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INTRODUCTION
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,
typically), we find investment/deposit ratio has by far overtaken credit/deposit ratio.
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.
The reasons for such developments appear to be as under:
The income flow from investment assets is real compared to that of loanassets, as the latter is size ably a book-entry.
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
corporate. The basic purpose of integration is to improve portfolio profitability, riskinsulation 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 common pool of funding and contributions.
competition forced banks to operate in all these markets. Once capital account
convertibility is fully materialized, the markets will become fully integrated.
Management in Banks.
treasurer.
To have a broader view on nature of treasury assets & liabilities and to know what
To understand the risk associated with Treasury Management and their mitigation.
To know what are the RBI guidelines formulated for Treasury Management.
To have an in-depth knowledge of how SBI manages its treasury as SBI is the
RESEARCH METHODOLOGY
Gathering primary data through meeting key officials from the related area of
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,
investment vehicles, investment brokers, methods of borrowing, cash management
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
coordinated and documented in a procedural manual in order to control the risk
associated with cash.
(b)
financial analysis, liability claims management, business disaster recovery, and employee
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.
(c)
mitigate 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, Director & Officers Liability, Fiduciary Liability, Employment Practices
Liability, Crime & Theft (Securities), Property, Transportation and Surety Bonds. Some
companies substitute self-insurance or captive insurance companies for some of this 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)
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 usually include the establishment of credit card/purchasing card settlement
systems.
(e)
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 cash
while maintaining positive vendor relationships.
(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
must be considered a partner to your business and must be treated fairly.
(g)
Investor Relations is that area of treasury's responsibilities that can have a great
* Forward Thinking
* Global Thinking
* Technological Advancement
* Customer Focused
* Finance/Accounting Knowledge
* Legal Knowledge
* Reliability
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
consultant, with expertise in risk and finance.
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.
obligations, (ii) having an appropriate mix of investment portfolio to optimise 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 as a tool to monitor
the price sensitivity of an investment instrument to interest rate charges.
(b)
Liquidity & Funds Management: It involves (i) analysis of major cash flows
Asset Liability Management & Term Money: 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 tenor of above 15 days (Term
Money) to match duration of their assets.
(d)
Risk Management: 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 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 prices due to interest rate changes by adhering
to prudential exposure limits.
(e)
Transfer Pricing: 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 business strategy to adopt.
(f)
Derivative Products: Treasury can develop Interest 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.
(g)
selling of the same type of assets in two different markets to make risk-less profits.
(h)
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) that may not be required for general
banking.
(i)
Coordination: Banks do operate at more than one money market centers. All the
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.
(k)
Fraud Protection: 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.
All the aforesaid activities are funds management functions in a banking environment.
by
the
bank.
For
example,
the
treasury
may
have
separate
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
the banks risk policies/appetite.
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
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
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 their deposits in government
securities as a part of their statutory liquidity ratio (SLR) requirements. The government
securities (also known as gilt-edged securities or gilts) 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.
2.
securities issued by the Government of India and state governments. The date of maturity
is specified in the securities therefore it is known as dated government securities.
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 the form of
entries in RBI's Subsidiary General Ledger (SGL).
b)
companies, provident funds and trusts. These investors are required to hold a certain part
of their investments or liabilities in government paper. Foreign institutional investors can
also invest in these securities up to 100% of funds-in case of dedicated debt funds and
49% in case of equity funds.
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.
1.
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
profitability. Some of these instruments are as follows:
A.
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.
B.
In the short term, the lowest risk category instruments are the treasury bills. RBI issues
these at a prefixed day and a fixed amount.
There are four types of treasury bills:
week. The notified amount for this auction is Rs. 100 cr.
week. The
Wednesday (which is not a reporting week). The notified amount for this auction is Rs.
100 cr.
Wednesday (which is a reporting week). The notified amount for this auction is Rs. 500
cr.
C.
Inter bank 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 accompanying
risks in running asset/liability mismatches, the growing desire for 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 reserve requirements and
stringent guidelines by regulators/managements of institutions, in the asset/liability and
interest rate risk management, should stimulate the evolution of term money market
sooner than later. The DFHI, as a major player in the market, is putting in all efforts to
activate this market.
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
unlike a fixed deposit receipt, it is a negotiable instrument and hence it offers maximum
liquidity. As such, it has secondary market too. Since the denomination is very high, it is
suitable to mainly institutional investors and companies.
E.
Commercial Paper (CP) is an unsecured money market instrument issued in the form of a
promissory note. CP was introduced in India in 1990 with a view to enabling highly rated
corporate borrowers to diversify their sources of short-term borrowings and to provide an
additional instrument to investors.
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 Reserve Bank of India are
eligible to issue CP.
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 a Standard
Asset by the financing bank/s.
F.
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 agreed
date in future at a predetermined price. Such a transaction is called a Repo 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 funds. Thus, whether a
given agreement is termed as Repo or a Reverse Repo depends on which party initiated
the transaction.
G.
Commercial Bills
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 rediscount market at the market
related discount rate.
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 them,
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 shortcoming of short-and long term financing, etc.
(b)
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 liquidity and profitability of the
organization.
(c)
maintaining better interaction with interested members of the financing and investing
community such as:
Individual investors,
Institutional investors,
(d)
suitable banking services is the 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.
(e)
Short-term Investments: 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-term beneficial investments.
(f)
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 rate,
commodity and currency exposures.
(g)
establishing of company policy with respect to decision on trade discounts and vendor
payment ageing.
(h)
Capital Structure Formulation: 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 may through the business into irrecoverable
losses.
(i)
Insurance and Tax Planning: 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 reduction/elimination of tax liabilities of the business.
(j)
Internal Treasury Controls: The treasurer acts as a cashier; undertakes the role of
(k)
which
is
created
by
corporate/treasury
actions/decisions
on
Domestic Treasury
1.
Investment in CDs
Commercial Paper
(a)
(b)
(c)
(d)
(a)
Financial Institutions
(b)
(c)
Corporate
(d)
State-level Enterprises
(e)
Infrastructure Projects
Private Placements
Tax-free Bonds
Preference Shares
Listed/Unlisted Equity
Mutual Funds
2.
Liability Products/Instruments
CD Issues
B.
Foreign Exchange
1.
Interbank
Spot Currencies
Cash
Tom
currency
RBI guidelines)
2.
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: 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 thereby
Forward
Spot
Rates =
rate
+/?
Premium/Discount
2. Forward Rate Agreement (FRA): 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.
of
funding.
reducethe
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 forward contract in which both parties
have
a binding contract.
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, EUR & GBP).
Operational Risk: This covers the entire gamut of the transaction cycle from
dealing to custody. Operational risk can again be divided into those arising from:
must integrate with work and document flows. This ensures that individual payments and
deliveries by the bank are entirely deal/transaction supported;
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 value at
risk should be adhered to all times.
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 to
cope with increased volumes and external data combinations.
ownership and transfer. Custodial relationships should be only with those with the highest
credit rating.
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.
Settlement must be of the delivery against payment type.
Deal, transaction and legal documentation should be adequate to protect the bank,
risks:
Credit Risk
The oldest of all financial risks in its simplest form, refers to the possibility of the issuer
of a debt instrument being unable to honour his interest payments and/or principal
repayment obligations. But, in modern financial markets, it includes non-performance by
counterparty 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
balance sheet
(b)
Liquidity Risk
An asset that cannot be converted into cash when needed is liquidity note which is the
normal characteristic of the vast majority of bonds.
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 willing lenders, even though there is no liquidity shortage in the market.
Mitigation
(c)
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
MIBOR falls, assets yields also do, compressing the spreads.
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,
futures and FRAs.
(d)
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 priceaffected bonds in response to rate movements are those of long maturity- indeed maturity
and price changes are strongly positively correlated.
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
securities. Conversely, in anticipation of a rise in interest rates, the bank will lower
duration by selling long-dated securities.
(e)
Value-At-Risk (VAR):
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 of likely future market movements. The concept is applied to calculate the
risk content of an individual security, foreign exchange position, equity share or a
portfolio of these instruments.
(f)
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 management system involving:
1.
2.
Continuous market monitoring with reference to the banks open positions; and
3.
For supporting the above, it is necessary to have adequate data gathering systems in place
to measure currency wise exposures and their maturities.
The following determine the forex risk exposure of the bank:
1.
Open Positions
2.
3.
4.
Settlement Risk;
5.
Country Risk;
6.
Value-at-Risk;
7.
8.
Legal Risk.
(g)
Settlement 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
exposure limits fixed for each inter-bank counterparty.
(h)
Country Risk:
Country risk is the possibility that a country or bank in a country will not be able to
honour obligations due to shortage of foreign exchange or political risk.
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
country risk management.
(i)
Legal Risk:
Standard agreements govern forex contracts in the domestic and international markets,
the main being:
i.
For spot and forward foreign exchange - International Foreign Exchange Nostro
Agreement (IFENA)
ii.
iii.
As required by the RBI, the banks carry out concurrent audit of all forex transactions.
Auditors are required to give daily and monthly reports covering:
Banks are required to send monthly reports covering liquidity mismatches and
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
gap, interest rate, liquidity and currency risks of the treasury and non-treasury balance
sheets.
b)
The banks submit monthly statements to the Board and RBI on liquidity
Stop loss levels are fixed for both SLR and non-SLR securities.
d)
transactions. These findings/reports are put up to the Audit Committee of the Board every
quarter.
e)
The investment committee reviews the investment portfolio every half-year, with
h)
test its ability to cope with new products and instruments, scale of operations and
outlying data and conditions.
i)
completely segregated.
j)
Deals are backed by deal slips, and office memos containing approvals by
competent authority.
k)
appropriate authorities.
l)
A bank will fully comply with all the RBIs guidelines, regulations and rules
The RBI has now finalized norms for risk-based internal audit system from the
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 markets.
Inconsistencies in lending rates require continuous monitoring and management 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 Forex 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 Forex
accounting data, end user training, and security control. They are also responsible for the
documentation of all support processes. Financial
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 everyday 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 on sales and refinance distributions from partnerships.
d. Treasury Analyst-Business Solutions
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
organization through documentation of business process flows and analysis of Treasury
functions. They will analyze the benefits of using existing and future platforms to ensure
that the Treasury Organisation is an enterprise solution and is compatible with existing
Treasury processes and requirements. They also use their knowledge of treasury/business
functions in association with IT experience to transform business requirements into
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. They= will assist in the investment of cash and the research of
currency balances, idle and overdrawn balance and the resolution of trade problems to
ensure accurate client statements.
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
electronic submission of bids/application by members for Primary issuance of
government 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 Debt Office, RBI, and thereby facilitating settlement of transactions in
Government Securities including treasury bills, both outright and repos.
NDS use INFINET, a closed user group network as communication backbone. Hence,
membership to the NDS is restricted to members of INFINET. Membership of INFINET
entails holding SGL and/or current account with RBI or as may be prescribed from time
to time.
2.
Straight-through-processing (STP)
STP is latest technological wave to hit financial markets. This electronic system enables
trading, documentation, clearing, settlement, and custody on a single, end-to-end
hardware and software platform.
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 and sellers receive funds.
4.
Electronic Form
a. Settlement: Post-approval of a deal, the system suo motu, credits and debits the
respective cash and securities accounts of the buyer and seller as required. In G-Secs, the
NDS enables this through the intermediation of the CCIL.
Forex 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.
b. Custody: Electronic records of ownership of securities are held by DPS. Such
securities do not exist in physical form. The SGL depository of the RBI maintains
custody and ownership of SLR securities in electronic form.
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
transactions in securities, maintained with a depository participant (DP), which, in turn,
maintains an account with the apex depository (NSDL,CDSL, etc.)
Similarly, Real Time Gross Settlement [RTGS] has already been introduced, which is a
completely electronically propelled countrywide payment system.
Besides the above the application of sophisticated IT tools has made it possible to
calculate VaR, conduct thousands of scenario analysis through simulation, carry out back
testing/stress testing, and apply statistical tools for complicated analysis in bond
dynamics and exchange rate mechanisms.
of liquidity, maturity profiles of assets and liabilities and interest rate risks.
products that can substitute the traditional credit avenues of a corporate like commercial
papers, preference shares, non-convertible debentures, securitized paper, fixed and
floating rate products. SBI invests in primary and secondary market equity as per its own
discretion.
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 customized in
terms of tenors and liquidity options.
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
instruments. SBI is the biggest lender in call.
FOREX TREASURY (FX)
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 correspondent
banks and institutions across the globe enhance the strength of the Forex treasury. The FX
Treasury can also structure and facilitate execution of derivatives including long term
rupee-foreign currency swaps, rupee-foreign currency interest rate swaps and cross
currency swaps.
OVERSEAS TREASURY OPERATION
Treasury Management Group
The Treasury Management Group (TMG) is a part of the International Banking 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.
Products and Services
of liquidity, maturity profiles of assets and liabilities and interest rate risks at the foreign
offices.
bank 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 country, are (a) safety of the funds invested, (b) optimization of profits from
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
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
Management and Custody to Information Reporting.
Nature of treasury assets and liabilities, treasury products and services, risk
associated in treasury, their mitigation and RBI guidelines for risk management.
treasury management.
SBI bank has an integrated treasury management; they dont have any competitors
SBI has their own procedure for treasury management which is followed very
well by them. Percentage of income is not disclosed by them to any one. 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
good career opportunities.
LIMITATION OF THE STUDY
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
organizational treasury management or having a comparative study between two banks.
Study allotted has a page constraint. The information required for in-depth study
is not possible.
Treasury management has awareness among the banking sector only which
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.
The role of information technology is pivotal particularly because huge funds are handled
by comparatively a few people in each bank. Unless informational expectations are
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
institutions need to perform treasury management. But to have a proper treasury
management function in place, a thorough understanding of the various operations on its
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
appropriate risk management models to manage risks.
BIBLIOGRAPHY
BOOKS
?
Treasury Management
INTERNET
?
www.indiainfoline.com
www.investopedia.com
www.treasury-management.com.
www.financialexpress.com
www.google.com
ANNEXURE
QUESTIONNAIRE
1)
a.
b.
c.
d.
2)
Yes:
No:
3)
4)
No:
Are procedures for treasury management operation in banks different from other
Yes:
5)
No:
operation?
a.
50 %
b.
40 %
c.
70%
d.
6)
7)
No:
Do you think are RBI guidelines very strictly formulated? If yes, why do you feel
so?
Yes:
No:
8)
9)
10)
No:
What are the different risks involved in treasury management in your bank while
11)