall not, except as
authorised under this Act-
the course of the satisfaction of any of its claims, but all such interest shall be disposed
of at the earliest possible moment;
(2) purchase its own shares or the shares of any other bank or of any company,
or grant advances or loans upon the security of any such shares;
(3) advance money on mortgage of, or otherwise on the security of, immovable
property or documents of title relating thereto, or become the owner of immovable
property, except so far as such advance or ownership is necessary for its own business
premises or residence for its officers and servants;
(4) make unsecured advances and loans;
21. Government business.-(!) The Bank shall undertake to accept monies for
account of the Central Government, Provincial Governments and Governments of
such Acceding States as may be approved by the Central Government and to make
payments up to the amount standing to the credit of their accounts respectively and
to carry out their exchange, remittance and other banking operations, including the
management of public debt.
(2) (a) The Central Government and Provincial Governments shall entrust the
Bank, on such conditions as may be agreed upon between the Government
concerned and the Bank, with all their money, remittance, and banking transactions
in Pakistan, and, in particular, shall deposit free of interest all their cash balances
with the Bank.
(c) The Central Government and each Provincial Government shall entrust
the Bank, on such conditions as may be agreed upon between the Government
concerned and the Bank, with the management of the public debt and with the issue
of any new loans.
(d) In the event of any failure to reach agreement on the conditions referred
to in this section, the Central Government shall decide the conditions and its decision
shall be final.
22. Bank rate.- The Bank shall make public from time to time the standard rate
APPENDICES 511
23. Obligation to buy or sell foreign exchange.- The Bank shall sell to or buy from
any authorised dealer in Pakistan, approved foreign exchange at such rates of
exchange, at such place and on such conditions as the Central Government may from
time to time by general or special order determine.
Explanation.- In this section "authorised dealer" means a person for the time
being authorised under section 3 of the Foreign Exchange Regulation Act, 1947, to
deal in foreign exchange.
24. Sole right to issue bank notes.- (1) The Bank shall have the sole right to issue
bank notes made payable to bearer on demand in Pakistan in accordance with the
provisions hereinafter made, provided that the currency notes of the Government of
Pakistan supplied to the Bank by the Government may be issued by it for a period
which shall be fixed by the Central Government on the recommendations of the
Central Board.
(2) Any person contravening this authority or committing any other offence
specified in section 35, shall be liable to the penalties therein mentioned.
25. Legal tender. -(1) Subject to the provisions of subsection (2) every bank note
shall be legal tender at any place in Pakistan for the amount expressed therein and
shall be guaranteed by the Central Government.
26. Issue Department.-(!) The issue of bank notes shall be conducted by the
Bank in an Issue Department which shall be separated and kept wholly distinct from
the Banking Department and the assets of the Issue Department shall not be subject
to any liability other than the liabilities of the Issue Department as hereinafter
defined in section 32.
(2) The Issue Department shall not issue bank notes to the Banking
Department or to any person except in exchange for other bank notes or for such
coin, bullion, approved foreign exchange or securities as are permitted under this
Act to form part of the assets of the Issue Department.
27. Denominations and form of bank notes.- Bank notes made and issued by the
B"nk sh"ll be in such denominations and of such design, form and material as may
512 HISTORY OF THE STATE BANK OF PAKISTAN
28. Re-issue of notes.-The Bank shall not re-issue bank notes which are torn,
defaced or excessively soiled.
30. Assets ofthe Issue Department.- (1) The assets of the Issue Department shall
not be less than the total of its liabilities and shall be maintained as follows:-
(a) of the total amount of the assets, not less than thirty per cent shall consist
of gold coin, gold bullion, silver bullion or approved foreign exchange;
(b) the remainder of the assets shall be held in rupee coins, rupee securities of
any maturity and such bills of exchange and promissory notes payable in Pakistan as
are eligible for purchase by the Bank under paragraphs (a), (b) and (d) of subsection
(2) of section 17:
Provided that the assets falling to the share of the Government of Pakistan
under the provision of Pakistan (Monetary System and Reserve Bank) Order, 1947,
which are held by the Reserve Bank of India pending their physical transfer to the
Bank shall form a part of the assets.
(2) For the purposes of this section, gold coin and gold bullion shall be valued
at 0,268601 grams of fine gold per rupee, silver bullion shall be valued at the market
value of the fine silver content thereof, rupee coin shall be valued at its face value and
rupee securities and securities specified in subsection (4) shall be valued at the
market rate for the time being obtaining.
(3) Of the gold coin and gold or silver bullion held as assets not less than
seventeen-twentieths shall be held in the custody of the Bank including its branches,
offices or agencies, and the gold or silver belonging to the Bank which is in any other
bank or in any mint or treasury or in transit may be reckoned as part of the assets.
(4) For the purposes of this section the approved foreign exchange which may
be held as part of the assets shall be in any of the following forms, namely:-
(a) balances standing to the credit of the Bank at the Central Bank of the
country of origin of the currency in question;
APPENDICES 513
(b) bills of exchange bearing two or more good signatures and drawn on and
payable at any place in the country of origin having a maturity not exceeding ninety
days; and
32. Liabilities of the Issue Department. -(1) The liabilities of the Issue
Department shall be an amount equal to the total of the amount of the bank notes for
the time being in circulation.
(2) For the purposes of this section any bank note which has not been
presented for payment within forty years from the first day of July following the date
of its issue shall be deemed not to be in circulation and the value thereof shall
notwithstanding anything contained in subsection (2) of section 26 be paid by the
Issue Department to the Banking Department; but any such bank note, if
subsequently presented for payment, shall be paid by the Banking Department.
33. Obligation to supply different forms of currency.-(1) The Bank shall issue
rupee coin on demand in exchange for bank notes and bank notes on demand in
exchange for coin which is legal tender under the Pakistan Coinage Act.
(2) The Bank shall in exchange for bank notes of five rupees or upwards supply
bank notes of lower value or coins which are legal tender under the said Pakistan
Coinage Act, in such quantities as may in the opinion of the Bank be required for
circulation. The Central Government shall supply such coins to the Bank on demand
and if it fails to do so at any time the Bank shall be released during the period of such
failure from its obligation to supply them to the public.
(3) The Central Government shall take over from the Bank at such times and
in such quantities as the Bank may, with the previous approval of the Central
514 HISTORY OF THE STATE BANK OF PAKISTAN
Government, determine rupee coins which are not required for purposes of
circulation against payment.
34. Obligation of the Central Government in respect of rupee coin.- The Central
Government shall not re-issue any rupee coins taken over under subsection (3) of
section 33 nor put into circulation any rupee coin except through the Bank and the
Bank shall not dispose of rupee coin otherwise than for purposes of circulation or by
delivery to the Central Government under the preceding section.
35. Offences and penalties relating to unauthorized issue of bills and Bank
notes. -(1) No person in Pakistan other than the Bank or as expressly authorised by
this Act, the Central Government shall draw, accept, make or issue any bill of
exchange, hundi, promissory note or engagement for the payment of money payable
to bearer on demand, or borrow, owe or take up any sum or sums of money on the
bill,hundis or notes payable to bearer on demand of any such person, but such
cheques, or drafts, including hundi, payable to bearer on demand or otherwise may
be drawn on a person's account with a banker, shroff or agent.
(3) Any person contravening the provision of this section shall be punishable
upon conviction with fine which may extend to double the amount of the bill, hundi,
promissory note or engagement in respect whereof the offence is committed.
36. Cash reserve of scheduled banks to be kept with the Bank. -(1) Subject to
subsection (2) every scheduled bank shall maintain with the Bank a balance the
amount of which shall not at the close of business on any day be less than five per cent
of the demand liabilities and two per cent of the time liabilities of such bank in
Pakistan.
Explanation. -For the purposes of this section liabilities shall not include the
paid-up capital or the reserves, or any credit balance in the profit and loss account of
such bank or the amount of any loan taken from the Bank.
APPENDICES 515
(3) Every scheduled bank shall send to the Bank returns signed by two
responsible officers of such bank containing such information as may be deemed
necessary for carrying out the purposes and objects of this Act at such periods of time
as the Bank may from time to time direct.
(4) If at the close of business on any day before the day fixed for the next return
under the proceeding subsection, the balance held at the Bank by any scheduled
bank is below the minimum fixed by subsection (1) or varied under subsection (2),
such scheduled bank may be ordered by the Bank to pay to the Bank in respect of
such day penal interest at a rate three per cent above the bank rate on the amount by
which the balance with the Bank falls short of the fixed minimum, and if on the day
on which the next return is due such balance is still below the fixed minimum as
disclosed by this return, the rate of penal interest rna y be increased to a rate five per
cent above the Bank rate in respect of that day and each subsequent day on which the
balance held at the Bank at the close of business on that day is below the fixed
minimum.
(5) When under the provisions of subsection (4) penal interest at the increased
rate of five per cent above the Bank rate has become payable by a scheduled bank,
if thereafter on the day fixed for the next return under subsection (3) the balance held
at the Bank is still below the fixed minimum as disclosed by this return-
(a) every director and officer of the scheduled bank, who is knowingly and
wilfully a party to the default, shall by order of the Bank be punishable with fine
which may extend to five hundred rupees for each subsequent day on which the
default continues; and
(b) the Bank may prohibit the scheduled bank from receiving after the said day
any fresh deposit, and if default is made by the scheduled bank in complying with
such prohibition, every director and officer of the scheduled bank who is knowingly
and wilfully a party to such default or who through negligence or otherwise
contributes to such default shall by order of the Bank be punishable in respect of each
default with fine which may extend to five hundred rupees for each day after the first
on which a deposit received in contravention of such prohibition is retained by the
scheduled bank.
(6) Any scheduled bank failing to comply with the provisions of subsection (3)
shall by order of the Bank be liable to pay to the Bank a penalty of one hundred
rupees for each day during which the failure continues.
(7) Whoever in any return under this section wilfully or recklessly makes a
statement false in any material particular or wilfully or recklessly omits to state a
516 HISTORY OF THE STATE BANK OF PAKISTAN
material particular shall by order of the Bank be punishable with fine which may
extend to one thousand rupees in respect of each such return.
(8) The penalties imposed by subsections (4), (5), (6) and (7) shall be payable
on demand made by the Bank and in the event of refusal by the defaulting bank,
director or officer to pay on such demand, may be levied by a direction of the
principal Civil Court having jurisdiction in the area where an office of the defaulting
bank is situated, such direction being made only upon application made in this behalf
to the Court by the Bank, with the previous sanction of the Central Government.
37. Scheduled banks.-(1) The Bank shall maintain at all its offices and
branches an up-to-date list of banks declared byitto be scheduled banks under clause
(a) of subsection (2).
(a) declare any bank to be scheduled bank which is carrying on the business of
banking in Pakistan and which-
(ii) has a paid-up capital and reserves of an aggregate value of not less than five
lakhs of rupees:
(iii) satisfies the Bank that its affairs are not being conducted in a manner
detrimental to the interests of its depositors;
(b) direct the descheduling of any scheduled bank which ceases to fulfil the
requirements mentioned in clause (a) or goes into liquidation or otherwise wholly or
partly ceases to carry on banking business:
Provided that the Bank may, on application of the scheduled bank concerned
and subject to such conditions, if any, as it may impose, defer the making of a
direction under clause (b) for such period as the Bank considers reasonable to give
the scheduled bank an opportunity of fulfilling the requirements mentioned in sub-
clauses (ii) and (iii) of clause (a);
(c) alter the description in the list of scheduled banks whenever any scheduled
bank changes its name.
APPENDICES 517
38. Power to require returns from Corporations.- The Bank may require any
Corporation with which it has any transactions under section 17 to furnish returns
prescribed under subsection (3) of section 36, and if it does so require, the provisions
of subsections (6), (7) and (8) of section 36 shall apply, so far as may be, to such
Corporation as if it were a scheduled bank.
39. Publication of consolidated statements by the Bank.- The Bank shall compile
and publish in such manner and at such times as the Central Government may direct,
a consolidated statement from such information as may be received under this Act.
40. Returns.-(!) The Bank shall prepare and transmit to the Central
Government a weekly account of the Issue Department and of the Banking
Department in such form as the Central Government may, by notification in the
official Gazette, direct. The Central Government shall cause these accounts to be
published weekly in the official Gazette.
(3) The Bank shall also, within two months from the date on which the annual
accounts of the Bank are closed, transmit to the Central Government a statement
showing the name, address and occupation of, and the number of shares held by each
share-holder of the Bank.
CHAPTERV
General
41. Securities of the value of three crores of rupees allocated for the purpose by the
Central Government shall be held by the Bank as the Reserve Fund.
42. After making provision for bad and doubtful debts, depreciation in assets,
contributions to staff and super annuation funds, and such other contingencies as are
usually provided for by bankers, there shall be paid to the share-holders out of the
net annual profits a dividend on the shares at a rate to be fixed by the Central
Government from time to time, which shall not be less than 4 per cent per annum.
Any surplus remaining thereafter shall be paid to the Central Government.
43. (1) Not less than two auditors shall be elected and their remuneration fixed at
the annual general meeting. The auditors may be shareholders, but no director,
member or other officer of the Bank shall be eligible during his continuance in office
to be so elected. Any auditor so elected shall be eligible for re-election on vacating
office.
518 HISTORY OF THE STATE BANK OF PAKISTAN
(2) All auditors elected under this section shall be and continue to act as
auditors until the first annual general meeting after their respective elections.
(3) Any casual vacancy in the office of any auditor elected under this section
may be filled by the Central Board.
45. (1) Every auditor shall be supplied with copy of the annual balance sheet, and
it shall be his duty to examine the same together with the accounts and vouchers
relating thereto; and every auditor shall have a list delivered to him of all books kept
by the Bank, and shall at all reasonable time have access to books, accounts and
other documents of the Bank, and may, at the expense of the Bank, if appointed by
it, or at the expense of the Central Government if appointed by that Government
employ accountants or other persons to assist him in investigating such accounts and
may, in relation to such accounts, examine any director or officer of the Bank.
(2) The auditors shall make a report to the shareholders or to the Central
Government, as the case may be, upon the annual balance sheet and accounts, and
in any such report they shall state whether in their opinion the balance sheet is a full
and fair balance sheet containing all necessary particulars and properly drawn up so
as to exhibit a true and correct view of the state of affairs of the Bank, and, in case
they have called for any explanation or information from the Central Board, whether
it has been given and whether it is satisfactory. Any such report made to the
shareholders shall be read, together with the report of the Central Board, at the
annual general meeting.
46. (1) For the purposes of section 124 of the Evidence Act, 1872 the provisions of
Part IV of the Code of Civil Procedure, 1908, and the provisions of rule 27 of Order
V, and rule 52 of Order XXI of the said Code, the Bank and any officer of the Bank
acting in his capacity as such shall be deemed to be a public officer.
(2) The provisions of section 123 of the Evidence Act shall apply to the
unpublished records relaing to the affairs of the Bank and the Governor shall be
deemed to be the officer or head of the department concerned.
47. Notwithstanding anything contained in any law for the time being in force
pension granted by the Bank to its officers and servants shall not be liable to seizure,
attachment or sequestration by process of any court in Pakistan at the instance of a
creditor, for any demand against the pensioner or in satisfaction of a decree of order
of any such court.
APPENDICES 519
48. The bank shall not be liable to the payment of any stamp duty under the Stamp
Act, 1899.
49. (1) Notwithstanding anything contained in the Income-tax Act, 1922, or the
Business Profits Tax Act, 1947, or any other law for the time being in force in
Pakistan relating to income tax, super-tax or business profits tax, the Bank shall not
be liable to pay any income-tax, super-tax, or business profits tax on any of its
income, profits or gains.
(2) For the purposes of section 18 of the Income-tax Act, 1922, or of any other
relevant provision of that Act relating to the levy and refund of income-tax any
dividend paid under section 42 shall be deemed to be interest on securities;
Provided that nothing in this section shall affect the liability of any
shareholder, other than the Central Government, in respect of income-tax super-tax
or business profits tax.
50. The Bank shall not be placed in liquidation save by order of the Central
Government and in such manner and on such terms and conditions as it may direct.
52. (1) If in the opinion of the Central Government, the Bank fails to carry out any
of the obligations imposed on it by or under this Act the Central Government may
by notification in the official Gazette declare the Central Board to be superseded,
and thereafter the general superintendence and direction of the affairs of the Bank
shall be entrusted to such agency as the Central Government may determine and
such agency may exercise the power and do all acts and things which may be
exercised or done by the Central Board under this Act.
(2) When action is taken under sub-section (1) the Central Government shall
cause a full report of the circumstances leading to such action and of the action taken
to be laid before the Central Legislature at the earliest possible opportunity and in
any case within three weeks of the re-assembly thereof after the issue of the
notification superseding the Central Board.
53. (1) Except in the performance of his duties under this Act every officer or
servant of the Bank shall preserve and aid in preserving secrecy with regard to all
matters relating to the affairs of the Bank not published by it, and with regard to all
matters relating to the financial or monetary affairs of any institution, person, body
of persons, any Government or authority whether in Pakistan or outside that may
come to his knowledge in the performance of his duties.
520 HISTORY OF THE STATE BANK OF PAKISTAN
(2) Every such officer or servant who communicates any such matter, except
when required by law to do so or in the discharge of his duty as such, shall be guilty
of an offence and shall on conviction by a court of competent jurisdiction be punished
with imprisonment to either description for a term which may extend to six months
or with fine which may extend to Rs.500 or with both.
(3) No court shall take cognizance of any offence punishable under this section
except upon complaint in writing by a person authorised in this behalf by the
Governor.
54. (1) Subject to the approval ofthe Central Government, the Central Board may
made regulations consistent with this Act to provide for all matters for which
provision is necessary or convenient for the purposes of giving effect to the provisions
ofthis Act.
(a) the manner of holding and conducting of elections under this Act, the
votes of shareholders and the manner in which they may be exercised by
shareholders at such elections;
(c) the maintenance of the share registers, the manner in which and the
conditions subject to which shares may be held and transferred,
suspension and the manner of suspension of transfer of shares from one
register to another and generally, all matters relating to the rights and
duties of shareholders;
(d) the manner in which general meetings and annual general meetings shall
be convened and held, their quorum, the procedure to be followed
thereat, votes of the shareholders and the manner in which they may be
exercised;
(e) the manner in which notices may be served on behalf of the bank upon
shareholders or other persons;
members and the manner in which they may be exercised and the
appointment and election of Chairman of such meetings except as
otherwise provided by this Act;
(g) the conduct of business of the Executive Committee and Local Boards
and the delegation of powers and functions to Local Boards;
(h) the delegation of powers and functions of the Central Board, the
Governor, Deputy Governor, directors or officers of the Bank;
(j) recruitment of officers and servants of the Bank including the terms and
conditions of their service, constitution of superannuation, beneficial
and other funds, with or without bank's contribution, for the officers
and servants of the Bank; their welfare; providing amenities, medical
facilities, grant of loans and advances; their betterment and uplift;
(k) the manner and form in which contracts binding on the Bank may be
executed;
(1) the provision of an official seal of the Bank and the manner and effects
of its use;
(m) the manner and form in which the balance sheet of the Bank shall be
drawn up, and in which the accounts shall be maintained;
( o) the relations of the scheduled banks with the Bank and the returns to be
submitted by the scheduled banks to the Bank;
(t) generally for making any provision necessary or convenient for the
conduct of the business, discharge of functions and for purposes of
management of the Bank.
(3) Copies of all regulations made under this section shall be available to the
public on payment.
55. (1) The State Bank of Pakistan Ordinance, 1955 is hereby repealed.
(2) Any rules or regulations made, order passed, notification issued, thing
done, action taken or proceedings commenced under any of the provisions of the
State Bank of Pakistan Ordinance, 1955 or deemed to have been so made, passed,
issued, done, taken or commenced, shall continue in force and be deemed to have
been made, or as the case may be, passed, issued, done, taken or commenced under
the corresponding provision of this Act.
THE SCHEDULE
(See Section 7)
1. The Karachi area, served by the Karachi Register, shall consist of-
Karachi Division, Khairpur Division, Hyderabad Division, Quetta and Kalat
Division.
2. The Lahore area, served by the Lahore Register, shall consist of-
3. The Dacca area, served by the Dacca Register, shall consist of-
The Credit Enquiry Commission was appointed in February, 1959 with the
following terms of reference:-
(1) To examine the scope and working of the agencies which provide credit
facilities to agriculture, business and industry.
(3) To examine what special measures are necessary in the credit field to
ensure proper implementation of the land reforms recently approved by
the Government.
(4) To examine the training facilities for banking within the country and to
consider the feasibility of setting up an institution for such training.
523
524 HISTORY OF THE STATE BANK OF PAKISTAN
4. The Report of the Commission consists of twenty-five chapters. While the first
chapter is introductory, the second outlines the major problems in the perspective of
developments in the credit field since Independence. Chapters 3-10 are concerned
with rural credit, Chapters 11-12 with commercial credit, Chapters 13-16 with
industrial credit and Chapters 17-24 with various miscellaneous problems, such as
housing and construction finance, mining industry finance, financing of inland
transport, the role of the State Bank in the provision of credit facilities, certain
general problems of the statutory credit agencies, remittance facilities, mobilisation
of savings and banking and co-operative training. The last chapter (i.e. Chapter 25)
summarises the conclusions and recommendations of the Report.
5. According to the Commission the main problems in the credit field are as
follows:-
(a) Firstly, an effective institutional credit system designed for the direct
benefit of the primary producer is yet to be developed in the country. In
the absence of organised facilities to provide him credit when needed
and at reasonable rates, the cultivator is often forced to take loans from
the middlemen and sell his crop to them in advance of the harvest at low
prices. If he manages to avoid advance sale, he is in any case forced to
sell immediately at the harvest because the non-availability of marketing
credit weakens his holding power. Similarly, cottage industry workers
eke out a miserable existence not only because of their output with the
middleman who supplies the raw material on credit at high prices and
compels them to sell their finished goods to him at low prices.
(b) Secondly, within the groups who are in a position to obtain credit from
organised institutional sources, there is a tendency for credit to gravitate
towards the more substantial elements in the community because they
APPENDICES 525
(c) Thirdly, the cooperative credit movement has not so far achieved any
measurable success in its mission. To large extent, the resources of the
cooperative banks have been exploited by men of influence for personal
and commercial purposes in complete disregard of cooperative ideals
and objectives. This has resulted not only in undermining the movement
by the denial of credit to the primary producer but also in jeopardising
the interests of the general public who have deposited their savings with
cooperative institutions.
(d) Fourthly, there is a lack of uniform control over the credit structure in
the country. While some credit institutions are subject to the control of
the State Bank of Pakistan, others are controlled by separate agencies.
This is an anomalous position which needs rectification.
6. In the context of the above problems, the Commission was guided in its
deliberations by the following main considerations:(a) credit must percolate to the
primary productive sectors of the economy so as to increase production; (b) credit
policy must work in the direction of promotion of small and medium-scale
enterprises in every sector of the economy;(c) extension of credit facilities to
neglected sectors should take place both through the redistribution of the existing
pool of liquid resources and through the establishment of additional institutional
agencies; and (d) savings are essential for credit expansion, if inflation is to be
avoided.
7. Dealing with the rural sector, the Commission has observed that with the
large-scale migration of money-lenders from Pakistan at the time of partition, there
has occurred a vacuum in the credit field in this sector. The institutional credit
agencies have not been able to fill this vacuum. The total outstanding advances of
institutional credit agencies do not exceed about Rs. 7 crores which is a meagre
contribution in relation to the potential requirements for productive credit. Among
the institutional credit agencies, the cooperative credit societies at the primary level
have been characterised by stagnation in the post-partition period due to several
factors including the diversion of cooperative funds to non-cooperative uses,
political intervention, lack of trained staff; while the higher agencies, namely, the
central and provincial banks have switched the main focus of their activities to
526 HISTORY OF THE STATE BANK OF PAKISTAN
(e) Rural Credit Fund: As it would not be possible to meet the full
requirements of medium-term and long-term credit in the agricultural
sector without substantial assistance from the State Bank of Pakistan,
the Commission has recommended the creation of a Rural Credit Fund
for the purpose. The Fund should be initially built up with an amount of
Rs.50 million by the Central Government and the State Bank of
Pakistan and then progressively augmented by recurring annual
appropriations of Rs.one crores from the surplus profits of the State
Bank of Pakistan. The Commission has also suggested the establishment
of a Rural and Cooperative Advisory Committee under the auspices of
the State Bank of Pakistan to provide a machinery of consultation and
to co-ordinate the credit policies of all agricultural credit agencies.
8. In the field of commercial credit, two of the main problems stressed by the
Commission are:(l) the inadequate expansion of commercial banking in the
relatively undeveloped areas of the country; and (2) the acute concentration of bank
credit in a few hands. To solve the first problem, the Commission has recommended
that 250 bank offices be opened by the end of the Second Five-Year Plan period. To
encourage the banks to open branches in the mofussil areas where branches may not
be remunerative initially, it has been recommended that the subsidy arrangements in
the agency agreement between the State Bank of Pakistan and the National Bank of
528 HISTORY OF THE STATE BANK OF PAKISTAN
9. As for the industrial credit, the Commission has come to the conclusion that
there is no dearth of credit facilities for the large-sized industries. They are in a
position to obtain their full requirements of finance, both short-term and long-term,
from the specialised industrial finance corporations, the commercial banks and the
market sources. The real difficulty in obtaining credit facilities is faced by the
medium, small-scale and cottage industries. To meet the difficulty experienced by
the medium-scale industries, the Commision has suggested that the Pakistan
Industrial Finance Corporation should be reorganised into an Industrial
Development Bank catering mainly to the needs of such industries. Its lending limit
should not exceed Rs.l million except in certain special circumstances. To augment
its resources, it should be encouraged to accept deposits from the general public. In
regard to the small-scale industries, the Commission has pointed out that although
two specialized corporations have been set up at Karachi and in East Pakistan to
cater to the requirements of such industries, the assistance provided by them so far
has been more in the field of supply of raw material and marketing of finished
products than in the provision of credit facilities. The Commission holds that these
specialized corporations should not, in_fact, be burdened with credit function as it is
a highly specialized business. Since the need of the small industries in most cases will
be for short and medium-term credit, the commercial banks would be able to
undertake this business provided the specialized corporations can undertake to give
them a technical appraisal of the scheme to be financed and negotiate guarantee
arrangements to cover 50 per cent of the losses arising out of loans made on
APPENDICES 529
Mortgage Bank
10. Apart from discussing the credit problems in the rural, commercial and
industrial sectors, the Commission has also dealt with a number of other problems in
the credit field. One of the problems considered by it is the question of provision of
credit facilities for housing and construction. In order to expand credit facilities in
this field, it has suggested the establishment of a mortgage bank with an initial capital
of Rs.20 million to be provided by the Central Government out of counterpart funds
if possible. The proposed mortgage bank would provide loans against the security of
land, buildings and other real estate for puposes not already covered by existing
specialized institutions.
Mining
12. The Commission has also examined the question of financing of inland
transport and has recommended that the reorganised PIFCO may be entrusted with
special responsibility for this sector and foreign exchange credits presently under
negotiation may be channelled through it.
13. The Commission has also considered the question of the State Bank's control
over the various statutory credit agencies set up by the Government; namely the
Agricultural Development Finance Corporation, Agricultural Bank of Pakistan,
National Bank of Pakistan, Pakistan Industrial Finance Corporation, Hous Building
Finance Corporation. Out of these institutions, the National Bank of Pakistan and
the Agricultural Bank of Pakistan, by virtue of their being treated as banking
companies, are subject to the control of the State Bank of Pakistan. There is,
however, no control of the State Bank of Pakistan on the remaining institutions. The
Commission recommends that while in the matter of administrative and non-crdit
activities, the statutory credit agencies can remain subject to Government directions,
they must come under the control of the State Bank in respect of credit policies.
Suitable provisions should, therefore, be made in the statutes of these agencies for
declaring them banking companies for purposes of State Bank control.
530 HISTORY OF THE STATE BANK OF PAKISTAN
Remittance Facilities
14. As extensive remittance facilities at a cheap rate are conducive to the rapid
expansion of banking facilities in the country, the Commission has suggested several
measures to liberalise the existing "Remittance Facilities Scheme" of the State Bank
of Pakistan.
Training Facilities
15. Two Banker's Training Institutes have been set up by the State Bank of
Pakistan at Karachi and Chittagong to give training to the new recruits in commercial
banking. With a view to enlarging the training facilities in these Institutes, the
Commission has suggested the introduction of a Refresher Course for advanced
training to a selected number of bank officers with at least five years service. As
regards training in co-operative credit, the Commission maintains that the training
and education given to co-operative personnel should impart a more practical kind
of knowledge than is taught at present and should also attempt to instil an enthusiasm
for the co-operative movement. To this end, it has recommended that the State Bank
of Pakistan should take the initiative in arranging for training of the staff of co-
operative banks according to a fixed programme whereby the entire existing
supervisory staff is trained properly in the next few years. The Commission has
furhter recommended that in addition to the Co-operative Colleges for training
senior personnel which are now being established, regional training institutes should
be organised for intermediate and subordinate staff and specialised institutions set
up for training the staff in co-operative marketing, farming and cottage industries.
As facilities for co-operative education are required at various levels and in various
spheres of co-operative activity, the Commission suggests that the proposed Rural
and Co-operative Credit Advisory Committee may give special attention to this
problem.
16. Lastly, the commission has emphasised that expansion of credit facilities must
be accompanied by the mobilisation of savings if inflation is to be avoided, and has,
in this regard, made a number of recommendations such as the setting up of
Investment Trusts and expansion of Postal Life Insurance.
APPENDIX-XVII
Governors
Deputy Governors
531
APPENDIX-XVIII
532
APPENDICES 533
534
APPENDICES 535
6. Sardar Mohammad
Ghazanfarullah Sept., 1950 to April, 1951
Opening Dates
537
APPENDIX-XXI
4. Bank of China
538
APPENDICES 539
Select Bibliography
Material for the compilation of the History of the State Bank of Pakistan has been
gathered from variety of primary and secondary sources. It had to be sorted out and sifted from
legislative enactments, official notifications, a mass of departmental correspondence, notings
scattered in the files of the Bank and the proceedings of the meetings of the Central Board of
Directors. Speeches, statements and articles written by the Governors formed an additional
source material. Letters addressed to the Minister of Finance were a valuable asset in addition
to the documents like the annual budgets, reports of the Planning Commission and the Bank's
own publications. Through his intimate contacts with the Governors, the Deputy Governors
and a number of eminent personalities in the field of banking, the author had access to vital
information which have not been recorded or published.
I. Books
Ahmad Iqbal (Colonel): Strategic Importance of Baluchistan, Royal Book Company,
1992.
Andrus J.R. and Mohammad Aziz Ali F: Trade, Finance and Development in Pakistan,
London Oxford University Press, 1966.
Michel Alloys Arthur: The Indus Rivers; A Study of the Effects on Pakistan, Yale
University New Haven, 1967.
Mohamad Ali Chaudhri: The Emergence of Pakistan, Columbia University Press, 1967.
Parakash Tandon: Banking Century, Penguin Book (India) Ltd., New Delhi, 1989.
Sayers, R.S: Banking in the British Commonwealth, Exford Claredon Press, 1952.
Sayers, R.S: Modern Banking, Oxford Claredon Press, 7th Ed., 1967.
Simha, S.L: History of the Reserve Bank of India 1935-1951, Reserve Bank of India
Publication, 1970.
Vakil, C.N: Economic Consequences of Divided India, Vora & Co., Bombay, 1950.
Banking Control Department- Functions and Operations, State Bank of Pakistan, 1964.
Budgets of the Central Government of Pakistan 1947-48 (August 15 to March 31) and
1948-49, Ministry of Finance, Government of Pakistan.
Central Banking in Pakistan, Zahid Husain, The Federal Economic Review, 1954.
Exchange Control in Pakistan (1948-1962), Said Ahmad, State Bank of Pakistan, 1964.
The Co-operative Inquiry Committee Report, The Government of West Pakistan, 1955.
Twenty Five Years of the State Bank of Pakistan, State Bank of Pakistan, 1973.
543
Index
Bankers' Training Institutes, 190 Central Bank of India, 10, 46, 73, 137
Bankers-Trained, vacuum of, 72-76 Central Bank of Pakistan, 39
Banking Agreement, 1949, 123 Central Bank of Turkish Republic -
Banking Agreement, Agreed Decisions, Governor, 50
124-125 Central Banking Enquiry Committee, 139
Banking Agreement, Implementation of, Central Banking Enquiry Committee
123 Report, 1930, 193
Banking Companies (Control) Act, 1948, .Central Banking Law for Pakistan, 42
110, 126, 141, 144, 146, 152, 201, 308, Central Board, State Bank of Pakistan see
309 State Bank of Pakistan - Central
Banking Companies Inspection Board of Directors
Ordinance, 1946, 19 Central Claims Organisation of Pakistan
Banking Companies Ordinance, 1947, 125 and India, 101
Banking Companies Ordinance, 1962, 147 Central Cooperative Bank, 198
Banking Companies (Restriction of Ceylon-Board of Commissioners of
Branches) Act, 1946, 19, 127, 308 Currency Board, 49
Banking Control Commission (of France), Chafai-el-Labban, Muhammad, 217, 222
302 Chaudhry, Abdul Matin, 36
Banking Diploma Examination, 74 Chetty, Shanmukhan, 24
Banking Legislation, 125-128 Chief Controller of Imports and Exports,
Banks Liquidation Work, 146-147 257, 263, 295
Barter Trade, 252-253 Coins - Rupee, 80
Bashir, Khan Sahib Mohammad, 36 Coins of Small Denominations, 80-81
Batheya, H.R., 36 Comilla Banking Corporation, 137
Bazlul Karim (Fazlul Karim), 72 Comilla Union Bank, 137
Bearer Bonds 1958 - 1lh per cent income Commercial Banking, Rehabilitation of,
tax free, 31 115-147
Bengal Act of 1940, 196 Commercial Relations with Afghanistan,
Bhalwal Central Cooperative Bank, 219 249-251
Bihar Relief Fund, 128 Commonwealth Bank of Australia, 302
Black Market, Emergence of, 238-240 Commonwealth Bank of Australia -
Board of Economic Enquiry Punjab, 208 Treasurer, 49
Bombay Act of 1925, 196 Commonwealth Finance Ministers,
Bradbury Wilkinson & Co. United Conference of the, 242
Kingdom, 84, 103 Companies Act, 1913, 144, 147, 220
British Government Plan of Congress of the United States, 300
Independence, 1 Controller of Capital Issues, 288
Bruce, (Sir) Arthur, 26 Cooperative and Marketing Advisor, 186,
Brussels Conference, 300 231
Cooperative Banks - Expert Committee,
Bucha, Malik Khuda Baksh, 186 217-220
Burma-Board of Commissioners of Cooperative Banks, Inspection of, 216-217
Currency Board, 50 Cooperative Banks Remittance
Cash Balances (of Pakistan with Reserve Facilities, 232
Bank of India), 24 Cooperative Credit, 197
Cash Balances (of Pakistan with Reserve Cooperative Land Mortgage Banks, 209
Bank of India), Transfer of, 27 Cooperative Movement, 195-203
Central Bank and the Government, 299- Cooperative Movement Before Partition
335 195-199 •
INDEX 545
Foreign Exchange Accounts, 274 Habib Bank, 44, 45, 77, 118, 127, 136,
Foreign Exchange-Allowance for 155, 178
Medical Treatment Abroad, 246 Habib, (Seth) Mohammad Ali, 36, 131
Foreign Exchange Banks, 156 Habib-ur-Rehman, 70
Foreign Exchange Control Act, 236 Haroon, Yusuf Abdullah, 70
Foreign Exchange, Declaration and Hasan, Mohammad (Prof.), 36
Surrender of Illegal Holdings House Building Finance Corporation
Martial Law Regulation No.45, 270- (HBFC), 166-167, 358
271, 272 House Building Finance Corporation Act,
Foreign Exchange Education 1952, 166
Allowance, 245-246
Huda, M.N., 186
Foreign Exchange Expenditure,
Husain, S.A., 186
Regulation and Control of, 274-281
Hussain, Abdul Qadir Mohammad, 70
Foreign Exchange Facilities for Business
Hussain, Moazzamuddin, 206
Travel, 244-245
Hyderabad State Bank see State Bank of
Foreign Exchange for Pilgrimage to Saudi
Arabia, 246-248 Hyderabad
Foreign Exchange Grant of
Allowances, 242-246 Ideal Bank Ltd., 142
Foreign Exchange, Holdings of, 270-274 IMP - Procedure, 255-256
Foreign Exchange Illegal Holdings - Imperial Bank of India, 21, 30, 34, 46, 47,
Examination of Declaration, 272-273 60, 73, 75, 89, 99, 104, 117, 119, 122,
Foreign Exchange, Management of, 20 127, 129, 137, 140, 151, 159
Foreign Exchange Regulation Act, 1947, Imperial Bank of India, Special Position
234, 238, 249, 270, 287, 290, 292, 293, of, 129-130
294, 295, 296, 297, 307, 309 Import of Capital Goods and Machinery
Foreign Exchange Regulation Bill, 236 under Deferred Payments
Foreign Exchange Regulations, 249 Arrangements, 260
Foreign Exchange (Surrender and Import Policy, Streamlining of, 257-259
Declaration) Martial Law- Importers and Exporters Order, 1952, 264
Regulation, 1958, 270 Importers, Registration of, 256-257
Foreign Exchange - Travel Allowance, Imports, 254-262
242-244 Imports Against Foreign Assets, 273-274
Foreign Exchange Tribunal, 293, 296 Imports - Arrangements with India, 260
Foreign Investment, 281-289 Imports - Conditions Prevailing After
Frontier Cooperative Bank Ltd., 198, 210- Partition, 254-255
211, 227, 230 Imports from India - Limited Payment
Agreement, 261-262
Income Tax Act, 1922, 272
Gandhi, Mahatama Mohandas India - Custodian of Evacuee Property,
Karamchand, 30 101
Ghosh, P.C., 66 India Coins, 81
Ghulam Husain, Choudhari, 71 India Notes & Coins, Retirement of, 88-92
Ghulam Mohammad, 12, 24, 34, 48, 130, India Rupees/Notes, 106, 110, 112
305 India Securities, 91, 107, 112
Giigit Cooperative Bank, 227 India - Security Printing Press, Nasik,
Gilt-edged Securities, 23 102
Gold, Shipment of, 92-93 Indian Congress, 8, 11,
Guizar Ali, Sheikh, 341 Indian Independence Act, 1
INDEX 547
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