OBJECTIVE OF THE PROJECT
To know about Cash Management of Banks To analyze the Cash Management Process of Bank To analyze in detail, the way Banks currently manage their finances and make decisions 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 Thane Janta Sahakari Bank. 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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Hypothesis-
Thane Janata Sahakari Bank’s cash management policy is in conformity with rules and regulation of RBI.
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RESEARCH METHODOLOGY
Proble m 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 analytical because it utilizes the large number of data of the Banks.
Data Type Primary data takes much time and are also expensive whereas the secondary data are easy to search and are not expensive too. Mainly secondary data utilised for this project study. The annual reports of the TJSB bank and master circulars of RBI were used for getting information.
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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 and 3. 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 India’s 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 bank’s 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 today’s 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 ebusiness 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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Brief History of Urban Cooperative Banks in India
The term Urban Co-operative Banks (UCBs), though not formally defined, refers to primary cooperative banks located in urban and semi- urban areas. These banks, till 1996, were allowed to lend money only for non-agricultural purposes. This distinction does not hold today. These banks were traditionally centered around communities, localities work place groups. They essentially lent to small borrowers and businesses. Today, their scope of operations has widened considerably.
Unde r State Purvie w
There was the general realization that urban banks have an important role to play in economic construction. This was asserted by a host of committees. The Indian Central Banking Enquiry Committee (1931) felt that urban banks have a duty to help the small business and middle class people. The Co-operative Planning Committee (1946) went on record to say that urban banks have been the best agencies for small people in whom Joint stock banks are not generally interested. The Rural Banking Enquiry Committee (1950), impressed by the low cost of establishment and operations recommended the establishment of such banks even in places smaller than Taluka towns.
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The first study of Urban Co-operative Banks was taken up by RBI in the year 195859. The Report published in 1961 acknowledged the widespread and financially sound framework of urban co-operative banks; emphasized the need to establish primary urban cooperative banks in new centers and suggested that State Governments lend active support to their development. In 1963, Varde Committee recommended that such banks should be organized at all Urban Centers with a population of 1 lakh or more. The committee introduced the concept of minimum capital requirement and the criteria of population for defining the urban centre where UCBs were incorporated.
Duality of Control
However, concerns regarding the professionalism of urban cooperative banks gave rise to the view that they should be better regulated. Large cooperative banks with paid-up share capital and reserves of Rs.1 lakh were brought under the perview of the Banking Regulation Act 1949 with effect from 1st March, 1966 and within the ambit of the Reserve Bank’s supervision. This marked the beginning of an era of duality of control over these banks. Banking related functions (viz. licensing, area of operations, interest rates etc.) were to be governed by RBI and registration, management, audit and liquidation, etc. governed by State Governments as per the provisions of respective State Acts. In 1968, UCBS were extended the benefits of Deposit Insurance.
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Towards the late 1960s there was much debate regarding the promotion of the small scale industries. UCBs came to be seen as important players in this context. The Madhavdas Committee (1979) evaluated the role played by urban co-operative banks in greater details and drew a roadmap for their future role recommending support from RBI and Government in the establishment of such banks in backward areas and prescribing viability standards.
The Hate Working Group (1981) desired better utilization of banks' surplus funds and that the percentage of the Cash Reserve Ratio (CRR) & the Statutory Liquidity Ratio (SLR) of these banks should be brought at par with commercial banks, in a phased manner. The Madhava Rao Committee (1999) focused on consolidation, control of sickness, better professional standards in urban co-operative banks and sought to align the urban banking movement with commercial banks.
Recent Developments
Over the years, primary (urban) cooperative banks have registered a significant growth in number, size and volume of business handled. As on 31st March, 2003 there were 2,104 UCBs of which 56 were scheduled banks. About 79 percent of these are located in five states, - Andhra Pradesh, Gujarat, Karnataka, Maharashtra and Tamil Nadu.
Source- www.rbi.org.in/scripts/fun_urban.aspx
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Introduction of Thane Janata Sahakari Bank
With the modest beginning in 1972 in the co-operative field, the dynamism infused by the Board of Directors, unflinching loyalties of clientele and devotion of staff has propelled the sound foundation of The Thane Janata Sahakari Bank Ltd (TJSB) and has emerged as one of the leading multi state scheduled co-operative Bank in the country.
TJSB presently is catering to the needs of society through a close network of 48 Branches and 2 Extension Counters spread all over the city of Thane, Mumbai, Navi Mumbai, Nasik, Pune & Satara. All these Branches have made remarkable progress on all fronts in all these years.
TJSB believes that "customer delight" is the ultimate goal and has a strong belief that Customers & all Stakeholders wholehearted support, absolute faith and their patronage has largely been responsible for its enviable growth. TJSB is committed to provide banking with speed, comfort and convenience.
TJSB feels proud to acknowledge the growth of large number of successful industrialists, traders and professionals who have grown leaps & bound due to timely assistance and support of the Bank.
TJSB has set before a Visionary Growth Plan focusing all business strategies solely on creation of Stakeholders value. 17
Technological Initiatives
TJSB, a Techno-savvy Bank has implemented successfully the Core Banking Solution (CBS). This has helped the Bank to migrate the Branches from being the processing centers to marketing customer centric outfits. It will also extend the Bank’s reach to its customers by multiple delivery channels such as ATM, Internet, Mobile etc. This has brought the Bank on par with the leading Banks. Bank has network of 49 ATM’s across Thane, Mumbai, Navi Mumbai, Pune & Nashik.
TJSB is the first Bank in Co-operative sector to install Cheque Depository Machines at 37 branches, which are operational 24 X 7.
TJSB has put in place Real Time Gross Settlement System (RTGS) transactions. With Core Banking Solution in place the Bank is Providing RTGS facility to all its customers.
TJSB has initiated process for strategic alliance with other Banks for the usage of their delivery channels by which nearly 5000 ATMs will be available to Bank’s customers across the country.
TJSB is first Bank In the country to introduce Automated Cheque Issuance Machine which enables Customers to take Personalized Cheque Book 24 X 7 18
Bancassurance : TJSB is having arrangement with Max New York Life Insurance Co. Ltd. for Life Insurance products and with The Oriental Insurance Co. Ltd. for General Insurance. TJSB’s bancassurance is recognized as one of the most successful bancassurance in the country.
Business Expansion Plans :
TJSB has recognized the opportunity for its expansion through the Merger and Takeover of the other Banks. To step forward it has recently acquired two Pune based Co-operative Banks namely The Navjeevan Nagrik Sahakari Bank Ltd and The Sadguru Jungli Maharaj Sahakari Bank Ltd.
Special Mention : TJSB has been awarded 1st Prize for the Best Co-Operative Bank in Maharashtra by “Maharashtra State Urban Bank’s Federation Ltd.” for the F.Y.2004-2005.
TJSB has been awarded 1st Prize as “Padmabhushan Vasantdada Patil Utkarsha Nagri Sahakari Bank” for the F.Y.2003-2004 from Kokan Region for the second time consecutively.
TJSB was recognized amongst top 5 Co-Operative banks in the country, during centenary celebration of Co-Operative movement by Kalupur Commercial CoOperative Bank Ltd.
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Cash management of TJSB
Generally cash manage ment in banks done in two ways :
Actual transfer of cash among branches Proper management of surplus cash
Interbank transfer of cash in TJSB :
Guidelines & system for effective cash management-
i.
In TJSB every branch has maximum retention limit i.e. amount of cash every branch can hold with them, this limit can decided by estimated transaction takes place in particular branch i.e. as per inflow and outflow of cash in that branch.
ii.
In any branch of TJSB, retention limits decided as per business mix by board authority, maximum retention limit for any branch should not exceed 1% total deposits and advances.
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iii.
it is necessary to run the software/programme installed at cash pool regarding daily cash balance of all branches. After running the said software programme will show the daily current balance at the time of running the software programme along with the receipt & payment and cash retention limit of the respective branch at the time of running the same.
iv.
It is necessary to take into account each branch’s cash position & cash limit while managing the daily cash requirement. Many of the branches are not in need of cash viz-a-viz they are having surplus cash which they need to deposit with the cash pool where as some of the branches have to fulfill their cash requirement daily or on alternate days. The cash pool has to fulfill all the cash needs as & when necessary.
v.
The corporate office has decided the limit of branches which also includes the ATM cash. Also, likewise cash pool, the branches have also to run the software/programme in respect of daily cash balance and closely monitor that whether the cash limit of their respective branch do not exceed. However at present while running the said programme, the ATM cash is not shown separately in the said programme. The official have to keep record in the register maintained at the cash pool by telephonic enquiry with the branches volume of average daily cash they require for ATM transactions which enables the cash pool to take into account the daily cash requirement of the branches. The total daily cash required for the ATM transaction and across the counter is to be considered while managing cash and the branch heads should be communicated asked to deposit the excess cash if any, with the cash pool.
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vi.
On 7th & 10th of every month on which generally the salaries of the customer are being credited at the branches and so also, the huge withdrawals from the customers takes place on the said dates which results into increase in daily cash requirement up to Rs 50 lacs to 70 lacs. The cash pool has to provide this cash requirement to the branches. This cash requirement gets reduced after 15th of every month.
vii.
It is the duty & responsibility of the cash pool to bring down the cash requirement by Rs 1.50 crores to Rs.2 crores than the total prescr ibed cash limit after 15th to 30th of every month.
viii.
On Saturday, many of the branches in thane city function during 9 a.m. to 12.15 afternoon. As such cash pool should provide the cash on Sunday only to local branches and cash should be provided to the branches such as, Airoli and Vashi on Friday itself and not on Saturday.
ix.
The cash pool should ask telephonically to the branches at western suburbs about their cash requirement or deposit of excess cash if any and accordingly cash should be provided or to be carried out for depositing the same with the cash pool. This will enable the cash pool to manage the carrying of cash on the same day only.
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x.
Cash pool can easily find out the exact daily cash requirement of the branches by running the above software. While managing daily cash requirement, the cash pool should ask telephonically the branches during 7 pm to 7.30 pm about the exact cash requirement of their respective branches and note the said into their diaries. To keep the balance between the required / excess cash the cash pool should inform daily to the accounts department of the corporate office to enable them to issue the cheque for withdrawal from the state bank of India. The cash pool should maintain their total cash limit prescribed by proper co-ordination & communication with the branches.
xi.
As per existing practice, the cash pool withdrew the required cash from the state bank of India as & when necessary. It is the duty & responsibility of the manager and all the official of the cash pool to maintain relationship with the official of the state bank of India, their cash department in charge, subordinate staff etc. this will enable the cash pool to obtain new notes in required denomination from both the above SBI branches. It is mandatory for every bank to affix the round seal of the respective branch on each soiled note while depositing the soiled cash with SBI on and after 10 th every month the cash pool should collect the soiled cash along with the letter addressed to bank where the soiled cash is to be deposited as per the norms prescribed in the clean note policy of the RBI. A copy of the said letter should be kept at the respective branches for record purpose.
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The cash pool should ensure that the said cash is deposited with the SBI, TCC branch by the accounts department of the corporate office and the acknowledgement of the same & the counter foil number should be sent to the accounts department on same day and the zerox copy of the same should be kept on record of the cash pool. As it is mandatory to follow this procedure during 11th to 20th of every month. The cash pool scrupulously adhere the same and the soiled cash should not be kept in the custody of the cash pool for more than two days.
xii.
Cash pool officials should submit the letter of intimation one & half month in advance for denomination wise cash requirement of Rs 25 cores during the festivals seasons, especially at the time of Ganpati and Diwali to the manager currency cash ,HDFC bank , kamal mill compound, Parel, Mumbai so also such denomination wise letter of intimation for Rs 20 crores should be submitted to the SBI, TTC one month before the festival season start. The cash pool should ensure that confirmation for collection of the cash the cash pool in charges of respective banks three days before Ganpati & Diwali to enable the cash pool official to distribute the same to the branches.
xiii.
For example maximum retention limit for Noupada branch of TJSB is 75 lakh as this is a industrial area where need for cash is maximum due to business transaction, whereas for thane east branch maximum limit is 30 lakh as there are less transaction.
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Rules and Regulation Of Primary Co-Operative Banks In India
The banking regulation act 1949 which had come into force from 1 st march 1966, has vested the Reserve Bank with various statutory powers of control and supervision over the co-operative banks. Sec.5 (CCV): in terms of this section a primary co-operative bank means a cooperative society other than a primary agricultural credit society: 1. Primary object of which is the transaction of banking business 2. The paid-up share capital and reserves of which are not less than one lakh rupees 3. The bye- laws of which do not permit admission of any other co-operative society as a member.
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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 PCBsThe 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 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. 26
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 held at the close of business on each day of a fortnight.
ii)
Fortnight- It shall mean the period from Saturday to second following Friday, 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 reservesIn 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 maintainedIn 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
No.
Minimum SLR holding in 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 doesn’t 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 cooperative 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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NON-SLR INVESTMENTS -
With a view to allowing UCBs greater flexibility in making Non-SLR investments. Non-SLR investments would be governed by the following guidelines.
(i) Non-SLR investments will be limited to 10% of a bank's total deposits as on March 31 of the previous year.
(ii) Investments will be limited to "A" or equivalent rated Commercial Papers (CPs), debentures and bonds that are redeemable in nature.
(iii) Investments in unlisted securities should not exceed 10% of the total non-SLR investment at any time. Where banks have already exceeded the said limit, no incremental investment in such securities will be permitted.
(iv) Investments in units of Mutual Funds, except Debt Mutual Funds and Money Market Mutual Funds, will not be permitted.
(vi) All fresh investments under Non-SLR category should be classified under Held for Trading (HFT) / Available for Sale (AFS) categories only and marked to market as applicable to these categories of investments.
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(vii) Balances held in deposit accounts with commercial banks and in permitted scheduled UCBs and investments in Certificate of Deposits issued by Commercial Banks will be outside the limit of 10% of total deposits prescribed for Non-SLR investments
(viii) The total amount of funds placed as inter-bank deposits (for all purposes including clearing, remittance, etc) shall not exceed 10% of the DTL of a UCB as on March 31 of the previous year.
(ix) Exposure to any single bank should not exceed 2% of the depositing bank's DTL as on March 31 of the previous year, inclusive of its total non- SLR investments and deposits Placed with that bank.
(xi) All investments, other than those in CPs (commercial papers) and CDs (certificate Of deposits), shall be in instruments with an original maturity of at least one year.
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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 TJSB:
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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TJSB can invested in following securitiesCentral/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
security
fixed
bonds
CBLO
deposit CEO
50 crore
40
10
100
50
General
25
15
-
100
25
-
-
-
100
10
manager Deputy general manager
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Investment Strategies of TJSB-
In the monthly meeting the investment committee shall review the economic scenario & market condition. The investment department shall take a view on interest rates as per the prevailing market & economic condition The exposure under short/medium/long term government securities may be taken considering various aspects such as liquidity position in the system duration of portfolio etc. If the yield curve is flat more risk is involved at the longer maturity and therefore exposure in the same may be reduced, if the yield curve is steep the exposure in the longer term may be increased as per availability of the funds because chances of appreciation in the value are more. If the interest rates are likely to go down and condition are conducive for investment, a certain percentage of the excess g-securities over and above the SLR requirement may be shifted for aggressive trading in the market to grab the available opportunity of increasing trading income. Impact of change in interest rate on entire portfolio in the existing condition shall be analyzed by the investment department on monthly basis.
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The investment department shall analysed average modified duration of the portfolio on monthly basis. The average modified duration at any point of time shall not be allowed to increase above six years. If the interest rate scenario is conducive for the longer and maturity, investment committee may take a decision about increasing portfolio duration.
This is an estimated portfolio as on 31 st march 2010 considering deposit and advance target for 09-10. The estimated portfolio mix of investment as follows-
Particulars
31st Mar 2009
31st Mar 2010
G-securities
66253
75000
Treasury bills
2843
3500
Trustee securities
50
50
Bonds/NCDs
18466
23200
Commercial papers
1375
00
Fixed deposit with banks
17283
27500
Certificate of deposit
893
0
Mutual fund
450
750
Call deposit
0
0
Shares
of
co-operative 44
44
banks
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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 positio n 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 TJSB For Efficient Cash Management:
TJSB target investment margin for FY 2009-2010 is 8.53%. For risk management TJSB- 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. TJSB use this instrument very efficiently to fulfil its CRR requirement. TJSB use this instrument for trading purpose also i.e. if they have excess cash they can lend at higher interest rates For maintain SLR, TJSB 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 nonSLR 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. TJSB’s 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 TJSB as follows:
TJSB 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 doesn’t maintain more cash as CRR, it try to avoid cash remain ideal. TJSB purchase government securities according to the availability of funds, prevailing market condition and SLR requirement By using CBLO,TJSB can take arbitrage opportunity as all security on CBLO are pledged with CCIL For NON-SLR option TJSB invest mainly in – Government securities Inter bank exposure- not more than 5% of deposits of previous FY PSU bonds IDBI, IFCI bonds Commercial Papers TJSB invest more in government securities as compare to call money market or CBLO instrument because of risk purpose. TJSB doesn’t invest much in money market mutual fund instrument as it not offers higher return as compared to government securities.
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TJSB manage its cash efficiently and it shows by their investment policy and by its financial performance as follows-
(Rs.in crores)
Financial Performance 6000
5000 4000 3000
2000 1000 0
Paid up capital
Reserves
Deposits
Advances
Investment s
Working Funds
% increse
50
12.4
15
17
24
16.5
31.03.2009
27
281
2347
1506
1098
2951
31.03.2008
18
250
2039
1285
883
2533
Source38th Annual Report 2008-09
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Recommendations of The Study
After analyzing TJSB bank’s cash management policy, I would like to place following recommendation -
TJSB 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.
TJSB should go for more techno savvy products for payment and collection services.
TJSB 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
TJSB manage its cash efficiently as per rules and regulation of RBI, as it manages it’s inter branch cash very efficiently among various branches.
TJSB 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 an exception. 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 be irrelevant tomorrow.
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Learning-
Understanding of various norms and procedure of RBI for cash management Understanding about how one bank manage its liquidity position 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.htm www.rbi.org.in http://www.rbi.org.in/SCRIPTS/PublicationsView.aspx?id=7250 www.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 Offerings and New Corporate Best Practices by Niraj Vedwa
50
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