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 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 private
individual in one place.
 Investments the term most often refers to portfolio management and the
trading of securities to achieve a specific investment objective.

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

 Bank can't simply keep the resources with them without investing in
profitable area. so bank invest their fund at high rate of interest than
paid to the depositors.

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Investment portfolio generally classify:

 Held to maturity (should not be exceed 25% of total

Investment)

 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

 Paid-up capital
 General reserves
 Fixed deposit, current deposit, saving deposit.
 Borrowing from money market.
 Borrowing from RBI.
 Borrowing from IDBI.
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 Significance of investment mgt in commercial
banks 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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 Objectives of investment management of
commercial banks
Liquidity

Solvency

Profitability

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 Liquidity
 Commercial banks mostly deals in money and debts. The deposits
of banks are debts of public. so Commercial banks are under the
obligation to repay the deposits of public on demand or very short
notice.
 For facing these kind of issues the banks are maintain sufficient
cash and liquidity balances.
 It is a big problems before the banks to maintain what proportion
of deposits should be in liquidity from to ensure safe liquidity
position.
These are the factor which helps in maintaining adequate level of
liquid assets out of total assets-:
1. ownership of demand deposits
2. Liquid Reserves
3. Banking Habits
4. Seasonal Requirements
5. State of money market

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 Solvency

 Solvency is the capacity of bank to meet its liabilities

in the long run.
 Solvency of the bank depends upon relationship
between total liabilities with total assets.
 If realizable value is less than total liabilities , then
public 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

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 Profitability

• Profitability is an essential objectives of bank

investment.
• Strong profits necessaries to pay dividend to
stockholder, to offset loan losses, to pay ongoing

Operating exp.
• profitability management of the bank’s assets
and liability over both long and short term.
• Profitability satisfies stockholders, it encourages
investors to provide capital for new bank
products and services

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 Management of bank investment
portfolio
 In performing the investment function, a banker has to strike a balance among the
conflicting 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,
 Formulating bank investment policy
-> Setting out objective of investment policy
->Reviewing investment need of the banks
1. identifying the portfolios
2. assessing the risk position
3. determine the tax position
4. coordinating investment and liquidity planning
5. estimating need for diversification
• Formulating investment portfolio policies
-> size of investment portfolio
->pattern of investment portfolio .
->diversification of portfolio.

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