Explain the two concepts of fund management and liquidity management. Or, what do you mean by fund management of a bank? Explain liquidity management.

 Fund management in the banking sector refers to the process of efficiently managing the financial resources (funds) of a bank to achieve its financial objectives while minimizing risks. This involves making strategic decisions about how to allocate, invest, and deploy funds to maximize returns and ensure the stability and growth of the bank

Bank "funds management" is the key to short-to-intermediate decision-making in the dynamic and volatile banking environment. It involves managing the maturity schedules of deposits and loans and ensuring the proper liquidity of funds.

There are two main methods of managing funds: active and passive management. Active management involves consistently monitoring the market and buying or selling assets to maximize profits. Passive management, on the other hand, is a more hands-off approach where the fund manager does not actively buy or sell assets.

Asset/liability management is the primary focus of bank funds management today. While bank asset/liability committees differ in their approaches to funds management, the essence of asset/liability management is to coordinate the interrelationships between the sources and uses of funds in short-term financial planning and decision-making.

Liquidity management refers to those activities within a financial institution to ensure that holdings of liquid assets (e.g. cash, bank deposits and other financial assets) are sufficient to meet its obligations as they fall due, including unexpected transactions. Banks are primarily in the business of raising deposits and making loans that transform liquid liabilities into liquid assets.

 It has two broad aspects:

 a. Asset Liquidity: It measures the ease with which a bank can convert its assets into cash.

 b. Market Liquidity: It measures ability to raise capital form other market participants at short notice.

 Liquidity, or the ability to fund increases in assets and meet obligations as they come due, is crucial to the ongoing viability of any banking organization. Therefore, managing liquidity is among the most important activities conducted by banks, Sound liquidity management can reduce the probability of serious problems. So, banks must visualize and evaluate liquidity needs under different business scenarios. Liquidity represents the ability to deal with shortage of funds and surplus of funds. Irrespective of size of a bank, adequate liquidity is essential to meet commitments when due and to undertake new transaction when desirable.

 Considering the importance of managing liquidity risk, each bank is required to have a suitable policy in this regard which must cover objectives of liquidity management, framework for assessing and managing liquidity, funding strategies and internal norms including delegation of authority etc.