Loans and Advances Portfolio Mix of Public Sector Development Banks in Bangladesh

Abstract

Investment by banks includes those funds that are placed in the credit instruments of enterprises, both public and private, for a relatively long period of time with an objective to earn income. It has two mutually exclusive objectives: liquidity of funds and income. The investment portfolio of development banks usually consists of term loans in different sectors of the economy. The nature, type and quantum of the investment portfolio are determined by a host of factors, viz. the general level of funds available in the bank; industrial, economic, and fiscal policy of the government; risk-return capacity of the particular asset, etc. These factors are individually and collectively responsible for the pattern of investment at a particular date. When development banks are left with excess funds after meeting the credit needs and the liquidity requirement, they prefer to invest these funds in such securities as may earn some income. The volume and direction of the investment portfolio depends upon the availability of bank funds, the credit needs of the economy, and the banks' policy regarding employment of funds (Verma, 1993).