Question

1. Given that a commercial bank is a profit maximizing institution, what are the management issues that the decision-makers face? How are the various issues compatible and incompatible? How do you measure or assess the success in the various managerial challenges.

Answer 1

Commercial bank is a profit maximization institution. It provides services like accepting deposits, issuing payments, providing different types of loans and providing different financial services like CDs and FDs etc. to individuals and small businesses. Their objective is to maximise the profit and revenue. Decision makers are to face many managerial issues to run these banks. They have to protect capital of shareholders. If their capital sinks, then bank will also sink. They have to harmonize with the latest guidelines issued by Government bodies or National Banking Authority. Some guidelines are against their objective of profit maximization but they have to adopt this. They have to search new clients time to time. They have to also think of enlarging their market share. They have to deal with money which is a fluctuating asset. They have to compete with non banking financial institutions and foreign banks also. Decision makers have to keep in mind all of the issues and then have to decide the interest rates, reserved capital, salaries of the staff, different costs and expenses. Decision makers have to be compatible with these issues. They are trying to be compatible with these issues. Some banks are non compatible with these issues. Banks are following guidelines issued by the National authorities, trying to increase their market share and market value of their shares. They are competing with other national and foreign banks and searching new clients. So these managerial issues are compatible. Banks are succeeding in these various managerial challenges. They are trying to make harmony with banking rules and guidelines, although some rules are against their objective i e. profit maximization, but they are following the rules. They have to keep a reserved capital which is very high according to the bank but they have to keep this for the security of people's capital. They are safeguarding interest of shareholders to maximise their profits. They are making new clients to expand their business. They are enlarging their market value and competing with non commercial and foreign banks with a fair spirit. Moreover they have to maximise their profits and maintain the interest of the common people.

Summary: There are many managerial challenges for commercial banks but banks are successfully fighting against these challenges with keeping the objective of profit maximization and welfare of common people.