RTGS

CHAPTER: 1

TREASURY MANAGEMENT

What is Treasury Management?

“Treasury management is the management of an organization’s liquidity to ensure that the right

amount of cash recourses are available in the right place in the right currency and at the right

time in such a way as to maximize the return on surplus funds, minimize the financing cost of the

business, and control interest rate risk and currency exposure to an acceptable level.”

In brief, treasury management is the efficient management of the financial risk and liquidity of

the business.

Function of Treasury Management

1. To maintain the liquidity of business

It is the main function of treasury management to maintain the liquidity of business. Without

proper liquidity, it is risk for business to operate smoothly. By using cash flow

analysis and working capital management. Treasury officer make good ratio of liquid assets and

liquid liability.

2. To Minimize Currency Risk

In above example of Google Inc. business, I have already explained that it is the function of

treasury management to minimize the currency risk. For this, treasury managers touch with

currency market of world. They analyze the reason of crisis in currency market. Sometime this

crisis will be benefited for them because they have to pay less to other country for getting their

service at cheap rates.

3. To provide quick finance to Company

It is also function of treasury department to supply quick finance to company, when it needs the

money. For this, a good network in financial market is required.

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Structure and Organization of treasury management:

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Share holders

Board of Directors

Chief executive officer/ Managing officer

Vice presedent/ Director(Finanace)

Treasurer Controller

Cash Manager

Finance Manager Tax Manager Data processing Manager

Credit Manager

Accounts ManagerCost Accounting Manager

TREASURER

FUNCTIONS OF TREASURER

1. Funding:

The TREASURER has the responsibility of exploring and selecting best source of

finance for finding long and short term cash requirements for 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.

2. Working Capital Management:

The goal of the working capital management is to maintain good balance between current

assests and liabilities as per requirements of the requirements of the business. A good

working capital management maximizes the liquidity and profitability of the

organization.

3. Better Investor Relation:

This involves establishing, strengthening and maintaining better interacting with

interested members of the financing and investing community such as:

Individual Investors,

Institutional Investors,

Professional Fund Managers and

Foreign Investors etc.

4. Good Banking Relationship:

In general, selection of appropriate, desirable and suitable banking services is the

responsibility of the individuals responsible for cash management, who fall under the

treasury belt.

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5. 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 business trends.

6. Risk(Hedging) and Forex Management:

Due to increasing globalization of business, the importance of risk and forex management

has been spurring. The international treasurer has to ensure liquidity in foreign exchange

funds without compromising profitability.

7. Establishing the Company Policy:

Functions of the treasurer, further includes establishing of company policy with respect to

decision on trade discounts and vendor payment ageing.

8. 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 inappropriate

capital structure decision may through the business into irrecoverable losses.

9. Insurance and Tax Planning:

A sound tax planning involves utilization of various provisions of the statue that enables

the organization to reduce the tax liability without violating the latter and sprit of the law.

The treasurer must indentify and undertake such transaction that will result in reduction

of tax liabilities of the business.

10. Internal Treasury Controls:

The treasurer acts as a cashier; undertakes the role of an authorized signatory on payment

cheques including the authority to approve such cheques. Even reconciliation of the

relevant accounts is an important function of the treasurer.

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RESPONSIBILITY OF TREASURER

1) Funds Management:

It is the responsibility of the treasurer to ensure that the adequate funds are avaible for

meeting the day-to-day requirements of the firm’s operations, as also for its long-term

needs and that no resources of the firm are kept idle.

2) Forex Management:

Whenever a business sources its inputs and distributes its products in more than one

contry , it will have an income or expenditure, or an asset or liability, denominated itn

more than one currency.

3) Risk Management:

It has been stated that the primary task of the treasurer is to mobilize the right amount of

the funds from the right source at the right time at the lowest possible cost and put them

to the right use.

CONTROLLER

FUNCTIONS OF controller

1) Records all tractions in the general ledger, the accounts receivables and the accounts

payables sub ledger, transactions with respect to fixed assests such as depreciation,

inventory control, etc.

2) Keeps track of the company’s short-term investments by recording and reconciling the

transactions with those of the brokerage firms.

3) Looks into the regulatory aspects and implementation of the company’s policy on trade

discounts and receivables ageing.

4) Acts as a planning director.

5) Keeping a record of the attendance of the employees their work timings so as to facilitate

preparing payroll.

6) Reporting information to the management.

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CHAPTER 2

RESEARCH METHODOLOGY

OBJECTIVES OF THE PROJECT:

To know how treasury management effect on banking transations.

What is RTGS

How RTGS is important in bank.

Process of RTGS

How RTGS helps in treasury management.

Research Design

A research design lays the foundation for conducting for conducting the project. Typically a

research design involves the following tasks:

1. Design exploratory, conclusive and/or descriptive phase of the project.

2. Define the information needed.

3. Specify the measurement and scaling procedure.

4. Construct and present an appropriate form of data collection.

5. Specify the sampling process and sample size.

6. Develop a plan for data analysis.

a)Exploratory Research : One type of research design, which has its primary objective the

provision of insight into and understanding of the problem situation confronting the researcher.

Exploratory Research: In exploratory design two types of methods available for collecting the

data are as following;

1] Secondary data

2] Sources of secondary data

3] Qualitative research

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Secondary data:-

What is treasury?

What is treasury management?

Why treasury management is important?

Types of treasury?

What is RTGS?

RTGS process

History of Indian Overseas bank

Sources of Secondary data: -

Books

Internet

Qualitative research: -

Personal interview:- employee of Indian Overseas Bank

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CHAPTER 3

RTGS

What is RTGS?

An RTGS system is defined in this report as a gross settlement system in which both processing

and final settlement of funds transfer instructions can take place continuously (i.e. in real time).

As it is a gross settlement system, transfers are settled individually, that is, without netting debits

against credits. As it is a realtime settlement system, the system effects final settlement

continuously rather than periodically at prespecified times provided that a sending bank has

sufficient covering balances or credit. Moreover, this settlement process is based on the realtime

transfer of central bank money. An RTGS system can thus be characterised as a funds transfer

system that is able to provide continuous intraday finality for individual transfers.

 RTGS is a centralized payment system in which, inter-bank payment instructions are processed

and settled, transaction by transaction (one by one) and continuously (online) throughout the day,

as and when the instructions are received and finally accepted by the system.

Real Time Gross Settlement (RTGS) System is set up, operated and maintained by Reserve Bank

of India to enable funds settlement on real-time basis across banks in the country.

Need for RTGS :

Under the existing system, the settlement of the all individual payments takes place on a net

basis (i.e. difference of payment to be received and payment to be made) and that too at a

designated time. This causes the system participants to be exposed to financial risks for the

period during which settlement is deferred. Due to such delays in settlement, a no. of capital

market and money market frauds have taken place in India in the recent years. Further, the

existing payment system is capable to meet the requirement of the 80s or 90 when the no. and

volume of financial transactions was limited. But, due to change in the economic perspective, its

linkage with the global economies and the role of information technology, need has been felt for

a more accurate, risk free, efficient and effective system. RTGS is an internationally compatible

and transparent-system which could be used to the full advantage of the existing client base

without dispensing with the benefits already available to customers. 

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Who manages RTGS ? 

World over, the central banks manage RTGS systems because the all banks in a country maintain

a current account with the central bank. Accordingly, in India, it is being managed by RBI. 

Process of RTGS 

In India, the RTGS has been implemented by RBI. It has decided to use Y shaped structure out

of the four message flow structures (V,Y,L,T). In this structure the following flow of instructions

(it is not actual and is only for understanding the process) takes place: 

1. Sending of payment instruction/authority by the issuing /paying bank to technical

operator of the Central Processor. 

2. On receipt of such message, stripping of the message by the Central Processor (Contd..

from page 1) and sending of sub-set of instructions (by retaining the original message

with itself) to the Central bank alongwith relevant information (which may include

amount, identity of issuing and receiving bank etc.) for settlement of the transaction. 

3. Irrevocable settlement of the transaction by the Central Bank in its records i.e. debit of

issuing bank’s account and credit to receiving bank’s account and passing this

confirmation to Central Processor 

4. Re-building of payment message by adding the stripped information (say details of

beneficiary) by the Central Processor and sending the message with proper details to the

receiving bank. 

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Advantages accruing from RTGS 

Since the funds transfer instructions are processed and settled in real time, the credit and

liquidity risks are eliminated. 

This will lead to a seamless movement of funds from one end to another using the IT

platform and would reduce the systematic risks in the settlement system. 

As the funds are received instantly online, in the RTGS system, the collecting banks and

their customers can use the funds immediately without exposing themselves to settlement

risk. 

Impact of RTGS 

It is expected that some traditional products like cash management for corporate

customers and traditional money transfer systems among branches, may lose their

significance with the RTGS in place and banks may have to design other innovating

products for their customers. While a demand draft takes about 7 days, it takes about 1-2

days under EFT which is available in 134 cities. 

Present status of RTGS in India (April 2004) 

The system was launched on March 26, 2004 (on pilot basis by involving 4 banks) by

RBI for large value transactions for banks and their clients. RBI expects 120 scheduled

commercial banks and primary dealers to become part of the real time gross settlement

system by June 2004. Nearly 3000 bank branches across 275 cities/towns in India are

expected to go live on this online funds transfer system. 

Procedure for a customer and charges 

Where a customer, instead of using cheque or bank draft, wants to use the RTGS, he will

have to go to an RTGS-enabled bank branch where he maintains his account and give an

online instructions for the funds to be credited to the beneficiary’s account, maintained in

a bank branch having RTGS linkage. The funds would be transferred instantaneously.

RBI would recover Rs.25 for each transactions but banks will have their own charges to

vary from bank to bank. For a bank branch to be part of RTGS, it has to be fully

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computerised and networked. Presently, about 3000 branches at 275 locations in India

meet this criterion. RBI expects about 20000-25000 cheques which involve high value

customer transactions to migrate to RTGS.

Differences other than intraday liquidity facilities and queuing arrangements, which could

have important implications for the working of the RTGS system.

I. Ownership and access policies.

Most systems are owned by central banks. ELLIPS and CHAPS are owned by an

association or a company whose members are the direct participants and the central bank;

the systems are connected to the central bank's internal realtime accounting system.

Access policies also differ. In principle, direct access to RTGS systems requires

participants to hold their accounts at the central bank, which may raise issues regarding

the conditions under which participants can hold central bank accounts. In the majority of

systems direct access is open to all banks (or credit institutions or depository institutions

as applicable). Additional criteria such as financial strength and technical requirements

are applied in several systems. In the European Union the central banks have agreed that,

with limited exceptions, direct access should be confined to credit institutions. Partly

reflecting the differing access policies, the number of direct participants varies across

systems; some systems have large numbers of direct participants, whereas other systems

are twotiered systems with a more limited number of direct settlement members, although

indirect participation in the system can be wide.

II. Message flow structures.

The majority of systems are based on socalled Vshaped structures, whereas others use Y-

shaped or Lshaped structures. Section II.3 discusses message flow structures in more

detail.

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III. Reserve requirements and central bank account structures

Countries vary in the extent to which required reserves are imposed and are available for

use as intraday liquidity in the RTGS system. Central bank account structures also vary in

terms of whether the RTGS accounts are separated from the accounts used for required

reserves or other purposes (i.e. unified or segregated accounts) and whether banks can

hold RTGS accounts at more than one office of the central bank (i.e. centralised or

decentralised accounts). Section II.2 discusses these variations in more detail.

IV. Relationships with other systems.

In Germany, Japan and the United States, RTGS systems coexist with net settlement

systems for largevalue transfers, and this will also be the case in France. In other

countries RTGS systems are or will be the only largevalue funds transfer system. RTGS

systems are also used for the settlement of retail payments in various ways and in several

countries RTGS systems support realtime DVP systems for securities transactions.

The objectives behind introduction of RTGS are:

1. Protection of the key existing assets of the Banking system, which are obviously the

brand name and customer relationship.

2. To widen and strengthen the customer base.

3. To reduce the prevalent transaction cost and to explore revenues for generating additional

income for the Banks. Though CPSS established a task force on payment systems,

principles and practices as early as in May 1998, to establish the principles for the design

and operation of payment system in our country, RBI has taken a cautious approach and

has provided norms and guidelines only in 2005, with a view to provide time and space

for the constituents to adapt. It is pertinent to note that a bill titled “Payment Systems

Bill” was passed in the year 2002 in our Parliament. The implementation of the electronic

settlement systems in our country has been slow but firm because payment systems are

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not fault free and can go berserk. Any developments or suggestions of a core principle

governing such electronic payment systems should factor in the weaknesses and address

the process of elimination of the inherent weaknesses.

As per our Payment Systems Bill 2002, a payment system means "a system that enables

payment to be effected between a payer and a beneficiary and includes clearing, settlement or

payment service." A good payment system creates a comfort zone in liquidity for the

participants and consequently plays a lead role in making the financial markets buoyant. It

has got tremendous impact on the domestic and international transactions with respect to the

speed of transfer, financial risk, reliability and of course the costs. RBI’s recommendation for

the introduction of RTGS has taken into account the uneven automation process of various

private and public sector banks in India. To cite an example, there are a number of Banks,

which have not or are in the process of implementing core banking solutions. In some of the

rural areas the Bank branches are either not computerized or yet to be networked. Besides,

our banking system is different from the western ones in its objective, scope and operation.

Therefore, standardization of any practice is a slow process. Due to this peculiarity, the

implementation of RTGS can only be in stages and wherever appropriate. In other words,

RBI cannot introduce RTGS across the board saying that they are going global. Such an

action would not address the vulnerabilities that are endemic to any system from within and

without.

Core principles of the payment System:

1. The system should be legally robust and be firmly grounded on the present legal system

as applicable to all jurisdictions. In other words, the system should be synthesized tothe

country’s legal environment.

2. The participants to the system should be made aware of the functional risks in the

system. The rules and procedures should facilitate the process of educating the

participants and be clear as to the impact of the entailed functional risks that they may

incur by participating in the system. Therefore, the rules and procedures are expected to

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be comprehensive and up to date. The legal base of the system should be clearly spelt

out. Accessibility should be ensured.

3. An ideal system or a preferred system clearly defines the procedures for management of

credit and liquidity risks. It should specify the relative responsibility of the system

operator and that of the participants. It would be preferable if appropriate incentives were

also provided.

4. An effective payment system should address apart from credit risk, liquidity risk, legal

risk, operational risk and systematic risk. The responsibility for risk management is to be

clearly assigned. An effective management of risk lies in the design of a safe payment

system. Therefore the system design should contain appropriate details and incentives

with respect to the various risks established and management thereof.

5. The payment system should provide prompt functional settlement on the value date

preferably during the day. In other words, this principle states that the settlement should

be daily.

6. An effective system where multilateral netting takes place should be capable of ensuring

timely completion of daily settlements and be capable of handling any inability to settle

by a participant with the largest single settlement obligation. In multilateral netting

systems a participant may defer the settlement. Thus a participant faces the risk of not

being able to meet its settlement obligations thereby invoking the possibility that the

other participants will face unexpected credit and liquidity pressures at the time of

settlement. Therefore strong controls and relative measures are required and should be

embedded within the system. For example, this risk can be addressed by ensuring that

additional functional resources are available to meet the contingency. It can be a

combination of the following:

a. A pool of collateral cash or security, which are appropriately valued.

b. Committed lines of credit.

c. Fixing of maximum individual settlement obligation.

d. Evaluation and standardisation of the system design.

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7. It would be appropriate that the assets used for settlement should preferably be a claim

on the Central Bank; say, in India, it can be the Reserve Bank of India or State Bank of

India. When other assets are used, they should carry little or no credit risks. To put it in

layman’s terms, most systems involve the transfer of asset among system participants to

settle payment obligations. The common practice in India is to have this asset as an

account balance on the Central Bank representing a claim on the Central Bank. As all

the participants in the system must accept this asset, the system’s safety depends, in part,

on whether the asset leaves the arbitrator with significant credit risk. In some payment

systems, a transferable asset is used minimally. For instance, they may settle one claim

by offsetting with another. However, one has to be consistent.

8. The payment system should be highly secured and operationally reliable. There must be

contingency arrangements for timely completion of process delays; i.e. a disaster

management system should be in force. The degree of security and reliability for

providing adequate safety and efficiency depends on the degree of systematic importance

of the system and on the availability of alternative mechanism for effecting payments

during contingencies.

9. The system should be practicable, economically efficient and effective.

10. The system should be transparent and accessible.

11. Accountability and responsibility of the participants should be clearly spelt out.

Implementation of RTGS solution in India:

Due to the peculiar financial environment and practices prevalent in India, certain hard decisions

have been taken by the Reserve Bank of India to bring it in conformity with the international

practices. The salient features are discussed briefly here below: An RTGS payment system is one

in which payment instructions between the Banks are processed and settled individually and

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continuously throughout the day, as opposed to the net settlement systems such as paper based

clearing houses. Though many institutions have introduced electronic processors, they have been

made compatible to paper based clearing systems i.e. the processing has been made faster in

contrast to the manual clearing. In the prevalent practices, though payment instructions are

processed throughout the day, the actual movement of funds between the Banks takes place only

afterwards, usually at the end of the day. In contrast, under an RTGS system, the payee banks

and their customers receive funds during the day itself. The lag or the lead-time between

instruction process and settlement is vastly reduced. This reduces the risk particularly in a large

value funds transfer system. Even in real time process and settlement such as an RTGS System,

there may be circumstances, which could be a source of risk.

The Structure:

There are three structures, in practice, for an RTGS system:

1. ‘V’ shaped structure:

To initiate a fund transfer, the sending bank dispatches a payment message which is

routed through a Central Bank, to a receiving bank. In this structure, the message with all

necessary information about the payment is passed on to the Central Bank. After the

receiving bank settles the transfers with Central Bank, the said information is passed on

to the receiving bank. In this structure, the Central Bank functions as an arbitrator and a

postman.

2. ‘Y’ shaped structure:

Those that use the Swift Network follow an alternative structure, which is a ‘Y’ shaped

structure. In this case, the payment message is transmitted by the sending bank to the

central processor. The central processor filters the information and takes a subset of

information that is necessary for settlement, from the original message and passes this

subset to the Central Bank. The Central Bank’s processor retains the original message.

On receipt of the subset, the Central Bank verifies whether the sending bank has

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sufficient funds in its account. Then the Central Bank informs the central processor the

status of the transfer as to whether settled or queued or rejected. Once settlement takes

place, the full message containing all the information confirming the settlement is rebuilt

by the central processor and sent to the receiving bank. In this structure, the business

information that is exchanged between the sending and receiving banks is not known to

the settlement agent viz. the Central Bank.

3. ‘L’ shaped structure:

A structure conceptually similar to the ‘Y’ shaped structure discussed above is also in

practice. In this structure, the payment message emanating from the sending bank is held

at a system gateway, which is attached to the sending bank’s internal processing system.

From the gateway a subset of the original message is created and sent to the Central

Bank. If the sending bank has sufficient funds in its account, the settlement is completed

and the Central Bank confirms this, by way of a message to the sending bank’s gateway.

On receipt of this confirmation message, the original payment message is automatically

relayed from the sending bank’s gateway to the receiving bank. In all these types of

structures, the common notable feature is that the receiving bank will receive the full

payment message only after the transaction is being settled by the Central Bank. An

alternative ‘T’ shaped structure, where the sending bank routes the payment messages

directly to the receiving bank has also been thought of. However, it has been discarded,

as it is incompatible with the basic principles of RTGS.

The Reserve Bank of India has chosen the ‘Y’ shaped structure to meet this strategic

objective, which strips and retains the customer related confidential information and

forwards only the particulars of payment and settlement to the RTGS. This gives

possibility for the central processor to be an independent service provider.

1. Introduction of RTGS in India has got strong technological support. It has a dedicated

and secured communication back bone and state of the art messaging system.

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2. The Reserve Bank of India has preferred the ‘Y’ shaped message flow structure,

because it has its single gateway interface for each participant, which is called as

participation interface. The participation interface ensures that all messages, enquiries

etc. emanating from it are conforming to the three norms namely, confidentiality,

integrity and non-repudiation. All these messages will be received by the Inter Bank

Funds Transfer Processor (IFTP), which will act as a broker. Safety of the messages

is ensured in the IFTP. In the case of payment messages, IFTP will construct a

settlement message containing only the data required for settlement and will strip off

the cover, certain confidential customer data. This in turn will be forwarded to the

Central RTGS system. This settlement message will be processed by the Bank’s

central system and the fate will be advised to IFTP. Based on the response received,

IFTP will enrich the message received from the RTGS system, say, by adding on the

tools and transmit the settlement advice to both the sending and beneficial

participants.

3. Each participant would have a single dedicated RTGS settlement account both for

outward and inward RTGS payments. This enables monitoring, tracking and

reconciliation of the transactions. Each participant is required to open a dedicated

settlement account, which will be an intraday account. This account would be viewed

at the beginning of the day from a current account. Balances in the RTGS settlement

account at the end of the day are swept back to the participant’s current account.

Thereby, at the end of the RTGS day, all settlement accounts will be zeroised. This

system has a facility to fund the RTGS settlement account (of course during the day)

from the participant’s current account by the use of own account transfers also.

4. Transaction priority: All payment transactions emanating from a payment systems

gateway are processed strictly on a first in first out basis. The system also allows the

participants to assign priority to the payment messages, which can facilitate urgent or

time critical payment. Except these time critical payments, all other transactions will

be processed strictly on FIFO basis.

5. Queuing: Originally, a payment instruction is expected to be settled as soon as it is

received, which is a functionality of a real time system. However, there exists scope

of some transactions not being capable of immediate settlement. In such cases, the

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RTGS system will maintain a payment queue within which the payment transactions

will be held on a FIFO basis. The participants are also provided facilities to view the

transactions held in payment queues, cancel transaction(s) and can change the order

of priority. In view of the confidentiality and security concerns of participants, one

can view only the other participants in queue or one’s own pending incoming

payment instructions.

6. Own account transfer: In order to optimize funds deployment and economize on its

intra-day liquidity requirements, an RTGS system facilitates movement of funds

between various accounts held by a participant. Such movement can take place

between the participant’s settlement account and current account or between two or

more current accounts held by the participants. This is an efficient tool for liquidity

management.

7. Liquidity management: An RTGS system warrants an active management of the

intraday liquidity. In order to ensure smooth settlement of transactions and avoid the

delay of credit to the other participants, it is imperative that each participant ensures

that there are sufficient funds in their RTGS system account at the time of submission

of payment instructions. The RTGS system has certain features to facilitate the

participants in its liquidity management effort. Queuing facilities, priority

assignments in own account transfers etc. are such tools. Besides, there are two

additional intra-day liquidity management tools built in the RTGS system.

a. Intra-day liquidity: To meet their intraday liquidity requirements, a participant can

avail intra-day lines of credit provided by the Reserve Bank of India. However,

the Reserve Bank of India on its own discretion and under specific terms and

conditions will provide such lines of credit. This line of credit has to be fully

collateralized and will be chargeable to the participant on particular transaction

basis. It is to be noted that these lines of credit are available on an intra-day basis

and any failure to repay the credit to the Reserve Bank of India would invite strict

penal action.

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b. Gridlock resolution mechanism: Sometimes the entire system can clog and cripple

or paralyze the transactions. The RTGS has an inbuilt optimized gridlock tool to

release the lock. However, this mechanism can be invoked only at the discretion

of the Reserve Bank of India for smooth settlement.

Importance of Training:

Training of the employees of the participants on a continuous basis is a necessity that

should not be overlooked. The systems and computers are only tools. Without manual

intervention nothing can be achieved. We are constantly in a transitory stage i.e. we are

evolving and this evolution has got intermittent stages. The movement from one stage to

another is usually termed as transitory stage. Sometimes the transition is voluntary or is

necessitated by the environment. In some Western countries, RTGS enables inter funds

transfer even outside the banking system. While our banking system and the practices by

a plethora of banking institutions are at different levels of development, an effective

RTGS system would pave way for smoothening of some of the anomalies or disparities

existing in these practices. It can be stated that it is a first step to bring about the

constituents of our banking system to a common platform. Therefore, it is mandatory that

the employees of the participants and the users be properly trained using all means of

training devices, tools, techniques and methods for successful RTGS implementation.

It may not be out of place to mention that an RTGS system is a part of an integrated

accounting system. But the procedures and functionality of an integrated accounting

system are not discussed here, as it is a separate topic by itself. The principle opinion to

be noted is that an RTGS system by its scope and definition, is a vertical alternative to

any manually handled settlement systems or clearing systems. While an RTGS system is

an effective platform for inter-bank transfer of funds with adequate supporting devices,

the implementation and the success largely depend on the adaptation to compatible

systems by all the participants. As stated earlier, different banks are using different

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platforms, which are not necessarily compatible to each other. We also have examples of

banks, which are in the initial stages of computerization. For them it will be a giant leap

forward to follow in line with the RTGS system. The benefit would be that such non-

compatible banks could do away with intermediate infrastructure and choose a system,

which is compatible to the RTGS.

FEATURES OF RTGS PROCES:-

A modular component structure to meet individual country requirements and for flexibility in growth and expansion as needs arise.

Final and irrevocable settlement of funds transfers continuously in real‐time Centrally located queuing of payments that are held awaiting availability of funds Automatic gridlock resolution Complete monitoring of account balances for both the Central Bank and participating

institutions Credit and intra‐day liquidity management facilities Maintenance of a statistical database with query and reporting facilities Payment entry and processing using standard SWIFT message formats A multi‐currency and multi‐lingual system

Secure payment and message transmission using the SWIFT services and secure interactive communication for monitoring and queue management

Operational reliability with backup and contingency arrangements Complete audit trail, recovery and reporting facility

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CHAPTER 4

INDIAN OVERSEAS BANK

Overview

Established in 1937, Indian Overseas Bank (IOB) is a leading bank based in Chennai, India.

IOB had the distinction of simultaneously commencing operations in three branches at

Karaikudi, Chennai, and Yangon (Myanmar). Since IOB aimed to encourage overseas

banking and foreign exchange operations, it soon opened its branches in Penang and

Singapore. Today, Indian Overseas Bank boasts of a vast domain in banking sector with

over 1400 domestic branches and 6 branches overseas.

IOB was the first bank to venture into consumer credit, as it introduced the popular Personal

Loan scheme. In 1964, the Bank started computerization in the areas of inter-branch

reconciliation and provident fund accounts. Indian Overseas Bank was one of the 14 major

banks which were nationalized in 1969. After nationalization, the Bank emphasized on

opening its branches in rural parts of India. In 1979, IOB opened a Foreign Currency

Banking Unit in the free trade zone in Colombo.

In the year 2000, Indian Overseas Band undertook an initial public offering (IPO) that

brought the government's share in the bank's equity down to 75%. The equity shares of IOB

are listed in the Madras Stock Exchange (Regional), Bombay Stock Exchange, and National

Stock Exchange of India Ltd., Mumbai. Since its inception, IOB has absorbed various banks

including the latest — Bharat Overseas Bank — in 2007.

The Bank's IT department has developed software, which is used by its 1200 branches to

provide online banking to customers. Indian Overseas Bank also has a network of about 500

ATMs throughout India. Its International VISA Debit Card is accepted at all ATMs

belonging to the Cash Tree and NFS networks. IOB also offers Internet Banking; it's one of

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the banks that the Govt. of India has approved for online payment of taxes.

Indian Overseas Bank offers investment options like Mutual Funds and Shares. It provides a

wide range of consumer and commercial banking services, including Savings Account,

Current Account, Depositary Services, VISA Cards, Credit Cards, Debit Cards, Online

Banking, Any Branch Banking, Home Loans, NRI Account, Agricultural Loans, Payment

of Bills / Taxes, Provident Fund Scheme, Forex Collection Services, Retail Loans, etc.

Head Office

Indian Overseas Bank

763, Anna Salai

Chennai – 600002

URL: www.iob.com

History

1937: Shri. M. Ct. M. Chidambaram Chettyar establishes the Indian Overseas Bank (IOB) to

encourage overseas banking and foreign exchange operations. IOB started up simultaneously

at three branches, one each in Karaikudi, Madras (Chennai) and Rangoon (Yangon). It then

quickly opened a branch in Penang and another in Singapore. The bank served the

Nattukottai Chettiars, who were a mercantile class that at the time had spread from Chettinad

in Tamil Nadu state to Ceylon (Sri Lanka), Burma (Myanmar), Malaya, Singapore, Java,

Sumatra, and Saigon. As a result, from the beginning IOB specialized in foreign exchange

and overseas banking (see below).

1960s: The banking sector in India was consolidating by the merger of weak private sector

banks with the stronger ones; IOB absorbed five banks, including Kulitali Bank (est. 1933).

1969: The Government of India nationalized IOB. At one point, probably before

nationalization, IOB had twenty of its eighty branches located overseas. After nationalization

it, like all the nationalized banks, turned inward, emphasizing the opening of branches in

rural India.

1988-89: IOB acquired Bank of Tamil Nadu in a rescue.

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2000: IOB engaged in an initial public offering (IPO) that brought the government's share in

the bank's equity down to 75%.

2009: IOB took over Shree Suvarna Sahakari Bank, which was founded in 1969 and had its

head office in Pune. In 2001 it had acquired the Mumbai-based Adarsha Janata Sahakari

Bank, which gave it a branch in Mumbai. Shree Suvarna Sahakari Bank has been in

administration since 2006. It has nine branches in Pune, two in Mumbai and one in Shirpur.

The total employee strength is estimated to be little over 100.

International expansion

1937-38: As mentioned above, IOB was international from its inception with branches in

Rangoon, Penang, and Singapore.

1941: IOB opened a branch in Malaya that presumably closed almost immediately because

of the war.

1946: IOB opened a branch in Ceylon.

1947: IOB opened a branch in Bangkok and re-opened others.

1948: United Commercial Bank (see below) opened a branch in Malaya.

1949: IOB opened a branch in Bangkok.

1963: The Burmese government nationalized IOB’s branch in Rangoon.

1973: IOB, Indian Bank and United Commercial Bank established United Asian Bank

Berhad in Malaysia. (Indian Bank had been operating in Malaysia since 1941 and United

Commercial Bank Limited had been operating there since 1948.) The banks set up United

Asian to comply with the Banking Law in Malaysia, which prohibited foreign government

banks from operating in the country. Also, IOB and six Indian private banks established

Bharat Overseas Bank as a Chennai-based private bank to take over IOB's Bangkok branch.

1977: IOB opened a branch in Seoul.

1979: IOB opened a Foreign Currency Banking Unit in Colombo, Sri Lanka.

1992: Bank of Commerce (BOC), a Malaysian bank, acquired United Asian Bank (UAB).

2007: IOB took over [[Bharat Overseas Bank]

2009: IOB took over assets and liabilities of Shree Suvarna Sahakari Bank.

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2010: Malaysia awarded a commercial banking license to a locally incorporated bank to be

jointly owned by Bank of Baroda, Indian Overseas Bank and Andhra Bank. The new bank,

India International Bank (Malaysia), will reside in Kuala Lumpur, which has a large

population of Indians. Andhra Bank will hold a 25% stake in the joint-venture, Bank of

Baroda will own 40% and IOB the remaining 35%.

Branches:

Indian Overseas Bank Kalol Branch

Branch Kalol

IFSC Code IOBA0000337

MICR

Address Opp. Geb Shivalaya Complex Kalol Pin : 382721

City : Kalol

District : Gandhinagar

State : Gujarat

Indian Overseas Bank Gandhinagar-Gujarat Branch

Branch Gandhinagar-Gujarat

IFSC Code IOBA0000527

MICR 380019009

Address Sector 16 Near Shalimar Theatre Gandhinagar Pin : 382016

City : Gandhinagar

District : Gandhinagar

State : Gujarat

Indian Overseas Bank Kasturi Nagar Branch

Branch Kasturi Nagar

IFSC Code IOBA0001162

MICR NON-MICR

Address Iffco Township, Kasturi Nagar, Pin : 382423

City : Shertha

District : Gandhinagar

State : Gujarat

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Indian Overseas Bank Gotri Road Branch

Branch Gotri Road

IFSC Code IOBA0001717

MICR

Address Suner Complex, I Floor Harinagar Crossing, Gotri Road Baroda Pin :

390021

City : Vadodara

District : Gandhinagar

State : Gujarat

Indian Overseas Bank Kalol-Iffco Branch

Branch Kalol-Iffco

IFSC Code IOBA0001815

MICR

Address Iffco Factory Site, Kalol, Kasturinagar P. O. Kasturinagar, Pin 382423

City : Kalol

District : Gandhinagar

State : Gujarat

Indian Overseas Bank Gujarat Sec Education BD Branch

Branch Gujarat Sec Education BD

IFSC Code IOBA0001817

MICR NON-MICR

Address Gujarat Secondary, Education Board, Sector-10 B, Gandhi Nargar, Pin

: 382010

City : Gandhinagar

District : Gandhinagar

State : Gujarat

Indian Overseas Bank Baroda-Ellora Park Branch

Branch Baroda-Ellora Park

IFSC Code IOBA0002080

MICR

Address Patriot Complex, Near Ellora ARK Vegetable Market, Bace Course

Circle, Baroda Pin-390007

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City : Vadodara

District : Gandhinagar

RTGS and NEFT process in Indian Overseas Bank

Inward:

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Out Ward NEFT

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Conclusion:

From Our whole project we can conclude that, In Indian Ovearseas bank RTGS is very helpful.

RTGS helps for clearing transactions at a time anywhere. RTGS Process is clear transaction

within 24 hous. So it is very helpful to the bank to clearing banking transaction. Under the

existing system, the settlement of the all individual payments takes place on a net basis (i.e.

difference of payment to be received and payment to be made) and that too at a designated time.

This causes the system participants to be exposed to financial risks for the period during which

settlement is deferred. Due to such delays in settlement, a no. of capital market and money

market frauds have taken place in India in the recent years. Further, the existing payment system

is capable to meet the requirement of the 80s or 90 when the no. and volume of financial

transactions was limited. But, due to change in the economic perspective, its linkage with the

global economies and the role of information technology, need has been felt for a more accurate,

risk free, efficient and effective system. RTGS is an internationally compatible and transparent-

system which could be used to the full advantage of the existing client base without dispensing

with the benefits already available to customers. 

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