Classes of Shares

Classes of Shares

A SHARE in a company is one of the units into which the total capital of the company is divided. A share is the interest of a shareholder in the company measured by a sum of money for the purpose of liability and interest thereto. It is a fractional part of the capital of the company, which forms the basis of ownership and the interest of a subscriber in the company. A share cannot further be sub-divided. Each share is given a district number.

Capital for a new industry may be raised by public or private subscription of shares. Large amount of funds cannot be raised unless an appeal is made to the people of different temperaments. By issuing different classes of shares funds may be raised from the greatest risk taking persons to the most cautious one.

Shares of different denominations are issued to attract both rich and poor investors. Shares of high denominations usually have a restricted field of drawing capital for the company. people with small savings may not be able to purchase them.

Cost of financing, money market conditions and the time of issue are a few other factors which also suggest that different classes of shares be issued. Raising of capital by issuing different classes of shares may result in lesser cost as compared to issue of only one class of shares. During period of depression, preference shares and likely to find a better market than the equity shares, which can be marketed with greater ease during periods of rising prices.

Company, the income of which may not be certain or sufficient or which proposes to engage in a business of speculative nature, shall not be in a position to collect its capital by issuing preference shares. The only method available for such a company to raise its capital would be to issue equity shares.

The amount of capital which  a company may raise by means of shares is stated in its memorandum of association. The number of shares in which such capital is to be divided is also mentioned therein. The rights of each class of shares, are, however, laid down by the Articles of Association and fixed up by the terms of issue. It is open to the company to issue more than one class of shares.

The important classes of shares are as under:-

1. Preference Shares

a) Cumulative preference shares
b) Non- cumulative preference shares
c) Participating preference shares
d) Redeemable preference shares

2. Equity Shares
3. Deferred Shares

A brief discussion of the above classes is a s under:-

Preference Shares  

A preference share carries a preferential right over other classes of shares in respect of (a) a fixed dividend, and (b) repayment of capital in the event of the winding up of the company. 

Company law does not give any right to the preference share- holders to vote on any resolution except those which directly affect the rights attached to their shareholdings. But a preference shareholder may claim a right to vote similar to the equity shareholders in case the dividend on preference shares has not been paid. (i) for the last two years on the cumulative preference shares, or (ii) for three years on the non-cumulative preference shares, 

Cumulative Preference Shares 

Preference shares are always cumulative unless otherwise stated. A cumulative preference share has a right to claim the fixed dividend of the current year out of the future profits. the dividend, in their case, will go on accumulating unless paid. The accumulated areas of dividend shall be paid before anything is paid out of the profits to the holders of any other class of shares, If the company is unable to earn sufficient profits in any year to pay dividend on preference shares, the deficiency shall be made good out of the profits of the subsequent years.   

Non- Cumulative Preference Shares 

Dividend on non-cumulative preference shares shall be payable only out of the profits of the current year. It shall not be allowed to accumulate to be paid out of the profits of future years, The right to claim dividend will lapse if there are no profits in a particular year, 

Participating Preference Shares 

These preference shares carry a right: (i) to a fixed share in the surplus profits in addition to the dividend to which they are entitled after a certain minimum has been paid on other classes of shares, or (ii) in the surplus assets of the company on its winding up.

Redeemable Preference Shares 

Such shares the company is liable to redeem either on the expiry of the fixed period for which they were issued or at its own option. Companies act lays down the necessary conditions for the redemption of such shares. 

Equity Shares

They are very much similar to the ordinary shares which the companies have been issuing. All the shares other than the preference shares shall now be known as equity shares. Equity shares don not carry any preferential rights. All the equity shares shall enjoy the same rights with regard to voting, dividend and return of capital etc.  For the purpose of dividend and repayment of capital they rank after the preference shares. They enjoy all the profits left out after paying a fixed rate of dividend on the preference the shares. Equity shareholders participate in the profits of the company in proportion of the amount of capital that they own. They voting rights are proportionate to the amount paid upon those shares. Equity shares carrying on disproportionate voting rights cannot be issued.

Deferred Shares

Public limited companies cannot issue deferred shares carrying on disproportionate voting rights to the amount paid up thereon. However, private limited companies may issue such shares. Deferred shares rank for dividend and return of capital after all other classes of shares have received a fixed rate of dividend or have been paid out in the case of winding up of the company. generally, these shares are of very low denomination and are purchased by those who want to keep the control and management of the affairs of the company in their hands. they are mostly issued to the promoters as fully paid up. They get dividend only after an agreed rate of dividend has been paid to the preference and ordinary shareholders. "Though generally few in number and insignificant in nominal value the voting power which they command and the profits they share are often considerable."

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The Balance Sheet of A Bank

Every bank has to publish its balance sheet at fixed intervals as laid down by the law of the country. The real financial position of the bank can be known only after an analysis of its balance sheet. The balance sheet also tells us about the assets as well as the liabilities of the bank. 
Specimen of a Balance Sheet of a commercial bank may be as under:-

Liabilities 

The liabilities refer to those items on account of which the bank is liable to pay an amount to others. They represent others claims on the bank. The various items on the liabilities side of the balance sheet are the following:- 

1. Capital 

Capital of a commercial bank may take the various forms as under:

(a). Authorized Capital 

The authorized capital is the maximum amount of capital that the bank is authorized to raise from the public in the form of shares. Generally speaking, the entire authorized capital is not raised from the public. 

(b). Issued Capital 

That part of the authorized capital which is issued in the form of shares for public subscription is know as issued capital.

(c). Subscribed Capital 

Subscribed capital is that part of the issued capital which is actually subscribed by the public. There is no guarantee that the whole of the issued capital shall be subscribed by the public. A part of the subscribed capital may remain unsubscribed for a number of years.

(d). Paid-up capital

It is that part of the subscribed capital which the subscribers are actually called upon to pay. Generally speaking only a part of the subscribed capital is called to be paid and the other part is kept as a reserve.
 
The bank raised capital from the public by issuing various types of shares such as ordinary, Preferences, deferred shares etc.

2. Reserve Fund

Every bank maintains a reserve fund. This fund is constituted by the accumulated profits of the bank.It is used by the bank to offset its unexpected losses in certain years. The reserve fund of the bank should be equal to its paid-up capital. The bank is required by law to transfer 20 per cent of its annual profits to the reserve fund does not become equal to the paid-up capital.

3. Deposits

This includes those deposits which are received by the bank from the public. In fact, the deposits constitute the working capital of the bank. After keeping a certain cash reserve, the bank invests the balance in securities or utilizes it for giving loans and advances to its customers.

4. Loans From Other Banks.

Under this head, the bank shows those loans which it has received from other banks. As is well known, the bank takes loans from other banks especially the central bank, in certain extraordinary circumstances.

5. Bills Payable 

Under this head are included those bills which it is the responsibility of the bank to pay from its resources.

6. Bills For Collection 

Under this head, the bank shows the total amount of those bills which it has accepted from its customers for collection. the amount when collected is credited to the accounts of the customers. Hence, the amount under this head is shown in both the columns of the balance sheet.

7. Acceptance For Endorsements 

An important function of the bank, as already stated, is that of accepting or endorsing the bills of exchange on behalf of the customers. When the bank accepts the bill of exchange on behalf of its customers, it simply means that the bank accept the responsibility of paying the bill in case the customer fails to settle it at the time of its maturity. Hence, this is a liability for the bank.

8. Contingent Liabilities

Under this head, the bank shows those liabilities which are not known in advance or which are unforeseeable. Every bank makes some provision for these liabilities in its balance sheet.

9. Profit & Loss 

The profit earned by the bank in the course of the year is shown under this head. Since the profit is payable to the shareholders, it represents the liability of the bank.

Assets

We shall now analyses the various items on the assets side. The term "assets" refers to those items on account of which the bank is to receive an income others. The various items that figure on the assets side of the balance sheet are as follows:

1. Cash

Every bank has to keep some cash with itself to meet the requirements of its depositors. In addition, the bank also maintains some cash reserve with the other banks or with the Central Bank of the country.

2. Call Money

Under this head are shown those loans which are repayable to the bank on demand. Such types of loans are given to the customers for a maximum period of 15 days and the bank can recall them at its own option. The call loans are of three types; (1). Loans which are given for one night only; (2) Loans which can be recalled by the bank without notice; and (3) Short-period loans which are repayable to the bank within 15 days. 

3. Bills Discounted

Under this head, the bank shows the total amount of those exchange and treasury bills which it has discounted itself. The bank collects the amount of these bills when they mature. In case, the bank needs cash before the maturity of these bills, it can be get them re discounted by the Central Bank of the country.

4. Bills For Collection 

As already stated, this item figures both on the liabilities as well as on the assets side. Before collection, these bills represent the assets but after collection they become the liabilities of the bank. Hence, this item appears on both sides of the balance sheet. 

5. Investments 

Under this head, the bank shows the total amount of its profit- yielding assets. The different types of investments are shown separately in the balance sheet. The amount invested in government and non-government securities is also indicates separately.

6. Loans & Advances

Under this head, the bank shows the total amount of loans and advances that it has extended to its customers. These loans and advances are given against certain physical securities offered by the borrowers. This item represents the "Fourth Line of Defense" of the bank.

7. Building, Furniture And Other Properties

Under this head is included the total volume of the movable and immovable properties of the bank. It includes the office buildings, furniture, stationery and other miscellaneous assets of the bank. This is often referred to as "dead stocks".

The relative importance of different types of assets or the proportion in which the bank distributes its total resources among the different assets varies form country to country, depending upon the economic and financial situations in the country. It is, therefore, not possible to lay down certain ratios or norms of distribution to be followed by all the banks in all the countries and at all times.

 

 

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What is Branch Banking

Though the functions of banks are almost the same in every country, there are difference in the organizational set-up and the lending practices of banks in different countries. We can divide banking organization under two heads: (1). Branch Banking, (2). Unit Banking, depending upon the organization and scale of operations of the banks. Again, we can classify banking under two heads on the basis of the lending practices adopted by them: (1). Pure Banking, (2). Mixed Banking.
 
Branch Banking is that system under which a large bank carries on banking business through a large network of branches spread all over the country. The bank's huge financial resources enable it to carry on its activities on a large scale all over the country. Branch banking is popular in the U.K, Canada, Australia, India and Pakistan. In the beginning even the British Banks were developed as Unit Banks with only one office located in a town or a city. Later on, the small banks were amalgamated into a few big banking companies and opened their branches all over the country. At present, there are five major banks in the U.K. which have opened branches all over the Britain and even in foreign countries.

Advantages of Branch Banking

In the words of Prof. Sayers, "A comparison between Unit Banking and Branches Banking is essentially a comparison between small-scale and large-scale operations."Following are the main advantages.

1. Large-Scale Operations

A big bank possessing huge financial resources and having a number of branches, can enjoy certain advantages of large-scale operations. Its huge financial resources enable it to recruit skilled, qualified and experienced personnel to carry on its banking activities. It can also introduce the principle of division of labor in the field of management. The presence of an efficient managerial staff is always an asset with the bank. Moreover, a big bank with huge resources and a number of branches, comes to acquire public confidence an account of its standing among the people.

2. Geographical Spreading of Risks

The spreading of risks geographically is another importance advantage of the branch banking system. Since there is diversification of risks under branch banking there is no danger of failure to the bank concerned. Moreover, under branch banking, if certain losses are incurred in depressed areas they can be offset by earning profits in the prosperous areas. But in the case of a Unit Bank the danger of failure is ever present. If the unit bank suffers losses, they cannot be offset by profits earned elsewhere since there are no other branches of the unit bank.

3. Facilities Regarding Transfer of Funds

Since the branches of the ban, under branch banking, are spread all over the country, it is easier and cheaper for it to transfer funds from one place to another. But this advantage is not available to the unit bank.

4. Economy In Cash Reserves

Branch banking results in an economy of cash reserve. A huge bank, with a number of branches in different parts of the country, can afford to manage with a lower cash reserve ratio in each of its branches. A unit bank, on the other hand, is deprived of this advantage. It has to keep sufficient cash reserves to meet the requirements of its depositors. The keeping of large cash reserves naturally reduces the profitability of the unit bank.

5. Equality In Interest Rates

Branch banking has the additional advantage of bringing about equality in interest rates. If the demand for money goes up in a certain part of the country then, under branch banking, the funds can be transferred to it from another branches where there are excessive reserves. Thus, the rate of interest can be prevented form rising in the former place.

6. Proper Use of Capital

Under branch banking, the bank can make a proper use of its financial resources. If a branch of the bank happens to have a plenty of deposits, but no opportunities for investments, it can transfer its surplus funds to other branches which can make a profitable use of such funds for trade and industry.

7. Wider Scope For Selection of Securities 

Branch Banking presents a wider scope for the selection of different types of securities and investments. This ensures a higher degree of safety and liquidity for the bank.

8. Increase In Banking Facilities 

Under branch banking, the banking facilities can be made available to all cities, towns and even backward areas in the country. One the country, it is rather difficult to set up unit banks in smaller towns and underdeveloped areas in the country on economic grounds. 

9. Greater Public Confidence 

A bank, with huge financial resources and a number of branches spread all over the country, can command great public confidence than a small unit bank with limited resources and one or a few offices located in a particular area of the country. 

10.More Effective Credit Control 

Branch banking is conducive to a more effective implementation of credit controls by the central bank because, under branch banking, the Central Bank has to deal only with a few big banks controlling a large number of branches. It is always easier and more convenient to regulate and control the credit policies of a few big banks than to regulate and control activities of a large number of smaller unit banks. 

11. Better Training To Staff 

Since the banking were becomes more extensive under branch banking, the employees and the officers of the bank get better opportunities to acquire knowledge and experience about the various aspects of banking business in the country. 

12. Contracts With The Whole Country

Under branch banking, the bank maintains continual contacts with all parts of the country. This helps it to acquire correct and reliable knowledge about economic conditions in various parts of the country. This knowledge enables the bank to make a proper and profitable investment of its surplus funds. 

Disadvantages of Branch Banking 

Following are the disadvantages of branch banking:-

1. Difficulties of Management Supervision/ Control 

Since there are hundreds of branches of a bank under this system, this leads to a number of difficulties in the management, supervision and control of banking activities. The management of the bank automatically gets concentrated at the Head office. 

2. Lack of Initiative 

The branches of the bank under this system suffer from a complete lack of initiative on important banking problems confronting them. No branch of the bank can take decision on important problems without first consulting the head office. This makes the banking system rigid and inelastic in its functioning.

3. Possibility of Monopoly 

Under branch banking, there is always the possibility of the emergence of monopoly in banking. The reason is that the activities of all the branches are controlled by the head office. A handful of high bank officials dominate the entire working of the bank.

4. Continuance of Non- Profitable Branches 

Under branch banking, weak and non-profitable branches continues to be fed by the stronger and profitable branches of the bank. On the contrary, under unit banking, if a bank suffers losses, it shall cease to exist automatically after some time.

5. Unnecessary Competition 

The great disadvantage of branch banking that there arises under it unhealthy type of competition among different banks. Under this system, the branches of different banks get concentrated at certain places, particularly in big towns and cities in the country. This gives rise to unhealthy competition among them.

6. Duplication of Banking Facilities 

There is unnecessary duplication of banking facilities when the branches of different banks are opened at the same place.

7. Expensiveness 

This system is much more expensive than the unit banking system. when a bank opens a number of branches at different places then there arises the problem of coordinating their activities with each other. It naturally adds to the expenditure which is not in the interests of the bank.

8. Saving of Smaller Places Invested In Bigger Towns

Under branch banking, the savings collected from the smaller places and backward areas are transferred for purposes of investment to bigger industrial and commercial centers in the country. This hinder the economic development of smaller places and backward areas which are thus deprived of the use of their legitimate savings.

9. Losses By Some Branches Affect Others

When some branches suffer losses due to certain reasons, this has its repercussions on other branches of the bank.

10.  Difficulties In Foreign Countries

Under this system, a bank opening branches in foreign countries has to face a number of difficulties and problems. The reason is that the banking laws, trade conditions, monetary and credit policies are different in foreign countries. In addition, the bank has always to face the threat of nationalization of its branches by the governments of foreign countries.

 

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How Banks Are Classified

Everything with which we are much familiar, is difficult to be defined. The paradox applies to the bank also. We are much familiar with banks in our day-to-day life, but when it comes to definition, one is bound to keep silent. Different people have defined bank in different forms. In simple and direct words, we think of bank as an institution which accepts deposits from public and lends money. People either for the sake of safety, or for the sake of income in the form of interest or for both, like to deposit their money with the banks. Banks accept their deposits on interest and lend it to other people on a higher rate of interest, thereby earning profit for themselves.
 
The primary business of bank is to receive deposits and give loans, yet some banks are specialized in one task while are others are in other tasks. On the basis of the specialization, the banks are classified under the following heads:-

1. Central Banks

The Central Banks is the principal bank in a country. It is the head of the banking system. Besides the fact that this is the principal bank of a country, its other functions and status are still more important. It acts as the banker's bank. It is the banker of the government. The deposits of the government are maintained with it. it lends money to the government and has the responsibility of adjusting all the responsibilities in monetary and financial matters which the government bestows upon it. In addition, this Central Bank has the sole authority of controlling the credit and money supply of the country. It controls the volume of currency by its sole right of issuing notes. It controls credit by controlling the lending business of the commercial banks through the various techniques such as discount rate, manipulations, open market operations, changes in the reserve ratio and the selective credit control.

2. Commercial Banks

These types of banks are most numerous in number and are also popular. Their functions are manifold and this is the reason that they are found in the greatest number and have gained much currency. The main functions of such banks are accepting deposits, lending money through overdraft, loans discounting of bills etc. working as a agent of its customers in the takes assigned by their customers and financing of trade and industry. But it must be noted that these banks lend money on short-term basis, not on long-term basis. Besides doing the function of commercial banking, they also deal in foreign exchange and may do some other banking functions also.

3. Industrial Banks

Industrial banks arrange long-term loans for industry. These banks accept long-term fixed deposits.mainly deal in the financing of industry for long periods. Such loans are also given for specific purposes which are productive and expected to yield return after the allowed time. In industry advanced countries these banks have a great role to play in industrial development.

4. Agricultural Banks

Agriculture has its own problems and hence there are separate banks to finance it. They may be divided into two sections: one for meeting the long term and the other for other for meeting the short-term needs. Long-term needed for making permanent improvements in land, buying more lands and introducing better methods and costlier implements. Short-term credit is meant to supply funds for day-to-day operations of the agriculturists. These include buying of seeds and manures, personal and labor expenses and payment of water rates and taxes etc. The nature of the securities offered by the agriculturists and the length of time for which capital is required, make it impossible for commercial bank, exchange banks and industrial banks to take up this finance. Hence we have got land-mortgage banks and cooperative banks, which render this service to the community, the former by catering for long-term needs and the latter by catering for short-term needs.

5. Land Mortgage Banks

These banks provide loans to cultivators by mortgaging their land whenever the cultivator has to do some permanent reforms in his land, viz, making boundary around the field, purchase of machine, digging of well or for any other work. He can borrow money form land mortgage bank by mortgaging his land such banks arrange, short medium and long-term loans.

6. Exchange Banks

These banks mainly deal in foreign exchange. They purchase foreign currencies and sell them to those people who have to make payments abroad. Though commercial banks deal in foreign exchange as their specific function, yet these banks are specific in the task. Exchange banks besides financing foreign trade, also finance the internal trade. 

7. Cooperative Banks

These types of banks are nothing else then commercial banks but their organization is carried on cooperative lines. The principles of cooperation are different from all other forms of the joint stock organizations, has they are treated on different stand due to some peculiarities in regard to their fund and character.

8. Saving Banks 

Though all the commercial banks have savings accounts with them, there may be some specialized banks which deal in the small amounts of the savings of the people.

9. Private Banks

While different kinds of banks described above are banks run on modern lines, there are some private bankers who combine trading and carry on their business in the most antiquated from. We have already studied of such bankers in England. Their number now is sufficiently large even in this country their number is increasing day by day. Almost the whole of the agricultural industry and a considerable portion of the internal trade is financed by them. They require to be reformed, but as has been aptly remarked by one of the writers on this subject, "they constitute and indispensable element in the country's financial system, and not only Pakistan but the world would be poorer by their extinction. "In fact, there are some such bankers in every country in the modern says also.

10. Miscellaneous Banks

There are certain other kinds of banks which have arisen in due course to meet the specialized needs of the peoples. In England and America, we got investment banks whose object is to control the distribution of capital into several uses. American trade Unions have also got labor banks where the savings of the laborers are pooled together. Some of the colleges in the country have started students banks to receive their deposit of the specialized student community. The merchant bankers or Accepting Houses of London perhaps represent another highly specialized development of the financial structure. In modern times trade depends on credit. But when a merchant sells goods on credit to foreign merchants he takes immense risks and sell goods on credit to foreign merchants he takes immense risks and must therefore set up a machinery for watching them in every country to which he sells. These merchant's bankers have taken up this job and in view of their close relations with the important importing agencies all over the world, they undertake to accept exporter's bills on their behalf.

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The Evolution of Banking

The word "Bank" has been derived from the word "Bancus" or "Banque" which means a bench. In the early days, Jews in Lombardy transacted the business of money exchange on benches in the market place. The word "bankrupt" has been used to denote the failure of a business.
 
Some people are of the view that the word "Bank" has been derived from the German word "Back" which means "joint stock fund". Later on, when the Germans occupied Italy, the word "Back" was Italianized into "Bank". Existence of banking operations have been found during the period of Babylonian Empire by temples and great land-owners. In Greece, the temples of Ephesus and Delphi were the biggest banks of their times. Romans also regulated the conduct of private banks in such a way that utmost confidence of the people was created in them.
 
If we look into Banking in the modern times, we find great Britain as the pioneer and the Lombard Street as the place where banking was formally started in the fourteenth century. These Lombardy merchants were so forceful that even kings had to depend on them for loans. The business of changing money was so lucrative that king Edward III established the office of Royal Exchanger for changing foreign money at a profit for the benefit of the Crown. The goldsmiths discovered that large sums of money were left in their custody for long periods; therefore, they started the use of this cash to advance loans to other persons for a fixed period of time and at a considerably high rate of interest. Thus began the "issue" and "deposit" banking of modern times. In the year 1672, English banking faced a great crisis when Charles II borrowed huge sums of money from the goldsmiths and later refused to pay them back. Therefore, a number of goldsmiths bankers formed themselves into a corporation in 1695, known as the Bank of England. By the year 1700, the Bank of England was not only issuing Notes but also conducting accounts for customers. Modern Banking

Modern banking has developed both in England and America. Limited liability concept has considerably expanded banking industry. In the succeeding year, Joint Stock Banks became very common either by absorption of private banks or amalgamation amongst Joint Stock Banks themselves. Thus in 1918 came into being eleven Clearing Banks today. The development of large and financially strong banks gave a sense of security to the depositors in England; but at the same time it was felt that if the process of amalgamation was carried on still further there would be a danger of financial monopoly. Therefore, in 1918 Treasury and the Board of Trade set up a committee to consider the matter of further amalgamations and absorption among the banks.
 
America has also been a center of banking development. Although the first bank in that country was established in 1780, the banking system in that country was established in 1780, the banking system in that country has been without a central bank up to 1940. During the Colonial period, the development of banking in America was linked with the exigencies of financing a new and developing country. Therefore, very little was done in the field of modern banking. Since there was lack of public confidence, the earliest banks were generally State Monopolies run in the interest of the merchants who organized and managed them. These banks were mainly transacting the business of short term commercial loans, yet due to their poor management they went bankrupt very easily and created financial panic from time to time.
 
Banks were also established in various countries of the world. In 1401 a German Public Bank was established. In the 16th century, banks were also established in Venice, Milan, Amsterdam, Hamburg and Nuremberg. Banko di Rialto was formed in Genoa in the year 1587. Bank of Amsterdam was founded in 1609. Bank of Hamburg came into existence in the 1960. This Bank rendered great service to the merchants as well as the countries it dealt with until 1873, when it was merged with the Reichbank.. 

Banking In The Sub-Continent

Banking has existed in the subcontinent since time immemorial. In the Hindu book of Vedic Epic, giving and taking of credit has been stated. Later on, Manu in his "Sammurti " clearly mentioned these transactions by saying: "A sensible man should deposit his money with a person of good family, of good conduct, well acquainted with the law, viracious, having many relatives wealthy and honorable." Manu has also prescribed the rules to govern the policy of loans and rates of interest. In the fifth century people were accustomed to use hundies. The ancient Indian bankers were also transferring the funds of their customers from one place to another with the help of hundies. These bankers were charging high rates of interest on the money lent to farmers against the mortgage of the standing crops; and sometimes at the rate was as high as 40 to 60 per cent per annum.
 
During Muslim period also banking received considerable impetus. Muslim rulers provided considerable encouragement to the farmers by giving them interest- free loans and grants in cash. Industrial development was not ignored at all. During this period, substantial qualities of textile, calico-printing and dyeing, pottery, china-ware, indigo, opium metal-work, paper, leather and sugar etc.were exported. Muslim historians of the 12th century have also mentioned some bankers known as "Multani" and "Shroffs" who were acting as agents to the government to collect revenue. Though the Muslim rulers did not establish "Bank" as such, yet they revolutionized the entire financial and monetary structure in India wherein the old "Sahokars" and "Mahajans" were eliminated.
 
Public Banks were not established in India till 1809 when the bank of Bengal was established. The bank was authorized to charge the maximum of 12% interest per annum, the power to issue Notes was not given to the bank till 1823 ; and the bank was allowed to open more branches in 1839. The year 1840 saw the establishment of the Bank of Bombay, followed by the Bank of Madras in 1843 with a Government subscription of Rs. 3 lacs each in their share capital. With the acceptance of limited liability concept, many joint stock banks were established. During the boom period of 1906 to 13, a number of joint stock Indian banks were established . With the passage of Imperial Bank of India Act in 1920, Peoples of Bank of India Limited, the Central Bank of India Limited, and the Bank of Baroda Limited were amalgamated into the Imperial Bank of India in 1921. With the passage of an act in the assembly, Reserve Bank of India started functioning in April 1935 as the Central Bank of India.
 
Banking facilities were well provided in those areas which constituted Pakistan. There were about 500 offices of scheduled banks in the territories now constituting Pakistan. Since Pakistan at that time was not in a position to establish her own banking system, It was arranged that the Reserve Bank of India should continue to function in Pakistan until 30th September 1948, so that the problems of time and demand liability, coinage, exchange etc. be settled between India and Pakistan. Unfortunately due to non-cooperation of Indian authorities., it was decided to establish our own central bank. The foreign expert advised that due to acute shortage of qualified staff the establishment of a Central Bank was not practicable. In spite of this state of affairs, the Govt of Pakistan decided to establish a full fledged Central Bank. Consequently the Governor General of Pakistan and the Father of the Nation, Quaid-i-Azam Mohammad Ali Jinnah inaugurated the State Bank of Pakistan on July 1948. Thus a landmark has been achieved with the establishment of our own Central Bank. In addition to 19 non-India foreign banks, thee were only two Pakistani banks i.e., Habib Bank and the Australasia Bank. In order to expand banking facilities in the country, the State Bank recommended expansion of Habib Bank and also establishment of a new bank which could serve as an agent of the State Bank. As a result, The National Bank of Pakistan came into being in 1949.
 
Although separation of East Pakistan has considerably disrupted the banking system of the country, yet the development of banking continued unabated. The network of branches now covers a very large semen of national economy. Besides increase in the number of bank branches, specialized credit and financial institutions have also developed over the years. Such institutions like National Investment Trust (N.I.T.), Investment Corporation of Pakistan (I.C.P.) and Small Business Finance Corporation etc. have been established which are catering to the financial needs of specific sectors.
 
Nationalization of banking sector has opened a new era of development of banking in the country. Considerable expansion has taken place in the banking sector and network of branches have considerably increased. Now the process of denationalization and privatization has started. Already Muslim Commercial, Allied Bank and United Bank have been privatized. Habib Bank Ltd., the largest commercial bank of the country is also in the process of denationalization. A much larger number of Private Banks have been established and these banks are providing valuable and competitive services to their customers. The contribution of these private banks is most valuable for the country.

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