Investment of Banks 1. SOURCE OF INCOME OF A PRIVATE/PUBLIC SECTOR BANK. 1.

Banks invites deposit from those who intend to deposit money with the bank and lend to those who are in need of it. 2. 3. Banks earns profit or derive earning from the interest earn from the borrower and the different is the profit. Interested pays to the depositor, and difference is the profit. banks acts many other ancillary functioning and get earning is the form of commission, incidental changes, exchange, I.e. remit funds from one place to another presently through demand draft, RTGS(Real Time Gross Settlement), NEFT(National Electronic Funds Transfer) etc. banks also derive commission now a days by selling third party products like insurance, mediclaim insurance, Mutual Funds of others institutions with which banks gets tide-up. Merchant Banking: Sometimes banks derives a huge profit by selling with capital market such as buy shares from the market when its priced low and sell it when the price of the same shares rise(Note: As par Banking Low, banks are not trade in bearish market). Banks deals with foreign currency. Banks transmit funds from one country to other through the system called SWIFT and now a days through WESTERN UNION MONEY TRANSFER. System. banks earns profit through commission by issuing Bank Guarantee or the Letter Of Credit , Bill Discounting etc.

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2. CLASSIFICATION OF BANKS INVESTMENTS As par RBI guidelines, the entire portfolio of the banks (including SLR securities and NON -SLR securities) should be classified under three categories viz. 1. Held to Maturity 2. Available for sale. 3. Held for trading. Held to Maturity: The securities acquired by the intention to hold them up to maturity will be classified under Banks with the Held to maturity. Investments include under held to maturity should not exceed 25% of banks total income. Available for sale and Held for trading. : The securities acquired by the intention to trade by taking advantage of the short term price/ interested rate movement will be classified under held for trading. Securities which do not fall within the above two category will be classified under available for sale. Banks will have the freedom to decide on the extent of holding under available for sale. And held for Maturity. 3. INVESTMENT POLICY OF A BANK Lets Bank deposit of Rs 100/-.The following way its turn.

Investment of Banks Liabilities for bank: Amount to Lend (As %) 10 20 30 30 10 Total

Term of Lending 46 Days 1 year 3 years 5 years 10 years

Interest given 2% 4% 6% 8% 10% 100%

Asset of the bank: Amount Deposit Deposit in 6% CRR 25% SLR 69% Loan to market Say bank earn interest from lender is 12% 14 %, and its given interest to its account holder is 10%, the reaming 2% (14% - 10%) called Spread Notes:1) If any depositor clam pre maturity basis, then bank borrow money from the Call money market with a high interest, its a loss to bank. 2) I-Rac norms: For the provision for loan amount. 3) ALCo: Asset Liability Company, is a responsible for this earning process 4) ALM : Asset Liability Management.