Saturday, August 22, 2009

Nature and Functions of Commercial and Specialized Banks

Banking system in Pakistan can not be said to be highly developed. Before the partition of British India, the area which is now Pakistan had a well organized banking system. But after partition all banks transferred their head offices to India. Pakistan at first had no Central Bank. The Reserve Bank of India acted as the Central Bank of Pakistan. In 1948 the State Bank of Pakistan was established and it has been serving since then as the Central Bank of Pakistan. Now the country has many commercial banks. There are several specialized banks also. Following is the outline of banking system in Pakistan.
At the top of banking system of Pakistan stands the State Bank of Pakistan. The State Bank of Pakistan is the guardian of the Monetary and Banking system of Pakistan. It is the pivot around which the whole banking system evolves. It controls the money and credit of the country with a motive of security and the stability of prices. It acts as banker’s bank and Government’s bank. It regulates the banking activities of Pakistan.
In Pakistan there are two types of scheduled banks namely (i) Pakistan scheduled banks and (ii) Foreign scheduled banks. A Pakistani scheduled bank is one which is owned by Pakistan and is incorporated in Pakistan. Again Pakistan scheduled banks are of two types (a) banks which are owned by private individuals e.g. Habib Bank Ltd, the Muslim commercial bank ltd, United Bank Ltd etc. and (b) The banks owned by Government e.g. the National Bank of Pakistan.
A foreign scheduled Bank is one which is incorporated in a foreign country, such the city Bank and American express Bank etc.
These banks usually collect the floating capital of the public and finance the short term needs of commercial transactions. They not only deal in commercial transactions, they have also wide field beyond this scope. They advance loans for investment purposes and often they advise the public in purchasing and selling shares, properties and securities. They lend money to the businessmen, manufacturers etc, by way of discounting bills and creation of overdraft. They also play an important role in the economic development of the country and render valuable services to the community.
Some specialized financial institutions have been setup in Pakistan with a view to provide the credit requirements to different sectors of economy. Agriculture Development Bank of Pakistan, Industrial Development Bank of Pakistan, House building Finance Corporation of Pakistan etc are such specialized institutions which have been established to provide credit for agriculture, industry, housing and settlement respectively. There are also some co-operative and land mortgage banks in Pakistan which provide credit to the agriculturists.
There are some exchange banks in Pakistan. They play a vital role in financing the foreign, trade of the country. The facilitate the export and import by selling and buying bills of exchange. They also help in liquiding the international indebtedness of the country by exporting and importing metals and securities.
Saving banks are no more separately existing in the real sense, there are Post Office Saving and National Saving Centre which operate as saving banks in Pakistan. They accept deposits from public and invest them in various Government projects. Its operation therefore is very limited.
Specialized credit Institutions are generally the Government sponsored corporations. These provide medium and long term finance to various public sector organizations. In these institutions are Investment Corporation of Pakistan (ICP), Equity Participation Fund (EPF), Bankers Equity Limited (BEL), National Investment Trust (NIT) etc.


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