1. Chapter 3
Investment Policy of Banks

2. Risk of Bankers
 banker’s dependence on public deposits
 Instability and risk compared to a
moneylender
 U.K.Banks are organised as Partnership
firms- unlimited liability of partners provides a
bigger cushion than corporate forms
 Low capital base of banks all over the world

3. Criteria of Investment Policy
 Liquidity
 Profitability
 StatutoryCompliance
 Capital Adequacy
 Social Banking
 Credit Rating

4. Liquidity Vs Profitability
 “The secret of successful banking is to
distribute resources between various
forms of assets in such a way as to get
a sound balance between liquidity and
profitability”
- Geoffrey Crowther

5. Investment Portfolio
 Call Money Market
 Money at Short Notice
 Collateralised Borrowing & Lending Obligation:
introduced in 2003 by CCIL, it’s Secured and wide-
based -1day to 364 days
 Liquidity Adjustment Facility: introduced in 2000,
comprises Repo and Reverse Repo-1 day to 14 days
 Other Money Market & Capital Market Instruments

6. Loan Portfolio of a Banker
 Prioritysector lending-40 % of lendable funds
 Consumer loans
 Business loans
 SME loans
 Housing loans
 Industrial loans

7. Portfolio Management: Asset-Liability
Management (ALM)
 LiquidityManagement
 Market Risk management
 Credit Risk Management
 Interest Rate Risk Management
 Exchange Risk Management
 Operational Risk Management

8. Principles of Investment/Lending
Policy
 Diversification  Stability
 Safety of Investment  Solvency
 Shiftability  Debtor Evaluation
 Return on the Portfolio  Growth
 Productivity  Sharing Credit
Information

9. THANK YOU

10. THANK YOU