Beruflich Dokumente
Kultur Dokumente
A
Summer Internship Project Report
On
Study of Treasury Management Banking in Sector:
with
Reference To: SBI and ICICI Banks
In the partial fulfillment of the Degree of
Master of Management Studies under the University of Mumbai
By
Mr. Anand.P.Mishra
[Roll No: B-36]
Specialization: Finance
Acknowledgement :-
No Learning is proper and effective without Proper Guidance Every study is incomplete
without having a well plan and concrete exposure to the student. Management studies are not
exception. Scope of the project at this level is very wide ranging. On the other hand it provide
sound basis to adopt the theoretical knowledge and on the other hand it gives an opportunities
This study is an internal part of our MBA program and to do this project in a short period was
a heavy task.
Intention, dedication, concentration and hard work are very much essential to complete any
task. But still it needs a lot of support, guidance, assistance, co-operation of people to make it
successful.
I bear to imprint of my people who have given me, their precious ideas and times to enable me
to complete the research and the project report. I want to thank them for their continuous
I wish to record my thanks and indebtedness to (Mrs) Prof. Rghukumari Faculty, college
Aruna Manharlal Shah Institute of Management Research, whose inspiration, dedication and
helping nature provided me the kind of guidance necessary to complete this project.
for granting me permission to be part of this college. I would also like to acknowledge my
Table of contents:-
Particulars Description Page Nos.
CHAPTER 1:- Introduction to project 1-5
CHAPTER 2:-` Litrature Review 6
5.5 TM an overview
5.7 Objective of TM
5.10 Elements of TM
5.16 Role of IT in TM
&
Executive Summary:-
The project is all about Treasury managementoperations in banks. Treasury management is the
management of an organizations liquidity to ensure that the right amount of cash resources
are available in the right place in the right currency and at the right time in such a way as to
maximize the return on surplus funds, minimize the financing cost of the business, and control
structure of treasury, objectives and functions of treasurer which plays an important role in
banks.
The project also involves the elements in treasury management like cash reserve ratio,
statutory liquidity ratio, dates government securities, etc. which should be properly functioned
by treasurer.
The project includes nature of treasury assets and liabilities and treasury products & services
The project deals with risk involved in these treasury assets and liabilities and their mitigation.
Risks are of two types operational risk & financial risk. The project also includes risk
The project covers the future scope / challenges in treasury management, role of information
technology in treasury management and a study on SBIs treasury and ICICI treasury.
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CHAPTER 1:
INTRODUCTION TO THE PROJECT
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In general terms and from the perspective of commercial banking, treasury refers to the
fund and revenue at the possession of the bank and day-to-day management of the same.
Idle funds are usually source of loss, real or opportune, and, thereby need to be managed,
invested, and deployed with intent to improve profitability. There is no profit or reward
without attendant risk. Thus treasury operations seek to maximize profit and earning by
investing available funds at an acceptable level of risks. Returns and risks both need to be
managed. If we examine the balance sheets of Commercial Banks (Public Sector Banks,
Interest income from investments has overtaken interest income from loans/advances. The
special feature of such bloated portfolio is that more than 85% of it is invested in
government securities.
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The income flow from investment assets is real compared to that of loan-assets, as the
In this context, treasury operations are becoming more and more important to the banks
and a need for integration, both horizontal and vertical, has come to the attention of the
insulation and also to synergize banking assets with trading assets. In horizontal
integration, dealing/trading rooms engaged in the same trading activity are brought under
same policy, technological and accounting platform, while in vertical integration, all
existing and diverse trading and arbitrage activities are brought under one control with one
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Meaning:
capital requirements and risk management. It has an increasingly important job to do. At
one end of the spectrum it manages balance sheets and liquidity, and does good things to
enhance the yield on assets and minimize the cost of liabilities, mostly through the clever
and intelligent use of derivatives. At the other end of the spectrum, treasury can help
Treasury management modules are available for many larger enterprise software systems.
Banks do not disclose the prices they charge for Treasury Management products.
Definition:
right amount of cash resources are available in the right place in the right currency and at
the right time in such a way as to maximize the return on surplus funds, minimize the
financing cost of the business, and control interest rate risk and currency exposure to an
acceptable level.
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financial futures, options and derivatives, payment systems and the associated financial
risk management.
1.4Integrated Treasury:
We see integration of segmented financial markets- money market, debt and capital market
and forex market, etc., at the macro level and integration of treasury operations at the
consolidation. The reforms that were initiated in 90s made domestic markets closely linked
to global markets. The domestic market is integration with global market at the micro
level, which has raised the need for integration of micro level units. Relaxation of
regulations has almost integrated different segments of financial markets- debt market,
money market, capital market, forex market, etc., which enabled free flow of money from
one market to another. Increased demands from their clients in tandem with high
competition forced banks to operate in all these markets. Once capital account
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CHAPTER 2:
Litrature Review
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2.Literature Review
with automated accounts payable and receivable systems, businesses can reduce
errors and costs, as well as lessen exposure to check fraud. It comments on the use
checks. It mentions the use of remote deposit service to scan checks and transmit an
electronic image of the check to banks for deposit. It comments on the use of
that public accounting firms should consider to ensure that they are getting the most
from their banks. Among the services provided by banks include automated
clearing house (ACH) transactions, lockbox and zero-balance account (ZBA). Ways
on how banking clients can find a bank that offer treasury and cash management
and treasury management systems and services in Europe. It expects the Internet to
drive the future of such systems and services. It highlights the importance of cloud
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CHAPTER 3:
Research Methodology
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Management in Banks.
To have a broader view on nature of treasury assets & liabilities and to know what are
To understand the risk associated with Treasury Management and their mitigation.
To know what are the RBI guidelines formulated for Treasury Management.
To know the future scope involved in Treasury Management & role of information
To have knowledge of how SBI manages its treasury as SBI is the major contributors
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by making a comparison between two banks that is ICICI bank and STATE BANK OF
knowledge.
It is a careful investigation for search of new facts in any branch of knowledge. The
purpose of research methodology section is to describe the procedure for conduction the
study. It includes research design, sample size, data collection and procedure of analysis of
research instrument.
Research always starts with a question or a problem. Its purpose is to find answers to
questions through the application of the scientific method. It is a systematic and intensive
According to Kerlinger, Research design n is the plan structure & strategy of investigation
According to Green and Tull, A research design is the specification of methods and
procedures for acquiring the information needed. It is the overall operational pattern or
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framework of the project that stipulates what information is to be collected from which
It is found that research design is purely and simply the framework for a study that
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CHAPTER 4:
Company Profile
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Rajshree Industry
Phone +91-22-22019380/32995190
Fax +91-22-22010011
Email ID info@formpack.co.in
Website http://www.partywareproduct.com
Year of 2003
Establishment
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disposable ware is easy to use and have no maintenance they have demand worldwide. We
offer a range of disposable products like disposable Plastic Cups, Plates, Trays, Bowls,
containers, cup-lids, etc. we have been able to conquer an esteemed clientele in India as
well as in other parts of the world like India, USA, Kuwait, South Africa and Australia.
Our trademarks Natraj Satyam Samrat&"King" has a strong presence in the Indian
market. Our range of Plastic Dinnerware is made from first rate raw materials. The
products are made under hygienic conditions that assure their purity. They are available in
different sizes to meet the requirements of the clients. Our ultimate aim is to gain the
goodwill, customer confidence & meet all the deadlines set by our customer on the quality
front and provide them with the best of service. We are recognized as one of the Plastic
Drinking Cups Manufacturers and Food Packaging Trays Exporters from India.
disposable plastic products. The different products that we provide include Party
Disposable Trays, Disposable Cups, etc. We are growing at a consistent rate since our
commencement in the year 2003 under the guidance of our visionary CEO, Mr.
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Infrastructure::
our infrastructure includes the extruders, thermoforming machines, printing machine and
the variety of moulds. We have manufacturing facility located at four different locations,
three at Daman & one at Bombay Nasik highway. We have a total constructed area of
60,000sq.ft. Our machines are procured from best available source in India & China. We
are equipped with seven extruders with total combined capacity to extrude 1500kg/hr. We
have eighteen forming machines which are latest of its kind and are called as high speed all
servo machines. These machines can run at double the speed of the conventional machines.
For the decoration on the cups we have five printing machines (printing capacity 10 lac
pieces / day) which can do a job of six colors U.V.Printing (inks procured from Zellar,
Our Team::
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Beverages
13 Aditya Birla Retail
14 Hindustan Lever Limited
Note::Apart we have a network of distributors in all the major cities in India and in various
CHAPTER 5:
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Introduction
Definition:
Britannica defines a bank as: - A bank is an institution that deals in money and its
substitutes and provides other financial services. Banks accept deposits and make loans and
derive a profit from the difference in the interest rates paid and charged, respectively.
The banking sector world over has come into increased focus in the recent years. The
problems in Southeast Asian economies, the recessionary trends in the Japanese economy,
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the financial sector problems encountered in Latin American economies and more recently,
in some central European economies have provided an evidence of how a weak banking
including India, have been focusing attention on introduction of structural reforms, stricter
The banking sector accounts for over half of the assets of the financial sector and remains
dominant in India. The financial sector reforms as part of the broader canvas of economic
reforms, in the country, have led to strengthening of the banking sector in the last decade.
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The Reserve Bank of India (RBI) is the primary regulator of banks in India, which are
governed by the Banking Regulation Act, 1949. Banks are also acquired to conform to the
provisions of the Reserve Bank of India, 1934, the Foreign Exchange Management Act,
1999, the Companies Act, 1956 and the guidelines of the Foreign Exchange Dealers
Association of India and the Fixed Income and Money Market Dealers Association.
The RBI continuously monitors developments in the financial markets in India and abroad
and takes monetary and administrative action as may be considered necessary. The RBI
conveys its policies and instructions to the banks through the circulars issued from time to
time.
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Webster defines treasury as "a place where stores of treasures are kept; the place of deposit,
care, and disbursement of collected funds." Moreover, if one considers the treasury
functions in ones own organization; this definition would most likely broadly describe it.
Treasury and its responsibilities fall under the scope of the Chief Financial Officer.
In many organizations, the Treasurer will be responsible for the treasury function and also
holds the position of Chief Financial Officer. The CFO's responsibilities usually include
capital management, risk management, strategic planning, investor relations and financial
reporting.
In larger organizations, these responsibilities are usually separated between accounting and
treasury, with the controller and the treasurer each leading a functional area. Generally
accepted accounting principles and generally accepted auditing standards recommend the
The specific tasks of a typical treasury function include cash management, risk
(a) Cash Management includes the control and care of the cash assets and liabilities of
the organization. This will include the selection of banks and bank accounts,
information systems, and the development and compliance with cash and investment
policy and processes. All of these pieces of the cash management puzzle need to be
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benefits program risk. There are many risks associated with employee benefit plans,
and treasury should be an integral part of this process in order to mitigate and control
this risk.
the risks that the organization does not want to assume. The normal types of insurance
that are usually obtained are General Liability, Workers' Compensation, Automobile,
Crime & Theft (Securities), Property, Transportation and Surety Bonds. Some
risk. If the organization does not employ a full-time licensed insurance manager, they
usually retain an insurance broker to advice on insurance issues and obtain insurance in
the open market. Another method of risk mitigation is through hedging; this is normally
used for foreign exchange, interest rates and purchase of raw materials.
(d) Accounts Receivable Management includes the control of cash receipt systems within
the organization. This involves the management of customer disputes and deductions,
collections, and the systems and processes for control of accounts receivable. It will
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(e) Accounts Payable Management includes the control of the cash disbursement
process. This function will include vendor relations, disputes and negotiation of the
disputes, and the systems and processes for control of accounts payable to conserve
(f) Bank Relations is that function which is a delicate balancing act due to the normal
practice of having more than one lender involved in most credit arrangements, and
meeting their needs for services and information from your organization. These lenders
(g) Investor Relations is that area of treasury's responsibilities that can have a great effect
organization.
The treasury function must work with all operations within the organization. The
operational functions they are working with should consider treasury to be an internal
Treasury is an exciting and interesting function of the organization that gets involved in
many diverse areas of the business that most other positions in the company do not get the
opportunity to be involved in. It is a natural progression in the career of many who start out
in credit management.
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Since 1990s, the prime movers of financial intermediaries and services have been the
policies of globalization and reforms. All players and regulators had been actively
participating, only with variation of the degree of participation, to globalize the economy.
With burgeoning forex reserves, Indian banks and Financial Institutions have no alternative
but to be directly affected by global happenings and trades. This is where; integrated
treasury operations have emerged as a basic tool for key financial performance.
It involves (i) meeting CRR/SLR obligations, (ii) having an appropriate mix of investment
portfolio to optimize yield and duration. Duration is the weighted average life of a debt
instrument over which investment in that instrument is recouped. Duration Analysis is used
charges.
It involves (i) analysis of major cash flows arising out of asset-liability transactions (ii)
providing a balanced and well-diversified liability base to fund the various assets in the
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balance sheet of the bank (iii) providing policy inputs to strategic planning group of the
bank on funding mix (currency, tenor & cost) and yield expected in credit and investment.
(c) Funding:
The treasurer has the responsibility of exploring and selecting best source of finance for
funding long-and short term cash requirements of the business. While determining the best
source of finance, the treasurer must take various matters into consideration like debt
structure of the organization, structure of the debt portfolio, and advantages and
The goal of the working capital management is to maintain good balance between current
assets and liabilities as per the requirements of the business. Since cash surplus as well as
cash deficit is not recommendable for and organization, the treasurer has the responsibility
to maintain an optimum cash level. A good working capital management maximizes the
This involves establishing, strengthening and maintaining better interaction with interested
Individual investors,
Institutional investors,
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responsibility of the individuals responsible for cash management, who fall under the
treasury belt. This includes cash transmission and bank account and bank relationship
management.
Idle cash incurs opportunity costs as time passes. The excessive surplus cash in the
business may arise due to various factors such as cyclical, seasonal to temporary business
trends. The treasurer has the authority to utilize surplus cash of the organization in short-
Due to increasing globalization of business, the importance of risk and forex management
has been spurring. The international treasurer has to ensure liquidity in foreign exchange
funds without compromising profitability. On the other hand, risk management (hedging)
involves the utilization of financial instruments to cushion the company against interest
Functions of the treasurer, further includes establishing of company policy with respect to
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The treasurer must formulate the capital structure for the organization in accordance to
business goals and implement the same. He has the responsibility of taking appropriate
debt vs. equity financing decisions. A wrong or inappropriate capital structure decision
A sound tax planning involves utilization of various provisions of the statute that enables
the organization to reduce the tax liability without violating the latter and spirit of the law.
The treasurer must identify and undertake such transactions that will result in
The treasurer acts as a cashier; undertakes the role of an authorized signatory on payment
cheques including the authority to approve such cheques. Even reconciliation of relevant
ALM calls for determining the optimal size and growth rate of the balance sheet and also
prices the Assets and liabilities in accordance with prescribed guidelines. Successive
reduction in CRR rates and ALM practices by banks increase the demand for funds for
Integrated treasury manages all market risks associated with a banks liabilities and assets.
The market risk of liabilities pertains to floating interest rate risk for assets & liability
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mismatches. The market risk for assets can arise from (i) unfavorable change in interest
rates (ii) increasing levels of disintermediation (iii) securitization of assets (iv) emergence
of credit derivates etc. while the credit risk assessment continues to rest with Credit
Department, the Treasury would monitor the cash inflow impact from changes in assets
Treasury is to ensure that the funds of the bank are deployed optimally, without sacrificing
yield or liquidity. An integrated Treasury unit has as idea of the banks overall funding
needs as well as direct access to various market ( like money market, capital market, forex
market, credit market). Hence, ideally treasury should provide benchmark rates, after
assuming market risk, to various business groups and product categories about the correct
Treasury can developInterest Rate Swap (IRS) and other Rupee based/ cross- currency
derivative products for hedging Banks own exposures and also sell such products to
customers/other banks.
(q) Arbitrage:
Treasury units of banks undertake this by simultaneous buying and selling of the same type
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This function focuses on quality of assets, with Return on Assets (ROA) being a key
criterion for measuring the efficiency of deployed funds. An integrated treasury is a major
profit centre. It has its own P&L measurement. It undertakes exposures through proprietary
trading (deals done to make profits out of movements in market interest/ exchange rates)
(s) Coordination:
Banks do operate at more than one money market centers. All the centers undertake similar
transactions with differing volumes. There is a need to coordinate the activities of these
centers so that aberrations are avoided (situations where one center is lending and the other
one is borrowing at the same time). The task of coordination of foreign exchanges
positions is no different.
Treasury operates as the focal point of dealing operations. Dealing operations could
include cash/spot, forward, futures, options, interest and currency liability swaps, forward
rate agreements and the like. Treasury is the sole owner and performer of these
transactions.
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The decade of nineties has witnessed more frauds in trading than banking books. The
amount and variety of such embezzlements have been directly relatable to the operational
level. The ground level task of this kind is to be undertaken at the treasury.
following objectives:
To take advantage of the attractive trading and arbitrage opportunities in the bond
To deploy and invest the deposit liabilities, internal generation and cash flows from
maturing assets for maximum return on a current and forward basis consistent with
To fund the balance sheet on current and forward basis as cheaply as possible
To manage and contain the treasury risks of the bank within the approved and
To assess, advise and manage the financial risks associated with the non-treasury
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To adopt the best practices in dealing, clearing, settlement and risk management in
treasury operations.
To maintain statutory reserves- CRR and SLR- as mandated by the RBI on current
the bank
To identify and borrow on the best terms from the market to meet the clearing
customers
The Treasury in the finance department Deals with the liquid assets; since the treasurer is
the head of the treasury, he has a major responsibility of being a custodian of cash and
How much to mobilize: The treasurer has to estimate the amount of funds that will be
required in future, and what part of this can be met by funds generated internally and how
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From where/whom to mobilize: A firm has access to different sources of finance, both
long-term and short-term. The treasurer has to decide which will be the most appropriate
At what costs: all funds have a cost associated with them (e.g., interest on loans,
debentures, etc. dividend on equity). The average cost of all the funds mobilized should be
When to mobilize:The treasurer has to estimate when a shortfall of funds will occur and
Investment Decision: The funds generated in the course of business need to be put to
further use. The investment decision relates to the selection of assets in which funds will be
invested by firm. The assets, which can be acquired, fall into two categories- (i) long-term
assets (ii) short-term or current assets- defined as those convertibles into cash usually
within a year.
(i) the first involving long-term assets are popularly called capital budgeting, and
(ii) the second involving short-term assets or current assets is popularly called working
capital management.
A proper balance should be achieved between fixed and current assets. The money
manager has to decide which kind of funds (long-term or short-term) should be used for
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responsibilities assigned and power delegated, it can be aptly structured. Typically, banks
The dealers and traders in different markets- money, stock, debt, commodity, derivatives
and forex- operate in their respective areas. They are the first point if interface with other
participants in the market. The number of dealers depends on the size and frequency of the
operations. In case of larger in each bank, operations would be carried out by separate and
independent set of dealers in each market. But, for a relatively smaller treasury, operations
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Once the deals are concluded, it is for the back office to process and settle the deals.
This department looks after the activities relating to accounting, auditing and reporting.
Accountants record all deals in the books of accounts, while auditors and inspectors
closely monitor all deals and transactions done by the front and the back office, and send
Head of Treasury
Audit /
Mana Reportin
Manager
ger g
Settlements
Funds
Documenta
Manage Account
r 33 s/
Settlem Monitor
`
The three departments should be compartmentalized and they act independently. The heads
of each section reports directly to the Head of the Treasury. A treasury can have more
functional desk depending on the size and structure of the bank, and activities undertaken
by the bank. For example, the treasury may have separate individuals/managers for
monitoring funds movement, for monitoring of risks, developing and marketing innovative
instruments/products.
CRR, or cash reserve ratio, refers to the portion of deposits that banks have to maintain
with RBI. This serves two purposes. First, it ensures that a portion of bank deposits is
totally risk-free. Second, it enables RBI control liquidity in the system, and thereby,
inflation. Besides CRR, banks are required to invest a portion (8.25 per cent now) of
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their deposits in government securities as a part of their statutory liquidity ratio (SLR)
are bonds issued by the Central government to meet its revenue requirements. Although
the bonds are long-term in nature, they are liquid as they have a ready secondary
market.
The Government securities comprise dated securities issued by the Government of India
and state governments. The date of maturity is specified in the securities therefore it is
a) The Government borrows funds through the issue of long term-dated securities, the
lowest risk category instruments in the economy. These securities are issued through
auctions conducted by RBI, where the central bank decides the coupon or discount rate
based on the response received. Most of these securities are issued as fixed interest
bearing securities, though the government sometimes issues zero coupon instruments
and floating rate securities also. In one of its first moves to deregulate interest rates in
the economy, RBI adopted the market driven auction method in FY 1991-92. Since then,
the interest in government securities has gone up tremendously and trading in these
securities has been quite active. They are not generally in the form of securities but in
b) The investors in government securities are mainly banks, FIs, insurance companies,
provident funds and trusts. These investors are required to hold a certain part of their
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invest in these securities up to 100% of funds-in case of dedicated debt funds and 49%
c) Till recently, a few of the domestic players used to trade in these securities with a
majority investing in these instruments for the full term. This has been changing of late,
with a good number of banks setting up active treasuries to trade in these securities.
Perhaps the most liquid of the long term instruments, liquidity in gilts is also aided by
the primary dealer network set up by RBI and RBI's own open market operations.
Money Market Operations: The bank engages into a number of instruments that are
available in the Indian money market for the purpose of enhancing liquidity as well as
Call/Notice money is an amount borrowed or lent on demand for a very short period.
If the period is more than one day and up to 14 days it is called 'Notice money'
otherwise the amount is known as Call money'. Intervening holidays and/or Sundays
are excluded for this purpose. No collateral security is required to cover these
transactions.
In the short term, the lowest risk category instruments are the treasury bills. RBI
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14-day T-bill- maturity is in 14 days. Its auction is on every Friday of every week.
91-day T-bill- maturity is in 91 days. Its auction is on every Friday of every week.
Wednesday (which is not a reporting week). The notified amount for this auction
Wednesday (which is a reporting week). The notified amount for this auction is
Interbank market for deposits of maturity beyond 14 days and up to three months is
referred to as the term money market. The specified entities are not allowed to lend
beyond 14 days. The market in this segment is presently not very deep. The declining
spread in lending operations, the volatility in the call money market with
fixed interest rate borrowing by corporate, the move towards fuller integration
between forex and money markets, etc. are all the driving forces for the development
of the term money market. These, coupled with the proposals for Nationalization of
institutions, in the asset/liability and interest rate risk management, should stimulate
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the evolution of term money market sooner than later. The DFHI, as a major player
The development of the term money market is inevitable due to the following
reasons
D. Certificates of Deposits
The scheduled commercial banks have been permitted to issue certificate of deposit
without any regulation on interest rates. This is also a money market instrument and
maximum liquidity. As such, it has secondary market too. Since the denomination is
Commercial Paper (CP) is an unsecured money market instrument issued in the form
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Highly rated corporate borrowers, primary dealers (PDs) and satellite dealers
(SDs) and all-India financial institutions (FIs) which have been permitted to raise
resources through money market instruments under the umbrella limit fixed by
A company shall be eligible to issue CP provided - (a) the tangible net worth
of the company, as per the latest audited balance sheet, is not less than Rs. 4 crore;
(b) the working capital (fund-based) limit of the company from the banking system is
not less than Rs.4 crore and (c) the borrower account of the company is classified as
It is a transaction in which two parties agree to sell and repurchase the same security.
Under such an agreement the seller sells specified securities with an agreement to
repurchase the same at a mutually decided future date and a price. Similarly, the
buyer purchases the securities with an agreement to resell the same to the seller on an
when viewed from the prospective of the seller of securities (the party acquiring
fund) and Reverse Repo when described from the point of view of the supplier of
G. Commercial Bills
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Bills of exchange are negotiable instruments drawn by the seller (drawer) of the
goods on the buyer (drawee) of the goods for the value of the goods delivered. These
bills are called trade bills. These trade bills are called commercial bills when they are
accepted by commercial banks. If the bill is payable at a future date and the seller
needs money during the currency of the bill then he may approach his bank for
discounting the bill. The maturity proceeds or face value of discounted bill, from the
drawee, will be received by the bank. If the bank needs fund during the currency of
the bill then it can rediscount the bill already discounted by it in the commercial bill
The RBI introduced the Bills Market scheme (BMS) in 1952 and the scheme was
later modified into New Bills Market scheme (NBMS) in 1970. Under the scheme,
commercial banks can rediscount the bills, which were originally discounted by
Notes (DUPN). So the need for physical transfer of bills has been waived and the
bank that originally discounts the bills only draws DUPN. These DUPNs are sold to
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Banks balance sheet consists of treasury assets and liabilities on the one hand and non-
treasury assets and liabilities on the other. There is a clear distinction between the two
inter-bank market and/or can be assigned or negotiated, it becomes a part of the treasury
Treasury assets are marketable or tradable subject to meeting legal obligations such as
payment of applicable stamp duty, etc. another characteristic of treasury assets is that they
can (and often are required to be marked to market. An example of treasury asset/liability
Loans and advances are specific contractual agreements between the bank and its
borrowers, and do not form a part of the treasury assets, although these are obligations to
bank. (They can however, be securitized and sold in the market. If a bank were to take a
position in such securitized debts, it would become part of treasury activity). On the other
hand, an investment in G-Secs can be traded in the market. It is, therefore, a treasury asset.
Treasury liabilities are distinguished from other liabilities by the fact that they are
borrowings from the money (or bond) market. Deposits (current and savings accounts and
fixed deposits) are not treasury liabilities, as they are not created by market borrowing.
A. Domestic Treasury
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Investment in CDs.
Commercial Paper.
(c) Corporate.
Private Placements.
Tax-free Bonds.
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Preference Shares.
Listed/Unlisted Equity.
Mutual Funds.
2. Liability Products/Instruments:
CD Issues.
B. Foreign Exchange
1. Interbank:
Spot Currencies.
Cash.
Tom.
Forward and Forward-Forward (simultaneous purchase and sale of a currency for two
Foreign Currency Placements, Investments and Borrowings (in accordance with RBI
guidelines).
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C. Derivatives
Currency Options.
D. Certain corporate assets such as investments in subsidiaries and joint ventures are
reckoned as treasury assets although they are not traded and are permanent in nature.
1. Forward Contract:
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It is a contract between the bank and its customers in which the exchange/conversion of
currencies would take place at future date at a rate of exchange in advance under the
contract. The essential idea of entering into a forward contract is to peg the price and
An FRA is an agreement between the Bank and a Customer to pay or receive the difference
(called settlement money) between an agreed fixed rate (FRA rate) and the interest rate
prevailing on stipulated future date (the fixing date) based on a notional amount for an
agreed period (the contract period). In short, this is a contract whereby interest rate is fixed
now for a future period. The basic purpose of the FRA is to hedge the interest rate risk.
For example, if a borrower is going to borrow FC loan for 6 months at LIBOR rate after 3
months, he can buy an FRA whereby he can fix interest rate for the loan.
flows throughout the life of contract in which one party pays a fixed interest rate on a
notional principal and the other pays a floating rate on the same sum. The basic purpose of
IRS is to hedge the interest rate risk of constituents and enable them to structure the
4. Currency Swap:
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the beginning, during the tenure and at the end of the transaction. At the start, initial
principal is exchanged, though not obligatory. Periodic interest payments (either fixed or
floating) are exchanged throughout the life of the contract. The principal is exchanged
invariably on termination at the exchange rate decided at the start of the transaction. By
means of currency swap, the counterparties can reduce the cost of funding.
5. Option:
It is a contract between the bank and its customers in which the customer has the right to
buy/sell a specified amount of underlying asset at fixed price within a specific period of
time, but has no obligation to do so. In this contract, the customer has to pay specified
amount upfront to the counterparty which is known as premium. This is in contrast of the
This is a facility offered to customers to enable them to book Forward Contracts in Cross
Currencies at a target rate or price. This facility helps the customer to en cash the currency
movements in late European market, New York market and early Asian market. The
minimum amount of the contract is 250,000/- in respective base currencies (for e.g. USD,
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Risk profile of the treasury activities consists of two broad categories viz. Financial Risk
and Operational Risk. Financial risks include market risks (interest rate risk, price risk,
basis risk), credit risks, liquidity risks, etc. Operational risks include systemic risk,
compliance risk, legal risks, IT risks, fraud risks, etc. For mitigation of such risks, various
prudential guidelines prescribed by the regulators and internal policies and procedures laid
1. Operational Risk:
This covers the entire gamut of the transaction cycle from dealing to custody. Operational
integrate with work and document flows. This ensures that individual payments and
Mitigation
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Dealers must operate strictly within the single deal, portfolio and prudential limits
set for the instrument and counterparty. Stop loss and risk norms of duration and
No deviation from approved and implemented work and document flows should be
allowed.
The necessary authorizations must accompany documents as they pass from one
followed. Deviations from delivery and payment practices should not be allowed.
backups. They should be put through periodic stress tests to determine their ability
ownership and transfer. Custodial relationships should be only with those with the
The list of approved brokers should be reviewed periodically to satisfy the banks
credit standards and ethics. In equity transactions, the broker is the counterparty.
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Deal, transaction and legal documentation should be adequate to protect the bank,
2. Financial Risks: The following identifies and defines individual financial risks:
The oldest of all financial risks in its simplest form, refers to the possibility of the issuer of
a debt instrument being unable to honor his interest payments and/or principal repayment
in a variety of off-balance sheet contracts such as forward contracts, interest rate swaps and
currency swaps and counterparty risk in the inter-bank market. These have necessitated
prescribing maximum exposure limits for individual counterparties for fund and non-fund
exposures.
Mitigation
Better credit appraisal. Careful analysis of cash flows of the business before
investing.
Risk pricing
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balance sheet
An asset that cannot be converted into cash when needed is liquidity note which is the
There is also the risk of scarcity of funds in the market. This could happen, for example,
when the RBI deliberately tightens liquidity, by increasing CRR, selling securities or forex.
A third situation is when a banks creditworthiness becomes suspect and there are no
Mitigation
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This affects both the assets and liabilities of a bank. On an overall basis, the maturity gaps
between assets and liabilities lead to the risk of a contraction of spreads if interest rates fall
and assets mature before liabilities or interest rates rise and liabilities mature before assets.
Apart from interest rate risk originating from the disparity in the maturities of assets and
liabilities, there is also basis risk, because interest rate determination may differ.
For example, if assets are MIBOR-linked (floating rate), while liabilities are fixed rate and
Mitigation of basis risk will involve converting (in the above instance) assets to fixed rate
(or converting liabilities to MIBOR-linked). Instruments used are interest rate swaps,
The prices of bonds are affected by changes in interest rates. When interest rates come
down, their prices go up. The opposite happens when interest rates rise. The most price-
affected bonds in response to rate movements are those of long maturity- indeed maturity
Duration measures the price sensitivity of a bond to changes in interest rates. Increasing
duration makes the bond portfolio more sensitive to interest rates while decreasing duration
reduces it.
As bond prices and interest rates are inversely related, if the bank expects interest rates to
fall, subject to market liquidity, it will have to increase duration by buying long-dated
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securities. Conversely, in anticipation of a rise in interest rates, the bank will lower
Value-at-risk indicates the possible maximum loss which will be suffered in a specified
period and at a specified confidence level from a fall in the price of a security (or exchange
rate), given historic data on the price behavior of the security (exchange rate) or assessment
The concept is applied to calculate the risk content of an individual security, foreign
The forex market is probably the most consistently volatile of all financial markets. While
it offers enormous scope for making profits, the other side of the coin is the risk of big
losses from unexpected swings in exchange rates. This necessitates and effective forex risk
2. Continuous market monitoring with reference to the banks open positions; and
For supporting the above, it is necessary to have adequate data gathering systems in place
1. Open Positions.
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4. Settlement Risk.
5. Country Risk.
6. Value-at-Risk.
7. Operational Risk.
8. Legal Risk.
Settlement risk arising from time differences between trading zones, which may result in
one of the parties to a transaction having to settle ahead of the other party, i.e., debit and
credit are not synchronized. To some extent (but not completely), this is mitigated by the
Country risk is the possibility that a country or bank in a country will not be able to honour
The RBI has asked banks to measure monitor and control country exposures. It requires
specific responsibility and accountability in the organization structures of the bank for
Standard agreements govern forex contracts in the domestic and international markets, the
main being:
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i. For spot and forward foreign exchange - International Foreign Exchange Nostro
Agreement (IFENA)
iii. All others including Derivatives Internal Swap Dealers Association Master
As required by the RBI, the banks carry out concurrent audit of all forex transactions.
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The RBI has circulated detailed guidance notes on Market Risk Management, Asset
(a) Banks are required to send monthly reports covering liquidity mismatches and
(b) Banks are required to pay special attention to liquidity risk and management and
Call Borrowing/Lending
Core Deposits vis--vis Core Assets, i.e., CRR, SLR and Loans
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manages gap, interest rate, liquidity and currency risks of the treasury and non-
b) The banks submit monthly statements to the Board and RBI on liquidity
c) Stop loss levels are fixed for both SLR and non-SLR securities.
e) The investment committee reviews the investment portfolio every half-year, with
test its ability to cope with new products and instruments, scale of operations and
completely segregated.
j) Deals are backed by deal slips, and office memos containing approvals by
competent authority.
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appropriate authorities.
l) A bank will fully comply with all the RBIs guidelines, regulations and rules
m) The RBI has now finalized norms for risk-based internal audit system from the
many corporate companies, and has already been assigned a separate status from the
general financial functions. Treasury management asks for expertise on capital markets,
money markets, instruments & investment avenues, treasury & risk management and
related areas. In this increasingly integrated and interdependent financial environment, the
links between money and capital markets have become extremely close. To better
understand this inter-linking and manage business in a better way, firms are hiring persons
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one where the barriers to trade, both domestic and international, are fast vanishing. The
transformation process that began in the early 1990s has been put into overdrive. While
foreign firms are busy trying to get a foothold on Indian soil, Indian companies do not lag
behind in attempting to penetrate foreign markets. There has been an unexpected rise in
exports as well as imports, which has resulted in volatile exchange rates and more financial
constraints. Given the inconsistency of exchange rates, the corporate and banking worlds
are paying greater attention to treasury and foreign exchange management. Careers in
treasury and forex management have suddenly been pitch-forked into the limelight. Banks
have been scouting campuses of Indian B-schools with a view to recruiting for their
Corporate Finance:Many Indian corporate are doing business internationally. They are
also raising funds abroad, exposing them to greater risk due to deregulation of interest and
exchange rates. To minimize these risks, it is necessary to handle forex and treasury related
functions carefully. If neglected, it may lead to profit erosion. Corporate are on the look out
for people with professional qualifications to handle all aspects pertaining to treasury and
for-ex management.
Banks and other Financial Institutions: Volatile exchange rate regimes and fickle
interest rates are posing stiff challenges to financial institutions and banking organizations.
They are also being offered myriad opportunities with the inter-linking of financial
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of the asset-liability gap of these institutions. Clients are transacting more and more
business with banks in foreign currencies. Thus, banks and financial institutions are also
seeking professionally qualified persons to look after the treasury and forex management
functions.
Treasury and For-ex Consultancy: Corporate and banks are roping in experienced
professionals as consultants for risk management. Opportunities as consultants are not only
well paid but also satisfying. However, these positions demand sound experience. It is very
natural to be curious about the kind of openings or careers that Treasury and For-
a. Treasury Analyst
As a Treasury Analyst, you will support the Cash Management and Capital Markets
and should demonstrate advanced analytical and system skills. He should be able to use
these skills to develop sophisticated models and apply them to the treasury and accounting
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systems. Exposure to treasury workstation, ledger system, reporting and billing systems is
an additional advantage.
workstation functions. This includes modifying existing processes, clinching new business
accounting data, end user training, and security control. They are also responsible for the
Support Analysts will also respond to client support requests by resolving and diagnosing
problems, and escalate (refer) complex ones to appropriate levels of expertise. They also
maintain knowledge about Treasury banking systems and will serve as back-up support.
c. Cash Analyst
Cash Analysts are responsible for every day cash management for the company and
its subsidiaries. They are also responsible for bank charge analysis, troubleshooting of
credit card and direct debit problems as well as maintaining a database of quarterly and ad-
hoc payments made. They will also serve as support to Treasury Operations, and assist in
credit card charge backs and drafting of monthly reports. Cash Analysts will also follow up
In this capacity, treasury analysts will act as visionaries for world class business
process reengineering. They will focus their efforts on creating a world-class treasury
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functions. They will analyze the benefits of using existing and future platforms to ensure
that the Treasury Organization is an enterprise solution and is compatible with existing
Treasury processes and requirements. They also use their knowledge of treasury/business
software solutions.
e. Trade Specialist
The Trade Specialist provides support to Investment Managers and Clients through
timely and accurate processing of trade instructions and related transactions. The varieties
of trade instructions that require daily processing include global and domestic securities,
derivatives, foreign exchange transactions and transfer of currency between accounts. They
will maintain and strengthen the accounts relationship while minimizing risk and
maximizing profitability.
The Indian debt market has gone through sweeping changes with the introduction of the
Negotiated Dealing System (NDS). This is an electronic trading platform for the following
instruments:
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T-bills
Call/Notice/Term Money
Commercial Paper
Certificates of Deposit
Repos
Membership of the NDS is open to all institutions which are members of INFINET and
have Subsidiary General Ledger (SGL) accounts with the RBI. At present, this covers the
following:
Banks
Financial Institutions
Primary Dealers
Insurance Companies
Mutual Funds
Banks and Primary Dealers are obliged to become members of the NDS. NDS facilitates
securities by RBI through auction and floatation. The system of submission of physical
SGL transfer form for deals done between members on implementation of NDS has been
discontinued. NDS also provides interface to Securities Settlement System (SSS) of Public
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NDS use INFINET, a closed user group network as communication backbone. Hence,
entails holding SGL and/or current account with RBI or as may be prescribed from time to
time.
participants and players are part of secure WAN and make bids and offers, be it forex,
bonds or equities. The system electronically matches bids and offers. Current examples of
electronic trading platforms are those of NSE, BSE and foreign exchange (through the
3. Straight-through-processing (STP)
STP is latest technological wave to hit financial markets. This electronic system enables
This is a natural extension of electronic trading whereby individual traders, once approved
and authorized by the buyer and seller, are settled automatically by the system through its
connectivity with a Clearing House. Buyers receive securities in their custodial accounts
4. Electronic Form
a. Settlement:Post-approval of a deal, the system used, credits and debits the respective
cash and securities accounts of the buyer and seller as required. In G-Secs, the NDS
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For-ex deals in USD/INR and cross-currencies, i.e., USD/JPY, Euro/USD, GBP/USD, etc.,
are also settled electronically through CCIL or SWIFT, through transfers of funds from and
to Nostro accounts.
do not exist in physical form. The SGL depository of the RBI maintains custody and
c.Conversion of Physical Securities to Demat:The RBI and SEBI have now made it
mandatory for almost all securities to be in demat, i.e., electronic record of ownership and
Similarly, Real Time Gross Settlement [RTGS] has already been introduced, which is a
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AND
SBI's relationships with over 700 correspondent banks are leveraged in extracting
maximum value from treasury operations. SBI's treasury operations are channeled through
the Rupee Treasury, the For-ex Treasury and the Treasury Management Group.
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The Rupee Treasury deals in the domestic money and debt markets while the For-
ex Treasury deals mainly in the local foreign exchange market. The TMG monitors the
investment, risk and asset-liability management aspects of the Bank's overseas offices.
RUPEE TREASURY
The Rupee Treasury carries out the banks rupee-based treasury functions in the
domestic market. Broadly, these include asset liability management, investments and
trading. The Rupee Treasury also manages the banks position regarding statutory
requirements like the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR), as
liquidity, maturity profiles of assets and liabilities and interest rate risks.
products that can substitute the traditional credit avenues of a corporate like
fixed and floating rate products. SBI invests in primary and secondary market equity
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These products allow you to leverage the flexibility of financial markets, enable
efficient interest risk management and optimize the cost of funds. They can also be
SBI invests in these instruments issued by your company, thus providing you a
dynamic substitute for traditional credit options. The Rupee Treasury handles the banks
domestic investments.
TRADING
The banks trading operations are unmatched in size and value in the domestic
market and cover government securities, corporate bonds, call money and other
The SBI is the countrys biggest and most important Forex Treasury, both in the
Interbank and Corporate Foreign Exchange markets, and deals with all the major corporate
and institutions in all the financial centers in India and abroad.The banks team of
seasoned, skilled and professional dealers can tailor customized solutions that meet your
specific requirements and extract maximum value out of each market situation.
The banks dealing rooms provide 24-hour trading facilities and employs state-of-
the-art technology and information systems. SBIs relationships with over 700
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correspondent banks and institutions across the globe enhance the strength of the
including long term rupee-foreign currency swaps, rupee-foreign currency interest rate
Group (IBG) and functions under the Chief General Manager (Foreign Offices). As the
name implies the department monitors the management of treasury functions at SBIs
foreign offices including asset liability management, investments and forex operations.
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liquidity, maturity profiles of assets and liabilities and interest rate risks at the foreign
offices.
is one of the principal activities of TMG. The main objectives of investment operations at
our foreign offices, apart from compliance with the regulatory requirements of the host
(c) Maintenance of liquidity. Investment operations are conducted in accordance with the
The activities include appraisal of the performance of the foreign offices broad
parameters such as income earned from investment operations, composition and size of the
portfolio, performance vis--vis the budgeted targets and the market value of the portfolio.
with the objective of optimizing of returns while managing the attendant risks.
Forex and Interest rate (Foreign Currency) derivatives: TMG also plays an
derivatives including currency options, long term rupee - foreign currency swaps, foreign
currency interest rate swaps, cross currency swaps and forward rate agreements.
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The Portfolio Management Services Section (PMS) of SBI has been set up to handle
investment and regulatory related concerns of Institutional investors functioning in the area
of Social Security. The PMS forms part of the Treasury Dept. of SBI, and is based at
Mumbai.
PMS was set up exclusively for management of investments of Social Security funds
and custody of the securities related thereto. In the increasingly complex regulatory and
investment environment of today, even the most sophisticated investors are finding it
Investment returns
The team manning the PMS Section consists of highly experienced officers of SBI,
who have the required depth of knowledge to handle large investment portfolios and
address the concern of large investors. The capabilities of the team range from Investment
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1.5ANALYSIS OF SBI
SBI bank has an integrated treasury management; they dont have any competitors as
SBI has their own procedure for treasury management which is followed very well by
them. Percentage of income is not disclosed by them to anyone. SBI do follow RBI
guidelines for treasury management properly which they think that it is well
formulated.
Risk involved in treasury management for SBI is the same like operational risk and
financial risk and they aim for a well-integrated and innovative management of
treasury with low risk and proper function of treasury assets and liabilities. It also has
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ICICI Bank
sector banks to withstand the competition frompublic sector banks came up with
innovative products and superiorservice.Within this business, the bank has three main
product areas - Foreign Exchange and Derivatives, Local Currency Money Market & Debt
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Securities, and Equities. With the liberalization of the financial markets in India, corporate
need more sophisticated risk management information, advice and product structures.
These and fine pricing on various treasury products are provided through the bank's
Treasury team. To comply with statutory reserve requirements, the bank is required to hold
25% of its deposits in government securities. The Treasury business is responsible for
managing the returns and market risk on this investment portfolio. ICICI BANK earned
from the Interest from Advances 51.14 % Interest from Investment 27.12 %, bank
earned commission
exchange and brokerage of 15.25 %. These are the major earningsources of the bank. Bank
also earned from the Forex and Derivatives and some other Interest Income.
Provision. Bank also spent Dividend andTax on dividend, Loss on Investment, Tax.
especially in the era of globalization where thereare stiff competition among various
market players.
ICICI Banks treasury income through sale of investments saw a profit of Rs256 crore in
2009 against a loss of Rs77.6 crore in the corresponding of last year fiscal while income
from foreign exchange and derivative business dipped to Rs137.8 crore from Rs157.4
crore.
ANALYSIS OF ICICI:
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treasury, managing deposits and advances, managing working capital and also managing
The bank has an integrated organization structure where in they have sub processes at each
level.
They believe in customer satisfaction most rather than competition in treasury market.
The procedures for treasury management operation in bank are different from other
organization they have to look into at companys interest more and bank has to look
overall.
The banks set their processes according to RBI guidelines and follow them in daily
transactions of treasury.
The guidelines which provided by RBI are not strictly formulated. RBI has formulated
The bank never compares it process with any other bank because every bank has some or
the other risks involved and you may find in banks almost same processes are required.
They have entered in each process and found themselves at a success; they aim the
management at a peak.
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CHAPTER 6:
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Data Analysis
Secondary data::
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Secondary data is the data which is already collected by someone and complied for
different purposes which are used in research for this study. It includes:-
Magazine
Journal
Newspaper
Study allotted has a page constraint. The information required for in-depth study is
not possible.
Time allotted for making project is very limited. As study is restricted only to a
specific area. If time permits then there would be a vast scope of study of different
banks.
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CHAPTER 7:
OBSERVATIONS &FINDINGS
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7.1 FINDINGS:-
The project has given an insight into the various aspects of treasury management namely:
Treasury operations of every bank are most probably same. The process may differ from
one bank to another bank as every bank has the own policies for management of treasury.
Risk involved in treasury management is very high because of which they do not disclose
Mainly there is operational risk and financial risk and they aim for a well integrated and
innovative management of treasury with low risk and proper function of treasury assets
and liabilities.
treasury management.
SBI bank has an integrated treasury management; they dont have any competitors as such
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SBI has their own procedure for treasury management which is followed very well by
them. Percentage of income is not disclosed by them to anyone. SBI do follow RBI
guidelines for treasury management properly which they think that it is well formulated.
Risk involved in treasury management for SBI is the same like operational risk and
financial risk and they aim for a well integrated and innovative management of treasury
with low risk and proper function of treasury assets and liabilities.
ICICI has their own procedure for treasury management which is followed very well by
them.
In the increasingly complex regulatory and investment environment of today, even the
most sophisticated investors are finding it difficult to address day to day investment
The process is very complicated that one cannot understand it easily. Training of 5 to 6
As treasury operations are important part of every bank they set certain rules and
regulation as per RBI guidelines and which will become beneficial for the bank also.
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CHAPTER 8:
RECOMMENDATIONS AND
SUGGESTIONS
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factors such as the volume, volatility, fraud and errors etc. As per the guidelines of
ongoing basis, monitor the compliance with the laid down management policies
and prescribed procedures and report the deficiencies directly to the management of
the bank.
As per the RBI guidelines, Banks should undertake a half yearly review (as of 30
September and 31 March) of their investment portfolio, which should, apart from
adherence to laid down internal investment policy and procedures and Reserve
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Bank guidelines, and put up the same before their respective Boards within a
month, i.e. by end-April and end-October. Further, a copy of the review report put
units converting currency locally to meet their needs, and potentially significant
foreign exchange risks across the organization, which may not be easy to quantify,
positions can be offset, reducing the cost of FX spreads, and ensuring a global view
of FX risk.
CHAPTER 9:
CONCLUSION
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CONCLUSION
Historically, the treasury operations were oriented more toward compliance of the
regulatory prescriptions in terms of cash reserve ratio and statutory liquidity ratio.
Ensuring that there are no defaults in central bank account and that the borrowings are
minimal were the focal issues addressed to. With the globalization process, the role of
treasury has undergone a sea change and it is a major profit center for better performing
banks.
Treasury operations have become more significant and complex today than what it was few
years back. The role played by the technology and the rapid changes in the financial sector
has brought in more flexibility in the funds deployment by banks. The dynamism with
which the Treasury Market moves needs to be fully understood which is integrated in the
Banks.
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The role of information technology is pivotal particularly because huge funds are handled
clarified and met with, treasury operations can seldom be successful in terms of revenue
acceleration.
To sum up, the paradigm shift in the risk exposure levels of the financial institutions, has
definitely led to treasury management assuming a center stage. Undoubtedly all financial
assets/ liabilities becomes essential. Such an understanding will enable the financial
institution to identify and unbundle the risks and further aid in adopting and developing
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10. BIBLIOGRAPHY:-
BOOKS
VARIOUS JOURNAL
Times of India
Business Standard
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