ORIGIN OF BANKING:

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 for the settlement of transactions as people had confidence in the integrity and solvency
of goldsmiths. When it was found that these receipts became fully acceptable for the 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. 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 A 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 debts—his 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 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, and order or otherwise and includes any Post Office Savings
Bank."

COMMERCIAL BANKING IN PAKISTAN

The interesting point which I observed during the span of my 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) Pre-Nationalization Era
b) Nationalization Era
c) 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)

All other banks, at that time, were either owned by Hindus or Foreigners.
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:

1) Inauguration of State Bank of Pakistan (SBP) on 1st July, 1948.

2) 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.

3) Larger powers were given to SBP through SBP Act (1956) for controlling purposes.
4) Banking Companies Ordinance 1962 for protection and guidance to banks.
5) Establishment of specialized banks such as:

ADBP (1952);
HBFC (Nov, 1952)
P1CIC (Oct, 1957)
IDBP (Aug. 1961)
NDFC (Jan, 1973)

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:

BANK S NO. OF BRANCHES DEPOSITS (millions)

HBL 667 6,160

NBP 579 5,660

UBL 497 5,670

MCB 506 1,640

ABL 145 570

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.

¶Decrease in service level of bank officers.

¶Decrease in profitability as well.

However the effect of expansion was enormous and it can also be depicted with the help of table
2 which shows the deposit & branch positions of different nationalized banks.

BANKS POSITION IN 1992:

BANK S NO. OF BRANCHES DEPOSITS (millions)

HBL 1926 153,431

NBP 1448 128,679

UBL 1684 87,482

MCB 1288 50,013

ABL 750 33,757

TOTAL 7096 453,362

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:

SCHEDULE BANKS:
CATEGORY NO. OF BANKS
Nationalized Commercial Banks 3
Private / Privatized Commerce Banks 18
Public Sector Specialized Banks 4
Foreign Banks 19
Total Schedule Banks 44
In addition to above mentioned scheduled banks there are 7 Development Financial Institutes, 14
Investment Banks and Modarbah Companies.