Professional Documents
Culture Documents
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
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.
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.
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:
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.
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.
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.
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.
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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.
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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.
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
"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
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.
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).
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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.
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.
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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.
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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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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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.
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).
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.
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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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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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.
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.
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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.
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Chapter 4
Data Analysis & Interpretation
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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
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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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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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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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
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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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