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MGT604 - Management of Financial Institutions - Lecture Handout 07

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Agricultural Credit Department

Established under Section 8(3) of SBP Act 1956, is mainly responsible to meet credit needs of agriculture that being the mainstay of Pakistan’s economy generates nearly one fourth of the total out put and 44% of total employment and is the major source of foreign exchange earning.

  • To operate as a focal point in SBP for all agriculture and rural finance policies, programs and projects.
  • To assess/estimate the credit needs of farm & non farm sector in rural areas.
    To review the issues and challenges faced and developments taking place in agriculture and rural finance both in the country and elsewhere to develop an adequate knowledge and information base for policy formulation etc
  • To formulate agri & rural finance policies in consultation with stakeholders to ensure adequate flow of institutional credit in rural areas.
  • To monitor growth and trends in agri /rural finance portfolio of banks & financial institutions.
  • To collect periodical agri/rural finance data for analysis, policy formulation and dissemination to general public.
  • To advise Federal and Provincial Governments, Banks, Cooperative Banks & agriculture chambers on agri & rural finance issues.
  • To initiate and undertake information dissemination and awareness building programs for farmers and special training programs for commercial banks.
  • To build SBP rural and agriculture finance capacity
  • To operate as a Secretariat for Agriculture Credit Advisory Committee (ACAC)

The organization of the Department is spread over the following Divisions: -

  1. Division – I Agriculture Credit Estimation & Target Monitoring Division
  2. Division – II Agriculture Financing Policy Division
  3. Division – III Services, Training & Development Division

Banking Inspection Department

(BID) is one of the core departments at SBP. Its mission is to strive for soundness & stability of the financial system and safeguard interest of stakeholders through proactive inspection, compatible with best international practices. BID plays a pivotal role in meeting SBP’s main responsibility of supervising the financial institutions to maintain soundness of the system and protection of the interest of depositors, thereby ensuring public confidence in the system. In order to assess a financial institution, BID conducts regular on-site inspection of all scheduled banks inclusive of the foreign banks & DFIs. The present supervisory structure at the department is institution focused whereby concerned Desk Incharges have been assigned specific institutions for effective monitoring through on-site examination, off-site reports from Banking Supervision Department and various market reports. The regular on-site inspection is conducted on the basis of CAMELS Framework. (Capital, Asset Quality, Management, Earnings, Liquidity, Sensitivity and System Controls). CAMELS are an effective rating system for evaluating the soundness of financial institutions on a uniform basis and for identifying these institutions requiring special attention or concern. Here the focus of inspection is generally on risk assessment policies & procedures of the banks and control environment to keep attached risks within acceptable limits and compliance with laws, regulations, and supervisory directives.

Risk Assessment Polices

In continuation of the inspection process, discussions are held with external auditors to review banks’ internal controls, compliance with legislation & prudential standards and adequacy of provisions. Here it would be important to mention that BID works in close coordination with Off-Site Surveillance Desk at Banking Supervision Department and other
departments in SBP. BID conducts the regular full scope examination of banks pursuant to an inspection schedule; however, flexibility exists in policy for frequency of inspections depending upon the need to maintain safety & soundness. CAMELS rating are criteria to determine the frequency of inspection of banks as weak institutions are given greater
attention. Special investigations (targeted inspections) are also conducted as and when circumstances so warrant on the basis of complaints or market reports about specific institution.

Financial Markets Strategy & Conduct Department (FSCD)

FSCD is one of the three new Departments constituted on restructuring of Exchange & Debt Management Department (EDMD) and Investment Services Cell (ISC) on September 14, 2006. The Department is responsible to formulate Policies & Regulate conduct of Domestic Money, Exchange, Securities, and Derivatives Markets as well as to disseminate market data/analysis & to set-up strategies/ products for market development.


To fulfill above, the Department has been divided into three Divisions, each Division is subdivided into different units.

Markets Policy & Regulations

  • Review & formulate Market related Policies/Regulations vis-à-vis FEEL, CRR/SLR, Dealers Code of Conduct, Public Debt Act, Market Settlement Issues, PD System, Inter-bank Brokerage monitoring etc.
  • Secretariat for the Derivatives Approval & Review Team (DART).
  • Review & coordinating with Banking Inspection Department on enforcement of Treasury specific inspection comments viz existing regulations governing FX, Derivatives & Debt Markets.
  • Policy issues pertaining to other departments etc.
  • Coordination with relevant Market Associations, Committees & Players e.g., Sub- Committee on Treasury & Capital Markets, etc.

Market Analysis & Forecasting

  • Exchange Rate & FX Market Analysis
  • Analysis of Money and Debt Markets
  • Derivatives market analysis.
  • Preparation of monthly market update/ Quarterly Financial Market Review.
  • Liquidity Forecasting & Data base Management of Permanent & Floating Debts
  • Assist in formulation of Sovereign Domestic Debt plan.
  • External Debt maturity Profile.
  • External Debt maturity Profile.

Market & Product Development Strategies

  • Product development initiatives for Sovereign Debt instruments. Derivatives products/strips, Islamic Instruments.
  • Market Development projects like…Listing of GOP Securities. Automated Auction/Payment System. IFSB Standards & Islamic market Development. Market Systemic Issues and Market Benchmarks.
  • Market Publications.
  • Foreign Exchange /Money Market, Derivatives Market Analysis.