Today's major problem of all the banks is how best to utilize their funds to earn maximum income with the reduction in costs so as to compete and survive in the emerging global competitive environment. The commercial banks mobilize a major part of their funds through deposits and borrowings, with deposits having a dominating share. These funds are disbursed in investments and advances to get returns in the form of interest and dividends. The present paper deals with cost-benefit analysis of bank funds and concludes that the public sector banks and private sector banks are the beneficiary to mobilize funds through borrowings rather than go for public deposits as the cost of borrowings is almost half the cost of deposits. Similarly, in the case of utilization of these funds, the public sector banks are the beneficiary if they concentrate more on investments in different instruments rather than disburse loans to their customers as return on investments is higher, but foreign banks and private sector banks get more returns on advances; hence, they are at an advantage if they disburse loans rather than invest elsewhere. Correlation coefficient among cost of funds and return is positive and significant in almost all the bank groups. Finally, the paper comments on the present policies of the banks and suggests some future strategies for the management of funds to increase income and reduce cost thereof.

Globalization through liberalization, privatization and deregulation in the financial sector has stimulated financial innovation. Globalization is affecting each activity of the banking sector (RBI, 2003). Breathtaking developments in the technology of telecommunications and electronic data processing is adding fuel to the fire of these changes. IT is responsible for a paradigm shift in banking sector (Bhide et al., 2001). Banking is one of the most dominating parts of the financial sector. At a time when the banking world was undergoing a radical transformation due to the all pervasive influence of technology advancements, banking has become more competitive and hence, demands special care to tackle the challenges of recent transformation. Transformation in banks through IT is taking place (Uppal and Rimpi, 2005). A major challenge for the banks is asset and liability management, especially funds creation and the disbursement of these funds into a profitable portfolio to earn enough. To meet these challenges, the use of technology assumes a critical role. Indian banks are working in high-tech environment (Rangarajan, 2004). Technology must be used to strengthen internal control, improve the accuracy of records management and facilitate provision of new products and services. Now-a-days, 90% of the banking business is done electronically with the advent of ATMs, credit/debit/smart cards, internet-banking, mobile-banking, telebanking, etc., that have influenced deposits and fee-based income on a large scale, and on the other hand, demat services along with other available ways of electronic fund creation have also influenced the investments too and hence, resulted in increased income. Therefore, a big challenge for each bank is to choose the optimum portfolio of funds, i.e., how to create funds at least cost and where to invest these funds to earn enough with efficient risk management.

The key to any commercial bank's source is the selection of its sources and use of funds. If we review the balance sheet, the largest of all the liabilities is the amount of deposits and among the assets, the largest share is of advances. However, other liabilities like borrowing funds and other assets like investments are also playing a crucial role in the banks. The decision regarding which type of deposits are less costly and from where to borrow money to pay least and then where to invest these funds to generate maximum returns, so that the cost of creating funds can be recovered, are the major challenges of the commercial banks. Figure 1 illustrates various available sources and means of funds and their distribution.

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