Write the sources of funds of Commercial Banks Banking and Insurance Question Paper 2010

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Write the sources of funds of Commercial Banks. -Banking and Insurance - Question Paper 2010

Write the sources of funds of Commercial Banks.

Asked On2017-10-29 14:48:05 by:Ashwath-Shetty

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Sources of commercial bank

Deposits

The major source of funds for commercial banks is saving. Deposits are gathered in local markets and typical have lower interest rate. They are relatively stable. Deposits can be classified as demand deposit (current deposits), etc. In case of demand deposits, the sources of funds are simply checking account that do not pay interest and permit unlimited check writing.

Saving deposits are interest bearing sources of fund left with the banks for a period of weeks, month, or years with no minimum required maturity. Money market deposits account can pay whatever interest rate the offering bank feel is competitive and have limited check writing privileges attached. No minimum denomination or maturing is required by law. A time deposit is simply a deposit account that pays interest for fixed term and the fund cannot be withdrawn before maturity.

Liabilities Management

The another important source of fund for commercial bank is liabilities management. They have to manage it very carefully to minimize risk and achieve goal. The various items included in the liabilities of commercial banks are equity, reserves, borrowings, deposits, new account, money market liabilities, deposit account, wholesale and retail certificate of deposits, negotiable instructs, brokered deposits, interest paying liabilities, short term loan, bills payable and other outstanding expenses.

Repurchase agreement

This represents the temporary borrowing in money market, mainly from excess required reserves loaned to it by other banks or the bank has borrowed fund collateralize by some of its own securities from other bank or a large corporate customer.

Mortgage loans

Long term loans taken generally for constructing building and building under construction serves as collateral are mortgage loans. The principal source of long term borrowing include real estate mortgage and this type of loan may have maturity upto thirty years.

Capital funds

It refers to the long term funds contributed to a bank primarily by its owners. It represents the owner's equity interest in the bank. From the regulator point view, bank capital is divided into two groups - tier 1 and tier 2 capital. Tier 1 capital is known as core or primary capital and tier 2 capital is known as supplementary capital. Under this fund includes common stocks, suppliers, retained earnings and undivided profit.

Uses of Fund in commercial Bank

Whatever the funds raised by commercial banks should be properly channelized into investment earning asset because without such earnings bank cannot survive in the long run to compute in the challenging financial market. The uses of funds are as follows:

Assets Management

It is to be considered that whatever liabilities undertaken from various sources become useless these liabilities are converted into earning assets. So it is the allocation of funds into loans and investments with due consideration for the maintenance of liquidity. The various items included in assets of commercial banks are cash in hand, cash at bank, investment, loans, leases, bank's earnings assets vault cash, leases, deposits at central bank, cash items in process of collecting, fixed assets and other current assets.

Answerd on:2018-06-05 Answerd By:SaiKiran

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Write the sources of funds of Commercial Banks. -Banking and Insurance - Question Paper 2010

Write the sources of funds of Commercial Banks.

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