Investment Policy Of Commercial Banks In India Finance Essay

In the survey of the fiscal establishments the investing and investing jobs will go around around the construct of pull offing the excess fiscal assets in such a manner, which will take to the wealth maximization and supplying a important farther beginning of income. Thus the investing is the direction of the excess recourses in such a manner as to do it work for supplying benefits to the provider of the financess by allowing it to 3rd party. However, the investing needs to be a procedural undertaking. It must follow a definite investing procedure, which decidedly being the preparation of proper investing policy. Banks are pay outing their money as investing in trade concern and industry. Therefore, Banks should be following the rule of investing for net income. An investing policy should guarantee maximal net income and minimal Risk. A immense aggregation and investing policy plays critical function for the economic development of whole state. The chief focal point of this survey will be towards the investing patterns of the Bankss. The survey suggests to the direction how they can better their managing power and recommends what is the hint to raise the net income.

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Keywords: Wealth maximization, Investing policy, Hazard

Introduction

Investing in fiscal sense is puting of money in the other for their usage anticipating a return or the engagement in expected net incomes. Investing by persons, concern and authorities involves a present forfeit of income to acquire on expected on future benefit as a consequence investing raises an economic system of states. Harmonizing William F. Shape. Gordon J. Alexander and Jeffery V. Baily “ Investment in its broadest sense means the forfeit of current dollars for future dollars. Two different properties are by and large involved clip and hazard. The forfeit takes topographic point in the present and its magnitude by and large is certain ” ( Shape Alexander and Baily, 1998 ) Banks accept money as a sedimentation from public and put it in signifier of loan and progresss. Financial establishments act as an intermediary function between the individuals who lend and who borrow. Bank pools the scattered fund and mobilise them in productive sector.bank came into being chiefly with the aim of roll uping the idle Fund, mobiles them into productive sector and doing an overall economic development. The bankers have the duty of safeguarding the involvement and deposited sum of depositor.

Statement of job

In 1991, denationalization and liberalisation adopted by the authorities of India. Due to that policy, in these yearss commercial bank, developments bank and fiscal company are runing with extremely competition. The fast growing of such organisations has made pro-rata increase in roll uping sedimentation and their investing. They collected the immense sum from public but could n’t apportion in new investing sectors. It has ensured bad impact on involvement to the depositors, lower market value of portions. Though several commercial Bankss have been established in short period, but sufficient return has non been earned.

A really unhealthy activity is go oning in the banking concern. After the loan is provided by the bank, regular review and monitoring are non made to cognize whether the debitor has used the loan in productive or non. Due to this grounds, there is great sum of unrecovered bank loan. From this point of position it is necessary that bankaa‚¬a„?s must explicate their ain organized investing policy.

Reappraisal of Literature

Sharma, M.P. & A ; Bhatt, M.P. ( 2002 ) , in their article aa‚¬A“Priority receiving system sectoraa‚¬A? has present aa‚¬A“The commercial Bankss should take attention of board national involvement & A ; they showed non restrict their loaning activities merely to commercial country supplying speedy involvement if some proportion could be directed to the country conclusive to construct economic substructures of the state it would make atmosphere conductive to their investing in future. In our society where ignorance & A ; literacy is in wild graduated table, it is necessary that the Bankss search enterprisers alternatively of enterprisers seeking book. So, they have opinioned that the precedence sector plan is a timely & A ; chances there by increasing production & A ; the general life criterion or rural hapless.

Aims of the survey

The chief aim of the survey is to measure the investing policy and scheme followed by the bank with mention to Corporation Bank and Oriental Bank of Commerce. The chief aims of this survey mentioned below:

1. To analyse the sedimentation use for five old ages of Corporation Bank and Oriental Bank of Commerce.

2. To happen out relationship between sedimentations, loan & A ; progresss and entire investing.

3. To analyse the fiscal place of Corporation Bank and Oriental Bank of Commerce in footings of sedimentation aggregation and investing process.

4. To suggests and urge on the investing policy of sample Bankss.

Restriction of the survey

1. This survey is chiefly concerned to merely two Bankss i.e. Corporation Bank and Oriental Bank of Commerce.

2. The whole survey is based on secondary informations from the several Bankss and web sites on cyberspace, article, newspapers.

3. The survey will establish merely on the latest five twelvemonth informations.

4. Lack of sufficient clip and resources.

5. In This survey merely selected tools and technique are used.

Research Methodology

Time period of Study

The Post- reform period of five old ages has been taken for mensurating the tendency in sedimentations, progresss and loans & A ; progresss on banking sector. The old ages selected for analysis are 2008-2012.

Sample Size

In context of India, 28 commercial Bankss are in operation in informations. These 20 eight Bankss are regarded as population. But, it is non possible to analyze all informations related with these 20 eight Bankss. Hence two Bankss have been taken as sample from the whole population i.e. 20 eight Bankss. The sample Bankss are as follows: –

Corporation Bank

Oriental bank of Commerce

Sampling Procedure

The choice process of the sample is purposive it is non random. The Bankss are selected for survey on the footing of concern per employee as on March2011.These Bankss have the highest concern per employees among all the Bankss.

Beginnings of informations

The survey is chiefly based on secondary informations. Secondary informations are those informations that are collected by person else or used already & A ; made available to other in the signifier of published statistics such as one-year studies, periodicals, newspapers, magazines etc. This survey is chiefly depends on the usage of secondary informations that consists of one-year studies of the concerned bank. However besides the one-year studies assorted other beginnings of informations have besides been used for the intent of the survey program paperss, newspaper, magazine, economic diaries, RBI reports etc.

Data Analysis Procedure

To accomplish the aims of the survey, the undermentioned statistical tools are calculated

1. Swerve analysis of sedimentation, loan & A ; progresss, and investings.

Analysis and Discussion

Trend analysis of entire sedimentation of Selected Bank

The tendency value of entire sedimentation of Corporation Bank and Oriental Bank is calculated under this subdivision. An attempt has been made to calculate for following three old ages from 2013 to 2015 on the footing past informations of entire sedimentation of Corporation Bank and Oriental Bank of Commerce from March 2008 to March 2012.

Table 1

Appraisal of the sedimentation for the twelvemonth 2013 to 2015

old ages

Deposits ( Rs. In million )

Corporation

Bank

Oriental Bank of Commerce

2008

55424

77857

2009

73984

98369

2010

92734

120258

2011

116748

139054

2012

136142

155965

2013

156266

177370

2014

176686

197060

2015

197106

216750

( Beginning: Annual studies )

The above tabular array shows the entire sedimentation of the Bankss is in increasing tendency. If other things remain changeless the entire sedimentation of Corporation Bank will be Rs.197106 million in the FY 2015 and that of Oriental Bank of Commerce will be Rs. 216750 million.

Trend analysis of Loan and progresss of Selected Bank

An attempt has been made to calculate the sum of loan & A ; progresss of Corporation Bank and Oriental Bank of Commerce for the following 3 old ages from March 2013 to March 2015.

Table 2

Appraisal of the loan and progresss for the twelvemonth 2013 to 2015

old ages

Loan and progresss ( Rs. In million )

Corporation

Bank

Oriental Bank of Commerce

2008

39186

54566

2009

48512

68500

2010

63203

83489

2011

86851

95908

2012

100469

111978

2013

115916

125558

2014

132007

139781

2015

148097

154004

( Beginning: Annual studies )

The above tabular array shows that both the bank has increasing tendency of loan and progresss. It is forecasted that both of Bankss will hold increasing tendency of loan and progresss. The possible capacity of allowing loan and progresss of Oriental Bank of Commerce seems higher than that of Corporation Bank. Oriental Bank of Commerce seems to be more successful in the hereafter to gain more net income than that of Corporation Bank because the expected future value of loan & A ; progresss of Oriental Bank of Commerce in the twelvemonth 2015 is Rs. 154004 million and the same of Corporation Bank is merely Rs. 148097 million.

Trend analysis of Entire Investment of Selected Banks

Under This subject, the tendency values of entire investing for five old ages from March 2008 to March 2012 is calculated and forecasted for following three old ages from March 2013 to March 2015.

Table 3

Appraisal of investing for the twelvemonth 2009 to 2013

old ages

Investings ( Rs. In million )

Corporation

Bank

Oriental Bank of Commerce

2008

16512

23951

2009

24938

28489

2010

34523

35785

2011

43453

49545

2012

47475

52101

2013

80035.4

61181.9

2014

88079.4

68917.8

2015

96123.4

76653.7

( Beginning: Annual studies )

The above tabular array shows that investing capacities of both the bank have increasing tendency. It is besides clear from the tabular array that of bank will hold increasing tendency of investing in the hereafter. The investing of Corporation Bank during the old ages 2015 up to Rs.96123.4 million which is higher in comparing from Oriental Bank of Commerce i.e. up to Rs.76653.7 million in the twelvemonth of 2015.

Suggestion for sound investing policy

A sound bending & A ; investing policy is non merely prerequisite for the bank ‘s profitableness but besides crucially important for the publicity of commercial economy of a backward state like Nepal. Therefore, the undermentioned rules or characteristics of investing policy must be abided by the commercial Bankss in order to accomplish the ends.

Safety and Security

Commercial Bankss must pay a particular attending to the rule safety and security. There will be a loss whether it is little or large, if the bank has non invested in secure and safe sectors, Investment in insecure and insecure sectors with the hope of acquiring more return is to accept the security of jurisprudence quality. The status of insecure arise when a bank invest in big loan against less securities by having committee, invests in new topographic points without careful observation, set downing to long-run borrowers etc. All these insecure conditions should be avoided every bit much as possible. A bank should be really much conscious in puting processs and profitable sectors. It should ne’er put its fund on those securities, which are subjected to excessively much for volatility ( Depreciation are fluctuation ) because a small alternation may do a great loss.

Profitableness

The net income of commercial bank chiefly depends on the involvement rate, volume of loan and its clip period and nature of investing in different securities. It is a fact that a commercial bank can maximise its volume of wealth through maximization of return on their investing and loaning so, they must put their financess where they gain maximal net income. Ambition of net income to commercial bank seem sensible as the bank has to cover all the disbursals and do payment in the signifiers dividend to the stockholder who contribute to construct up to bank ‘s capital and involvement to the depositors. For this the bank calculates the cost of fund and likely return.

Purpose of Loan

This is really of import inquiry for any banker is that, why a client is in demand for loan. If borrower misused the loan granted by the bank, he can ne’er refund. Therefore, in order to avoid this state of affairs each and every bank should demand all the indispensable elaborate information about the strategy of the undertaking or activities would be examined before loaning.

Diversification

“ A bank should non put all its eggs on the same baskets. ” This expression is really of import to the bank and it should be ever careful non to allow loan in merely one sector. To minimise hazard, a bank must diversify its investing on different sectors. Diversification of loan helps to prolong loss harmonizing to the depression of norm ; if a security of a company is divided of there may be an grasp in the securities of other companies. In This manner, the loss can be recovered.

Tangibility

A commercial bank should proper touchable security to an intangible 1. Thought it may be considered that touchable belongings does non give an income apart from intangible securities, which have lost their value due to monetary value degree rising prices.

Decision

The present research, analyze different fiscal and statistical tools are used to mensurate the Investing policy of the selected Bankss. It is found that both selected Bankss have strong fiscal public presentation but relatively Oriental Bank of Commerce is in better place. It is concluded that Oriental Bank of Commerce has adopted better investing policy than that of Corporation Bank. In decision, it can be said that cardinal Bankss are required to direct the commercial Bankss. Commercial Bank should travel as per the way given by the cardinal bank. Banks should hold optimal policy to roll up the sedimentation in assorted histories. Higher the sedimentation Higher will be the opportunity of mobilisation of working fund and net income thereto. Banks should non put their ‘ fund randomly. It should be careful while progressing loan because loan is the life blood of the Commercial Bank for endurance. If Commercial Bank does non use sound investing policy it will be in great problem in future to roll up it in clip, therefore the possibility of bankruptcy thereto. Banks should put their fund in assorted portfolios after the deep survey of the undertaking to be safe from being bankruptcy. CBs should non traverse the boundary degree set by cardinal bank to do investing policy.

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