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Banking sector in Pakistan evolved with Pakistan's independence in 1947. At the time of partition, there were 45 scheduled banks operating in Pakistan with branches both in India, East and West Pakistan. Foreign banks had limited presence. Many of the banks during pre partition era had their head offices in India hence made a decision to move their assets to India after partition, which was a major setback for Pakistan. Of the banks who left the country, only Habib Bank and Australia Bank run by Muslims moved to Pakistan. Since there was no Central Bank in the country, it was decided that Reserve Bank of India, central bank would function as the central bank for Pakistan until September 30, 1948.
This is where Pakistan faced its toughest challenge since human resource was unavailable. On fast track basis, government passed order to promulgate Central Bank, resulting in setting up of State Bank of Pakistan on July 1, 1948. Thereafter, Pakistan released currency notes. National Bank Limited was set-up in November 1949 with the purpose of promoting banking in Pakistan and support State Bank on recommendation on the financial sector. Banking Companies Control Act was passed in 1948, which defined the role that State Bank would play. As demand for funds increased so did bank advances and new institutions with branch expansion.
By 1970, there were 1,591 bank branches in the country. By 1972, Pakistan had 14 banks operating in the country. In 1974, the banks in Pakistan were nationalized through an Act called Nationalization Act, 1974. Nationalization came into play with objectives i.e. (i) enable the government to...