cms _ case of axis bank
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CASH MANAGEMENT SERVICES
-ByDhruv Malani (081015)Gursimar Sahwney (081019)Aditya J (081020)MOCB Section Y
FMG 17
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WHAT IS CMS?
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Introduction to CMS
Cash is the lifeline of Corporates
Corporates need to have ready & liquid cash
flows Anytime & Anywhere available
information about their funds
Banks serve this need!
Dilution of banks role from traditional
financing role to fee based services
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Types of Services
Lockbox services
Positive Pay
Sweep accounts
Zero Balance
Accounting
Wire Transfer
Controlled Disbursement
Account Reconcilement
Services
Advanced Web Services
Armored Car Services
Automated Clearing
House:
Balance ReportingServices
Cash Concentration
Services
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Account Reconcilement Services
Company issues many cheques in its daily
transactions
Upload cheques in banks system End of month bank statement shows cleared &
uncleared cheques
Bank sends report of both paid & unpaidcheques for comparison with companys
accounts
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Account Reconcilement Services
Advantage to company
Saves employee man hours
Company gets to know which cheques havebeen cleared & which were not
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Armored Car Services
Bank appoints a Armored Car Services vendor
to collect cash from companies to the bank
branches Company outsources this job to bank instead
of employing its workforce on this job
Advantage: Saves Cos time by outsourcing
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Automated Clearing House
An inter-bank funds electronic transfer facility
Used to
Pay employees & other parties
Collect funds from customers
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CashConcentration Services
Cos Primary bank doesnot have branches
Open bank a/cs in localbanks in area of opn
Prim Bank pullsmoney through ACH
Advantage: Preventidling of funds , earninterest
Bank1Bank2
Bank3
Primar
y Bank
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LockBox Services
Some Cos (e.g., utilities)receive large no ofpayment cheques
Bank sets up a postoffice box for them
Collect all cheques in themail & deposit them
Advantage: Speed ofdeposits, improved cashflows, administrativeconvenience
CosBank
Co 1post
box
Co 2post
box
Customerscheques
Customerscheques
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PositivePay
Co electronically shares its cheque register
with Bank
Bank will pay only those cheques listed in Cosregister
Advantage: Avoid discrepancies & fraud
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SweepAccounts
Excess funds from a company's bank accounts
are automatically moved into a money market
mutual fund overnight, and then moved backthe next morning
Earns interest overnight
Advantage: Utilization of idle funds to make
money
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ZeroBalanceAccounting
Single Bank A/c
Store 1 Store 2 Store 3 Store 6Store 5Store 4
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ZeroBalanceAccounting
Store 1 Store 2 Store 3 Store 6Store 5Store 4
A/c1
A/c2
A/c3
A/c4
A/c5
A/c6
Main Bank A/c
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ZeroBalanceAccounting
Helpful to companies with large no of retail
outlets or locations
Difficult to know/track which outlet hasdeposited which cheque
Each outlet is given its own account
All the money deposited in individualaccounts are transferred to the cos mainbank account
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Controlled Disbursements
Daily report that provides the amount of
disbursements that will be charged to the
customer's account This early knowledge of daily funds
requirement allows the customer to invest any
surplus in intraday investment opportunities
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Indian Scenario
Indian banks are offering services like electronic
funds transfer services, provision of cash related
MIS reports, cash pooling services, collection
services, debit transfer services, guaranteed credit
arrangements, sweep products, etc
Services ofIndian Banks now comparable to their
counterparts in advanced countries Made possible by efforts by RBI towards
facilitating electronic transfer of funds & clearing
mechanisms
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Indian Scenario
Cheque imaging, MICR, RTGS to name a few
Enactment ofInformation Technology Act giveslegal recognition to electronic records and digital
signatures The establishment of the Clearing Corporation ofIndia: Clearing activities in money, debt & forexmkts
Centralised Funds Management Service tofacilitate better management of fund flows
Structured Financial Messaging Solution, acommunication protocol for intra-bank andinterbank messages
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Advantages of CMS to Bank
Diversification of income in competitive
times
Pressure on interest spread More stable revenue
Helps build long term relationships with cos
Helps add to bottomline
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CashManagementProcess
The client deposits
cheques at various
branches across the
country.
The cheques aresent in clearing.
The bank receives
the credit from the
clearing house.
The payout is
made to the clientbased on a day
arrangement allotted
to the client.
A centralized MIS
is sent to the client.
The client gives an
instruction for
effecting payouts.
The bank executesthe instructions as
per the request letter.
A centralized MIS
is sent to the client.
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Collection Methods
Two broad categories of collection products:
Local cheque clearing (LCC)
Up-country collections (UCC)(out-stationcheque clearing)
The case ofICICI Bank
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Local Cheque Collection
The customer deposits the instruments at the designated ICICI Bank or
ICICI Bank arranges for a courier pick up from the clients
representative offices
The initial data entry takes place in CMS software.
Data is transmitted by the branches to the centralised CMS Hub.
The HUB acts as a data processing centre computing the amounts to be
paid to the client as per agreed arrangement.
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CMS for Small ValueCheques
Main users include service providers for telecom, cellularphone operators, magazine companies for subscriptioncheques, finance companies, companies for theirIPOsetc.
Process flow:
Instruments are collected either from the clientsagencies/agents, collection centres or drop boxes
Instrument processing and payout within the assured time
frame Additional details captured for client along with cheque
particulars and reported along with daily MIS includingMIS on instruments including detailed MIS on returnedinstruments.
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WHAT DO YOUTHINKWOULD BE
THEBENEFITS OFCMS TO THECORPORATES?
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Benefits of CMS to Corporates
Benefits of Collection Services
Efficient management of receivables.
Improves your asset turnover.
Pooling of funds at a centralized location.
Surety of credit on specified date.
Reduced working capital requirement.
Interest savings.
Reduced efforts for account reconciliation.
Customized MIS.
Online Information giving status ofInstruments.
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Benefits of CMS to Corporates
Benefits ofPayment Services
Convenience of fund disbursement.
Funds to be provided just a few days beforedisbursement.
Cheque payable at par facility.
Cost savings.
Optimizes human resource. Online information regarding Instrument status.
No headaches
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Challenges and Issues
Provision of Customized Services
Need to Comprehend the Clients Line of
Activity Shift to Web-enabled Services
Decisions Regarding Sourcing of Software
Need to Work with Technology Vendors
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WHAT DO YOUTHINKWOULD BE
SOME OFTHE RISKSASSOCIATED
WITH CMS?
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Risks
1. Threats Posed by Third Parties2. Concerns about Security and Risk Management
Corporate treasury information is quite sensitive.
Commercial cash management is one of the mostrisky forms ofInternet banking
Trust elements may include the authentication andauthorization, preventing eavesdropping, ensuring
non alteration in transit, providing integrity andauthentication that is legal.
When the value delivered is very high and the risk isvery low, you have a viable and secure system.
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CMS Case ofAxisBank
Axis bank offers the followingfacilities/services:
1. Collection/Receivables Management
a. Local Cheque Collection
b. Outstation Cheque Collection
2. Electronic Clearing Systems
a. Credit Clearing
b. Debit Clearing
3. Disbursements
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Target Customers
Corporate
Insurance Companies
PSUs State Level Undertakings
NBFCs , Foreign Banks and Co-op Banks
MFs FIs
Stock Exchanges and Brokers
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CMS Software/Program
Bank uses software provided by Laser Soft
Company for CMS Activities.
Processing of local and upcountry cheques isdecentralized and is carried out by all branches
of Axis Bank.
Transmission of data files is done through
Lotus Notes
Exhaustive in-built MIS is present
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ON WHAT BASIS CAN A BANKPRICE ITS CMS SERVICES?
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Pricing of Services
Done on case to case basis with the approval of
central office. Main factors are:
Collection Relationship Value
Business Volumes
Number and average size of instruments
Number ofLocations
Process Flow Number of days
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Pricing of Services
Float funds Number of days
Average number of returns
MIS and other services provided
Compensation for delayed credit
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Pricing of Services
Payments
Relationship Value
Payout volume on axis bank locations and otherlocations
Segment wise volume
Expected Float
Clearing house charges/Reconciliation/Courier
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Electronic Clearing Services
Facility devised by RBI for corporates who
undertake large volumes of credit/debit
transactions with various constituents. The user company obtains a mandate from its
constituents
The company prepares the electronic database
on the basis of the mandate received from
constituent
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Electronic Clearing Services
It then forwards the data to sponsoring bank.
The bank then verifies the data and forwards it
to RBI about a week before the value date. RBI forwards the details to individual banks
about 3 days in advance for action.
The individual bank acts on the value date as
per instruction.
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ECS - Eligibility
Corporates having periodic large payments to
a fixed group
Large volume payments, say atleast 2500transactions per settlement.
Transaction limit is Rs. 5 Lac Max. No
minimum limit.
Charges @ Rs. 1.5 per instrument (Rs. 0.50
for clearing house and Rs. 1 for destination
bank)
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AXIS BANKPRICING FORIFFCO
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THANK YOU