Evaluation of Cash Management & Banking System

8/3/2019 Evaluation of Cash Management & Banking System

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Evaluation of Cash

Management & Banking Systemin Indian Oil Corporation Ltd.

MADE BY:-

RAVISH CHANDRA

BBA 4544\09


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Company ProfileIndian Oil Corporation is an Indian public-sector

petroleum company. It is Indias largest commercial

enterprise, ranking 98th on the Fortune Global 500 listing

(2011). Indian oil and its subsidiaries accounts for a 47%

share in the petroleum products market, 40% share in

refinery capacity and 67% downstream sector pipelines

capacity in India. The Indian oil group of companies owns

and operates 10 of Indias 20 refineries with a combined

refining capacity of 60.2 million metric tons per year.


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Vision

The company has a vision with value. It focuses on six basic

values which are: Ethics setting high standards for ethics & values

Customer fostering relationship for the lifetime

People leading with passion to excel

Technologies harnessing frontier technology

Innovation pioneering the spirit of research and creativity

Environment caring for the environment and community


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Corporate Objectives

To serve the national interests in the oil and related sectors in

accordance and consistent with government policies.

To ensure and maintain continuous and smooth supplies of petroleum

product by way of crude Refining, Transportation and marketing

activities and to provide appropriate assistance to the consumer to

conserve and use petroleum products efficiently.

To earn a reasonable rate of interest on investment.

To work towards the achievement of self- sufficient in the field of oil

refining by setting up adequate capacity and to build up expertise in

laying of crude & petroleum product pipelines.

To maximize utilization of the existing facilities in order to improve

efficient and increase productivity.


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SWOT ANALYSIS

HIGH FOREIGN EXCHANGE DEBT.

IOCL has managed to significantly cut its borrowing cost due to high shareof foreign exchange debt. Its share of foreign exchange is increasing with

foreign exchange loan crossing 50% of its total debt compared to 42% atthe end of the last financial years.

HIGHEST MARKET SHARE

As Indias flagship national oil company, Indian Oil account for 56%petroleum product market share, 42% national financing capacity and 67%downstream Pipeline throughput capacity.

EXPERTISING IN OIL & GAS INDUSTRYIndian Oil is one of the leader in providing engineering, construction andconsultancy service to the pipe line industry. Highly qualified professionalswith vast experience execute pipeline project from concept tocommissioning and provide service for construction supervision andproject management.

STRENGTHS


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WEAKNESS

STRINGENT CORPORATE POLICIES

The decision related to administration is taken at the corporate level.Even minor proposals are to be referred to the top management. Thisleads to a delay in decision-making.

LACK OF MARKETING EFFORTSAmong the public sector oil companies, Indian Oil Corporation is the onlyone to follow a weak marketing strategy. It is only in the recent years thatthe company has started to market its products. However, still the effortsseem to be weak when compared with the competitors like BPCL andHPCL.

PROMOTION POLICYMost of public sector companies seem to suffer from these lacunae. Theemployees are promoted mainly on the basis of experience and not onthe efforts and initiative displayed by the employee in his work. This resultin demotivation and lack of interest for their work on the part of thehardworking employee, who then tend to shift job to satisfied their needfor self-esteem.


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OPPORTUNITIES

EXPLORATION AND PRODUCTION

Indian Oil is metamorphosing from a pure sectorial company

with dominance in downstream in India to a vertically integrated,

transactional energy behemoth. The corporation is making

investment in E&P and import/marketing venture for Oil & gas in

India & abroad, and is implementing a master plan to emerge as

a major player in petrochemicals by integrating its core refiningbusiness with petrochemical activities.

THREATS

ENTRY OF BIF PRIVATE PLAYER

The opening up of the Oil sectors for private players poses a threateven for this well-established company. With Indian companies like

Reliance and Essar and foreign player like Shell planning their entry

into the Indian scenario, the road seems to be tough for Indian Oil.


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OBJECTIVE OF THE STUDY

To get an exposure of the actual working environment within amulti-national.

To thoroughly understand the cash flow management and

various aspects related to banking at Indian Oil.

To study and analyze all the details of Cash ManagementProduct (CMP) facility provided by SBI.

To understand the benefits of electronic solutions in bankingfunctions.


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CASH FLOW FORECASTINGOVERVIEW

A key element of treasury management involves projections of

inflows and outflows of cash of the corporation. It also requires

constant updation on day to day basis for ensuring effective fund

management.

Projection is done in two stages:

Monthly --- by 7th of every month

Rolling --- by 22nd of every month for 15 days of next month


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Daily Updation of Accruals and

Refinement of Projections

Cash Management Product- Through downloading data from CMSService Providers.

Web-banking / emails from banks.

Regional Collection Centers - through emails / telephone from:

Refinery division

Pipeline division

Assam oil division

Information is received from networks spread all over India.

SBI

570 collection centers with SBI in 250 locations most of the centers

have CMP (Cash Management Product) facility.

460 total withdrawal account with SBI about 150 special withdrawal

account with the facility of transferring the balance at the end of the

day to the centralized cash credit account with SBI, Mumbai.


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The following is a cash flow reconciliation statement for the month of March2011, depicting the total of collections among all the four regions (North,East, West, and South) across India, also including the Assam Oil Divisionand the head office here in Mumbai. The statement is divided into threemain aspects namely, the budgeted collections, the actual receivables and

the variance among the two.


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Problems faced by Cash

Management Department

The major problem or bottleneck faced by the cash management

department is the huge variance between the budgeted receivables and

the actual accruals. The prime reasons why variances occur are:

Debtors failing to make a payment on time.

Delay in clearance of payment from banks. Over estimation of receivables.

Problems of clearance through the electronic modes of payment.

Extra Ordinary state of affairs.


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Research Methodology

The study conducted is to investigative in nature that is to say it probes

into the cash & banking department at Indian Oil figuring out its major

functions with the help of secondary sources of data available from the

department itself.

The major parameters of the methodology include:

Data Collection (Cash Flow Statements, Income Statements, Balance

Sheets etc)

Analysing and interpreting the information available in the financialstatements and drawing meaningful conclusions from them.

Brainstorming with the personnel in cash department in applying various

tools and techniques to bring out the various results.


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Interpretation

INFLOWS The budgeted collection was 21746 cr and actual collection was

23635 cr, so the variance of 1889 cr took place.

REASONS FOR VARIATION IN COLLECTIONS OF Rs. 1889

CRORES 5.85% growth in MS and HSD sales in comparison to last year and

9.44% in comparison to Feb 2011 Rs.1200 crores.

Aviation O/s realization in March 2011 Indian Airlines Rs. 422crores.

Grant from ONGC under RGGLV scheme Rs. 48 crores.

Advance collections from M/s Zauri & Nepal Oil Rs. 99 crores.

The variance of - Receipt on Crude import is 358 cr due to Shifting ofCPCL collection from April

The variance of Maturity of FD of USD bonds under REG S is 250crdue to

Premature receipt of FD


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OUTFLOWS

The variance of (769)cr of Crude Related FE Payments is due to Increasein Import Quantity by around USD 150 MN.

The variance of (502) cr of Region Payments is due to Increase in advanceSales tax including additional demand for sales Tax and custom duty GSO.

The variance of ( 233) cr of Payment for Indegenous Crude is due to importpayment.

The variance of (168)cr of OMC Payments is due to Increased inpurchases from OMC.

The reason for variance of (248) cr of Misc. HO Payments due to :-REASONS FOR VARIATION IN MISCELLANEOUS HEAD OFFICEPAYMENTS OF Rs. 248 CRORES

Interest on WXDL loans & Adhoc Interest for March Rs. 34 crores.

Equity contribution to Indian Oil Petronas on 31st march Rs. 34 crores.

Payment to airport authority of India by - Rs. 69 crores.

Payment to Lubrizol (against 1 crore in Feb) - Rs. 16 crores. Demurrage, Freight, charter hire payment by import section Rs. 35

crores.

Misc increased payments in leiu of March closing by LPG & capital assetssection Rs. 40 crores.


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E-Collection ModelsE Collection uses the internet banking facility by adapting to

the latest technology in use. Some of the important concepts

coming under it are:

Electronic Funds Transfer (EFT)

Real Time Gross Settlement (RTGS)

National Electronic Funds Transfer (NEFT)


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The RTGS solution at Indian Oil has been implemented by its primarybanker i.e. SBI. The main parameters behind choosing SBI as theirRTGS vendor are:

A Primary & Lead Banker

Has long term Business Relation with IOCL

Flexible in the past to accommodate IOCL requirements

Zero day float of funds

Besides customer code detail, also provides product details by

generating them in the MIS and then for posting it in SAP CMP annual charges currently incurred shall be reduced once

replaced by RTGS having nil cost

In March 08 during severe liquidity crisis in market RTGS collectionswere received in IOC A/c after 5 6 hours from the time of remittance.

Also there are delayed settlements due to high volume of transactions

at RBI end on next working day of any holiday all such instances willlead to loss of float in case BNP or HDFC are explored

RTGS with one banker is recommended as customer should not havechoice to select banks in which case there may be no control overcollections


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Suggestions

Integrating the system, so details of customers directly appear inSAP, so middleman can be avoided.

Still a number of people using e-banking is not significant, so

create awareness among customers by telling them advantagesof system.

Giving them assurance about security of payment can increasenumber of users.

Indian Oil and its bankers should drive for the convergencetowards electronic payments and collections to better integratemoney and information flows. This will help the treasurers toexactly determine the cash position of the company on the realtime basis.


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Conclusion

Indian Oil has certainly improved a lot from the history of its banking and

cash management to its present one.

As IOCL is the biggest customer of State Bank of India, so it also enjoys a

lot of value added services being provided by the bank.

SBI has also sanctioned authority for various Fund based and Non-Fundbased credit facility to the company.

Cash flows are received from all the networks spread all over the country

for the updated information.

The major problem faced by the Cash Management department of IOCL

is the huge variance between the Budgeted Receivables and ActualAccrual

Evaluation of Cash Management & Banking System

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