Bank’s own funds are mainly of three types:
1. Paid up Capital: Bank’s own paid up capital. The amount with which a banking company is registered is called nominal or authorized capital. It is the maximum amount of capital which is mentioned in the capital clause of the memorandum of association of the company. Capital is further divided into
(i) paid up capital and
(ii) subscribed capital.
The banks in Pakistan raise authorized capital by issuing ordinary shares of Rs. 10 each which are fully paid up.
2. Reserve fund: Reserve is another source of fund which is maintained by all commercial banks. At the time of declaring dividend, a certain portion of the profit is transferred to the reserve fund.
This reserve belongs to the .shareholders and at the time of liquidation, the Shareholders are entitled to these reserves along with the capital.
The main purpose of setting aside part of profit is to meet unforeseen expenses of the bank. The Banking Companies Ordinance has made it obligatory (binding) for every banking company incorporated in Pakistan to create a reserve fund.
3. Portion of undistributed Profit: Profit is another source to a bank for the purpose of business. Profits signify the credit balance of the profit and loss account which has not been distributed.
The accumulated profits over the years increase the working capital of the bank and strengthens its financial position.