The entire banking business was controlled by the non Muslims before the partition of the subcontinent. When Hindus became sure about the division of the sub continent they secretly began to transfer their capital to the safe places in India. The funds and other valuables were transferred to India.
Time Of Independence :-
Hindus migration from Pakistan to India also caused drain on the bank deposits. In order to ruin the economy of Pakistan, Hindus closed down most of the head offices and branches of the scheduled and non scheduled banks in Pakistan.
At the time of independence there were only two Pakistani banks, that's is Habib Bank and Australasia Bank. At that time Pakistan had 631 branches of scheduled banks and 411 of nonscheduled banks. The total deposits of Pakistan banks were Rs. 800 million and advances were 198 million. The non scheduled banks number reduced from 411 to 106 over the same period.
The mass scale withdrawal of deposits closure of branches and migration caused dead lock in the banking business in Pakistan.
Keeping in view the above situation government of Pakistan took various steps to provide all kinds of facilities to the non Muslim bankers for restoring normal banking facilities but response was not encouraging.
Establishment Of State Bank :-
After the independence it was not possible for Pakistan to set up the Central Bank immediately. The Reserve Bank of India acted as a central bank of Pakistan till 3oth September, 1948. But it could not protect the interests of Pakistan.
To remove the financial difficulties and to establish sound banking system Govt. established the State Bank on 1st July 1948. In the development of banking system it played very important role as a central bank of the country.
Development Of Commercial Banks :-
New branches were opened in the country with development of banking system. These banks also extended their branches to foreign countries.
Specialized Financial Institutions :-
Government of Pakistan established the specialized financial institutions like ADBP, IDBP, NDFC, PICIC, HBFC. These financial institutions financed the particular sectors like agriculture, industry and housing.
Nationalization Of Commercial Banks :-
In 1947 government of Pakistan nationalized all the banks. The weaker banks were merged with the strong banks.
It was argued that these were nationalized to provide fair distribution of credit to all the classes of people and remove the monopoly of few Capitalists over the banking industry.
Privatization Of Commercial Banks :-
Now government has decided to privatize the commercial banks. The banks are in the process of privatization like other units of the economy since 1990. This step is taken to provide better banking facilities to the public. It was also argued that loans were used as a political bribe and it destroyed our banking system. People are not willing to repay the loans inspite of all Govt. efforts. So after privatization private banks will not accept the political pressure and loans will be issued on merit.
In January, 1991, a privatization commission was set up and two commercial banks namely MCB and ABL were transferred to private sector. While other banks like HBL and UBL are under the process of privatization.
In August 1991 government has also allowed the establishment of new private banks. Now new banks like Askari Bank, Platinum Bank, Indus Bank, Mehran Bank, Soneri Bank, Union Bank and Al-Habib Bank are established. These banks have established their branches in all the important cities of the country.