cash management
TRANSCRIPT
ABOUT THE CASH MANAGEMENT SERVICES
Evolution Of Cash Management
In earlier times the mode of exchange that existed was that of barter system. Such a
system ensured that one paid for one's purchases immediately i.e. there was a
simultaneous realization of due.
The improvement in simple sort of barter led to the tendency of selecting one or two items
in preference to others so that the preferred item started to get accepted because of their
qualify of acting as a media of exchange for almost all items. This itself led to the
development of money in the form of currency notes and coins, which then became the
mode for the making payments and accounting for debts and credits.
With the development of money as well as that of society, came problems such as having
to carry huge bundles of cash with oneself wherever one went in order to undertake huge
volume of transaction & maintain reserves of cash, which was quite risky. This problem
was somewhat reduced through the introduction of cheques as a mode of payment. Now
individuals could just write a cheque in place of making the payment in cash. It
substantially reduced the transactions in physical money. Then came the banking
explosion the result of which was that, not every individual or entity had an account with
the same bank. Clearinghouses were established so that banks could settle balances with
each other. Keeping track of all receivables and obtaining uniformity and fast availability
of funds became diffieuk with curpurates undertaking a varied number of transactions and
that too in a large number of locations. The time and effort spent by the accounts
department in processing receivables and getting the funds cleared was too much and the
cost incurred in the entire process was increasing. Another loss was the opportunity cost
of funds. There was an increasing need ofcorporates to concentrate on core activities and
to reduce costs on processing as well as achieve an efficient receivables management
strategy.
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This led to the development of cash management service, which brought about faster
clearing of funds and better control over cash inflows and outflows. The benefits of such
were substantial to the corporate.
Cash Management Basics
Cash Management is the process of optimizing a company's working capital cash flow
cycle. It essentially aims to regulate the time frames between the various stages in the
working capital cycle i.e. sales, collection, investment, disbursement and production. Cash
Management is a crucial factor in the smooth and successful running of any organization.
It assumes even greater significance in the light of recent change in the cost and
availability of funds. A formal Cash Management system acts as a guide to decision
making, by ensuring that prompt and reliable information is readily available at all times.
Though <;ash doesn't enter into the profit and loss account, profits without cash are
meaningless because in such a situation you are unable to make all your payments, which
could spoil relations with suppliers.
With the introduction of cheques as an instrument of payment coupled with geographical
distance and a multiple banking system the time taken to realize funds has increased even
more.
This point can be elaborated by the following example
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PAYMENTS
GOODS DRAW CHEQUE
CREDITS
DEPOSITS
SENDS CHEQUE TO DELHI
REMITS FUNDS
In
figure, A is manufacturer in Hyderabad while his customer B lives in Delhi A sells goods
to B who writes a cheque in favour of A drawn on his bank i.e. ICICI bank. Once A
receives the cheque he deposits it in his own hank that is HDFC hunk Hyderabad HDFC
sends it to its own
branch in Delhi to put the cheque in local clearing. Once the cheque goes to RBI or any
other bank assigned by RBI for cheque clearing process and after preliminary checking
and net account clearing the cheque is physically sent to the drawee bank. If B has enough
funds in his account the funds are remitted back to Hyderabad or else the cheque is
returned to A due to lack of sufficient funds. This entire process takes about fifteen days
on an average. Thus for a long time span A is not able to use the funds though he was duly
paid by B.
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AICICI BANK DELHI
LOCAL CLERARING HOUSE
HDFC BANK DELHIHDFC BANK HYD
B
The time for which the funds are in the process of collection as in the previous case is
called float. For such time the depositor loses opportunity cost on the funds i.e. the
interest rate. • There exist actually two types of float:
Sales term float
Disbursement float.
S
U
P
P
L
I
E
R
CLEARING PROCESSING MAIL
FLOAT FLOAT FLOAT SALES TEAM FLOAT
GOODS
Numbers Of Days
C
L
I
E
N
T
Sales term Float starts with receiving of goods and ends with mailing of payments. This
particular phase involves checking the validity of the invoice, checking the goods, getting
required accounts payable approvals etc.
Disbursement Float includes three types of float. The first is Mail float, which is the
Btime taken by the cheque to reach the supplier once it has been dispatched by the
customer. The second part includes the processing float, which starts from the time of the
receipt of the cheque till the customers gets a ledger credit for the same. The third part is
the Clearing Float this is the time taken by the local clearinghouse to clear the cheque and
the funds to be remitted to the supplier's bank. From the above we can understand the
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Disbursement Float
demand side of cash management, the need for speedy availability of funds. But as we see
it the need is not just limited to getting funds
fast but also additional services such as a proper management information system,
forecasting etc.
With increasing competition a large number of banks have sought to bring about
innovative new products and services in this sphere in order to better serve their corporate
client. The essentials features of cash management service will typically provide
collection and payment product.
Collections refer to products, which assist the customers to convert their receivables to
available funds rapidly as possible at optimal cost efficiency.
From the corporate's perspective, the common key objectives for collection management
are as follows:
1. Collection of sales proceeds form their customers as quickly as possible and
conversion into available funds so as to take advantage of any investment
opportunities or reduce the borrowing cost of making payments to the vendors. In
short, the corporate treasures wants to optimize the working capital management.
2. Reduce the float days or transit time involved in collections, especially for cheques
drawn in remote or outstation areas.
3. Provide funds availability confirmation so as to improve cash flows predictability
and credit control.
4. Reduce collection cost, especially labour cost associated with cheques processing
and clearing.
5. Reduce the administrative bundle of account receivable matching via accurate and
timely information and consolidated accounting entries.
Payments refer to products, which assist the customers to manage funds outflow and
disbursement process efficiently while managing a good relationship with their suppliers.
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The benefits to the corporate from this are: -
1. Streamlining and automation the payment process so as to simplify back office
operation and reduce operating costs for the accounts payables, payroll and treasury
settlements with in the organization.
2. Provides a secured, error free and user-friendly processing environment, which
reduces the processing cycle time that reduces the overall time spent in making
payments.
3. Provides up-to-date transaction details for reconciliation and MIS reporting.
4. Forwards payment/invoice details directly to the payee via several media to allow
easy application of funds.
5. Single client window catering for multiple payment types and branch locations.
Apart from payments and collections most banks also provide liquidity management
service to their clients. This particular service ensures that clients efficiently manage and
utilize their funds. It ensures that the client's idle balance is put to good use and he/she
earns returns on them. The benefits to corporate are: -
1. Improves the management of liquidity.
2. Optimizes the net return on available funds through borrowing cost reduction,
investment return improvement and effective tax planning.
3. Provides comprehensive reporting for MIS. Thus the corporate profits from a
lowering of processing time &costs as well from faster availability of funds and proper
chanellization of the same.
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Risks Of Cash Management
There are three sorts of risks in cash management they are operational risks, market risk &
technology risk.
In cash management operational risks are most significant. Loss of cheques, posting
credits to the wrong accounts, not posting returns, not giving cheques in for clearing at
the right time, not sending the reports to the right address, employees defrauding the bank,
system failure, sending remittances without first debiting the client's account are some of
the events could lead to problems for the bank as well as the clients.
Market risk could be in the form of increased competition, consolidation of banks in
which two banks could leverage on each other's strengths & eliminate individual
weaknesses to beat competition.
Technology risk is in the form of new products & techniques like Real Time Gross
Settlement (RTGS) that could change the way collections & clearing activities happen
thereby diminishing the need for cash management services.
FUTURE OF CMS:
The newer concepts in CMS with regard to Technological upgrading being proposed by
the RBI have widened the scope of operations for the Banking System in the country. The
concept of supply chain management in banks that aims at financing the whole supply
chain base of a corporate looks up to this service as a method to reach their objective.
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Significance Of Cash Management - The Bank's Perspective
For banks cash management is no longer a speciality product. With all banks now aiming
at becoming a one stop shop for all banking requirements of a corporates cash
management is now a generic product. It however is imperative for all banks in India to
provide this service.
From the bank's perspective the costs involved in providing this service are as follows:
a. Manpower costs
b. Infrastructure cost
c. Technology cost - This costs deals costs of maintaining and upgrading the
technology to
meet the needs of the corporates.
d. Correspondent bank charges for locations where the bank does not have its own
branch
but has to depend on a correspondent bank to get cheque cleared.
e. Co-ordinator charges that have to be paid by the bank.
f. Other operational costs such as stationary, rent etc.
g. Cost of capital
The benefits that the bank gets from providing the service to the corporate:
a. Income in the form of bank charges for products & services under CMS
b. Float income on funds generated in CMS
c. Control over entire operations of the corporate
d. Increased knowledge of the company
e- Additional business opportunities.
A bank decides its pricing on the basis of various parameters. The criteria lor determining
pricing of collection & payment products have been discussed below.
i) Pricing of collection services.
This varies from product to product and corporate to corporate. The criteria
determining it are the volumes or value generated by the corporate i.e. the Rs. Value of
the collections that the bank has to handle on behalf of the client. There is an inverse
relation between the value generated and the pricing the CMS. If the volumes arc high the
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processing cost per cheque is reduced for the bank. Therefore it can provide the service at
a lower per unit price as it gains by volume.
It also depends on other factors such as the size of the total relationship of the bank
with the client (the total fees paid by the corporation to the bank), the additional services
required by it, the number of locations the bank covers, the correspondent bank charges
i.e. is the degree of customization, the geographic location oftne corporation receiving
services, whether the client is willing to route payments through the bank as this gives the
bank float income & also on prices prevalent in the market. For a bank therefore we can
understand earnings come in two different forms the first being the float and the second is
the collection charge. Corporates have different arrangements with the bank with respect
to how soon they get credit for the cheques deposited by them. From the time the cheques
get cleared till the client gets the credit banks can float income on the funds.
ii) Pricing of payment services
The pricing of payment products for a corporate depends on the anticipated
volume and value per transaction, the number of transactions in a month, value of average
balance with the bank per month, the degree of sophistication and customization required
in the service. Another criterion that has become important due to the introduction of new
products such as supply chain management is whether the majority of payee accounts are
in the same bank. The bank essentially benefits in the form of float that occurs whenever a
payment is made in the form of cheques, GIRO or drafts.
Sianificance Of Cash Management For A Corporate Clients
When a corporate decides to take up cash management service of a bank, charges are
usually determinants of decision-making. Against this they usually match the less
apparent benefits/savings. The basis of the analysis is opportunity costs.
Factors such how do accounts receivables staff spend their time, value of the receipts,
how fast is the company's own reconciliation process have to be studies. In order to
understand the benefit of cash management service to a corporate we undertook cost
benefit analysis for a client of HDFC bank. In order to understand the significance of cash
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management for the company we analyzed the costs borne by the company two scenarios
one in which the company doesn't make use of cash management service & second when
the company uses the bank's services. The net savings in cost is the benefit for the
company.
THE SCENARIO WHERE THE COMPANY DOESN'T USE CMS
With the help of bank personnel we collected data regarding the company's collections,
which represent the total of company's domestic sales. We identified a pattern in the local
collections. It was found that out of the total only 10% emanated from Hyderabad while
the rest was mostly from metros & non-metros. We therefore split this figure into
collections from Hyderabad that were put under LCT. The rest was put under NET (for
metro collections) & NMM (for non-metro collections). The reason for this is that before
the client made use of CMS it received all its cheques by post at its headquarters in
Hyderabad. Cheques received in Hyderabad but drawn outside cannot be entered into the
local clearing. They have to be sent back to the place where they were drawn for clearing.
This takes longer time than local clearing and also since the client was not a CMS user
before it could not benefit a more favourable funds realization time on collections outside
Hyderabad. For example collections that have to be effected in mini metres take 10 days
when a normal cheque is deposited but once a corporate has a CMS arrangement with the
bank it could be realized in only 5 days. In the "table 1' below we have captured the float
cost of the corporate.
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TABLE 1
PRODUCT BREAK UP OF COLLECTIONS/
COLLECTIONS/
CLEAR MAIL TOTAL 1NTRE TO
LCT (Rs.) MONTH (Rs.) DAY (Rs.) ING TIME ST FLOATTIME RATE COST
(%) (Rs)
AVG LCT 13279698.60 1327698.65 442656.60 2.00 — 2.00 0.0025 181.49
AVGNMM
40264046.31 52747298.64 1758243.00 10.00 5.00 15.00 0.0025 5406.59
AVG EXP 133115.20 4437.17 13.00 5.00 18.00 0.0025 16.37
AVG CLEAN
270827.20 9027.57 21.00 6.00 27.00 0.0025 49.97
AVG NET 79253241.54 98654941.74 3288498.00 7.00 4.00 11.00 0.0025 7415.56
TOTAL 165085881.40 5502863.00 73.00 13069.99
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1.Interest rate has been calculated from the balance sheet of the company as the cost for working
capital & other short-term loans.
Apart from the float costs the bank also has pay a flat charge for outstation cheques deposited & bear
costs of employing people in the receivables processing departments to receive cheques & input data.
Banks usually provide information reporting as an add on
for CMS clients. When they are not using such service they have to do most of this
work on their own.
OTHER COSTS Flat Bank 298793.21
Charge (Rs.)
% AGE OF THE PRODUCTS IN LOCAL COLLECTIONNON
METRO
METRO HYD
30.32 59. 68 % 10%
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THE SCENARIO WHERE THE COMPANY USES CMS
In this case company the company has different arrangements for collections form different
regions. For each specific product the bank charges different rates- From 'table 2' we can see that
overall the company gains about 12 days of float on total collections. The charges of the
corporate are minimal.
TABLE 2
PRODUCT COLLECTIONS/ COLLECTIONS/ BANK CLEAR MAIL TOTAL INTRE TOMONTH (Rs.) DAY (Rs.) CHARGES ING TIME ST FLOAT
TIME RATE COST(%) (Rs)
AVG LC T 132796986.50 4426566.00 —— 2.00 — 2.00 0.0025 1814.89
AVGNMM
12483252.33 1758243.00 —— 5.00 5.00 10.00 0.0025 3604.40
AVGEXP 133115.20 4437.17 499.18 12.00 5.00 17.00 0.0025 15.46
AVG CLEAN 270827.20 9027.57 1760.37 17.00 6.00 23.00 0.0025 42.57
AVG NET 19401700.20 646723.30 —— 5.00 4.00 9.00 0.0025 1193.21
TOTAL 2259.55 41.00 61.00 6670.52
Bank Charges (Rs.) 27114.62
Float Charges (Rs.) 2434741.26
TOTAL COST 2461855.88
Even if we assumes that he mail time remains the same (though due to the presence of the bank's
branches in various locations this could be less) the overall float cost to the bank is much lesser
than in the first case. Since the bank provides informational reporting the company can almost
avoid the cost of information processing.
2. Flat bank charges have been calculated at the basis of 2.50 Rs. Per outstation cheque.
3.Processing cost is an assumed figure.
The total benefit or cost saving for the company is Rs. 2807483.68
Proceeding
Costs (Rs.)
200000
Apart from just the quantitative benefits that accrue to a corporate on account of cash
management there are several qualitative benefits as well. The collection services of banks
enable corporates derive convenience in banking operations thereby facilitating management of
cash positions through a central treasury. As the same time it could also be used for improved
control over different business segments. It streamlines the processes of the company.
For a corporate it is critical to know its daily cash balances & the various transactions that have
been undertaken in its various accounts. By eliminating all the intermediate stages of local credit,
clearance and remittance, cash management service almost totally eliminates the need for
cumbersome reconciliation and bank follow-ups. The realization of checks is a staggered and
often slow process with bank follow-ups eating up the valuable time of the staff. The cash
management system of banks simultaneously eliminates all transit and accidental floats and
greatly reduces the physical number of accounts to be reconciled.
It brings about accelerated availability of funds, improved credit control, fewer number of late
notices sent in error to clients thereby improving client relations & greater workflow efficiency
as there is less routine receivables processing and reconciling.
OBJECTIVES OF THE STUDY CHAPTERISATION
To make a detailed study about the various Cash Management Practices and Services
provided by HDFC Bank to its customers.
To compare the services provided by HDFC Bank with some of the other banks
providing the same CASH MANAGEMENT SERVICES.
To identify and understand the advantages to corporate sector from the various Cash
Management Services provided by the Bank.
To suggest some more pertinent steps to the bank through which it can improve the
services being provided and gain more customer confidence and loyality. These steps
would also help the bank to be unique and have an edge over other competitors in the
market.
METHODOLOGY: The study is based on the following Methodology.
A. Primary Source: The basic procedure and standards of different aspects of Cash
Management Services are collected by interacting with Employees and Officials of HDFC
Bank.
B. Secondary Source: The Secondary sources of data include the statements of the bank
and related documents of the bank. The other data is from books. journals & the articles
published by the bank.
Period of study: The above study is carried for the current year.
Limitations of the study:
1. The study is limited to the data provided by the company. So the limitations of these
statements are equally applicable to the study.
2. The study is mainly based on the secondary data and no primary data was used.
3. HDFC comparing to the only few banks.
4. The duration way only 45 days.
COMPANY PROFILE
The Housing Development Finance Corporation Limited (HDFC) was amongst the first to
receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the
private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The
bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its
registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled
Commercial Bank in January 1995. HDFC is India's premier housing finance company and
enjoys an impeccable track record in India as well as in international markets. Since its
inception in 1977, the Corporation has maintained a consistent and healthy growth in its
operations to remain the market leader in mortgages. Its outstanding loan portfolio covers well
over a million dwelling units.HDFC has developed significant expertise in retail mortgage loans
to different market segments and also has a large corporate client base for its housing related
credit facilities.With its experience in the financial markets, a strong market reputation,
large shareholder base and unique consumer franchise, HDFC was ideally positioned to promote
a bank in the Indian environment.
HDFC Bank began operations in 1995 with a simple mission : to be a “ World Class Indian
Bank.” We realized that only a single minded focus on product quality and service
excellence would help us get there. Today, we are proud to say that we are well on our way
towards that goal.
HDFC Bank Limited (the Bank) is an India-based banking company engaged in providing a
range of banking and financial services, including commercial banking and treasury operations.
The Bank has a network of 1412 branches and 3295 automated teller machines (ATMs) in 528
cities and total employees is 52687.
Snapshot
Company Background
Industry Finance - Banks - Private Sector.
Business Group HDFC Group
Incorporation Date 31/12/1994
Public Issue Date 31/12/1995
Face Value 10.0000
Company/Business Registration No INE040A01018
Key Officials CEO Aditya puri
HISTORY OF HDFC BANK
HDFC BANK LTD was incorporated in August 1994 in the name of 'HDFC Bank Limited',with
its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled
Commercial Bank in January 1995.
If ever there was a man with a mission it was Hasmukhbhai Parekh, Founder and Chairman-
Emeritus, of HDFC Group. HDFC BANK LTD was amongst the first to set up a bank in the
private sector. The bank was incorporated on 30th August 1994 in the name of ‘HDFC Bank
Limited’, with its registered office in Mumbai.It commenced operations as a Scheduled
Commercial Bank on 16th January 1995. The bank has grown consistently and is now amongst
the leading players in the industry .
HDFC is India's premier housing finance company and enjoys an impeccable track record in
India as well as in international markets. Since its inception in 1977, the Corporation has
maintained a consistent and healthy growth in its operations to remain the market leader in
mortgages. Its outstanding loan portfolio covers well over a million dwelling units.
HDFC has developed significant expertise in retail mortgage loans to different market segments
and also has a large corporate client base for its housing related credit facilities. With its
experience in the financial markets, a strong market reputation, large shareholder base and
unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian
environment In a milestone transaction in the Indian banking industry, Times Bank was merged
with HDFC Bank Ltd., effective February 26, 2000.
MISSION
I. World Class Indian Bank
II. Benchmarking against international standards.
III. To build sound customer franchises across distinct businesses
IV. Best practices in terms of product offerings, technology, service levels, risk management
and audit & compliance
VISION STATEMENT OF HDFC BANK
The HDFC Bank is committed to maintain the highest level of ethical standards, professional
integrity and regulatory compliance.
HDFC Bank’s business philosophy is based on four core values such as:-
1. Operational excellence.
2. Customer Focus.
3. Product leadership.
4. People.
The objective of the HDFC Bank is to provide its target market customers a full range of
financial products and banking services, giving the customer a one-step window for all his/her
requirements. The HDFC Bank plus and the investment advisory services programs have been
designed keeping in mind needs of customers who seeks distinct financial solutions, information
and advice on various investment avenues.
BUSINESS STRATEGY
I. Increasing market share in India’s expanding banking
II. Delivering high quality customer service
III. Maintaining current high standards for asset quality through disciplined credit risk
management
IV. Develop innovative products and services that attract targeted customers and address
inefficiencies in the Indian financial sector.
BOARD OF DIRECTORS
PERSON DESIGNATION
Mr. Jagdish Capoor Vice President
Mr. Aditya Puri Managing Director
Mr. Paresh Sukthankar Executive Director
Mr. Harish Engineer Executive Director
Mr. Keki M. Mistry Director
Mr. Ashim Samanta Director
Mr. Arvind Pande Director
Mrs. Renu Karnad Director
Mr. C M Vasudev Director
Mr. Gautam Divan Director
Dr. Pandit Palande Director
TOP MANAGEMENT
Abhay Aima Equities & Private Banking and NRI Business
Anil Jaggia Information Technology and Legal
Ashish Parthasarth Treasury
Bharat Shah Merchant SeRvices
G Subramanian Audit & Compliance
Kaizad Maneck Credit & Market Risk
Mandeep Maitra H.R, Admin & Infrastructure
Navin Puri Branch Banking
Pralay Mondal Assets & CREDIT CARDS
Rahul N Bhagat Retail Liabilities, Marketing & Direct Banking Channels
Ananthanarayan Operations
Sashi Jagdishan Finance
Sudhir Joshi Treasury
BUSINESS HEADS
A Asokan Emerging Enterprise Group
Amit Kumar Retail Branch Banking-West 1
Anil Nath Business Banking - Working Capital & Retail Agri
Arup Rakshit Treasury
Ashima Khanna Bhat Emerging Corporate Group
Ashok Khanna Retail Assets - TW
Bhavesh Chandulal Wholesale Operations
Biju Pillai Retail Assets - EL,PL,LAS & GOLD
Birendra Sahu retail Operations
Deepak Maheshwari Credit and Market Risk
Gsv Surya Prasad Information Technology
Harpreet Singh NRI Business
Jimmy M Tata Corporate Banking
Munish Mittal Information Technology
Nandkishor Laxman Financial Institution Group
Nitin Subramanya Equities and Private Banking
Parag Rao Credit Cards
Rajender Sehgal Financial Institution Group
Rohit Gaurav Marketing
Sanjay B Dongre Legal
Sanjeev Patel Direct Banking Channel
Tarini Vaidya Treasury
AWARDS
YEAR-2009
EUROMONEY AWARDS 2009
'BEST BANK IN INDIA'
Economic Times Brand Equity & Nielsen Research annual survey 2009
Most Trusted Brand - Runner Up
Asia Money 2009 Awards
'Best Domestic Bank in India'
IBA Banking Technology Awards 2009
'Best IT Governance Award - Runner up'
Global Finance Award 'Best Trade Finance Bank in India for 2009IDRBT Banking Technology Excellence Award 2008
'Best IT Governance and Value Delivery'
Asian Banker Excellence in Retail Financial Services
'Asian Banker Best Retail Bank in India Award 2009 '
YEAR-2008
FINANCE ASIA COUNTRY AWARDS FOR ACHIEVEMENT 2008
'BEST BANK AND BEST CASH MANAGEMENT BANK'
CNN-IBN 'Indian of the Year (Business)'Nasscom IT User Award 2008
'Best IT Adoption in the Banking Sector'
Business India 'Best Bank 2008'Forbes Asia Fab 50 companies in Asia PacificAsian Banker Excellence in Retail Financial Services
Best Retail Bank 2008
Asiamoney Best local Cash Management Bank Award voted by CorporatesMicrosoft & Indian Express Group
Security Strategist Award 2008
World Trade Center Award of
For outstanding contribution to international trade services.
honourBusiness Today One of India's "Most Innovative Companies"Financial Express-Ernst & Young Award
Best Bank Award in the Private Sector category
Global HR Excellence Awards - Asia Pacific HRM
'Employer Brand of the Year 2007 -2008' Award - First Runner up, & many more
Business Today 'Best Bank' Award
YEAR-2007
DUN & BRADSTREET – AMERICAN EXPRESS CORPORATE BEST BANK AWARD 2007
'CORPORATE BEST BANK' AWARD
The Bombay Stock Exchange and Nasscom Foundation's Business for Social Responsibility Awards
'Best Corporate Social Responsibility Practice' Award
NDTV Profit Best Bank Award in the Private sector category.The Asian Banker Excellence in Retail Financial Services
Best Retail Bank in India
Asian Banker Our Managing Director Aditya Puri wins the Leadership Achievement Award for India
HDFC BANK - BUSINESS AREAS
Wholesale Banking Service
The Bank's target market is primarily large, blue chip manufacturing companies in the Indian
corporate sector and to a small extent, emerging mid-sized corporates. For these corporates, the
Bank provides a wide range of banking services, including working capital finance, trade
services, transactional services, cash management, HDFC bank plus.
Retail Banking Service '
The retail banking segment of the bank strives to create a one stop shop window for the
customers wherein the customer can make use of a variety of services and products under one
roof. The products are backed by world-class service and delivered to the customers through
various delivery channels including the branch network, as well as alternative delivery channels
like ATMs, Phone Banking. Net Banking and Mobile Banking.
Treasury Operations
Within this business, the bank has three main product areas - Foreign Exchange and Derivatives,
Local Currency Money Market & Debt Securities, and Equities. The services here include risk
management information, advice and product structures and fine pricing on treasury instruments.
CASH MANAGEMENT SERVICES OF HDFC BANK
HDFC Bank offers a one-stop shop for collections and disbursements products under the Cash
Management Services umbrella. They have been providing this service only for the past seven
years; they are one the premier cash management service providers. There are seven different
products provided by the bank under collections.
COLLECTION PRODUCTS
LCT NET NMM RAPID EXPRESS CLEAN REACH
LCT (local clearing and transfer) this is a collection product under which the client deposits a
local cheque drawn on respective HDFC bank locations, the same is locally cleared and credit is
passed on to the client into his central account. The pricing and day of credit differs from
location to location
The rest of the five products are for out station cheque collections. The difference between rapid
reach and express products is the kind of arrangement that has been entered into by the bank for
getting credit.
Net (network), NMM (network mini metro) collections; the client deposits its cheque drawn on
HDFC bank locations at a central location. The same cheques are sent for collection to the
respective location and the credit the passed on the central account. This product is differentiated
on the basis of metro and non-metro locations.
RAPID COLLECTIONS:
It's an extension of LCT product, providing more locations due to the correspondent bank tie-
ups. For rapid collections HDFC bank has contracted services of service companies to act as co-
ordinators in areas where the bank has correspondent bank tie-ups. These co-ordinators collect
cheques from HDFC clients & also cheques that are sent from other HDFC bank locations and
deposit them with the respcclhc correspondent bank for local clearing. They ensure that there is
not much delay in clearing & collection activities. After depositing the cheques and getting them
cleared the co-ordinators also fill in the required information and fax the copy of the deposit slips
along with any other information to the HDFC hub in Mumbai. The co-ordinators charge a
specific fee for their operations, which is generally dependent on the volumes.
EXPRESS COLLECTIONS:
It is used for up country cheque collection facility.
CLEAN COLLECTIONS:
This is basically for locations where HDFC bank docs not have cither its own branch or a
correspondent bank tie up. The cheques drawn at such locations are sent bank so that a demand
draft payable at the HDFC bank is issued and returned.
REACH COLLECTIONS:
This collection product offers the client a dedicated courier service to carry big-ticket cheques to
the drawee bank and to bring back the credit advice. This product is fairly expensive and can be
available by the client for big value cheques. This personalized service is usually undertaken in
remote, non HDFC bank locations.
DISBURSEMENT PRODUCTS:
HDFC provides payment management through customized cheque printing facility along with
net banking which helps the client to track his payment. The common products are at par
cheques, printing of bulk demand drafts and dividend warrants, accoimt-to-account transfers &
electronic clearing system.
VALUE ADDED SERVICES:
In this sphere HDFC bank provides flexible Management Information System. Its comprehensive
MIS includes:
1. Daily report of deposits made at various locations.
2. Location wise report
3. Credit forecast report
4. Monthly cumulative report - date wise/location wise
5. Monthly charging statement
6. Monthly cheque return statement
Customized reports as per mutual agreement with the clients are also provided to help them in
reconciling their receivables and in keeping track of their debtors. The bank also provides value
added services inform of, speedy queries resolution, customized reports on paper and through
electronic media and support to the company for managing its cash flow across its distribution
network. It also provides regular client pick-ups from various client locations.
Another service the bank has introduced lately is E-net, which is a graphic user interface. It
provides a single point of access to the entire modular systems architecture of information
reporting, payments, cash management, trade finance, custody and foreign exchange services. Its
features include the following:
Cash Management (Collections): Through the cash management collections module,
online querying of cheques deposited at various locations under the given arrangement
can be done for cleared/uncleared information. Also you can request various cash
management reports required for planning your fund flows.
Cash Management (Disbursement): Through the same cash management module, bulk
disbursement through a file upload can be done in the form of account-io-account
transfers and issuance of pay orders and demand drafts.
E-Net is designed using the state-of-art "thin client" browser technology, its platform
independent architecture enables clients to access information and bank from anywhere using
digital certificates for the authentication and triple Data Encryption Standard (DES) for point-
to-point secured transmission of data.
E-Net ensures the information transmitted across the network remains private and inaccessible
by unauthorized third party or hackers. This is done through encrypted data transmission using
Secured Socket Layer (SSL). Data is encrypted before transmission and decrypted by the Server
before processing. Also the presence of firewall. Proxy Server and Secured Web Server prevents
the non-authenticated third parlies and hackers from accessing the information. The selling point
of CMS for HDFC bank is competitive pricing of its products & its continuous efforts to
technically upgrade its systems and bring about new and automated techniques. In figure too it
will have to adapt the same strategy to keep up witli the ever-increasing competition.
CASH MANAGEMENT PRODUCTS AND PROCESSES
Cash management service is a package, which has all elements of any other service i.e. product
offering, pricing & value added services.
The product offering depends on the reach of the bank, the number of location it covers and the
specific needs of the customer.
The overall cash management process can be depicted as follows:
VENDORS PRODUCTION
CUSTOMERS
INSTRUMENT & INFORMATION
BANKSINSTRUMENT & DEPOSIT SLIP
CLIENT /AC SYSTEM
In the above figure:
1. PURCHASES
2. SALES
3. COLLECTION AND INFO
4. COLLECTION
5. PAYMENT
6. PAYMENT AND INFO
7. INVOICE SALES ORDER
Three basic functions are clearly mentioned in the demonstrated diagram. First is
collection/inflow, second is payments/outflow and third is the management of available funds.
The objectives of these various functions are different. Also, the users of these functions may be
different.
COLLECTION PRODUCTS
The two broad categories of products under this are
i) Local cheque collection which is for cheques drawn locally and
ii) Outstation cheque collection, which is for cheques that are drawn, not drawn on a
local bank rather on a location other than it.
The processes of undertaking collections could be one for the following: -
1. LOCKBOX:
It refers to cheque payments mailed directly to this designated PO box or address. The
bank will pick up these cheques and process them accordingly. After clearing the funds shall be
credited and information forwarded to the customers for reconciliation.
Retail lockbox refers to high volume low value and repetitive payments from
individuals/customers.
Wholesale lockbox refers to low volume high value and maybe repetitive payments from
corporations normally with an advice attached. Conceptually the major difference between
cheque deposit and lockbox is information. A lockbox is designed to convert uncleared funds to
available funds and report information for receivables reconciliation.
The benefits of lockbox are:
a. Simplified processing
b. Fast saving
c. Minimal account reconciliation.
2. DIRECT DEBIT AUTHORIZATION OR GIRO COLLECTIONS
This enables the bank on behalf of customers to collect sales proceeds and subscriptions or
charges directly through a direct debit authorization agreement. Utility and insurance companies
have a high demand for such arrangements. This particular product can only be utilized in the
cities that have automated clearinghouses.
The benefits are:
a. More security for both the customer and the banks
b. No cheques to be lost or stolen.
c. Simpler account reconciliation.
d. Faster processing due to less manual work invuh eel.
3.ELECTRONIC FUND TRANSFER (EFT) COLLECTIONS
This includes wire transfers, which provide for a immediate transfer of funds, thus
allowing the cash manager to retain the funds longer and still make major payments like debt
service on the due date. This product is mainly used to settle foreign currency payments. Key
attributes are network and infrastructure.
This benefit of this are: -
Cost Savings
1. Eliminates printing of bills and payment coupons.
2. Reduces postage expenses.
3. Reduces personnel time for processing remittances manually.4. Eliminates the need for physical security measures for handling cash and cheques.
Paper Elimination
1. Reduces paper needed for billing.
2. Precludes reminder notices.
3. Eliminates paper-check handling.
PAYMENT PRODUCTS
Essentially under payments the products available are local and outstation cheque payments. A
lot of banks have brought about a spate of products under this such as printing of bulk cheques,
drafts and dividend warrants. The approach to payments is an integrative one. Once the client
provides payment instructions the bank undertakes the payment via the most appropriate
payment type. Another product that is usually provided is payable at par cheques. This enables
the client to make payments at par at any of the branches of the bank. For this particular service
the bank charges its client's chequebook facility & funds transfer charges. The charge for the
chequebook is usually is a flat rate irrespective of the location but different rates are usually
charged for RBI & non-RBI location. This is essentially because in case on non-RBI locations
the client can make use of the funds faster than in others.
Another service that is offered under payments is electronic clearing system. Under this service
the client goes to his bank and submits an authorization to electronically transfer his funds to
another entity. This is then presented to the RBI, which collects the funds from the bank and
passes it on to the client's customer's bank. This is usually used for low value payment.
LIQUIDITY PRODUCTS
ZERO BALANCING ACCOUNTS
Zero Balance Account structure (ZBA) is one of the cash concentration structures which
provides an automated account management system by which funds in various accounts are
zeroes to and from parent/subsidiary accounts in order to improve the aggregate yield on surplus
funds or reduce the aggregate cost of funding deficits. Two other types of cash concentration
structure is known as target balancing and trigger balancing by which funds are swept to and
from parent/subsidiary accounts in order to improve yield on available funds.
Before Zero Balancing
parent
Subsidiary A Subsidiary B Subsidiary C Subsidiary D
After Zero Balancing
Parent
(400) 300 (200)
After SCORE
Subsidiary A Subsidiary B Subsidiary C Subsidiary D
The benefits of this particular service are as follows: -
1. Eliminates or reduce idle balances
2. Reduces overdraft charges
3. Reduces transaction and administration cost
4. Improve yields on investment of surplus funds
5. Automated computation and re-allocation of imputed interest
6. Helps in keeping control of funds
NOTIONAL POOLING:
Notional pooling is the linking of several bank accounts to offset the debit balances in the same
currency for the purpose of interest calculation all within the same location. The available
balance from respective accounts is managed as a pool during the business day interest is
calculated on the pooled available balance. The difference between zero balancing and notional
pooling is that pooling eliminates the need for physical movement of funds between linked
accounts this is advantageous where accounts are maintained in the manner of separate entities
and therefore is favored by corporate entities that require centralized treasury management
function.
This can be understood from the following figure: -
BEFORE NOTIONAL POOLING
600 (400) 300 (2UO)
AFTER NOTIONAL POOLING
NOTIONAL A/C
Subsidiary A Subsidiary B Subsidiary C Parent
The benefits of notional pooling are:
a. Higher net returns on surplus funds
b. Reduced transaction costs
c. Automated interest allocation
d. Maintain entity autonomy
INNOVATIVE PRODUCTS IN CASH MANAGEMENT
In recent years, innovative financial service providers in developed countries have introduced an
array of new instruments that allow consumer and business bills to be delivered and paid
electronically.
Electronic Invoice Presentment and Payment
(EIPP) leverages the Internet to provide companies and their customers a safe and
efficient method for handling invoices. EIPP solution allows companies to electronically send
invoices to their customers who can then view, dispute, accept and pay their invoices through the
same channel. HPP replaces .traditional invoice processes, eliminating paper-related expenses
and reducing costs for both the company and its clients by electronically collecting funds, EIPP
improves profitability and forecasting abilities, minimizes the level of disputes and improves the
cash collection process. EIPP simplifies data integration by providing companies and their
clients with a file download to update accounts receivable/payable systems.
The seller &buyers interact online, the bill is sent electronically to the customer who
makes the payment instruction electronically to this own bank, the biller also provides payment
advice to its bank to inform the bank about the payment coming its way. The automated
clearinghouse settles the payment between the biller's bank & the customer's bank.
The benefits of the above are:
a. Reduced invoicing costs
b. Improved working capital management
c. Decreased days sales outstanding (DSO)
d. Simplified data integration.
e. Increased security and flexibility
E-GIROE-Giro is a web-enabled system that allows banks to transmit bulk payments to each
other and clearinghouse electronically via secured communications network. E-Giro can be used
by organizations such as Telecommunication or Utility companies for payment by directly
debiting the bills from the user's bank accounts on regular basis. Employers can also credit the
employees' wages from their bank accounts into the employee's bank account directly.
With proper authorization, billing organizations Telecommunications or utility
companies will generate all payment instructions to the billing organizations' bank. The bank
will process all GIRO instructions in bulk and send them electronically over a
telecommunications network or Internet to the clearing House for processing. E-Giro will make
it possible for a company (E-Giro-creditor) to send the invoices and payment orders to their
customers (E-Giro - Debtors) on the Internet directly from the creditors own ERP system.
Real Time Gross Settlement System (RTGS)
This is essentially a payment system that the Bill plans to implement in a span of about
tone or two years.
An RTGS payment system is one in which payment instructions between banks are processed
and settled individually and continuously throughout the day. This is in contrast to net settlement
systems (such as paper-based clearing houses and their more modem electronic equivalents),
where payment instructions are processed ("cleared") throughout the day but inter-bank
settlement (i.e. the movement of the funds between the banks) takes place only afterwards,
typically at the end of the day i.e. is there's a onetime settlement of funds. The attraction of the
RTGS systems is that payee banks and their customers receive funds with certainty, or so-called
finality, during the day, enabling them to use the funds immediately without exposing
themselves to risk.
To initiate a funds transfer, the sending bank dispatches a payment message, which is
subsequently routed to the central bank and to the receiving bank as the system processes and
settles the transfer. Arrangements for routing payment messages in the majority of RTGS
systems are based on a so-called V-shuped message flow structure. In tills structure the full
message with all the information about the payment (including, for example, the details of the
beneficiary) is initially passed to the central bank and is sent to the receiving bank only after the
transfer has been settled by the central bank.
The receiving bank will receive the full payment message only after the transaction has been
settled by the central bank. In these structures, therefore, the message flow structure per cannot
give rise to the possibility that the receiving bank will act upon unsettled payments.
COMPARITIVE ANALYSIS CMS OF BANKS
BANKS PROFILE:
This section contains the information regarding the specific nature of cash management service
being provided by the five banks.
CITIBANK
Citibank Pioneered Cash Management in 1986 and continues to be a leader, processing volumes
of over 6% of India's GDP. Though it carried on Cash Management service in an elementary
form even before that they started off in a big way only in the 90's. They have the first mover
advantage, which means that they have now recovered most of their fixed costs where most
others have just started off and facing huge fixed costs. According to the bank CMS is now just
plain vanilla product but there still exists some scope for extension of products & markets in the
filed.
Citibank provides four specific collection products namely: -
CCLR i.e. Citi Clear This is a product for cheques drawn on Citibank locations and are more
like local cheques. These get cleared on an average in two days.
CCIIK i.e. Citi Check-In this particular product when the bank gets an outstation cheques drawn
either on a Citibank location or a Citi-correspondent bank location it sends them to any of their
four Hubs i.e. Calcutta, Bombay, Delhi and Bangalore. They centralize their outstation cheque
processing since they believe that it reduces their costs substantially.
CANW i.e. Citi Check Anywhere-This is for cheques drawn on locations where the bank does
not have either a correspondent bank tie up or its own bank. In case of cheques drawn on remote
locations the bank has to send it to the bank that issued the cheque so that the bank can send a
demand draft back to Citi bank.
CSPD i.e. Citi Speed -This product is only for priority customers. Citi picks up checks for
priority customers from all locations including remote ones and put them in the local clearing.
This ensures very fast collection of funds.
On the payments front they have the best of the lot i.e. customer cheque printing this is a sei-vice
whereby the customer outsource his cheque writing actively. After uploading the data on the
bank's server regarding all the payments to be made and their details. Authorization is needed for
issuing certain amounts. Once these steps are over the cheques are printed and dispatched to the
desired location by the bank.
As far as value added services are concerned they provided deposit slip scanning i.e. every
deposit slip is scanned and made available on the net through corporate net banking platforms so
that they can check their receivables and track the instruments and plan their cash flows
appropriately. They also provide daily statement reporting and customized solutions to the needs
of the corporate.
One of the few banks to provide liquidity management service to their customers they provide
zero based accounting to their clients.
Their only face problems when cheques drawn on remote locations because their coverage is low
which necessitates them to depend on other banks thereby reducing overall efficiency. In these
cases there is an additional risk of the cheques getting lost.
Since they have fixed costs in outsourcing their processing which will only be reduced with the
increase in volume they only see the costs coming down which they believe they need to pass on
to their customers if they have to become competitive in the market.
Their competitive advantage is essentially their technology. Since their fixed costs are the lowest
their capacity to provide additional services is the best.
CORPORATION BANK
Corporation Bank is one of the oldest and fundamentally strongest banks in India. It was
founded on 12th March 1906 by a group of philanthropists in the temple town of Udupi in
Dakshina Kannada District. The bank got Nationalised in 1980 and has 617 branches and 42
extension counters spread over 17 states and two union territories. Corporation bank is one of the
very few public sector banks, which has a presence in the market as far as cash management
service is concerned. It started early in 1991 with the aim of earning revenue. They started the
service in order to meet the needs of existing customers and to tap the potential of the service.
The product ranges of corporation bank are as follows: -
COLLECTIONS
OUTSTATION
For the local cheques corporation bank provides fast collection service that undertakes
collection of local cheques. These are cleared either on day one that is in case of high value
cheques or on any day according to the arrangement of the corporate with the bank (this is for
MICR cheques).
For outstation products there are five different products being provided. Corp Clear and Corp
Express are both for those cheques that are drawn on corporation bank locations. These provide
assured credit to the client on the basis of the management
FAST
COLLECTION
SERVICES
CORP CLEAR
CORP INSTANT
CORP EXPRESS
CORP COLLECT
CORP COMFORT
For places other than where corporation bank locations exist the Corp Instant product is
provided. In this case the credit is given to the customer on the day after the bank receives the
funds.
Corporalcs apprehensive ol' cheque realizations can use C'orp C'ollect Service lluil operates on
"Realized and Pay" basis i.e. payments are made on the day they are received. The service is
extended for both within and outside network locations. All the benefits of other Corp clear
services do not come along with Corp Collect Service. Corp comfort service is to actually put the
corporates at great comfort. This product assures credit on 8^ day on outstation cheques that fall
outside the network.
Under payments the bank has the following are the products.
PAYMENTS
Corp Remit Service meets the corporates' wholesale payment requirements such as statutory
payments, payments to vendors/suppliers; banking requirements, inter branch transfers etc.,
Corporates need just to hand over the payout instructions file along with funding cheque to
CAPS branch Corp Pay Service facilities corporates' to make retail payments very effectively.
Some of the payouts that can be very efficiently and conveniently handled include disbursal of
incentives, equity and debt servicing to the satisfaction of investors, salary and wages payouts
etc. All that corporates need to do is to furnish the payout details in magnetic media/mail and the
funding therefore.
CORP REMITCORP PAY
Along with the above products it also provides other services such as: -
a) Detailed MIS along with payouts and customized MIS of corporate needs in soft form
either through Mail, floppy, CD ROM and through Internet eliminate all the hassles of
reconciliation and enables onward integration into corporates system.
b) Value addition such as courier pick up from clients' desks, which enables operational
convenience.
c) Collection of service charges at monthly rests as opposed to check-to-check charges
deduction provides the operational comfort and reconciliation ease.
d) Dispatch of payout instruments, tracking, paid/unpaid status, confirmation on payouts
etc.
The bank also provides net banking facility to its corporate clients.
The pricing of the products is done on the basis of the volume and value of transactions, the
strength of the company the sophistication required by the corporate
ICICIBANK
ICICI Bank was originally promoted in 1994 by 1C 1C I Limited, an Indian financial
institution, and was its wholly owned subsidiary. In October 2001, the Boards of Directors of
ICICI and ICICI Bank approved the merger of ICICI and two of its wholly owned retail finance
subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited,
with ICICI bank. Shareholders of ICICI and ICICI bank approved the merger in January 2002,
by the High Court of Gujarat at Ahmedabad in March 2002, and by the High Court of Judicature
at Mumbai and the Reserve Bank of India in April 2002.Consequent to the merger, the ICICI
group's financing and banking operation, both wholesale and retail, have been integrated in a
single entity. ICICI bank started its cash management service about four years back with the aim
of getting more business out of their existing clients. They cover a large number of locations in
the country and have correspondent bank relations with banks such as Indian overseas bank,
Vysya bank, SBI etc. At present their target customers lie in the above 75cr range. Most of their
clients have a spate of corporate relations with them. Therefore when they look to provide cash
management service to the corporates they try to integrate all other corporate products such as
salary accounts, utility payments etc, the cumulative aggregate growth rate of the bank is about
40%.
Under collections they have two types of products: -
Local cheque collections: This is for cheques drawn on the 150 ICICI locations. The process is
decentralized i.e., the cheque is presented at the drawee locations for clearing. Customization can
be achieved in the process flows if the client so desires.
Outstation/upcountry cheque collections: ICICI boasts of the capacity to service cheques
drawn on any locations due to this large coverage of about 1600 locations including tie-ups with
correspondent banks. This particular service also has value added services attached to it in form
of ease in tracking the instruments, which helps in fast realization of payments. Assured credit is
given on the basis pre arrangement with the client. The facility to pool funds is also available at
any ICICI Bank location.
Under disbursements they have
Issue of bulk Demand Drafts Capability to issue bulk demand drafts at various ICICI Bank and
correspondent bank locations.
Cheque Writing Cheques can be issued on behalf of companies. They have the capability to
process large volumes of disbursement in a short turnaround time (TAT) that is ideal for bulk
payments such as pension payments, gratuity payments.
At Par Payments Services can be availed for the 'at par' payment of dividend warrants/interest
warrants/ refund order/redemption payments/brokerage payments.This facilitates bulk payments
commitments of a corporate. Simplified and streamlined procedures ensuring smooth process
flow. Apart from these the bank also provides electronic Clearing Services (ECS) facility at all
RBI locations.
The bank as value added service provides regular reconciliation statements. The competitive
advantage of banks is their coverage. On other fronts such as technology & processing speed
they are at par with other banks.
Their action plan for future includes opening up of new branches across the nation to strengthen
their coverage even more and to cover a larger market try and trap them the small business
houses and also keep up with the other banks as far as technology is concerned.
STANDARD CHARTERED BANK
The Chartered Bank opened its first overseas branch in India, at Kolkata, on 12 April 1858-
Eight years later the Kolkata, on agent described the Bank's credit locally as splendid and its
business as nourishing, particularly the substantial turnover in rice hills witli the leading Arab
films. When The Chartered Bank first established itself in India, Kolkata was the most important
commercial city, and was the center of the jute and indigo trades. With the growth of the cotton
trade and the opening of the Suez Canal in 1869, Bombay took over from Kolkata as India's
main trade center. Today the Bank's branches and sub-branches in India are directed and
administered from Mumbai (Bombay) with Kolkata remaining an important trading and banking
center.
They started the cash management service three years back. They also started like all other banks
due to the potential of the service and because it' isn't a specially product anymore and has to be
offered as a part of corporate banking. At present they provides CMS at about 50 locations
including correspondent bank tie-ups. This contributes about 25% to their profits. Their overall
growth has been slow because firstly they are late entrants & secondly because their coverage is
very poor. With collections they provide local cheques collections and outstation cheques
collection. They have centralized the outstation cheque collections and have four hubs where all
outstation cheques are sent. They also outsource their entire processing activities like Citibank,
which gives them cost benefits. They do not provide any additional service such as lockbox, Ecs
etc. The do not provide daily reports of collections and payments for reconciliation purposes but
provides monthly reports. Their processing speed is high but unlike Citibank they started off late
due to which the cost savings for them will be realized much later. Their pricing strategy is quite
competitive.
In future they will emphasize more on online and Internet based banking in future but as of now
they do not plan to bring about new products.
ANALYSIS:
The purpose of this analysis is to determine relative standing on the five banks in the CMS
offering to their clients/corporates.
The findings of the survey are segregated in the following manner.
1. The major determinant of selecting a CM S banker in each revenue group.
2. The quality of services being rendered to the banks
3. Problems faced by the corporate.
4. Perception gap between banks & corporates.
5. The relative standing of the banks.
6. Future plans of banks.
(1) DETERMINANTS OF SELECTION
The corporates were asked to rate on a scale of 1-4, where 1 stands for most important. the
following parameters:
Coverage-The number of locations covers by the bank along with the correspondent bank arrangements.
Pricing -Per unit cost for collection/payment instrument.
Technology-Includes the capacity of the bank to provide MIS, value added
services & customization
Processing speed-This refers to how banks can enable faster availability of funds.
The following are the findings
i) Large sized companies
As can be seen from figure the most important criterion for selection in case of large
Interpretation:
Companies are pricing. For about 50% of the large sized companies pricing is the prime factor
for selecting a CMS provider followed by technology & processing speed. This is essentially
because the volume of collections generated by a large company is high meaning that the
corresponding fee is high (because of which there is a need for them to negotiate on pricing).
Large companies are also aware of the various products, services & prices being offered by the
other banks. It therefore leverages its strength to negotiate structured products with favourable
pricing. The requirements of big corporates arc many, Ihcy arc aware of their worlli lo the bank
and expect (lie bank to have the best technology and processing speed in place.
ii) Medium sized companies
For middle level companies about 43% stated processing speed as the most important criterion.
Unlike the big companies they are unable to negotiate too much on pricing because of the
volumes.
Interpretation:
As can be seen from figure another very important factor for them is whether they already have a
relationship with the bank. Their aim is to essentially increase their overall relationship with the
bank as that makes the banks service them better i.e. bargain better & get better services. This
relationship is basically in the form of credit relationships. Most companies in this group have
the same bank for credit as well as CMS.
iii) Small Sized Companies
100 -,on
U)
60 - .
00.
40 - • • , ^
u. 0
20 -
0 -
a PR OCESSIN
GSPEED^TECH BCOVERA
GE DPRI
CING
Interpretation :
This is probably due to the fact that for the banks to be able to service small companies
profitably they have to have the right infrastructure. The next factor of concern to them is
coverage in small towns & cities. This is because of the greater possibility of them being situated
in small places. The level of awareness in this group is low & they are also low on funds. This
makes them look for banks that have good processing speed and good infrastructure i.e. good
coverage and technology using appropriate technology lowers the per unit cost for the bank.
(2) QUALITY OF SERVICES
The services quality was studied with respect to the following parameters MIS-The ability of the bank to provide various types of data of the volumes,
locations, pricing etc.
Customization-Ability of the bank top structure products/services to meet specific
client requirements
Innovation-Willingness & capability of the bank to successively improve on existing
products.
Expertise-Ability of the personnel handling CMS to answer client queries.
The corporates were asked to state the relative importance (scale 1-4, 4 being most important) of
each service and the results were as follows.
SIZE OF MIS Customisation Innovation Expertise
ORGANIZATION
LARGE 4 4 3 2CORPORATES
MEDIUM SIZED 4 3 3 4CORPORATES
SMALL 4 1 2 3CORPORATES
Then on a scale of 6-10 (6 being the lowest) the corporates rated the quality of theseservices.
The findings are depicted below-
Innovativeness
Interpretation:
As can be inferred from figure Citi bank scores the highest when innovativeness is taken as
service parameter. This is essentially due to the fact that it was the first to set up cash
management service in India & it also has considerable exposure to various new
services & products due to its presence in market abroad. Its fixed costs are much lower than that
of other players because most other banks are bringing in the services & products that Citi bank
had introduced long time back the fixed cost of which they haven't been able to recover yet.
Customization
Interpretatoin:
In figure we see that HDFC bank scores the highest in customisation. It has been fast to adapt to
new technology & its new services such as E-net have been designed to meet the specific needs
of corporates. Citi bank has been unable to provide the required amount of customisation
because its system driven.
Management Information System
Interpretation:
Citibank's MIS is the rated as the best. This is because they provide additional services such as
deposit slip scanning etc.which gives corporates all the information required for controlling &
reconciling their receivables & payments. As can be seen from figure HDFC bank's MIS
capabilities are also rated well by the companies.
Expertise
HDFC Bank Citi Bank Standard ICICI Bank Corporation Chartered Bank
Intepretation:
Citibank again scores the highest in expertise due to their global experience & have contracted
call centers for their telephonic enquiries. Overall it was found that the small and medium
companies were happier with the quality of bank services than the bigger companies. This is
because big companies have many more requirements than others and want the banks to come
out with new products & services that are different from the usual.
RELATIVE STANDING OF BANKS
Based on the general perception of the bank by the client coupled with the analysis of the survey
we have been able to determine the leading CMS bank. The calculations state that overall Citi
bank is the most preferred CMS provider since its scores the highest average score of 8.45 pts
followed by HDFC bank with an average score of 8.1 pts. Standard chartered with an average
score of 7.32pts is in close competition with ICICI bank whose score stands at 7.35 pts.
Corporation bank has a lot of scope for improvement on the services front. Its average stands at
6.25 pts This trend is noticed in all revenue groups as well.
FINDINGS
After undertaking the project & understanding the needs of the corporates & the limitations of
banks I would like make a few proposals basing on my findings, which in my view could be
incorporated to improve the services of the bank.
I) Till now the bank aimed at reducing the time taken by most corporates to deposit cheques with
the bank by arranging courier pickups from the client's place of business.
II) Since the requirements of each sector varies from the other.
Ill) In order to better manage the co-ordinators & ensure quicker transfer of information they
could be provided with some user interface by which they could communicate with the
headquarters online.
IV) In order to reduce the inefficiencies in clean collections the bank could take the help of its
clients.
V) Value added services such deposit slip scanning, cheque imagine etc. could be provided to the
clients.
VI) The bank could also try and increase their market by targeting the small players.
VII) The banks could also undertake specific reconciliation service for certain clients.
VIII) To improve operational efficiency in the bank the counter where cheques are received, the
processing area & the clearing room should be located next to each other.
IX) The small and medium company’s were happier with the quality of bank services than the
bigger company’s.
After a studying the challenges faced by banks while rendering CMS services, the following
Recommendations can be put forward.
SUGGESTIONS
1. Standardization with flexibility:The operating systems used by the banks have to be standardized to such an extent that providing
flexibility is the key part of such standardization.
2. Trained personnel:The personnel involved in the whole process flow has to be trained to handle situations with
accuracy and expertise for any system to be successfully handled requires competent work force
this is an essential requisite of the system.
3. Automated Borrowing Systems:ABS is the one, which provides this system. The banks are liked to the invest bodies like mutual
funds or other money markets, when ever there is an extra surplus of money it gets transferred
into the investment accounts. The minimum amount to be maintained is predefined.
When the funds are needed for operations they get transferred to the current account of the
banks when noticed.
ABS requires a close and proper interaction between the banks and financial markets.
3. Suggested Process Flow:
The system can have to be organized from the point a purchase order is prepared by the company
to the point when in sale of the manufactured goods take place with the deliver of profits.
BIBLIOGRAPHY
Websites:
www.Phonixhecht.com.
www.HDFCbank.corn
www.bcsis.com
www.fxnet.com.
Books:
Cash Management
Working Capital Management by Hrishikesh Bhattacharya
Working Capital Management by Khan & Jain
Financial Management by Prasanna Chandra, Published by TATA McGraw Hill
Financial Management by I.M. Pandey, Published by Vikas Publishing Houses Pvt. Ltd.,06-9th V