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reporte n t i t l e d “ S t u d y o n C A S H M A N A G E M E N T a t
State Bank of India” is an authentic report
of t h e p r o j e c t w o r k p r e p a r e d b y M R S H A R I Q U E
K H A N under our guidance and supervision.


The topic, I selected is the “The CASH MANAGEMENT ”. This topic is

challenging and related to the various functions, activities & services which CO


The following are the objectives undertaken for the study of Cash flow
cash management :

1) To obtain information regarding Cash flow and management.

2) To study the procedure & workings of Cash management.
3) To obtain in depth knowledge about Cash management.
4) To understand the behaviour of Cash Analysis.


1. This project helped me to know more about Cash management . It gave

me practical as well as theoretical knowledge.
2. The study of the project has improved my knowledge from economics
point of view.

3. It has cleared many of my doubts regarding functioning of Cash
management and Cash flow analysis.


I collected data via both Primary as well as secondary Data.

Secondary Data-

 Books
 Websites


Cash is the important current asset for the operations of the business. Cash is
the basic inputneeded to keep the business running on a continuous basis; it is also the
ultimate output expectedto be realized by selling the service or product manufactured by
the firm. The firm should keeps uf fi ci en t c ash , nei t h e r m or e no r l es s. C as h
s ho rt a ge wi l l di s ru p t t h e fi rm ’s m an uf a c t ur i n g operations while excessive
cash will simply remain idle, without contributing anything towardsthe firm’s
profitability. Thus, a major function of the financial manager is to maintain a
soundcash position Cash is the money which a firm can disburse immediately without
any restriction. The term cashi n cl ud es coi ns,
cu r re n c y a nd c h equ es h el d b y t h e fi r m , an d b al a n ce s i n i t s
ba nk a c co unt s . Sometimes near-cash items, such as marketable securities or
bank time’s deposits, are alsoincluded in cash. The basic characteristic of near-cash
assets is that they can readily be convertedinto cash. Generally, when a firm has excess
cash, it invests it in marketable securities. This kindof investment contributes some profit
to the firm.

Cash management
is concerned with the managing of: (i) cash flows into and out of the firm,(ii)
cash flows within the firm, and (iii) cash balances held by the firm at a point
of time byfinancing deficit or investing surplus cash. Sales generate cash
which has to be disbursed out.The surplus cash has to be invested while deficit has to
be borrowed. Cash management seeks toaccomplish this cycle at a minimum cost. At the
same time, it also seeks to achieve liquidity andcontrol. Cash management assumes
more importance than other current assets because cash isthe most significant and
the least productive asset that a firm holds. It is significant because it
isus e d t o pa y t h e fi r m ’s o bl i gat i on s. H o we v er , c as h i s u np r odu ct i v e. U n
l i k e fi x e d as se t s or inventories, it does not produce goods for sale.
Therefore, the aim of cash management is tomaintain adequate control over
cash position to keep the firm sufficiently liquid and to useexcess cash in some
profitable way.C a sh m an a gem e nt i s al so i m po rt ant b e c aus e i t i s d i f fi cu l t
t o p r ed i c t c ash fl o w s ac c ur at el y, particularly the inflows, and there is no perfect
coincidence between the inflows and outflows of cash. During some periods,
cash outflows will exceed cash inflows, because payment of taxes,dividends,
or seasonal inventory builds up. At other times, cash inflow will be more than
cash p a ym e nt s b e c au se t h e r e m a y b e l a r g e c as h s al e s an d d e b t or s m a y
b e r e al i z ed i n l a r ge sum s promptly. Further, cash management is significant
because cash constitutes the smallest portionof the total current assets, yet
management’s considerable time is devoted in managing it. Inr e ce nt p a st , a
num b e r o f i nno v at i o ns ha v e b e e n d on e i n ca sh m an a gem e nt t e ch ni q u es .
Anobvious aim of the firm these days is to manage its cash affairs in such a
way as to keep cash balance at a minimum level and to invest the surplus cash in
profitable investment opportunities.In or d er t o r es ol v e t h e un c e rt a i nt y a bo ut
c as h fl o w pr e di ct i o n and l a ck o f s yn c h r oni z at i o n between cash receipts
and payments, the firm should develop appropriate strategies for
cashmanagement. The firm should evolve strategies regarding the following
four facets of cashmanagement


Optimum Utilisation of Operating Cash

Implementation of a sound cash management programme is based on rapid

generation,efficient utilisation and effective conversation of its cash resources.
Cash flow is a circle. Thequantum and speed of the flow can be regulated
through prudent financial planning facilitatingt h e r un ni n g of b u si n ess w i t h
t he m i ni m um c as h b al an c e. T hi s c a n b e a chi ev e d b y m a ki n g a proper

analysis of operative cash flow cycle along with efficient management of working

Cash Forecasting

C as h fo r e ca st i n g i s ba ck bo n e o f c as h pl an ni n g. It fo r ew a rns a bu s i n e s s
r e g ar d i n g expected cash problems, which it may encounter, thus assisting it to
regulate further cash flowmovements. Lack of cash planning results in spasmodic
cash flows.

Cash Management Techniques:

Every business is interested in accelerating its cash collections and

decelerating cash payments so as to exploit its scarce cash resources to the maximum.
There are techniques in thecash management which a business to achieve this objective.

Liquidity Analysis:

The importance of liquidity in a business cannot be over emphasized. If one

does theautopsies of the businesses that failed, he would find that the major
reason for the failure wastheir unability to remain liquid. Liquidity has an intimate
relationship with efficient utilisation of cash. It helps in the attainment of optimum level
of liquidity.

Profitable Deployment of Surplus Funds

Due to non-synchronization of ash inflows and cash outflows the surplus cash may
ariseat certain points of time. If this cash surplus is deployed judiciously cash
management will
itself b e c o m e a p r o f i t c e n t r e . H o w e v e r , m u c h d e p e n d s o n t h e q u a n
t u m o f c a s h s u r p l u s a n d acceptability of market for its short-term investments.

Economical Borrowings

Another product of non-synchronisation of cash inflows and cash outflows is

emergenceof deficits at various points of time. A business has to raise funds to the extent
and for the periodof deficits. Raising of funds at minimum cost is one of the important
facets of cash management.The ideal cash management system will depend on the

firm’s products, organization structure,competition, culture and options
available. The task is complex, and decisions taken can affectimportant areas of
the firm. For example, to improve collections if the credit period is reduced, itmay affect
sales. However, in certain cases, even without fundamental changes, it is possible to
significantly reduce cost of cash management system by choosing a right bank
and controllingthe collections properly.


The firm’s need to hold cash may be attributed to the following the motives:

The transactions motive

The precautionary motive

The speculative motive

1.5 Transaction Motive

transaction motive
requires a firm to hold cash to conducts its business in the ordinary course. The
firm needs cash primarily to make payments for purchases, wages and salaries,
other operating expenses, taxes, dividends etc. The need to hold cash would no t
arise if there were perfect synchronization between cash receipts and cash
payments, i.e., enough cash
is receivedw h e n t h e p a y m e n t h a s t o b e m a d e . B u t c a s h r e c e i p t
s a n d p a y m e n t s a r e n o t p e r f e c t l y synchronized. For those periods,
when cash payments exceeds cash receipts, the firm shouldmaintain some cash
balance to be able to make required payments. For transactions purpose, afirm
may invest its cash in marketable securities. Usually, the firm will purchase
securitieswhose maturity corresponds with some anticipated payments, such as
dividends, or taxes in thefuture. Notice that the transactions motive mainly refers
to holding cash to meet anticipated payments whose timing is not perfectly matched
with cash receipts.

Precautionary Motive


precautionary motive

i s t he n e ed t o h ol d c as h t o m e et c ont i n gen ci es i n t h e f ut u r e.
It pr ov i d es a cus hi o n o r bu f fe r t o w i t hs t an d s om e un ex p ec t e d em er ge n c
y. Th e p re c au t i o na r yamount of cash depends upon the predictability of cash flows.
If cash flow can be predicted withaccuracy, less cash will be maintained for an
emergency. The amount of precautionary cash isalso influenced by the firm’s
ability to borrow at short notice when the need arises. Stronger theabi l i t y of t h e fi rm
t o b o rr ow at sho rt n ot i ce , l e ss t h e ne e d fo r pr e c aut i o na r y b a l an c e.
Th e precautionary balance may be kept in cash and marketable securities. Marketable
securities play n important role here. The amount of cash set aside for precautionary
reasons is not expected toe ar n an yt h i n g; t h er e fo re , t h e fi rm at t e m pt t o e a rn
s om e pr of i t on i t . S uc h fu nds s hou l d b e invested in high-liquid and low-
risk marketable securities. Precautionary balance should, thus,held more in
marketable securities and relatively less in cash.

Speculative Motive

speculative motive
relates to the holding of cash for investing in profit-
m a k i n g opportunities as and when they arise. The opportunity to make profit may arise

when the security prices change. The firm will hold cash, when it is expected
that the interest rates will rise andsecurity prices will fall. Securities can be
purchased when the interest rate is expected to fall; thefirm will benefit by the subsequent
fall in interest rates and increase in security prices. The firmmay also speculate on
materials’ prices. If it is expected that materials’ prices will fall, the firmcan postpone
materials’ purchasing and make purchases in future when price actually falls. Somefirms
may hold cash for speculative purposes. By and large, business firms do not
ins p e cu l a t i o ns. T hu s , t h e p ri m a r y m ot i v es t o ho l d c as h a nd m a rk et ab l e
s e cu ri t i es a r e: t h etransactions and the precautionary motives.


Cash flows are inseparable parts of the business operations of firms. A firm needs cash to
investin inventory, receivable and fixed assets and to make payment for operating
expenses in order tomaintain growth in sales and earnings. It is possible that firm may be
taking adequate profits, butmay suffer from the shortage of cash as its growing needs
may be consuming cash very fast. The‘cash poor’ position of the firm can be
corrected if its cash needs are planned in advance. At times, a firm can have excess
cash with it if its cash inflows exceed cash outflows. Such excesscash may remain idle.
Again, such excess cash flows can be anticipated and properly invested if cash planning
is resorted to.
Cash planning
is a technique to plan and control the use of cash. Ithelps to anticipate the future cash
flows and needs of the firm and reduces the possibility of idlecash balances
(which lowers firm’s profitability) and cash deficits (which can cause
the firm’sfailure).C as h pl an ni n g pr ot e ct s t he f i n an ci al c on di t i on of t h e f i r
m b y d e ve l op i n g a p roj e ct ed ca sh statement from a forecast of expected
cash inflows and outflows for a given period. The forecasts may be based on the present
operations or the anticipated future operations. Cash plans are verycrucial in developing
the operating plans of the firm.Cash planning can be done on daily, weekly or monthly
basis. The period and frequency of cash planning generally depends upon the size
of the firm and philosophy of management.
Largef i rm s p r e p a r e dai l y a nd w e ekl y f o r ec as t s . M ed i um -
s i z e fi rm s usu a l l y p r ep ar e w e ek l y a nd m ont h l y f or e c ast s. S m al l fi r m s
m a y n ot pr e pa r e f or m al c a sh f or e c ast s b e ca us e o f t he n on -
av ai l a bi l i t y o f i nf or m at i on a nd sm al l -
s c al e op e r at i o ns . B u t , i f t h e sm al l fi r m pr ep a r es c as h pr oj e ct i ons , i t i s
don e on m o nt h l y b a si s. A s a fi rm gro ws a nd bu si n es s op e ra t i ons
be co m e complex, cash planning becomes inevitable for its continuing success.

1.7 Cash Forecasting and Budgeting

Cash budget

is the most significant device to plan for and control cash receipts and payments. Acash
budget is a summary statement of the firm’s expected cash inflows and
outflows over a projected time period. It gives information on the timing and
magnitude of expected cash flowsand cash balances over the projected period. This
information helps the financial manager todetermine the future cash needs of
the firm, plan for the financing of these ne eds and exercisecontrol over the cash
and liquidity of the firm.The time horizon of the cash budget may differ from firm
to firm. A firm whose business isaffected by seasonal variations may prepare
monthly cash budgets. Daily or weekly cash budgetsshould be prepared for determining
cash requirements if cash flows show extreme fluctuations.Cash budgets for a longer
intervals may be prepared if cash flows are relatively stable.
Cash forecasts
are needed to prepare cash budgets. Cash forecasting may be done on short
or long-term basis. Generally, forecasts covering periods of one year or less are
considered short-term; those exceeding beyond one year are considered long term.

Short-term Cash Forecasts

It is comparatively easy to make short-term cash forecasts. The important functions of

carefullydeveloped short-term cash forecasts are:

To determine operating cash requirements

To anticipate short-term financing

To manage investment of surplus cash.

The short-term forecast helps in determining the cash requirements for a predetermined
period torun a business. If the cash requirements are not determined, it would
not be possible for them a n a g e m e n t t o k n o w - h o w m u c h c a s h b a l a n c e
is to be kept in hand, to what extent
bank financing be depended upon and whether surplus funds wou
l d b e a v a i l a b l e t o i n v e s t i n marketable securities.To know the operating
cash requirements, cash flow projections have to be made by a firm. Asstated
earlier, there is hardly a perfect matching between cash inflows and outflows.
With theshort-term cash forecasts, however, the financial manager is enabled to adjust
these differencesin favor of the firm.It is well known that, for their temporary financing
needs, most companies depend upon banks.One of the significant roles of the short-
term forecasts is to pinpoint when the money will beneeded and when it can be
repaid. With such forecasts in hand, it will not be difficult for
thefi n an ci al m a n a ge r t o ne g ot i a t e s ho r t -
t e rm fi n an ci n g a rr a n gem en t s wi t h b a nk s. Thi s i n f ac t convinces bankers
about the ability of the management to run its business.The third function of the
short-term cash forecasts is to help in managing the investment of surplus cash
in marketable securities. Carefully and skillfully designed cash forecast helps a firmto: (i)
select securities with appropriate maturities and reasonable risk, (ii) avoid over and
under-investing and (iii) maximize profits by investing idle money.Short-run cash
forecasts serve many other purposes. For example, multi-divisional firms
usethem as a tool to coordinate the flow of funds between their various divisions as well
as to makefinancing arrangements for these operations. These forecasts may also be
useful in determiningthe margins or minimum balances to be maintained with banks. Still
other uses of these forecastsare:

Planning reductions of short and long-term debt

Scheduling payments in connection with capital expenditures programmes

Planning forward purchases of inventories

Checking accuracy of long-range cash forecasts

Taking advantage of cash discounts offered by suppliers

Guiding credit policies.

1.8 Short-term Forecasting Methods

Two most commonly used methods of short-term cash forecasting are:

The receipt and disbursements method

The adjusted net income method.The receipts and disbursements method is
generally employed to forecast for limited periods,such as a week or a month.
The adjusted net income method, on the other hand, is preferred for longer
durations ranging between few months to a year. Both methods have their
.The cash flows can be compared with budgeted income and expenses items if
the receipts
anddi sbu r se m e nt s ap pr oa c h i s fol l o we d. On t h e ot h e r h and , t he a dj u s t ed
i n com e app ro a c h i s appropriate in showing a company’s working capital and future
financing needs.
Receipts and disbursements method:
Cash flows in and out in most companies on a continuous basis. The prime aim of
receipts and disbursements forecasts is to summarize these flows duringa
predetermined period. In case of those companies where each item of income
and expenseinvolves flow of cash, this method is favoured to keep a close control over
cash.Three broad sources of cash inflows can be identified: (i) operating, (ii)
non-operating, and(iii) financial. Cash sales and collection from customers
form the most important part of theoperating cash inflows. Developing a sales
forecast is the first step in preparing cash forecast. All precautions should be taken to
forecast sales as accurately as possible. In case of cash sales, cashis received at the
time of sale. On the other hand, cash is realized after sometime if sale is
oncredit. The time realizing cash on credit sales depends upon the firm’s credit policy
reflected inthe average collection period.It can easily be noted that cash receipts
from sales will be affected by changes in sales volume an d t h e
fi rm ’s c r edi t p ol i c y. To d ev el op a re al i s t i c c a sh bu d get , t he se c h an ge s
s ho ul d b e accounted for. If the demand for the firm’s products slackens, sales
will fall and the averagecollection period is likely to be longer which increases
the chances of bad debts. In preparingcash budget, account should be taken of sales
discounts, returns and allowances and bad debts asthey reduce the amount of cash
collections from debtors. Non-operating cash inflows include sale of old assets
and dividend and interest income. Them a gni t ud e of t h e se i t em s i s
ge ne r al l y s m al l . W h en i nt e rn al l y ge n e ra t ed ca sh f l o ws a r e n ot sufficient,
the firm resorts to external sources. Borrowings and issuance of securities are
externalfinancial sources. These constitute financial cash inflows.

The next step in the preparation of a cash budget is the estimate of cash outflows. Cash
outflowsinclude: (i) operating outflows: cash purchases, payment of payables,
advances to
suppliers,w a g es and sal a ri es a nd ot h er o pe r at i n g ex p en se s , ( i i ) c a pi t al e

x p end i t u r es , (i i i ) c o n t r a ct u a l payments: repayment of loan and interest and
tax payments; and (iv) discretionary payments:o rd i n ar y a n d p re f e re n ce
di vi de nd . In ca se o f c r edi t p u rc h as es, a t i m e l a g w i l l ex i st f or
c as h payments. This will depend on the credit terms offered by the suppliers.It is
relatively easy to predict the expenses of the firm over short run. Firms usually
preparecapital expenditure budgets; therefore, capital expenditures are
predictable for the purposes of cash budget. Similarly, payments of dividend
do not fluctuate widely and are paid on specificdates. Cash out flow can also occur
when the firm repays its long-term debt. Such payments aregenerally planned and,
therefore, there is no difficulty in predicting them.Once the forecasts for cash receipts and
payments have been developed, they can be combined toobtain the net cash inflow or
outflow for each month. The net balance for each month wouldindicate whether
the firm has excess cash or deficit. The peak cash requirements would also beindicated.
If the firm has the policy of maintaining some minimum cash balance,
arrangementsmust be made to maintain this minimum balance in periods of
deficit. The cash deficit can bemet by borrowings from banks. Alternatively,
the firm can delay its capital expenditures or payments to creditors or postpone
payment of dividends.One of the significant advantages of cash budget is to determine
the net cash inflow or out flowso that the firm is enabled to arrange finances.
However, the firm’s decision for appropriatesources of financing should depend
upon factors such as cost and risk. Cash budget helps a firmto manage its cash
position. It also helps to utilize ideal funds in better ways. On the basis of cash
budget, the firm can decide to invest surplus cash in marketable securities and earn
profits.The virtues of the receipt and payment methods are:

It gives a complete picture of all the items of expected cash flows.

It is a sound tool of managing daily cash operations. This method, however, suffers
fromthe following limitations:

It s
r el i abi l i t y i s r e d u c e d b e c aus e o f t h e u n c er t a i n t y o f c a sh f or e ca s t s . F or
ex am pl e ,collections may be delayed, or unanticipated demands may cause large

It fails to highlight the significant movements in the working capital items.

1.9 Adjusted net income method:

This method of cash forecasting involves the tracing of workingcapital flows. It is

sometimes called the
uses approach.
Two objectives of theadjusted net income approach are: (i) to project the company’s
need for cash at a future date and(ii) to show whether the company can generate
the required funds internally, and if not, howmuch will have to be borrowed or
raised in the capital market.As regards the form and content of the adjusted net income
forecast, it resembles the cash flowstatement discussed previously. It is, in fact a
projected cash flow statement based on
proformafi n a nc i a l s t a t em en t s. It ge n er al l y h as t h r e e se ct i on s : so u rc es o f
c as h , us es o f c ash a nd t h eadjusted cash balance. This procedure helps in adjusting
estimated earnings on an accrual basisto a cash basis. It also helps in anticipating the
working capital movements.In preparing the adjusted net income forecasts items
such as net income, depreciation, taxes,dividends etc., can easily be determined
from the company’s annual operating budget. Normally,difficulty is faced in
estimating working capital changes; especially the estimates of
accountsreceivable (debtors) and inventory pose problem because they are influenced by
factors such asfluctuations in raw material costs, changing demand for the
company’s products and possibledelays in collections. Any error in predicting
these items can make the reliability of forecastdoubtful.On e po pul a rl y us e d
m et hod o f p roj e ct i n g w o rki n g c a pi t al i s t o us e r at i os r el at i n g
a cc ou nt s r e ce i v abl e an d i nv en t o r y t o s al es . Fo r ex am pl e , i f t he p ast ex p
e ri en c e t el l s t h at a c co unt s receivable of a company range between 32
percent to 36 percent of sales, an average rate of 34 percent can be used. The
difference between the projected figure and that on the books will indicate the
expected increase or decrease in cash attributable to receivable.The benefits of the
adjusted net income method are:

It highlights the movements in the working capital items, and thus helps to keep a
controlon s firm’s working capital.

It helps in anticipating a firm’s financial requirements.The major limitation of this

method is:

It fails to trace cash flows, and therefore, its utility in controlling daily cash operations

 Long-term Cash Forecasting

Long-term cash forecasts are prepared to give an idea of the company’s financial
requirements inthe distant future. They are not as detailed as the short-term
forecasts are. Once a company hasdeveloped long -term cash forecast, it can
be used to evaluate the impact of, say, new product developments or plant

acquisitions on the firm’s financial condition three, five, or more years inthe future. The
major uses of the long-term cash forecasts are:

 It i nd i c at e s as c om p an y’ s fut u re fi n an ci al n ee ds , es pe ci al l y fo r i t s
wo rki n g c a pi t al requirements.

 It helps to evaluate proposed capital projects. It pinpoints the cash

required to financethese projects as well as the cash to be generated by the
company to support them.

 It helps to improve corporate planning. Long-term cash forecasts compel each

division to plan for future and to formulate projects carefully.Lon g - t erm c as h
fo r ec a st s m a y b e m a de f o r t wo , t h r e e o r fi v e ye a r s. As wi t h t he
sho rt -t e rm forecasts, company’s practices may differ on the duration of
long-term forecasts to suit their particular needs.The short-term forecasting
methods, i.e., the receipts and disbursements method and the adjustednet income
method, can also be used in long-term cash forecasting. Long-term cash
forecastingreflects the impact of growth, expansion or acquisitions; it also
indicates financing problemsarising from these developments.

Cash Collection Instruments in India
The main instruments of collection used in India are: (i) cheques, (ii) drafts,
(iii) documentary bills, (iv) trade bills, and (v) letter of credit.
Features of instruments of collection in
1 . C h e q u e s

No charge

Can bounce

Payable through clearing

Can be discounted after receipts

Low discounting charge

Collection times can be long

Collection charge

2 . D r a f t s

Payable in local clearing

Chances of bouncing are less

Cost of collection

Buyers account debited on dayone

3.Documentary bills

Low discounting charge

T h e o r e t i c a l l y , g o o d s a r e n o t released till payments are madeor the bill is


Not payable through clearing

High collection cost

Long delays

4.Trade bills

No charge except stamp duty

Can be discounted

D i s c i p l i n e o f p a y m e n t o n d u e date

P r o c e d u r e i s r e l a t i v e l y cumbersome

Buyers are reluctant to acceptthe due date discipline

5.Letters of credit

Good credit control as

goods arer e l e a s e d o n p a y m e n t o r acceptance of bill


S el l e r fo r c ed t o m ee t d el i ve r yschedule because of expiry date.

Opening charges

Transit period interest

Negotiation charges

Need bank lines to open LC

Stamp duty on usance bills

Determining the Optimum Cash Balance

One of the primary responsibilities of the financial manager is to maintain a

sound liquidity position of the firm so that the dues are settled in time. The
firm needs cash to purchase rawmaterials and pay wages and other expenses as
well as for paying dividend, interest and taxes.The test of liquidity is the
availability of cash to meet the firm’s obligations when they
becomedue.A fi r m m a i nt ai n s t he o p er at i n g ca s h b al an c e fo r
t r ans a ct i on p ur po se s. It m a y al so c a r r yadditional cash as a buffer or safety
stock. The amount of cash balance will depend on the risk-return trade-off. If the firm
maintains small cash balance, its liquidity position weakens, but
its p r o f i t a b i l i t y i m p r o v e s a s t h e r e l e a s e d f u n d s c a n b e i n v e s t e d i
n p r o f i t a b l e o p p o r t u n i t i e s (m a rk et abl e s ec u ri t i es ). W h e n t he f i rm n e e
d s c as h, i t c an s el l i t s m a rk et ab l e s e cu ri t i e s (o r borrow). On the other hand,
if the firm keeps high balance, it will have a strong liquidity position but its profitability
will be low. The potential profit foregone on holding large cash balance is
anopportunity cost to the firm. The firm should maintain- just enough, neither
too much nor toolittle- cash balance. How to determine optimum cash balance if cash
flows are predictable and if they are not predictable?




Optimum Cash Balance under Certainty:
Baumol’s Model
Baumol model
of cash management provides a formal approach for determining a
firm’soptimum cash balance under certainty. It considers cash management
similar to an inventorymanagement problem. As such, the firm attempts to minimize
the sum of the cost of holding cash(inventory of cash) and the cost of converting
marketable securities to cash.The Baumol’s model makes the following assumptions:

The firm is able to forecast its cash needs with certainty.

The firm’s cash payments occur uniformly over a period of time.

The opportunity cost of holding cash is known and it does not change over time.

The firm will incur the same transaction cost whenever it converts securities to cash.Let
us assume that the firm sells securities and starts with a cash balance of
rupees. As the firmspends cash, its cash balance decreases steadily and reaches to zero.
The firm replenishes its cash balance to
rupees by selling marketable securities. This pattern continues over time. Since thecash
balance decreases steadily, the average cash balance will be:

The firm incurs a
holding cost
for keeping the cash balance. It is an opportunity cost; that is, thereturn foregone on the
marketable securities. If the opportunity cost is
then the firm’s holdingcost for maintaining an average cash balance is as follows:Holding
cost =
k(C/2) (1)
The firm incurs a
transaction cost
whenever it converts its marketable securities to cash. Totalnumber of transactions
during the year will be total funds requirement,
, divided by the cash balance,
, i.e.
The per transaction cost is assumed to be constant. If per transaction cost is
, then the total transaction cost will be:Transaction cost =
c(T/C) (2)
The total annual cost of the demand for cash will be:Total cost =
k(C/2) + c(T/C)

What is the optimum level of cash balance,

? We know that the holding cost increases as thedemand for cash,
, increases. However, the transaction cost reduces because with increasing
the number of transactions will decline. Thus, there is a trade -off between the
holding cost andthe transaction cost.

The optimum cash balance,
, is obtained when the total cost is minimum. The formula for theoptimum cash balance is
as follows:
C* = 2cT/k (4)
is the optimum cash balance,
is the cost per transaction,
is the total cash neededduring the year and
is the opportunity cost of holding cash balance. The optimum cash balancewill increase
with increase in the per transaction cost and total funds required and decrease withthe
opportunity cost.

Optimum Cash Balance under Uncertainty:The Miller-Orr Model

The limitation of the Baumol model is that it does not allow the cash flows to fluctuate.
Firms in practice do not use their cash balance uniformly nor are they able to
predict daily cash inflowsand outflows. The

Miller-Orr (MO) model

overcomes this shortcoming and allows for dailycash flow variation. It assumes
that net cash flows are normally distributed with a zero value of mean and standard
deviation. The MO model provides for two control limits—the upper controllimit and
the lower control limit as well as a return point. If the firm’s cash flows
fluctuaterandomly and hit the upper limit, then it buys sufficient marketable securities to
come back to anormal level of cash balance (the return point). Similarly, when the firm’s
cash flows wander andhit the lower limit, it sells sufficient marketable securities to bring
the cash balance back to thenormal level (the return point).

Th e fi rm s et s t h e l o we r c ont r ol l i m i t a s p er i t s re qu i r em en t o f
m ai nt ai ni n g m i ni m u m c a sh balance. At what distance the upper control limit
will be set? The difference between the upper limit and the lower limit depends on
the following factors:

The transaction cost (


The interest rate, (

The standard deviation of net cash flows.The formula for determining the distance
between upper and lower control limits (called Z) is asfollows:
(Upper Limit—Lower Limit) = (3/4 * transaction cost * cash flow variation/ interest per
(5)We can notice from equation (5) that the upper and lower limit will be far
off from each other (i.e. Z will be larger) if transaction cost is higher or cash
flows show greater fluctuations. Thelimits will come closer as the interest
increases. Z is inversely related to the interest rate. It isnoticeable that the
upper limit is three times above the lower control limit and the return point lies
between the upper and the lower limit.
Thus,Upper Limit = Lower Limit + 3Z (6)Return point = Lower Limit + Z (7)

The net effect is that the firms hold the average cash balance equal to:Average Cash
Balance = Lower Limit +4/3 ZThe MO model is more realistic since it allows variation in
cash balance within lower and
upper l i m i t s . T h e f i n a n c i a l m a n a g e r c a n s e t t h e l o w e r l i m i t a c c o r d
i n g t o t h e f i r m ’ s l i q u i d i t y re qui r em en t . Th e pa st d at a o f t he c a sh
fl o w b eh avi o r c an b e us ed t o d et e rm i n e t he st a nd a rd deviation of net cash
flows. Once the upper and lower limits are set, managerial attention isneeded
only if the cash balance deviates from the limits. The action under these
situations areanticipated and planned in the beginning.


There is a close relationship between cash and money market securities or

other short-terminvestment alternatives. Investment in these alternatives
should be properly managed. Excesscash should normally be invested in those
alternatives that can be conveniently and promptlyconverted into cash. Cash in
excess of the requirement of operating cash balance may be held for two reasons.
the working capital requirements of the firm fluctuate because of the elementsof
seasonality and business cycles. The excess cash may build up during slack
seasons but itw oul d b e ne e de d wh e n t he d em an d pi cks u p. Th us, ex ce s s
c as h d ur i n g sl a ck s e as on i s i dl e temporarily, but has a predictable
requirement later on.
excess cash may be held as a buffer to meet unpredictable financial needs. A firm
holds extra cash because cash flows cannot b e p r edi ct e d wi t h c er t a i n t y. C a sh
bal a nc e h el d t o co v e r t he fut ur e ex i ge n ci es i s c al l e d t h e precautionary
balance and is usually invested in the short-term money market investments
untilneeded.I n s t e a d o f h o l d i n g e x c e s s c a s h f o r t h e a b o v e -
m e n t i o n e d p u r p o s e , t h e f i r m m a y m e e t i t s precautionary requirements as
and when they arise by making short-term borrowings. The choice between the short-
term borrowings and liquid assets holding will depend upon the firm’s policyregarding
the mix of short-term financing.The excess amount of cash held by the firm to
meet its variable cash requirements and futurecontingencies should be temporarily
invested in
marketable securities,
which can be regardedas near moneys. A number of marketable securities may be
available in the market. The financialmanager must decide about the portfolio of
marketable securities in which the firm’s surplus cash should be invested.

An investor can choose from more than 5,112 listed companies, which for
easy reference, are classified into A, B, S, T and Z groups.

2.3 Types of Short-term Investment Opportunities

The following short-term investment opportunities are available to companies in India to

investtheir temporary cash surplus:

Treasury bills
-- Treasury bills (TBs) are short-term government securities. The usual practice
in India is to sell treasury bills at a discount and redeem them at par on maturity.The
difference between the issue price and the redemption price, adjusted for the
timevalue of money, is return on treasury bills. They can be bought and sold
any time; thus,they have liquidity. Also, they do not have the default risk.

Commercial papers
– Commercial papers (CPs) are short-term, unsecured securitiesissued by highly
credit worthy large companies. They are issued with a maturity of threem o nt hs t o o ne
ye a r . C P s a r e m a rk e t ab l e s e cu ri t i e s, a nd t h e re f or e, l i qui di t y i s not
a problem.

Certificates of deposits
– C e rt i fi c at es o f de posi t s (C Ds ) a r e p a pe rs i s su ed b y
ba nks a c k n o w l e d g i n g f i x e d d e p o s i t s f o r a s p e c i f i e d p e r i o d o f t i m
e . C D s a r e n e g o t i a b l e instruments that make them marketable securities.

Bank deposits
– A firm can deposit its temporary cash in a bank for a fixed period
of time. The interest rate depends on the maturity period. For example,
the current interestrate for a 30 to 45 days deposit is about 3 percent and for 180 days
to one year is about 6-7 percent. The default risk of the bank deposits is quite low
since the government ownsmost banks in India.


– Inter-corporate lending borrowing or deposits (ICDs) is a po pul a r s ho rt -
t e rm i nv e st m ent al t e rn at i ve fo r co m p an i es i n Ind i a . G en e ra l l y a c as h sur
plus company will deposit (lend) its funds in a sister or associate companies or
withoutside companies with high credit standing. In practice, companies can negotiate
inter-corporate borrowing or lending for very short periods. The risk of default
is high, butreturns are quite attractive.

Money market mutual funds
– Money market mutual funds (MMMFs) focus on short-term marketable securities such
as TBs, CPs, CDs, or call money. They have a minimuml ock -i n p e ri od of 30 d a ys ,
an d a ft er t h i s p eri od , an i n ve st o r c an wi t hd r aw hi s o r h e r money any
time at a short notice or even across the counter in some cases. They
offer at t r ac t i v e yi e l d s; yi e l ds ar e us u al l y 2 pe r c ent ab ov e t h a n o n ba nk
de pos i t s o f s am e maturity. MMMFs are of recent origin in India, and they have
become quite popular withinstitutional investors and some companies.

2.4 Cash Management Services generally offered

The following is a list of services generally offered by banks and utilised by

larger businessesand corporations:

Account Reconcilement Services
: Balancing a checkbook can be a difficult process for a v e r y l a r g e
business, since it issues so many checks it can take a lot of
humanmonitoring to understand which checks have not cleared a
n d t h e r e f o r e w h a t t h e company's true balance is. To address this, banks have
developed a system which allowscompanies to upload a list of all the checks that they
issue on a daily basis, so that at theend of the month the bank statement will show
not only which checks have cleared, butalso which have not. More recently, banks
have used this system to prevent checks from being fraudulently cashed if they are not on
the list, a process known as
positive pay

Advanced Web Services
: Mo st b ank s ha v e a n Int e rn et -b as e d s ys t em w hi ch i s m o r ea dv an c ed
t ha n t h e on e av ai l a b l e t o c ons um e rs. T h i s en ab l e s m a na ge r s t o c r e at e
an d authorize special internal logon credentials, allowing employees to send wires and
accessother cash management features normally not found on the consumer web site.

Armored Car Services
: Large retailers who collect a great deal of cash may have the bank pick this
cash up via an armored car company, instead of asking its employees to deposit
the cash.

Automated Clearing House
: s er vi c es a r e usu al l y o f f er ed b y t h e c as h m an a ge m e nt d i vi si on of a
ba nk. T h e Aut om at e d C l e ar i n g Hou s e i s a n el e ct ron i c s ys t e m us e d
t o transfer funds between banks. Companies use this to pay others, especially
employees(this is how direct deposit works). Certain companies also use it to
collect funds
fromcu st om e rs ( t hi s i s ge ne r al l y h o w au t om a t i c p a ym e nt pl a ns wo rk ) . T
hi s s ys t e m i s criticized by some consumer advocacy groups, because under this system
banks assumethat the company initiating the debit is correct until proven otherwise.

Balance Reporting Services
: Corporate clients who actively manage their cash
balancesusu al l y su bs c ri b e t o s e cu r e we b -
ba s e d r ep or t i n g o f t hei r a c co unt an d t r a ns ac t i o n information at their lead
bank. These sophisticated compilations of banking activity may

i nc l ud e b al an c es i n fo r ei gn cu r r en ci es , as w el l as t ho s e at o t he r b an ks .
Th e y i n cl ud e information on cash positions as well as 'float' (e.g., checks in the process
of collection).Finally, they offer transaction-specific details on all forms of payment
activity, includingdeposits, checks, wire transfers in and out, ACH (automated
clearinghouse debits andcredits), investments, etc.

Cash Concentration Services

: Large or national chain retailers often are in areas wheretheir primary bank does not
have branches. Therefore, they open bank accounts at variousl o c al b ank s i n t h e
a re a . T o pr e ve nt f un ds i n t h es e a c cou nt s f rom b ei n g i dl e a nd not earning
sufficient interest, many of these companies have an agreement set with
their pr i m ar y b a nk , wh e re b y t h ei r p ri m a r y b an k u s es t h e Automated Clea
ring Housetoelectronically "pull" the money from these banks into a single
interest-bearing bank account.


services: Often companies (such as utilities) which receive a large number

of payments via checks in the mail have the bank set up a post office box for
them, opentheir mail, and deposit any checks found. This is referred to as a "lockbox"

Positive Pay

: Positive pay is a service whereby the company electronically shares itsch e ck

r e gi s t e r o f al l w ri t t e n ch e cks w i t h t h e b an k. Th e b an k t h er e fo r e wi l l
onl y p a ychecks listed in that register, with exactly the same specifications as listed in
the register (amount, payee, serial number, etc.). This system dramatically reduces check

Sweep Accounts

: a r e t yp i c al l y o ff e r ed b y t he ca sh m an a gem e nt di v i si o n of a
ba nk. U nd er t hi s s ys t em , ex c es s fu nds f r om a co m p an y's b a n k ac c ou nt s
a re aut om at i c al l ym o ve d i nt o a m on e y m a rk et m ut ua l fu nd o ve rn i gh t ,
an d t he n m ov e d b a c k t h e n ex t morning. This allows them to earn interest
overnight. This is the primary use of moneymarket mutual funds.

Zero Balance Accounting

: can be thought of as somewhat of a


. Companies withlarge numbers of stores or locations can very often be

confused if all those stores aredepositing into a single bank account.
Traditionally, it would be impossible to knowwhich deposits were from which
stores without seeking to view images of those deposits.To help correct this problem,
banks developed a system where each store is given their own bank account,
but all the money deposited into the individual store accounts areautomatically
moved or swept into the company's main bank account. This allows
thec om p a n y t o l oo k at i nd i vi du al st at em ent s fo r e a ch st or e . U.S . b a nks
a re al m o st al l converting their systems so that companies


tell which store made a particular deposit, even if these deposits are all deposited
into a single account. Therefore, zero balanceaccounting is being used less

Wire Transfer

: A wire transfer is an electronic transfer of funds. Wire transfers can bedone by a

simple bank account transfer, or by a transfer of cash at a cash office.
Bank wire transfers are often the most expedient method for transferring
funds between bank accounts. A bank wire transfer is a message to the
receiving bank requesting them toeffect payment in accordance with the
instructions given. The message also includessettlement instructions. The actual
wire transfer itself is virtually instantaneous, requiringno longer for transmission than a
telephone call.

Controlled Disbursement

: T h i s i s a n o t h e r p r o d u c t o f f e r e d b y b a n k s u n d e r C a s h Management
Services. The bank provides a daily report, typically early in the
day, that provides the amount of disbursements that will be charged to the
customer's account.Th i s e arl y k n owl e d ge of d ai l y f u nds r e qui r em ent
al l ow s t he cus t om e r t o i n ve st a n ysurplus in intraday investment opportunities,
typically money market investments. This

isdi f f er e nt f rom d el a ye d d i sb u r s em ent s , wh e re p a ym e n t s ar e i ss u e d t hr o
u gh a re m ot e branch of a bank and customer is able to delay the payment due to
increased float time.In the past, other services have been offered the usefulness of which
has diminished with the riseof the Internet. For example, companies could have daily
faxes of their most recent transactionsor be sentCD-ROMs of images of their cashed

Purpose of Cash Management

Cash management is the stewardship or proper use of an entity’s cash resources. It serves
as themeans to keep an organization functioning by making the best use of cash or liquid
resources of the organization.The function of cash management at the U.S. Treasury is
threefold:1 . To el i m i n at e i dl e c as h b a l a n c es . E v er y d ol l a r h el d as c as h
r at h e r t h an us ed t o au gm ent revenues or decrease expenditures represents a
lost opportunity. Funds that are not needed tocover expected transactions can be
used to buy back outstanding debt (and cease a flow of fundsout of the Treasury for
interest payments) or can be invested to generate a flow of funds into the Treasury’s
account. Minimizing idle cash balances requires accurate information about
expectedreceipts and likely disbursements.2. To deposit collections timely. Having funds
in-hand is better than having accounts receivable.Th e c as h i s e asi e r t o con v er t
i m m e di at el y i nt o v a l ue o r go ods . A r e ce i va bl e, an i t em t o b e converted
in the future, often is subject to a transaction delay or a depreciation of value.
Oncefunds are due to the Government, they should be converted to cash-in-
hand immediately anddeposited in the Treasury's account as soon as possible.3. To
properly time disbursements. Some payments must be made on a specified or
legal date,such as Social Security payments. For such payments, there is no cash
management decision. For other payments, such as vendor payments, discretion in timing
is possible. Government vendorsface the same cash management needs as the
Government. They want to accelerate collections.One way vendors can do this is to
offer discount terms for timely payment for goods sold.


Research Designand Methodology

R es e a rc h i s a s ys t e m at i c p ro c ess o f c ol l e ct i n g a nd a n al yz i n g
i nf or m a t i o n (d at a ) i n o rd e r t o increase our understanding of the phenomenon
about which we are concerned or interested. AResearch Design is the framework or
plan for a study which is used as a guide in collecting andanalyzing the data
collected. It is the blue print that is followed in completing the study.
The basic objective of research cannot be attained without a proper research
design. It specifies themethods and procedures for acquiring the information needed to

conduct the research effectively.It is the overall operational pattern of the project
that stipulates what information needs to be collected, from which sources and by
what methods.


Study of CASH MANAGEMENT at the State Bank of India


Objectives of a project tell us why project has been taken under study. It helps us to know
moreabout the topic that is being undertaken and helps us to explore future prospects of
thatorganisation. Basically it tells what all have been studied while making the
project.1.To understand how cash is being managed by SBI (K.S.layout,
Bangalore)2.To gain knowledge about the system prevailing in Banks.3.To
suggest methods for improving cash management in Banks.



There are two types of data used. They are primary and secondary data. Primary data is
definedas data that is collected from original sources for a specific purpose.
Secondary data is datacollected from indirect sources.


These include the survey or questionnaire method, as well as the personal interview
methods of data collection.

Th es e i n c l u d e b oo ks , t h e i n t e rn et , c om p an y b r oc hu r es , t he c om p a
n y w ebs i t e, c om p et i t o r ’s websites etc, newspaper articles etc.
Sampling refers to the method of selecting a sample from a given universe
with a view to drawconclusions about that universe. A sample is a representative of the
universe selected for study.The sample size is 20


Following are the limitations faced by me during this project:

The allotted time period of 8 weeks for the study was relatively insufficient, keeping
inmind the long duration it can take at times, to close a particular corporate deal.

The study might not produce absolutely accurate results as it was based on a sampletaken

It was difficult getting time and access to senior level Finance/HR managers (who had
to be talked to, to get required information) due to their busy schedules
and prior commitments.

A few of the managers refrained from giving the required information as he

consideredme to be from their confidential domains

Company Profile


Without a sound and effective banking system in India it cannot have a healthy
economy.The banking system of India should not only be hassle free but it should be able
to meet newchallenges posed by the technology and any other external and internal
factors.For the past three decades India’s banking system has several outstanding
achievements to itscredit. The most striking is its extensive reach. It is no longer confined
to only metropolitans or cosmopolitans in India. In fact, Indian banking system has
reached even to the remote corners of the country. This is one of the main reasons for
India’s growth. The government’s regular policyfor Indian bank since 1969 has paid rich
dividends with the nationalization of 14 major private banks of India.

The first bank in India, though conservative, was established in 1786. From 1786 till
today, the journey of Indian Banking System can be segregated into three distinct phases.
They are asmentioned below:

Early phase from 1786 to 1969 of Indian Banks.

Nationalization of Indian Banks and up to 1991 prior to Indian.

Banking sector Reforms.

New phase of Indian Banking System with the advent of Indian.

Financial & Banking Sector Reforms after 1991.

Phase I

The General Bank of India was set up in the year 1786. Next came Bank of Hindustan
andBengal Bank. The East India Company established Bank of Bengal (1809), Bank of
Bombay(1840) and Bank of Madras (1843) as independent units and called it Presidency
Banks. Thesethree banks were amalgamated in 1920 and Imperial Bank of India was
established which startedas private shareholders banks, mostly European shareholders.In
1865 Allahabad Bank was established and first time exclusively by Indians, Punjab
NationalBank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and
1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank,
and Bank of Mysorewere set up. Reserve Bank of India came in 1935.During the first
phase the growth was very slow and banks also experienced periodic failures between

1913 and 1948. There were approximately 1100 banks, mostly small. To streamline
thefunctioning and activities of banks, mostly small. To streamline the functioning and
activities of commercial banks, the Government of India came up with The Banking
Companies Act, 1949which was later changed to Banking Regulation Act 1949 as per
amending Act of 1965 (Act No.23 of 1965). Reserve Bank of India was vested with
extensive powers for the supervision of banking in India as the Central Banking System.
During those day’s public has lesser confidence in the banks. As an aftermath
depositmobilization was slow. Abreast of it the savings bank facility provided by the
Postal departmentwas comparatively safer. Moreover, funds were largely given to

Phase II

Government took major steps in this Indian Banking Sector Reform after independence.
In 1955,it nationalized Imperial Bank of India with extensive banking facilities on a large
scale speciallyin rural and semi-urban areas. It formed State Bank of India to act as the
principal agent of RBIand to handle banking transactions of the Union and state
government all over the country.Seven banks forming subsidiary of State Bank of India
was nationalized in 1960 on 19


July1969, major process of nationalization was carried out. It was the effort of the then
PrimeMinister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country
werenationalized. Second phase of nationalization Indian Banking Sector Reform was
carried out in1980 with seven more banks. This step brought 80% of the banking segment
in India under Government ownership.

The following are the steps taken by the Government of India to Regulate BankingInstitutions
in the Country:

1.1 94 9 : En a ct m en t of Ba nk i n g R e g ul at i on A ct . 2. 195 5 : N at i on al i z at i o n
o f S t at e B an k of Ind i a . 3. 19 59 : N at i on a l i z at i o n of S B I
s u b si di a ri es . 4. 19 61 : In su r an c e c o v er ex t en de d t o d epo si t s . 5 . 196 9 :
Na t i o na l i z at i o n of 1 4 m aj o r b an ks. 6. 19 7 1 : C r ea t i o n of cr ed i t gu a r ant e e
co rp o ra t i o n. 7 .1 97 5 : C r ea t i o n of r e gi o na l r ur al b an ks .8.1980:
Nationalization of seven banks with deposits over 200 crores. After the
nationalization of banks, the branches of the public sector bank India rose
toapproximately 800% in deposits and advances took a huge jump by 11000%. Banking
in thesunshine of Government ownership gave the public implicit faith and immense
confidence aboutthe sustainability of these institutions.

Phase III
This phase has introduced many more products and facilities in the banking sector in its
reformsmeasure. In 1991, under the chairmanship of M Narasimham, a committee was
set up by hisname, which worked for the Liberalization of Banking Practices.The country
is flooded with foreign banks and their ATM stations. Efforts are being put to givea
satisfactory service to customers. Phone banking and net banking is introduced.
The entiresystem became more convenient and swift. Time is given more importance
than money.The financial system of India has shown a great deal of resilience. It is
sheltered from any crisistriggered by any external macroeconomics shock as other East
Asian Countries suffered. This isall due to a flexible exchange rate regime, the foreign
reserves are high, the capital account is notyet fully convertible, and banks and their
customers have limited foreign exchange exposure.Banking in India originated in the first
decade of 18

century with The General Bank of Indiacoming into existence in 1786. This was followed
by Bank of Hindustan. Both these banks arenow defunct. The oldest bank in existence in
India is the State Bank of India being established as“The Bank of Calcutta” in Calcutta in
June 1806. Couple of Decades later, foreign Banks likeHSBC and Credit Lyonnais
Started their Calcutta operations in 1850s. At that point of time,Calcutta was the most
active trading port, mainly due to the trade of British Empire and due towhich banking
actively took roots there and prospered. The first fully Indian owned bank was
theAllahabad Bank set up in 1865.By 1900, the market expanded with the establishment
of banks like Punjab National Bank in1895 in Lahore; Bank of India in 1906 in Mumbai-
both of which were founded under private ownership. Indian Banking Sector was
formally regulated by Reserve Bank of India from 1935.After India’s independence in
1947, the Reserve Bank was nationalized and given broader powers.

SBI Group

The Bank of Bengal, which later became the State Bank of India. State Bank of
India with itsseven associate banks commands the largest banking resources in India.


The next significant milestone in Indian Banking happened in late 1960s when the then
IndiraGandhi government nationalized on 19


July 1949, 14 major commercial Indian banks followed by nationalization of 6 more

commercial Indian banks in 1980.The stated reason for the nationalization was more
control of credit delivery. After this, until1990s, the nationalized banks grew at a
leisurely pace of around 4% also called as the Hindugrowth of the Indian economy.After
the amalgamation of New Bank of India with Punjab National Bank, currently there
are 19nationalized banks in India.


In the early 1990’s the then Narasimha Rao government embarked a policy of
liberalization andgave licenses to a small number of private banks, which came to be
known as New generationtech-savvy banks, which included banks like ICICI and HDFC.
This move along with the rapidgrowth of the economy of India, kick started the banking
sector in India, which has seen rapidgrowth with strong contribution from all the sectors
of banks, namely Government banks, PrivateBanks and Foreign banks. However there
had been a few hiccups for these new banks with many either being taken over like
Global Trust Bank while others like Centurion Bank have found thegoing tough.The next
stage for the Indian Banking has been set up with the proposed relaxation in thenorms for
Foreign Direct Investment, where all Foreign Investors in Banks may be given
votingrights which could exceed the present cap of 10%, at present it has gone up to 49%
with somerestrictions.The new policy shook the Banking sector in India completely.

Bankers, till this time, wereused to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go
home at 4) of functioning. The newwave ushered in a modern outlook and tech-savvy
methods of working for traditional banks. Allthis led to the retail boom in India. People
not just demanded more from their banks but alsoreceived more.


Currently (2010), overall, banking in India is considered as fairly mature in terms

of supply, product range and reach-even though reach in rural India still remains a
challenge for the private sector and foreign banks. Even in terms of quality of assets and
capital adequacy, Indian banks are considered to have clean, strong and transparent
balance sheets-as compared to other banks in comparable economies in its region. The
Reserve Bank of India is an autonomous body,with minimal pressure from the
government. The stated policy of the Bank on the Indian Rupeeis to manage volatility-
without any stated exchange rate-and this has mostly been true.With the growth in the
Indian economy expected to be strong for quite some time-especiallyin its services sector,
the demand for banking services-especially retail banking, mortgages andinvestment
services are expected to be strong. M&As, takeovers, asset sales and much moreaction
(as it is unraveling in China) will happen on this front in India.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake
in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor
has been allowedto hold more than 5% in a private sector bank since the RBI announced
norms in 2005 that anystake exceeding 5% in the private sector banks would need to be
vetted by them.Currently, India has 88 scheduled commercial banks (SCBs) - 28 public
sector banks (thatis with the Government of India holding a stake), 29 private banks
(these do not havegovernment stake; they may be publicly listed and traded on stock
exchanges) and 31 foreign banks. They have a combined network of over 53,000
branches and 21,000 ATMs. According toa report by ICRA Limited, a rating agency, the
public sector banks hold over 75 percent of totalassets of the banking industry, with the
private and foreign banks holding 18.2% and 6.5%respectively.SBI is the only bank
consisting 26% participation in public sector banks and 39% participation in commercial
banks in India.

Banking in India
1 C e n t r a l B a n k R e s e r v e
B a n k o f I n d i a

Bank Overview
Not only many financial institution in the world today can claim the antiquity and
majesty of theState Bank Of India founded nearly two centuries ago with primarily intent
of imparting stabilityto the money market, the bank from its inception mobilized funds
for supporting both the publiccredit of the companies governments in the three
presidencies of British India and the privatecredit of the European and India merchants
from about 1860s when the Indian economy book asignificant leap forward under the
impulse of quickened world communications and ingeniousmethod of industrial and
agricultural production the Bank became intimately in valued in thefinancing of
practically and mining activity of the Sub- Continent Although large European andIndian
merchants and manufacturers were undoubtedly thee principal beneficiaries, the
smallman never ignored loans as low as Rs.100 were disbursed in agricultural districts
against gladornaments. Added to these the bank till the creation of the Reserve Bank in
1935 carried outnumerous Central – Banking functions.Adaptation world and the needs
of the hour has been one of the strengths of the Bank, In the post depression exe. For
instance – when business opportunities become extremely restricted,rules laid down in
the book of instructions were relined to ensure that good business did not go post. Yet
seldom did the bank contravene its value as depart from sound banking principles toretain
as expand its business. An innovative array of office, unknown to the world
then, wasdevised in the form of branches, sub branches, treasury pay office, pay office,
sub pay office andout students to exploit the opportunities of an expanding economy.
New business strategy wasalso evaded way back in 1937 to render the best banking
service through prompt and courteousattention to customers.A highly efficient and
experienced management functioning in a well defined organizationalstructure did not
take long to place the bank an executed pedestal in the areas of business, profitability,
internal discipline and above all credibility A impeccable financial status
consistentmaintenance of the lofty traditions if banking an observation of a high standard
of integrity in itsoperations helped the bank gain a pre- eminent status. No wonders
the administration for the bank was universal as key functionaries of India successive
finance minister of independentIndia Resource Bank of governors and representatives of
chamber of commercial showeredeconomics on it.Modern day management techniques
were also very much evident in the good old day’s years before corporate governance had
become a puzzled the banks bound functioned with a highdegree of responsibility and
concerns for the shareholders. An unbroken record of profits and afairly high rate of
profit and fairly high rate of dividend all through ensured satisfaction, prudential
management and asset liability management not only protected the interests of theBank
but also ensured that the obligations to customers were not met.The traditions of the past
continued to be upheld even to this day as the State Bank years itself tomeet the emerging
challenges of the millennium.

Togetherness is the theme of this corporate loge of SBI where the world of
banking servicesmeet the ever changing customers needs and establishes a link that is
like a circle, it indicatescomplete services towards customers. The logo also denotes a
bank that it has prepared to doanything to go to any lengths, for customers.The blue
pointer represent the philosophy of the bank that is always looking for the growth
andnewer, more challenging, more promising direction. The key hole indicates safety and


To retain the Bank’s position as premiere Indian Financial Service Group, with world
classstandards and significant global committed to excellence in customer, shareholder
and employeesatisfaction and to play a leading role in expanding and diversifying
financial service sectorswhile containing emphasis on its development banking rule.


P r em i er Ind i a n F i n a nci al S er vi c e Gr ou p wi t h pr o s pe ct i v e w orl d -

cl ass S t an d a r ds o f efficiency and professionalism and institutional values

Retain its position in the country as pioneers in Development banking.

Maximize the shareholders value through high-sustained earnings per Share.

An institution with cultural mutual care and commitment, satisfying and

Good work environment and continues learning opportunities.


Excellence in customer service

Profit orientation

Belonging commitment to Bank

Fairness in all dealings and relations

Risk taking and innovative

Team playing

Learning and renewal


Transparency and Discipline in policies and systems.

Regional officers
Competitors and other players in the field:-
Top Performing Public Sector Banks
Andhra Bank Allahabad Bank Punjab National Bank Dena Bank Vijaya Bank
Top Performing Private Sector Banks

Kotak Mahindra Bank Centurion Bank of Punjab

Top Performing Foreign Banks
Citibank Standard CharteredHSBC Bank ABN AMRO Bank American Express.

Cash Management
As p ar t o f S t at e B an k 's gl ob al t r a ns a ct i o n s ol ut i on s t o C o rpo r at es
an d Institutions, we provide Cash Management, Securities Services and Trade Services
through our strong market networks in Asia. We are committed to providing you with

Integrated, superior cross-border and local services
Efficient transaction processing
Reliable financial information
Innovative products
World-class clearing services thus ensuring a full suite of transactional products for
your needs.

For Corporates

State Bank is highly recognized as a leading cash management supplier across

the emergingmarkets. Our Cash Management Services cover local and cross
border Payments, Collections,Information Management, Account Services and
Liquidity Management for both corporate andinstitutional customers. With State Bank's
Cash Management services, you'll always know your exact financial position. You have
the flexibility to manage your company's complete financial position directly from your
computer workstation. You will also be able to take advantage of our outstanding
range of Payments, Collections, Liquidity and Investment Services
and receivecomprehensive reports detailing your transactions. With State Bank, you
have everything it takesto manage your cash flow more accurately.

Payments Services

Collection Services

Liquidity Management

For Financial Institutions

S t an d ar d C h ar t e r ed i s h i gh l y r e co gni z ed a s a l e ad i n g c ash m an a gem e nt

s up pl i e r a cr oss t h e emerging markets. Our Cash Management Services cover

local and cross border Payments,Collections, Information Management,
Account Services and Liquidity Management for bothcorporate and institutional
customers. If you are looking for a correspondent banking partner youc an t ru st ,
S t an d ar d C h ar t e r ed c an h el p yo u. W e h a ve m o r e t h an 50 0 of fi c es
l oc at e d i n 50 countries throughout the world and, with 150 years of on-the-ground
experience, we can help our bank clients with all their cash management needs.

Clearing Services

Asian Gateway

Payment Services

Global payments solution for efficient transaction processing Looking

tooutsource your payments to enable:

Efficient processing of all your payables in the most cost effective way

Straight through processing both at your end as well as your bank's back-end

Efficient payables reconciliation with minimal effort and delay

Quick approval of payments from any location

Minimum hindrance to automation due to local language difficulties

Centralized management of payables across departments, subsidiaries and countries

Our Solution
State Bank's Straight Through Services (STS) Payments Solution can be tailoredto the
different payment needs of companies, whatever industry, size or country you may be
in.With a comprehensive End-to-end Payment Processing Cycle, STS allows companies
to processa variety of payment types, whether they be domestic or international, local or

central in differentcountries, all in a single system file. To realise the benefits of
STS, please contact your localRelationship Manager or Cash Management
Our Coverage
We are the foreign bank having the largest geographical representation in the country.
We are the only bank which provides draft status to you on the website.

Collection Services
Comprehensive receivables management solution State Bank understands
that operating andsustaining a profitable business these days is extremely
tough. In an environment of constantchanges and uncertainties, most businesses face
challenges of costs and efficiency. Key concernsinclude:
Receivables Management - ensuring receivables are collected in an efficient
and timelymanner to optimise utilisation of funds.
Risk Management - ensuring effective management of debtors to eliminate risk of
returnsand losses caused by defaulters and delayed payments
In v e nt o r y M a na ge m ent -
e nsu ri n g e f fi ci ent a nd qui c k t ur n ar ou nd o f i nv ent o r y t o maximise returns.
Cost Management - reducing interest costs through optimal utilisation of funds.

Our Solution
The State Bank Collections Solution leverages the Bank's extensive
regionalknowledge and widespread branch network across our key markets to
specially tailor solutionsfor your regional and local collection needs. This
Collections Solution, delivered through astandardised international platform, has the
flexibility to cater to your local needs, thus enablingyou to meet your objectives of
reducing costs and increasing efficiency and profitability
through b et t e r r ec ei v abl e s an d ri s k m a na gem e nt . T he k e y c o m pon e nt s o f
ou r s ol u t i o n i nc l u de t h efollowing:
Extensive Clearing Network
Guaranteed Credit
Comprehensive MIS
System Integration
Outsourcing of Collection

Liquidity Management
Solutions for efficient management of your funds A corporate treasurer's main challenge
oftenr ev ol v e s a rou nd e nsu ri n g t h at t h e c om p an y's c ash r e sou r ce s a re ut i l
i s e d t o t h ei r m ax i m um advantage. You need a partner bank that can help you:
Maximise interest income on surplus balances; minimise interest expense on
deficit balances for domestic, regional and global accounts
Minimise FX conversion for cross-currency cash concentration
Customise liquidity management solutions for different entities in different countries
Centralise information management of consolidated account balances
Our Solution
With our global experience and on-the-ground market knowledge, State Bank willhelp
you define an overall cash management strategy which incorporates a liquidity
managementsolution that best meets your needs.

Key Features
Based on your needs and the regulatory environment that you are in, you
canchoose any of the following features:
Physical Sweeping
Notional Pooling

Liquidity Management in SBI
Measuring and managing the liquidity needs are vital for effective operation of
commercial b a n k s . B y a s s u r i n g a b a n k ' s a b i l i t y t o m e e t i t s l i a b i l i t
i e s a s t h e y b e c o m e d u e , l i q u i d i t y management can reduce the
probability of an adverse situation developing. The importance of liquidity
transcends individual institutions, as liquidity
shortfall in one institution can haverepercussions on the entire system. Bank
managements should measure, not only the liquidity positions of banks on an
ongoing basis, but also examine how liquidity requirements are likely toevolve under
different conditions.Banks are in the business of maturity transformation. They
lend for longer time periods, as borrowers normally prefer a longer time frame.
But their liabilities are typically short term innature, as lenders normally
prefer a shorter time frame (liquidity preference). This results inlong-term
interest rates typically exceeding short-term rates. Hence, the incentive for banks
for performing the function of financial intermediation is the difference between interest
receipt andinterest cost which is called the interest spread. It is implicit,
therefore, that banks will have amismatched balance sheet, with liabilities
greater than assets in short term, and with assets greater than liabilities in the
medium and long term. These mismatches, which represent liquidityrisk, are with respect
to various time horizons. Hence, the overwhelming concern of a bank is tomaintain
adequate liquidity.Liquidity has been defined as the ability of an institution to
replace liability run off and fundasset growth promptly and at a reasonable
price. Maintenance of superfluous liquidity will, however, impact profitability
adversely. It can also be defined as the comprehensive ability of a bank to meet
liabilities exactly when they fall due or when depositors want their money
back.This is a heart of the banking operations and distinguishes a bank from other

Cash Reserve Ratio

A s ch ed ul ed b an k i s und e r t h e o bl i ga t i on t o k e ep a ca sh r es e rv e
c al l ed t h e S t at u t o r y C a sh Reserve, with the Reserve Bank of India (RBI)
under Section 42 of the Reserve Bank of IndiaAct, 1934. Every scheduled bank is
required to maintain with the Reserve Bank an average daily balance equal to least 3% of
its net demand and time liabilities. Average daily balances mean theaverage of balances
held at the close of business on each day of the fortnight. The Reserve Bank is
empowered to increase the rate of Statutory Cash Reserve from 3% to 20% of the Net
Demandand Time Liabilities (NDTL).

Statutory Liquidity Ratio

Section 24(2A) of Banking Regulation Act, 1949, requires every banking company to
maintainin India in Cash, Gold or Unencumbered Approved Securities or in the
form of net balance incurrent accounts maintained in India by the bank with a
nationalized bank, equivalent to anamount which shall not at the close of the
business on any day be less than 25% or such other percentage not exceeding
40% as the RBI may from time to time, by notification in the Gazetteof India, specify, of
the total of its demand and time liabilities in India as on the last Friday of thesecond
preceding fortnight, which is known as SLR. At present, all Scheduled
CommercialBanks are required to maintain a uniform SLR of 25% of the total
of their demand and timeliabilities in India as on the last Friday of the second
preceding fortnight which is stipulatedunder Section 24 of the RBI Act, 1949.RBI
can enhance the stipulation of SLR (not exceeding 40%) and advise the banks
to keep alarge portion of the funds mobilized by them in liquid assets, particularly
government and other approved securities. As a result, funds available for credit would
get reduced.All banks have to maintain a certain portion of their deposits as
SLR and have to invest thatamount in these Government securities.Government
securities are sovereign securities. These are issued by the RBI on behalf of
theGovernment of India, in lieu of the Central Government's market borrowing
program.The term government securities include:Government Dated Securities, i.e.,
Central Government SecuritiesState Government SecuritiesTreasury Bills.

The Central Government borrows funds to finance its fiscal deficit. The market
borrowing of theCentral Government is raised through the issue of dated securities and
364 days Treasury Bills,either by auction or by floatation of fixed coupon loans.In
addition to the above, Treasury Bills of 91 days are issued for managing the
temporary cashmismatches of the government. These do not form part of the borrowing
program of the CentralGovernment.Based on the required CRR and SLR per day,

the treasury department of the bank ensures
thatsu f fi ci en t b al a nc e i s m ai nt ai n e d i n t he R es er v e B an k ( at i t s
di f f e re nt b ra n ch es ). Th e f un d manager calculates on a daily basis the RBI balances
based on opening RBI balances and takinginto account various inflows and outflows
during the day. The fund manager takes the summaryof inflows and outflows and the net
effect is added to/subtracted from the opening RBI balances.By this method, an RBI
balance of all the 14 days is arrived at. For instance, on the opening dayof the fortnight,
if there is an anticipated surplus, banks can generally lend it at an
average,subject to subsequent inflows/outflows. Conversely, for a shortfall, the
bank may borrow
ther eq ui r ed am o u nt i n c al l / r ep o / C o l l at er al i z ed Bo r ro wi n gs a nd Le nd i n g
Ob l i gat i on s (C B LO )markets on a daily basis.Successful functioning of the
funds department depends mostly on the prompt collection of information from
branches/other departments regarding the inflow and outflow of funds.
Thei n fo rm at i on s ho ul d al so b e c ol l e c t e d ac c u r at el y a n d c ol l at ed p ro p er l
y/ c o rr e ct l y. Im p rop e r maintenance of liquidity and CRR position by the fund
manager may lead to either a default or an excess which does not earn any interest
for the bank.

A Framework for Measuring and Managing Liquidity

Measuring and managing liquidity needs are vital for effective operation of
commercial banks.By assuring a bank's ability to meet its liabilities as they become
due, liquidity management canreduce the probability of an adverse situation developing.
The importance of liquidity transcendsindividual institutions, as liquidity shortfall
in one institution can have repercussions on theentire system. Bank managements
should measure not only the liquidity positions of banks on anongoing basis, but also
examine how liquidity requirements are likely to evolve under
differentassumptions. Experience shows that assets like government
securities and other money market instruments, which are generally treated as
liquid could also become illiquid when the marketand players are
unidirectional. Therefore, liquidity has to be tracked through maturity or
cashflow mismatches.The framework for assessing and managing bank liquidity has
three dimensions:

Measuring and managing net funding requirements
Managing market access and

Contingency planning.

Analysis andInterpretationof Data

Analysis of the above diagram

It has been observed that approximately 60% correspondents are using the service of SBI
for their daily transaction, around 33% of people are using ICICI Bank for their
transaction and only5% & 2% of people are using HDFC & other Bank service
respectively in KumaraswamyLayout. It also shows that SBI have the highest market
position in Kumaraswamy Layout as per my sample.

Q2. Are you aware of products & services provided by SBI?

Analysis of the above diagram

From the above data it is clear that most of the customers (around 85%) of K.S.layout
have theidea about the

product & services



the rest 15% have the idea about the product they are using.

Analysis of the above diagram

It’s very good for SBI as most of the companies are aware of the cash
management services pr ovi de d b y t h e b an k. Th e b ank c an l oo k i n t o
com p ani es as t o p ro pos e i t s s er vi c es t o t he concerned company personals.

SEBI has to be responsive to the needs of three groups, which constitute the

 the issuers of securities

 the investors
 The market intermediaries.

Q4. Are you satisfied with your company services? 5
Analysis of the above diagram
From the above analysis it can be interpreted that most of the companies
were satisfied by their CMS provider but still they found few areas of
improvement, SBI can give solutions for thoseareas.

Q5. What are your main modes of premium collection?

Analysis of the above diagram
Most of the companies accept premium in the form of cheque as it’s a safer instrument
thancash and is easily handled as compared to demand draft SBI can provide
various chequecollections options to the companies.

Q6. What are your main modes making payments?

Analysis of the above diagram

Like premium most of the companies distribute their payments through cheques only DD
andcash are made out under special circumstances

Q7. Does the financial crisis in US affecting your functioning here in INDIA?

Analysis of the above diagram

From the pie chart its quite evident that the financial crisis in US are affecting
people globallyand even insurance companies are gravely affected by the crisis


The ABC Ltd. is a FMCG Company. The company has presence in more than
15 citiesand has its head quarter in Mumbai. The company has Depots at these cities.
And each depot hassome turnover every month, the name of Cities, the monthly
turnover of the each depots andnumber of retailers in each cities are as follows:

The requirements of the ABC Ltd. are as follows:1.A l l m on e y s ho ul d be A B C

Lt d . a/ c at D el hi . 2. Al l m o ne y s ho u l d o n t h e n ex t d a y b a s i s . 3.Details of
cheques deposited at different location on daily basis:



No. of cheques deposited

Cheque number

Cheque amount

Date of deposit

Clearing date

Retailer name/code

Returned cheques




Amount1.C o ur i e r pi c k - up s er vi c e at e a ch l o c at i o n. 2.Monthly reports of

each location about sales, collection, expenditures etc. 3 . O t h e r
MIS reports
These are the conditions and facts of the organisation. Now, what the bank will do? I
have takenthe case of
. This is regarding how the bank makes deal with the company.The STATE BANK
OF INDIA will analysis the location of the company. The ABC Ltd.has sixteen
locations in the country. This is not always possible to have the branches at
eachlocation of the client for the banks. In this case, we are taking the assumptions as

In 10 locations of the company, the bank has its own presence .

In 2 locations of the company, the bank has tie-up with correspondent bank

And in remaining 4 locations, the bank has no presence as well as no tie -up
with any other bank.

How the bank makes allocation of the different instruments?
The bank broadly categorized the instruments into two types:
I .L o c al Ch eq u e Col l e c ti on s (L C C )
LCC are the cheques, which are drawn and deposited at the same location.
A Chequedrawn at Jaipur must be deposited at Jaipur only.The LCC is again
categorized into two types:
A local Cheque which is drawn and deposited at the same location where the
bank has itsown presence.
A local Cheque which is drawn and deposited at the same location where the
bank doesn’thave its own presence but has tie up with correspondent Bank.
II.Upcountry Cheque Collections (UCC)
The UCC are the cheques, which are drawn and deposited at different
ACheque drawn at Jaipur is deposited at Delhi.The UCC is again categorized into two

An upcountry Cheque which is drawn at one location and deposited at another location
wherethe bank has its own presence.
An upcountry Cheque which is drawn at one location and deposited at another location
wherethe bank has tie-up with correspondent Bank.
:An upcountry Cheque which is drawn at one location and deposited at another location
wherethe banks neither have its own presence nor have tie-up with correspondent bank.
Pricing is competitive; varies from centre to center. It also vari
e s f r o m i n s t r u m e n t s t o instruments.Special pricing can be worked out taking into
account the volume of funds & the centres.The pricing part of the CMS is very complex.
Normally, the STATE BANK of INDIA takes intoaccount the following factors while
going for pricing:
1)Bank In Funds/ Out of Funds & Correspondent Bank Charges:
When Cheque is deposited in the bank it passes through the clearing house. In India,
clearingis done through RBI, SBI and PSU banks. The RBI has presence in 15
cities in India whileSBI has 938 locations in India including its associates.
Other cities where clearing house isnot there, the clearing is done through
Correspondent Bank, mostly these are PSU Banks or Co-operative Banks.Suppose I
deposit the Cheque on day 0, then the time taken by the clearing houses to
debitthe bank account would be different. The SBI has to debit its customer’s account on
the nextday basis irrespective of days to clear In this case, the bank charges interest
on the money which it gives in form of “Creditagainst Uncleared Cheque”, to the

company. When it comes to the Correspondent bank, the bank has to pay extra charges to
these banks.
The bank takes into account the overheads charges, which it occurs in the
process. The o/hscharges include salary, administration charges, maintenance etc.
Af t e r i n cl udi n g t h e
t r ans a ct i on and ot h e r ov e rh e ads ch ar ge s , t h e b an k ge t s t h e
co s t of transaction. On this the bank adds its margin for being in the business.In
pricing, other elements like courier charges return cheques etc. also considered. Pricing
inCMS in generally negotiable between the company and the Bank.

 First bell-ringing ceremony in the history of the Indian capital markets (listing
ceremony of Bharti Televentures Ltd. on February 18, 2002)

Exclusive CMP desks with infrastructure

Debit Transfers

Courier pick-up at branches

No collection a/cs needed at branches

Customized Reports

Transmission of data through Internal LAN system

Direct credit to accounts
Benefits to Customers:

Centralized Control of cash

Cost reduction

Enhanced Liquidity

Interchange of Information between treasury & operating units

Reduced excess cash balance

Cash forecasting & scheduling

Effective control over disbursements

Timely & effective investments.



Th e s t u d y al l o we d u s get a ns w er s r e ga rd i n g t h e se r vi ce aw a r en es s
am o n g p eo pl e an d t he problems it faces. The key findings and analysis of the survey
showed the following

A large number of clients and customers call the branch frequently to handle
bankingissues , this shows the keenness of the customers to call the branch for almost
every smallissue. The service Straight2bank does provide an answer to the problem of the
customers.The service provided by staright2bank does offer the main requirements of the
customersfor which they visit or call the branch

All the respondents wanted to carry out the banking needs at their
convenience. Thismeans the service caters the banking needs that customers generally
require and its main benefit of banking while sitting at office is desired by one
and all, thereby proving thatthe service does have the potential usage.

F ew o f t h e r es pon d e nt s w e re aw a r e ab ou t t h e s er vi c e whi ch wa s
de s i r e d b y 10 0% respondents clearly showing that there has been a falter in
its promotion and awarenessstrategies.

Customers were not aware that the service was a free one, this is clear that almost all
theattributes of the services are favorable to the customers still customers are not using
theservice and are not even aware of it.

Almost all customers once educated about the service readily enrolled for it
whereas amere portion did not trust the bank and thought that the bank would
have some hiddencharges that they are not putting forwardMany clients who enrolled
for the staright2bank service would have problems using it asthe drop boxes are not
strategically placed many areas do not even have drop box facility;State Bank must look
into the policies of installing the drop box. They should assign it tothe regional office or

allow branches to put up boxes where the branch thinks it would beoptimally utilized no
matter which area of the city as of now that branches are allowed to put up drop boxes in
a radius which falls in close by areas to the branch. A customer wholives close by to the
branch would not use this service whereas customers who are far of require the
service, however the branch cannot provide them with the facility as
theycannot install the boxes in that area and it is the duty of the local branch
of that area to put up boxes which is not happening they hardly know where
customers of the other branch are located

We suggest following measures, which State Bank could take so as to take on heavy
competitionfrom HSBC Bank and ABN AMRO Bank:

Try to reduce cost, so that benefits can be passed on to customers. Senior managers atSBI
keep on telling that it is difficult to reduce cost, because of services we provide.But the
fact is, India being a price sensitive market; people at times go for
monetary benefits rather than for long-term non- monetary benefits. If charges can’t be
reduced b e c a u s e o f c o s t s i n v o l v e d , m a k e t h e s e r v i c e s c u s t o m i z e d ,
s o t h a t s e r v i c e s a r e provided to only those customers who are willing to
pay the price for services theyare getting and let the other customers enjoy costs
benefits without getting services.

SBI should provide competitive prices as nowadays a lot business is
being acquired by AXIS bank and HSBC bank and SBI is facing a lot competition from
these banks

SBI should contact with their clients regularly for knowing the problems faced
bythem. This will help SBI in providing best services to customers. This will
result inadditional customer base by getting further references from satisfied clients.

SBI should focus on getting the business other business clients other than its
existingcustomers as it would help them to increase their business opportunities.