CHAPTER: 1 TREASURY MANAGEMENT

What is Treasury Management?

Treasury management is the management of an organizations liquidity to ensure that the right amount of cash recourses are available in the right place in the right currency and at the right time in such a way as to maximize the return on surplus funds, minimize the financing cost of the business, and control interest rate risk and currency exposure to an acceptable level. In brief, treasury management is the efficient management of the financial risk and liquidity of the business.

Function of Treasury Management

1. To maintain the liquidity of business It is the main function of treasury management to maintain the liquidity of business. Without proper liquidity, it is risk for business to operate smoothly. By using cash flow analysis and working capital management. Treasury officer make good ratio of liquid assets and liquid liability. 2. To Minimize Currency Risk In above example of Google Inc. business, I have already explained that it is the function of treasury management to minimize the currency risk. For this, treasury managers touch with currency market of world. They analyze the reason of crisis in currency market. Sometime this crisis will be benefited for them because they have to pay less to other country for getting their service at cheap rates. 3. To provide quick finance to Company It is also function of treasury department to supply quick finance to company, when it needs the money. For this, a good network in financial market is required.

Structure and Organization of treasury management:

Share holders

Board of Directors

Chief executive officer/ Managing officer

Vice presedent/ Director(Finanace)

Treasurer

Controller

Cash Manager

Finance Manager

Tax Manager

Data processing Manager

Credit Manager Cost Accounting Manager Accounts Manager

TREASURER
FUNCTIONS OF TREASURER 1. Funding: The TREASURER has the responsibility of exploring and selecting best source of finance for finding long and short term cash requirements for the business. While determining the best source of finance, the treasurer must take various matters into consideration like debt structure of the organization, structure of the debt portfolio, and advantages and shortcoming of short-and-long term financing, etc. 2. Working Capital Management: The goal of the working capital management is to maintain good balance between current assests and liabilities as per requirements of the requirements of the business. A good working capital management maximizes the liquidity and profitability of the organization.

3. Better Investor Relation: This involves establishing, strengthening and maintaining better interacting with interested members of the financing and investing community such as: Individual Investors, Institutional Investors, Professional Fund Managers and Foreign Investors etc.

4. Good Banking Relationship: In general, selection of appropriate, desirable and suitable banking services is the responsibility of the individuals responsible for cash management, who fall under the treasury belt.

5. Short-term Investments: Idle cash incurs opportunity costs as time passes. The excessive surplus cash in the business may arise due to various factors such as cyclical, seasonal business trends.

6. Risk(Hedging) and Forex Management: Due to increasing globalization of business, the importance of risk and forex management has been spurring. The international treasurer has to ensure liquidity in foreign exchange funds without compromising profitability.

7. Establishing the Company Policy: Functions of the treasurer, further includes establishing of company policy with respect to decision on trade discounts and vendor payment ageing.

8. Capital Structure Formulation: The treasurer must formulate the capital structure for the organization in accordance to business goals and implement the same. He has the responsibility of taking inappropriate capital structure decision may through the business into irrecoverable losses.

9. Insurance and Tax Planning: A sound tax planning involves utilization of various provisions of the statue that enables the organization to reduce the tax liability without violating the latter and sprit of the law. The treasurer must indentify and undertake such transaction that will result in reduction of tax liabilities of the business.

10. Internal Treasury Controls: The treasurer acts as a cashier; undertakes the role of an authorized signatory on payment cheques including the authority to approve such cheques. Even reconciliation of the relevant accounts is an important function of the treasurer.

RESPONSIBILITY OF TREASURER 1) Funds Management: It is the responsibility of the treasurer to ensure that the adequate funds are avaible for meeting the day-to-day requirements of the firms operations, as also for its long-term needs and that no resources of the firm are kept idle.

2) Forex Management: Whenever a business sources its inputs and distributes its products in more than one contry , it will have an income or expenditure, or an asset or liability, denominated itn more than one currency.

3) Risk Management: It has been stated that the primary task of the treasurer is to mobilize the right amount of the funds from the right source at the right time at the lowest possible cost and put them to the right use.

CONTROLLER
FUNCTIONS OF controller 1) Records all tractions in the general ledger, the accounts receivables and the accounts payables sub ledger, transactions with respect to fixed assests such as depreciation, inventory control, etc. 2) Keeps track of the companys short-term investments by recording and reconciling the transactions with those of the brokerage firms. 3) Looks into the regulatory aspects and implementation of the companys policy on trade discounts and receivables ageing. 4) Acts as a planning director. 5) Keeping a record of the attendance of the employees their work timings so as to facilitate preparing payroll. 6) Reporting information to the management.
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CHAPTER 2 RESEARCH METHODOLOGY

OBJECTIVES OF THE PROJECT:      To know how treasury management effect on banking transations. What is RTGS How RTGS is important in bank. Process of RTGS How RTGS helps in treasury management.

Research Design A research design lays the foundation for conducting for conducting the project. Typically a research design involves the following tasks: 1. Design exploratory, conclusive and/or descriptive phase of the project. 2. Define the information needed. 3. Specify the measurement and scaling procedure. 4. Construct and present an appropriate form of data collection. 5. Specify the sampling process and sample size. 6. Develop a plan for data analysis. a)Exploratory Research : One type of research design, which has its primary objective the provision of insight into and understanding of the problem situation confronting the researcher.

Exploratory Research: In exploratory design two types of methods available for collecting the data are as following; 1] Secondary data 2] Sources of secondary data 3] Qualitative research

Secondary data: What is treasury?  What is treasury management?  Why treasury management is important?  Types of treasury?  What is RTGS?  RTGS process  History of Indian Overseas bank
Sources of Secondary data: -

 Books  Internet
Qualitative research: -

 Personal interview:- employee of Indian Overseas Bank

CHAPTER 3 RTGS
What is RTGS?
An RTGS system is defined in this report as a gross settlement system in which both processing and final settlement of funds transfer instructions can take place continuously (i.e. in real time). As it is a gross settlement system, transfers are settled individually, that is, without netting debits against credits. As it is a realtime settlement system, the system effects final settlement continuously rather than periodically at prespecified times provided that a sending bank has sufficient covering balances or credit. Moreover, this settlement process is based on the realtime transfer of central bank money. An RTGS system can thus be characterised as a funds transfer system that is able to provide continuous intraday finality for individual transfers. RTGS is a centralized payment system in which, inter-bank payment instructions are processed and settled, transaction by transaction (one by one) and continuously (online) throughout the day, as and when the instructions are received and finally accepted by the system. Real Time Gross Settlement (RTGS) System is set up, operated and maintained by Reserve Bank of India to enable funds settlement on real-time basis across banks in the country.

Need for RTGS :

Under the existing system, the settlement of the all individual payments takes place on a net basis (i.e. difference of payment to be received and payment to be made) and that too at a designated time. This causes the system participants to be exposed to financial risks for the period during which settlement is deferred. Due to such delays in settlement, a no. of capital market and money market frauds have taken place in India in the recent years. Further, the existing payment system is capable to meet the requirement of the 80s or 90 when the no. and volume of financial transactions was limited. But, due to change in the economic perspective, its linkage with the global economies and the role of information technology, need has been felt for a more accurate, risk free, efficient and effective system. RTGS is an internationally compatible and transparent-system which could be used to the full advantage of the existing client base without dispensing with the benefits already available to customers.
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Who manages RTGS ?

World over, the central banks manage RTGS systems because the all banks in a country maintain a current account with the central bank. Accordingly, in India, it is being managed by RBI.

Process of RTGS
In India, the RTGS has been implemented by RBI. It has decided to use Y shaped structure out of the four message flow structures (V,Y,L,T). In this structure the following flow of instructions (it is not actual and is only for understanding the process) takes place: 1. Sending of payment instruction/authority by the issuing /paying bank to technical operator of the Central Processor. 2. On receipt of such message, stripping of the message by the Central Processor (Contd.. from page 1) and sending of sub-set of instructions (by retaining the original message with itself) to the Central bank alongwith relevant information (which may include amount, identity of issuing and receiving bank etc.) for settlement of the transaction. 3. Irrevocable settlement of the transaction by the Central Bank in its records i.e. debit of issuing banks account and credit to receiving banks account and passing this confirmation to Central Processor 4. Re-building of payment message by adding the stripped information (say details of beneficiary) by the Central Processor and sending the message with proper details to the receiving bank.

Advantages accruing from RTGS

 Since the funds transfer instructions are processed and settled in real time, the credit and liquidity risks are eliminated.  This will lead to a seamless movement of funds from one end to another using the IT platform and would reduce the systematic risks in the settlement system.  As the funds are received instantly online, in the RTGS system, the collecting banks and their customers can use the funds immediately without exposing themselves to settlement risk.

Impact of RTGS
It is expected that some traditional products like cash management for corporate customers and traditional money transfer systems among branches, may lose their significance with the RTGS in place and banks may have to design other innovating products for their customers. While a demand draft takes about 7 days, it takes about 1-2 days under EFT which is available in 134 cities. Present status of RTGS in India (April 2004) The system was launched on March 26, 2004 (on pilot basis by involving 4 banks) by RBI for large value transactions for banks and their clients. RBI expects 120 scheduled commercial banks and primary dealers to become part of the real time gross settlement system by June 2004. Nearly 3000 bank branches across 275 cities/towns in India are expected to go live on this online funds transfer system.

Procedure for a customer and charges

Where a customer, instead of using cheque or bank draft, wants to use the RTGS, he will have to go to an RTGS-enabled bank branch where he maintains his account and give an online instructions for the funds to be credited to the beneficiarys account, maintained in a bank branch having RTGS linkage. The funds would be transferred instantaneously. RBI would recover Rs.25 for each transactions but banks will have their own charges to vary from bank to bank. For a bank branch to be part of RTGS, it has to be fully
10

computerised and networked. Presently, about 3000 branches at 275 locations in India meet this criterion. RBI expects about 20000-25000 cheques which involve high value customer transactions to migrate to RTGS.

Differences other than intraday liquidity facilities and queuing arrangements, which could have important implications for the working of the RTGS system. I. Ownership and access policies.

Most systems are owned by central banks. ELLIPS and CHAPS are owned by an association or a company whose members are the direct participants and the central bank; the systems are connected to the central bank's internal realtime accounting system. Access policies also differ. In principle, direct access to RTGS systems requires participants to hold their accounts at the central bank, which may raise issues regarding the conditions under which participants can hold central bank accounts. In the majority of systems direct access is open to all banks (or credit institutions or depository institutions as applicable). Additional criteria such as financial strength and technical requirements are applied in several systems. In the European Union the central banks have agreed that, with limited exceptions, direct access should be confined to credit institutions. Partly reflecting the differing access policies, the number of direct participants varies across systems; some systems have large numbers of direct participants, whereas other systems are twotiered systems with a more limited number of direct settlement members, although indirect participation in the system can be wide.

II.

Message flow structures.

The majority of systems are based on socalled Vshaped structures, whereas others use Yshaped or Lshaped structures. Section II.3 discusses message flow structures in more detail.

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III.

Reserve requirements and central bank account structures

Countries vary in the extent to which required reserves are imposed and are available for use as intraday liquidity in the RTGS system. Central bank account structures also vary in terms of whether the RTGS accounts are separated from the accounts used for required reserves or other purposes (i.e. unified or segregated accounts) and whether banks can hold RTGS accounts at more than one office of the central bank (i.e. centralised or decentralised accounts). Section II.2 discusses these variations in more detail.

IV.

Relationships with other systems.

In Germany, Japan and the United States, RTGS systems coexist with net settlement systems for largevalue transfers, and this will also be the case in France. In other countries RTGS systems are or will be the only largevalue funds transfer system. RTGS systems are also used for the settlement of retail payments in various ways and in several countries RTGS systems support realtime DVP systems for securities transactions.

The objectives behind introduction of RTGS are:

1. Protection of the key existing assets of the Banking system, which are obviously the brand name and customer relationship. 2. To widen and strengthen the customer base. 3. To reduce the prevalent transaction cost and to explore revenues for generating additional income for the Banks. Though CPSS established a task force on payment systems, principles and practices as early as in May 1998, to establish the principles for the design and operation of payment system in our country, RBI has taken a cautious approach and has provided norms and guidelines only in 2005, with a view to provide time and space for the constituents to adapt. It is pertinent to note that a bill titled Payment Systems Bill was passed in the year 2002 in our Parliament. The implementation of the electronic settlement systems in our country has been slow but firm because payment systems are

12

not fault free and can go berserk. Any developments or suggestions of a core principle governing such electronic payment systems should factor in the weaknesses and address the process of elimination of the inherent weaknesses.

As per our Payment Systems Bill 2002, a payment system means "a system that enables payment to be effected between a payer and a beneficiary and includes clearing, settlement or payment service." A good payment system creates a comfort zone in liquidity for the participants and consequently plays a lead role in making the financial markets buoyant. It has got tremendous impact on the domestic and international transactions with respect to the speed of transfer, financial risk, reliability and of course the costs. RBIs recommendation for the introduction of RTGS has taken into account the uneven automation process of various private and public sector banks in India. To cite an example, there are a number of Banks, which have not or are in the process of implementing core banking solutions. In some of the rural areas the Bank branches are either not computerized or yet to be networked. Besides, our banking system is different from the western ones in its objective, scope and operation. Therefore, standardization of any practice is a slow process. Due to this peculiarity, the implementation of RTGS can only be in stages and wherever appropriate. In other words, RBI cannot introduce RTGS across the board saying that they are going global. Such an action would not address the vulnerabilities that are endemic to any system from within and without.

Core principles of the payment System:

1. The system should be legally robust and be firmly grounded on the present legal system as applicable to all jurisdictions. In other words, the system should be synthesized tothe countrys legal environment. 2. The participants to the system should be made aware of the functional risks in the system. The rules and procedures should facilitate the process of educating the participants and be clear as to the impact of the entailed functional risks that they may incur by participating in the system. Therefore, the rules and procedures are expected to

13

be comprehensive and up to date. The legal base of the system should be clearly spelt out. Accessibility should be ensured. 3. An ideal system or a preferred system clearly defines the procedures for management of credit and liquidity risks. It should specify the relative responsibility of the system operator and that of the participants. It would be preferable if appropriate incentives were also provided. 4. An effective payment system should address apart from credit risk, liquidity risk, legal risk, operational risk and systematic risk. The responsibility for risk management is to be clearly assigned. An effective management of risk lies in the design of a safe payment system. Therefore the system design should contain appropriate details and incentives with respect to the various risks established and management thereof. 5. The payment system should provide prompt functional settlement on the value date preferably during the day. In other words, this principle states that the settlement should be daily. 6. An effective system where multilateral netting takes place should be capable of ensuring timely completion of daily settlements and be capable of handling any inability to settle by a participant with the largest single settlement obligation. In multilateral netting systems a participant may defer the settlement. Thus a participant faces the risk of not being able to meet its settlement obligations thereby invoking the possibility that the other participants will face unexpected credit and liquidity pressures at the time of settlement. Therefore strong controls and relative measures are required and should be embedded within the system. For example, this risk can be addressed by ensuring that additional functional resources are available to meet the contingency. It can be a combination of the following:

a. A pool of collateral cash or security, which are appropriately valued. b. Committed lines of credit. c. Fixing of maximum individual settlement obligation. d. Evaluation and standardisation of the system design.

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7. It would be appropriate that the assets used for settlement should preferably be a claim on the Central Bank; say, in India, it can be the Reserve Bank of India or State Bank of India. When other assets are used, they should carry little or no credit risks. To put it in laymans terms, most systems involve the transfer of asset among system participants to settle payment obligations. The common practice in India is to have this asset as an account balance on the Central Bank representing a claim on the Central Bank. As all the participants in the system must accept this asset, the systems safety depends, in part, on whether the asset leaves the arbitrator with significant credit risk. In some payment systems, a transferable asset is used minimally. For instance, they may settle one claim by offsetting with another. However, one has to be consistent.

8. The payment system should be highly secured and operationally reliable. There must be contingency arrangements for timely completion of process delays; i.e. a disaster management system should be in force. The degree of security and reliability for providing adequate safety and efficiency depends on the degree of systematic importance of the system and on the availability of alternative mechanism for effecting payments during contingencies.

9. The system should be practicable, economically efficient and effective.

10. The system should be transparent and accessible.

11. Accountability and responsibility of the participants should be clearly spelt out.

Implementation of RTGS solution in India:

Due to the peculiar financial environment and practices prevalent in India, certain hard decisions have been taken by the Reserve Bank of India to bring it in conformity with the international practices. The salient features are discussed briefly here below: An RTGS payment system is one in which payment instructions between the Banks are processed and settled individually and
15

continuously throughout the day, as opposed to the net settlement systems such as paper based clearing houses. Though many institutions have introduced electronic processors, they have been made compatible to paper based clearing systems i.e. the processing has been made faster in contrast to the manual clearing. In the prevalent practices, though payment instructions are processed throughout the day, the actual movement of funds between the Banks takes place only afterwards, usually at the end of the day. In contrast, under an RTGS system, the payee banks and their customers receive funds during the day itself. The lag or the lead-time between instruction process and settlement is vastly reduced. This reduces the risk particularly in a large value funds transfer system. Even in real time process and settlement such as an RTGS System, there may be circumstances, which could be a source of risk.

The Structure: There are three structures, in practice, for an RTGS system:

1. V shaped structure:

To initiate a fund transfer, the sending bank dispatches a payment message which is routed through a Central Bank, to a receiving bank. In this structure, the message with all necessary information about the payment is passed on to the Central Bank. After the receiving bank settles the transfers with Central Bank, the said information is passed on to the receiving bank. In this structure, the Central Bank functions as an arbitrator and a postman.

2. Y shaped structure:

Those that use the Swift Network follow an alternative structure, which is a Y shaped structure. In this case, the payment message is transmitted by the sending bank to the central processor. The central processor filters the information and takes a subset of information that is necessary for settlement, from the original message and passes this subset to the Central Bank. The Central Banks processor retains the original message. On receipt of the subset, the Central Bank verifies whether the sending bank has
16

sufficient funds in its account. Then the Central Bank informs the central processor the status of the transfer as to whether settled or queued or rejected. Once settlement takes place, the full message containing all the information confirming the settlement is rebuilt by the central processor and sent to the receiving bank. In this structure, the business information that is exchanged between the sending and receiving banks is not known to the settlement agent viz. the Central Bank.

3. L shaped structure:

A structure conceptually similar to the Y shaped structure discussed above is also in practice. In this structure, the payment message emanating from the sending bank is held at a system gateway, which is attached to the sending banks internal processing system. From the gateway a subset of the original message is created and sent to the Central Bank. If the sending bank has sufficient funds in its account, the settlement is completed and the Central Bank confirms this, by way of a message to the sending banks gateway. On receipt of this confirmation message, the original payment message is automatically relayed from the sending banks gateway to the receiving bank. In all these types of structures, the common notable feature is that the receiving bank will receive the full payment message only after the transaction is being settled by the Central Bank. An alternative T shaped structure, where the sending bank routes the payment messages directly to the receiving bank has also been thought of. However, it has been discarded, as it is incompatible with the basic principles of RTGS.

The Reserve Bank of India has chosen the Y shaped structure to meet this strategic objective, which strips and retains the customer related confidential information and forwards only the particulars of payment and settlement to the RTGS. This gives possibility for the central processor to be an independent service provider.

1. Introduction of RTGS in India has got strong technological support. It has a dedicated and secured communication back bone and state of the art messaging system.

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2. The Reserve Bank of India has preferred the Y shaped message flow structure, because it has its single gateway interface for each participant, which is called as participation interface. The participation interface ensures that all messages, enquiries etc. emanating from it are conforming to the three norms namely, confidentiality, integrity and non-repudiation. All these messages will be received by the Inter Bank Funds Transfer Processor (IFTP), which will act as a broker. Safety of the messages is ensured in the IFTP. In the case of payment messages, IFTP will construct a settlement message containing only the data required for settlement and will strip off the cover, certain confidential customer data. This in turn will be forwarded to the Central RTGS system. This settlement message will be processed by the Banks central system and the fate will be advised to IFTP. Based on the response received, IFTP will enrich the message received from the RTGS system, say, by adding on the tools and transmit the settlement advice to both the sending and beneficial participants. 3. Each participant would have a single dedicated RTGS settlement account both for outward and inward RTGS payments. This enables monitoring, tracking and reconciliation of the transactions. Each participant is required to open a dedicated settlement account, which will be an intraday account. This account would be viewed at the beginning of the day from a current account. Balances in the RTGS settlement account at the end of the day are swept back to the participants current account. Thereby, at the end of the RTGS day, all settlement accounts will be zeroised. This system has a facility to fund the RTGS settlement account (of course during the day) from the participants current account by the use of own account transfers also. 4. Transaction priority: All payment transactions emanating from a payment systems gateway are processed strictly on a first in first out basis. The system also allows the participants to assign priority to the payment messages, which can facilitate urgent or time critical payment. Except these time critical payments, all other transactions will be processed strictly on FIFO basis. 5. Queuing: Originally, a payment instruction is expected to be settled as soon as it is received, which is a functionality of a real time system. However, there exists scope of some transactions not being capable of immediate settlement. In such cases, the
18

RTGS system will maintain a payment queue within which the payment transactions will be held on a FIFO basis. The participants are also provided facilities to view the transactions held in payment queues, cancel transaction(s) and can change the order of priority. In view of the confidentiality and security concerns of participants, one can view only the other participants in queue or ones own pending incoming payment instructions. 6. Own account transfer: In order to optimize funds deployment and economize on its intra-day liquidity requirements, an RTGS system facilitates movement of funds between various accounts held by a participant. Such movement can take place between the participants settlement account and current account or between two or more current accounts held by the participants. This is an efficient tool for liquidity management.

7. Liquidity management: An RTGS system warrants an active management of the

intraday liquidity. In order to ensure smooth settlement of transactions and avoid the delay of credit to the other participants, it is imperative that each participant ensures that there are sufficient funds in their RTGS system account at the time of submission of payment instructions. The RTGS system has certain features to facilitate the participants in its liquidity management effort. Queuing facilities, priority assignments in own account transfers etc. are such tools. Besides, there are two additional intra-day liquidity management tools built in the RTGS system.

a. Intra-day liquidity: To meet their intraday liquidity requirements, a participant can

avail intra-day lines of credit provided by the Reserve Bank of India. However, the Reserve Bank of India on its own discretion and under specific terms and conditions will provide such lines of credit. This line of credit has to be fully collateralized and will be chargeable to the participant on particular transaction basis. It is to be noted that these lines of credit are available on an intra-day basis and any failure to repay the credit to the Reserve Bank of India would invite strict penal action.

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b. Gridlock resolution mechanism: Sometimes the entire system can clog and cripple
or paralyze the transactions. The RTGS has an inbuilt optimized gridlock tool to release the lock. However, this mechanism can be invoked only at the discretion of the Reserve Bank of India for smooth settlement.

Importance of Training: Training of the employees of the participants on a continuous basis is a necessity that should not be overlooked. The systems and computers are only tools. Without manual intervention nothing can be achieved. We are constantly in a transitory stage i.e. we are evolving and this evolution has got intermittent stages. The movement from one stage to another is usually termed as transitory stage. Sometimes the transition is voluntary or is necessitated by the environment. In some Western countries, RTGS enables inter funds transfer even outside the banking system. While our banking system and the practices by a plethora of banking institutions are at different levels of development, an effective RTGS system would pave way for smoothening of some of the anomalies or disparities existing in these practices. It can be stated that it is a first step to bring about the constituents of our banking system to a common platform. Therefore, it is mandatory that the employees of the participants and the users be properly trained using all means of training devices, tools, techniques and methods for successful RTGS implementation.

It may not be out of place to mention that an RTGS system is a part of an integrated accounting system. But the procedures and functionality of an integrated accounting system are not discussed here, as it is a separate topic by itself. The principle opinion to be noted is that an RTGS system by its scope and definition, is a vertical alternative to any manually handled settlement systems or clearing systems. While an RTGS system is an effective platform for inter-bank transfer of funds with adequate supporting devices, the implementation and the success largely depend on the adaptation to compatible systems by all the participants. As stated earlier, different banks are using different platforms, which are not necessarily compatible to each other. We also have examples of banks, which are in the initial stages of computerization. For them it will be a giant leap forward to follow in line with the RTGS system. The benefit would be that such non20

compatible banks could do away with intermediate infrastructure and choose a system, which is compatible to the RTGS.

FEATURES OF RTGS PROCES:-

y y y y y y y y y y y y

A modular component structure to meet individual country requirements and for flexibility in growth and expansion as needs arise. Final and irrevocable settlement of funds transfers continuously in real time Centrally located queuing of payments that are held awaiting availability of funds Automatic gridlock resolution Complete monitoring of account balances for both the Central Bank and participating institutions Credit and intra day liquidity management facilities Maintenance of a statistical database with query and reporting facilities Payment entry and processing using standard SWIFT message formats A multi currency and multi lingual system Secure payment and message transmission using the SWIFT services and secure interactive communication for monitoring and queue management Operational reliability with backup and contingency arrangements Complete audit trail, recovery and reporting facility

CHAPTER 4
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INDIAN OVERSEAS BANK

Overview
Established in 1937, Indian Overseas Bank (IOB) is a leading bank based in Chennai, India. IOB had the distinction of simultaneously commencing operations in three branches at Karaikudi, Chennai, and Yangon (Myanmar). Since IOB aimed to encourage overseas banking and foreign exchange operations, it soon opened its branches in Penang and Singapore. Today, Indian Overseas Bank boasts of a vast domain in banking sector with over 1400 domestic branches and 6 branches overseas.

IOB was the first bank to venture into consumer credit, as it introduced the popular Personal Loan scheme. In 1964, the Bank started computerization in the areas of inter-branch reconciliation and provident fund accounts. Indian Overseas Bank was one of the 14 major banks which were nationalized in 1969. After nationalization, the Bank emphasized on opening its branches in rural parts of India. In 1979, IOB opened a Foreign Currency Banking Unit in the free trade zone in Colombo.

In the year 2000, Indian Overseas Band undertook an initial public offering (IPO) that brought the government's share in the bank's equity down to 75%. The equity shares of IOB are listed in the Madras Stock Exchange (Regional), Bombay Stock Exchange, and National Stock Exchange of India Ltd., Mumbai. Since its inception, IOB has absorbed various banks including the latest Bharat Overseas Bank in 2007.

The Bank's IT department has developed software, which is used by its 1200 branches to provide online banking to customers. Indian Overseas Bank also has a network of about 500 ATMs throughout India. Its International VISA Debit Card is accepted at all ATMs belonging to the Cash Tree and NFS networks. IOB also offers Internet Banking; it's one of the banks that the Govt. of India has approved for online payment of taxes.

Indian Overseas Bank offers investment options like Mutual Funds and Shares. It provides a

22

wide range of consumer and commercial banking services, including Savings Account, Current Account, Depositary Services, VISA Cards, Credit Cards, Debit Cards, Online Banking, Any Branch Banking, Home Loans, NRI Account, Agricultural Loans, Payment of Bills / Taxes, Provident Fund Scheme, Forex Collection Services, Retail Loans, etc.

Head Office Indian Overseas Bank 763, Anna Salai Chennai 600002 URL: www.iob.com

History
y

1937: Shri. M. Ct. M. Chidambaram Chettyar establishes the Indian Overseas Bank (IOB) to encourage overseas banking and foreign exchange operations. IOB started up simultaneously at three branches, one each in Karaikudi, Madras (Chennai) and Rangoon (Yangon). It then quickly opened a branch in Penang and another in Singapore. The bank served the Nattukottai Chettiars, who were a mercantile class that at the time had spread from Chettinad in Tamil Nadu state to Ceylon (Sri Lanka), Burma (Myanmar), Malaya, Singapore, Java, Sumatra, and Saigon. As a result, from the beginning IOB specialized in foreign exchange and overseas banking (see below).

1960s: The banking sector in India was consolidating by the merger of weak private sector banks with the stronger ones; IOB absorbed five banks, including Kulitali Bank (est. 1933).

1969: The Government of India nationalized IOB. At one point, probably before nationalization, IOB had twenty of its eighty branches located overseas. After nationalization it, like all the nationalized banks, turned inward, emphasizing the opening of branches in rural India.

y y

1988-89: IOB acquired Bank of Tamil Nadu in a rescue. 2000: IOB engaged in an initial public offering (IPO) that brought the government's share in the bank's equity down to 75%.

2009: IOB took over Shree Suvarna Sahakari Bank, which was founded in 1969 and had its head office in Pune. In 2001 it had acquired the Mumbai-based Adarsha Janata Sahakari
23

Bank, which gave it a branch in Mumbai. Shree Suvarna Sahakari Bank has been in administration since 2006. It has nine branches in Pune, two in Mumbai and one in Shirpur. The total employee strength is estimated to be little over 100.

International expansion
y

1937-38: As mentioned above, IOB was international from its inception with branches in Rangoon, Penang, and Singapore.

1941: IOB opened a branch in Malaya that presumably closed almost immediately because of the war.

y y y y y y

1946: IOB opened a branch in Ceylon. 1947: IOB opened a branch in Bangkok and re-opened others. 1948: United Commercial Bank (see below) opened a branch in Malaya. 1949: IOB opened a branch in Bangkok. 1963: The Burmese government nationalized IOBs branch in Rangoon. 1973: IOB, Indian Bank and United Commercial Bank established United Asian Bank Berhad in Malaysia. (Indian Bank had been operating in Malaysia since 1941 and United Commercial Bank Limited had been operating there since 1948.) The banks set up United Asian to comply with the Banking Law in Malaysia, which prohibited foreign government banks from operating in the country. Also, IOB and six Indian private banks established Bharat Overseas Bank as a Chennai-based private bank to take over IOB's Bangkok branch.

y y y y y y

1977: IOB opened a branch in Seoul. 1979: IOB opened a Foreign Currency Banking Unit in Colombo, Sri Lanka. 1992: Bank of Commerce (BOC), a Malaysian bank, acquired United Asian Bank (UAB). 2007: IOB took over [[Bharat Overseas Bank] 2009: IOB took over assets and liabilities of Shree Suvarna Sahakari Bank. 2010: Malaysia awarded a commercial banking license to a locally incorporated bank to be jointly owned by Bank of Baroda, Indian Overseas Bank and Andhra Bank. The new bank, India International Bank (Malaysia), will reside in Kuala Lumpur, which has a large

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population of Indians. Andhra Bank will hold a 25% stake in the joint-venture, Bank of Baroda will own 40% and IOB the remaining 35%.

Branches:
Indian Overseas Bank Kalol Branch Branch IFSC Code MICR Address Opp. Geb Shivalaya Complex Kalol Pin : 382721 City : Kalol District : Gandhinagar State : Gujarat Indian Overseas Bank Gandhinagar-Gujarat Branch Branch IFSC Code MICR Address Gandhinagar-Gujarat IOBA0000527 380019009 Sector 16 Near Shalimar Theatre Gandhinagar Pin : 382016 City : Gandhinagar District : Gandhinagar State : Gujarat Indian Overseas Bank Kasturi Nagar Branch Branch IFSC Code MICR Address Kasturi Nagar IOBA0001162 NON-MICR Iffco Township, Kasturi Nagar, Pin : 382423 City : Shertha District : Gandhinagar State : Gujarat Indian Overseas Bank Gotri Road Branch Branch IFSC Code Gotri Road IOBA0001717
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Kalol IOBA0000337

MICR Address Suner Complex, I Floor Harinagar Crossing, Gotri Road Baroda Pin : 390021 City : Vadodara District : Gandhinagar State : Gujarat Indian Overseas Bank Kalol-Iffco Branch Branch IFSC Code MICR Address Iffco Factory Site, Kalol, Kasturinagar P. O. Kasturinagar, Pin 382423 City District State : Gujarat Indian Overseas Bank Gujarat Sec Education BD Branch Branch IFSC Code MICR Address Gujarat Sec Education BD IOBA0001817 NON-MICR Gujarat Secondary, Education Board, Sector-10 B, Gandhi Nargar, Pin : 382010 City : Gandhinagar District : Gandhinagar State : Gujarat Indian Overseas Bank Baroda-Ellora Park Branch Branch IFSC Code MICR Address Patriot Complex, Near Ellora ARK Vegetable Market, Bace Course Circle, Baroda Pin-390007 City : Vadodara District : Gandhinagar Baroda-Ellora Park IOBA0002080 : : Kalol Gandhinagar Kalol-Iffco IOBA0001815

RTGS and NEFT process in Indian Overseas Bank

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Out Ward NEFT

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Conclusion:
From Our whole project we can conclude that, In Indian Ovearseas bank RTGS is very helpful. RTGS helps for clearing transactions at a time anywhere. RTGS Process is clear transaction within 24 hous. So it is very helpful to the bank to clearing banking transaction. Under the existing system, the settlement of the all individual payments takes place on a net basis (i.e. difference of payment to be received and payment to be made) and that too at a designated time. This causes the system participants to be exposed to financial risks for the period during which settlement is deferred. Due to such delays in settlement, a no. of capital market and money market frauds have taken place in India in the recent years. Further, the existing payment system is capable to meet the requirement of the 80s or 90 when the no. and volume of financial transactions was limited. But, due to change in the economic perspective, its linkage with the global economies and the role of information technology, need has been felt for a more accurate, risk free, efficient and effective system. RTGS is an internationally compatible and transparentsystem which could be used to the full advantage of the existing client base without dispensing with the benefits already available to customers.

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