Though money is the product of a bank so, they should have great management of funds. There are many policies for the management of bank fund and all are described below:
Management of bank fund
The two main functions of a bank are borrowing money from the public by accepting deposits and lending to them for the development of trade, commerce, industry, and agriculture. A banker is thus a dealer in money and credit.
They act as financial intermediaries between savers and investors. It is a profit-seeking business concern as any other commercial or industrial organization.
The profitability of a bank always depends on the table manner and the avenues in which its resources are employed to yield the maximum income.
However, there is a difference in the way the planning is done by banks as regards the employment of resources are concerned.
A business or industrial concern will explore various ways in which it can obtain resources, like additional capital, floatation of debentures, bank borrowings, credit on purchases, and sales.
The bank resource is slightly different as it will, to a large extent, depend upon the mobilization of deposits from the public.
Their owned fund (i.e., share capital and reserves) constitute generally not more than 10% of the total. A bank’s main source of funds is the deposits made by the customers.
So, a banker has two important duties to the depositors:
- It should pay them interest at prescribed rates on their deposits.
- It should pay their money as and when demanded.
Thus, a banker has to see that the funds at its disposal are so invested that they remain fairly liquid as well as yield a reasonable return.
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