Banking Operation

Operations of commercial banks are two

sided:
►Involve attracting funds from depositors.
►Employment of funds in lacerative and
viable investments
►Banks is a business firm with aim to earn
profit through funds that are Banks own
Funds as well depositors funds.
► Paid up Capital is amount on which a
banking company is registered.
► Reserve Funds maintained by all
banks at a time of declaring the Profit.
► Profit which is taken from the yearly
earned gross profit and taken prior to
distribution to depositors, sponsors or
shareholders.
 Borrowed funds
 Depositors Funds
 Borrowing from the Central Bank
 The above two funds are the liabilities of
the bank.
 Other Sources of funds are Charges, Fee,
Commission that is earned from banking
Service
 Funds received through interbank
transaction by way of parking.
 EMPLOYMENT OF FUNDS
► Employment or application of funds by a bank
is a profitable and source of safe utilization of
available funds.
► Employment of funds explained in form of:
► Bank keep legal minimum reserve ratio of its
demand and time liabilities with central bank
► To remain solvent bank has to keep sufficient
cash in hand or access to cash to meet the
probable demand for cash by the depositor.
►Funds that bank prefer to invest in
those projects which yield a fair
return and are less risky.
►There is unending tug of war on the
use of funds between liquidity and
safety on one hand and earning and
profitability on the other.
►Funds that are place with Central
Bank as statuary requirement is the
capital of bank
 Utilization of Funds

Non Earning Assets

Non Earning Assets
►Cash Reserve
►Capital Assets
 Earning Assets of the Bank

Earning Assets of a Bank

►Money at call and short notice
►Bill discounted
►Investments
►Advances to customers
 Guiding Principles of application
Employment of Funds
► Safety and deal in the borrowed money and
act as trustee and custodian.
► Liquidity to keep the commitment of the
withdrawals.
► Profitability
► Purpose of Service like Funding and Non
Funding facilities
► Security of services given
► Spread of Risk
► National interest
 Summery

►|An ideal advance is one which is

granted to a reliable customer for an
approved purpose against marketable
securities is liquid and profitable.
Sentimental and personal relation have
no place in lending as a function.
 Loans Repayable at Short Notice

In order to earn profit with keeping reserves

for meeting cash requirement of the
customer, bank tries to maintain effective
balance between liquidity of its assets and
profitability on assets
For this maintenance bank keeps its assets in
downward order on the liquidity and
upward on cash availablilty.
 Loans repayable at short notice

►Call Loans are highly liquid Assets of the

bank and kept in money market for
purchasing or discounting the documents.
►Investment in projects or transactions for
various terms
►Advances to the customers like various
kind of financing facilities