Lecture 4

Revision Lecture 3 History of Pakistan banking Introduction to banking

Revision Lecture 3 Q1: What are the types of bank accounts? Q2: What are the types of negotiable instruments?

Revision Lecture 3 A:1 Saving account Current account Fixed deposit account

Revision Lecture 3 A:2 Promissory note Bill of exchange Cheque

Types of Banks

Types of banks There are various types of banks which operate in our country to meet the financial requirements of different categories of people engaged in agricultural, business, profession, etc. The banking institution in Pakistan may be divided into various types on the basis of their functions.

Types of banks Central bank Commercial banks Development banks Co-operative banks Specialized banks

Central Bank

Central bank A bank which is entrusted with the functions of guiding and regulating the banking system of a country is known as its Central Bank. Such a bank does not deal with the general public. It acts essentially as Government’s banker, maintains deposit accounts of all other banks and advances money to other banks when needed.

Central bank It provides guidelines to other banks whenever they face any problem. It is therefore known as the banker’s bank. State bank of Pakistan SBP is the central bank of our country.

Central bank It advises the government on monetary and credit policies and decides on the interest rates for bank deposits and bank loans. In addition, it also determined the foreign exchange rates. Another important functions of the Central bank is issuance of currency notes and regulations of their circulation in the country by different methods.

Commercial Banks

Commercial banks Commercials banks are banking institutions that accept deposits and grant short-term loans and advances to their customers. It also give medium and long-term loan to business enterprise. Nowadays, some of the commercial banks are also providing housing loans to individuals.

Commercial banks Commercial banks are of three types: Public sector banks Private sector banks Foreign banks

Commercial banks Public Sector Banks: These are banks where majority of stake is held by the Government of Pakistan or SBP. Examples are, National bank of Pakistan, UBL, HBL, ABL

Commercial banks Private Sector Banks: In this type of banks the majority of their share capital is held by private individuals. These banks are registered as companies with limited liability. Examples are, Bank Alfalah, Meezan bank, Silk bank

Foreign Banks

Commercial banks Foreign Banks: These are registered banks with their headquarters in a foreign country but operate their branches in our country. Example, Hong Kong and Shanghai Banking Corporation (HSBC), Citibank, American Express Bank, Standard & Chartered Bank

Development Banks

Development Banks Business often requires medium and long-term capital for the purchase of machinery, for and equipment, for using latest technology or for expansion and modernization. Such financial assistance is provided by developments banks. Examples are, Small business finance corporation (now SME), PICC

Co-operative Banks

Co-operative Banks People who come together to jointly serve their common interest often form a cooperative society under the cooperative societies Act. When a cooperative society engages itself in banking business, it is called a cooperative bank.

Co-operative Banks Any cooperative bank as a society is to function under the overall supervision of the Registrar, cooperative societies of the state. There are two types of cooperative banks operating in our country. The provincial cooperative banks in all provinces The central cooperative bank – Federal bank for cooperative Islamabad

Specialized Banks

Specialized banks The specialized banks engage themselves in some specific area or activity. They cater to the requirements and provide overall support for setting up business. Examples

Specialized banks Industrial Development Bank of Pakistan IDBP It provides loan on easy term to establish a large- scale business unit or industry. It also finance modernization of large-scale industrial units, use of new technology and market activities. Its aim and focus is to promote, finance and develop large-scale industries.

Specialized banks Agriculture Development Bank of Pakistan ADBP It is a central or apex institution for financing agricultural and rural sectors. It provides credit to those engaged in agriculture or other activities such as handloom weaving and fishing.

Specialized banks It provides both short-term and long-term credits through regional rural banks. It provides financial assistance, especially to cooperative credit, in the field of agricultural, small-scale industries, cottage and village industries, handicrafts and allied economic activities in rural areas.