project cash management in banks project
TRANSCRIPT
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OBJECTIVE OF THE PROJECT
To know about Cash Management of Bank of India.
To analyze the Cash Management Process of Bank of India.
To analyze in detail, the way Banks currently manage their finances and makedecisions to achieve trade off between profitability and liquidity
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Scope of the Project
Efficient cash management processes are pre-requisites to execute payments, collect
receivables and manage liquidity. This study done, taking consideration of Bank of
India. With reference to experience availed at branch. The study of this topic will help
to get the knowledge about cash management policy of banks as particularly in co-
operative sector. The mounting pressure from competitors forces the Banks to look
for an Information Technology vendor who can offer better solutions and services in
Cash Management and Internet Banking.
Hence the study will lead to analysis of policies and procedure of managing cash
inflow and outflow, also this project focus on RBI norms and rules regarding PCBs
(Primary Co-operative Banks) cash management policies. This will give brief view
about entire structure of liquidity management of banks and solutions offered by
them.
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RESEARCH METHODOLOGY
Problem Formulation
Efficient management of cash (outflows/inflows) to improve liquidity and
returns will be important factors for the banking sector. This project analyzed
cash management of banks on this basis.
Research Design
The research design for this study is basically Descriptive Research because it
utilizes the large number of data of the Bank of India.
Data Type
Secondary data utilized for this project study.
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Executive Summary
In a business anything done financially affects cash eventually.
Cash Is To A Business Is What Blood Is To A Living Body.
A business cannot operate without its life blood cash, & without cash management
there may remain no cash to operate. Cash movement in a business is two way traffic.
It keeps on moving in & out of business. The inflow & outflow of cash never
coincides. Important aspect which is unique to cash management is time dimension
associated with the movement of cash. Due to non-synchronicity of cash inflow
outflow, the inflow may be more than outflow or outflow may be more than inflow at
a particular point of time. Hence there is a direct need to control its movement through
skilful cash management. The primary aim of cash management is to ensure that there
should be enough cash availability when the needs arise not too much but never too
little.
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Banking History
Banks are the most significant players in the India n financial market. They are the
biggest purveyors of credit, and they also attract most of the savings from the
population. Dominated by public sector the banking industry has so far acted as an
efficient partner in the growth and the development of the country. Public sector
banks have long been the supporters of agriculture and other priority sectors. They act
as crucial channels of the government in its efforts to ensure equitable economic
development.
The Indian banking can be broadly categorized into:
1. Nationalized (Government owned)2. Private Banks and3. Specialized Banking Institution.
The reserve bank of India acts as a centralized body monitoring any discrepancies and
shortcoming in the system. It is the foremost monitoring body in the Indian financia l
sector. Since the nationalization of banks in 1969, the public sector banks or the
nationalized banks have acquired a place of prominence and has since then seen
tremendous progress. The need to become highly customer focused has forced the
slow- moving public sector banks to adopt a fast track approach. The unleashing of
products and services through the net has galvanized players at all levels of the
banking and financial institutions market grid to look a new at their existing portfolio
offering. Conservative banking practices allowed Indian banks to be insulted partially
from the Asian currency crisis.
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Indian banks are now quoting at higher valuation when compared to banks in other
Asian countries (viz. Hongkong, Singapore) that have major problems linked to huge
Non Performing Assets & payment defaults.
Co-operative banks are nimble footed in approach and armed with efficient branch
networks focus primarily on the high revenue nicknames of the new Indian market
and is addressing the relevant issues to take on the multifarious challenges of the
retail segment.
The Indian banking finally worked up to the competitive dynamics of the new Indian
market and is addressing the relevant issues to take on the multifarious challenges of
globalization. Private Banks have been fast on the uptake and are reorienting their
strategies using the internet as a medium. The internet has emerged as the new and
challenging frontier of marketing with the conventional physical world tenets being
just as applicable like in any other marketing medium.
The Indian banking has come from a long way from being a sleepy business
institution to a highly proactive & dynamic entity. This transformation has been
largely brought about by the large dose of liberalization and economic reforms that
allowed banks to explore new business opportunities rather than generating revenues
from conventional stream (borrowing and lending).
The banking in Indias highly fragmented with 30 banking units contributing to
almost 50 % deposits and 60% advances. Indian nationalized banks continue to be
major lenders in the economy due to their sheer size and penetrative networks which
assures them high deposits mobilization. The nationalized banks continue to dominate
the Indian banking area. Industry estimates that out of 274 commercial banks
operating in India 223 banks are in the public sector and 51 are in the private sector.
The private sector bank also includes 24 foreign banks.
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WHAT IS CASH MANAGEMENT OF BANKS?
Cash management is a broad term that refers to the collection, concentration, and
disbursement of cash. It encompasses a banks level of liquidity, its management of
cash balance, and its short-term investment strategies. In some ways, managing cash
flow is the most important job in todays scenario. Efficient cash management
involves proper outflow and inflow of cash to improve liquidity and returns while
implementing adequate controls to manage risks. Cash management is achieving
tradeoff between liquidity and profitability.
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CASH MANAGEMENT IN BANKS
The Reserve Bank of India (RBI) has placed an emphasis on upgrading technological
infrastructure to manage cash efficiently. Electronic banking, cheque imaging,
enterprise resource planning (ERP), real time gross settlements (RTGS) are just few
of the new initiatives for efficient cash management.
There are a number of regulatory and policy changes that have facilitated an efficient
cash management system (CMS). Fox example, the Enactment of Information
Technology Act gives legal recognition to electronic records and digital signatures.
The establishment of the Clearing Corporation of India in order to establish a safe
institutional structure for the clearing and settlement of trades in foreign exchange
(FX), money and debt markets has indeed helped the development of financial
infrastructure in terms of clearing and settlement. Other innovations that have
supported in streamlining the process are:
Introduction of the Centralized Funds Management Service to facilitate better
management of fund flows.
Structured Financial Messaging Solution, a communication protocol for intra-bank
and interbank messages.
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EVOLUTION OF SERVICES
One of the emerging cash management services in India is payment outsourcing.
Though cheques and drafts are a popular mode of payment in India, it is obviously a
time consuming procedure because of the manual processing required. This is an area
where payment outsourcing can help. It allows corporate to reduce their overheads
and focus on their core competencies and, as a result, benefit from speed and
accuracy. The enhanced security it offers also allows for tighter fraud control. For the
Indian payment system to become completely seamless there are many variables that
need to be tackled, such as regulatory and legal issues, customer behavior and
infrastructure. As more corporate and banks have added technology to their processes,
the issues surrounding connectivity security have become much important.
Today, treasurers need to ensure that they are equipped to make the best decisions.
For this, it is imperative that the information they require to monitor risk and exposure
is accurate, reliable and fast. A strong cash management solution can give corporate a
business advantage and it is very important in executing the financial strategy of a
company. The requirement of an efficient cash management solution in India is to
execute payments, collect receivables and managing liquidity. Traditional or e-
business objectives, in India there are different cash management solutions.
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CASH MANAGEMENT SOLUTION CURRENTLY OFFERED IN
INDIA
Account Reconciliation Services
Balancing a chequebook for a very large business can be quite a difficult process.
Banks have developed a system to overcome this issue. They allow companies to
upload a list of all the cheques whereby at the end of the month, the bank statement
will show not only the cleared cheques but also unclear ones.
Positive Pay
An effective anti- fraud measure for cheque disbursements. Using the cheque issuance
data, updated regularly with cheque issuance and payment, the bank balances all
cheques offered for payment. In the case of any discrepancies, the cheque is reported
as an exception and is returned.
Balance Reporting Services
Balance reporting provides help in procuring a company's current banking
information from its accounts. With this service the banks can offer almost all types
of transaction-specific details on activities related to payment like deposits, cheques,
wire transfers etc. It also helps in an effective and efficient management of regular
cash flow.
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Lockbox
Facilitates the cash improvement where, instead of being delivered to business
address, customer payments are delivered to a special post office (PO) box. It is only
the customers' payments that are delivered in the PO box and the company's own bank
collects the amount and delivers them to the banks of the customers. The bank of the
customers opens and processes the payments for direct deposit to the bank account.
Lockbox contents regularly removed and processed.
CBLO
CCIL (Clearing Corporation of India) launched a new money market instrument with
RBI, the Collateralized Borrowing and Lending Obligation (CBLO).
It is a variant of liquidity adjustment facility, permitted by RBI. It is a mechanism to
borrow and lend funds against securities for maturities of 1 day to 1 year. CBLO is
expected to meet the needs of banks, FIs, PDs, MFs, NBFCs and companies for
deploying their surplus funds. Borrowing limits for members will be fixed by CCIL
at the beginning of the day taking into account the securities deposited by borrowers
in their CSGL account with CCIL.
It is an obligation by the borrower to return the money borrowed, at a
specified future date.
It is an authority to the lender to receive money lent, at a specified future date with an
option/privilege to transfer the authority to another person for value received;
It is an underlying charge on securities held in custody (with CCIL) for the amount
borrowed/lent.
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RTGS System
The acronym RTGS stands for Real Time Gross Settlement. RTGS system is a
funds transfer mechanism where transfer of money takes place from one bank to
another on a real time and on gross basis. This is the fastest possible money
transfer system through the banking channel. Settlement in real time means
payment transaction is not subjected to any waiting period. The transactions are
settled as soon as they are processed. Gross settlement means the transaction
is settled on one to one basis without bunching with any other transaction.
Source-CashManagementTrendsInIndia_GT_NVedwa.pdf
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Introduction of Bank of India
Bank Profile History of Bank Of India
Bank of India was founded on 7th September 1906 by a group of eminent
businessmen from Mumbai. The Bank was under private ownership and control till
July 1969 when it was nationalized along with 13 other banks. Beginning with one
office in Mumbai, with a paid-up capital of Rs.50 lakh and 50 employees, the Bank
has made a rapid growth over the years and blossomed into a mighty institution with a
strong national presence and sizable international operations. In business volume, the
Bank occupies a premier position among the nationalized banks. The Bank has 2644
branches in India spread over all states/ union territories including 93 specialized
branches. These branches are controlled through 48 Zonal Offices . There are 24
branches/ offices (including three representative offices) abroad. The Bank came out
with its maiden public issue in 1997. Total number of shareholders as on 30/09/2006
is 2,25,704. While firmly adhering to a policy of prudence and caution, the Bank has
been in the forefront of introducing various innovative services and systems. Business
has been conducted with the successful blend of traditional values and ethics and the
most modern infrastructure. The Bank has been the first among the nationalized banks
to establish a fully computerized branch and ATM facility at the Mahalaxmi Branch at
Mumbai way back in 1989. The Bank is also a Founder Member of SWIFT in India. It
pioneered the introduction of the Health Code System in 1982, for evaluating/ rating
its credit portfolio. The Bank's association with the capital market goes back to 1921
when it entered into an agreement with the Bombay Stock Exchange (BSE) to manage
the BSE Clearing House. It is an association that has blossomed into a joint venture
with BSE, called the BOI Shareholding Ltd. to extend depository services to the stock
broking community. Bank of India was the first Indian Bank to open a branch outside
the country, at London, in 1946, and also the first to open a branch in Europe, Paris in
1974.The Bank has sizable presence abroad, with a network of 23 branches (including
three representative office)at key banking and financial centers viz. London,
Newyork,Paris,Tokyo,Hong-Kong,and Singapore. The international business accounts
for around 20.10% of Bank's total business. The Bank has a strong position in
financing foreign trade. Over 270 branches provide export credit. The expertise in thisarea has enabled the Bank to achieve a leading position in providing export credit in
certain areas like diamond export. The Bank has identified specialized target groups
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to develop core advantage for future growth. The Bank, has specialized branches
comprising of Corporate Banking Branches to undertake very large credit business,
Overseas Branches specializing in Foreign Exchange Business, NRI Branches which
specially cater to the requirements of Non-Resident Indians, Capital Market Branches
which undertake all activities relating to capital market such as collection of
applications, processing of refund orders, Merchant Banking etc. Commercial &
Personal Banking Branches cater to the requirements of high net worth customers.
Apart from this, the Bank also has specialized Branches for Asset Recovery, Small
Scale Industries, Hi-tech Agriculture Finance, Lease Finance and Treasury. To
effectively meet the ever-growing challenges and competition, the Bank has made a
good headway in bringing about technological up gradation. MIS and critical
functions of controlling offices have been computerized. At present, the operations at
about 2618 branches are totally computerized. 26 branches operate in partially
computerized mode besides these 1019 branches and 31 extension counters are
migrated to Core Banking Solution. New facilities such as, Telebanking, ATM &
Signature Retrieval Systems have been introduced in a progressing manner to add
value to services. Telebanking facilities with Fax on Demand facility, Remote Access
Terminals for Corporate Customers are now available at many branches. The Bank
has installed ATMs in Mumbai and other centres in the country. The Bank is a
member of the RBI's VSAT Network and has installed 39 VSATs linking strategic
branches/offices. The Bank is making a paradigm shift from branch automation to
bank automation and is in the process of implementing a Multi-Branch Banking
Project, that facilitates City-wise Connectivity of Computerized Branches. The Bank
is in the process of installing BOINET, a Wide Area Network for providing a inter-
and intra-city connectivity, as a part of enhancing its decision support system. The
Bank's corporate personality and philosophy are fully reflected in the emblem, which
is a five-pronged Star -- a harmonious blend of traditional and the functional. The
elongated prong pointing upwards, conveys the Bank's drive to achieve ascending
goals. The Star is a beacon and guide to those in need of direction
MISSION & VISION
Our Mission "To provide superior, proactive banking services to niche markets
globally, while providing cost-effective, responsive services to others in our role as adevelopment bank, and in so doing, meet the requirements of our stakeholders".
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Our Vision "To become the bank of choice for corporate, medium businesses and
upmarket retail customers and to provide cost effective developmental banking for
small business,mass market and rural markets"
Introduction of Cash Management
Manage your cash flow and liquidity-Effectively and Efficiently
For any organization, cash is the lifeblood that keeps the business going.
That is why, increasingly, Cash Management has been gaining importance with
organizations that view the services as a crucial part of their corporate strategies.
Cash Management is Efficient Management of cash (Outflows/Inflows) to improve
liquidity and returns while implementing adequate control and managing risks. Cash
Management can generally be defined as the efficient utilization of cash through
coordinated management of payments, collections and cash balances. The objectives
are to reduce costs, enhance control and optimize returns as well as reduce the
inventory holdings. Traditionally, cash management involved personalized services
offered by the bank's staff to the company's treasurer via mails, telephone, calls, faxes
etc or visits to the bank initiated transactions. But with the advent of computer
technology, cash management services have been automated to a large extent. Many
banks now allow their corporate customers to perform online inquiries and transaction
services (payment, collection and liquidity management) through PC or Internet via a
web interface. With such a system in place, a company can perform most of the cash
management functions themselves without relying on a bank staff to act as the
executor of their requests.
Cash Management helps the organization in: Properly timing the disbursements.
Some payments must be made on a specified or legal date, such as Social Security
payments. For such payments, there is no cash management decision. For other
payments, such as vendor payments, discretion in timing is possible. Government
vendors face the same cash management needs as the Government. They want to
accelerate collections. One way vendors can do this is to offer discount terms for
timely payment for goods sold. Eliminating idle cash balances. Every Rupee held ascash rather than used to augment revenues or decrease expenditures represents a lost
opportunity. Funds that are not needed to cover expected transactions can be used to
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buy back outstanding debt (and cease a flow of funds out of the Treasury for interest
payments) or can be invested to generate a flow of funds into the Treasurys account.
Minimizing idle cash balances requires accurate information about expected receipts
and likely disbursements. Ensuring timely deposit of collections. Having funds in-
hand is better than having accounts receivable. The cash is easier to convert
immediately into value or goods. A receivable, an item to be converted in the future,
often is subject to a transaction delay or a depreciation of value. Once funds are due to
the Government, they should be converted to cash-in-hand immediately and deposited
in the Treasury's account as soon as possible. Monitoring exposure and reducing risks.
The Banks have the responsibility to use timely, reliable, and comprehensive financial
information and systems. To that end, banks encourage to improve their cash
management practices by using electronic funds transfer (EFT) whenever cost
effective, practicable, and consistent with statutory authority. So there is a need to
monitor the exposure and reduce the risk.
Cash Management Services - Indian Scenario
The need for cash management aroused two decades ago in the mid eighties when the
Indian corporate were facing various problems like the uncertainty as to when funds
would be made available to them, the problem of long transit period between banking
cheques and receiving funds, long period of administrative work in banking cheques
and tracking progress and reconciliation problems regarding uncertainty of inflows
and lack of details on each credit to the account. It is important to review the Indian
scenario in this regard. As we are all aware, that the banks desire for funds has lost
because of the slowdown. Despite the offer of very soft terms corporates are refusing
to borrow, while bank deposits have been ballooning. Compelled to service the
burgeoning liabilities, but unable to lend hastily and allow their non-performing assets
(NPAs) to grow, bankers are forced to compete for the handful of safe bets among
their borrowers. Banks chose to use the opportunity to refocus their activities, seeking
clearly defined identities in terms of services and customer segments. Most of them
concentrated on cleaning up their books by peeling down their NPAs. All of them are
attempting for freezing of costs, improving operational efficiencies, and boosting
productivity. The strategy of the banks, which are performing well, is to use fee-based
services to maintain their earnings growth. With interest rates falling, non-interest
income is, unsurprisingly, the fastest-growing component of the banks total income.
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Fee-based activities will complement though not substitute the core business of
lending. With rising interest rates too, Corporate and others are not willing to borrow,
fee-based services play again an active role in boosting a Banks total income. It is
gratifying to note that a number of banks in India are offering wide-ranging cash
management services to their corporate clients. All the three categories of banks viz.,
nationalized banks, private banks, and foreign banks operating in India are active in
the cash management segment. SBI, PNB, Corporation, ICICI Bank, HDFC Bank,
Centurion Bank of Punjab and ING Vysya Bank, are some of the active Indian banks
in this segment. Citi Bank, Standard Chartered Bank, ABN Amro Bank, BNP Paribus,
and HSBC are the foreign banks operating in India, which are prominent among the
cash management services providers. 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, tax payment services, receivables and payables management. Foreign banks
operating in India are offering regional and global treasury management services,
liquidity management services, card services, electronic banking services, e-
commerce solutions, account management services, collection management services,
cash delivery management services and investment solutions. Banks realized that if
they do not offer the services required by corporate customers it would result in a net
loss of clientele, returns and goodwill. Banks in India need to continuously monitor
international trends in innovations taking place in providing cash management
services and swiftly offer similar services to their corporate clients. The Reserve Bank
of India is taking a number of initiatives, which has facilitated the active
involvement of commercial banks in the sophisticated cash management segment.
One of the pre- requisites is to ensure faster and reliable mobility of funds in a country
and to have an efficient payment system. Considering the importance of a robust
payment system to the economy, the RBI has been taking numerous measures since
mid Eighties to strengthen the payments mechanism in the country. Introduction of
computerized settlement of clearing transactions, use of Magnetic Ink Character
Recognition technology, provision of inter-city clearing facilities and high value
clearing facilities, Electronic Clearing Service Scheme , Electronic Funds Transfer
scheme, Delivery vs. Payment for Government securities transactions, setting up of
Indian Financial Network are some of the significant initiatives which highlight theseriousness with which the Reserve Bank has taken up the reforms in Payment
systems. Introduction of a Centralized Funds Management System , Securities
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Services System , Real Time Gross Settlement System and Structured Financial
Messaging System are on the top priority items of the agenda to transform the
existing systems into a state-of-the-art payment infrastructure in India by the Reserve
Bank. The current vision envisaged for the payment systems reforms is one, which
contemplates linking up of at least all important bank branches with the domestic
payment systems network thereby facilitating cross border connectivity. With the help
of the systems already put in place in India and which are coming into being, both
banks and corporates can exercise effective control over the cash management.
Framework for effective Cash Management Services Companies
seek to achieve synergies by implementing a simplified account structure and through
rationalizing the number of banks used. In advising companies on the optimal account
structure, it is important to bear in mind the nature of companys funds flows. The aim
is to maximize control, efficiency and returns. Banks need to work with its clients to
ensure that arrangements are in place to assist them in maximizing returns from an
otherwise idle fund. Experience of local banking regulations and market practices can
ensure clients preferred structure. Greater challenges lie in tying together multiple
accounts into a cohesive structure to manage liquidity efficiently, often across
numerous time zones and currencies. To meet the needs of international corporate and
institutional clients, banks should have a wide range of customized products and
services. Often companies should maintain multiple banking relationships for their
cash management. Movement of funds between accounts across banks is generally
inefficient, costly and time-consuming. Cash status is not readily available, often
causing unnecessary usage of overdrafts or return of issued checks. Untimely
payments can also result in penalty and other charges. With multiple accounts,
account reconciliation is usually difficult to be kept current, making control virtually
impossible. So for effective cash management there is a need for multiple banking
relationships which is often due to the lack of comprehensive service offered by a
bank, the difficulty in accessing particular services of a bank, or the varying degree of
efficiency across services of a bank. Many companies, including medium-sized
enterprises, are now implementing Enterprise Resource Planning (ERP) systems to
help manage the accounting process and gain better control of their cash management.However, what several have found is that while internal processes are more
automated, the number of staff required to support their cash management operations
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has not reduced. Without a comprehensive cash management solution from a bank,
business finds it difficult to reach the optimal operational and working capital
efficiency level. Corporate treasurers cannot afford to spend time worrying about
routine payments and collections. So banks have to help clients to successfully handle
the large volumes of corporate client payments. So in today's competitive market
place, effectively managing cash flow can make the difference between success and
failure. And so the Banks offer a full range of receivables and payment services to
meet the complex cash management needs. Payments received from their buyers and
made to their suppliers are efficiently processed to optimize their cash flow position
and to ensure the effective management of their business' operating funds. The flow of
receivables and payables can also be seen through the web solution.
Legal And Regulatory Regime Regarding Cash Management
Of Co-Operative Banks
Maintains of statutory reserves- cash reserve ratio (CRR) & statutory
Liquidity ratio (SLR)
All primary (urban) co-operative banks (PCBs) are required to maintain stipulated
level of cash reserve ratio and statutory liquidity ratio.
1. CRR reserves for scheduled PCBs-
The scheduled PCBs were required to maintain with the RBI during the
fortnight, a minimum average daily balance of 5% of their demand and time
liabilities (DTL) in India obtaining on the last Friday of the second preceding
fortnight
In order to provide flexibility to banks and enable to choose an optimum
strategy for cash management depending upon their intra period cash flow
scheduled PCBs are presently required to maintain on average daily balance a
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minimum of 70 percent of the prescribed CRR balance on their NDTL(Net
Demand and Time Liabilities) as on the last Friday of the second preceding
fortnight.
In order to improve the cash management by banks, as a measure of
simplification a lag of two weeks has been introduced in the maintenance of
stipulated CRR by the scheduled banks. Thus with effect from the fortnight
beginning from 1999 the prescribed CRR during a fortnight has to be
maintained by every bank based on its NDTL as on the last Friday of the
second preceding fortnight i.e. based on the NDTL.
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For the purpose of maintain CRR every scheduled bank is required to maintain
a principal account with the deposit accounts department (DAD) of the reserve
bank of India.
i) Average daily balance- It shall mean the average of the balances heldat the close of business on each day of a fortnight.
ii) Fortnight- It shall mean the period from Saturday to second followingFriday, both days inclusive.
Generally ASSETS and LIABILITIES of banks include:
Liabilities to the banking system include:
Deposit of the banks
Borrowing from banks (call money/notice deposits)
Other miscellaneous items of liabilities to the banks
Assets with the banking system:
Balances with banking system in current account
Balances with the banks and notified financial institution
Money at call and short notice up to 14 day lent to banks and notified
financial institution
Loans other than money at call and short notice
Any other amounts due from the banking system, like amount held by
the bank with inter-bank remittance facility etc.
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2. Statutory liquidity reserves-
In terms of provisions of section 24 of the Banking Regulation Act 1949, (As
applicable to co-operative societies), every primary (urban) co-operative bank
is required to maintain liquid assets which at the close of business on any day
should not be less than 25 percent of its demand and time liabilities in India
(in addition to the minimum cash reserve requirement).
Current prescription for SLR: presently the PCBs are required to maintain a
uniform SLR of 25 percent on their total DTL in India.
Manner of maintaining Statutory Liquidity reserves:
The liquid assets may be maintained-
In cash or
In gold valued at a price not exceeding the current market price, or
In unencumbered approved securities
Holding in Government/other approved Securities
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All primary (urban) co-operative banks are required to achieve certain
minimum level of their SLR holdings in the form of government and other
approved securities as percentage of their Net Demand and Time Liabilities
(NDTL) as indicated below:
Sr. Category of bank Minimum SLR holding in
No. government and other
approved securities as
percentage of Demand
and Time Liabilities
1. Scheduled banks 25%
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GENERAL CONDITION FOR CALCULATION OF CRR AND SLR
REQUIREMENT OF BANKS-
In order to improve the cash management by banks, as a measure of
simplification, a lag of two weeks has been introduced in the maintains
of stipulated CRR by the scheduled banks.
Thus for example fortnight beginning from November 6 2009 the prescribed
CRR during a fortnight has to be maintained by every bank based on its
NDTL as on the last Friday of the second preceding fortnight i.e. based on the
NDTL as on reporting Friday i.e. October 22, 2009 and so on.
CRR doesnt include interbank deposit- for the purpose of computation of
liabilities the aggregate of the liabilities of a co-operative bank to the state
bank of India, a subsidiary bank, a corresponding new bank, a regional
rural bank, a banking company or any other financial institution notified b y
the central government in this behalf shall be reduced by the aggregate of
the liabilities of all such banks and institution to the co-operative bank.
SLR requirement of banks- every PCB is required to maintain on a daily basis
liquid assets the amount of which shall not be less than 25 percent of its
demand and time liabilities in India as on last Friday of the second preceding
fortnight.
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For SLR purpose- banks are required to maintain SLR on borrowing through
CBLO.
All the PCBs are required to maintain investments in government securities
only in SGL accounts with reserve bank of India, primary dealers, state co-
operative banks.
Computation of net demand & time liabilities (NDTL)
Liabilities of a bank may be in the form of demand or time deposits or
borrowings or other miscellaneous items of liabilities.
Demand liabilities include all liabilities which are payable on demand.
Time liabilities are whose which are payable otherwise than on demand.
Time liabilities include
Fixed deposits
Cash certificates
Cumulative and recurring deposits
Staff security deposits
Time liabilities portion of savings bank
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Demand liabilities include
Current deposits
Margins held against letter of credit
Outstanding telegraphic and mail transfer
Demand drafts
unclaimed deposits
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MANAGEMENT OF LOANS AND ADVANCES :
In the context of rapid growth of primary co-operative banks (PCBs),
qualitative aspects of lending, such as adequacy of lending to meet credit
requirements of their borrowers and effective supervision and monitoring of
advances have assumed considerable importance.
Consistent with the policy of liberalisation and financial sector reforms,
several indirect measure to regulate bank credit such as exposure norms for
lending to individual/group borrowers, prudential norms for income
reorganisation, asset classification and provisioning for advances, capital
adequacy ratios,etc. were introduce by RBI.
UCBs are permitted to determine their lending rates taking into account their
cost of funds, transaction cost etc.with the approval of their board
However it may be appreciated that though interest rates have been
deregulated, rates of interest beyond a certain level may be seen usurious and
can neither be sustainable nor be conforming to normal banking practice.
Banks also required publishing the minimum and maximum interest rates
charged on advances and displaying the information in every branch.
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MANAGEMENT OF INVESTMENT OF BANKS:
Keeping in view the various regulatory and the banks own internal requirements,
primary (urban) co-operative banks should lay down with the approval of their board
of directors, the broad investment policy which efficiently manage their cash.
The investment policy of the bank should include guidelines on the quantity and
quality of each type security to be held on its own investment account.
INVESTMENT POLICY OF BOI:
Objective of policy
To decide investment policy for financial year and to revise it from time to
time.
To decide investment strategies in respect of government securities, PSU
bonds (Public sector bonds), CD, CP, T-bills, MF.
To fix borrowing limits under Call/CBLO, government securities.
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BOI can invested in following securities-
Central/state government securities
Treasury bills
Approved security
Call money deposit
CBLO, bonds/NCDs(Non-Convertible Debenture) issue PSU
Debt/money market
Certificate deposit
Deposit with nationalised
Shares of cooperative banks
Repo in government security
Commercial papers
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Delegation of Powers:
The powers for investment decision are proposed to be delegated as under :
Government approved PSU Non trustee Call Bank
security/T-bills bonds security CBLO fixed
deposit
CEO 50 crore 40 10 100 50
General 25 15 - 100 25
manager
Deputy - - - 100 10
general
manager
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Various Measures UCB Can Take For Efficient Cash Management :
The bank shall borrow funds in CBLO as per its requirements within limit and
as per the basis of collateral security pledged by the bank
The bank shall lend money in CBLO depending upon surplus funds in hand
The bank shall borrow money in CBLO depending upon deficit funds in hand.
The bank may borrow in call money market for maintaining liquidity or
fulfilment of CRR requirement.
The bank may lend in call money market for same purpose.
As per RBI borrowing in call money market shall not exceed amount
equivalent to 2% of aggregate deposit as at end of year last financial year.
The PSU bonds may be sold according to the liquidity position opportunity for
improving the yield.
Investment in bonds which are considered for non-SLR investment will be for
higher yields.
The total transaction in case of government securities (sale/purchase both)
In a day can done upto Rs.100 crore. The bank shall sell/purchase government
securities & T-bills should be minimum 25% of NDTL (SLR) as per RBI.
Purchase of government securities will be made according to the availability
of funds prevailing market condition and SLR requirement as per RBI.
Sale of government security will be made according to the liquidity position
and requirement of funds for credit deployment and prevailing market
condition.
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Measures Taken By BOI For Efficient Cash Management:
BOI target investment margin for FY 2009-2010 is 8.53%.
For risk management BOI- total exposure in government securities should not
exceed 45% of the NDTL and the excess portion over and above SLR
requirement i.e. 20% kept for trading purpose.
For SLR requirement it maintains daily register.
Sale of government security will be made according to the liquidity position
and requirement of funds for credit deployment and prevailing market
condition.
In CBLO rates are low but it involves securitization with CCI, it offer
instrument for management of cash.
BOI use this instrument very efficiently to fulfil its CRR requirement.
BOI use this instrument for trading purpose also i.e. if they have excess cash
they can lend at higher interest rates
For maintain SLR, BOI invest in government securities as they offer higher
interest rates with security, compare to invest in gold as well as cash,
Because if SLR maintained in cash it would remain ideal cash result in
generating no margin.
Only 0.15 basis points they aim from trading in market, rest they planned to
invest in secure securities.
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They restricted their investment in unlisted securities up to 10% of total non-
SLR portfolio.
Investment other than in those held against term deposits with
banks/institutions/mutual fund/certificate of deposits and shares of co-op
institutions are classified into held for trading (HFT), available for sale
(AFS) and held to maturity (HTM) categories in accordance with the reserve
bank of India guidelines.
BOIs fixed deposits with other banks include deposits which are lodged as
margin to secure overdraft limits/issuance guarantees.
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FINDINGS:
These are some key points which analyzed while studying this project which
reflects some major factors about cash management of BANK OF INDIA as
follows:
BOI bank manages its daily requirement of CRR as per guidelines of RBI
every day.
Every day it calculate its CRR requirement and try to maintain this
requirement as per norms of RBI , if there is shortfall of cash it borrow
through CBLO and vice versa.
It doesnt maintain more cash as CRR, it try to avoid cash remain ideal.
BOI purchase government securities according to the availability of funds,
prevailing market condition and SLR requirement
By using CBLO, BOI can take arbitrage opportunity as all security on CBLO
are pledged with CCIL
For NON-SLR option BOI invest mainly in
Government securities
Inter bank exposure- not more than 5% of deposits of previous FY
PSU bonds
IDBI, IFCI bonds
Commercial Papers
BOI invest more in government securities as compare to call money market or
CBLO instrument because of risk purpose.
BOI doesnt invest much in money market mutual fund instrument as it not
offers higher return as compared to government securities.
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Recommendations of The Study
After analyzing BOIbanks cash management policy, I would like to place following
recommendation -
BOI bank should try to make more use of current money market instrument
such as CBLO, as risk involve in CBLO is less, Since CBLO is fully
collateralized by government securities, the risk weight as applicable to
government securities for market risk would be applicable to CBLO.
BOI should go for more techno savvy products for payment and collection
services.
BOI already introduce core banking solution, it should implement it for all its
branches as soon as possible so it can make use of tech-savvy instruments
such as RTGS
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Conclusion of the Study
BOI manage its cash efficiently as per rules and regulation of RBI, as it
manages its inter branch cash very efficiently among various branches.
BOI also manage to achieve balance between its liquidity and profitability
through various instrument, maintained its requirement for CRR and SLR
regularly and invest its surplus cash in secure instruments and try to maximise
its profit.
In India RBI frame policies on cash management which helps to banks for
proper management of their cash.
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LIMITATIONS
Every research is conducted under some constraints and this research is not anexception. Limitations of this study are as follows:-
1. There were several time constraints.
2. Difficulty in getting information due to internal policies and procedure.
3. The study is based on information given by concerned persons.
4. People were reluctant to go in to details because of their busy schedules.
5. Due to continuous change in environment, what is relevant today may beirrelevant tomorrow.
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LEARNING-
Understanding of various norms and procedure of RBI forcash management.
Understanding about how one bank manage its liquidityposition.
Importance of time and investing funds in right instruments. It helps me to increase my confidence, also thought me how
to communicate with personnel in esteemed organization.
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Websites:
www.banknetindia.com/banking/boverview.htmwww.rbi.org.in
http://www.rbi.org.in/SCRIPTS/PublicationsView.aspx?id=7250www.thanejanata.co.in/24x7_banking.html
http://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=5146
Books
38th
Annual Report 2008-09
Co-operative Diary of PCB
Master Circular of RBI on Investment
Paper and Journal:
International Research Journal of Finance and Economics
ISSN 1450-2887 Issue 19 (2008)
Article on Cash Management and Payment Developments in India :Bank Offeringsand New Corporate Best Practices by Niraj Vedwa
50
http://www.banknetindia.com/banking/boverview.htmhttp://www.rbi.org.in/http://www.rbi.org.in/http://www.rbi.org.in/SCRIPTS/PublicationsView.aspx?id=7250http://www.thanejanata.co.in/24x7_banking.htmlhttp://www.thanejanata.co.in/24x7_banking.htmlhttp://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=5146http://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=5146http://www.thanejanata.co.in/24x7_banking.htmlhttp://www.thanejanata.co.in/24x7_banking.htmlhttp://www.rbi.org.in/SCRIPTS/PublicationsView.aspx?id=7250http://www.rbi.org.in/http://www.rbi.org.in/http://www.banknetindia.com/banking/boverview.htm -
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