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Bank Balance-Sheet:Operations in Banks;Banker;Customer Relationship

Compiled by :Garima Verma Salaka Singh Swadha Mishra

Banking operations
Banking operations relate to the raising of Banking fund from different sources, making investments and giving Loans .

Sources of Banking Funds


1. Share capital

2. Deposits

3. Loans
4. Credit creations
5. Reserve fund

Investment policy of Bank


The Bank obtain its fund from several sources. But these funds are not allowed to lie idle in the Bank. The bank invest the funds with a view to earning profit for itself. The investment policy of banks is different in different countries. The reason is that the economic condition of the market differ from country to country . Hence, The bank in every country have formulate their investment policy account to the economic condition prevailing there in . These principles are given ahead :-

1. Principle of safety

2. Principle of liquidity
3. Principle of productivity of Investments 4. Principle of Diversity

5. Principles of salability of securities


6. Principle of stability in the value of Investments 7. Principles of Tax-Exemptions of Investment

Bank Investments
Generally, the Investments of a bank are of two types :1. Non-profitable Investments 2. Profitable Investments

Non-Profitable Investments
It has mainly two heads :(I) Cash reserves (ii) Dead stocks

Profitable Investments
1. Call money or short-period Loans

2. Discounting of Exchange and treasury

Bills 3. Investments in Securities 4. Loans and Advances

Securities regarding loans


As is well Known, a bank generally insists upon securities before advancing loans to the borrowers. The securities are mainly of Two types :(i) Personal Security (ii) Collateral Security

Personal Security
A bank may sometimes grant a loan to its customer against personal securities, In other words it may not insist upon the security of certain stocks or property before giving loan to the customer, such types of loans are also known as

Uncovered

loans.
The bank extend this type of loan to those of its respectable costumer with whom it is well acquainted or in whose integrity it has full faith.

The loan given against Personal security in India are generally two types:1. One party pronote :- The loan here is granted to the party against a pronote executed by it. 2. Two party pronote:- This type of loan is given when borrower and the surety jointly execute the note.

Collateral security
This refer to those substantial securities which the borrower pledge with the bank for securing loan from it . The bank may accept raw materials or finished goods or other material assets as collateral securities.

The Collateral Securities are accepted by the Bank in three forms:-

Lien Under this the debtor keeps some goods or some property with the bank by way of cover against the loan secured by him . 2. Pledge - Under this also the debtor keeps some goods or some property with the bank by way of cover against the loan secured by him . But if loan is not repaid in time the bank can auction the securities.
1.

Mortgage Under this, the debtors obtain the loans by mortgaging his property with the bank . If the debtors does not repay the loan in time , the ownership of the mortgaged property automatically gets transferred to the bank.

Balance sheet
A financial statement that summarizes a companys assets , liabilities and shareholders equity at a specific point of time . Balance sheet also known as Financial statement . Financial position reveals a companys assets , liabilities and owners equity .

Every Bank has to publish its Balance sheet at fixed intervals as laid down by the law of the country . The real financial position of the bank can be known only after an analysis of its Balance sheet. The balance sheet also tells us about the assets as well as liabilities of the Bank .

Assets
An asset is something that has value and is owned by an entity . Asset add to the net worth of the entity that owns it. The entity that owns an asset can be a person , a company or any other type of organization. E.g.:- Cars , Buildings , land , Machines etc ..

Liabilities
The liabilities refers to those items in account of which the bank is liable to pay an amount to others . They represent others claim on bank .

Banker And Customer Relationship


The entire business of banking rests on harmonious relationship and mutual trust between the banker and the customer. It starts the moment an account is opened and ends immediately on the closer of the account.

Who is a Banker?
A banker is a dealer in debts or credit, i.e., the essential business of a banker is to buy money and debts by creating other debts. There are mainly two prime functions of a banker1.Receiving deposits for lending or investing 2.Repaying these deposits on demand by cheque or otherwise

Who is a Customer?
A person who has bank account in his name and for whom the banker undertakes to provide the facilities as a banker, is considered to be a customer

Customer of a Bank
There must be some sort of accounteither a deposit or current account- to make a man customer of bank. The opening of an account is the only qualification needed by a man to become a customer of bank

Relationship: Banker & Customer


The relationship of banker and customer begins as soon as the first cheque is paid in and accepted for collection not merely when it is paid
The dealing between a banker and customer must be related to the business of banking.

Relationship between Banker and Customer


General Relationship Special Relationship

-Relationship as Creditor and Debtor -Banker as an Trustee -Banker as an Agent -Banker as an Advisor

-Statutory obligation to honour the cheques -Obligation to maintain Secrecy of Accounts -Bankers Rights a. Right of general lien b. Right of set-off c. Right of appropriation d. Right to charge interest, incidental charges etc.

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