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Cash Management In State Bank of India

Chapter 1 Plan of the study

1.1 Introduction
Cash is the important current asset for the operations of the business. Cash is the basic input
needed to keep the business running on a continuous basis; it is also the ultimate output expected to be realized by selling the service or product manufactured by the firm. The firm should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firms manufacturing operations while excessive cash will simply remain idle, without contributing anything towards the firms profitability. Thus, a major function of the financial manager is to maintain a sound cash position. Cash is the money which a firm can disburse immediately without any restriction. The term cash includes coins, currency and cheques held by the firm, and balances in its bank accounts. Sometimes near-cash items, such as marketable securities or bank times deposits, are also included in cash. The basic characteristic of near-cash assets is that they can readily be converted into cash. Generally, when a firm has excess cash, it invests it in marketable securities. This kind of investment contributes some profit to the firm

MOTIVES FOR HOLDING CASH


The firms need to hold cash may be attributed to the following the motives: The transactions motive The precautionary motive The speculative motive

Transaction Motive
The transaction motive requires a firm to hold cash to conducts its business in the ordinary course. The firm needs cash primarily to make payments for purchases, wages and salaries,
other operating expenses, taxes, dividends etc. The need to hold cash would not arise if there were perfect synchronization between cash receipts and cash payments, i.e., enough cash is received when the payment has to be made. But cash receipts and payments are not perfectly synchronized. For those periods, when cash payments exceed cash receipts, the firm should maintain some cash balance to be able to make required payments. For transactions purpose, a firm may invest its cash in marketable
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securities. Usually, the firm will purchase securities whose maturity corresponds with some anticipated payments, such as dividends, or taxes in the future. Notice that the transactions motive mainly refers to holding cash to meet anticipated payments whose timing is not perfectly matched with cash receipts.

Precautionary Motive
The precautionary motive is the need to hold cash to meet contingencies in the future. It provides a cushion or buffer to withstand some unexpected emergency. The precautionary amount of cash depends upon the predictability of cash flows. If cash flow can be predicted with accuracy, less cash will be maintained for an emergency. The amount of precautionary cash is also influenced by the firms ability to borrow at short notice when the need arises. Stronger the ability of the firm to borrow at short notice, less the need for precautionary balance. The precautionary balance may be kept in cash and marketable securities. Marketable securities play an important role here. The amount of cash set aside for precautionary reasons is not expected to earn anything; therefore, the firm attempt to earn some profit on it. Such funds should be invested in high-liquid and low-risk marketable securities. Precautionary balance should, thus, held more in marketable securities and relatively less in cash.

Speculative Motive
The speculative motive relates to the holding of cash for investing in profit-making opportunities as and when they arise. The opportunity to make profit may arise when the security prices change. The firm will hold cash, when it is expected that the interest rates will rise and security prices will fall. Securities can be purchased when the interest rate is expected to fall; the firm will benefit by the subsequent fall in interest rates and increase in security prices. The firm may also speculate on materials prices. If it is expected that materials prices will fall, the firm can postpone materials purchasing and make purchases in future when price actually falls. Some firms may hold cash for speculative purposes. By and large, business firms do not engage in speculations. Thus, the primary motives to hold cash and marketable securities are: the transactions and the precautionary motives.

CASH MANAGEMENT
Cash management is a broad term that refers to the collection, concentration, and
disbursement of cash. It encompasses a companys 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 of business managers. For some time now, technology has been the key driving force behind every successful bank. In such an environment, the ability to recognize and capture market share depends entirely on the banks competence to evolve technically and offer the customer a seamless process flow. The objective of a cash management system is to improve revenue, maximize profits, minimize costs and establish efficient management systems to assist and accelerate growth.

Cash Management in India


The Reserve Bank of India (RBI) has placed an emphasis on upgrading technological infrastructure. Electronic banking, cheque imaging, enterprise resource planning (ERP), real time gross settlement (RTGS) is just few of the new initiatives. The evolution of payment systems such as RTGS has posed some tough challenges for cash management providers. It is important that banks now look towards a shift to fees from float although all those cash management providers who have factored in float money in their product pricing might take a hit. But of course there are opportunities also attached like collection and disbursal of payments on-line across the banks. 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:

1. Introduction of the Centralized Funds Management Service to facilitate better management of fund flows. 2. Structured Financial Messaging Solution, a communication protocol for intra-bank and interbank messages. 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 corporates 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.

FACTS OF CASH MANAGEMENT


Cash management is concerned with the managing of: (i) cash flows into and out of the firm,(ii) cash flows within the firm, and (iii) cash balances held by the firm at a point of time by financing deficit or investing surplus cash. Sales generate cash which has to be disbursed out. The surplus cash has to be invested while deficit has to be borrowed. Cash management seeks to accomplish this cycle at a minimum cost. At the same time, it also seeks to achieve liquidity and control. Cash management assumes more importance than other current assets because cash is the most significant and the least productive asset that a firm holds. It is significant because it issued to pay the firms obligations. However, cash is unproductive. Unlike fixed assets or inventories, it does not produce goods for sale. Therefore, the aim of cash management is to maintain adequate control over cash position to keep the firm sufficiently liquid and to use excess cash in some profitable way. Cash management is also important because it is difficult to predict cash flows accurately, particularly the inflows, and there is no perfect coincidence between the inflows and outflows of cash. During some periods, cash outflows will exceed cash inflows, because payment of taxes, dividends, or seasonal inventory builds up. At other times, cash inflow will be more than cash payments because there may be large cash sales and debtors may be realized in large sums promptly. Further, cash management is significant because cash constitutes the smallest portion of the total current assets, yet managements considerable time is devoted in
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managing it. In recent past, a number of innovations have been done in cash management techniques. An obvious aim of the firm these days is to manage its cash affairs in such a way as to keep cash balance at a minimum level and to invest the surplus cash in profitable investment opportunities. In order to resolve the uncertainty about cash flow prediction and lack of synchronization between cash receipts and payments, the firm should develop appropriate strategies for cash management. The firm should evolve strategies regarding the following four facets of cash management:

Optimum Utilization of Operating Cash


Implementation of a sound cash management programme is based on rapid generation, efficient utilization and effective conversation of its cash resources. Cash flow is a circle. The quantum and speed of the flow can be regulated through prudent financial planning facilitating the running of business with the minimum cash balance. This can be achieved by making a proper analysis of operative cash flow cycle along with efficient management of working capital.

Cash Forecasting
Cash forecasting is backbone of cash planning. It forewarns a business regarding expected cash problems, which it may encounter, thus assisting it to regulate further cash flow movements. Lack of cash planning results in spasmodic cash flows.

Cash Management Techniques:


Every business is interested in accelerating its cash collections and decelerating cash payments so as to exploit its scarce cash resources to the maximum. There are techniques in the cash management which a business to achieve this objective.

Liquidity Analysis:
The importance of liquidity in a business cannot be over emphasized. If one does the autopsies of the businesses that failed, he would find that the major reason for the failure was

their inability to remain liquid. Liquidity has an intimate relationship with efficient utilization of cash. It helps in the attainment of optimum level of liquidity.

Profitable Deployment of Surplus Funds


Due to non-synchronization of ash inflows and cash outflows the surplus cash may arise at certain points of time. If this cash surplus is deployed judiciously cash management will itself become a profit center. However, much depends on the quantum of cash surplus and acceptability of market for its short-term investments.

Economical Borrowings
Another product of non-synchronization of cash inflows and cash outflows is emergence of deficits at various points of time. A business has to raise funds to the extent and for the period of deficits. Rising of funds at minimum cost is one of the important facets of cash management. The ideal cash management system will depend on the firms products, organization structure, competition, culture and options available. The task is complex, and decisions taken can affect important areas of the firm. For example, to improve collections if the credit period is reduced, it may affect sales. However, in certain cases, even without fundamental changes, it is possible to significantly reduce cost of cash management system by choosing a right bank and controlling the collections properly.

Baumol model of cash management


Baumol model of cash management helps in determining a firm's optimum cash balance under certainty. It is extensively used and highly useful for the purpose of cash management. As per the model, cash and inventory management problems are one and the same. William J. Baumol developed a model (The transactions Demand for Cash: An Inventory Theoretic Approach) which is usually used in Inventory management & cash management. Baumol model of cash management trades off between opportunity cost or carrying cost or holding

cost & the transaction cost. As such firm attempts to minimize the sum of the holding cash & the cost of converting marketable securities to cash. There are certain assumptions that are made in the model. They are as follows: 1. The firm is able to forecast its cash requirements with certainty and receive a specific amount at regular intervals. 2. The firms cash payments occur uniformly over a period of time i.e. a steady rate of cash outflows. 3. The opportunity cost of holding cash is known and does not change over time. Cash holdings incur an opportunity cost in the form of opportunity foregone. 4. The firm will incur the same transaction cost whenever it converts securities to cash. Each transaction incurs a fixed and variable cost. For example, let us assume that the firm sells securities and starts with a cash balance of C rupees. When the firm spends cash, its cash balance starts decreasing and reaches zero. The firm again gets back its money by selling marketable securities. As the cash balance decreases gradually, the average cash balance will be: C/2. This can be shown in following figure:

Fig: 1.1

The firm incurs a cost known as holding cost for maintaining the cash balance. It is known as opportunity cost, the return inevitable on the marketable securities. If the opportunity cost is k, then the firms holding cost for maintaining an average cash balance is as follows: Holding cost = k (C/2) Whenever the firm converts its marketable securities to cash, it incurs a cost known as transaction cost. Total number of transactions in a particular year will be total funds required (T), divided by the cash balance (C) i.e. T/C. The assumption here is that the cost per transaction is constant. If the cost per transaction is c, then the total transaction cost will be: Transaction cost = c (T/C) The total annual cost of the demand for cash will be: Total cost = k (C/2) + c (T/C) Optimum level of cash balance As the demand for cash, C increases, the holding cost will also increase and the transaction cost will reduce because of a decline in the number of transactions. Hence, it can be said that there is a relationship between the holding cost and the transaction cost. The optimum cash balance, C* is obtained when the total cost is minimum. Optimum Where, T is C* the cash is total balance the cash (C*) optimum needed during = cash the 2cT/k balance. year.

k is the opportunity cost of holding cash balances.

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Fig: 1.2

With the increase in the cost per transaction and total funds required, the optimum cash balance will increase. However, with an increase in the opportunity cost, it will decrease.

Limitations of the Baumol model:


1.It does not allow cash flows to fluctuate. 2. Overdraft is not considered. 3. There are uncertainties in the pattern of future cash flows.

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Miller-Orr Model for Cash Management


Most firms maintain a minimum amount of cash on hand to meet daily obligations or as a requirement from the firm's bank. A maximum amount may also be specified to reflect the tradeoff between the transactions cost of investing in liquid assets (e.g. Money Market Funds) and the cost of lost interest if the cash is not invested. The Miller-Orr model computes the spread between the minimum and maximum cash balance limits as. Spread= 3(0.75 x transaction cost x variance of daily cash flows / daily interest rate) ^(1/3) (where a^b is used to denote "a to the power b"). The maximum cash balance is the spread plus the minimum cash balance, which is assumed to be known. The "return point" is defined as the minimum cash balance plus spread/3. Whenever the cash balance hits (or exceeds) the maximum, the firm should invest the difference between the amount available and the return point; if the minimum is reached, sufficient securities should be sold to bring it up to the return point.

Fig: 1.3

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Graph Explanation:
i. When cash balance reaches point A', the upper limit, company will invest the surplus to bring down the cash balance to return point. ii. When cash balance touches down point `B', the lower limit, the company would liquidate some of its securities to increase the balance back to return point. iii. iv. v. Upper and lower limits are determined as explained above. These limits depend upon variance of cash flow, transaction cost and interest rate. If variability of cash flow is high and transaction cost is high too, then the limits will be wide apart, otherwise narrow would suffice. vi. vii. If interest rates are high then the narrow limits would be set To keep interest cost as low as possible, the return point is set 1/3 of the spread between the lower and upper limit.

Cash Management Services generally offered


The following is a list of services generally offered by banks and utilized by larger businesses and corporations: 1. Account Reconcilement Services: Balancing a checkbook can be a difficult process for a very large business, since it issues so many checks it can take a lot of humanmonitoring to understand which checks have not cleared and therefore what th ecompany's true balance is. To address this, banks have developed a system which allows companies to upload a list of all the checks that they issue on a daily basis, so that at the end of the month the bank statement will show not only which checks have cleared, but also which have not. More recently, banks have used this system to prevent checks from being fraudulently cashed if they are not on the list, a process known as positive pay.

2. Advanced Web Services: Most banks have an Internet-based system which is


more advanced than the one available to consumers. This enables managers to create and authorize special internal logon credentials, allowing employees to send wires and access other cash management features normally not found on the consumer web site.
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3. Armored Car Services: Large retailers who collect a great deal of cash may have the bank pick this cash up via an armored car company, instead of asking its employees to deposit the cash. 4. Automated Clearing House: services are usually offered by the cash managem ent division of a bank. The Automated Clearing House is an electronic system used to transfer funds between banks. Companies use this to pay others, especially employees(this is how direct deposit works). Certain companies also use it to collect fundsfromcustomers (this is generally how automatic payment plans work). This system is criticized by some consumer advocacy groups, because under this system banks assume that the company initiating the debit is correct until proven otherwise. 5. Balance Reporting Services: Corporate clients who actively manage their cash balanceusually subscribe to secure webbased reporting of their account and transactio n information at their lead bank. These sophisticated compilations of banking activity may include balances in foreign currencies, as well as those at other banks. They include information on cash positions as well as 'float' (e.g., checks in the process of collection).Finally, they offer transaction-specific details on all forms of payment activity, including deposits, checks, wire transfers in and out, ACH (automated clearinghouse debits and credits), investments, etc. 6. Cash Concentration Services: Large or national chain retailers often are in areas where their primary bank does not have branches. Therefore, they open bank accounts at various local banks in the area. To prevent funds in these accounts from being idle and not earning sufficient interest, many of these companies have an agreement set with their primary to bank, electronically

whereby their primary bank uses the Automated Clearing House

"pull" the money from these banks into a single interest-bearing bank account. 7. Lockbox Services: Often companies (such as utilities) which receive a large number of payments via checks in the mail have the bank set up a post office box for them, open their mail, and deposit any checks found. This is referred to as a "lockbox" service.

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8. Positive Pay: Positive pay is a service whereby the company electronically shares its check register of all written checks with the bank. The bank therefore will only paychecks listed in that register, with exactly the same specifications as listed in the register (amount, payee, serial number, etc.). This system dramatically reduces check fraud. 9. Sweep Accounts: are typically offered by the cash management division of a bank. Under this system, excess funds from a company's bank accounts are automatically moved into a money market mutual fund overnight, and then moved back the next morning. This allows them to earn interest overnight. This is the primary use of money market mutual funds. 10. Zero Balance Accounting: can be thought of as somewhat of a hack. Companies with large numbers of stores or locations can very often be confused if all those stores are depositing into a single bank account. Traditionally, it would be impossible to know which deposits were from which stores without seeking to view images of those deposits. To help correct this problem, banks developed a system where each store is given their own bank account, but all the money deposited into the individual store accounts are automatically moved or swept into the company's main bank account. This allows the company to look at individual statements for each store. U.S. banks are almost all converting their systems so that companies can tell which store made a particular deposit, even if these deposits are all deposited into a single account. Therefore, zero balance accounting is being used less frequently. 11. Wire Transfer: A wire transfer is an electronic transfer of funds. Wire transfers can be done by a simple bank account transfer, or by a transfer of cash at a cash office. Bank wire transfers are often the most expedient method for transferring funds between bank accounts. A bank wire transfer is a message to the receiving bank requesting them to effect payment in accordance with the instructions given. The message also includes settlement instructions. The actual wire transfer itself is virtually instantaneous, requiring no longer for transmission than a telephone call.

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12. Controlled Disbursement: This is another product offered by banks under Cash Management Services. The bank provides a daily report, typically early in the day, that provides the amount of disbursements that will be charged to the customer's account. This early knowledge of daily funds requirement allows the customer to invest any surplus in intraday investment opportunities, typically money market investments. This is

different from delayed disbursements, where payments are issued through a remote br anch of a bank and customer is able to delay the payment due to increased float time. 13. Bulk payments and vendors payments: Now corporates are insisting on a solution which can work 14. Cheque writing: In order to execute the payments faster, banks are providing cheque writing facility to the corporate customers wherein customer can print the cheques locally at their own office with the facility of digital signatures and company logos. 15. Bin management of PDC: Corporate are outsourcing the activity of post-dated cheque (PDC) management to the banks for further reducing the cost of operations, administration, and data maintenance. In the past, other services have been offered the usefulness of which has diminished with the rise of the Internet. For example, companies could have daily faxes of their most recent transactions or be sent CD-ROMs of images of their cashed checks

Purpose of Cash Management


Cash management is the stewardship or proper use of an entitys cash resources. It serves as the means to keep an organization functioning by making the best use of cash or liquid resources of the organization. The function of cash management at the U.S. Treasury is threefold: 1. To eliminate idle cash balances. Every dollar held as cash rather than used to augment revenues or decrease expenditures represents a lost opportunity. Funds that are not
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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 Treasurys account. Minimizing idle cash balances requires accurate information about expected receipts and likely disbursements. 2. To deposit collections timely. 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.

3. To properly time disbursements. Some payments must be made on a specified or legal


date, such as Social Security payments. For such payments, there is no cash management decision. For other payments, such as vendor payments, discretion in timing is possible. Government 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.

The Importance of Cash Management


Cash is crucial for every business. Every company has to have cash on hand or at least access to cash in order to be able to pay for the goods and services it uses, and consequently, to stay in business. By ensuring the company with the necessary funds for supporting its everyday operations, cash management becomes a vital function for the company. Cash flows have an impact on the companys liquidity. Liquidity is the ability of the company to pay its obligations when they come due. It is comprised of: cash on hand, assets readily convertible into cash, as well as ready access to cash from external sources, such as bank loans (Coyle, 2000, p. 3). If cash flows and liquid funds are not effectively and successfully planned and managed, a company may not be able to pay its suppliers and employees in a timely manner. It may be profitable according to its financial statements, but in fact, this company will not be able to pay its obligations when they come due. Moreover, lack of liquidity will incur increased costs in the
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form of interest charges on loans, late payment penalties and losing supplier discounts for paying obligations on time. Proper cash management can avoid the costs of additional funding and can provide the opportunity for more favorable terms of payment (Dropkin & Hayden, 2001, p. 3). In the worst case scenario, if the liquidity shortage continues for the longer term, the company might face no access to external resources, ending into insolvency (Coyle, 2000, p. 3). Therefore, once again, it follows that cash management has a critical importance for the life of every company. 5 another benefit of cash management to the company is that it makes the company financially flexible. Ready access to cash enables the company to undertake expenditure decisions if and whenever it wishes, without the trouble and constraint of finding new financial support (Coyle, 2000, p. 3). The ultimate goal of every company is maximizing shareholder value, i.e. maximizing the net present value of future cash flows. Cash management contributes to attaining that goal as well. If a firm keeps high levels of cash, it increases its net working capital and the costs of holding cash, both of which decrease the value of the firm. Cash management influences the value of the firm by limiting cash levels so that an optimal balance between the costs of holding cash and the costs of inadequate cash is achieved. In addition, cash management influences firm value, because its cash investment levels entail the rise of alternative costs, which are affected by net working capital levels. Both the rise and fall of net working capital levels require the balancing of future free cash flows, and in turn, result in firm valuation changes (Michalski, 2006, p. 180).

CASH MANAGEMENT AT STATE BANK OF INDIA


Cash Management As part of State Bank's global transaction solutions to Corporates and Institutions, State Bank provides Cash Management, Securities Services and Trade Services through their strong market networks in Asia. They are committed to providing you with

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

Cash Management Services for Corporates


STATE BANK OF INDIA provides cash management services to Corporate Clients under the brand name SBI FAST (Funds Available in Shortest Time). SBI FAST ensures

optimization of collections and payouts while ensuring predictability in the cash flows. It ensures getting Funds in time, quick transfers, account reconciliation, easy disbursements, controlled processes and customized MIS. SBI FAST eliminates the inherent delays of the traditional funds transfer mechanism and enhances liquidity to ensure optimum planning and utilization of funds. It also offers File upload facility on our web based portal and are in the process of providing complete Host to Host facility.

SBI FAST Cash Management Services Offerings:


1. COLLECTIONS:
a. Local Collections: (Cheques/drafts etc) Collection of instruments tendered at various CMP collection centers. Depending on the clearing practices prevailing at the various centers (i.e. Day-0, Day-1, or Day-2), credit is afforded, as mandated, to the client's main account at the pooling center the same day as the proceeds are cleared.

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Convenient collecting locations across the country with pooling facility at any of our branches as per clients choice, which are physically connected to our central hub at Mumbai. Instruments can be deposited at the collection centers either by their dealers/ distributors/representatives or through couriers as per the arrangement. Client is not required to open any account at the Centre from which this facility is availed. Collection of instruments in High Value clearing, General/MICR Clearing, drawn on local branch and drawn on other local SBI Branches. No correspondent arrangements. Collections are handled exclusively through our own network and hence cost effective. SBI is the acknowledged leader in the collection services. Centralized Reconciliation Support.

b. Outstation Cheques Collection: Outstation Cheques can also be deposited at our CMP Cell branches and we afford Guaranteed Credit facility with credit available on Day 0 to Day 7. Outstation Cheques drawn on our own branches are paid the same day at very concessional charges.

c. Cash Collection: We also offer the facility of Cash Deposit at our CMP Cell branches on CMP software which facilitates automatic pooling of funds with MIS. We are arranging for Cash Pick up at select centres shortly.

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d. Uncleared Funds: Option of credit against Uncleared Instruments presented in General/MICR or High Value clearing offered selectively at Bank's discretion. A nominal limit is required to be set up to take care of returns.

e. Balance Sweep: Transfer of day-end-balances in collection accounts maintained at various CMP centers across the country to the pooling account. Clients can use the account for crediting local and outstation collections as well as for meeting payments and the residual balance at the end of the day swept to the main account.

f. Debit Transfers: Debit Balances in operating accounts, where drawls are permitted up to a pre-fixed daylight limit, maintained at CMP centers transferred to the main account at the end of the day. The facility dispenses the use of allocated limits and thereby ensures better control, for the client over debits.

g. Customized MIS: Daily presentation/credit/return reports provided to the representative/dealer at the local center. Daily location-wise/product-wise presentation/credit/return reports provided to the Corporate Office through E-mails.

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Customized weekly/fortnightly/monthly consolidated reports in soft-form, compatible with the clients accounting system, through E-Mail/ Floppy/CD-ROM as required, for easier and speedier reconciliation. Daily Credit forecast reports through E-Mail. Uncluttered/Pure MIS is our USP since the product is operated entirely through SBI?s own network.

h. Electronic Collections: 1) Direct Debit For Collection of invoice payment from Dealers, SIP/Premium etc. Payment can be pulled from any account at any of our CBS (12,500). Mandate of Account holders required, which is validated by us. 2) RTGS/NEFT Receipts Dealer quotes are set up by the corporate. Funds received through RTGS/NEFT modes are credited to the Corporate pooling Account. MIS is generated giving Dealer Name, Invoice no and amount received.

PRICING The pricing of the product is competitive but volume driven and depends on the location, type of facilities and amount of individual instruments.

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2. PAYMENTS a. Real Time Gross Settlement Inter Bank Product - Settlement through RBI. Minimum Transaction Amount Rs.2.0 lac. Settlement on the day of transaction. Competitive market related rates Payment file upload facility available through SBI CMP Portal /Host to Host Connectivity

b. National Electronic Fund Transfer Inter Bank Product - Settlement through RBI. Used for amount less than Rs.2.0 lac. Settlement on the same day or next day. Any NEFT enabled Bank anywhere. Payment file upload facility available through SBI CMP Portal /Host to Host Connectivity

c. Electronic Clearing Scheme Electronic mode of payment at all 72 ECS centers. Useful for payment of interest, dividend, salary, pension to a large number of investors/ shareholders/ employees/ ex-employees.

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Payment file upload facility available through SBI CMP Portal /Host to Host Connectivity

d. Direct Credit Intra-Bank of SBI for electronic payment that uses ' Core Power '. Settlement online & available between CBS branches (Over 12,500 & growing). Can be used for payment for Purchases, Rent, Incentives, Salaries etc. Payment file upload facility available through SBI CMP Portal /Host to Host Connectivity

e. Drafts Meets Bulk Drafts requirement on day '0'. Facsimile signed up to Rs.5.0 lacs. Printed with forwarding letter also. Provision for direct dispatch to the beneficiary from our office. Payment file upload facility available through SBI CMP Portal /Host to Host Connectivity

f. Multi City Cheques Client's facsimile signatures affixed for amount upto Rs.5 lacs. Printed with customized forwarding letter. Provision for direct dispatch to the beneficiary.

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Maximum amount per cheque Rs.10 lacs. Payable at all CBS branches of the Bank. Payment file upload facility available through SBI CMP Portal /Host to Host Connectivity

g. Dividend Warrants All electronic and paper modes handled with widest reach. ECS? Across all 68 RBI/SBI/Other Bank Centers. RTGS/NEFT? Across all RTGS/NEFT enabled banks branches. Direct Credits? Across all branches of SBI. Dividend Warrants Payable at par at all 12500 plus branches Validation of Instrument No. & amount at the time of payment. Drafts issued at any of the 12500 plus branches. Regular paid / unpaid status provided.

Cash Management Services for Financial Institutions


Standard Chartered is highly recognized as a leading cash management supplier across the emerging markets. State Bank Cash Management Services cover local and cross border Payments, Collections, Information Management, Account Services and Liquidity Management for both corporate and institutional customers. If a customer is looking for a correspondent banking partner so, they can trust, Standard Chartered can help them. State Bank has more than 500 offices located in 50countries throughout the world and, with 150 years of on-the-ground experience, they can help their bank clients with all their cash management needs.
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Clearing Services Asian Gateway

Payment Services in State Bank of India


Global payments solution for efficient transaction processing looking to outsource customers payments to enable: Efficient processing of all customers payables in the most cost effective way Straight through processing both at customers end as well as their bank's back-end Efficient payables reconciliation with minimal effort and delay Quick approval of payments from any location Minimum hindrance to automation due to local language difficulties Centralized management of payables across departments, subsidiaries and countries

Solution State Bank's Straight Through Services (STS) Payments Solution can be tailored to the different payment needs of companies, whatever industry, size or country they may be in. With a comprehensive End-to-end Payment Processing Cycle, STS allows companies to process a variety of payment types, whether they be domestic or international, local or central in different countries, all in a single system file. To realize the benefits of STS, please contact your local Relationship Manager or Cash Management representative. Coverage They are the foreign bank having the largest geographical representation in the country. They are the only bank which provides draft status to their customers on the website.

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Collection Services
Comprehensive receivables management solution State Bank understands that operating and sustaining a profitable business these days is extremely tough. In an environment of constant changes and uncertainties, most businesses face challenges of costs and efficiency. Key concerns include: Receivables Management - ensuring receivables are collected in an efficient and timely manner to optimize utilization of funds. Risk Management - ensuring effective management of debtors to eliminate risk of returns and losses caused by defaulters and delayed payments Inventory Management - ensuring efficient and quick turnaround of inventory to returns. Cost Management - reducing interest costs through optimal utilization of funds. maximize

Solution The State Bank Collections Solution leverages the Bank's extensive regional knowledge and widespread branch network across our key markets to specially tailor solutions for your regional and local collection needs. This Collections Solution, delivered through a standardized international platform, has the flexibility to cater to customers local needs, thus enabling them to meet their objectives of reducing costs and increasing efficiency and profitability through better receivables and risk management. The key components of SBIs solution inclu de the following: Extensive Clearing Network Guaranteed Credit Comprehensive MIS

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System Integration Outsourcing of Collection

Liquidity Management
Solutions for efficient management of customers funds. A corporate treasurer's main challenge often revolves around ensuring that the company's cash resources are utilized to their maximum advantage. You need a partner bank that can help you: 1. Maximize interest income on surplus balances; minimize interest expense on deficit balances for domestic, regional and global accounts 2. Minimize FX conversion for cross-currency cash concentration 3. Customize liquidity management solutions for different entities in different countries 4. Centralize information management of consolidated account balances Solution With the global experience and on-the-ground market knowledge, State Bank will help the customers an overall cash management strategy which incorporates a liquidity management solution that best meets of customers needs. Key Features Based on customers needs and the regulatory environment that customers are in, customers can choose any of the following features: Physical Sweeping Notional Pooling

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Liquidity Management in SBI


Measuring and managing the liquidity needs are vital for effective operation of commercial banks. By assuring a bank's ability to meet its liabilities as they become due, liqu iditymanagement can reduce the probability of an adverse situation developing. The importance of liquidity transcends individual institutions, as liquidity

shortfall in one institution can have repercussions on the entire system. Bank managements should measure, not only the liquidity positions of banks on an ongoing basis, but also examine how liquidity requirements are likely to evolve under different conditions. Banks are in the business of maturity transformation. They lend for longer time periods, as borrowers normally prefer a longer time frame. But their liabilities are typically short term in nature, as lenders normally prefer a shorter time frame (liquidity preference). This results in long-term interest rates typically exceeding short-term rates. Hence, the incentive for banks for performing the function of financial intermediation is the difference between interest receipt and interest cost which is called the interest spread. It is implicit, therefore, that banks will have a mismatched balance sheet, with liabilities greater than assets in short term, and with assets greater than liabilities in the medium and long term. These mismatches, which represent liquidity risk, are with respect to various time horizons. Hence, the overwhelming concern of a bank is to maintain adequate liquidity. Liquidity has been defined as the ability of an institution to replace liability run off and fund asset growth promptly and at a reasonable price. Maintenance of superfluous liquidity will, however, impact profitability adversely. It can also be defined as the comprehensive ability of a bank to meet liabilities exactly when they fall due or when depositors want their money back. This is a heart of the banking operations and distinguishes a bank from other entities.

Cash Reserve Ratio


A scheduled bank is under the obligation to keep a cash reserve called the Statutory Cash Reserve, with the Reserve Bank of India (RBI) under Section 42 of the Reserve Bank of India Act, 1934. Every scheduled bank is required to maintain with the Reserve Bank an average daily balance equal to least 3% of its net demand and time liabilities. Average daily
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balances mean the average of balances held at the close of business on each day of the fortnight. The Reserve Bank is empowered to increase the rate of Statutory Cash Reserve from 3% to 20% of the Net Demand and Time Liabilities (NDTL).

Statutory Liquidity Ratio


Section 24(2A) of Banking Regulation Act, 1949, requires every banking company to maintain in India in Cash, Gold or Unencumbered Approved Securities or in the form of net balance in current accounts maintained in India by the bank with a nationalized bank, equivalent to an amount which shall not at the close of the business on any day be less than 25% or such other percentage not exceeding 40% as the RBI may from time to time, by notification in the Gazette of India, specify, of the total of its demand and time liabilities in India as on the last Friday of the second preceding fortnight, which is known as SLR. At present, all Scheduled Commercial Banks are required to maintain a uniform SLR of 25% of the total of their demand and time liabilities in India as on the last Friday of the second preceding fortnight which is stipulated under Section 24 of the RBI Act, 1949.RBI can enhance the stipulation of SLR (not exceeding 40%) and advise the banks to keep a large portion of the funds mobilized by them in liquid assets, particularly government and other approved securities. As a result, funds available for credit would get reduced. All banks have to maintain a certain portion of their deposits as SLR and have to invest that amount in these Government securities. Government securities are sovereign securities. These are issued by the RBI on behalf of the Government of India, in lieu of the Central Government's market borrowing program. The term government securities include: Government Dated Securities, i.e., Central Government Securities State Government Securities Treasury Bills. The Central Government borrows funds to finance its fiscal deficit. The market borrowing of the Central Government is raised through the issue of dated securities and 364 days Treasury Bills, either by auction or by floatation of fixed coupon loans. In addition to the above,
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Treasury Bills of 91 days are issued for managing the temporary cash mismatches of the government. These do not form part of the borrowing program of the Central Government. Based on the required CRR and SLR per day, the treasury department of the bank ensures that sufficient balance is maintained in the Reserve Bank (at its different branches). The fund manager calculates on a daily basis the RBI balances based on opening RBI balances and taking into account various inflows and outflows during the day. The fund manager takes the summary of inflows and outflows and the net effect is added to/subtracted from the opening RBI balances. By this method, an RBI balance of all the 14 days is arrived at. For instance, on the opening day of the fortnight, if there is an anticipated surplus, banks can generally lend it at an average, subject to subsequent inflows/outflows. Conversely, for a shortfall, the bank may borrow the

required amount in call/repo/Collateralized Borrowings and Lending Obligations (CBLO) markets on a daily basis. Successful functioning of the funds department depends mostly on the prompt collection of information from branches/other departments regarding the inflow and outflow of funds. Theinformation should also be collected accurately and collated properly/correctly. Improper maintenance of liquidity and CRR position by the fund manager may lead to either a default or an excess which does not earn any interest for the bank.

A Framework for Measuring and Managing Liquidity


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

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1.2 OBJECTIVE OF THE PROJECT


Objectives of a project tell us why project has been taken under study. It helps us to know more about the topic that is being undertaken and helps us to explore future prospects of that organization. Basically it tells what all have been studied while making the project. 1. To understand how cash is being managed by STATE BANK OF INDIA 2. To gain knowledge about the system prevailing in Banks. 3. To suggest methods for improving cash management in Banks. 4. To analyze in detail, the way Banks currently manage their finances and make decisions to achieve tradeoff between profitability and liquidity

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1.3 LITERATURE REVIEW


Davidson (1992) defined cash management as a term which refers to the collection concentration and disbursement of cash. It encompasses a companys level of liquidity, management of cash balance and short term strategies. Weak cash flow makes it difficult to hire and retain good employees (Beranek, 2000). Ross (2000) says that, it is only natural that major business expenses are incurred in the production of goods or the provision of services. In most cases, a business incurs such expenses before the corresponding payment is received from customers. In addition, employee salaries and other expenses drain considerable funds from most business. These make effective cash management an essential part of the business financial planning. Vanhorne (2001) says that, a common cash management tool found in companies is a cash budget. Most companies prepare budgets on the departmental level and roll these individual budgets into one master budget. Creating several smaller budgets, can help managers determine which operations use more cash and struggle to stay on the projected budget amounts. This discovery gives managers an idea of when improvements needed to correct the companys cash flow problems. Therefore, cash budgeting is another aid to an effective cash management. Pindado (2004) also defines cash management as part of working capital that makes up the optimal level needed by a company. Bort (2004) noted that, cash management is of importance for both new and growing businesses. Companies may suffer from cash flow problems because of lack of margin of safety in case of anticipated expenses such that they experience problems in finding the funds for innovation or expansion According to Bort (2004) cash is the lifeblood of the business. The key to successful cash management lies in tabulating realistic projections, monitoring collections and disbursements, establishing effective billing and collection measures, and adhering to budgetary parameters because cash flow can be a problem to the business organization. According to Moffet (2004), postponing capital expenditure is one method that can ease cash shortage hence, suggests efficient cash management. Kirkman (2006) states that, some capital expenditures are more important and urgent than others hence, it might be imprudent to postpone expenditure on fixed assets which are needed for the development and growth of business. On the other hand, some expenses are routine and might be postponable without serious consequences. When a lot of cash is used to pay for fixed assets, the company may

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come up against a cash crunch that prevents it from paying suppliers, buying materials and even paying salaries. Its a good idea, to maintain a level of working capital that allows making through those crunch times and continuing to operate the business.

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Chapter 2
Company Profile

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Brief Introduction of State Bank of India


The evolution of State Bank of India can be traced back to the first decade of the 19th century. It began with the establishment of the Bank of Calcutta in Calcutta, on 2 June 1806. The bank was redesigned as the Bank of Bengal, three years later, on 2 January 1809. It was the first ever joint-stock bank of the British India, established under the sponsorship of the Government of Bengal. Subsequently, the Bank of Bombay (established on 15 April 1840) and the Bank of Madras (established on 1 July 1843) followed the Bank of Bengal. These three banks received the exclusive right to issue paper currency in 1861 with the Paper Currency Act, a right they retained until the formation of the Reserve Bank of India. The Presidency banks amalgamated on 27 January 1921, and the re-organized banking entity took as its name Imperial Bank of India. The Imperial Bank of India remained a joint stock company. An important turning point in the history of State Bank of India is the launch of the first Five Year Plan of independent India, in 1951. The All India Rural Credit Survey Committee proposed the takeover of the Imperial Bank of India, and integrating with it, the former stateowned or state-associate banks. Subsequently, an Act was passed in the Parliament of India in May 1955. As a result, the State Bank of India (SBI) was established on 1 July 1955. This resulted in making the State Bank of India more powerful, because as much as a quarter of the resources of the Indian banking system were controlled directly by the State. Later on, the State Bank of India (Subsidiary Banks) Act was passed in 1959. The Act enabled the State Bank of India to make the eight former State-associated banks as its subsidiaries. The State Bank Group, with over 20,193 branches as on March 31, 2012, has the largest banking branch network in India. The State bank of India is the 10th most reputed company in the world according to Forbes. The bank has 173 overseas offices spread over 34 countries. They have branches of the parent in Colombo, Dhaka, Frankfurt, Hong Kong, Johannesburg, London and environs, Los Angeles, Male in the Maldives, Muscat, New York, Osaka, Sydney, and Tokyo. They have offshore banking units in the Bahamas, Bahrain, and Singapore, and representative offices in Bhutan and Cape Town.

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It has also 7 subsidiaries in India- SBI Capital Markets, SBICAP Securities, SBIDFHI, SBI Factors, SBI Life and SBI Cards- forming a formidable group in Indian Banking scenario. It is in the process of raising capital for its growth and also consolidating its various holdings. In July 1, 2010, the Bank launched their 'Green Channel Counter' at select branches across the country. In General Insurance business, the Bank launched limited operations in April 2010 for the Corporate and Mid Corporate customers based at Mumbai, and it was expanded to six other major locations in July 2010. In the Retail segment, the Bank launched their Long Term Home Insurance business at Mumbai in October 2010, which was gradually extended to cover 56 RACPCs and RASMECCs. General Insurance SME business was launched on a pilot basis in Mumbai and Chennai in February 2011. During the first quarter of the financial year 2011-12, the Government of India issued the 'Acquisition of State Bank of India Commercial & International Bank Ltd. vide notification dated July 29, 2011. Consequent to the said notification, the undertaking of State Bank of India Commercial & International stands transferred to and vest in State Bank of India with effect from July 29, 2011.

Products and Services Provided by State Bank of India Products


Khata Khata Plus Saral Vyapaar Vistaar Electronic Vendor Finance Electronic Dealer Finance Direct Debit
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E-Collection

Services
RTGS/NEFT SERVICE CHARGES & FEES OTHER THAN PERSONAL BANKING SEGMENT W.E.F. 11.02.2008 ATM SERVICES INTERNET BANKING E-RAIL RBIEFT E-PAY SAFE DEPOSIT LOCKER BROKING SERVICES MAGNETIC INK CHARACTER RECOGNITION (MICR) FOREIGN INWARD REMITTANCE STATE BANK MOBICASH

MISSION STATEMENT:
To retain the Banks position as premiere Indian Financial Service Group, with world class standards and significant global committed to excellence in customer, shareholder and employee satisfaction and to play a leading role in expanding and diversifying financial service sectors while containing emphasis on its development banking rule.
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VISION STATEMENT:
Premier Indian Financial Service Group with prospective worldclass Standards of efficiency and professionalism and institutional values Retain its position in the country as pioneers in Development banking. Maximize the shareholders value through high-sustained earnings per Share. An institution with cultural mutual care and commitment, satisfying and Good work environment and continues learning opportunities.

VALUES
Excellence in customer service Profit orientation Belonging commitment to Bank Fairness in all dealings and relations Risk taking and innovative Team playing Learning and renewal Integrity Transparency and Discipline in policies and systems.

COMPETITORS
Competitors and other players in the field:Top Performing Public Sector Banks Andhra Bank, Allahabad Bank, Punjab National Bank, Dena Bank, Vijaya Bank Top Performing Private Sector Banks HDFC Bank, ICICI Bank and AXIS Bank, Kotak Mahindra Bank, Centurion Bank of Punjab

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Top Performing Foreign Banks Citibank, Standard Chartered, HSBC Bank ABN AMRO Bank, American Express

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Chapter 3
Research Methodology

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Research Methodology
Research is a logical and systematic search for new and useful information on a particular topic. It is an investigation of nding solutions to scientic and social problems through objective and systematic analysis. Its a search for knowledge, that is, a discovery of hidden truths. Here knowledge means information about matters. The information might be collected from different sources like experience, human beings, books, journals, nature, etc. A research can lead to new contributions to the existing knowledge. Only through research is it possible to make progress in a eld. Research is done with the help of study, experiment, observation, analysis, comparison and reasoning.

3.1 Purpose of the study


1. The purpose of study the topic Cash Management in State Bank of India was to establish the effect of cash management on the profitability of financial institutions with specific emphasis on establishing the various cash management techniques, the level of profitability and the relationship between cash management and profitability of Bank 2. The study will help to get the knowledge about cash management policy of Banks as particularly in co-operative sector 3. 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 polices and procedure for managing cash inflow and outflow.

3.2 RESEARCH OBJECTIVE:


The first & foremost step in any research work is to identify the problems or objectives on which the researcher has to work on. The objectives met in this study, as explained below: 1. To understand how cash is being managed by State Bank of India. 2. To gain knowledge about the system prevailing in Banks.

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3. To analyze in detail, the way Bank currently manage their finances and make decisions to achieve tradeoff between profitability and liquidity.

3.3 METHODOLOGY OF STUDY


Research methodology is considered as the nerve of the project. Without a proper wellorganized research plan, it is impossible to complete the project and reach to any conclusion. Therefore, research methodology is the way to systematically solve the research problem. Research methodology not only talks of the methods but also logic behind the methods used in the context of a research study and it explains why a particular method has been used in the preference of the other methods

3. 3.1 Research design:


Research design is considered as a "blueprint" for research, dealing with at least four problems: which questions to study, which data are relevant, what data to collect, and how to analyze the results. According to Kerlinger, Research Design is a plan, conceptual structure, and strategy of investigation conceived as to obtain answers to research questions and to control variance. The Research design used in this project is descriptive research design

3.3.2 Data collection and Techniques


There are two types of data used. They are primary and secondary data. Primary data is defined as data that is collected from original sources for a specific purpose. Secondary data is data collected from indirect sources. These include the survey or questionnaire method, as well as the personal interview methods of data collection.

3.3.2 Sample Design


Sample Size 20 Population - 100

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3.3.4 Methods of Data collection


The primary data is collected by various approaches so as to give a precise, accurate, realistic and relevant data. The main goal in the mind while gathering primary data was investigation and observation. The heads and ends were thus achieved by a direct approach and personal investigations and observation from the officials of the company. The other staff members and the employees were interviewed for the sake of maintaining reasonable standard of accuracy The secondary data as it has always been important for the completion of any report provides a reliable, suitable equate and specific knowledge. These include books, the internet, company brochures, the company website, competitors websites, newspapers articles, magazines etc.

3.3.5 Limitations of the study


Following are the limitations faced by me during this project: The allotted time period of 8 weeks for the study was relatively insufficient, keeping in mind the long duration it can take at times, to close a particular corporate deal. The study might not produce absolutely accurate results as it was based on a sample taken from the population. It was difficult getting time and access to senior level Finance/HR managers (who had to be talked to, to get required information) due to their busy schedules and prior commitments. A few of the managers refrained from giving the required information as he considered me to be from their confidential domains

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Chapter 4
Data Analysis & Interpretation

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Cash Management Services


The menu of cash management services offered by banks is indeed diverse and tempting. The services broadly fall under collection services, disbursement services, information and control services, services related to electronic data interchange commercial web banking services, sweep services, fraud detection solutions, global trade solutions and investment solutions. Collection Services accelerate receipt of payments from sales and quickly turn them into usable cash in accounts. Disbursement Services make efficient payments by reducing or eliminating idle balances in companys accounts. Information and Control Services receive the data and provide the management capability needed to monitor company cash picture, control costs, reconcile and audit bank accounts, and reduce exposure to fraud. Financial Electronic Data Interchange is a computerized exchange of payments between a companys business and its customers and vendors. Commercial Web Banking Services give a wide range of services from any Internet connection, which can help streamline banking process quickly and efficiently. Sweep Services maintain liquidity and increase earnings without having to actively monitor accounts and move money in and out of them. Information reporting solutions assist companies, which need to receive account data that is timely, precise, and easy to access and interested in initiating online transactions. Investment solutions help to minimize excess balances and maximize return on available funds.

In this chapter, we analyze the Cash Management Services provided by State Bank of India by asking different questions to many people and depicted their answers graphically.

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Q.1 On which bank you depend for your regular transaction? SBI ICICI HDFC Other Banks Total No. of People 65% (65) 23% (23) 7% (7) 5% (5) 100

Diagrammatic Presentation of above Data

Responses of People in Percentage (%)


Responses of People in Percentage (%)

65%

23% 7%

5%

SBI

ICICI

HDFC

Other Banks

Fig: 4.1 Analysis of the above diagram It has been observed that approximately 65% correspondents are using the service of SBI for their daily transaction, around 23% of people are using ICICI Bank for their transaction and only7% & 5% of people are using HDFC & other Bank services respectively. It also shows that SBI have the highest market position.

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Q2. Are you aware of products & services provided by SBI? Yes No Total No. of People 82% (82) 18% (18) 100

82%

18%

Yes No

Fig: 4.2 Analysis of the above diagram From the above data it is clear that most of the customers (around 82%) have the idea about the product & services of SBI, the rest 18% have the idea about the product they are using.

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Q3. Are you aware of SBIs straight to bank services? Yes No Total No. of People 65% (65) 35% (35) 100

65%

35%

Yes

No

Fig: 4.3 Analysis of the above diagram Its very good for SBI as most of the companies are aware of the cash management services provided by the bank. The bank can look into companies as to propose its services to the concerned company personals

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Q4. Are you satisfied with your company services? Yes No Total No. of People 75% (75) 25% (25) 100

75%

25%

Yes

No.`

Fig: 4.4 Analysis of the above diagram From the above analysis it can be interpreted that most of the companies were satisfied by their CMS provider but still they found few areas of improvement, SBI can give solutions for those areas

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Q.5. What are your main modes of premium collection? Cash Cheques Demand Drafts Total No. of People 25% (25) 68% (68) 7% (7) 100

68%

25%

7%

Cash

Cheques

Demand Drafts

Fig: 4.5 Analysis of the above diagram Most of the companies accept premium in the form of cheque as its a safer instrument than cash and is easily handled as compared to demand draft SBI can provide various cheque collections options to the companies.

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Q6. What are your main modes making payments? Cash Cheques Demand Drafts Total No. of People 20% (20) 75% (75) 5% (5) 100

75%

20%

5%

Cash

Cheque

Demand Draft

Fig: 4.6

Analysis of the above diagram Like premium most of the companies distribute their payments through cheques only DD and cash are made out under special circumstances.

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SWOT analysis of SBI


Strengths

SBI is the largest bank in India in terms of market share, revenue and assets. As per recent data the bank has more than 13,000 outlets and 25,000 ATM centers The bank has its presence in 34 countries engaging currency trade all over the world The bank has a merged with State Bank of Saurashtra, State bank of Indore and the bank is planning to go further acquisition in the current FY2012.

SBI has the first mover advantage in commercial banking service SBI has recently changed its vision and mission statements showing a sign of inclination towards new age banking services

Weakness

Lack of proper technology driven services when compared to private banks Employees show reluctance to solve issues quickly due to higher job security and customers waiting period is long when compared to private banks

The banks spends a huge amount on its rented buildings SBI has the largest number of employees in banking sector, hence the bank spends a considerable amount of its income in employees salary compensation

In spite of modernization, the bank still carries the perception of traditional bank to new age customers

SBI fails to attract salary accounts of corporate and many government sector employees salary accounts are also shifted to private bank for ease of operations unlike before

Opportunities

SBIs merger with five more banks namely State Bank of Hyderabad, State bank of Patiala, State bank of Bikaner and Jaipur, State of bank of Travancore and State bank of Mysore are in approval stage

Mergers will result in expansion of market share to defend its number one position
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SBI is planning to expand and invest in international operations due to good inflow of money from Asian Market

Since the bank is yet to modernize few of its banking operations, there is a better scope of using advanced technologies and software to improve customer relations

Young and talented pool of graduates and B schools are in rise to open new horizon to so called old government bank

Threats

Net profit of the year has decline from 9166.05 in the year FY 2010 to 7,370.35 in the year FY2011

This shows the reduce in market share to its close competitor ICICI Other private banks like HDFC, AXIS bank etc FDIs allowed in banking sector is increased to 49% , this is a major threat to SBI as people tend to switch to foreign banks for better facilities and technologies in banking service

Other government banks like PNB, Andhra, Allahabad bank and Indian bank are showing

Customer prefer to switch to private banks and financial service providers for loans and mortgages, as SBI involves stringent verification procedures and take long time for processing.

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Chapter-5 Findings & Conclusion

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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 SBI as follows: 1. SBI manages its daily requirement of CRR as per guidelines of RBI every day. 2. 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. 3. It doesnt maintain more cash as CRR, it try to avoid cash remain ideal. 4. SBI purchase government securities according to the availability of funds, prevailing market condition and SLR requirement 5. By using CBLO, SBI can take arbitrage opportunity as all security on CBLO are pledged with CCIL 6. For NON-SLR option SBI invest mainly in Government securities Interbank exposure- not more than 5% of deposits of previous FY PSU bonds IDBI, IFCI bonds Commercial Papers 7 SBI invest more in government securities as compare to call money market or CBLO instrument because of risk purpose. 8 SBI doesnt invest much in money market mutual fund instrument as it not offers higher return as compared to government securities.

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Conclusions
The study allowed us to get answers regarding the service awareness

among people and the problems it faces. The key findings and analysis of the survey showed the following 1. A large number of clients and customers call the branch frequently to handle banking issues; this shows the keenness of the customers to call the branch for almost every small issue. The service Straight2bank does provide an answer to the problem of the customers. The service provided by staright2bank does offer the main requirements of the customers for which they visit or call the branch 2. All the respondents wanted to carry out the banking needs at their convenience. This means the service caters the banking needs that customers generally require and its main benefit of banking while sitting at office is desired by one and all, thereby proving that the service does have the potential usage 3. Few of the respondents were aware about the service which was desired by

100%respondents clearly showing that there has been a falter in its promotion and awareness strategies. 4. Customers were not aware that the service was a free one, this is clear that almost all the attributes of the services are favorable to the customers still customers are not using the service and are not even aware of it. 5. Almost all customers once educated about the service readily enrolled for it whereas a mere portion did not trust the bank and thought that the bank would have some hidden charges that they are not putting forward. Many clients who enrolled for the staright2bank service would have problems using it as the drop boxes are not strategically placed many areas do not even have drop box facility; State Bank must look into the policies of installing the drop box. They should assign it to the regional office or allow branches to put up boxes where the branch thinks it would be optimally utilized no matter which area of the city as of now that branches are allowed to put up drop boxes in a radius which falls in close by areas to the branch. A customer who lives close by to the branch would not use this service whereas customers who are far of require the service, however the branch cannot provide them with the facility as they cannot install
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the boxes in that area and it is the duty of the local branch of that area to put up boxes which is not happening they hardly know where customers of the other branch are located

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Chapter 6 Suggestions & Recommendations

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Suggestions & Recommendations


We suggest following measures, which State Bank could take so as to take on heavy competition from HSBC Bank and ABN AMRO Bank: 1. Try to reduce cost, so that benefits can be passed on to customers. Senior managers at SBI keep on telling that it is difficult to reduce cost, because of services we provide. But the fact is, India being a price sensitive market; people at times go for monetary benefits rather than for long-term non- monetary benefits. If charges cant bereduced because of costs involved, make the services customized, so that services a re provided to only those customers who are willing to pay the price for services they are getting and let the other customers enjoy costs benefits without getting services. 2. SBI should provide competitive prices as nowadays a lot business is

being acquired by AXIS bank and HSBC bank and SBI is facing a lot competition from these banks 3. SBI should contact with their clients regularly for knowing the problems faced by them. This will help SBI in providing best services to customers. This will result in additional customer base by getting further references from satisfied clients. 4. SBI should focus on getting the business other business clients other than its existing customers as it would help them to increase their business opportunities.

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BIBLIOGRAPHY
Internet: Websites
http://en.wikipedia.org/wiki/Cash_management http://www.google.co.in/url?sa=t&rct=j&q=cash%20management&source=web&cd= 4&cad=rja&sqi=2&ved=0CEoQFjAD&url=http%3A%2F%2Fwww.nucleussoftware. com%2Fimages%2FCashManagementTrendsInIndia_GT_NVedwa.pdf&ei=eDy9UJ mgFYXxrQf8u4G4Bg&usg=AFQjCNHfOhBugAhVG6QSVohFptNwgbidFQ http://www.google.co.in/#q=cash+management&hl=en&safe=active&tbo=d&ei=Oz2 9UNj_JIPnrAeQvYAQ&start=0&sa=N&bav=on.2,or.r_gc.r_pw.r_qf.&fp=44e5536d 1e9b189d&bpcl=39314241&biw=1366&bih=677 https://www.sbi.co.in/ http://economictimes.indiatimes.com/state-bank-of-india/stocks/companyid11984.cms http://en.wikipedia.org/wiki/State_Bank_of_India https://www.onlinesbi.com/corporate/corp_productandservices.html http://www.indiainfoline.com/Markets/Company/Background/CompanyProfile/State-Bank-of-India/500112 http://business.mapsofindia.com/banks-in-india/sbi-services.html http://placement.freshersworld.com/placement-papers/SBI/Company-Profile-15646 http://in.reuters.com/finance/stocks/companyProfile?symbol=SBI.BO http://www.online.citibank.co.in/portal/newgen/corporate/product_services/account_s ervices.htm http://www.themanagementor.com/enlightenmentorareas/finance/cfa/baumols_model. htm http://www.zeepedia.com/read.php?millerorr_model_of_cash_management_inventory_management_inventory_costs_economi c_order_quantity_reorder_level_discounts_and_eoq_corporate_finance&b=22&c=29

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https://www.sbicmp.co.in/sbicmp/docs/AboutUs.html http://www.rbi.org.in/SCRIPTS/PublicationsView.aspx?id=7250

Books:
1- Introduction of operation Research By J.K.Sharma

2- Learning operation Research By S.K Jaiswal

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ANNEXURE

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Questionnaire
Q.1 On which bank you depend for your regular transaction? Q2. Are you aware of products & services provided by SBI? Q3. Are you aware of SBIs straight to bank services? Q4. Are you satisfied with your company services? Q.5. What are your main modes of premium collection? Q6. What are your main modes making payments?

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