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Report on
Treasury Management in Banks
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Treasury Management Operationin Banks
Acknowledgements
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Treasury Management Operationin Banks
Table of Contents
1 Annexure - D 4
2 Executive Summary 5
3 Introduction 6
5 Research Methodology 11
13 RBI Guidelines 46
18 Conclusion 63
19 Bibliography 64
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EXECUTIVE SUMMARY
amount of cash resources are available in the right place in the right currency and at
the right time in such a way as to maximize the return on surplus funds, minimize the
financing cost of the business, and control interest rate risk and currency exposure to
an acceptable level.
The project also involves the elements in treasury management like cash reserve ratio,
statutory liquidity ratio, dates government securities, etc. which should be properly
functioned by treasurer.
The project includes nature of treasury assets and liabilities and treasury products &
The project deals with risk involved in these treasury assets and liabilities and their
mitigation. Risks are of two types operational risk & financial risk. The project also
The project covers the future scope / challenges in treasury management, role of
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INTRODUCTION
In general terms and from the perspective of commercial banking, treasury refers to
the fund and revenue at the possession of the bank and day-to-day management of the
same. Idle funds are usually source of loss, real or opportune, and, thereby need to be
profit or reward without attendant risk. Thus treasury operations seek to maximize
profit and earning by investing available funds at an acceptable level of risks. Returns
and risks both need to be managed. If we examine the balance sheets of Commercial
Banks (Public Sector Banks, typically), we find investment/deposit ratio has by far
overtaken credit/deposit ratio. Interest income from investments has overtaken interest
income from loans/advances. The special feature of such bloated portfolio is that
The income flow from investment assets is real compared to that of loan-assets,
In this context, treasury operations are becoming more and more important to the
banks and a need for integration, both horizontal and vertical, has come to the
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profitability, risk-insulation and also to synergize banking assets with trading assets.
are brought under same policy, technological and accounting platform, while in
vertical integration, all existing and diverse trading and arbitrage activities are brought
under one control with one common pool of funding and contributions.
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Meaning:
important job to do. At one end of the spectrum it manages balance sheets and
liquidity, and does good things to enhance the yield on assets and minimize the cost of
liabilities, mostly through the clever and intelligent use of derivatives. At the other
end of the spectrum, treasury can help restructure the balance sheet and provide new
products.
corporations. Treasury management modules are available for many larger enterprise
software systems. Banks do not disclose the prices they charge for Treasury
Management products.
Definition:
the right amount of cash resources are available in the right place in the right currency
and at the right time in such a way as to maximize the return on surplus funds,
minimize the financing cost of the business, and control interest rate risk and currency
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Treasury Management Operationin Banks
currencies, financial futures, options and derivatives, payment systems and the
Integrated Treasury:
We see integration of segmented financial markets- money market, debt and capital
market and forex market, etc., at the macro level and integration of treasury
operations at the operational level of banks. The term integration means merger or
centralization or consolidation. The reforms that were initiated in 90s made domestic
markets closely linked to global markets. The domestic market is integration with
global market at the micro level, which has raised the need for integration of micro
financial markets- debt market, money market, capital market, forex market, etc.,
which enabled free flow of money from one market to another. Increased demands
from their clients in tandem with high competition forced banks to operate in all these
markets. Once capital account convertibility is fully materialized, the markets will
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Management.
Management in Banks.
treasurer.
To have a broader view on nature of treasury assets & liabilities and to know
mitigation.
To know what are the RBI guidelines formulated for Treasury Management.
To have an in-depth knowledge of how SBI manages its treasury as SBI is the
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RESEARCH METHODOLOGY
Gathering primary data through meeting key officials from the related area of
conclusion.
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Webster defines treasury as "a place where stores of treasures are kept; the
considers the treasury functions in ones own organization; this definition would most
likely broadly describe it. Treasury and its responsibilities fall under the scope of the
Chief Financial Officer. In many organizations, the Treasurer will be responsible for
the treasury function and also holds the position of Chief Financial Officer. The
these responsibilities are usually separated between accounting and treasury, with the
controller and the treasurer each leading a functional area. Generally accepted
The specific tasks of a typical treasury function include cash management, risk
(a) Cash Management includes the control and care of the cash assets and liabilities
of the organization. This will include the selection of banks and bank accounts,
information systems, and the development and compliance with cash and
investment policy and processes. All of these pieces of the cash management
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employee benefits program risk.. There are many risks associated with employee
benefit plans, and treasury should be an integral part of this process in order to
mitigate the risks that the organization does not want to assume. The normal types
captive insurance companies for some of this risk. If the organization does not
broker to advice on insurance issues and obtain insurance in the open market.
Another method of risk mitigation is through hedging; this is normally used for
(d) Accounts Receivable Management includes the control of cash receipt systems
within the organization. This involves the management of customer disputes and
deductions, collections, and the systems and processes for control of accounts
settlement systems.
(e) Accounts Payable Management includes the control of the cash disbursement
process. This function will include vendor relations, disputes and negotiation of
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the disputes, and the systems and processes for control of accounts payable to
(f) Bank Relations is that function which is a delicate balancing act due to the normal
practice of having more than one lender involved in most credit arrangements, and
meeting their needs for services and information from your organization. These
lenders must be considered a partner to your business and must be treated fairly.
(g) Investor Relations is that area of treasury's responsibilities that can have a great
A successful treasury function has the same attributes as any other function within the
* Teamwork
* Forward Thinking
* Global Thinking
* Technological Advancement
* Customer Focused
* Finance/Accounting Knowledge
* Legal Knowledge
* Reliability
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The treasury function must work with all operations within the organization.
The operational functions they are working with should consider treasury to be an
involved in many diverse areas of the business that most other positions in the
company do not get the opportunity to be involved in. It is a natural progression in the
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Since 1990s, the prime movers of financial intermediaries and services have been the
policies of globalization and reforms. All players and regulators had been actively
economy. With burgeoning forex reserves, Indian banks and Financial Institutions
have no alternative but to be directly affected by global happenings and trades. This is
where; integrated treasury operations have emerged as a basic tool for key financial
performance.
yield and duration. Duration is the weighted average life of a debt instrument
rate charges.
(b) Liquidity & Funds Management: It involves (i) analysis of major cash flows
diversified liability base to fund the various assets in the balance sheet of the bank
(iii) providing policy inputs to strategic planning group of the bank on funding
mix (currency, tenor & cost) and yield expected in credit and investment.
(c) Asset Liability Management & Term Money: ALM calls for determining the
optimal size and growth rate of the balance sheet and also prices the Assets and
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rates and ALM practices by banks increase the demand for funds for tenor of
(d) Risk Management: integrated treasury manages all market risks associated with a
banks liabilities and assets. The market risk of liabilities pertains to floating
interest rate risk for assets & liability mismatches. The market risk for assets can
arise from (i) unfavorable change in interest rates (ii) increasing levels of
etc. while the credit risk assessment continues to rest with Credit Department, the
Treasury would monitor the cash inflow impact from changes in assets prices due
(e) Transfer Pricing: Treasury is to ensure that the funds of the bank are deployed
idea of the banks overall funding needs as well as direct access to various market
( like money market, capital market, forex market, credit market). Hence, ideally
treasury should provide benchmark rates, after assuming market risk, to various
business groups and product categories about the correct business strategy to
adopt.
(f) Derivative Products: Treasury can developInterest Rate Swap (IRS) and other
Rupee based/ cross- currency derivative products for hedging Banks own
(g) Arbitrage: Treasury units of banks undertake this by simultaneous buying and
selling of the same type of assets in two different markets to make risk-less
profits.
(h) Capital Adequacy: This function focuses on quality of assets, with Return on
Assets (ROA) being a key criterion for measuring the efficiency of deployed
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funds. An integrated treasury is a major profit centre. It has its own P&L
make profits out of movements in market interest/ exchange rates) that may not be
(i) Coordination: Banks do operate at more than one money market centers. All the
coordinate the activities of these centers so that aberrations are avoided (situations
where one center is lending and the other one is borrowing at the same time). The
(j) Control and Development: Treasury operates as the focal point of dealing
interest and currency liability swaps, forward rate agreements and the like.
(k) Fraud Protection: The decade of nineties has witnessed more frauds in trading
than banking books. The amount and variety of such embezzlements have been
directly relatable to the operational level. The ground level task of this kind is to
All the aforesaid activities are funds management functions in a banking environment.
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Tier I Dealing Desk (Front Office): The dealers and traders in different markets-
money, stock, debt, commodity, derivatives and forex- operate in their respective
areas. They are the first point if interface with other participants in the market. The
number of dealers depends on the size and frequency of the operations. In case of
larger in each bank, operations would be carried out by separate and independent set
of dealers in each market. But, for a relatively smaller treasury, operations would be
Tier II Settlement Desk (Back Office):Once the deals are concluded, it is for the
back office to process and settle the deals. Indeed, the back office undertakes
Tier III Accounting, Monitoring and Reporting Office (Audit group): This
department looks after the activities relating to accounting, auditing and reporting.
Accountants record all deals in the books of accounts, while auditors and inspectors
closely monitor all deals and transactions done by the front and the back office, and
procedures.
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Head of Treasury
The three departments should be compartmentalized and they act independently. The
heads of each section reports directly to the Head of the Treasury. A treasury can have
more functional desk depending on the size and structure of the bank, and activities
undertaken by the bank. For example, the treasury may have separate
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following objectives:
To deploy and invest the deposit liabilities, internal generation and cash flows
from maturing assets for maximum return on a current and forward basis
To fund the balance sheet on current and forward basis as cheaply as possible
To manage and contain the treasury risks of the bank within the approved and
To assess, advise and manage the financial risks associated with the non-
To identify and borrow on the best terms from the market to meet the clearing
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ratio, refers to the portion of deposits that banks have to maintain with RBI. This
serves two purposes. First, it ensures that a portion of bank deposits is totally risk-
free. Second, it enables RBI control liquidity in the system, and thereby, inflation.
Besides CRR, banks are required to invest a portion (8.25 per cent now) of their
gilts) are bonds issued by the Central government to meet its revenue requirements.
Although the bonds are long-term in nature, they are liquid as they have a ready
secondary market.
securities issued by the Government of India and state governments. The date of
securities.
securities, the lowest risk category instruments in the economy. These securities
are issued through auctions conducted by RBI, where the central bank decides the
coupon or discount rate based on the response received. Most of these securities
are issued as fixed interest bearing securities, though the government sometimes
issues zero coupon instruments and floating rate securities also. In one of its first
moves to deregulate interest rates in the economy, RBI adopted the market driven
has gone up tremendously and trading in these securities has been quite active.
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They are not generally in the form of securities but in the form of entries in RBI's
companies, provident funds and trusts. These investors are required to hold a
c) Till recently, a few of the domestic players used to trade in these securities
with a majority investing in these instruments for the full term. This has been
changing of late, with a good number of banks setting up active treasuries to trade
in these securities. Perhaps the most liquid of the long term instruments, liquidity
in gilts is also aided by the primary dealer network set up by RBI and RBI's own
1. Money Market Operations: The bank engages into a number of instruments that
are available in the Indian money market for the purpose of enhancing liquidity as
period. If the period is more than one day and up to 14 days it is called 'Notice
and/or Sundays are excluded for this purpose. No collateral security is required
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In the short term, the lowest risk category instruments are the treasury bills. RBI
week. The notified amount for this auction is Rs. 100 cr.
week. The notified amount for this auction is Rs. 100 cr.
Wednesday (which is not a reporting week). The notified amount for this
Wednesday (which is a reporting week). The notified amount for this auction
Inter bank market for deposits of maturity beyond 14 days and up to three
months is referred to as the term money market. The specified entities are not
allowed to lend beyond 14 days. The market in this segment is presently not
very deep. The declining spread in lending operations, the volatility in the call
the growing desire for fixed interest rate borrowing by corporate, the move
towards fuller integration between forex and money markets, etc. are all the
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driving forces for the development of the term money market. These, coupled
interest rate risk management, should stimulate the evolution of term money
market sooner than later. The DFHI, as a major player in the market, is putting
The development of the term money market is inevitable due to the following
reasons
D. Certificates of Deposits
deposit without any regulation on interest rates. This is also a money market
hence it offers maximum liquidity. As such, it has secondary market too. Since
companies.
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dealers (SDs) and all-India financial institutions (FIs) which have been
umbrella limit fixed by Reserve Bank of India are eligible to issue CP.
worth of the company, as per the latest audited balance sheet, is not less than
Rs. 4 crore; (b) the working capital (fund-based) limit of the company from the
banking system is not less than Rs.4 crore and (c) the borrower account of the
It is a transaction in which two parties agree to sell and repurchase the same
security. Under such an agreement the seller sells specified securities with an
agreement to repurchase the same at a mutually decided future date and a price.
Similarly, the buyer purchases the securities with an agreement to resell the
transaction is called a Repo when viewed from the prospective of the seller of
securities (the party acquiring fund) and Reverse Repo when described from the
transaction.
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G. Commercial Bills
Bills of exchange are negotiable instruments drawn by the seller (drawer) of the
goods on the buyer (drawee) of the goods for the value of the goods delivered.
These bills are called trade bills. These trade bills are called commercial bills
when they are accepted by commercial banks. If the bill is payable at a future
date and the seller needs money during the currency of the bill then he may
approach his bank for discounting the bill. The maturity proceeds or face value
of discounted bill, from the drawee, will be received by the bank. If the bank
needs fund during the currency of the bill then it can rediscount the bill already
discount rate.
The RBI introduced the Bills Market scheme (BMS) in 1952 and the scheme
was later modified into New Bills Market scheme (NBMS) in 1970. Under the
scheme, commercial banks can rediscount the bills, which were originally
Promissory Notes (DUPN). So the need for physical transfer of bills has been
waived and the bank that originally discounts the bills only draws DUPN. These
DUPNs are sold to investors in convenient lots of maturities (from 15 days upto
90 days) on the basis of genuine trade bills, discounted by the discounting bank.
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FUNCTIONS OF A TREASUER
The Treasury in the finance department Deals with the liquid assets; since the
treasurer is the head of the treasury, he has a major responsibility of being a custodian
(a) Funding: The treasurer has the responsibility of exploring and selecting best
source of finance for funding long-and short term cash requirements of the
business. While determining the best source of finance, the treasurer must take
various matters into consideration like debt structure of the organization, structure
of the debt portfolio, and advantages and shortcoming of short-and long term
financing, etc.
(b) Working Capital Management: The goal of the working capital management is to
maintain good balance between current assets and liabilities as per the
requirements of the business. Since cash surplus as well as cash deficit is not
Individual investors,
Institutional investors,
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cash management, who fall under the treasury belt. This includes cash
(e) Short-term Investments: Idle cash incurs opportunity costs as time passes. The
excessive surplus cash in the business may arise due to various factors such as
cyclical, seasonal to temporary business trends. The treasurer has the authority to
business, the importance of risk and forex management has been spurring. The
(g) Establishing the Company Policy: Functions of the treasurer, further includes
(h) Capital Structure Formulation: The treasurer must formulate the capital structure
for the organization in accordance to business goals and implement the same. He
has the responsibility of taking appropriate debt vs. equity financing decisions. A
wrong or inappropriate capital structure decision may through the business into
irrecoverable losses.
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(i) Insurance and Tax Planning: A sound tax planning involves utilization of
various provisions of the statute that enables the organization to reduce the tax
liability without violating the latter and spirit of the law. The treasurer must
(j) Internal Treasury Controls: The treasurer acts as a cashier; undertakes the role of
the treasurer.
How much to mobilize: The treasurer has to estimate the amount of funds that will
be required in future, and what part of this can be met by funds generated
internally and how much will have to be mobilized from external sources.
both long-term and short-term. The treasurer has to decide which will be the most
At what costs: all funds have a cost associated with them (e.g., interest on loans,
debentures, etc. dividend on equity). The average cost of all the funds mobilized
When to mobilize: the treasurer has to estimate when a shortfall of funds will
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l) Investment Decision: The funds generated in the course of business need to be put
to further use. The investment decision relates to the selection of assets in which
funds will be invested by firm. The assets, which can be acquired, fall into two
categories- (i) long-term assets (ii) short-term or current assets- defined as those
Accordingly, asset selection decision is also of two types: (i) the first involving
long-term assets are popularly called capital budgeting, and (ii) the second
management.
A proper balance should be achieved between fixed and current assets. The money
used for financing either of the two kinds of (fixed or current) assets.
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Banks balance sheet consists of treasury assets and liabilities on the one hand and
non- treasury assets and liabilities on the other. There is a clear distinction between
Treasury assets are marketable or tradable subject to meeting legal obligations such as
payment of applicable stamp duty, etc. another characteristic of treasury assets is that
they can (and often are required to be marked to market. An example of treasury
Loans and advances are specific contractual agreements between the bank and its
borrowers, and do not form a part of the treasury assets, although these are obligations
to bank. (They can however, be securitized and sold in the market. If a bank were to
take a position in such securitized debts, it would become part of treasury activity).
On the other hand, an investment in G-Secs can be traded in the market. It is,
Treasury liabilities are distinguished from other liabilities by the fact that they are
borrowings from the money (or bond) market. Deposits (current and savings accounts
and fixed deposits) are not treasury liabilities, as they are not created by market
borrowing.
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A. Domestic Treasury
Investment in CDs
Commercial Paper
(c) Corporate
Private Placements
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Tax-free Bonds
Preference Shares
Listed/Unlisted Equity
Mutual Funds
2. Liability Products/Instruments
CD Issues
B. Foreign Exchange
1. Interbank
Spot Currencies
Cash
Tom
RBI guidelines)
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C. Derivatives
Currency Options
D. Certain corporate assets such as investments in subsidiaries and joint ventures are
reckoned as treasury assets although they are not traded and are permanent in nature.
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1. Forward Contract:It is a contract between the bank and its customers in which the
exchange in advance under the contract. The essential idea of entering into a forward
2. Forward Rate Agreement (FRA):An FRA is an agreement between the Bank and
agreed fixed rate (FRA rate) and the interest rate prevailing on stipulated future date
(the fixing date) based on a notional amount for an agreed period (the contract
period). In short, this is a contract whereby interest rate is fixed now for a future
period. The basic purpose of the FRA is to hedge the interest rate risk.
For example, if a borrower is going to borrow FC loan for 6 months at LIBOR rate
after 3 months, he can buy an FRA whereby he can fix interest rate for the
loan.
agree to exchange streams of cash flows throughout the life of contract in which one
party pays a fixed interest rate on a notional principal and the other pays a floating
rate on the same sum. The basic purpose of IRS is to hedge the interest rate risk of
constituents and enable them to structure the asset/ liability profile best suited to their
different currencies at the beginning, during the tenure and at the end of the
transaction. At the start, initial principal is exchanged, though not obligatory. Periodic
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interest payments (either fixed or floating) are exchanged through out the life of the
decided at the start of the transaction. By means of currency swap, the counterparties
5. Option:It is a contract between the bank and its customers in which the customer
has the right to buy/sell a specified amount of underlying asset at fixed price within a
specific period of time, but has no obligation to do so. In this contract, the customer
has to pay specified amount upfront to the counterparty which is known as premium.
This is in contrast of the forward contract in which both parties have a binding
contract.
Contracts in Cross Currencies at a target rate or price. This facility helps the customer
to en cash the currency movements in late European market, New York market and
early Asian market. The minimum amount of the contract is 250,000/- in respective
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MITIGATION
Risk profile of the treasury activities consists of two broad categories viz. Financial
Risk and Operational Risk. Financial risks include market risks (interest rate risk,
price risk, basis risk), credit risks, liquidity risks, etc. Operational risks include
systemic risk, compliance risk, legal risks, IT risks, fraud risks, etc. For mitigation of
such risks, various prudential guidelines prescribed by the regulators and internal
1. Operational Risk: This covers the entire gamut of the transaction cycle from
dealing to custody. Operational risk can again be divided into those arising from:
must integrate with work and document flows. This ensures that individual
Mitigation
Dealers must operate strictly within the single deal, portfolio and prudential
limits set for the instrument and counterparty. Stop loss and risk norms of
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should be allowed.
must be followed. Deviations from delivery and payment practices should not
be allowed.
backups. They should be put through periodic stress tests to determine their
ownership and transfer. Custodial relationships should be only with those with
banks credit standards and ethics. In equity transactions, the broker is the
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2. Financial Risks: The following identifies and defines individual financial risks:
The oldest of all financial risks in its simplest form, refers to the possibility of the
issuer of a debt instrument being unable to honour his interest payments and/or
forward contracts, interest rate swaps and currency swaps and counterparty risk in the
inter-bank market. These have necessitated prescribing maximum exposure limits for
Mitigation
Better credit appraisal. Careful analysis of cash flows of the business before
investing.
Risk pricing
balance sheet
assets
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An asset that cannot be converted into cash when needed is liquidity note which is the
There is also the risk of scarcity of funds in the market. This could happen, for
example, when the RBI deliberately tightens liquidity, by increasing CRR, selling
suspect and there are no willing lenders, even though there is no liquidity shortage in
the market.
Mitigation
instruments
This affects both the assets and liabilities of a bank. On an overall basis, the maturity
gaps between assets and liabilities lead to the risk of a contraction of spreads if
interest rates fall and assets mature before liabilities or interest rates rise and liabilities
Apart from interest rate risk originating from the disparity in the maturities of assets
and liabilities, there is also basis risk, because interest rate determination may differ.
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For example, if assets are MIBOR-linked (floating rate), while liabilities are fixed rate
and MIBOR falls, assets yields also do, compressing the spreads.
Mitigation of basis risk will involve converting (in the above instance) assets to fixed
rate (or converting liabilities to MIBOR-linked). Instruments used are interest rate
The prices of bonds are affected by changes in interest rates. When interest rates come
down, their prices go up. The opposite happens when interest rates rise. The most
price-affected bonds in response to rate movements are those of long maturity- indeed
Increasing duration makes the bond portfolio more sensitive to interest rates while
As bond prices and interest rates are inversely related, if the bank expects interest
rates to fall, subject to market liquidity, it will have to increase duration by buying
specified period and at a specified confidence level from a fall in the price of a
security (or exchange rate), given historic data on the price behavior of the security
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The forex market is probably the most consistently volatile of all financial markets.
While it offers enormous scope for making profits, the other side of the coin is the
risk of big losses from unexpected swings in exchange rates. This necessitates and
and
For supporting the above, it is necessary to have adequate data gathering systems in
1. Open Positions
4. Settlement Risk;
5. Country Risk;
6. Value-at-Risk;
Settlement risk arising from time differences between trading zones, which may result
in one of the parties to a transaction having to settle ahead of the other party, i.e.,
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debit and credit are not synchronized. To some extent (but not completely), this is
Country risk is the possibility that a country or bank in a country will not be able to
The RBI has asked banks to measure monitor and control country exposures. It
(ICOM)
iii. All others including Derivatives Internal Swap Dealers Association Master
As required by the RBI, the banks carry out concurrent audit of all forex transactions.
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The RBI has circulated detailed guidance notes on Market Risk Management, Asset
(a) Banks are required to send monthly reports covering liquidity mismatches and
(b) Banks are required to pay special attention to liquidity risk and management
Call Borrowing/Lending
Core Deposits vis--vis Core Assets, i.e., CRR, SLR and Loans
gap, interest rate, liquidity and currency risks of the treasury and non-treasury
balance sheets.
b)The banks submit monthly statements to the Board and RBI on liquidity
c) Stop loss levels are fixed for both SLR and non-SLR securities.
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e) The investment committee reviews the investment portfolio every half-year, with
its ability to cope with new products and instruments, scale of operations and
completely segregated.
j) Deals are backed by deal slips, and office memos containing approvals by
competent authority.
appropriate authorities.
l) A bank will fully comply with all the RBIs guidelines, regulations and rules
m) The RBI has now finalized norms for risk-based internal audit system from the
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MANAGEMENT
in many corporate companies, and has already been assigned a separate status from
the general financial functions. Treasury management asks for expertise on capital
markets, money markets, instruments & investment avenues, treasury & risk
financial environment, the links between money and capital markets have become
better way, firms are hiring persons who can handle Treasury Management and
market one where the barriers to trade, both domestic and international, are fast
vanishing. The transformation process that began in the early 1990s has been put into
overdrive. While foreign firms are busy trying to get a foothold on Indian soil, Indian
companies do not lag behind in attempting to penetrate foreign markets. There has
been an unexpected rise in exports as well as imports, which has resulted in volatile
exchange rates and more financial constraints. Given the inconsistency of exchange
rates, the corporate and banking worlds are paying greater attention to treasury and
suddenly been pitch-forked into the limelight. Banks have been scouting campuses of
Indian B-schools with a view to recruiting for their treasury and forex functions.
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Corporate Finance: Many Indian corporate are doing business internationally. They
are also raising funds abroad, exposing them to greater risk due to deregulation of
interest and exchange rates. To minimize these risks, it is necessary to handle forex
and treasury related functions carefully. If neglected, it may lead to profit erosion.
Corporate are on the look out for people with professional qualifications to handle all
Banks and other Financial Institutions: Volatile exchange rate regimes and fickle
interest rates are posing stiff challenges to financial institutions and banking
organizations. They are also being offered myriad opportunities with the inter-linking
and management of the asset-liability gap of these institutions. Clients are transacting
more and more business with banks in foreign currencies. Thus, banks and financial
institutions are also seeking professionally qualified persons to look after the treasury
Treasury and Forex Consultancy: Corporate and banks are roping in experienced
only well paid but also satisfying. However, these positions demand sound
experience. It is very natural to be curious about the kind of openings or careers that
a. Treasury Analyst
As a Treasury Analyst, you will support the Cash Management and Capital
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should be able to use these skills to develop sophisticated models and apply them to
the treasury and accounting systems. Exposure to treasury workstation, ledger system,
research of accounting data, end user training, and security control. They are also
Support Analysts will also respond to client support requests by resolving and
expertise. They also maintain knowledge about Treasury banking systems and will
c. Cash Analyst
Cash Analysts are responsible for everyday cash management for the company
and its subsidiaries. They are also responsible for bank charge analysis,
database of quarterly and ad-hoc payments made. They will also serve as support to
Treasury Operations, and assist in credit card charge backs and drafting of monthly
reports. Cash Analysts will also follow up on sales and refinance distributions from
partnerships.
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Treasury Management Operationin Banks
In this capacity, treasury analysts will act as visionaries for world class
business process reengineering. They will focus their efforts on creating a world-class
of Treasury functions. They will analyze the benefits of using existing and future
compatible with existing Treasury processes and requirements. They also use their
e. Trade Specialist
through timely and accurate processing of trade instructions and related transactions.
The varieties of trade instructions that require daily processing include global and
currency between accounts. They will maintain and strengthen the accounts
relationship while minimizing risk and maximizing profitability. They= will assist in
the investment of cash and the research of currency balances, idle and overdrawn
balance and the resolution of trade problems to ensure accurate client statements.
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Treasury Management Operationin Banks
MANAGEMENT
The Indian debt market has gone through sweeping changes with the introduction of
the Negotiated Dealing System (NDS). This is an electronic trading platform for the
following instruments:
T-bills
Call/Notice/Term Money
Commercial Paper
Certificates of Deposit
Repos
Membership of the NDS is open to all institutions which are members of INFINET
and have Subsidiary General Ledger (SGL) accounts with the RBI. At present, this
Banks
Financial Institutions
Primary Dealers
Insurance Companies
Mutual Funds
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Treasury Management Operationin Banks
Banks and Primary Dealers are obliged to become members of the NDS. NDS
submission of physical SGL transfer form for deals done between members on
Securities Settlement System (SSS) of Public Debt Office, RBI, and thereby
NDS use INFINET, a closed user group network as communication backbone. Hence,
INFINET entails holding SGL and/or current account with RBI or as may be
participants and players are part of secure WAN and make bids and offers, be it forex,
bonds or equities. The system electronically matches bids and offers. Current
examples of electronic trading platforms are those of NSE, BSE and foreign exchange
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Treasury Management Operationin Banks
3. Straight-through-processing (STP)
STP is latest technological wave to hit financial markets. This electronic system
approved and authorized by the buyer and seller, are settled automatically by the
system through its connectivity with a Clearing House. Buyers receive securities in
4. Electronic Form
a. Settlement: Post-approval of a deal, the system suo motu, credits and debits the
respective cash and securities accounts of the buyer and seller as required. In G-Secs,
etc., are also settled electronically through CCIL or SWIFT, through transfers of
securities do not exist in physical form. The SGL depository of the RBI maintains
c. Conversion of Physical Securities to Demat: The RBI and SEBI have now made it
mandatory for almost all securities to be in demat, i.e., electronic record of ownership
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Treasury Management Operationin Banks
Similarly, Real Time Gross Settlement [RTGS] has already been introduced, which is
carry out back testing/stress testing, and apply statistical tools for complicated
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Treasury Management Operationin Banks
TREASURY
Profile
Profile India's largest bank is also home to the country's biggest and most
powerful Treasury, contributing to a major chunk of the total turnover in the money
and forex markets. Through a network of state-of-the-art dealing rooms in India and
abroad, backed by the assured expertise of informed professionals, the SBI extends
round-the-clock support to clients in managing their forex and interest rate exposures.
SBI's relationships with over 700 correspondent banks are also leveraged in
extracting maximum value from treasury operations. SBI's treasury operations are
channeled through the Rupee Treasury, the Forex Treasury and the Treasury
Management Group.
The Rupee Treasury deals in the domestic money and debt markets while the
Forex Treasury deals mainly in the local foreign exchange market. The TMG
monitors the investment, risk and asset-liability management aspects of the Bank's
overseas offices.
RUPEE TREASURY
The Rupee Treasury carries out the banks rupee-based treasury functions in
the domestic market. Broadly, these include asset liability management, investments
and trading. The Rupee Treasury also manages the banks position regarding statutory
requirements like the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR),
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Treasury Management Operationin Banks
of liquidity, maturity profiles of assets and liabilities and interest rate risks.
products that can substitute the traditional credit avenues of a corporate like
paper, fixed and floating rate products. SBI invests in primary and secondary
enable efficient interest risk management and optimize the cost of funds. They can
SBI invests in these instruments issued by your company, thus providing you a
dynamic substitute for traditional credit options. The Rupee Treasury handles the
Trading
The banks trading operations are unmatched in size and value in the domestic
market and cover government securities, corporate bonds, call money and other
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Treasury Management Operationin Banks
The SBI is the countrys biggest and most important Forex Treasury, both in
the Interbank and Corporate Foreign Exchange markets, and deals with all the major
corporate and institutions in all the financial centers in India and abroad.The banks
team of seasoned, skilled and professional dealers can tailor customized solutions that
meet your specific requirements and extract maximum value out of each market
situation.
The banks dealing rooms provide 24-hour trading facilities and employs
700 correspondent banks and institutions across the globe enhance the strength of the
Banking Group (IBG) and functions under the Chief General Manager (Foreign
Offices). As the name implies the department monitors the management of treasury
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Treasury Management Operationin Banks
management of liquidity, maturity profiles of assets and liabilities and interest rate
bank is one of the principal activities of TMG. The main objectives of investment
operations at our foreign offices, apart from compliance with the regulatory
requirements of the host country, are (a) safety of the funds invested, (b) optimization
operations are conducted in accordance with the investment policy for foreign offices
formulated by TMG.
The activities include appraisal of the performance of the foreign offices broad
parameters such as income earned from investment operations, composition and size
of the portfolio, performance vis--vis the budgeted targets and the market value of
the portfolio.
done with the objective of optimizing of returns while managing the attendant risks.
Forex and Interest rate (Foreign Currency) derivatives: TMG also plays an
derivatives including currency options, long term rupee - foreign currency swaps,
foreign currency interest rate swaps, cross currency swaps and forward rate
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Treasury Management Operationin Banks
The Portfolio Management Services Section (PMS) of SBI has been set up to handle
area of Social Security. The PMS forms part of the Treasury Dept. of SBI, and is
based at Mumbai.
funds and custody of the securities related thereto. In the increasingly complex
investors are finding it difficult to address day to day investment concerns, such as
Investment returns
The team manning the PMS Section consists of highly experienced officers of
SBI, who have the required depth of knowledge to handle large investment portfolios
and address the concern of large investors. The capabilities of the team range from
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Treasury Management Operationin Banks
The project has given an insight into the various aspects of treasury management
namely
Nature of treasury assets and liabilities, treasury products and services, risk associated
management.
SBI bank has an integrated treasury management; they dont have any competitors as
SBI has their own procedure for treasury management which is followed very well by
them. Percentage of income is not disclosed by them to any one. SBI do follow RBI
guidelines for treasury management properly which they think that it is well
formulated.
Risk involved in treasury management for SBI is the same like operational risk and
financial risk and they aim for a well integrated and innovative management of
treasury with low risk and proper function of treasury assets and liabilities. It also has
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Treasury Management Operationin Banks
Time allotted for making project is very limited. As study is restricted only to
a specific area. If time permits then there would be a vast scope of study of different
banks.
Study allotted has a page constraint. The information required for in-depth
Treasury management has awareness among the banking sector only which
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Treasury Management Operationin Banks
CONCLUSION
the regulatory prescriptions in terms of cash reserve ratio and statutory liquidity ratio.
Ensuring that there are no defaults in central bank account and that the borrowings are
minimal were the focal issues addressed to. With the globalization process, the role of
treasury has undergone a sea change and it is a major profit center for better
performing banks.
Treasury operations have become more significant and complex today than
what it was few years back. The role played by the technology and the rapid changes
in the financial sector has brought in more flexibility in the funds deployment by
banks. The dynamism with which the Treasury Market moves needs to be fully
expectations are clarified and met with, treasury operations can seldom be successful
To sum up, the paradigm shift in the risk exposure levels of the financial
will enable the financial institution to identify and unbundle the risks and further aid
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Treasury Management Operationin Banks
BIBLIOGRAPHY
BOOKS
Treasury Management
INTERNET
www.indiainfoline.com
www.investopedia.com
www.treasury-management.com.
www.financialexpress.com
www.google.com
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