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Structure of Commercial Banks

A commercial bank is a financial institution that provides services, such as accepting deposits, giving business loans and auto loans, mortgage lending, and basic investment products like savings accounts and certificates of deposit (CDs). The traditional commercial bank is a brick and mortar institution with tellers, safe deposit boxes, ATMs and vaults. However, some commercial banks do not have any physical branches and need consumers to complete all transactions by phone or Internet. In exchange, they generally pay higher interest rates on investments and deposits, and charge lower fees.

The Structure of Banking sector in Pakistan is comprised of

  1. Scheduled Commercial Banks
  2. Non-Scheduled Commercial Banks

Scheduled Commercial Banks:

The banks which are registered in the list of central bank under its charter are recognized as scheduled banks. They are bound to perform banking services per the policies and instructions of central bank. In Pakistan, Scheduled Banks are regulated by State Bank of Pakistan’s (SBP) through different wings and are required to meet different regulatory requirements such as capital and liquidity reserve requirements.

Scheduled commercial banks includes

  • Public Sector Banks
  • Private Sector Banks

Public Sector Banks:

Public Sector Banks (PSBs) are banks where a majority stake (i.e. more than 50%) is held by a government or State. The shares of these banks are listed on stock exchanges. 

Private Sector Banks:

The private-sector banks represent part of the banking sector that is made up of both private and public sector banks. The "private-sector banks" are banks where bigger parts of stake or equity are held by the private shareholders and not by government.

Non-Scheduled Commercial Banks:

The banks which are registered in the list of central bank under its charter are known as scheduled banks. They are bound to perform banking services per the policies and instructions of central bank.

In Pakistan, Non-Scheduled Banks are also regulated by State Bank of Pakistan’s excluding modarbas and leasing companies. 

Non-Scheduled commercial Banks includes

  • Development Finance Institutions (DFIs)
  • Investment Banks
  • Leasing companies
  • Modaraba companies
  • Housing finance companies

Development Finance Institutions:

DFIs occupy the space between public aid and private investment. They are financial institutions, which offer finance to the private sector for investments that promote development.

Investment Banks:

A bank that purchases large holdings of newly issued shares and resells them to investors.

Leasing Companies:

The leasing company is the lawful owner of the goods, but ownership is effectually conveyed to the lessee, who incurs all benefits, costs, and risks associated with ownership of the assets.

Modaraba Companies:

Modaraba means the business in which some persons participate with their capital and manage or modarab with their managerial skill. The profit is distributed among both parties per the agreed ratio. In case of loss it is distributed among the financiers per their invested capital.

Housing Finance Companies:

A Housing Finance Company is a company listed under the Companies Act, 1956 (1 of 1956) which primarily transacts or has as one of its principal objects, the transacting of the business of providing finance for housing, whether directly or indirectly.

Difference between Scheduled Banks and Non-Scheduled Banks:

  • Clearing facility available scheduled bank but there is no clearing facility in non-scheduled.
  • Scheduled liable to follow the instructions of central bank and in case on non-scheduled banks they are not liable the follow any instruction of central bank.
  • Registered under the act of 1956 sec 37(1) but the non-scheduled banks are not registered.
  • Paid up capital Are fixed in the case of non-scheduled banks are not fixed.
  • Scheduled banks submitted the performance report to central bank and non-scheduled are not.
  • Scheduled banks can transfer the money but non-scheduled can’t.
  • Scheduled banks can take loans from central bank but non-scheduled can’t.
  • Scheduled deposit the reserve amount with central bank but non-scheduled not able to deposit any amount to anyone.
  • Scheduled banks operate foreign transaction but non-scheduled are not.
  • The advances of scheduled banks are also more than those of non-scheduled banks.
  • Deposits of scheduled banks are more than those of non-scheduled banks
  • The share capital and reserves of scheduled banks are more than those of non-scheduled banks.
  • Scheduled banks are subject to greater degree of control and more obligations than the non-scheduled banks in their day-to-day operations.
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