In the study of the financial institutions the investment and investment problems will revolve around the concept of managing the surplus financial assets in such a way, which will lead to the wealth maximization and providing a significant further source of income. Thus the investment is the management of the surplus recourses in such a way as to make it work for providing benefits to the supplier of the funds by letting it to third party. However, the investment needs to be a procedural task. It must follow a definite investment process, which definitely being the formulation of proper investment policy. Banks are disbursing their money as investment in trade business and industry. Therefore, Banks should be following the principle of investment for profit. An investment policy should ensure maximum profit and minimum Risk. A huge collection and investment policy plays vital role for the economic development of whole country. The main focus of this study will be towards the investment practices of the banks. The study suggests to the management how they can improve their managing power and recommends what is the clue to raise the profit.
Keywords: Wealth maximization, Investment policy, Risk
Introduction
Investment in financial sense is placing of money in the other for their use expecting a return or the participation in expected profits. Investment by individuals, business and government involves a present sacrifice of income to get on expected on future benefit as a result investment raises an economy of nations. According William F. Shape. Gordon J. Alexander and Jeffery V. Baily "Investment in its broadest sense means the sacrifice of current dollars for future dollars. Two different attributes are generally involved time and risk. The sacrifice takes place in the present and its magnitude generally is certain" (Shape Alexander and Baily, 1998) Banks accept money as a deposit from public and invest it in form of loan and advances. Financial institutions act as an intermediary role between the persons who lend and who borrow. Bank pools the scattered fund and mobilizes them in productive sector .bank came into existence mainly with the objective of collecting the idle Fund, mobiles them into productive sector and causing an overall economic development. The bankers have the responsibility of safeguarding the interest and deposited amount of depositor.
Statement of problem
In 1991, privatization and liberalization adopted by the government of India. Due to that policy, in these days commercial bank, developments bank and financial company are operating with highly competition. The fast growth of such organizations has made pro-rata increment in collecting deposit and their investment. They collected the huge amount from public but couldn't allocate in new investment sectors. It has ensured bad impact on interest to the depositors, lower market value of shares. Though several commercial banks have been established in short period, but sufficient return has not been earned.
A very unhealthy activity is happening in the banking business. After the loan is provided by the bank, regular inspection and monitoring are not made to know whether the debtor has used the loan in productive or not. Due to this reasons, there is great amount of unrecovered bank loan. From this point of view it is necessary that bank’s must formulate their own organized investment policy.
Review of Literature
Sharma, M.P. & Bhatt, M.P. (2002), in their article “Priority receiver sector†has present “The commercial banks should take care of board national interest & they showed not confine their lending activities only to commercial area providing quick interest if some proportion could be directed to the area conclusive to build economic infrastructures of the country it would create atmosphere conductive to their investment in future. In our society where ignorance & literacy is in wild scale, it is necessary that the banks search entrepreneurs instead of entrepreneurs searching book. So, they have opinioned that the priority sector program is a timely & opportunities there by increasing production & the general living standard or rural poor.
Objectives of the study
The main objective of the study is to assess the investment policy and strategy followed by the bank with reference to Corporation Bank and Oriental Bank of Commerce. The main objectives of this study mentioned below:
1. To analyzes the deposit utilization for five years of Corporation Bank and Oriental Bank of Commerce.
2. To finds out relationship between deposits, loan & advances and total investment.
3. To analyzes the financial position of Corporation Bank and Oriental Bank of Commerce in terms of deposit collection and investment procedure.
4. To suggests and recommend on the investment policy of sample banks.
Limitation of the study
1. This study is mainly concerned to only two banks i.e. Corporation Bank and Oriental Bank of Commerce.
2. The whole study is based on secondary data from the respective banks and websites on net, article, newspapers.
3. The study will base only on the latest five year data.
4. Lack of sufficient time and resources.
5. In This study only selected tools and technique are used.
Research Methodology
Period of Study
The Post- reform period of five years has been taken for measuring the trend in deposits, advances and loans & advances on banking sector. The years selected for analysis are 2008-2012.
Sample Size
In context of India, 28 commercial banks are in operation in data. These twenty eight banks are regarded as population. But, it is not possible to study all data related with these twenty eight banks. Hence two banks have been taken as sample from the whole population i.e. twenty eight banks. The sample banks are as follows:-
Corporation Bank
Oriental bank of Commerce
Sampling Procedure
The selection procedure of the sample is purposive it is not random. The banks are selected for study on the basis of business per employee as on March2011.These banks have the highest business per employees among all the banks.
Sources of data
The study is primarily based on secondary data. Secondary data are those data that are collected by someone else or used already & made available to other in the form of published statistics such as annual reports, periodicals, newspapers, magazines etc. This study is mainly depends on the use of secondary data that consists of annual reports of the concerned bank. However besides the annual reports various other sources of data have also been used for the purpose of the study plan documents, newspaper, magazine, economic journals, RBI reports etc.
Data Analysis Procedure
To achieve the objectives of the study, the following statistical tools are calculated
1. Trend analysis of deposit, loan & advances, and investments.
Analysis and Discussion
Trend analysis of total deposit of Selected Bank
The trend value of total deposit of Corporation Bank and Oriental Bank is calculated under this section. An effort has been made to forecast for next three years from 2013 to 2015 on the basis past data of total deposit of Corporation Bank and Oriental Bank of Commerce from March 2008 to March 2012.
Table 1
Estimation of the deposit for the year 2013 to 2015
years
Deposits (Rs. In million)
Corporation
Bank
Oriental Bank of Commerce
2008
55424
77857
2009
73984
98369
2010
92734
120258
2011
116748
139054
2012
136142
155965
2013
156266
177370
2014
176686
197060
2015
197106
216750
(Source: Annual reports)
The above table shows the total deposit of the banks is in increasing trend. If other things remain constant the total deposit of Corporation Bank will be Rs.197106 million in the FY 2015 and that of Oriental Bank of Commerce will be Rs. 216750 million.
Trend analysis of Loan and advances of Selected Bank
An effort has been made to forecast the amount of loan & advances of Corporation Bank and Oriental Bank of Commerce for the next 3 years from March 2013 to March 2015.
Table 2
Estimation of the loan and advances for the year 2013 to 2015
years
Loan and advances (Rs. In million)
Corporation
Bank
Oriental Bank of Commerce
2008
39186
54566
2009
48512
68500
2010
63203
83489
2011
86851
95908
2012
100469
111978
2013
115916
125558
2014
132007
139781
2015
148097
154004
(Source: Annual reports)
The above table shows that both the bank has increasing trend of loan and advances. It is forecasted that both of banks will have increasing trend of loan and advances. The possible capacity of granting loan and advances of Oriental Bank of Commerce seems higher than that of Corporation Bank. Oriental Bank of Commerce seems to be more successful in the future to earn more profit than that of Corporation Bank because the expected future value of loan & advances of Oriental Bank of Commerce in the year 2015 is Rs. 154004 million and the same of Corporation Bank is only Rs. 148097 million.
Trend analysis of Total Investment of Selected Banks
Under This topic, the trend values of total investment for five years from March 2008 to March 2012 is calculated and forecasted for next three years from March 2013 to March 2015.
Table 3
Estimation of investment for the year 2009 to 2013
years
Investments (Rs. In million)
Corporation
Bank
Oriental Bank of Commerce
2008
16512
23951
2009
24938
28489
2010
34523
35785
2011
43453
49545
2012
47475
52101
2013
80035.4
61181.9
2014
88079.4
68917.8
2015
96123.4
76653.7
(Source: Annual reports)
The above table shows that investment capacities of both the bank have increasing trend. It is also clear from the table that of bank will have increasing trend of investment in the future. The investment of Corporation Bank during the years 2015 up to Rs.96123.4 million which is higher in comparison from Oriental Bank of Commerce i.e. up to Rs.76653.7 million in the year of 2015.
Suggestion for sound investment policy
A sound bending & investment policy is not only prerequisite for the bank's profitability but also crucially significant for the promotion of commercial saving of a backward country like Nepal. Therefore, the following principles or features of investment policy must be abided by the commercial banks in order to achieve the goals.
Safety and Security
Commercial banks must pay a special attention to the principle safety and security. There will be a loss whether it is small or big, if the bank has not invested in secure and safe sectors, Investment in unsafe and insecure sectors with the hope of getting more return is to accept the security of law quality. The condition of unsafe arise when a bank invest in large loan against less securities by receiving commission, invests in new places without careful observation, landing to long-term borrowers etc. All these unsafe conditions should be avoided as much as possible. A bank should be very much conscious in investing procedures and profitable sectors. It should never invest its fund on those securities, which are subjected to too much for volatility (Depreciation are fluctuation) because a little alternation may cause a great loss.
Profitability
The profit of commercial bank mainly depends on the interest rate, volume of loan and its time period and nature of investment in different securities. It is a fact that a commercial bank can maximize its volume of wealth through maximization of return on their investment and lending so, they must invest their funds where they gain maximum profit. Ambition of profit to commercial bank seem reasonable as the bank has to cover all the expenses and make payment in the forms dividend to the shareholder who contribute to build up to bank's capital and interest to the depositors. For this the bank calculates the cost of fund and likely return.
Purpose of Loan
This is very important question for any banker is that, why a customer is in need for loan. If borrower misused the loan granted by the bank, he can never repay. Therefore, in order to avoid this situation each and every bank should demand all the essential detailed information about the scheme of the project or activities would be examined before lending.
Diversification
"A bank should not lay all its eggs on the same baskets." This saying is very important to the bank and it should be always careful not to grant loan in only one sector. To minimize risk, a bank must diversify its investment on different sectors. Diversification of loan helps to sustain loss according to the low of average; if a security of a company is divided of there may be an appreciation in the securities of other companies. In This way, the loss can be recovered.
Tangibility
A commercial bank should proper tangible security to an intangible one. Thought it may be considered that tangible property does not yield an income apart from intangible securities, which have lost their value due to price level inflation.
Conclusion
The present research, study different financial and statistical tools are used to measure the Investment policy of the selected banks. It is found that both selected banks have strong financial performance but comparatively Oriental Bank of Commerce is in better position. It is concluded that Oriental Bank of Commerce has adopted better investment policy than that of Corporation Bank. In conclusion, it can be said that central banks are required to direct the commercial banks. Commercial Bank should move as per the direction given by the central bank. Banks should have optimum policy to collect the deposit in various accounts. Higher the deposit Higher will be the chance of mobilization of working fund and profit thereto. Banks should not invest their' fund haphazardly. It should be careful while advancing loan because loan is the life blood of the Commercial Bank for survival. If Commercial Bank does not apply sound investment policy it will be in great trouble in future to collect it in time, hence the possibility of bankruptcy thereto. Banks should invest their fund in various portfolios after the deep study of the project to be safe from being bankruptcy. CBs should not cross the boundary level set by central bank to make investment policy.
