Banking OperationBanking Operation

Operations of commercial banks are two Operations of commercial banks are two sided:sided:

►Involve attracting funds from Involve attracting funds from depositors.depositors.

►Employment of funds in lacerative and Employment of funds in lacerative and viable investments viable investments

►Banks is a business firm with aim to Banks is a business firm with aim to earn profit through funds that are earn profit through funds that are Banks own Funds as well depositors Banks own Funds as well depositors funds.funds.

► Paid up Capital is amount on which Paid up Capital is amount on which a banking company is registered.a banking company is registered.

► Reserve Funds maintained by all Reserve Funds maintained by all banks at a time of declaring the banks at a time of declaring the Profit.Profit.

► Profit which is taken from the Profit which is taken from the yearly earned gross profit and yearly earned gross profit and taken prior to distribution to taken prior to distribution to depositors, sponsors or depositors, sponsors or shareholders.shareholders.

Borrowed fundsBorrowed funds

Depositors Funds Depositors Funds Borrowing from the Central Bank Borrowing from the Central Bank The above two funds are the The above two funds are the

liabilities of the bank.liabilities of the bank. Other Sources of funds are Charges, Other Sources of funds are Charges,

Fee, Commission that is earned Fee, Commission that is earned from banking Servicefrom banking Service

Funds received through interbank Funds received through interbank transaction by way of parking.transaction by way of parking.

EMPLOYMENT OF FUNDSEMPLOYMENT OF FUNDS ►Employment or application of funds by a Employment or application of funds by a

bank is a profitable and source of safe bank is a profitable and source of safe utilization of available funds. utilization of available funds.

►Employment of funds explained in form of:Employment of funds explained in form of:►Bank keep legal minimum reserve ratio of its Bank keep legal minimum reserve ratio of its

demand and time liabilities with central bank demand and time liabilities with central bank ►To remain solvent bank has to keep sufficient To remain solvent bank has to keep sufficient

cash in hand or access to cash to meet the cash in hand or access to cash to meet the probable demand for cash by the depositor.probable demand for cash by the depositor.

►Funds that bank prefer to invest Funds that bank prefer to invest in those projects which yield a in those projects which yield a fair return and are less risky.fair return and are less risky.

►There is unending tug of war on There is unending tug of war on the use of funds between the use of funds between liquidity and safety on one hand liquidity and safety on one hand and earning and profitability on and earning and profitability on the other.the other.

►Funds that are place with Central Funds that are place with Central Bank as statuary requirement is Bank as statuary requirement is the capital of bank the capital of bank

Utilization of FundsUtilization of Funds

Non Earning AssetsNon Earning Assets

Non Earning AssetsNon Earning Assets►Cash ReserveCash Reserve►Capital AssetsCapital Assets

Earning Assets of the BankEarning Assets of the Bank

Earning Assets of a BankEarning Assets of a Bank►Money at call and short noticeMoney at call and short notice►Bill discountedBill discounted►InvestmentsInvestments►Advances to customersAdvances to customers

Guiding Principles of application Guiding Principles of application Employment of FundsEmployment of Funds

►Safety and deal in the borrowed money Safety and deal in the borrowed money and act as trustee and custodian.and act as trustee and custodian.

►Liquidity to keep the commitment of Liquidity to keep the commitment of the withdrawals.the withdrawals.

► ProfitabilityProfitability►Purpose of Service like Funding and Purpose of Service like Funding and

Non Funding facilitiesNon Funding facilities►Security of services givenSecurity of services given►Spread of RiskSpread of Risk►National interestNational interest

Summery Summery

►|An ideal advance is one which is |An ideal advance is one which is granted to a reliable customer for granted to a reliable customer for an approved purpose against an approved purpose against marketable securities is liquid marketable securities is liquid and profitable. Sentimental and and profitable. Sentimental and personal relation have no place in personal relation have no place in lending as a function. lending as a function.

Loans Repayable at Short Loans Repayable at Short NoticeNotice

In order to earn profit with keeping In order to earn profit with keeping reserves for meeting cash requirement reserves for meeting cash requirement of the customer, bank tries to maintain of the customer, bank tries to maintain

effective balance between liquidity of its effective balance between liquidity of its assets and profitability on assets assets and profitability on assets

For this maintenance bank keeps its For this maintenance bank keeps its assets in downward order on the assets in downward order on the

liquidity and upward on cash availablilty. liquidity and upward on cash availablilty.

Loans repayable at short noticeLoans repayable at short notice

►Call Loans are highly liquid Assets of Call Loans are highly liquid Assets of the bank and kept in money market the bank and kept in money market for purchasing or discounting the for purchasing or discounting the documents.documents.

►Investment in projects or Investment in projects or transactions for various termstransactions for various terms

►Advances to the customers like Advances to the customers like various kind of financing facilities various kind of financing facilities