Question

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 banks are those banks which directly deals with public and these kind of banks operate under the instructions and supervision of central bank of the country.as we know that the commercial banks are profit maximizer whereas the goal of central bank is to maintain the stability of the economy.

• the major issues which the management of the commercial banks face are generally the formulation of policies laid down by the central bank.
• some issues are compatible with the instructions for example the central bank of the country orders the commercial bank to take over a particular bank.now if the financial of the another bank is strong then the primary bank would be availing the benefit of the expansion of the level of operation as well as increased customer service which would ultimately leads to increase the revenue and profitability of the commercial banks.
• but now suppose the situation is contrary and central bank orders the commercial bank to take over a bank which has increased NPA and is operating under consecutive loss then this would create incompatibility under the decision and the management has to follow the order of central bank but this would decrease the profit of the primary bank and the financial statement of the primary bank would be degraded.
• now success and failure of a particular deal would be depending on the approach of the management,we can understand this concept with the following example-suppose when central bank orders the commercial bank to take over a bank which has increased NPA and is operating under consecutive loss ,if the management is able to negotiate with the central bank to provide tax benefits against the NPA which are to be written off then it would be able to recover the losses and adverse impact this would be treated as a success of deal and if commercial bank is not able to convince the central bank then it won't be considered as a success of managerial deal.