1 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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1
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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SSccooppee ooff tthhee PPrroojjeecctt
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
Problem Formulation
Efficient management of cash (outflows/inflows) to improve liquidity and
returns will be important factors for the banking sector. This project analyzed
cash management of banks on this basis.
Research Design
The research design for this study is basically 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 Indian 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 e-
business objectives, in India there are different cash management solutions.
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CASH MANAGEMENT SOLUTION CURRENTLY OFFERED IN
INDIA
Account Reconciliation Services
Balancing a chequebook for a very large business can be quite a difficult process.
Banks have developed a system to overcome this issue. They allow companies to
upload a list of all the cheques whereby at the end of the month, the bank statement
will show not only the cleared cheques but also unclear ones.
Positive Pay
An effective anti- fraud measure for cheque disbursements. Using the cheque issuance
data, updated regularly with cheque issuance and payment, the bank balances all
cheques offered for payment. In the case of any discrepancies, the cheque is reported
as an exception and is returned.
Balance Reporting Services
Balance reporting provides help in procuring a company's current banking
information from its accounts. With this service the banks can offer almost all types
of transaction-specific details on activities related to payment like deposits, cheques,
wire transfers etc. It also helps in an effective and efficient management of regular
cash flow.
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Lockbox
Facilitates the cash improvement where, instead of being delivered to business
address, customer payments are delivered to a special post office (PO) box. It is only
the customers' payments that are delivered in the PO box and the company's own bank
collects the amount and delivers them to the banks of the customers. The bank of the
customers opens and processes the payments for direct deposit to the bank account.
Lockbox contents regularly removed and processed.
CBLO
CCIL (Clearing Corporation of India) launched a new money market instrument with
RBI, the Collateralized Borrowing and Lending Obligation (CBLO).
It is a variant of liquidity adjustment facility, permitted by RBI. It is a mechanism to
borrow and lend funds against securities for maturities of 1 day to 1 year. CBLO is
expected to meet the needs of banks, FIs, PDs, MFs, NBFCs and companies for
deploying their surplus funds. Borrowing limits for members will be fixed by CCIL at
the beginning of the day taking into account the securities deposited by borrowers in
their CSGL account with CCIL.
•It is an obligation by the borrower to return the money borrowed, at a specified
future date.
• It is an authority to the lender to receive money lent, at a specified future date with
an option/privilege to transfer the authority to another person for value received;
• It is an underlying charge on securities held in custody (with CCIL) for the amount
borrowed/lent.
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RTGS System
The acronym “RTGS” stands for Real Time Gross Settlement. RTGS system is a
funds transfer mechanism where transfer of money takes place from one bank to
another on a “real time” and on “gross” basis. This is the fastest possible money
transfer system through the banking channel. Settlement in “real time” means
payment transaction is not subjected to any waiting period. The transactions are
settled as soon as they are processed. “Gross settlement” means the transaction is
settled on one to one basis without bunching with any other transaction.