Commercial banking in Pakistan



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The story of the development of the commercial banking system in Pakistan is one of insurmountable initial handicaps, largely overcome, only to be followed by more difficulties, bravely faced. Thanks to the sustained endeavors of the Central Government and an efficient system of central banking, we have a sound commercial banking system in Pakistan today. Seventeen years ego when the newborn state of Pakistan came into existence, the banking system of the country stood in utter confusion. Most of the banks in Pakistan were branches of Indian banks, and were staffed mainly by Hindus. Foreign banks, er their branches, were very few. In the wake of widespread social unrest, which immediately followed the Partition, an estimated six million non-Muslims left Pakistan. On the other hand, an even greater number of Muslims immigrated from India under conditions of misery and horror. Division of labor in undivided India had long been carried on along religious lines. The wholesale transfer, therefore, meant that Pakistan acquired a disproportionate number of artisans, peasants, and small shopkeepers, as against the large number of wholesalers, importers, exporters, insurance agents, bankers, financiers, teachers, and other professional people who departed. The impact of the wholesale emigration of skilled labor from Pakistan was especially severe on the banking industry. The withdrawal of Hindu banking personnel from Pakistani territory left Pakistan banks completely deserted. Only non Indian banks continued to operate, but with a much smaller number of offices and with only skeleton staffs. These banking offices were unable even to discharge their routine function of accepting deposits and cashing the checks presented to them. The banking system of the country, had, therefore, virtually collapsed. The magnitude of the problem can be judged from the fact that the number of the banks, which stood at 631 just before the Partition, had declined to only 19S at the time of the establishment of the State Bank of Pakistan in July, 1948. Credit activity was greatly diminished and the bulk of deposits held by Hindus was promptly withdrawn, leaving commerce and industry in Pakistan at a virtual standstill. These events brought home irresistibly the urgency of taking over control of Pakistani banking and currency from the Indian Central Banking authorities and the need to establish Pakistan"s own central banking system. As a result, the State Bank of Pakistan was inaugurated on July 1, 1948. The task of rehabilitation and development of the country"s commercial banking system was formidable and highly complex. But thanks to the multi-pronged efforts of the State Bank, and the admirable response of commercial banks, the system has not only fully recovered from the virtual collapse, but also improved its functional efficiency, broadened its scope of operations and has gained in strength and soundness. Today Pakistan has over 1056 bank offices as against 631 immediately before Partition, and only 195 on July 1, 1948. In the preparation of this study, an attempt has been made to trace the development of the commercial banking system in Pakistan and to bring out its accomplishments. The author wishes to thank Dr. Henry C. Chen for his guidance, patience, understanding, and encouragement in the supervision of this study. Also he appreciates the many valuable suggestions and time-consuming efforts of Professor Vernon L. Engberg.