Deposit Mobilisation in Banks

Deposit Mobilisation in BanksDeposit mobilization is one of the crucial functions of a conventional financialinstitutions or banks to match one of the exigencys of a banking business, i.e.sourcing of funds or borrowing coin from customers.Continuous and adequate deposit mobilisation would ensure the bank shall be able tosustain its business of add and investing, thus incurring profit for future growth.Nevertheless, different types of deposits gravel different and distinct characteristics andfeatures which in consequence impose different risks and costs to the banks. Therefore, inmany cases, deposit mobilisation strategy relies heavily to the banks asset and liabilitymanagement policy.In a relationship between bank and depositors, the rights and duties for both parties varyaccording to the nature of deposit mobilisation. The ability of the bank to fulfil their duties is an important barroom of the banks acceptance by the public, or by far as acomparison yardstick with other ban ks.Deposit mobilisation of a bank and its importancea.IntroductionBanks circulate deposits as their capital source of funds. Having optimaldeposits play, banks shall be able to lend the funds to generate interest onlending. In addition to lending, the deposits fund can be fit(p) in certaininvestments avenues which suits the banks or the deposits objectives.Deposit mobilisation is a continuous function for a bank to ensure the sumtotal of deposits at any time adequate to maintain the present-day(prenominal) take aim of lending and investments especially to compensate the withdrawals madeby depositors. Usually, the deposits level is kept slightly or certainpercentages above the lending and investments level to ensure the bank has adequate coin reserves to meet expected withdrawals and alsorecurring withdrawals. The cash reserves are called Liquidity Reserves.Deposits bring costs to the banks, either on the maintenance of thedeposits and its transactions or on the interest payou t onto the depositsupon deposit maturity.b.How Bank Mobilises DepositsBank receives deposits from individuals, organisations and businesses,initially by opening an account with the bank itself. Based on the types of deposits, minimum initial deposits are set together with the rules andregulations governing the accounts.Subsequent deposits can be made into the accounts, except for timedeposits where the amount is fixed until deposit maturity.Depositors maintain deposits with specific banks due to many factors, butin particular trust and trustingness with the banks are the major factors.Once these are established, the banks continuously attract depositors anddeposits by providing convenience banking, quality services, excellentbrand association and higher interest payout.However, there are instances where depositors put their money into thebanks mainly for security purposes, i.e. the banks to protect their moneyfrom loss and theft and also warrant the deposits from investment loss. Assuch in Malaysia the government provides guarantee upon deposits placedwith commercial banks.59http//htmlimg1.scribdassets.com/4mk9wp2tcwe8wo/images/59-b2561607ca.pnghttp//htmlimg1.scribdassets.com/4mk9wp2tcwe8wo/images/59-b2561607ca.pngBanks are competing against individually other to attract deposits and newdepositors. Normally interest payout rates, locations and services are themain attractions to the mass market. However, some banks are going intothe niche markets and thus providing specific attractions to the targetedmarket segment. One use is the pensioners group, where specificproducts are developed with special features which suit their lifestyles.Sometimes banks do promotions with door-gifts, lucky draw, establishsavings clubs, staff get customers programme and else to ensure thedepositors base and deposits keep growing and to instil inscription to thedepositors.Some deposits products have also grown from a single purpose deposits tocombined purpose products to meet h igher expectations from customers.For example, attachment of insurance scheme, combination with debitcard, etc.c.The importance of depositsDeposits are the primary source of funds for a bank, which facilitates theuses of funds (loans and investments). The higher the deposits amount, thebigger the lending and investments portfolio can be maintained by thebanks to sustain its expansion and future growth.The banks must have adequate deposits to meet the lending volumerequired by the public and at the same time maintain extra cash for withdrawals by depositors. The cash reserve is a component of liquidityreserves which measure the ability of the bank to meet its expectedwithdrawals and recurring withdrawals. The withdrawals made from thereserves are oddly-offset against new deposits which the banks shouldcontinuously mobilise. The inability to get sufficient deposits could resultin negative fund situation.The level of deposits growth also indicates the banks performance inrelation to cu stomers satisfaction on interest payout and servicesrendered.d.Deposits as key liquidity indicatorDeposits are made mainly in cash, the more or less liquid asset for banks. Oncewithdrawal requests are made by depositors, banks must immediatelyprovide cash for that particular purpose. As compared to other liquiditycomponents such as short term investments which take time to beconverted into cash, it is rather wise for a bank to simply get moredeposits beyond the withdrawal amount.60http//htmlimg4.scribdassets.com/4mk9wp2tcwe8wo/images/60-3465843250.pngHowever, the percentage of the cash reserves must be kept at optimumlevel. Idle cash does not create profit, but in fact, brings additional costs interms of storage and insurance. Therefore, by maintaining cash reserves atoptimal level enables bank to generate maximum profits from lending andinvestment activities.The costs for cash reserves are mainly on the storage and insurance. Thestorage of cash reserves involves the requirement fo r adequate vaultrooms, cash in-transit security and cash handling at branches. Theinsurance costs are to cover the amount of cash available anytime atbranches or in-transit from loss, fire and theft. It mostly covers themaximum cash amount allowed at branches or in-transit