Page 76 - DMGT303_BANKING_AND_INSURANCE

Unit 4: Treasury Management & Banking Sector Reforms

(g) Proceeds of investment sales Investments made Notes
(h) Interest on investments
(i) Other receipts in RBI A/cs Other drawings in RBI A/c
2. Depending on whether the net position needs borrowings or lendings, treasurer has to
choose the option from following alternatives:
(a) Interbank Call money market
(b) Liquidation of investments

(c) Repos
(d) Refinance/Rediscounting Window
3. Call money sources has the following limitations:
(i) Any indication to market regarding illiquidity - which is indicated when this market
is tapped frequently - would increase costs.
(ii) Since the lenders being competitors, they may not be prepared always to lend.
(iii) Illiquidity may suddenly emerge in the market due to sudden developments.

4. Liquidity management should be governed by a well laid out policy covering
(i) Control of cash flows
(ii) Monitoring of undrawn limits
(iii) Control of short term borrowing capacity

(iv) Management of portfolio of liquid assets
(v) Contingency plan

4.4 Investment Management

Deposits mobilized by banks are required to be deployed either in loans & advances or in
investments. While doing this every bank has to take care of credit risk, market risk. The portion
of such deposits which are not lent are invested either in SLR securities and non-SLR securities.
Since SLR securities are more risk free and there is a compulsion to invest their return is generally
low. Non-SLR and SLR security investments are to be shuffled both within and between
themselves taking into account the interest rate movements and connected price movements.

!
Caution Deposits mobilized by banks are required to be deployed either in loans and
advances or in investments.
Investments are therefore required to be invested in a professional manner keeping in mind the
RBI's and the bank's own policy directives and operative guidelines. Functions of the investment
department can be mentioned as:
1. Maintenance of SLR

2. Maximisation of yield on investment
3. Matching maturities of investments with those of deposits and borrowings
4. Prediction of interest rate movements and analysis of their impact on investment portfolio

LOVELY PROFESSIONAL UNIVERSITY 71