Cost-Benefit Analysis of Commercial Banks in the Global Age: Strategies for Fund Management

Today’s major problem of all the banks is how best to utilize their funds to earn maximum income with the reduction in costs so as to compete and survive in the emerging global competitive environment. The commercial banks mobilize a major part of their funds through deposits and borrowings, with deposits having a dominating share. These funds are disbursed in investments and advances to get returns in the form of interest and dividends. The present paper deals with cost-benefit analysis of bank funds and concludes that the public sector banks and private sector banks are the beneficiary to mobilize funds through borrowings rather than go for public deposits as the cost of borrowings is almost half the cost of deposits. Similarly, in the case of utilization of these funds, the public sector banks are the beneficiary if they concentrate more on investments in different instruments rather than disburse loans to their customers as return on investments is higher, but foreign banks and private sector banks get more returns on advances; hence, they are at an advantage if they disburse loans rather than invest elsewhere. Correlation coefficient among cost of funds and return is positive and significant in almost all the bank groups. Finally, the paper comments on the present policies of the banks and suggests some future strategies for the management of funds to increase income and reduce cost thereof.