OBJECTIVE OF THE PROJECT


To know about Cash Management of Bank of India. 
To analyze the Cash Management Process of Bank of India.
To analyze in detail, the way Banks currently manage their finances and make
decisions to achieve trade off between profitability and liquidity

1
Scope of the Project

Efficient cash management processes are pre-requisites to execute payments, collect

receivables and manage liquidity. This study done, taking consideration of Bank of

India. With reference to experience availed at branch. The study of this topic will help

to get the knowledge about cash management policy of banks as particularly in co-

operative sector. The mounting pressure from competitors forces the Banks to look

for an Information Technology vendor who can offer better solutions and services in

Cash Management and Internet Banking.

Hence the study will lead to analysis of policies and procedure of managing cash

inflow and outflow, also this project focus on RBI norms and rules regarding PCBs

(Primary Co-operative Banks) cash management policies. This will give brief view

about entire structure of liquidity management of banks and solutions offered by

them.

2
RESEARCH METHODOLOGY

Problem Formulation

Efficient management of cash (outflows/inflows) to improve liquidity and

returns will be important factors for the banking sector. This project analyzed

cash management of banks on this basis.

Research Design

The research design for this study is basically Descriptive Research because it

utilizes the large number of data of the Bank of India.

Data Type

Secondary data utilized for this project study.

4
 Executive Summary

In a business anything done financially affects cash eventually.

“Cash Is To A Business Is What Blood Is To A Living Body”.

A business cannot operate without its life blood cash, & without cash management

there may remain no cash to operate. Cash movement in a business is two way traffic.

It keeps on moving in & out of business. The inflow & outflow of cash never

coincides. Important aspect which is unique to cash management is time dimension

associated with the movement of cash. Due to non-synchronicity of cash inflow

outflow, the inflow may be more than outflow or outflow may be more than inflow at

a particular point of time. Hence there is a direct need to control its movement through

skilful cash management. The primary aim of cash management is to ensure that there

should be enough cash availability when the needs arise not too much but never too

little.

5
Banking History

Banks are the most significant players in the India n financial market. They are the

biggest purveyors of credit, and they also attract most of the savings from the

population. Dominated by public sector the banking industry has so far acted as an

efficient partner in the growth and the development of the country. Public sector

banks have long been the supporters of agriculture and other priority sectors. They act

as crucial channels of the government in its efforts to ensure equitable economic

development.

The Indian banking can be broadly categorized into:

1. Nationalized (Government owned)

2. Private Banks and

3. Specialized Banking Institution.

The reserve bank of India acts as a centralized body monitoring any discrepancies and

shortcoming in the system. It is the foremost monitoring body in the Indian financia l

sector. Since the nationalization of banks in 1969, the public sector banks or the

nationalized banks have acquired a place of prominence and has since then seen

tremendous progress. The need to become highly customer focused has forced the

slow- moving public sector banks to adopt a fast track approach. The unleashing of

products and services through the net has galvanized players at all levels of the

banking and financial institutions market grid to look a new at their existing portfolio

offering. Conservative banking practices allowed Indian banks to be insulted partially

from the Asian currency crisis.

6
Indian banks are now quoting at higher valuation when compared to banks in other

Asian countries (viz. Hongkong, Singapore) that have major problems linked to huge

Non Performing Assets & payment defaults.

Co-operative banks are nimble footed in approach and armed with efficient branch

networks focus primarily on the high revenue nicknames of the new Indian market

and is addressing the relevant issues to take on the multifarious challenges of the

retail segment.

The Indian banking finally worked up to the competitive dynamics of the new Indian

market and is addressing the relevant issues to take on the multifarious challenges of

globalization. Private Banks have been fast on the uptake and are reorienting their

strategies using the internet as a medium. The internet has emerged as the new and

challenging frontier of marketing with the conventional physical world tenets being

just as applicable like in any other marketing medium.

The Indian banking has come from a long way from being a sleepy business

institution to a highly proactive & dynamic entity. This transformation has been

largely brought about by the large dose of liberalization and economic reforms that

allowed banks to explore new business opportunities rather than generating revenues

from conventional stream (borrowing and lending).

The banking in India’s highly fragmented with 30 banking units contributing to

almost 50 % deposits and 60% advances. Indian nationalized banks continue to be

major lenders in the economy due to their sheer size and penetrative networks which

assures them high deposits mobilization. The nationalized banks continue to dominate

the Indian banking area. Industry estimates that out of 274 commercial banks

operating in India 223 banks are in the public sector and 51 are in the private sector.

The private sector bank also includes 24 foreign banks.

7
WHAT IS CASH MANAGEMENT OF BANKS?

Cash management is a broad term that refers to the collection, concentration, and

disbursement of cash. It encompasses a bank’s level of liquidity, its management of

cash balance, and its short-term investment strategies. In some ways, managing cash

flow is the most important job in today’s scenario. Efficient cash management

involves proper outflow and inflow of cash to improve liquidity and returns while

implementing adequate controls to manage risks. Cash management is achieving

tradeoff between liquidity and profitability.

8
CASH MANAGEMENT IN BANKS

The Reserve Bank of India (RBI) has placed an emphasis on upgrading technological

infrastructure to manage cash efficiently. Electronic banking, cheque imaging,

enterprise resource planning (ERP), real time gross settlements (RTGS) are just few

of the new initiatives for efficient cash management.

There are a number of regulatory and policy changes that have facilitated an efficient

cash management system (CMS). Fox example, the Enactment of Information

Technology Act gives legal recognition to electronic records and digital signatures.

The establishment of the Clearing Corporation of India in order to establish a safe

institutional structure for the clearing and settlement of trades in foreign exchange

(FX), money and debt markets has indeed helped the development of financial

infrastructure in terms of clearing and settlement. Other innovations that have

supported in streamlining the process are:

Introduction of the Centralized Funds Management Service to facilitate better

management of fund flows.

Structured Financial Messaging Solution, a communication protocol for intra-bank

and interbank messages.

9
EVOLUTION OF SERVICES

One of the emerging cash management services in India is payment outsourcing.

Though cheques and drafts are a popular mode of payment in India, it is obviously a

time consuming procedure because of the manual processing required. This is an area

where payment outsourcing can help. It allows corporate to reduce their overheads

and focus on their core competencies and, as a result, benefit from speed and

accuracy. The enhanced security it offers also allows for tighter fraud control. For the

Indian payment system to become completely seamless there are many variables that

need to be tackled, such as regulatory and legal issues, customer behavior and

infrastructure. As more corporate and banks have added technology to their processes,

the issues surrounding connectivity security have become much important.

Today, treasurers need to ensure that they are equipped to make the best decisions.

For this, it is imperative that the information they require to monitor risk and exposure

is accurate, reliable and fast. A strong cash management solution can give corporate a

business advantage and it is very important in executing the financial strategy of a

company. The requirement of an efficient cash management solution in India is to

execute payments, collect receivables and managing liquidity. Traditional or e-

business objectives, in India there are different cash management solutions.

10
CASH MANAGEMENT SOLUTION CURRENTLY OFFERED IN

INDIA

Account Reconciliation Services

Balancing a chequebook for a very large business can be quite a difficult process.

Banks have developed a system to overcome this issue. They allow companies to

upload a list of all the cheques whereby at the end of the month, the bank statement

will show not only the cleared cheques but also unclear ones.

Positive Pay

An effective anti- fraud measure for cheque disbursements. Using the cheque issuance

data, updated regularly with cheque issuance and payment, the bank balances all

cheques offered for payment. In the case of any discrepancies, the cheque is reported

as an exception and is returned.

Balance Reporting Services

Balance reporting provides help in procuring a company's current banking

information from its accounts. With this service the banks can offer almost all types

of transaction-specific details on activities related to payment like deposits, cheques,

wire transfers etc. It also helps in an effective and efficient management of regular

cash flow.

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Lockbox

Facilitates the cash improvement where, instead of being delivered to business

address, customer payments are delivered to a special post office (PO) box. It is only

the customers' payments that are delivered in the PO box and the company's own bank

collects the amount and delivers them to the banks of the customers. The bank of the

customers opens and processes the payments for direct deposit to the bank account.

Lockbox contents regularly removed and processed.

CBLO

CCIL (Clearing Corporation of India) launched a new money market instrument with

RBI, the Collateralized Borrowing and Lending Obligation (CBLO).

It is a variant of liquidity adjustment facility, permitted by RBI. It is a mechanism to

borrow and lend funds against securities for maturities of 1 day to 1 year. CBLO is

expected to meet the needs of banks, FIs, PDs, MFs, NBFCs and companies for

deploying their surplus funds. Borrowing limits for members will be fixed by CCIL

at the beginning of the day taking into account the securities deposited by borrowers

in their CSGL account with CCIL.

•It is an obligation by the borrower to return the money borrowed, at a

specified future date.

• It is an authority to the lender to receive money lent, at a specified future date with an

option/privilege to transfer the authority to another person for value received;

• It is an underlying charge on securities held in custody (with CCIL) for the amount

borrowed/lent.

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RTGS System

The acronym “RTGS” stands for Real Time Gross Settlement. RTGS system is a

funds transfer mechanism where transfer of money takes place from one bank to

another on a “real time” and on “gross” basis. This is the fastest possible money

transfer system through the banking channel. Settlement in “real time” means

payment transaction is not subjected to any waiting period. The transactions are

settled as soon as they are processed. “Gross settlement” means the transaction

is settled on one to one basis without bunching with any other transaction.

Source-CashManagementTrendsInIndia_GT_NVedwa.pdf

13
Introduction of Bank of India

Bank Profile History of Bank Of India

Bank of India was founded on 7th September 1906 by a group of eminent

businessmen from Mumbai. The Bank was under private ownership and control till
July 1969 when it was nationalized along with 13 other banks. Beginning with one
office in Mumbai, with a paid-up capital of Rs.50 lakh and 50 employees, the Bank
has made a rapid growth over the years and blossomed into a mighty institution with a
strong national presence and sizable international operations. In business volume, the
Bank occupies a premier position among the nationalized banks. The Bank has 2644
branches in India spread over all states/ union territories including 93 specialized
branches. These branches are controlled through 48 Zonal Offices . There are 24
branches/ offices (including three representative offices) abroad. The Bank came out
with its maiden public issue in 1997. Total number of shareholders as on 30/09/2006
is 2,25,704. While firmly adhering to a policy of prudence and caution, the Bank has
been in the forefront of introducing various innovative services and systems. Business
has been conducted with the successful blend of traditional values and ethics and the
most modern infrastructure. The Bank has been the first among the nationalized banks
to establish a fully computerized branch and ATM facility at the Mahalaxmi Branch at
Mumbai way back in 1989. The Bank is also a Founder Member of SWIFT in India. It
pioneered the introduction of the Health Code System in 1982, for evaluating/ rating
its credit portfolio. The Bank's association with the capital market goes back to 1921
when it entered into an agreement with the Bombay Stock Exchange (BSE) to manage
the BSE Clearing House. It is an association that has blossomed into a joint venture
with BSE, called the BOI Shareholding Ltd. to extend depository services to the stock
broking community. Bank of India was the first Indian Bank to open a branch outside
the country, at London, in 1946, and also the first to open a branch in Europe, Paris in
1974.The Bank has sizable presence abroad, with a network of 23 branches (including
three representative office)at key banking and financial centers viz. London,
Newyork,Paris,Tokyo,Hong-Kong,and Singapore. The international business accounts
for around 20.10% of Bank's total business. The Bank has a strong position in
financing foreign trade. Over 270 branches provide export credit. The expertise in this
area has enabled the Bank to achieve a leading position in providing export credit in
certain areas like diamond export. The Bank has identified specialized target groups
to develop core advantage for future growth. The Bank, has specialized branches
comprising of Corporate Banking Branches to undertake very large credit business,
Overseas Branches specializing in Foreign Exchange Business, NRI Branches which
specially cater to the requirements of Non-Resident Indians, Capital Market Branches
which undertake all activities relating to capital market such as collection of
applications, processing of refund orders, Merchant Banking etc. Commercial &
Personal Banking Branches cater to the requirements of high net worth customers.
Apart from this, the Bank also has specialized Branches for Asset Recovery, Small
Scale Industries, Hi-tech Agriculture Finance, Lease Finance and Treasury. To
effectively meet the ever-growing challenges and competition, the Bank has made a
good headway in bringing about technological up gradation. MIS and critical
functions of controlling offices have been computerized. At present, the operations at
about 2618 branches are totally computerized. 26 branches operate in partially
computerized mode besides these 1019 branches and 31 extension counters are
migrated to Core Banking Solution. New facilities such as, Telebanking, ATM &
Signature Retrieval Systems have been introduced in a progressing manner to add
value to services. Telebanking facilities with Fax on Demand facility, Remote Access
Terminals for Corporate Customers are now available at many branches. The Bank
has installed ATMs in Mumbai and other centres in the country. The Bank is a
member of the RBI's VSAT Network and has installed 39 VSATs linking strategic
branches/offices. The Bank is making a paradigm shift from branch automation to
bank automation and is in the process of implementing a Multi-Branch Banking
Project, that facilitates City-wise Connectivity of Computerized Branches. The Bank
is in the process of installing BOINET, a Wide Area Network for providing a inter-
and intra-city connectivity, as a part of enhancing its decision support system. The
Bank's corporate personality and philosophy are fully reflected in the emblem, which
is a five-pronged Star -- a harmonious blend of traditional and the functional. The
elongated prong pointing upwards, conveys the Bank's drive to achieve ascending
goals. The Star is a beacon and guide to those in need of direction

MISSION & VISION

Our Mission "To provide superior, proactive banking services to niche markets
globally, while providing cost-effective, responsive services to others in our role as a
development bank, and in so doing, meet the requirements of our stakeholders".
Our Vision "To become the bank of choice for corporate, medium businesses and
upmarket retail customers and to provide cost effective developmental banking for
small business,mass market and rural markets"

Introduction of Cash Management

Manage your cash flow and liquidity-Effectively and Efficiently

For any organization, cash is the lifeblood that keeps the business going.
That is why, increasingly, Cash Management has been gaining importance with
organizations that view the services as a crucial part of their corporate strategies.

Cash Management is Efficient Management of cash (Outflows/Inflows) to improve

liquidity and returns while implementing adequate control and managing risks. Cash
Management can generally be defined as the efficient utilization of cash through
coordinated management of payments, collections and cash balances. The objectives
are to reduce costs, enhance control and optimize returns as well as reduce the
inventory holdings. Traditionally, cash management involved personalized services
offered by the bank's staff to the company's treasurer via mails, telephone, calls, faxes
etc or visits to the bank initiated transactions. But with the advent of computer
technology, cash management services have been automated to a large extent. Many
banks now allow their corporate customers to perform online inquiries and transaction
services (payment, collection and liquidity management) through PC or Internet via a
web interface. With such a system in place, a company can perform most of the cash
management functions themselves without relying on a bank staff to act as the
executor of their requests.

Cash Management helps the organization in: Properly timing the 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
vendors face 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. Eliminating idle cash balances. Every Rupee held as
cash rather than used to augment revenues or decrease expenditures represents a lost
opportunity. Funds that are not needed to cover expected transactions can be used to
buy back outstanding debt (and cease a flow of funds out 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 expected receipts
and likely disbursements. Ensuring timely deposit of collections. Having funds in-
hand is better than having accounts receivable. The cash is easier to convert
immediately into value or goods. A receivable, an item to be converted in the future,
often is subject to a transaction delay or a depreciation of value. Once funds are due to
the Government, they should be converted to cash-in-hand immediately and deposited
in the Treasury's account as soon as possible. Monitoring exposure and reducing risks.
The Banks have the responsibility to use timely, reliable, and comprehensive financial
information and systems. To that end, banks encourage to improve their cash
management practices by using electronic funds transfer (EFT) whenever cost
effective, practicable, and consistent with statutory authority. So there is a need to
monitor the exposure and reduce the risk.

Cash Management Services - Indian Scenario

The need for cash management aroused two decades ago in the mid eighties when the
Indian corporate were facing various problems like the uncertainty as to when funds
would be made available to them, the problem of long transit period between banking
cheques and receiving funds, long period of administrative work in banking cheques
and tracking progress and reconciliation problems regarding uncertainty of inflows
and lack of details on each credit to the account. It is important to review the Indian
scenario in this regard. As we are all aware, that the banks’ desire for funds has lost
because of the slowdown. Despite the offer of very soft terms corporates are refusing
to borrow, while bank deposits have been ballooning. Compelled to service the
burgeoning liabilities, but unable to lend hastily and allow their non-performing assets
(NPAs) to grow, bankers are forced to compete for the handful of safe bets among
their borrowers. Banks chose to use the opportunity to refocus their activities, seeking
clearly defined identities in terms of services and customer segments. Most of them
concentrated on cleaning up their books by peeling down their NPAs. All of them are
attempting for freezing of costs, improving operational efficiencies, and boosting
productivity. The strategy of the banks, which are performing well, is to use fee-based
services to maintain their earnings growth. With interest rates falling, non-interest
income is, unsurprisingly, the fastest-growing component of the banks’ total income.
Fee-based activities will complement though not substitute the core business of
lending. With rising interest rates too, Corporate and others are not willing to borrow,
fee-based services play again an active role in boosting a Bank’s total income. It is
gratifying to note that a number of banks in India are offering wide-ranging cash
management services to their corporate clients. All the three categories of banks viz.,
nationalized banks, private banks, and foreign banks operating in India are active in
the cash management segment. SBI, PNB, Corporation, ICICI Bank, HDFC Bank,
Centurion Bank of Punjab and ING Vysya Bank, are some of the active Indian banks
in this segment. Citi Bank, Standard Chartered Bank, ABN Amro Bank, BNP Paribus,
and HSBC are the foreign banks operating in India, which are prominent among the
cash management services providers. Indian banks are offering services like electronic
funds transfer services, provision of cash related MIS reports, cash pooling services,
collection services, debit transfer services, guaranteed credit arrangements, sweep
products, tax payment services, receivables and payables management. Foreign banks
operating in India are offering regional and global treasury management services,
liquidity management services, card services, electronic banking services, e-
commerce solutions, account management services, collection management services,
cash delivery management services and investment solutions. Banks realized that if
they do not offer the services required by corporate customers it would result in a net
loss of clientele, returns and goodwill. Banks in India need to continuously monitor
international trends in innovations taking place in providing cash management
services and swiftly offer similar services to their corporate clients. The Reserve Bank
of India is taking a number of initiatives, which has facilitated the active
involvement of commercial banks in the sophisticated cash management segment.
One of the pre- requisites is to ensure faster and reliable mobility of funds in a country
and to have an efficient payment system. Considering the importance of a robust
payment system to the economy, the RBI has been taking numerous measures since
mid Eighties to strengthen the payments mechanism in the country. Introduction of
computerized settlement of clearing transactions, use of Magnetic Ink Character
Recognition technology, provision of inter-city clearing facilities and high value
clearing facilities, Electronic Clearing Service Scheme , Electronic Funds Transfer
scheme, Delivery vs. Payment for Government securities transactions, setting up of
Indian Financial Network are some of the significant initiatives which highlight the
seriousness with which the Reserve Bank has taken up the reforms in Payment
systems. Introduction of a Centralized Funds Management System , Securities
Services System , Real Time Gross Settlement System and Structured Financial
Messaging System are on the top priority items of the agenda to transform the
existing systems into a state-of-the-art payment infrastructure in India by the Reserve
Bank. The current vision envisaged for the payment systems reforms is one, which
contemplates linking up of at least all important bank branches with the domestic
payment systems network thereby facilitating cross border connectivity. With the help
of the systems already put in place in India and which are coming into being, both
banks and corporates can exercise effective control over the cash management.

Framework for effective Cash Management Services Companies

seek to achieve synergies by implementing a simplified account structure and through
rationalizing the number of banks used. In advising companies on the optimal account
structure, it is important to bear in mind the nature of company’s funds flows. The aim
is to maximize control, efficiency and returns. Banks need to work with its clients to
ensure that arrangements are in place to assist them in maximizing returns from an
otherwise idle fund. Experience of local banking regulations and market practices can
ensure client’s preferred structure. Greater challenges lie in tying together multiple
accounts into a cohesive structure to manage liquidity efficiently, often across
numerous time zones and currencies. To meet the needs of international corporate and
institutional clients, banks should have a wide range of customized products and
services. Often companies should maintain multiple banking relationships for their
cash management. Movement of funds between accounts across banks is generally
inefficient, costly and time-consuming. Cash status is not readily available, often
causing unnecessary usage of overdrafts or return of issued checks. Untimely
payments can also result in penalty and other charges. With multiple accounts,
account reconciliation is usually difficult to be kept current, making control virtually
impossible. So for effective cash management there is a need for multiple banking
relationships which is often due to the lack of comprehensive service offered by a
bank, the difficulty in accessing particular services of a bank, or the varying degree of
efficiency across services of a bank. Many companies, including medium-sized
enterprises, are now implementing Enterprise Resource Planning (ERP) systems to
help manage the accounting process and gain better control of their cash management.
However, what several have found is that while internal processes are more
automated, the number of staff required to support their cash management operations
has not reduced. Without a comprehensive cash management solution from a bank,
business finds it difficult to reach the optimal operational and working capital
efficiency level. Corporate treasurers cannot afford to spend time worrying about
routine payments and collections. So banks have to help clients to successfully handle
the large volumes of corporate client payments. So in today's competitive market
place, effectively managing cash flow can make the difference between success and
failure. And so the Banks offer a full range of receivables and payment services to
meet the complex cash management needs. Payments received from their buyers and
made to their suppliers are efficiently processed to optimize their cash flow position
and to ensure the effective management of their business' operating funds. The flow of
receivables and payables can also be seen through the web solution.

Legal And Regulatory Regime Regarding Cash Management

Of Co-Operative Banks

Maintains of statutory reserves- cash reserve ratio (CRR) & statutory

Liquidity ratio (SLR)

All primary (urban) co-operative banks (PCBs) are required to maintain stipulated

level of cash reserve ratio and statutory liquidity ratio.

1. CRR reserves for scheduled PCBs-

The scheduled PCBs were required to maintain with the RBI during the

fortnight, a minimum average daily balance of 5% of their demand and time

liabilities (DTL) in India obtaining on the last Friday of the second preceding

fortnight

In order to provide flexibility to banks and enable to choose an optimum

strategy for cash management depending upon their intra period cash flow

scheduled PCBs are presently required to maintain on average daily balance a

minimum of 70 percent of the prescribed CRR balance on their NDTL(Net

Demand and Time Liabilities) as on the last Friday of the second preceding

fortnight.

In order to improve the cash management by banks, as a measure of

simplification a lag of two weeks has been introduced in the maintenance of

stipulated CRR by the scheduled banks. Thus with effect from the fortnight

beginning from 1999 the prescribed CRR during a fortnight has to be

maintained by every bank based on its NDTL as on the last Friday of the

second preceding fortnight i.e. based on the NDTL.

26
 For the purpose of maintain CRR every scheduled bank is required to maintain

a principal account with the deposit accounts department (DAD) of the reserve

bank of India.

i) Average daily balance- It shall mean the average of the balances held

at the close of business on each day of a fortnight.

ii) Fortnight- It shall mean the period from Saturday to second following

Friday, both days inclusive.

Generally ASSETS and LIABILITIES of banks include:

Liabilities to the banking system include:

Deposit of the banks

Borrowing from banks (call money/notice deposits)

Other miscellaneous items of liabilities to the banks

Assets with the banking system:

Balances with banking system in current account

Balances with the banks and notified financial institution

Money at call and short notice up to 14 day lent to banks and notified

financial institution

Loans other than money at call and short notice

Any other amounts due from the banking system, like amount held by

the bank with inter-bank remittance facility etc.

27
2. Statutory liquidity reserves-

In terms of provisions of section 24 of the Banking Regulation Act 1949, (As

applicable to co-operative societies), every primary (urban) co-operative bank

is required to maintain liquid assets which at the close of business on any day

should not be less than 25 percent of its demand and time liabilities in India

(in addition to the minimum cash reserve requirement).

Current prescription for SLR: presently the PCBs are required to maintain a

uniform SLR of 25 percent on their total DTL in India.

Manner of maintaining Statutory Liquidity reserves:

The liquid assets may be maintained-

In cash or

In gold valued at a price not exceeding the current market price, or

In unencumbered approved securities

Holding in Government/other approved Securities

28
 All primary (urban) co-operative banks are required to achieve certain

minimum level of their SLR holdings in the form of government and other

approved securities as percentage of their Net Demand and Time Liabilities

(NDTL) as indicated below:

Sr. Category of bank Minimum SLR holding in

No. government and other

approved securities as

percentage of Demand

and Time Liabilities

1. Scheduled banks 25%

29
GENERAL CONDITION FOR CALCULATION OF CRR AND SLR

REQUIREMENT OF BANKS-

In order to improve the cash management by banks, as a measure of

simplification, a lag of two weeks has been introduced in the maintains

of stipulated CRR by the scheduled banks.

Thus for example fortnight beginning from November 6 2009 the prescribed

CRR during a fortnight has to be maintained by every bank based on its

NDTL as on the last Friday of the second preceding fortnight i.e. based on the

NDTL as on reporting Friday i.e. October 22, 2009 and so on.

CRR doesn’t include interbank deposit- for the purpose of computation of

liabilities the aggregate of the liabilities of a co-operative bank to the state

bank of India, a subsidiary bank, a corresponding new bank, a regional

rural bank, a banking company or any other financial institution notified b y

the central government in this behalf shall be reduced by the aggregate of

the liabilities of all such banks and institution to the co-operative bank.

SLR requirement of banks- every PCB is required to maintain on a daily basis

liquid assets the amount of which shall not be less than 25 percent of its

demand and time liabilities in India as on last Friday of the second preceding

fortnight.

30
 For SLR purpose- banks are required to maintain SLR on borrowing through

CBLO.

All the PCBs are required to maintain investments in government securities

only in SGL accounts with reserve bank of India, primary dealers, state co-

operative banks.

Computation of net demand & time liabilities (NDTL)

Liabilities of a bank may be in the form of demand or time deposits or

borrowings or other miscellaneous items of liabilities.

Demand liabilities include all liabilities which are payable on demand.

Time liabilities are whose which are payable otherwise than on demand.

Time liabilities include

Fixed deposits

Cash certificates

Cumulative and recurring deposits

Staff security deposits

Time liabilities portion of savings bank

31
Demand liabilities include

Current deposits

Margins held against letter of credit

Outstanding telegraphic and mail transfer

Demand drafts

unclaimed deposits

32
MANAGEMENT OF LOANS AND ADVANCES :

In the context of rapid growth of primary co-operative banks (PCBs),

qualitative aspects of lending, such as adequacy of lending to meet credit

requirements of their borrowers and effective supervision and monitoring of

advances have assumed considerable importance.

Consistent with the policy of liberalisation and financial sector reforms,

several indirect measure to regulate bank credit such as exposure norms for

lending to individual/group borrowers, prudential norms for income

reorganisation, asset classification and provisioning for advances, capital

adequacy ratios,etc. were introduce by RBI.

UCBs are permitted to determine their lending rates taking into account their

cost of funds, transaction cost etc.with the approval of their board

However it may be appreciated that though interest rates have been

deregulated, rates of interest beyond a certain level may be seen usurious and

can neither be sustainable nor be conforming to normal banking practice.

Banks also required publishing the minimum and maximum interest rates

charged on advances and displaying the information in every branch.

35
MANAGEMENT OF INVESTMENT OF BANKS:

Keeping in view the various regulatory and the banks own internal requirements,

primary (urban) co-operative banks should lay down with the approval of their board

of directors, the broad investment policy which efficiently manage their cash.

The investment policy of the bank should include guidelines on the quantity and

quality of each type security to be held on its own investment account.

INVESTMENT POLICY OF BOI:

Objective of policy

To decide investment policy for financial year and to revise it from time to

time.

To decide investment strategies in respect of government securities, PSU

bonds (Public sector bonds), CD, CP, T-bills, MF.

To fix borrowing limits under Call/CBLO, government securities.

36
BOI can invested in following securities-

Central/state government securities

Treasury bills

Approved security

Call money deposit

CBLO, bonds/NCDs(Non-Convertible Debenture) issue PSU

Debt/money market

Certificate deposit

Deposit with nationalised

Shares of cooperative banks

Repo in government security

Commercial papers

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Delegation of Powers:

The powers for investment decision are proposed to be delegated as under :

Government approved PSU Non trustee Call Bank

security/T-bills bonds security CBLO fixed

deposit

CEO 50 crore 40 10 100 50

General 25 15 - 100 25

manager

Deputy - - - 100 10

general

manager

38
Various Measures UCB Can Take For Efficient Cash Management :

The bank shall borrow funds in CBLO as per its requirements within limit and

as per the basis of collateral security pledged by the bank

The bank shall lend money in CBLO depending upon surplus funds in hand

The bank shall borrow money in CBLO depending upon deficit funds in hand.

The bank may borrow in call money market for maintaining liquidity or

fulfilment of CRR requirement.

The bank may lend in call money market for same purpose.

As per RBI borrowing in call money market shall not exceed amount

equivalent to 2% of aggregate deposit as at end of year last financial year.

The PSU bonds may be sold according to the liquidity position opportunity for

improving the yield.

Investment in bonds which are considered for non-SLR investment will be for

higher yields.

The total transaction in case of government securities (sale/purchase both)

In a day can done upto Rs.100 crore. The bank shall sell/purchase government

securities & T-bills should be minimum 25% of NDTL (SLR) as per RBI.

Purchase of government securities will be made according to the availability

of funds prevailing market condition and SLR requirement as per RBI.

Sale of government security will be made according to the liquidity position

and requirement of funds for credit deployment and prevailing market

condition.

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Measures Taken By BOI For Efficient Cash Management:

BOI target investment margin for FY 2009-2010 is 8.53%.

For risk management BOI- total exposure in government securities should not

exceed 45% of the NDTL and the excess portion over and above SLR

requirement i.e. 20% kept for trading purpose.

For SLR requirement it maintains daily register.

Sale of government security will be made according to the liquidity position

and requirement of funds for credit deployment and prevailing market

condition.

In CBLO rates are low but it involves securitization with CCI, it offer

instrument for management of cash.

BOI use this instrument very efficiently to fulfil its CRR requirement.

BOI use this instrument for trading purpose also i.e. if they have excess cash

they can lend at higher interest rates

For maintain SLR, BOI invest in government securities as they offer higher

interest rates with security, compare to invest in gold as well as cash,

Because if SLR maintained in cash it would remain ideal cash result in

generating no margin.

Only 0.15 basis points they aim from trading in market, rest they planned to

invest in secure securities.

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They restricted their investment in unlisted securities up to 10% of total non-

SLR portfolio.

Investment other than in those held against term deposits with

banks/institutions/mutual fund/certificate of deposits and shares of co-op

institutions are classified into “held for trading” (HFT), “available for sale”

(AFS) and “held to maturity” (HTM) categories in accordance with the reserve

bank of India guidelines.

BOI’s fixed deposits with other banks include deposits which are lodged as

margin to secure overdraft limits/issuance guarantees.

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FINDINGS:

These are some key points which analyzed while studying this project which

reflects some major factors about cash management of BANK OF INDIA as

follows:

BOI bank manages its daily requirement of CRR as per guidelines of RBI

every day.

Every day it calculate its CRR requirement and try to maintain this

requirement as per norms of RBI , if there is shortfall of cash it borrow

through CBLO and vice versa.

It doesn’t maintain more cash as CRR, it try to avoid cash remain ideal.

BOI purchase government securities according to the availability of funds,

prevailing market condition and SLR requirement

By using CBLO, BOI can take arbitrage opportunity as all security on CBLO

are pledged with CCIL

For NON-SLR option BOI invest mainly in –

Government securities

Inter bank exposure- not more than 5% of deposits of previous FY

PSU bonds

IDBI, IFCI bonds

Commercial Papers

BOI invest more in government securities as compare to call money market or

CBLO instrument because of risk purpose.

BOI doesn’t invest much in money market mutual fund instrument as it not

offers higher return as compared to government securities.

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Recommendations of The Study

After analyzing BOI bank’s cash management policy, I would like to place following

recommendation -

BOI bank should try to make more use of current money market instrument

such as CBLO, as risk involve in CBLO is less, Since CBLO is fully

collateralized by government securities, the risk weight as applicable to

government securities for market risk would be applicable to CBLO.

BOI should go for more techno savvy products for payment and collection

services.

BOI already introduce core banking solution, it should implement it for all its

branches as soon as possible so it can make use of tech-savvy instruments

such as RTGS
46
Conclusion of the Study

BOI manage its cash efficiently as per rules and regulation of RBI, as it

manages it’s inter branch cash very efficiently among various branches.

BOI also manage to achieve balance between its liquidity and profitability

through various instrument, maintained its requirement for CRR and SLR

regularly and invest its surplus cash in secure instruments and try to maximise

its profit.

In India RBI frame policies on cash management which helps to banks for

proper management of their cash.

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LIMITATIONS

Every research is conducted under some constraints and this research is not an
exception. Limitations of this study are as follows:-

1. There were several time constraints.

2. Difficulty in getting information due to internal policies and procedure.

3. The study is based on information given by concerned persons.

4. People were reluctant to go in to details because of their busy schedules.

5. Due to continuous change in environment, what is relevant today may be

irrelevant tomorrow.

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LEARNING-

 Understanding of various norms and procedure of RBI for

cash management.

 Understanding about how one bank manage its liquidity

position.

 Importance of time and investing funds in right instruments.

 It helps me to increase my confidence, also thought me how

to communicate with personnel in esteemed organization.

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Websites:

www.banknetindia.com/banking/boverview.htm
www.rbi.org.in
http://www.rbi.org.in/SCRIPTS/PublicationsView.aspx?id=7250
www.thanejanata.co.in/24x7_banking.html
http://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=5146

Books

38th Annual Report 2008-09

Co-operative Diary of PCB

Master Circular of RBI on Investment

Paper and Journal:

International Research Journal of Finance and Economics

ISSN 1450-2887 Issue 19 (2008)

Article on Cash Management and Payment Developments in India :Bank Offerings

and New Corporate Best Practices by Niraj Vedwa

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