investment mgt

8/6/2019 Investment Mgt

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Meaningy A general term that most commonly refers to the buying and selling of

investments within a portfolio.

portfolio-: a collection of investments held by an institution or a privateindividual in one place.

y Investments the term most often refers to portfolio management and

the trading of securities to achieve a specific investment objective.

y Investment are the second largest assets which is 35.72% of total assetsof scheduled commercial banks.

y Bank can't simply keep the resources with them without investing in

profitable area. so bank invest their fund at high rate of interest thanpaid to the depositors.


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Investment portfolio generally classify:

Held to maturity (should not be exceed 25% of totalInvestment)

Available for sale (should be based on mkt- to- mkt)

Held for trading (should be based on mkt- to- mkt)

Sources available to bank for investment

y Paid-up capitaly General reservesy Fixed deposit, current deposit, saving deposit.y Borrowing from money market.y Borrowing from RBI.y Borrowing from IDBI.


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Significance of investment mgt in commercialbanks in India

Pursuant to liberation policy of economic, integration of

domestic financial mkt to international financial mkt,

deregulation of interest rates.

Increasing contribution of the investment operations to the

income of banks.

Increased competition in banking industry with the entry of

new players both domestic and foreign.

Growing professionalization in the banking industry and

Increasing automation of banking operation.


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y Liquidity

y Solvency

y Profitability

Objectives of investment management ofcommercial banks


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y Commercial banks mostly deals in money and debts. The depositsof banks are debts of public. so Commercial banks are under theobligation to repay the deposits of public on demand or very shortnotice.

y For facing these kind of issues the banks are maintain sufficient

cash and liquidity balances.y It is a big problems before the banks to maintain what proportion

of deposits should be in liquidity from to ensure safe liquidityposition.These are the factor which helps in maintaining adequate level ofliquid assets out of total assets-:

1. ownership of demand deposits2. Liquid Reserves3. Banking Habits4. Seasonal Requirements5. State of money market

Liquidity


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Solvency is the capacity of bank to meet its liabilitiesin the long run.

Solvency of the bank depends upon relationshipbetween total liabilities with total assets.

If realizable value is less than total liabilities , thenpublic will loss confidence on the bank.

Factor affect solvency of the bank-:1. loss or misappropriation of assets

2. Risk of changes of interest rate

Solvency


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Profitability is an essential objectives of bankinvestment.

Strong profits necessaries to pay dividend tostockholder, to offset loan losses, to pay ongoingOperating exp.

profitability management of the banks assetsand liability over both long and short term.

Profitability satisfies stockholders, it encouragesinvestors to provide capital for new bank

products and services

Profitability


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Management of bank investment

portfolio

y In performing the investment function, a banker has to strike a balance among theconflicting objectives of safety, liquidity, and profitability. These are two aspects of how

investment policy in a bank is formulated and put into the practice are given bellow,

y Formulating bankinvestment policy

-> Setting out objective of investment policy

->Reviewing investment need of the banks1. identifying the portfolios

2. assessing the risk position

3. determine the tax position

4. coordinating investment and liquidity planning

5. estimating need for diversification

Formulatinginvestment portfolio policies

-> size of investment portfolio

->pattern of investment portfolio .

->diversification of portfolio.


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investment mgt

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