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A

STUDY
On
TREASURY MANGEMENT CELL
IN ORISSA STATE
COPERATIVE BANK

The project is submitted IN PARTIAL


FULFILLMENT AT THE DEGREE OF Bachelor in
Business Administration, UTKAL
UNIVERSIT, Bhubaneswar.
Submitted by
Debasish Das
Regd. No.
Under the Guidance of
Faculty Guide
Company Guide
Mr. Sandhya Darshan
MR. SRIKANT PATEL
(ASSISTANT MANAGER) Dash
FINANCE Faculty (Finance)

1
ARYA School of
Management & IT
BHUBANESWAR
Declaration

I hereby certify that the work which is being presented in the project
entitled, “Treasury Management Cell” in partial
Fulfillment of the requirements for the award degree of Bachelor of
Business Administration Arya School of Management & IT
(Affiliated to Utkal University) Bhubaneswar, is an authentic record
of my own work .
The matter presented in this Project Report has not been submitted
by me for the award of any other degree of this or any other
University.

Debasish Das

BBA V SEM

2
Acknowledgement
Success of every project depends largely on the SELF &
encouragement and guidance of many others. I take this opportunity
to express my gratitude to the people who have been instrumental in
the successful completion of this study project.

First of fall I would like to thank the Management at OSCB for giving
me the opportunity to do my two-month project training in their
esteemed organization.
Internal Guide) for providing me with valuable advice and endless
supply of new ideas and support for this project.

I would like to thank Mr. SRIKANT PATEL for providing practical


exposure for the project and his valuable guidance during the project
work.

Debasish Das

BBA V SEM

3
TABLE OF CONTENTS
• PREFACE

• INTRODUCTION, OBJECTIVE, RESEARCH


METHODOLOGY & LIMITATION

• OBJECTIVE OF THE STUDY

• ORISSA STATE COPERATIVE BANK OVERVIEW

• TREASURY MANAGEMENT –A CONCEPTUAL


FRAMEWORK

• TREASURY OPERATION IN OSCB

• ANALYSIS AND INTERPRETATION

• SUGGESTION

• CONCLUSION

• BIBLOGRAPHY

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PREFACE
BBA program is one of the most reputed professional courses in the field of
Management. There is a study project as an integral part of BBA in the Fifth
Semester. As a complementary to that every one has to submit a report on the
work conducted in the industry.
This report is thus prepared for the study project done at Orissa
State Coperative Bank (O.S.C.B). The topic of the project is, “TREASURY
MANAGEMENT CELL”. The organization shall make all possible efforts to
have a secure and safe domain. The data/information is very important and
most critical to the business requirements; therefore proper measures should
be adopted so that the information is well secured and protected.

Debasish Das
BBA V Sem

5
CHAPTER-I
INTRODUCTION, OBJECTIVE,
RESEARCH METHODOLOGY &
LIMITATION

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INTRODUCTION

Treasury Management is one of the principal functions of any company.


Treasury management generally refers to the set of policies, strategies
and transactions that a company adopts and implements to raise finance
at acceptable cost and risk, to manage its cash resources and to reduce
interest rate, foreign exchange and commodity price risks as well as in
the conduct of its relationships with its financial stakeholders. According
to a more sophisticated view, treasury management refers to a
management of an enterprise’s holdings in a trading in govt. and
corporate bonds, currencies, financial futures, options, derivatives,
payment systems and the associated risk management. Thus, as a part
of its treasury management functions every company has to plan,
organize and control cash and borrowings so as to optimize interest and
currency flows and minimize the cost of funds. Also to plan and execute
communications programmes to enhance investors confidence in the
firm.

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OBJECTIVE OF THE STUDY

The study was conducted to assess the impact of treasury management


on the profitability of Orissa State Cooperative bank.

A thorough analysis was done to identify the various avenues available


for a bank for its investment purpose.

My objective also was to gain a thorough insight into the real banking
scenario after the financial sectors reforms.

METHODOLOGY

My sources of data used in this project are both primary and secondary.
Complete detailed analysis has been made from the year of set of
Treasury Management Cell (TMC) in Orissa Cooperative Bank,
Bhubaneswar till 2009-10. Thorough study of the functioning of the TMC
has been made before the preparation of the project. The sources of the
primary data has been collected from the annual report and the
investment policy of the bank and the internet.

Various statistical formula used from the calculation of yield to maturity


and current yield and on this basis of this formula securities are
compared and selected. The methodology adopted to find the profitability
status of the TMC is a thorough detailed comparative analysis of the
various financial years before and after the establishment of the TMC.

LIMITATION

The main limitation of the project is that some times up to date data is
not available.

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CHAPTER-II
ORISSA STATE CO-OPERATIVE BANK
OVERVIEW

NABARD

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The Orissa State Co-operative Bank Ltd. was registered under the
Bihar & Orissa Co-operative Societies act of 1935 as Orissa
Provisional Cooperative Bank with its head Office at Cuttack Later the
bank was shifted to the State capital, Bhubaneswar and has been
functioning there in ever since .OSCB has its branches at Paradeep,
Cuttack, Sambalpur. Berhampur, Angul, Rourkela along with
Bhubaneswar. It also supports 17 central Cooperative banks, Which in
turn support more than 400 primary Co-operative societies. The
Orissa State Co-operative Bank Ltd is at the top of the Cooperative
banking structure. OSCB is organized with the objective of attracting
deposits from public. It also derives its funds from its share capital. It
obtains loans from NABARD and RBI to finance to the peers down to
the District Central Co-op Bank. The bank is also imparting training
facilities on various subjects. As regard to co-operative principles &
activities among the employees of the different type of co- operative
organizations through it’s- Agricultural Cooperative Staff Training
Institute (ACSTI) functioning in it’s premise.

The co-operative credit structure consists of two wings. Namely Short-


term co-operative credit structure and long term co-operative credit
structure. The short term co-operative credit structure deals with short &
medium term credit for agricultural purposes & it is federal in character.

It is mostly on a 3 tier pattern with state co-operative bank (SCBs) at the.


apex level, district central co-operative banks (DCCBs) at the
intermediary level & primary agricultural co-operative credit societies
(PACs) at the village level. All type of primary societies are federated
into DCCBs at the state level i.e. apex level as on 31.03.9194.

The institutional rural credit delivery system has been envisaged as an


effective channel rural for creating an environment for Socio-economic
development of the people in Orissa. The institution rural credit delivery
system for agricultural comprises of:

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1. Short term Co-operative credit structure

2. Long term Co-operative credit structure

3. Regional rural bank

4. Commercial bank

5. NABARD

6. Reserved Bank of India

FUNCTIONS OF OSCB

1. Stepping up production & productivity in agricultural farm


Mechanism, better land & water management.

2. 1ntroduction of Kissan credit card for better credit outflow.

3. Creating employment opportunities in diary, poultry, pisciculture


handloom, transport, SSI units and other nun firm sector.

4. Supporting agro-processing agriculture produce marketing.

5. Functioning as balancing center for the central co-operative banks,


urban cooperative banks & others co-operative institutions.

6. Accepting short term & long term deposits of individuals,


institutions, body-co operates. And state govt. playing higher
interest.

7. Remitting funds through drafts pay order collection bills issuing


bank guarantee & latter of credit favoring valued customers.

8. Human resource development through wholly owned agricultural


co-operative staff training process.

MISSION OF OSCB

The mission of OSCB is become a strong & vibrant bank having


competitive edge & to lead a rejuvenated short-term co-operative credit
structure to serve the people of Orissa.

ROLE OF OSCB
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The Orissa State co-operative bank as the apex label institution Of the
short-term co-operative credit delivery systems in the state is playing
measure role strengthening DCCB/PACs for the socio-economic
upliftment of the state.

ROlE TOWARD CREDIT POLICY AT THE STATE LEVEL

1. OSCB as the leader of the state co-operative credit structure is


drawing annual credit plan.

2. Kissan credit card has been introduced to the farmers to ensure

adequacy & time lines in credit delivery.

ROLE TOWARD RURAL SAVING MOBILIZATION TO SELF RELlANCE


OF CCB AND PACs

1. Apex bank has encouraged the district co-operative bank to introduce


new deposits senate such as insurance linked deposits, pension senate
etc.

2. introduction of deposits guarantee scheme for deposits in PACs with


contribution from state govt. apex bank, CCB. PACs.

3. Publicity through electronic media by apex bank for deposits


mobilization of CCB’s and PACs.

ROLE TOWARD RECOVERY OF AGRICULTURAL LOAN

With an intention to bring about competitive sprit among field staff, OSCB
has taken the following steps.

Introduction of incentive schemes for recovery of loan.

Regular review of recovery performance of CCBs/PACs.

Publicity through electronic media for recovery of loans DCCB/PACs.

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ROLE TOWARD INSPECTION AND SUPERVISION

OSCB has prepared guideline for inspection of DCCB/PACs & deputes it


senior officers for annual inspection of all DCCB & selected PACs for up
gradation of their skill and provides guidance.

ROLE TOWARD HUMAN RESOURCE DEVELEPMENT IN CO-

OPERATIVE

The agricultural co-operative staff-training institute (ACSTI) of OSCB is


imparting training to the staff DCCB/PACs for up gradation of their skill.

EFFORT OF OSCB TO MEET THE EMERGING CHALLENGES

Banking is an important help busine6s. Finance is the foundation of


every business activity is provided by Banks. Banks are thus regarded as
indispensable spokes in the wheels of commerce.

A Bank may be defined as an institution which deals in money. Banks


draw surplus money from the people who are not using it at the time and
lend to those who are in a position to use it for productive purposes. The
Bank pay a certain amount of money as interest, on the money they have
borrowed. Similarly they charge interest on the money lent. The rate of
interest on loans advanced is always greater than deposits. The
difference between the two rates. in the Bank s margin of income.

In modern time there are a variety of institution which specialize in


borrowing and lending of money. The Bank credit is only one form of
credit. Credit Cooperatives Societies, Commercial Bank’s Cooperative
Societies, Commercial Bank’s Cooperative Banks, Industrial Financial
Institution, LlC, export finance house etc. are all credit institutions.
Different credit institution lends money for different purposes and
collectively called the financial system.

As mentioned earlier the State Cooperative Bank (SCB) is at the top of


the Cooperative Banking structure. SCB is organized with the object of

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attaching deposits from the richer urban class. It is known as the apex
bank and it forms the apex or top of the Cooperative structure in a state.

The State Cooperative Bank derives its fund from its share capital and
deposits. It receives current and fixed deposits from its member as well
as the general public, local boards, Municipalities etc. it also obtains
loans at call and short notice from the Commercial Banks. It also obtains
seasonal agricultural operations. A certain portion of the working capital
is contributed by the state Govt.

The main function of a SCB is to Finance Central and Coordinate the


activities of CCB The excess funds of the CCB are diverted to other
needy CCB through SCB. The SCB has no direct contacts with PACS.
The Central Co-operative Banks acts as intermediaries between SCB
and PACS.SCB ads as a link will RBI and money market. In spite of
competition from Commercial Banks SCB are doing good business.
There owned funds has increased. By virtue of amendments Reserve
Bank of India (Co-Operative) Act, the SCB have secured the status of the
scheduled Banks.

Through control from RBI the SCB Banks enjoy the facility of the
deposit Insurance.

To Co-operative banks have changed their banking policies to suit the


changing condition and they have improved the quality of the credit
provided. The improvement in the farm technology such as use of high
yield verity seed, intensive use of irrigation facilities, increased
consumption of fertilizers, multiple cropping varieties etc. Have led to a
great demand for credit for agricultural production

The Orissa State Co-operative Bank, a scheduled bank under RBI Act
was registered in the year 1948 as the Apex Bank of the short term coop.
Credit structure of Orissa with an objective of development of the again
ill economy of Orissa by catching the credit equipment of the terms of the
state. The OSCB, in its own way has contributed in providing farm credit

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and inputs to bring the desired change over the years. The Bank has
been trying to develop the primary societies vis. PACS which constitutes
of schemes as LAMPS (Large scale agricultural multipurpose society I
FAS (Farms service society).

AGRICULTURAL ACHIEVEMENTS OF OSCB:

The short term Co-operative credit structure in Orissa is a three tier


structure comprising 2817 PACS (inclusive of 233 LAMPS and FSS) AT
THE PRIMARY LEVEL 17 Central Co-operative Banks with 308 branches
at the District level and OSCB with 6 branches and 5 extension counters
at the State level.

In the state 88% of the population lives in the rural areas and where 73%
of the total work force is engaged in agricultural and allied activities, the
OSCB plays a pivotal role in the pursuing 72% of the agricultural Credit
in the state.

The activities of OSCB is not confined top dissension of farm credit


alone. As a schedule bank, it has been responded to the sweeping
change in Banking Service in view of advancement in information
technology.

The Bank has assumed the role of leader of the Coop. Credit structure to
develop the lower tiers to cope with the emerging challenges of Banking
Activities.

The activities of OSCB are,


• General Banking Business.

• Refinance to the DCCB

• Dispension of farms credit

•Production Credit.

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GENERAL BANKING BUSINESS OF OSCB

The Bank has been accepting deposits from the public and offering all
Banking facilities to its customers through its fully computerized
branches and extension counters at Bhubaneswar, Cuttack, Paradeep
and Sambalpur. The banking services offered by the include acceptance
of all types of deposits ,bills and exchanges, issue of letter of credit,
advancing loans to farm and non-farm sector.

Provision of locker facilities. The bank has made a humble beginning in


providing ATM facilities in its main Branch at Pandit Jawaharlal Nehru
Marg, Bhubaneswar for providing any Time Banking. This facilities are 0n
the anvil to provide served cities, branches and extension counters.

The OSCB came into existence to support the lending activities of its
affiliated DCCBs. The Bank provides refinance to them to peruse the
following activities

i) DISPERSION OF FARM CREDIT:

In Orissa, 39.481akh farmers have been enrolled as members of the


Primary Agriculture Coop, Societies (PACS) large sized agriculture
Refnance facilities to the DCCBs for financing the PACS..

ii) NON-FARM SECTOR FINANCING

The OSCB has facilitated the DCCBs for diversifying into financing of
non-farm sectors. The DDCB have been dispensing non-farm credit to
small-scale industries in shape of book capital and working capitals loans
are also advanced for trading activities, purchase of commercial
vehicles, housing etc, with refinancing support from the OSCB.

iii) HANDLOOM SECTORS FINANCING:

The OSCB has been financing handloom Cooperative Societies.

RETAIL BANKING: HOUSING LOAN:

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The bank is financing housing loan under its “APAN GHAR” scheme.
Maximum amount under this head is Rs.5,00,000.- for purchase of ready
made house or construction for repair, renovation or addition/alternation
the limit is Rs. 50,000/-. The rate of interest is 13% on reducing balance.
Maximum repayment period is 15 years with 18 months moratorium
period.

CONSUMER DURABLE:

Requirement / formalities like

1. Maximum limit Rs.50,000/- or 75% of the cost of the item.


2. Subject to five times monthly gross income.
3.Repayble in maximum 40 monthly installment in reducing balance.
MOTOR VEHICLE FINANCE:
For any sort of surface transport and water Transport vehicle both
for commercial and personal purpose.
Requirement I Formalities like,
1.75% of the total cost of the vehicle, including registration & insurance.
2.Repayble in 60 monthly installment in reducing balance.
3. BUSINESS.ENTERPRISE
Terms loan for,
1. Fixed Assets for projects.
3. Commercial complex and Kalyan Mandap
3. Hotels. Tourists Resorts, Health care units.
4. Equipment and machineries.
Requirement and Formalities like.
i) Maximum 75% of the fixed assets.
ii)Maximum repayable periods 10 years.
iii) lnterest in reduced balance method,
WORKING CAPITAL LOANS:
For Retail business, Trade, Wholesaler, Project solution etc.
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Requirement /formalities like,

1. Maximum 75% of working capital requirement subject to stock holding.


2. Quarterly interest on days balance BIGGER PROJECT FINANCE BY
OSCB:

The Bank also finance mega project like, Orissa Textile Mills, Kalinga
Hospital, Bhubaneswar Commercial Corporation, Simala Trading
Corporation ,Nilachal Ispat Nigam ,Sugar Industries like Shakti Sugars
etc.

Many of the big projects are doing good business and some are not. So it
increases the NPA of the Sank. For financing big project the bank
requires good project appraisal technique, and expertise. For making
credit available to the rural economy of Orissa, the apex bank has to
improve its performance.

ARICULTURE OF ORISSA AT GLANCE:

Gross cropped Area (in thousand hectres)= 96.68 in the year’ 1995-96.
Irrigation Potential Created (Khariff and Rabi) thousand hectares in
32.58 in the year 95,98. Total area under forest (in thousand hectares) is
57 22.

Net Area shown (in thousand hectares) 95.-96 is 1’32.10

Fertilizer consumption per hectares of Gross Cropped Area (kg) 96-97 is


30,52 whereas in all India level it is 75.7.

Length of coast line is 482 kms. Main crops that are cultivated are paddy,
oil seeds ,jute,sugarcane,tobacco,Macca,wheat etc.

INFORMATION TECHNOLOGY:

The Bank has continued its endeavor to cope with the changed
customers expectation by automating its outlets. In addition to having the
distinction of the first computerized State Co-operative Bank in the

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country, it has installed ATMs to provide any time banking. Seven days
banking in select branches and extended banking hours till 8,30PM in
some outlets has helped the Bank in retaining customers and attracting
new owners. The phenomenal growth of 31% in deposit mobilization is
the resultant outcome of these initiatives. We are contemplating to
connect all the retail outlets in near feature to provide any where
banking.

CORPORATE VISION & HUMAN RESOURCE DEVELOPMENT:

Keeping in view the development encompassing the banking industry


and the emerging challenges before the shor1 term cooperative credit
structure , the bank has been on the job preparing a vision plan for the
year 2010, The senior employees of the bank have been entrusted with
the responsibility and a consultant from a leading institute engaged for
‘facilitating its preparation, the vision plan would broadly include,
interalia, organizational, systemic, financial, managerial, and personnel
revamping of the bank, its affiliated DCCBs and a self-reliant
organization capable enough t041ead a rejuvenated short term
cooperative credit structure in state to bring prosperity to its agrarian
economy,

The bank has entered in to 21st century with a corporate vision a to


become a strong and vibrant bank and to lead the S.T.coop, credit
structure to attain sustainable viability by serving the agrarian economy
of the state. In order to prepare the human resources to shoulder higher
responsibility, the ACSTI of the bank conducted advanced HRD training
programmes for officer of the bank. With the help of NABARD one ODI
programmes was also conducted in the bank wherein cross section of
employees participated.

IMPLEMENTATION OF KISAN CREDIT CARD SCHEME:

Keeping pace with the importance attached by the government of India to


the Kisan credit card scheme your bank has continued its sincere

19
endeavor to extend the benefits of the scheme to large number of farmer
members. The cumulative issue’ of cards has crossed the mark of 8
Iakhs and reached the level of 8,73,213 as on 31.3.2001 as on 31.3.2000
your bank facilitated organization of KCC holders meets at grass root
level to have direct Interfact with them to sort out theirs difficulties in
getting all the benefits of the scheme. As a result of continuous
monitoring of the scheme, the per capita credit off take has increased
from Rs 6305/-during 1999-2000 to RS.6850/during 2000-2001. No
doubt, it is fact that Iending procedures for dispensation of seasonal
agricultural credit has been streamlined and the farmer members have
got instant access to farm credit at the time of their need through the
kisan credit cards, we are yet to cover a large chunk of the membership
in this scheme was only 28 percent of the total membership, We should
continue our efforts to popularize the scheme and convince farmer
members to got the facilities in built in the scheme.

KALINGA KISAN GOLD CARD SCHEME:

During the year under report, the around work was done to lunch the
unique and innovative Kalinga Kisan Gold Card scheme to recognize and
reward the good repayment habits of the farmer members. After its
lunching on 2G.4 2001, the scheme has elicited tremendous response
not only from the farming community but also floral the Union
Government, Reserve Bank of India and NABARD , With the package, of
facilities provided in the scheme, it will surely bring about a turn around
recovery climate of the state to improve the financial condition of the
DDCBs and PACS. We all should work together to popularize the
scheme by widely propagating its benefits.

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CHAPTER-III

TREASURY MANAGEMENT – A
CONCEPTUAL FRAMEWORK

◘ Introduction about Treasury Management


◘ Why Treasury forms an Integral Part of Banking Sector

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Treasury management is the management of an organization’s liquidity
to ensure that the right amount of cash resources are available in the
right place in right currency & at the right time in such a way to
maximize the return on surplus funds, minimize the financing cost of
business. & control interest rate risk & currency exposure to an
acceptable level.

The above definition makes it clear that Treasury Management is the


efficient management of financial risk & liquidity of business, the role of
treasury can vary from simple cash management to all financial affairs
excluding financial accounting, internal audit & other functions of a
controller. The specialist treasury function is a recent phenomenon which
has evolved to its fullest in many ognanisations.

Traditionally, treasury managers have been focusing on cash


management & investment & investment decisions For a treasurer
management of cash & other liquid assets like T-bills, CPs etc. continues
to be a key functions in many organizations. In fact treasury is a profit
centre for many banks. Effective management of cash adds significantly
to liquidity of an organizations.

In fact, the specialist treasury function is a recent development in many


organizations but has grown dramatically since the early 1970s. The
dynamics of financial markets the world over are undergoing a
transformation as business are Increasingly getting globalised & more &
more economics are becoming market driven. As a result of this
changing scenario, one of the major consequences is the increasing
volatility in level of market (interest) rate, exchange rates, money supply
& general level of prices.

STRUCTURE AND ORGANISATIONS OF TREASURY MANAGEMENT

Generally it is the finance department which is responsible for the


successful carrying out of the treasury operations of a company. Big
companies may have structures similar to the above while for the small
22
companies the Director may at times carry out the mark of both
Treasurer & Controller, The organization of finance dept. differs from (t4
organization to organization. There is no statutory pattern. Legally &
theoretically, the right of managing a company vests in its shareholders,
but their numbers being large and scattered, this task is entrusted to the
Board of Directors. The main representative of the Board of Directors is
the Chief Executive Officer/ Managing Director. He is the competent
authority to take decisions on matters relating to the overall policy
formulation and execution. To learn about the constitution of the finance
dept. to whom the Treasurer and the controller are responsible.

The size of the treasury depends on the organization Big


companies, usually the PSUs and large private sector giant like Reliance
industries ltd., ITC, VST, etc. may have the structure as mentioned
above or similar to it. However in the small organizations usually have
the Director (Finance) to take major policy decision and fulfill the role
both treasure and controller. He will have the finance manager, Accounts
officer and the cashier to look into the aspect of implementation and thus
assist him or even in some cases some of the officials are responsible
for more than one of the above lited functions. Once the rules and
regulations are framed in respect to various functions of the treasury, it is
important that these standards of accounting and controlling are properly
implemented and strictly adhered to.

ROLE OF CFO

The Chief Financial Offices is responsible for all crucial financial


decisions in the organization. Depending on the size of the organization,
nature of its business, type of financing etc., the CFO is given the
designation of Vice-president (Finance) or Director (Finance) or General
Manager (Finance) Chief Manager Finance (Finance)

The CFO is a member of the top management and is involved and is


involved in the formulation of policies and decision making apart from the

23
routine aspects of Finance and accounting. The Function of the CFO is
broadly categorised as that of the CFO is broadly categorized as that of
a controller and treasurer.

FUNCTION OF A CONTROLLER

As the treasurer deals with the Iiquid assets, the controller of the
organization has to record the transaction of the liquid assets. It is the
combined & effective working of the Dept. that gives rise to an effective
system of internal control. Some of the important function of controller
are

1.Record all transactions in general ledger, the AlCs receivables & the
AlCs payable sub ledger transactions with respect to fixed assets such
as depreciation. inventory control etc.

2.Keep track of the company’s short- term investment by recording &


reconciling the transaction with those of the brokerage film .

3.Looks into the regulatory aspects & Implementation of the company’s


police on trade discounts & receivables ageing.

4. Acts as planning director.

5.Keeping a record of the attending of the employee their work timings


so as to facilitate preparing payroll.

FUNCTIONS OF A TREASURER

The treasury in the finance dept. deals with liquid assets, since the
treasurer in the head of the treasury, he has a major responsibility of
being a custodian 0 cash & other liquid asset. The functions of the
treasurer are

A. FUNDING

The treasurer has the responsibility of exploring & selecting best


source .of finance for funding long term & short term cash requirement of
the business While determining the best source of finance, the treasurer

24
must take various matters into .consideration like debt structure of the
organization. structure of the debt portfolio & advantage & shortcoming
of short term & long term financing etc.

B.WORKING CAPITAL MANAGEMENT

The goal of the working capital management is to maintain good balance


between current assets & liabilities as per the requirement of the
business Since cash surplus as well as cash deficit Is not
recommendable for any organization, the treasurer has the responsibility
to maintain an optimum cash level. A good working capital management
maximizes the liquidity & profitability of the organization.

C. BETTER INVESTOR RELATION:

This involves .establishing, strengthening & maintaining better interacting


members of the financing & investing community such as

Individual Investors
Institutional Investors
Professional Fund Managers
Foreign Investor

D. GOOD BANKING RELATIONSHIP:

In general, selection of appropriate, desirable & suitable banking


services is the responsibility of the individuals responsible for cash
management, who fall under the treasury belt. This includes cash
transmission & bank A/C bank relationship management.

E. SHORT-TERM INVESTMENT:

Ideal cash incurs opportunity costs at time passes. The excessive


surplus cash in the business may arise due to various factors such as
cyclical, seasonal or temporary business trends. The treasurer has the
authority to utilize surplus cash of the organization in short term
beneficial investments.

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F. RISK (HEDGING) AND FORE X MANAGEMENT

Due to increasing globalization of business the importance of risk &


forex management has been spurring. The international treasurer has to
ensure liquidity in foreign exchange funds without compromising
profitability. On the other hand, risk. management (hedging) involves the
utilization of financial instrument to cushion the utilization of financial
instrument to cushion the co. against interest rate, commodity &
currency exposure.

G.ESTBLISHING THE COMPANY POLICY:

Functions of the’ treasurer, further includes establishing of co. policy with


respect to decision on trade discount & vendor payment ageing.

H.CAPIT AL STRUCTURE FORMULATION:

The treasurer must formulate the capital structure for organization


accordance to the business goals and implement the same. He has the
responsibility of taking appropriate vs equal financing decisions. A
wrong’ or inappropriate capital structure may through the business into
irrecoverable losses.

I.INSURANCE AND TAX PLANNING:

A sound tax planning involving utilization of various provisions of the


statute that enables the organization to reduce the tax liability without
violating the latter & spirit of the law. The treasurer must identify &
undertake such transactions that will result In reduction & elimination of
tax liabilities of the business.

J.INTERNAL TREASURY CONTROlS:

The treasurer acts as a cashier, undertake the role of an authorized


signatory on payment cheques. Even reconciliation of relevant A/Cs is an
important function of the treasurer

26
At the core of above function h. has to make two key decisions

1. The financing decision


2. The investment decision

FINANCING DECISSION

The financing decision relates to mobilization of funds to ensure smooth


business activity & healthy growth of an organization.

The financing aspect involves decision making about the following:

How much to mobilize: The treasurer has to estimate the amount of


funds that will be required in future & what part of this can be met by
funds generated internally & how much will have to be mobilized from
external sources.

From where to mobilize: A firm has access 10 different sources of


finance, both long term & short term. The treasurer has to decide which
will be the most appropriate source of finance for them.

At What cost: All funds have a cost associated with them. The average
cost’ of all the funds mobilized should be kept as low as possible.

When to mobilize: The treasurer has to estimate when a short fall of


funds will occur & raise accordingly.

INVESTMENT DECISSION

The funds generated in the course in the course of business need to be


put to further use. The investment decision relates to the selection of
assets in which funds will be invested by the firm. The assets, which can
be acquired fall into two categories.

1. Long-term assets
2. Short-term or current assets

A proper balance should be achieved between fixed & current assets.


The money manager has to decide which kind.)f funds should used for
financing which kind of assets.

27
The financial markets that are present to day have come a long way from
the information markets that have existed earlier. According to the
changing & increasing needs’ of the lender & borrower the financial
markets have also developed. These markets have witnessed
remarkable changes in the nature of transactions. the type of
participants. the magnitude of operations & various sub-markets have
developed. The main segment is dominated mostly organized financial
markets are as follows:

MONEY MARKET:

The money market is a wholesale debt market for low-risk. Highly liquid.
short-term instruments. Funds are available in this market for periods
ranging for a single day up to a year. This market is dominated mostly by
government, banks & financial institutions.

CAPITAL MARKET:

The capital market capital market it; aimed at financial the long term
investment. The transactions taking place in this market will be for
periods over a year.

FOREX MARKET:

The forex market deals with the multicurrency requirement which are met
by the exchange of currencies. Depending on the exchange rate that is
applicable. the transfer of funds takes place in this market. This is one of
the most developed & integrated market across the globe.

CREDIT MARKET:

Credit market is a place where banks, FIS & NBFCs purvey short-
medium & long-term loans to corporate & individuals.

Such a segregation’ of the financial market into various such-group has


enhanced the efficiency of resource allocation. Each market is unique in
terms of the nature of participants, instruments ‘etc. An insight into the
28
operations of these markets can be obtained in the subsequent lessons
of this book. Within The above mentioned sub-markets, based on the
transactions. the financial markets can further be distinguished into an
Open Market or a Negotiated Market. The basic distinction between
these two types of market based on how the securities are bought &
sold. In an open market, he securities will be offered to a large !lumber of
times before the maturity period. The public issue of securities takes
place in an open market. On the other hand. he negotiated market will
have ‘Only a selected group of investors to whom the securities are
offered & sold. It will generally be a private contract between the seller &
the buyer. A bought-out deal & a car loan are good example of tile
negotiated market.

Yet another useful & important distinction between markets in the


financial system is the Primary Market & the Secondary Market. Then
primary market is a place for the fresh issue of securities, Corporate
banks, Fls & GOVT. can issue new securities & raise funds for
investment purposes.

The transactions. involving the securities issued m the primary market


take place in the secondary market. Thus secondary market deals in
securities previously issued in the primary market & thereby provides
liquidity to the Investors, Investors can either by securities that are
already issued or sell securities held by them in the secondary market on
a coonhounds basis to this volume of transactions taking place in the
primary market. Except for the capital market, the other sub-markets
present market or their operations in the financial system either do not
have a secondary market transactions of the capital market take place
,at the stock exchanges. All securities that are issued in the primary
market will have to be listed on the stock exchange to enable trading
activity. The secondary market helps in and taking Maturity
Intemediation, by bringing together savers & users with conflicting
maturity targets. Unlike the open & negotiated markets, the primary &

29
secondary markets complement each other, The primary & secondary
markets are so closely interlinked that the level & the nature of
operations taking place in one market affect the other. For instance, if
the price of a security issued by a particular co. is high in the secondary
market, its impact will be left on the primary issued of that co.

To prevent maintenance of idle funds, there should be proper avenues to


deploy them. Similarly, funds should also be available to tackle short-
term liquidity crisis. These short-term fund requirement of the
individuals/corporate houses were initially. met by small time tenders or
consortium lenders. This transfer of short-term funds in the unorganized
sector could not. however, meet the rising volume of transactions & also
the quantum of funds required. This paved the way for the evolution of
Money Market, a formal financial market that deals with short-term fund
management

MONEY MARKET PLAYERS

By nature, the transactions that take place In the money market are to of
high volumes, involving large amounts. Due to this, the market is
dominated by a relatively small number of large players. Given below is
the list of intermediaries participating in the money market.

• Government
• Central Bank
• Banks
• Corporates
• Financial Institutions
• Other Institutional Bodies-MFs, FIIs. etc.
• Discount Houses & Acceptance Houses
• Market Makers (Primary Dealers & Satellite Dealers, etc.)

Though there are a few type of players, the role & the level of
participation by each type of player in the money market differs greatly.
Further the institutional nature of operators indicates that the money
market is a wholesale market. Govt. is an active money market player, &
30
Utmost economies, It constitutes the biggest borrower of this market.
The need for the Govt. to borrow funds arises mainly when the budgeted
expenditure goes beyond the budgeted revenue. To adjust this budget &
deficit, the Govt. generally issues securities in the money market &
raises. funds. Apart from this regular deficit adjustment which the Govt.
tries to tackle, there could still be cel1aln short-term adjustments which it
would be making. For instance, consider the advance tax receipts of the
Govt. In anticipation of these cash inflows, it incurs expenses thus
creating a deficit. This deficit will later be adjusted with the advance tax
receipts. Further Govt. also issues other securities of varying maturities
to adjust its deficit borrowing.

The Central Bank of a co. generally operations in the money market on


behalf of the Govt. It Issues Govt. securities based on the present & the
further requirement of the Govt. & the market condition. In certain cases
it also underwrites the issues of the Govt. Apart from functioning as a
merchant banker to the Govt., the central bank also dones upon itself
the role of a regulator of the money market & issues guidelines to
govern the money market operations & operator. It Is through these
regulations, that the central bank keeps a vigil on the money market
activities. Such regulatory mechanism becomes essential especially
since the implement of the money market is felt on the economy as a
whole & on money supply & interest rates in specific. One of the most
significant segments of the money market players is the banking
industry. Banks mobilize deposits & utilize the same for credit
accommodation. However banks are allowed to use the entire amount
for extending credit Most of the developed economies/markets, in order
to promote certain prudential norms for healthy banking practices,
require all banks to maintain minimum liquid & cash reserves. Thus,
banks should first ensure that these reserve requirements are met
before deciding on their credit plans. If banks fall short of these

31
statutory reserve requirements, they can raise the same from the
money market since it is a short-term deficit.

Some times, it so happens that the banks receive certain attractive loan
proposals but do not have the fund for Immediate disposal. In such cases
also, banks will tap the money market to make temporary adjustment of
fund for the loan. Further, banks also lend their short-term surplus funds
into the money market rather than keeping them idle. The collective
operations of the banks on a day-to-day basis are particularly
predominant & hence have a major impact on the interest rate structure.
& the money position.

Like banks, financial institutions also undertake lending & borrowing of


short-term funds. Due to the large volumes those Fis transact in, they
have a significant impact on the money market.

Corporates also transact in the money market mostly to raise short-term


funds for meeting their working capital requirements. This segment partly
utilizes both the organized & the unorganized sector of the money
market. Money market operators also include other institutional player
viz. Mutual Funds (MFs). Foreign Institutional Investors (FIls) etc. The
level of participation of these players varies largely depending on the
regulations. For instance, the level of participation of the FIls in the
Indian money market IS restricted to investment in Govt. securities only.

MONEY MARKET INSTRUMENTS

With a brief overview of the need for or the money market and the major
players operating in it. the next aspect that needs to be highlighted upon
is the means of the raising funds from the money market just as any
other financial market, money market also involves transfer of funds in
exchange of financial assets. And due to the nature of the money
market, the instruments used in it represent short term claims.

Through there is no statutory definition for the money market, it is


accepted that the maturity profile of the money market instruments
32
various from clay to one year; thus enabling a short holding period
between entrance and exit. Paving the way for liquidity . At times. the
security may make it a part of the money market even though the
maturity may be beyond a year.

With short term liquidity being the main purpose of the money market,
various instruments have developed to suit these 81mrt term
requirements. For instance the requirement of funds by banks to meet
their statutory reserve will vary from one day to a fortnight. similarly,
corporates may require funds for their working capital purpose for any
period up to a year. Given below is a broad classification of the money
market instruments depending upon the type of issuer and the
requirements they meet.

Government and Quasi-Government Securities:

•Treasury Bills (T-Bills)

•Government Dated Securities Gilt-Edged Securities


Banking Sector Securities:
• Call and Notice Money Market

• Term Money Market

•Certificate of Deposits

•Participation Certificates
Private Sector Securities:
•Commercial Paper

• Bills of Exchange(commercial and trade bills factorization bills) . Inter-


Corporate Deposits investments
• Money Market Mutual Funds

Except fort their debt nature, these securities listed above differ from
each other in their characteristics elating to maturity, issuer, type of the
investor, the risk-return profile, liquidity ,marketability, negotiability,.
transferability, etc. money market instrument however, do not include
33
any equities. Given below is a brief discussion of value is money market
instruments.

Government Securities:

As mentioned earlier, all funds raise by the government from the money
market are through the issue of ‘securities by the RBI. Thus, T-Bills and
Government dated securities are all issued by the RBI on behalf of the
government. Being risk-free securities, they set the benchmark for the
interest rates of the other money market instruments. Through these two
categories of securities are issued by the government, they serve
different purposes while meeting the government’s fund requirement.

Treasury Bill:

T -Bills are issued to enable the. government to tide over short-term


liquidity requirements with maturities varying from a fortnight up to a
year. These Instruments are issued at a discount to the face value. Being
issued by the government they are considered to be risk-free. Due to
this, they are highly marketable. Investors in T-Bills generally include
banks, and others institutional Investors.

Government Dated Securities:

These are’ medium to Icing term government securities. Unlike the T-


Bills which are issued at a discount, these securities carry a coupon
rate. In spite of being long-term instruments, these government
securities form a part of the money market due to their liquidity .As
mentioned earlier the chief characteristic of the money market
Instruments other than enabling short-term fund management ,is to
provide liquidity. And being government securities these dated
securities have fairly high liquidity and hence form part of the money
market. These instrument set it benchmark for that long term interest
rates. Issuers will clearly ,be the central/state government and other
quasi-government bodies while the investor will be banks, Fls, other
institutional investors and individuals.
34
Banking Sector Securities:

The banking system has a very vital and active role in the money
market. The transaction taking place in these securities are large in size,
both bin terms of the volumes traded and the involved in the
transactions. The short-term requirements of banks very from a single
day up to a year for meeting the reserve requirements and credit
accommodation purposes. based on this requirement, various
instruments/markets with differing maturities have developed.

Call and Notice Money:

These funds represents borrowings made for Ii period of one day up to a


fortnight. However ,there exists a difference in the mechanism adopted
or lending funds between the call and the notice money market. In the
call money market, funds are lent for predetermined maturity period that
can range from a single day to a fortnight. However, with identical range
for maturity period I the funds lent motley market do not have a specified
repayment date when the deal is entered. The lender will simple issue a
notice, the borrower will have to repay the funds within the given time.
While both these funds serve the general purpose of meeting reserve
requirements, the reliance of the bank. however is mostly on the call
money market. It is here that it raises overnight money Le. funds for a
single day.

Term Money:

Short-term funds having maturity of 15 days and over are categorized as


term money. Bank access this term money route for the purpose of
bringing greater stability to their short-term deficits. While making a
forecast of the fund requirement, bank will be in a position to assess the
likely surplus and deficit balances that are to occur during the forecasted
period. In view of such forecast, bank assess the amount that needs to
be borrowed/lent in order to prevent any sever liquidity mismatch.

Certificate of Deposits (CDs):


35
Banks issue CDs to raise short-term funds having a maturity of 15 days
to 1 year. These instruments are issued for deposits of
individuals/corporate/institutions, etc. These are issuance promissory
notes. which require the holder to establish identity before redeeming the
amount. Being negotiable instruments they are easily transferable. They
are issued at a discount to face value. The funds raised through
certificate to deposits form a part of the deposits and hence attract
reserve requirements.

Participation Certificate (PCs): 00

The major activity of a bank is credit accomn1odation. This service of


the banks, apart from increasing the risks, may place the bank If! a tight
liquidity position. To ease their liquidity, banks have the option of
sharing their credit asset(s) with other banks by issuing participation
certificates. These credits are also known as interbank participation
(IBPS). With this participation approach, banks and its come together
either on risk sharing or non-risk sharing basis. Thus, while providing
short-term fund. PCs can also be used for risk reduction. The rate, which
these PCs can be issued, will be negotiated and depends on the interest
rate scenario.

Private Sector Securities

Commercial Papers (CPS): CPs are promissory notes with fixed maturity,
issued by highly rated corporate. This source of short-term finance is
lisped by corporates as an alternative to the bank finance for working
capital.corporatl3s prefer to raise funds through this route when the
Interest than rate at which funds can be issued through this route when
the interest than the rate at which funds can be raised through CP.The
maturity period ranges from 15 days to 1 year.

Bill of Exchange: It is a financial instruments that facilities funding of a


trade transaction. It is a negotiable instrument and hence is easily
transferable. Further, depending on the repayment period and the

36
documents attached, these bill of exchange are classified into different
types. The period for which these bill are drawn generally ranges
between 1-6 months.

Factorization BiIls: This is arising due to factoring of the bill of


exchange. Factors who area generally banks or Fls, purchase the
bills from the creditors with or without a, recourse facility and collect
the dues from the debtors. The market for factorization of ‘ bills
depends on the level of activity in the bill market.

Inter Corporate Investment/Deposits (ICDs): Yet another source of


raising funds that’s the corporate generally adopt is the ICDs market.
Here the borrowers and the issuers will be corporate. The interest
rates of these instruments are generally higher than the other short-
term sources since the risk is higher.

Money Market Mutual Funds (MMMFs): Since the operations in the


money market are dominated by institutional players, the retted bestors
participation in the market seems to be limited. To overcome this
limitation, the MMMF provides an avenue for the retail investor to invest
in the money market. Retail investor normally deposits short-term surplus
funds into a saving bank account. the returns from which are relatively
low. By investing in the money market through MMMF the returns earned
will be higher than what is obtained by depositing in a bank. Further, this
also provides adequate liquidity and the investor can plan for short term
deployment of funds. The safety level of these funds will also be high
since the investments will generally be high quality securities i.e.
government/bank/highly rated corporate securities. MMMFs represents a
low-risk and high-returns avenue to the retail investor in the money
market.

Why Treasury forms an integral part of a banking system?

A bank is an institution which deals with money an credit. It accepts


deposits from the public makes the fund available to those who need

37
them and helps in the remittance of money from one place to another. In
fact a modern bank performs such a variety of functions that is difficult to
give a precise a general definition to it. Banking is just like business. A
prudent banker acts like an intelligent businessmen whose also aim and
objective is profit maximization. The bank has to solve the problem of
portfolio management i.e. It has to manage its assets and liabilities in
such away that profits are secured without loosing liquidity and solvency.

Hence it is the objective of deployment of surplus fund in profitable


avenues that has led to the establishment of a Treasury Management
Cell (TMC) in every bank. The TMC shall purchase and sale securities
subject to the provision of the rules and guidelines of Reserve Bank of
India issued from time to time ,in this regard. It shall also make market
borrowing depending upon the requirement of the days to attain the
objective of the constitution.

The treasury management cell can classify the investment portfolio


as

Held to maturity:

The TMC will earmark the securities required for the purpose of
maintenance of SLR as per the approval of the managing committee from
time to time based on the NDTL position of the bank. The security under
this are considered to be permanent category of investment.

Available for sale:

38
The TMC shall classify the securities under this category which are
available for trading in the market through brokers.

Marked to market:

These are of the category which are available of the trading .The
securities under this head shall be considered as current category of
investment.

In trading with the securities in the market,the banks make dual income.

• Fixed interest

• Trading profit over and above the fixed interest.

The banks able to earn profit due to the market rate movements. The
past data on market rates of investments are depicted in an yield curve.
Yield curve is nothing but the graphical represents of yields of a security
across a time span.

39
CHAPTER-IV

TREASURY OPERATION IN OSCB

40
TREASURY OPERATION IN OSCB

OSCB has established a Treasury Management cell(TMC) during the


year 2001 with the objective of deployment of its surplus resources in
profitable avenues & trading in Govt. & other securities in money market.
The bank has installed Reuter Business watch facility to get online data
from the securities market. The TMC is managing a portfolio of
Approximately 600 Crores which is subject to a variation on a day basis.
In the era of financial liberalization and consequent fall in interest rates
the G-SEC market holds the key for profitability in the banks. Orissa
State Co-operative bank. has been performing its treasury operations
subject to certain well defined rules of the bank.
THE ORGANISATIONAL SET UP

The treasury management cell functions as an independent of the bank


& report to the Managing Director through the Chief General Manager.
The following officers shall be posted to the cell to deal in Govt. & other
securities.

1.One officer not below the rank of Deputy/General Manager-chief


Dealer.

2.One officer not below the rank of Manager.

3.One officer not below the rank of Manager-sub Dealer.


DUTIES AND RESPONSIBILILITIES OF ABOVE FUNCTIONARIES
CHIEF DEALER

1.He shall remain on overall charge of the TMC.

2.He shall make periodical review of the investment position both inside
& outside the CSGL A/C & shall apprise the same to Managing Director.

3.he shall sign all the Deal settlement sheets arising out of Treasury
management.

4.At the day end, he shall place all the settled during the day before the
Managing Director for his proposal & approval.

41
DEALER

1.He shall place before the Chief Dealer daily founds position of the
Bank with reference to maintenance of sir & indicate the NDTL position
of funds at the opening of the day.

2.He shall watch market rate of securities through Reuter Business


Watch online & place the rate of securities before the Chief Dealer in
prior consultation with the SGL A?C holders(Primary Dealer) along with
his suggestion & the Chief Dealer, after examining the Marketability,
Duration ,Yield to maturity & premium to be paid etc. will take instant
decision for purchase of GOL securities.

3. He shall download the market price available from the Reuter


Business Watch (indicative) & record the negotiated price with the SGL
A?C holders & keep the same under his sustody for future reference.

4.He shall obtain deal settlement sheets from the SGL A/C holders on
the same day & ensure maintenance of up to date A/Cs the CSGL A/C.

5.He shall place the statement of CSGL AIC holder before the Chief
Dealer for review & reconciliation on a fortnightly basis.

6.For deployment of daily cash surplus, he shall contact the SGL AIC
holder to ascertain daily call money market rate & shall remit the
available surplus cash in consultation with Chief Dealer For investment in
call money market.

7.ln case of requirement of funds. he shall also contact the SGL AIC
holders for borrowing from call money market in consultation with the
Chief Dealer & borrow maintaining all formalities.

8.For deployment of seasonal surplus funds, he shall contact the local


Commercial Bank/Private Bank & invest/with draw along with renewal
considering the market trend & future requirement of fund of the Bank in
consultation with the Chief Dealer. .

42
9.He shall be held responsible for collection of proceeds of securities,
Treasury Bill etc. on the due dates.

10.He shall remain in overall change of the collection of the investment


portfolio of the Bank subject to control of the Chief Dealer.

11. He shall ensure collection of half yearly interest on the securities


purchased through CSGL A/C & securities pledged with RBI & NABARD
& held with other Banks.

12. He shall attend to all other duties as may be. assigned by the Chief
Dealer from time to time.
SUB-DEALER

1.Sub-Dealer shall maintain all records of daily transaction & prepare


vouchers according.

2.ln absence of the Dealer, he shall exercise the powers of the dealer
subject to control under Chief Dealer. 3. HE shall attend other duties
relating to TMC as may be assigned by the Dealer & Chief Dealer.
INVESTMENT COMMITTEE

An investment committee comprising the following the Officers of the


Bank shall monitor & review the functioning of the TMC on a monthly
basis & approve the if any incurred through any of the individual
transactions enter into by the cell.

1.Managing Director-Member

2.Chief General Manager-Member

3.One General Manager-Member


The investment committee shall meet every 1 st Monday every month or if
the Monday falls on a holiday, on the next working day at 4 p.m. in the
Chamber of the activities of the TMC & approve all the deals.(indicative).

43
The Chief Dealer shall produce all the relevant record & an analytical
note on the functioning of the preceding month before the investment
committee before 11 A.M. of the said date.
TYPE OF INVESTMENTS

The following investments shall be traded by the TMC.

TRADABLE SECURITIES
1. Govt. of India Dated Securities.
2. State Govt. Securities.
3. Govt. of India Treasury Bill

4. Bonds, & securities of Financial Institution & PSUs approved under


sec.20 of Indian Trusts Act 1882.

5. Certificate of deposits(CDs).

6. Approved Debentures & Bonds.

NON-TRADABLE SECURITIES

1.lnter Bank Deposits with Approved Banks.

2. Call Money Instruments including Market Borrowing from approved


sources to meet the Fund Requirement for dealing in securities & for
other purposes.
PERMITTED CATEGORIES TRANSACTIONS

The TMC shall transact in the tradable & non-tradable securities


categorized in the type of investment. The TMC shall purchase & sale
securities subject to ,the provision of these rules an guidelines of the
Reserve Bank of India issued from time to time in this regard. The TNC
shall also make market borrowing depending upon the funds requirement
of the day(s) to attain the objective of its constitution.

44
CLASSIFICATION OF INVESTMENT PORTFOLIO
The TMC shall classify the investment portfolio as under
1.HELD TO MATURITY

The TMC shall classify the investment under this category & earmark
the securities required for the purpose of maintenance of SLR as per the
approval of the managing committee from time to time based on the
NDTL position of the bank this portfolio shall be reviewed by the
investment committee every month. The security classified under this
headstall be considered as permanent category of investment.
2.MARKED TO MARKET

The TMC shall classify the securities under this category beyond
the SLR requirement of bank which will be available general for trading.
However, keeping in view the “Held to Maturity Category” duly approved
by the managing committee of the bank. The securities classified under
this head shall be considered as current category of investment.
3.AVAILABLE FOR SALE
The TMC shall classify these securities under this category beyond the
“Held to maturity & marked to market” category which will be available for
trading in the market the market through the Broker(s). .
QUALITY CONSIDERATIONS

The TMC shall take prudent decisions on the market trend available
through Reuter Business Watch or other sources which shall be
documented. The quality of the investment shall be decide on the basis
of the basis of analysis of the market situation & information received
from different Brokers & Bankers. The relevant, data shall be
downloaded from the Reuter Business Watch & all the records pertaining
to the trading decisions & investment committee shall record transactions
for review.

45
OPERATIONS IN THE TREASURY MANAGEMENT CELL

For entering into a deal for purchase or sale of a security, the dealer
contacts over telephone different banks and primary dealers who are
active in the money market and obtains quotes from them which is then
verified from the Reauter business terminal installed in the bank. Deal is
executed with the bank or Primary dealer who offers the best rate and
deal slip is prepared accordingly and sent by FAX to the counter party
and a copy of the same is also send to the CGSL account holding
bank ,Le., ICICI Bank for entering the deal in the National dealing
system(NDS).The counter party then sends a deal confirmation slip to
acknowledge the deal. After the Deal slip is sent, the current account is
debited or credited at the IGIGI Bank depending on the nature of the
deal.
FUND MANAGEMENT

Managing funds of the bank is an important function of the treasury


management cell of the bank. The bank has to maintain CRR @ 5% with
Reserve Bank of India. The treasury management cell deploys surplus
fund in different avenues available to derive maximum return.
MAINTENANCE OF RESERVES

The bank maintain an investment depreciation fund (IDRF) premiums &


depreciation on sale of securities shall be charged tome. The bank shall
also contribute from its profit every year an the Managing Committee
from time to time strengthen this reserve.

OPERATIONAL GUIDELINES

Delegation of powers for dealing in securities(indicative)

1.. On the basis of available market, the dealer shall enter the deal for
purchase of securities up to Rs. 5.00 corers & place before the Chief
Dealer for approval.

46
2.The Chief Dealer shall enter into any deal in excess of RS.5.00 Crores
but below Rs. 25.00 Crores per day.

3. Any deal of Rs. 25.00 Crores & above shall be entered into with the
prior approval of the Managing Director. .

A hypothetical example that shows how a deal of securities is entered


between Orissa State Co-operative Bank & ABC bank Ltd :- as follows

47
THE ORISSA STATE COOPERATIVE BANK LTD.
(Scheduled Bank)
PANDIT JAWAHARLAL NEHRU MARG,
BHUBANE4SWAR - 751 001

Dealing Room Ph. No. 0674-2519363, FAX - 0674-2510214


Ref. No. OSCB/TMC/01 Date: 22/06/2010
Kind Attention:
FAX No. 022-56672779/26531164, .
033-22832302,0674-2520096
022-56661432

TO

ICICI BANK LTD.


MUMBAI
DEAL CONFIRMATION

48
We hereby confirm our outright purchase of GOI securities on the terms
detailed below :
1. Party ABC BANK LTD.
2. Security 7.37% GOI 2014
3. Coupon rate 7.37%
4. Maturity date 16/04/2014
5. Interest payment data 16/04, 16/10
6. Deal date 22/08/2005
7. Settlement date 23/08/2005
8. Face value 5,00,00,000.00
9. Price % 102.15
10. Amount payable Rs.5,10,75,000.00
11. Accrued interest (127 days) Rs.12,99,836.11
12. Total settlement amount payable Rs.52274836.11
13. Settlement mode
14. Our current A/c No.2 with ICICI Bank NDS deal through
Bhubaneswar to be debited on collection CSGL A/c with
of Rs.250.00 as fees along with clearing ICICI Bank, Mumbai
corporation charges
15. PAN number
16. Broker AAAA00069N
Direct deal

This contract is made in accordance with the relevant rules and


regulations governing such transactions.
Xyz

Dealer Authorised Signatory

49
SOURCES AND USES OF FUND
Funds comprising paid up capital and Reserve, Deposits and borrowings
are the main resources of the Bank. A major chunk of these resources
are deployed in loans and advances to the affiliated CCBS, member
societies and individuals for different purposes under farm and non-farm
sectors. The statutory investment requirement under BR Act and RBI Act
are met by, investment in Central/State Government Securities and other
approved Trustee Securities and maintaining in current account with RBI
respectively. Seasonal invisible surpluses are deployed in call money
market to maximize the yield on assets. Besides remaining vigilant over
judicious deployment of funds, the bank has been making concerted
efforts to bring down the level of non-earning assets of the bank to
increase the financial margin.

A detailed account of the sources and uses of funds for the last three
years is presented in the following table.
Sources : Rs. In lakhs
Sl.No. Particulars 2007-08 2008-09 2009-10
1. Share capitals 4958.32 5168.62 6437.98
2. Reserve Fund 13917.91 16749.31 18492.47
3. Own Fund 18876.23 21917.93 24930.45
4. Deposits 102601.38 107850.94 121315.98
5. Borrowings 75573.56 69151.18 95434.17
6. Other Liabilities 15997.65 15718.68 22081.38
Total 213048.83 214638.73 263761.98

Position As on 31.03.20010 (Rs. In crore)


Particulars Amount % of total working capital
Share capital 64.38 2.44
Reserves 184.92 7.01
Deposits 1213.16 46.00
Borrowings 954.34 36.18
Other liabilities 220.81 8.37
Total 2637.61 100.00

Sources of Funds
50
From the details stated above, it may be observe that total
resources mobilized, by the bank during the year 2009-10 amounted to
Rs.2637.61 crores as against Rs.2146.39 crores during the year 2007-
08. The proportion of contribution from the various sources is analyzed
over reaf.

Proportion of contribution from various sources to Total funds of


the bank :
Head of Account % to contribution to Bank Resource
Particulars 2007-08 2008-09 2009-10
a. Paid up capital 2 3 2.3
b. Reserves 7 8 7.0
1. Own funds (a+b) 9 11 9.5
2.Deposits 48 50 46
3.Borrowings 35 32 36
4.Other liabilities 8 7 8.5
Total 100.00 100.00 100.00

The source wise mobilization under various part foils is analyzed


below.

Share Capital

Composition of paid up share capital of OSCB.


Particulars 2007-08 2008-09 2009-10
Paid up share capital 4958.33 5168.62 6437.98
Of which Govt. share 13917.72 1397.72 1397.72
capital
% of Govt. share capital 28% 27% 22%
to total share capital
Growth rate of share 13% 5% 24.55%
capital over previous rate

51
The members and break-up of share holding is as under Reserves

Since inception, the Bank has not only achieved the bank even
never but also attained sustainable viability. As a result, the Bank
continued to buried up its Reserve of Funds as per the provision of the
bye-laws. The total reserves at the end of 2009-10 stood at Rs.18492.47
lakhs as against Rs.16749.31 lakhs in 2007-08

Year wise composition of reserve of funs of the Bank from 2007-08 to


2009-10 and growth over the previous year’s position are indicated
below.

Rs.in lakhs

Types of 2007-08 Growth 2008-09 Growth 2009-10 Growth


Reserves % % %

Statutory 1402.90 23% 1744.30 24% 2048.61 17.5%


Reserve fund

Agril credit 3297.40 13% 3591.72 9% 3829.43 7%


stabilization
fund

Other Reserves 9217.61 25% 11413.29 24% 12614.43% 10.5%

Total 13917.91 22% 16749.31 20% 18492.47 10%

Growth Rate Reserves

Year Amount Amount wise increase Percentage of


over last year growth

2007-08 13917.91 2482.89 21.71

2008-09 16749.31 2831.40 20.34

2009-10 18492.47 1743.16 10.40

52
Deposits

During the year under report, the Bank courd mobilize an


appreciable quantum of deposit of Rs.121315.98 lakhs in 2009-10 as
against rs.107850.94 lakhs at the end of the year 2008-09 regretting a
growth rate of 12.48%. It has computerized its operations to provide
efficient and effective custom service.

Comparative position of the deposit of the Bank over last 3 years


along with the growth rate over previous years is indicated over rent
:

Deposit position of OSCB for last 3 years

Year Total deposit Amount of increase Percentage of


over previous year growth

2007-08 102601.38 13988.89 16%

2008-09 107850.94 5249.56 5%

2009-10 121315.98 13465.04 12.5%

(B) Deposit-Mix of OSCB from 2003-04 to 2005-06


Sl. Types of 2007-08 % to 2008-09 % to 2009-10 % to
No. deposits deposits deposits deposits deposits deposits deposits
1 Current 4763.07 4.64 4249.02 3.94 4089.86 3.37
deposits
2. Saving 4756.91 4.64 4489.49 4.16 4132.30 3.40
bank
deposits
3. Term 93081.40 90.72 99112.43 91.90 113093.72 93.23
deposits
Total 102601.38 100.00 107850.94 100.00 121315.98 100.00

53
3.37 Current deposits

3.4
Saving bank
deposits
Term deposits

93.23

From the foregoing tables it would be seen that in 2007-08, the demand
deposits formed 6.77% and the time deposit i.e. from deposits formed
93.33% of the total deposit. The bank is making concerted efforts to raise
the row cost deposits by opening more branches, extenuation counts and
improving customer services. Total branch automation (TBA) and
installation of ATM for providing any time and anywhere banking have
helped the bank in a big way to current deposit resources.

(C) Ownership of the bank from 2007-08 to 2009-10


(Rs. In lakhs)
Sources 2007-08 2008-09 2009-10
Amount % of Amount % of Amount % of
total total total
deposit deposit deposit
CCB 62917.10 61 62507.15 56 62118.13 51
Other 16510.06 16 14592.97 14 13507.26 11
crop
Individual 23174.22 23 30750.82 28 46190.59 38
Total 102601.38 100 107850.94 100 121315.98 100

54
38
CCB
Other coop
51
Individual
11

From the above analysis, it is observed that individual deposits


constitute 38% of the total deposits as at the end of 2009-10 and we
have to our functioning to achieve the targeted never of 40%.

(D) Deposit of CCBs/PACs

As the refer of coop. Credit movement in the state, we have


always tried to foster the case of our constituents and helped them in
developing their resource base. We have provided financial assistance to
the CCBs/PACs to open new branches including Mahira Branches to five
face rift to the existing branches and create infrastructure facilities at
PACs for consideration of the Mini Bank scheme.

55
Borrowings

In order to meet the demand of credit at grass roots revere, the Bank
continued to borrow from RBI, NABARD and State govt. The total
borrowing and outstanding from are sources amount to Rs.95434.17
lakhs as on 31 st March 2010 as against Rs.69151.18 lakhs as on the
corresponding date of the previous year. The borrowings formed 36% of
the working capital on 31.03.2010 against 325 on 31.03.2009

Total borrowings from different sources raised by the Bank during last 3
years wrong with growth rate over previous year are given below.

Year Total amount Increase in Growth rate


Borrower from amount over
sources previous year
2007-08 75573.56 (+)16,992.78 29%

2008-09 69151.18 - -

2009-10 95434.17 (+) 26282.99 38%

Sector-wise Borrowings from NABARD, RBI State Govt. and NCDC


during last three years
Particulars Borrowing from 2007-08 2008-09 2009-10
NABARD
STSAO
Short Term (SAO) 30637.56 30589.78 33665.03
Short Term (OPP) 2190.00 1944.71 23000.00
ST/DTP 7431.00 7957.65 9202.50
Total (SAO) 40258.96 40492.14 45167.53
ST Handloom
CCB for mkg. and Production of 1753.85 1915.09 3559.56
cloth
Demand loan from NABARD 4808.70 4836.15 5300.00
Total ST Borrowing from NABARD 46821.51 47243.38 54027.09
MTC/RMTC 13265.09 9700.23 16011.62
MT Farm Sector 1880.80 1637.53 3822.66

56
MT Non Farm 6253.96 3930.00 8072.79
LT farm sector 2339.93 120.92 3503.79
LT Nonfarm sector 4558.88 4097.75 6026.99
TOTAL NABARD Borrowing 75120.17 66771.81 90664.52
RBI Demand Loan 500.00 1200.00
Loan from state Govt. including 376.53 426.73 531.34
World Bank Assistance
Loan from NCDC/ SIDBI/Other 76.86 1512.64 3038.31
Inst.
Grand Total 75573.56 69151.18 95434.17

Short Term Borrowing

a) From the Reserve bank of India :

Credit accommodation of Rs.1200.00 lakh was sanctioned by the


Reserve bank of India against pledge of Government securities for
meeting the emergencies of general Banking operations. During the year
under report, the Bank borrowed Rs.2400.00 lakh against the limit and
repaid Rs.1200.00 lakh learning Rs.1200.00 lakh outstanding as on
31.03.2010.

b) NABARD continued to be main refinancing agency of the bank


during the year 2007-08 and total borrowing outstanding from them
under Short Term stood at Rs.54027.09 lakh constituting of Rs.90664.52
NABARD.

Short Term Agricultural borrowings from NABARD for seasonal


Agricultural Operation :The operation on SAO limits were as under:

57
Rs. In lakhs

Borrowing Drawls Repayment Borrowing


O/S as on during 2008- during 2007- O/s as on
31.03.2009 04 05 31.03.2009
SAO 30589.78 33665.03 30589.78 33665.03
OPP 1944.71 2300.00 1944.71 2300.00
DTP 7957.65 9202.50 7957.65 9202.50
Total 40492.14 45167.53 40492.14 45167.53

A comparative position of utilization of NABARD SAO limit from 1996-97


to 2007-08 is as under.

NABARD sanctioned ST (SAO) credit limit Rs.40879.52 lakh in favour of


13 Central Co-operative banks for the year, 2009-10 for financing crop
loan including special line of credit under OIL-SEEDS Production
programme (OPP) and development of tribal population (DTP) amounting
to Rs.2480.00 lakh and Rs.8070.59 lakh respectively. OPP limit was
sanctioned in favour of 10 CCBs whereas the limit for DTP was
sanctioned in favour of 7 CCBs.

UTILIZATION OF NABARD LIMIT OPERATION OF DEMAND LOAN


ACCOMMODATIN SANCTIONED BY NABARD AGAINST PELDGE OF
GOVT./ TRUSTEE SECURITIES

A demand loan limit of Rs.5500.00 crore was sanctioned by NABARD


during the year 2007-08 against pledge of Govt. and other Trustees
securities for financing Seasonal Agricultural Operations. The details of
operation on the limit during the year under report are furnished below:

Limit Sanctioned 5500.00


58
Outstanding at the beginning of type 4836.15
year (on 01.04.2009)

Drawals during the year 5300.00

Repayments during the year 4836.15

Outstanding as on 31.03.2010 5300.00

Borrowing from NABARD for financing production and marketing of


Handloom cloth on behalf of CCBs.

For financing the Weavers’ Coop. Societies for production and marketing
of handloom fabrics, NABARD sanctioned a credit limit of Rs.1960.49
lakh on behalf of 8 CCBs.

Against the limit, Rs.3559.56 lakh was availed and Rs.1915.09 lakh was
repaid during the year, leaving a balance of Rs.3559.56 as on
31.03.2010.

Comparative position of the limit sanctioned in favour of DCCBs and


operation on the limit during the last three years are furnished here
under.

Year Credit limit Drawals Repaymen Outstandin Maximum % of


sanctioned during the ts during g at the outstandin utilization
during the year the year end of the g
year year

2007-08 1978.52 1753.85 1559.86 1753.85 1753.85 89%

2008-09 1960.49 1915.09 1753.85 1915.09 1915.09 95%

2009-10 3583.59 3559.56 1915.09 3559.56 3559.56 99%

59
Borrowings from other institution

The total borrowing outstanding as on 31.03.2010 from different


institution are given below.
Sl.No. Name of the Institution Outstanding as on 31.03.2010
1. NCDC 22.09
2. SIDBI 16.22
3. DFHI 3000.00
4. Maharastra SCB -
Total 3038.31

Borrowings from NCDC :

Bank was implementing IDA assisted NCDC-I and NCDC-II godowning


projects form February, 1985 to June 1992 for construction of rural
godowns for PACS/RCMS/OSCMF/TDCC, etc. The total borrowing
outstanding from NCDC as on 31.03.2010 remained at 1512.64.

Other liabilities

Other liabilities of the bank remained at Rs.22081.38 lakh as on


31.03.2010 as against Rs.15718.68 as on 31.03.2009 other liabilities
includes reserves against overdue interest, payable and other sundry
liabilities.

USES OF FUNDS

Sl.No. Particulars 2007-08 2008-09 2009-10


1. Cash and Bank branches 7370.02 7457 7497.30
2. Money at cor. 20864.86 8350.59 8033.38
3. Investments 62054.72 59744.52 71145.27
4. Loan and advance 109908.08 127898.44 168220.52
5. Fixed assets 12087.49 10441.54 8167.30
6. Other Assets 12087.49 10441.54 8167.30
Total 213048.83 214638.73 263761.98

60
The Bank had maintained cash and bank borrowing of Rs.7497.30
lakhs to meet the statuary requirements and other business returned
activities with RBI and other nationalized bank.

Similarly the above figure shows different of uses during previous


3 years.

Profit earned from present management cell

Year Bank Net Profit(Rs in lakh)

2007 – 08 1347.51

2008 – 09 1744.43

2009 – 10 1969.39

61
CHAPTER-V

ANALYSIS AND INTERPRETATION

62
• The treasury management cell of the Orissa State Co-op Bank has
done exceedingly well in the context of profitability of the bank. It is
evident from the fact sheet of net profit the bank earned during the
year of assessment that only because of the TMC, the Bank could
earn net profit. The turn over of securities traded in the treasury cell is
quite praise worthy. Despite the fact that the prevailing situation in the
money market in the country was not so lucrative the bank has
earned trading profit, which is comparable to any new generation and
PSU banks.

• The bank has also earned commendable amount of interest in call


investment and inter bank deposits. This indicates that the bank has
deployed its funds in most profitable way to maximize the available
resources.

• The bank has also never failed to comply the CRR requirements as
stipulated by Reserve Bank of India. This also indicates the effective
and prudent cash management of the bank, which forms one of the
most important functions of the treasury management cell.

• The bank has collected coupons from different investments in due


time which has contributed to continuous investment opportunity.

• The Orissa state co-operative bank is one of the first bank in apex
Co-op Banks to constitute a treasury management cell to maximize
the income from deployable resources.

• The bank has been able to adhere to the stipulations laid down in the
investment policy of the bank. The exposure limits for different
investment portfolios are as follows.

At the time of investment the treasury management cell officials have


ascertained that the security shall be a prudent investment opportunity
both in short and long term. The two most important factors in
determining the same has been followed which are described below.

63
1. Yield to maturity- for long term holding in HTM Category

2. Current yield- for short term investment

IDRF

In order to safe guard the investment portfolio against any fluctuations


in interest rates and fall in price of securities an investment
depreciation reserve fund is created by the bank. Bank is ensuring to
make the IDRF sound and healthy. Profit earned during the year is
transferred to the IDRF for’ consolidation of the IDRF. The project was
conducted to have an indepth study of the functioning of treasury
management cell in OSCB. After the financial sector reform there have
been significant changes in the banking sector in totality. Govt. aided
cooperative banks had to face the stiff competition from other
commercial banks and foreign banks. Orissa State Cooperative Bank
was fast enough to understand the magnitude of the competition from
other commercial bank. In order to maintain the top position among all
banks in Orissa and to boost up its profitability the bank has set up a
Treasury Management Cell in the year 2001.During the period 2002 -~
it has shown significant profit returns. On an average TMC has enter a
profit of Rs. 9.50 crores during this period.

The TMC of OSCB is efficiently functioning under a group of expert


personnel, who can really the pulse of the market.

In the present day complex would with changing circumstances


multiplicity of risk and fluctuate in exchange rate, Treasury Management
has evolved as an important function which needs to be explored to the
fullest. So as to deploy all its resources in profitable avenues.

Time was really short but still I had an enriching experiences during the
course of my project. The summer project gave me great insight on the
competitive market and the measure market players in the banking
sector. The project provided me with much of practical knowledge that
will definitely help me when I will commence my service career.
64
SUGGESTIONS
.
Several suggestions can be given for the benefit of OSCB.

The OSCB should introduce corebaking system as has been


introduced by many commercial banks nowadays. This will significantly
increase the OSCB’s banking operations

The OSCB is the chief source of finance to the DCCBs and PACS.
It has been observed that finances to some DCCBs and PACs have not
been sufficient. OSCB should look into this matter and rectify the same.
Despite the main role played by OSCB in financing agriculture in
Orissa, Many people still rely heavily on commercial banks, because they
are not aware of the banking facilities of OSCB s DCCBs. The OSCB,
thus, should advertise for itself to make itself familiar with the rural
masses

ATM service has become the fashion of the present banking


operations’. Of course OSCB has not been left behind. It has installed its
ATM counters to offer easy money withdrawal service but they are very
limited in number and far less than sufficient. Thus it should install more
A TM counters.

Last but not the least OSCB should justify its base line ‘we build
relationships’ it should truly, in practice, build relationships with the
public and take the banking services to their door step.

65
CONCLUSION

Thus, it can be concluded that the treasury management function has


been strictly followed at Orissa State Cooperative Bank (OSCB). The
treasury management cell at OSCB has properly planned, organized and
controlled cash and borrowings so as to optimize interest and currency
flows and minimize the cost of funds. Also it has planned and executed
communications programmes to enhance investors confidence in the
firm. OSCB’s net profit is on the rise, thanks to the proper treasury
management. However, there should not be any complacency and OSCB
should try to bring in more discipline with regard to its treasury
management function.

66
BIBLIOGRAPHY

Books Consulted
Treasury Management – ICFI
RBI Bulletin
S.V. Vasudevan, Theory of Bank, Marhotra, Rural Banking.
Financial Management by Khan & Jain.
OSCB Monthly journal
Websites Visited
www.treasurymanagement.com
www.oscb.coop
www.rbi.org

67

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