JAIBP Introduction to Financial System & Banking Regulations Syllabus

What are Prudential Regulations?

A set of mandatory rules issued by the SBP governing risk management, corporate governance, anti-money laundering, and operations of banks/DFIs to ensure prudent and safe banking practices.

Into what main categories are SBP Prudential Regulations typically divided?

Risk management, corporate governance, anti-money laundering/KYC, and operations — issued separately for corporate/commercial, SME, consumer, agriculture, and microfinance banking.

Under Prudential Regulations, what is the limit on exposure to a single person/group?

Total exposure (fund-based and non-fund-based) to a single person or group is capped as a percentage of the bank's equity (per-party and aggregate large-exposure limits set by SBP regulations).

Which law primarily governs the conduct and regulation of banking companies in Pakistan?

The Banking Companies Ordinance, 1962.

How does the Banking Companies Ordinance 1962 define 'banking'?

The accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise.

What forms of business are banking companies prohibited from under the Banking Companies Ordinance 1962?

Trading activities (buying/selling goods) except in connection with realizing security, and engaging directly in non-banking business other than those permitted by the Ordinance.

What is the purpose of the State Bank of Pakistan Act, 1956?

It constitutes the SBP as the central bank and defines its powers, functions, management, capital, and its responsibility for monetary policy and regulation of banks.

What does the Negotiable Instruments Act, 1881 govern?

It governs negotiable instruments — promissory notes, bills of exchange, and cheques — defining their characteristics, rights of parties, endorsement, and dishonour.

Define a 'negotiable instrument' under the Act of 1881.

A written document, freely transferable by delivery or endorsement, that entitles the holder to receive a specified sum of money — namely a promissory note, bill of exchange, or cheque.

Define a cheque under the Negotiable Instruments Act, 1881.

A bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.

What is the difference between a bill of exchange and a promissory note?

A bill of exchange is an unconditional order by the drawer directing a third party (drawee) to pay; a promissory note is an unconditional promise by the maker to pay the payee. A bill has three parties, a note has two.

What is the difference between a bearer cheque and an order cheque?

A bearer cheque is payable to whoever presents it (transferable by mere delivery); an order cheque is payable to a named person or order and requires endorsement plus delivery to transfer.

What is a crossed cheque and its effect?

A cheque with two parallel transverse lines across its face; it cannot be paid over the counter in cash and must be deposited into a bank account, providing greater safety.

Differentiate a general crossing from a special crossing.

General crossing: two parallel lines (with or without 'and company'), payable through any bank. Special crossing: name of a specific bank written across, payable only through that named bank.

What is the purpose of the Financial Institutions (Recovery of Finances) Ordinance, 2001?

To provide a speedy legal mechanism for financial institutions to recover defaulted finances through specially empowered Banking Courts.

What special court is established under the Financial Institutions (Recovery of Finances) Ordinance, 2001?

Banking Courts, which have exclusive jurisdiction over suits for recovery of finance by financial institutions and customers' claims related to such finance.

What is the legal relationship between a banker and a customer when money is deposited?

Primarily that of debtor and creditor — the bank is the debtor and the customer is the creditor for deposited funds (reversed when the customer borrows).

List two key obligations of a banker towards a customer.

To honour customers' cheques when sufficient funds are available, and to maintain secrecy/confidentiality of the customer's account (subject to legal exceptions).

List two key obligations of a customer towards the banker.

To draw cheques carefully to prevent fraud/forgery, and to keep sufficient funds in the account or repay borrowed amounts as agreed.

What are the main types of bank deposit accounts?

Current account (demand, no/low interest), savings account (interest-bearing, some withdrawal limits), fixed/term deposit account (locked for a period at higher return), and basic banking accounts.

Differentiate a current account from a savings account.

Current account: for frequent transactions, typically non-interest bearing, unlimited withdrawals. Savings account: interest/profit-bearing, intended for saving, may have withdrawal frequency limits.

What is a fixed (term) deposit account?

A deposit placed for a fixed maturity period at a predetermined profit/interest rate; funds are not withdrawable on demand without penalty before maturity.

What is a garnishee order?

A court order directing a bank (the garnishee) to freeze and not pay out a customer's account balance because the customer is a debtor of a third party (the judgment creditor).

What must a banker do upon receiving a garnishee order?

Immediately stop payments from the affected account up to the amount specified (or the whole balance if unspecified) and not honour the customer's cheques against the frozen funds.

What is a banker's lien?

The right of a banker to retain a customer's securities/goods/property in its possession as security for a general balance of debt owed by the customer, without an express agreement (an implied pledge).

What is the right of set-off available to a banker?

The right to combine two or more accounts of the same customer and adjust a credit balance in one against a debit balance in another to recover what is owed.

What is the Basel Framework?

A set of international banking supervision standards issued by the Basel Committee on Banking Supervision (BCBS) to strengthen regulation, supervision, and risk management of banks.

What are the three pillars of the Basel II/III framework?

Pillar 1: minimum capital requirements; Pillar 2: supervisory review process; Pillar 3: market discipline through disclosure.

What was the key addition of Basel III over Basel II?

Stronger and higher-quality capital (more common equity), capital conservation and countercyclical buffers, a leverage ratio, and new liquidity standards — the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).

What is the Capital Adequacy Ratio (CAR) and its basic formula?

CAR measures a bank's capital relative to its risk-weighted assets: CAR = (Tier 1 capital + Tier 2 capital) / Risk-Weighted Assets, expressed as a percentage; it ensures banks can absorb losses.

What is the purpose of deposit protection / a deposit protection scheme in Pakistan?

To protect small depositors by guaranteeing repayment of their deposits up to a specified limit if a bank fails; administered by the Deposit Protection Corporation, a subsidiary of the SBP established under the Deposit Protection Corporation Act, 2016.