CHAPTER _14 Investment in Securities /ESIDES DEPLOYING THEIR funds in the liquid assets, as described in the previous chapter, banks employ a significant portion of thelr funds in securities. Investment of funds in securities is one of the two essential functions of a bank, according tothe definition ‘of banking given in the Banking Regulation Act, 1949. Such investments accounted for 27.0% of the total assets of scheduled commercial banks as at the end of Mareh, 2009, In the balance sheets, bani’ investments in securities are shown under the following six ‘categories: (0) Government securities () Other approved securities (w) Shares (io) Debentures and Bonds (w) Subsidiaries and/or Joint Ventures (0) Others (e,g., Commercial Paper, Mutual Funds) ‘The securities held by banks are categorised into (t) SLR investments, and (t} Non-SLR_ ‘investments. The securities whlch fulfl the requirement of Statutory Liquidity Requirement (SLR) under Section 24 of the Banking Regulation Act, 1949 are called SLR Securities, Government securities and other securities approved by Reserve Bank of India are included ‘in tis category which accounts forthe bulk of their investments. Non-SLR secures include corporate shares and debentures, commercial papers and units ofthe mutual funds, Reserve ‘Bank of India has permitted the banks to invest in Non-SLR securities within the prudential Umit preseribed by it. We shall study first the SLR investments. SLR INVESTMENTS ‘Scheduled commercial banks' investment constituted 27.2% of thelr total assets as at the end ‘of March 2008 and increased slightly to 27.7% a year later. Oust of them 21.6% and 22.4% constituted the approved securities which fall in the category of SLR investments. Non- ‘approved securities accounted for a ttle over 5% of their total assets as on these dates. ‘Employment of bank funds tn the Government securities, is significant for three reasons Furst, under Section 24, the banks are under a statutory obligation to employ not less than ‘aspeciied percent oftheir demand and time lables in liquid assets Which include the approved ‘securities. Secondly, banks find these securities a convenient medium of employing their ‘surplus funds during the traditional slack season when demand for funds from commercial ‘and industrial concerns is at low levels. The investments of banks in Government securities ‘thus show seasonal variations, the actual amount of expansion and contraction depends on ‘many factors including the availability of resources and the demand for bank eredit. The ratio of investment to aggregate deposits goes up during the slack season and falls during the