INTRODUCTION

The word 'Bank' is said to have been derived from the words Bancus or Banque or Bank. This history of banking is traced to as early as 2000 B.C. The priests in Greece used to keep money and valuables of the people in temples. These priests thus acted as financial agents. The origin of banking is also traced to early goldsmiths. They used to keep strong safes for storing the money and valuables of the people. The persons who had surplus money found it safe and convenient of deposit their valuables with them. The first stage in the development of modern banking, thus, was the accepting of deposits of cash from those persons who had surplus money with them. The goldsmiths used to issue receipts for the money deposited with them. These receipts began to pass from hand to hand in settlement of transactions because people had confidence in the integrity and solvency of goldsmiths. When it was found that these receipts were fully accepted in payment of debts; then the receipts were drawn in such a way that it entitled any holder to claim the specified amount of money from goldsmiths. A depositor who is to make the payments may now get the money in cash from goldsmiths or pay over the receipt to the creditor. These receipts were the earlier bank notes. The second stage in the development of banking thus was the issue of bank notes. The goldsmiths soon discovered that all the people who had deposited money with them do not come to withdraw their funds

in cash. They found that only a few persons presented the receipts for encashment during a given period of time. They also found that most of the money deposited with them was lying idle. At the same time; they found that they were being constantly requested for loan on good security. They thought it profitable to lend at least some of the money deposited with them to the needy persons. This proved quite a profitable business for the_ goldsmiths. They instead of charging safe keeping charges from the depositors began to give them interest on the money deposited with them. This was the third stage in the development of banking.

DEFINITION OF BANK
The term 'bank' is being used for a long time, yet it has no precise definition. The basic reason is that the commercial banks perform not just one but many types of functions. The term bank has been defined differently by different authors. Some are as follows: According to Crowther, "Bank is a dealer in debtshis own and of other people." According to G.W. Gilbert, "A banker is a dealer in capital or more properly a dealer in money. He is an intermediate party between the borrower and the lender. He borrows from one party and lends to another." According To Bamkinh Companies Ordinance U/s3 (B) of Banking Companies Ordinance 1962 "Banker means person transacting the business of accepting for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdraw able by cheque, draft, order or otherwise and includes any Post Office Savings Bank."

HISTORY OF BANKING IN PAKISTAN

The interesting point which I observed during the span of mine internship was the historical background of Banking & Financial sector which is the one in which great improvement and growth is observed since the formation of Pakistan. For studying the growth of this sector we can divide it into three stages, which are as follows a) b) c) Pre-Nationalization Era Nationalization Era Post Nationalization Era A) Pre Nationalization Era There were only two Muslim banks in Indo Pak before partition, they were; Habib Bank Ltd. (estd. in 1941 at Bombay) & Australia Bank Ltd. (estd. In 1944 at Lahore). Hindus or Foreigners either owned all other banks, at that time. At the time of partition there were 631 bank branches in area, which came under Pakistani control. But due to blood shed and violence at large scale, mostly branches were closed and the disparity can be assessed from the fact that on July 1948 there were 195 branches with deposits of Rs.88 crore (880 million) only. Also a factor lagging in Pakistani industry was a central bank of

its own, by that time Reserve Bank of India was acting as central bank for both countries and same currency notes were used in both territories. But Reserve Bank of India was biased and Set down Pakistan on many occasions such as the issue of funds transfer etc. In this period drastic steps were taken in government sector for the improvement of overall position. The private sector also responded to these changes and some very positive changes were observed. Some of the steps taken by the government in this regard were as under: i. ii. Inauguration of State Bank of Pakistan (SBP) on 1st July, 1948. Setting up of National Bank of Pakistan in November, 1949 to control the 'jute' export in East Pakistan and to act as agent of SBP. Larger powers were given to SBP through SBP Act (1956) for controlling purposes. Banking Companies Ordinance 1962 for protection and guidance to banks. Establishment of specialized banks, such as ADBP (1952); a) HBFC (Nov, 1952); b) P1CIC (Oct, 1957) c) IDBP (Aug. 1961); d) NDFC (Jan, 1973).

iii. iv. v.

These were the steps, which built a strong banking sector in Pakistan. This is also obvious from the facts that by 1973 there were almost 10 foreign banks were working in Pakistan and all over deposit position was around Rs.2300 crore (23,000 million). A bird eye view of 5 top banks was as given below: BANKING SECTOR IN PAKISTAN IN 1973 BANK Habib Bank Ltd. National bank of Pakistan Ltd. United Bank Ltd MCB Bank Ltd. Allied Bank Ltd. NO.OF BRANCHES 667 579 497 506 145 DEPOSITS Rs. 6,160 (million) Rs. 5,660 (million) Rs. 5,670 (million) Rs. 1,640 (million) Rs. 570 (million)

B) Nationalization Era: On January 01, 1974 all Pakistani banks were nationalized through Nationalization Act 1974. Under this law all Pakistani banks became a public property. All small banks were merged in bigger banks to create 5 major Pakistani banks Pakistani banks. These banks were to control by Pakistan Banking Council. There are still controversies about this act of government as whether it contributed in success of failure of banks. However the major changes after nationalization were as follows: Working of banks was extended to under developed areas. Market expansion for credit and deposits. Bank were encouraged to extend cooperation to neglected areas Decrease in service level of bank officers. Decrease in profitability as well.

C) POST NATIONALIZATION ERA In 1990 the government decided to denationalize all the nationalized institutes. Some was also suggested in banking sector. For this purpose, amendments were made to Nationalization Act 1974 and two nationalized banks were privatized. Along with this a permission to open banks in private sector was also granted. The rules regarding establishment of new banks and for incoming foreign banks were also relaxed. The-three privatized banks are; a) MCB taken up by a private group in April, 1991 b) ABL taken up by its own employees in September 1991. c) UBL taken up by UAE party in 2002. After these changes a large number of private and foreign banks started their operations in Pakistan and the present status can be seen from the following figures: SCHEDULED BANKS Category Nationalized Commercial Banks Private / Privatized Commerce Banks Public Sector Specialized Banks Foreign Banks Total Schedule Banks No. Of Banks 3 18 4 19 44

In addition to above mentioned scheduled banks there are 11 Development Financial Institutes (DFIs), 16 Investment Banks and 21 leasing and Modarbah Companies.

PAKISTAN BANKING SECTOR

Nationalized Commercial Banks Privatized Banks Specialized banks Private banks Foreign banks Other financial Institutions

NATIONALIZED SCHEDULE BANKS First Women Bank Ltd. National Bank of Pakistan Habib Bank Ltd. DE-NATIONALIZED SCHEDULE BANKS Allied Bank of Pakistan Limited MCB Bank Limited United Bank Ltd.

SPECIALIZED BANKS Zarai Taraqiti Bank of Pakistan (ADBP) Industrial Development Bank of Pakistan(IDBP) Punjab Provincial Cooperative Bank Federal bank for Cooperatives

PRIVATE SCHEDULE BANKS Askari Commercial Bank Ltd. Bank Alfalah Ltd. Bank Al-Habib Ltd. Bolan Bank Ltd. Faysal Bank Ltd. Habib Credit & Exchange Bank Indus Bank Ltd. Metropolitan Bank Ltd. Platinum Bank Ltd. Prime Commercial Bank Ltd. Prudential Bank Ltd. Soneri Bank Ltd. The Bank of Khyber The Bank of Punjab Union Bank Ltd.

FOREIGN BANKS ABN AMRO Bank N.V. Albaraka Islamic Bank BSC (EC) American Express Bank Ltd. ANZ Grindlays Bank Ltd. Bank of America (NT & SA) Bank of Tokyo Mitsubishi Ltd. Bank of Ceylon Banque Indosuez Citibank N.A. Credit Agricole A.G. Deutche Bank A.G. Doha Bank Ltd. Emirates bank International Ltd. P.J.S.C. Habib Bank A.G. Zurich Hong Kong and Shangai Banking Crop. Ltd. International Finance Investment and Commerce Bank Ltd. Mashreq Bank PSC Oman International Bank SOAG Rupali Bank Ltd. Societe Generale, the French Int. Bank Ltd. Standard Chartered Bank Trust Bank Ltd.

DEVELOPMENT FINANCIAL INSTITUTIONS (DFIS) Investment Corp of Pakistan National Development Finance Corp. Pakistan Industrial Credit and Investment Corp. Pak Kuwait Investment Company Pak Libya Holding Company Regional Development Finance Corp. Saudi Pak Industrial & Agricultural Investment Corporation Small Business Finance Corporation House Building Finance Corporation National Investment Trust INVESTMENT BANKS Crescent Investment Bank First International Investment Bank Atlas BOT Investment Bank Security Investment Bank Fidelity Investment Bank Prudential Investment bank Islamic Investment Bank Asset Investment Bank Al-Towfeek Investment Bank Al-Faysal Investment Bank City Corporation Investment Bank (Pak) Ltd. Franklin Investment Bank Ltd. Orix Investment Bank (Pak) Ltd. Trust Investment Bank Ltd.