A chequered history
By SHUJAT ALI BAIG
Dec 06 - 12, 1999
The banking system is passing through a difficult phase mainly because
of excessive political interference in the working of the nationalised banks by the
different governments in the past. Hence the political interference in nationalised banks
did not allow them to carry out their business purely on merit.
It may be recalled that some twenty years back, the banking system was
working on such a solid ground that various developing and under-developed countries used
to take guidelines from Pakistani banks.
A little earlier before the creation of country, the role of Muslims of
the areas which were later included in Pakistan was of no significance due to their
restricted participation in the banking sector. There was only a small bank namely
Australasia Bank having a few branches in Lahore and its suburbs. In 1942, the Australasia
bank was housed in a garrage of a trader of Lahore who used to trade at a small scale with
Australia during that period. However the only Bank was run by the Muslims of the
sub-continent was Habib Bank which was established in 1941. At that time Quaid-e-Azam
Mohammad Ali Jinnah expressed his desire that another Muslim bank also be established in
Calcutta which came into reality when Adamjee with the assistance of Isphanis established
Muslim Commercial Bank a few months before the creation of Pakistan in Calcutta. When
Pakistan came in to being The Habib Bank shifted its Headquarters from India to Karachi. A
few of Habib Bank's branches were already in operation in Pakistan. The Muslim Commercial
Bank also moved its headquarters from Calcutta to Dhaka and later on to Karachi. At the
time of independence, another small bank namely Bank of Bahawalpur also started business
from Bahawalpur from December 1947.
Before independence, the financial sector was in the hands of foreign
banks some of them were British by origin. The oldest bank operating from 1883 in this
part of the world was the Chartered Bank while another bank namely the Grindlays Bank
which was also working simultaneously from 1883. In order to expand its business
operations, the Grindlays acquired other small banks and merged them into the business of
Grindlays. For example Allied Bank, National Bank of India etc were merged into Grindlays
Bank. Among the contemporaries, Imperial bank of India was the largest Indian Bank which
had started its operations in 1919 which was discharging the role of a commercial banks as
well as the Central Bank for India until an independent Central Bank i.e. Reserve Bank of
India was established in 1935. However, since the Imperial Bank had the largest network of
its branches all over India, it continued to play its role as a subsidiary of the Reserve
Bank of India. In the Muslim majority areas which was later on became the part of
Pakistan, small branches of Indian banks were operating and soon after creation of
Pakistan they shifted their branches and headquarters to India. At the time of
independence, two major banks including Punjab National Bank at Lahore and Comila Banking
Corporation were working in the then East Pakistan. This trend was so obvious that the
total number of bank offices between June 30, 1918 and August 14, 1947 were reduced from
631 to 195 only. During the early part of 1949 the number of branches of Imperial Bank of
India in Pakistani areas were more than of Habib Bank. In the early days of Pakistan, the
government worked hard left no stone unturned to establish and strengthen the banking
system in Pakistan. These efforts resulted in the establishment of State Bank of Pakistan
which was inaugurated by Quaid-e-Azam on July 1, 1948. Quaid-e-Azam flewed from Quetta to
Karachi specially to grace the occasion. Originally the State Bank was scheduled to be
established in September 1948. Zahid Hussain, who was the first Governor of the State Bank
devoted all his time and energy to streamline the working of the State Bank. In normal
situation, the Central Bank of a country is only established when the commercial banking
start working on sound footings. But the circumstances forced the government to establish
Central Bank and the task of stabilizing the commercial banking was also assigned to the
State Bank, which it really did.
The establishment of the National Bank of Pakistan in 1950 on the
pattern of Imperial Bank of India was yet another milestone in the banking history of
Pakistan. In September 1949 the rupee value was reduced against the Pound sterling which
was a major event in the banking circles. Consequently Indian government devalued its
Rupee against Pound Sterlings, however Pakistan decided not to devalue its currency
against Pound Sterling which resulted in increase of Pakistani cotton and jute prices for
India which affected our exports to India. Though Pakistan had to suffer economically due
to decline of exports to India, it however gave a sense of economic independence to
Pakistan. Cut in imports from Pakistan proved as a blessing in disguise as Pakistan had to
explore new exports markets for its products. However Indian banks operating in Pakistan
refused to finance Pakistani exports.
to be continued......
