cash management at bank of IndiaDocument Transcript
A MINOR PROJECT REPORT
“Title of the project”
SUBMITTED IN THE PARTIAL FULFILLMENT FOR THE AWARD OF
THE DEGREE OF BACHELOR IN BUSINESS ADMINISTRATION
UNDER THE GUIDANCE OF:
Ms./ Mr./ Dr./ Prof. ShaliniRathore__________
Assistant Professor/ Associate Professor/ Professor, RDIAS
Name of the Student
BBA, Semester ___2___
Batch 2011__ - 2014__
RUKMINI DEVI INSTITUTE OF ADVANCED STUDIES
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Affiliated to GuruGobindSinghIndraprasthaUniversity, Delhi
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Table of Contents
Student declaration i
Certificate of the guide ii
Executive summary iv
List of table of content v
List of graphs vi
List of charts vii
List of Abbreviations viii
Plan of the Study
1.1 Introduction to topic
1.2 Objective of the
1.3 Literature review And/or Theoretical Background……………………
Company Profile / Industry profile or
3.1 Purpose of the study…………………………………………………..………...…
3.2 Research Objectives of the study…………………………………………………..
3.3 Research Methodology of the study………………………………………….
3. 3.1 Research Design……………………………… …………………………......
3.3.2 Data Collection Techniques …………………………………
3.3.3 Sample design………………………………………………………………...
188.8.131.52 Sample size……………………………………………………………
184.108.40.206 Sampling method……………………………………………………...
3.3.4 Method of data collection……………………………………………………..
220.127.116.11 Instrument for data collection…………………………………………
18.104.22.168Drafting of a questionnaire………………………………….
Data Analysis and Interpretation
(This chapter will cover the analysis on the basis of questionnaire or whatever is applicable.
The analysis will be done and shown in a tabulated form and graphical representation with
pie-charts, bar-diagrams, graphs, etc will also be done. Below the graphs, diagrams and
charts, inferences have to be made. )
Findings & Conclusions
STUDENT „s DECLARATION
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award of the degree of “Bachelor in Business Administration” from
“Rukmini Devi Institute of Advanced Studies, New Delhi.”
This is an original work and I have not submitted it earlier elsewhere.
Name of the Student
Class & Section
CERTIFICATE OF GUIDE
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done by “-------------” submitted in the partial fulfillment of the requirement
for the award of the degree of “Bachelors in Business Administration” from
“Rukmini Devi Institute of Advanced Studies, New Delhi.” under my
guidance and direction.
To the best of my knowledge and belief the data and information presented
by him / her in the project has not been submitted earlier elsewhere.
Name of the Faculty
Designation of the Faculty
I offer my sincere thanks and humble regards to Rukmini Devi Institute Of Advanced
Studies, GGSIP University, New Delhi for imparting us very valuable professional
training in MBA.
I pay my gratitude and sincere regards to “Faculty Name”, my project Guide for giving
me the cream of his knowledge. I am thankful to him as he has been a constant source of
advice, motivation and inspiration. I am also thankful to him for giving his suggestions
and encouragement throughout the project work.
I take the opportunity to express my gratitude and thanks to our computer Lab staff and
library staff for providing me opportunity to utilize their resources for the completion of
I am also thankful to my family and friends for constantly motivating me to complete the
project and providing me an environment which enhanced my knowledge.
Name of the Student
Class & Section
Cash is the important current asset for the operations of the business. Cash is
the basic input needed to keep the business running on a continuous basis; it is also the
ultimate output expected to be realized by selling the service or product manufactured by the
firm. The firm should keep sufficient cash, neither more nor les s. Cash
shortage will disrupt the firm‟s manufacturing operations while excessive cash
will simply remain idle, without contributing anything towards the firm‟s profitability.
Thus, a major function of the financial manager is to maintain a sound cash
Cash is the money which a firm can disburse immediately without any restriction. The term
cash includes coins, currency and cheques held by the firm, and
balances in its bank accounts. Sometimes near-cash items, such as
marketable securities or bank time‟s deposits, are also included in cash. The basic
characteristic of near-cash assets is that they can readily be converted into cash. Generally,
when a firm has excess cash, it invests it in marketable securities. This kind of investment
contributes some profit to the firm
MOTIVES FOR HOLDING CASH
The firm‟s need to hold cash may be attributed to the following the motives:
The transactions motive
The precautionary motive
The speculative motive
The transaction motive requires a firm to hold cash to conducts its business in the
ordinary course. The firm needs cash primarily to make payments for purchases, wages and
salaries, other operating expenses, taxes, dividends etc. The need to hold cash
would not arise if there were perfect synchronization between cash receipts and
cash payments, i.e., enough cash is received w h e n t h e p a y m e n t h a s t o
b e m a d e . B u t c a s h r e c e i p t s a n d p a y m e n t s a r e n o t
p e r f e c t l y synchronized. For those periods, when cash payments exceed cash
receipts, the firm should maintain some cash balance to be able to make required
payments. For transactions purpose, a firm may invest its cash in marketable
securities. Usually, the firm will purchase securities whose maturity corresponds
with some anticipated payments, such as dividends, or taxes in the future. Notice that the
transactions motive mainly refers to holding cash to meet anticipated payments
whose timing is not perfectly matched with cash receipts.
The precautionary motive is the need to hold cash to meet contingencies in
the future. It provides a cushion or buffer to withstand some
unexpected emergency. The precautionary amount of cash depends upon the
predictability of cash flows. If cash flow can be predicted with accuracy, less cash will
be maintained for an emergency. The amount of precautionary cash is also
influenced by the firm‟s ability to borrow at short notice when the need arises. Stronger the
ability of the firm to borrow at short notice, less the need for
precautionary balance. The precautionary balance may be kept in cash and
marketable securities. Marketable securities play an important role here. The amount of cash
set aside for precautionary reasons is not expected to earn anything; therefore, the
firm attempt to earn some profit on it. Such funds should be invested in
high-liquid and low-risk marketable securities. Precautionary balance should,
thus, held more in marketable securities and relatively less in cash.
The speculative motive r e l a t e s t o t h e h o l d i n g o f c a s h f o r i n v e s t i n g i n
p r o f i t - m a k i n g opportunities as and when they arise. The opportunity to make profit
may arise when the security prices change. The firm will hold cash, when it is
expected that the interest rates will rise and security prices will fall. Securities can be
purchased when the interest rate is expected to fall; the firm will benefit by the subsequent
fall in interest rates and increase in security prices. The firm may also speculate on materials‟
prices. If it is expected that materials‟ prices will fall, the firm can postpone materials‟
purchasing and make purchases in future when price actually falls. Some firms may hold
cash for speculative purposes. By and large, business firms do not engage in
speculations. Thus, the primary motives to hold cash and marketable
securities are: the transactions and the precautionary motives.
Cash flows are inseparable parts of the business operations of firms. A firm needs cash to
invest in inventory, receivable and fixed assets and to make payment for operating expenses
in order to maintain growth in sales and earnings. It is possible that firm may be taking
adequate profits, but may suffer from the shortage of cash as its growing needs may be
consuming cash very fast. The „cash poor‟ position of the firm can be corrected if its cash
needs are planned in advance. At times, a firm can have excess cash with it if its cash inflows
exceed cash outflows. Such excess cash may remain idle. Again, such excess cash flows can
be anticipated and properly invested if cash planning is resorted to. Cash planning is a
technique to plan and control the use of cash. It helps to anticipate the future cash flows and
needs of the firm and reduces the possibility of idle cash balances (which lowers firm‟s
profitability) and cash deficits (which can cause the firm‟s failure).
Cash planning protects the financial condition of the firm by developing a projected cashstate
ment from a forecast of expected cash inflows and outflows for a given period. The forecasts
may be based on the present operations or the anticipated future operations. Cash plans are
very crucial in developing the operating plans of the firm. Cash planning can be done on
daily, weekly or monthly basis. The period and frequency of cash planning generally depends
upon the size of the firm and philosophy of management. Large firms prepare daily and
weekly forecasts. Medium-size firms usually prepare weekly and monthly forecasts. Small
firms may not prepare formal cash forecasts because of the non-availability of information
and small-scale operations. But, if the small firm prepares cash projections, it is done on
monthly basis. As a firm grows and business operations become complex, cash planning
becomes inevitable for its continuing success.
Cash Forecasting and Budgeting
Cash budget is the most significant device to plan for and control cash receipts and payments.
A cash budget is a summary statement of the firm‟s expected cash inflows and outflows over
a projected time period. It gives information on the timing and magnitude of expected cash
flows and cash balances over the projected period. This information helps the financial
manager to determine the future cash needs of the firm, plan for the financing of these needs
and exercise control over the cash and liquidity of the firm. The time horizon of the cash
budget may differ from firm to firm. A firm whose business is affected by seasonal variations
may prepare monthly cash budgets. Daily or weekly cash budgets should be prepared for
determining cash requirements if cash flows show extreme fluctuations. Cash budgets for a
longer intervals may be prepared if cash flows are relatively stable.
Cash forecasts are needed to prepare cash budgets. There are two types of cash forecasting:
1 Short-term Cash Forecasting
2 Long-term Cash Forecasting
Short-term Cash Forecasts
Generally, forecasts covering periods of one year or less are considered short-term cash
forecasting.It is comparatively easy to make short-term cash forecasts. The important
functions of carefully developed short-term cash forecasts are:
• To determine operating cash requirements
• To anticipate short-term financing
• To manage investment of surplus cash.
Short-run cash forecasts serve many other purposes. For example, multi-divisional firms use
them as a tool to coordinate the flow of funds between their various divisions as well as to
make financing arrangements for these operations. These forecasts may also be useful in
determining the margins or minimum balances to be maintained with banks. Still other uses
of these forecasts are:
• Planning reductions of short and long-term debt
• Scheduling payments in connection with capital expenditures programmes
• Planning forward purchases of inventories
• Checking accuracy of long-range cash forecasts
• Taking advantage of cash discounts offered by suppliers
• Guiding credit policies.
Methods of Short-term Cash Forecasting:
Two most commonly used methods of short-term cash forecasting are:
• The receipt and disbursements method
• The adjusted net income method.
The receipts and disbursements method is generally employed to forecast for limited periods,
such as a week or a month. The adjusted net income method, on the other hand, is preferred
for longer durations ranging between few months to a year. Both methods have their pros and
cons. The cash flows can be compared with budgeted income and expenses items if the
receipts anddisbursements approach is followed. On the other hand, the adjusted income
approach is appropriate in showing a company‟s working capital and future financing needs.
Long-term Cash Forecasting
Long-term cash forecasts are prepared to give an idea of the company‟s financial
requirements in the distant future. They are not as detailed as the short-term forecasts are.
Once a company has developed long-term cash forecast, it can be used to evaluate the impact
of, say, new product developments or plant acquisitions on the firm‟s financial condition
three, five, or more years in the future. The major uses of the long-term cash forecasts are:
•It indicates as company‟s future financial needs, especially for its working capitalrequireme
• It helps to evaluate proposed capital projects. It pinpoints the cash required to finance these
projects as well as the cash to be generated by the company to support them.
• It helps to improve corporate planning. Long-term cash forecasts compel each division
to plan for future and to formulate projects carefully.
Long-term cash forecasts may be made for two, three or five years. As with the short-term
forecasts, company‟s practices may differ on the duration of long-term forecasts to suit
their particular needs.
The short-term forecasting methods, i.e., the receipts and disbursements method and the
adjusted net income method, can also be used in long-term cash forecasting. Long-term cash
forecasting reflects the impact of growth, expansion or acquisitions; it also indicates
financing problems arising from these developments.
Cash management is a broad term that refers to the collection, concentration, and
disbursement of cash. It encompasses a company‟s level of liquidity, its management of cash
balance, and its short-term investment strategies. In some ways, managing cash flow is the
most important job of business managers.For some time now, technology has been the key
driving force behind every successful bank. In such an environment, the ability to recognize
and capture market share depends entirely on the bank‟s competence to evolve technically
and offer the customer a seamless process flow. The objective of a cash management system
is to improve revenue, maximize profits, minimize costs and establish efficient management
systems to assist and accelerate growth.
Cash Management in India
The Reserve Bank of India (RBI) has placed an emphasis on upgrading technological
infrastructure. Electronic banking, cheque imaging, enterprise resource planning (ERP), real
time gross settlement (RTGS) is just few of the new initiatives.
The evolution of payment systems such as RTGS has posed some tough challenges for cash
management providers. It is important that banks now look towards a shift to fees from float
although all those cash management providers who have factored in float money in their
product pricing might take a hit. But of course there are opportunities also attached like
collection and disbursal of payments on-line across the banks.
There are a number of regulatory and policy changes that have facilitated an efficient cash
management system (CMS). Fox example, the Enactment of Information Technology Act
gives legal recognition to electronic records and digital signatures. The establishment of the
Clearing Corporation of India in order to establish a safe institutional structure for the
clearing and settlement of trades in foreign exchange (FX), money and debt markets has
indeed helped the development of financial infrastructure in terms of clearing and settlement.
Other innovations that have supported in streamlining the process are:
1. Introduction of the Centralized Funds Management Service to facilitate better
management of fund flows.
2. Structured Financial Messaging Solution, a communication protocol for intra-bank
and interbank messages.
Today, treasurers need to ensure that they are equipped to make the best decisions. For this, it
is imperative that the information they require to monitor risk and exposure is accurate,
reliable and fast. A strong cash management solution can give corporates a business
advantage and it is very important in executing the financial strategy of a company. The
requirement of an efficient cash management solution in India is to execute payments, collect
receivables and managing liquidity.
Cashmanagement is concerned with the managing of: (i) cash flows into and out of
the firm,(ii) cash flows within the firm, and (iii) cash balances held by the firm
at a point of time by financing deficit or investing surplus cash. Sales generate
cash which has to be disbursed out. The surplus cash has to be invested while deficit
has to be borrowed. Cash management seeks to accomplish this cycle at a minimum cost. At
the same time, it also seeks to achieve liquidity and control. Cash management assumes
more importance than other current assets because cash is the most significant and
the least productive asset that a firm holds. It is significant because it issued to pay the
firm‟s obligations. However, cash is unproductive. Unlike fixed assets
or inventories, it does not produce goods for sale. Therefore, the aim of cash
management is to maintain adequate control over cash position to keep the firm
sufficiently liquid and to use excess cash in some profitable way.
Cash management is also important becau se it is difficult to predict
cash flows accurately, particularly the inflows, and there is no perfect coincidence
between the inflows and outflows of cash. During some periods, cash outflows will
exceed cash inflows, because payment of taxes, dividends, or seasonal inventory
builds up. At other times, cash inflow will be more than cash payments
because there may be large cash sales and debtors may be realized in
large sums promptly. Further, cash management is significant because cash constitutes the
smallest portion of the total current assets, yet management‟s considerable time is
devoted in managing it. In recent past, a number of innovations have been
done in cash management techniques. An obvious aim of the firm these
days is to manage its cash affairs in such a way as to keep cash balance at a
minimum level and to invest the surplus cash in profitable investment opportunities. In
order to resolve the uncertainty about cash flow prediction and lack of
synchronization between cash receipts and payments, the firm should develop
appropriate strategies for cash management. The firm should evolve strategies
regarding the following four facets of cash management:
Implementation of a sound cash management programme is based on rapid
generation, efficient utilization and effective conversation of its cash resources.
Cash flow is a circle. The quantum and speed of the flow can be regulated
through prudent financial planning facilitating the running of business with
the minimum cash balance. This can be achieved by making a proper
analysis of operative cash flow cycle along with efficient management of working capital.
Cash forecasting is backbone of cash planning. It forewarns a business
regarding expected cash problems, which it may encounter, thus assisting it to
regulate further cash flow movements. Lack of cash planning results in spasmodic cash
Every business is interested in accelerating its cash collections and decelerating
cash payments so as to exploit its scarce cash resources to the maximum. There are
techniques in the cash management which a business to achieve this objective.
The importance of liquidity in a business cannot be over emphasized. If one does
the autopsies of the businesses that failed, he would find that the major reason
for the failure was their inability to remain liquid. Liquidity has an intimate relationship
with efficient utilization of cash. It helps in the attainment of optimum level of liquidity.
Due to non-synchronization of ash inflows and cash outflows the surplus cash may arise at
certain points of time. If this cash surplus is deployed judiciously cash management will
itself b e c o m e a p r o f i t c e n t e r . H o w e v e r , m u c h d e p e n d s o n t h e
q u a n t u m o f c a s h s u r p l u s a n d acceptability of market for its short-term
Another product of non-synchronization of cash inflows and cash outflows is emergence of
deficits at various points of time. A business has to raise funds to the extent and for the
period of deficits. Rising of funds at minimum cost is one of the important facets of cash
The ideal cash management system will depend on the firm‟s products,
organization structure, competition, culture and options available. The task is
complex, and decisions taken can affect important areas of the firm. For example, to
improve collections if the credit period is reduced, it may affect sales. However, in certain
cases, even without fundamental changes, it is possible to significantly reduce cost of
cash management system by choosing a right bank and controlling the collections
Baumol model of cash management
Baumol model of cash management helps in determining a firm's optimum cash balance
under certainty. It is extensively used and highly useful for the purpose of cash management.
As per the model, cash and inventory management problems are one and the same. William
J. Baumol developed a model (The transactions Demand for Cash: An Inventory Theoretic
Approach) which is usually used in Inventory management & cash management.Baumol
model of cash management trades off between opportunity cost or carrying cost or holding
cost & the transaction cost. As such firm attempts to minimize the sum of the holding cash &
the cost of converting marketable securities to cash.
There are certain assumptions that are made in the model. They are as follows:
1. The firm is able to forecast its cash requirements with certainty and receive a specific
amount at regular intervals.
2. The firm‟s cash payments occur uniformly over a period of time i.e. a steady rate of cash
3. The opportunity cost of holding cash is known and does not change over time. Cash
holdings incur an opportunity cost in the form of opportunity foregone.
4. The firm will incur the same transaction cost whenever it converts securities to cash. Each
transaction incurs a fixed and variable cost.
For example, let us assume that the firm sells securities and starts with a cash balance of C
rupees. When the firm spends cash, its cash balance starts decreasing and reaches zero. The
firm again gets back its money by selling marketable securities. As the cash balance
decreases gradually, the average cash balance will be: C/2. This can be shown in following
The firm incurs a cost known as holding cost for maintaining the cash balance. It is known as
opportunity cost, the return inevitable on the marketable securities. If the opportunity cost is
k, then the firm‟s holding cost for maintaining an average cash balance is as follows:
Holding cost = k (C/2)
Whenever the firm converts its marketable securities to cash, it incurs a cost known as
transaction cost. Total number of transactions in a particular year will be total funds required
(T), divided by the cash balance (C) i.e. T/C. The assumption here is that the cost per
transaction is constant. If the cost per transaction is c, then the total transaction cost will be:
Transaction cost = c (T/C)
The total annual cost of the demand for cash will be:
Total cost = k (C/2) + c (T/C)
Optimum level of cash balance
As the demand for cash, „C‟ increases, the holding cost will also increase and the transaction
cost will reduce because of a decline in the number of transactions. Hence, it can be said that
there is a relationship between the holding cost and the transaction cost.
The optimum cash balance, C* is obtained when the total cost is minimum.
Optimum cash balance (C*) = Ö2cT/k
Where, C* is the optimum cash balance.
T is the total cash needed during the year.
k is the opportunity cost of holding cash balances.
With the increase in the cost per transaction and total funds required, the optimum cash
balance will increase. However, with an increase in the opportunity cost, it will decrease.
Limitations of the Baumol model:
1. It does not allow cash flows to fluctuate.
2. Overdraft is not considered.
3. There are uncertainties in the pattern of future cash flows.
Miller-Orr Model for Cash Management
Most firms maintain a minimum amount of cash on hand to meet daily obligations or as a
requirement from the firm's bank. A maximum amount may also be specified to reflect the
tradeoff between the transactions cost of investing in liquid assets (e.g. Money Market
Funds) and the cost of lost interest if the cash is not invested. The Miller-Orr model
computes the spread between the minimum and maximum cash balance limits as.
Spread= 3(0.75 x transaction cost x variance of daily cash flows / daily interest rate) ^(1/3)
(wherea^b is used to denote "a to the power b").
The maximum cash balance is the spread plus the minimum cash balance, which is assumed
to be known.
The "return point" is defined as the minimum cash balance plus spread/3.
Whenever the cash balance hits (or exceeds) the maximum, the firm should invest the
difference between the amount available and the return point; if the minimum is reached,
sufficient securities should be sold to bring it up to the return point.
i. When cash balance reaches point „A', the upper limit, company will invest the surplus
to bring down the cash balance to return point.
ii. When cash balance touches down point `B', the lower limit, the company would
liquidate some of its securities to increase the balance back to return point.
iii. Upper and lower limits are determined as explained above.
iv. These limits depend upon variance of cash flow, transaction cost and interest rate.
v. If variability of cash flow is high and transaction cost is high too, then the limits will
be wide apart, otherwise narrow would suffice.
vi. If interest rates are high then the narrow limits would be set
vii. To keep interest cost as low as possible, the return point is set 1/3 of the spread
between the lower and upper limit.
Cash management is the stewardship or proper use of an entity‟s cash resources. It serves as
the means to keep an organization functioning by making the best use of cash or liquid
resources of the organization.
The function of cash management at the U.S. Treasury is threefold:
1. To eliminate idle cash balances. Every dollar held as cash rather
than used to augment revenues or decrease expenditures represents a
lost opportunity. Funds that are not needed to cover expected transactions can
be used to buy back outstanding debt (and cease a flow of funds out of the Treasury
for interest payments) or can be invested to generate a flow of funds into the
Treasury‟s account. Minimizing idle cash balances requires accurate information
about expected receipts and likely disbursements.
2. To deposit collections timely. Having funds in-hand is better than having accounts
receivable. The cash is easier to convert immediately into value or
goods. A receivable, an item to be converted in the future, often is
subject to a transaction delay or a depreciation of value. Once funds are
due to the Government, they should be converted to cash-in-hand
immediately and deposited in the Treasury's account as soon as possible.
3. To properly time disbursements. Some payments must be made on a
specified or legal date, such as Social Security payments. For such payments,
there is no cash management decision. For other payments, such as vendor payments,
discretion in timing is possible. Government vendors face the same cash
management needs as the Government. They want to accelerate
collections. One way vendors can do this is to offer discount terms for timely
payment for goods sold.
The importance of cash management
1. Cash is crucial for every business. Every company has to have cash on hand or at
least access to cash in order to be able to pay for the goods and services it uses, and
consequently, to stay in business. By ensuring the company with the necessary funds
for supporting its everyday operations, cash management becomes a vital function for
the company. Cash flows have an impact on the company‟s liquidity. Liquidity is the
ability of the company to pay its obligations when they come due. It is comprised of:
cash on hand, assets readily convertible into cash, as well as ready access to cash
from external sources, such as bank loans (Coyle, 2000, p. 3). If cash flows and liquid
funds are not effectively and successfully planned and managed, a company may not
be able to pay its suppliers and employees in a timely manner. It may be profitable
according to its financial statements, but in fact, this company will not be able to pay
its obligations when they come due. Moreover, lack of liquidity will incur increased
costs in the form of interest charges on loans, late payment penalties and losing
supplier discounts for paying obligations on time. Proper cash management can avoid
the costs of additional funding and can provide the opportunity for more favorable
terms of payment (Dropkin& Hayden, 2001, p. 3). In the worst case scenario, if the
liquidity shortage continues for the longer term, the company might face no access to
external resources, ending into insolvency (Coyle, 2000, p. 3). Therefore, once again,
it follows that cash management has a critical importance for the life of every
company.5 another benefit of cash management to the company is that it makes the
company financially flexible. Ready access to cash enables the company to undertake
expenditure decisions if and whenever it wishes, without the trouble and constraint of
finding new financial support (Coyle, 2000, p. 3). The ultimate goal of every
company is maximizing shareholder value, i.e. maximizing the net present value of
future cash flows. Cash management contributes to attaining that goal as well. If a
firm keeps high levels of cash, it increases its net working capital and the costs of
holding cash, both of which decrease the value of the firm. Cash management
influences the value of the firm by limiting cash levels so that an optimal balance
between the costs of holding cash and the costs of inadequate cash is achieved. “In
addition, cash management influences firm value, because its cash investment levels
entail the rise of alternative costs, which are affected by net working capital levels.
Both the rise and fall of net working capital levels require the balancing of future free
cash flows, and in turn, result in firm valuation changes” (Michalski, 2006, p. 180).
1. To understand how cash is being managed by BANK OF INDIA
2. To gain knowledge about the system prevailing in Banks.
3. To suggest methods for improving cash management in Banks.
4. To analyze in detail, the way Banks currently manage their finances and make decisions to
achieve tradeoff between profitability and liquidity
Davidson (1992) defined cash management as a term which refers to the collection
concentration and disbursement of cash. It encompasses a company‟s level of liquidity,
management of cash balance and short term strategies. Weak cash flow makes it difficult to
hire and retain good employees (Beranek, 2000). Ross (2000) says that, it is only natural that
major business expenses are incurred in the production of goods or the provision of services.
In most cases, a business incurs such expenses before the corresponding payment is received
from customers. In addition, employee salaries and other expenses drain considerable funds
from most business. These make effective cash management an essential part of the business
financial planning. Vanhorne (2001) says that, a common cash management tool found in
companies is a cash budget. Most companies prepare budgets on the departmental level and
roll these individual budgets into one master budget. Creating several smaller budgets, can
help managers determine which operations use more cash and struggle to stay on the
projected budget amounts. This discovery gives managers an idea of when improvements
needed to correct the company‟s cash flow problems. Therefore, cash budgeting is another
aid to an effective cash management. Pindado (2004) also defines cash management as part
of working capital that makes up the optimal level needed by a company. Bort (2004) noted
that, cash management is of importance for both new and growing businesses. Companies
may suffer from cash flow problems because of lack of margin of safety in case of
anticipated expenses such that they experience problems in finding the funds for innovation
or expansion According to Bort (2004) cash is the lifeblood of the business. The key to
successful cash management lies in tabulating realistic projections, monitoring collections
and disbursements, establishing effective billing and collection measures, and adhering to
budgetary parameters because cash flow can be a problem to the business organization.
According to Moffet (2004), postponing capital expenditure is one method that can ease cash
shortage hence, suggests efficient cash management. Kirkman (2006) states that, some
capital expenditures are more important and urgent than others hence, it might be imprudent
to postpone expenditure on fixed assets which are needed for the development and growth of
business. On the other hand, some expenses are routine and might be postponable without
serious consequences. When a lot of cash is used to pay for fixed assets, the company may
come up against a cash crunch that prevents it from paying suppliers, buying materials and
even paying salaries. It‟s a good idea, to maintain a level of working capital that allows
making through those crunch times and continuing to operate the business.
BANK OF INDIA
Bank of India was founded on 7th September, 1906 by a group of eminent businessmen
from Mumbai. The Bank was under private ownership and control till July 1969 when it was
nationalized along with 13 other banks.
Beginning with one office in Mumbai, with a paid-up capital of Rs.50 lakh and 50
employees, the Bank has made a rapid growth over the years and blossomed into a mighty
institution with a strong national presence and sizable international operations. In business
volume, the Bank occupies a premier position among the nationalized banks.
The Bank has 3752 branches in India spread over all states/ union territories including
specialized branches. These branches are controlled through 50 Zonal Offices. There are 29
branches/ offices (including five representative offices) and 3 Subsidiaries and 1 joint venture
The Bank came out with its maiden public issue in 1997 and follow on Qualified Institutions
Placement in February 2008. . Total number of shareholders as on 30/09/2009 is 2, 15,790.
While firmly adhering to a policy of prudence and caution, the Bank has been in the forefront
of introducing various innovative services and systems. Business has been conducted with
the successful blend of traditional values and ethics and the most modern infrastructure. The
Bank has been the first among the nationalized banks to establish a fully computerized
branch and ATM facility at the Mahalaxmi Branch at Mumbai way back in 1989. The Bank
is also a Founder Member of SWIFT in India. It pioneered the introduction of the Health
Code System in 1982, for evaluating/ rating its credit portfolio.
The Bank's association with the capital market goes back to 1921 when it entered into an
agreement with the Bombay Stock Exchange (BSE) to manage the BSE Clearing House. It is
an association that has blossomed into a joint venture with BSE, called the BOI Shareholding
Ltd. to extend depository services to the stock broking community. Bank of India was the
first Indian Bank to open a branch outside the country, at London, in 1946, and also the first
to open a branch in Europe, Paris in 1974. The Bank has sizable presence abroad, with a
network of 29 branches (including five representative offices) at key banking and financial
centers viz. London, New York, Paris, Tokyo, Hong-Kong and Singapore. The international
business accounts for around 17.82% of Bank's total business.
The Bank has a strong position in financing foreign trade. Over 270 branches provide export
credit. The expertise in this area has enabled the Bank to achieve a leading position in
providing export credit in certain areas like diamond export. The Bank has identified
specialized target groups to develop core advantage for future growth. The Bank has
specialized branches comprising of Corporate Banking Branches to undertake very large
credit business, Overseas Branches specializing in Foreign Exchange Business, NRI
Branches which specially cater to the requirements of Non-Resident Indians, Capital Market
Branches which undertake all activities relating to capital market such as collection of
applications, processing of refund orders, Merchant Banking etc. Commercial &Personal
Banking Branches cater to the requirements of high net worth customers. Apart from this, the
Bank also has specialized Branches for Asset Recovery, Small Scale Industries, Hi-tech
Agriculture Finance, Lease Finance and Treasury. To effectively meet the ever-growing
challenges and competition, the Bank has made a good headway in bringing about
technological up gradation. MIS and critical functions of controlling offices have been
computerized. At present, the operations at about 2618 branches are totally computerized. 26
branches operate in partially computerized mode besides these 1019 branches and 31
extension counters are migrated to Core Banking Solution. New facilities such as,
Telebanking, ATM & Signature Retrieval Systems have been introduced in a progressing
manner to add value to services. Telebanking facilities with Fax on Demand facility, Remote
Access Terminals for Corporate Customers are now available at many branches. The Bank
has installed ATMs in Mumbai and other centers in the country. The Bank is a member of the
RBI's VSAT Network and has installed 39 VSATs linking strategic branches/offices. The
Bank is making a paradigm shift from branch automation to bank automation and is in the
process of implementing a Multi-Branch Banking Project that facilitates City-wise
Connectivity of Computerized Branches. The Bank is in the process of installing BOINET, a
Wide Area Network for providing an inter- and intra-city connectivity, as a part of enhancing
its decision support system.
The Bank's corporate personality and philosophy are fully reflected in the emblem,
which is a five-pronged Star -- a harmonious blend of traditional and the functional.
The elongated prong pointingupwards conveys the Bank's drive to achieve ascending
goals. The Star is a beacon and guide to those in need of direction.
BANK‟S NEW INITIATIVES
The Bank has finalized acquiring 76% stake in P T Bank SwadesiTbk, a listed Bank
in Indonesia and the formalities to take over the management of the said Bank is in
Bank entered into an arrangement with Dai-Ichi Mutual Life Insurance Company,
second largest Japanese company in the field of Life Insurance (sixth largest in the
world) and Union Bank of India for setting up a Joint Venture Life Insurance
Company with capital stake of 51%, 26%, and 23% respectively. Formalities for
incorporation of JV Company are in advanced stage.
Bank opened 63 new branches and converted 41 Extension counters to full-fledged
branches. Total number of domestic outlets is 2845.
a) With the opening of a branch at Antwerp (Belgium), number of overseas offices
stands at25 spread in 13 countries. Shenzen Representative Office in China was
upgraded as a Branch in March 2007. A new Representative Office was opened in
b) Bank has taken over management of Almana Exchange House in Doha Qatar.
c) Arrangements with Bank Azizi, Kabul in Afghanistan made for money remittance
d) Bank‟s International Operations contribute 20% of Bank‟s total Business.
e) Bank is holding approval of Reserve Bank of India for setting up:
Subsidiaries in Tanzania and Canada,
Branches in DIFC (Dubai) and Dhaka (Bangladesh), and
Representative Offices in Dubai, Johannesburg (South Africa) and Doha
Delegation of powers
Bank will ensure that authorities at various levels will be empowered with adequate powersto
take prompt decisions with regard to sanctioning of loans and advances, issuance of
guarantees, settlement of claims of deceased depositors, issuance of duplicate demand
drafts,deposit receipts, other claims and administrative matters concerning customer service.
In order to facilitate quick decision-making and to suit the changing requirements, the
organizational structure has been revamped. More specialized branches like Personal
Banking Branches, Corporate Branches, Small Scale Industries Branches, Hi-tech
Agricultural Finance Branches, Housing Finance Branches, Capital Market Branches,
Overseas and NRI Branches have been opened at important centers. in all business operations
at all stages. Customers will be educated about the various products and facilities available.
A uniform strategy will always be adopted to eliminate any possibility of discrimination on
caste, creed and religion or economic status of the clients. Secrecy norms will be
simultaneously observed to protect the interests of our customers.
Surveys by outside agencies
All steps will be taken by bank to improve Customer Service and enhance customer
satisfaction. Towards this end, bank services will be got evaluated through outside reputed
marketing agencies with a view to assessing the quality of services extended at the branches
and to ensure that bank customer service match the expectations of bank‟s variousclientele.
Cash Management Services generally offered by banks
The following is a list of services generally offered by banks and utilized by
larger businesses and corporations:
1. Account Reconcilement Services: Balancing a checkbook can be a difficult
process for a v e r y l a r g e b u s i n e s s , s i n c e i t i s s u e s s o m a n y
c h e c k s i t c a n t a k e a l o t o f h u m a n m o n i t o r i n g t o
u n d e r s t a n d w h i c h c h e c k s h a v e n o t c l e a r e d a n d t h e r e f o r e
w h a t t h e company‟s true balance is. To address this, banks have developed a
system which allows companies to upload a list of all the checks that they issue on a
daily basis, so that at the end of the month the bank statement will show not
only which checks have cleared, but also which have not. More recently,
banks have used this system to prevent checks from being fraudulently cashed if
they are not on the list, a process known aspositive pay
2. Advanced Web Services: Most banks have an Internet-based system
which is more advanced than the one available to consumers.
This enables managers to create and authorize special internal logon
credentials, allowing employees to send wires and access other cash management
features normally not found on the consumer web site.
3. Armored Car Services: Large retailers who collect a great deal of cash
may have the bank pick this cash up via an armored car company,
instead of asking its employees to deposit the cash.
4. Automated Clearing House: services are usually offered by the cash
management division of a bank. The Automated Clearing House
is an electronic system used to transfer funds between banks.
Companies use this to pay others, especially employees (this is how
direct deposit works). Certain companies also use it to collect funds
from customers (this is generally how automatic payment plans
work). This system is criticized by some consumer advocacy groups; because
under this system banks assume that the company initiating the debit is correct until
5. Balance Reporting Services: Corporate clients who actively manage their cash
balances usually subscribe to secure web -based reporting of their
account and transaction information at their lead bank. These sophisticated
compilations of banking activity may include balances in foreign
currencies, as well as those at other banks. They include
information on cash positions as well as 'float' (e.g., checks in the process of
collection).Finally, they offer transaction-specific details on all forms of payment
activity, including deposits, checks, wire transfers in and out, ACH
(automated clearinghouse debits and credits), investments, etc.
6. CashConcentrationServices: Large or national chain retailers often are in areas where
their primary bank does not have branches. Therefore, they open bank accounts at
various local banks in the area. To prevent funds in these
accounts from being idle and not earning sufficient interest, many of
these companies have an agreement set with their primary bank,
whereby their primary bank uses the Automated Clearing
Housetoelectronically "pull" the money from these banks into a single
interest-bearing bank account.
7. Lockbox services: Often companies (such as utilities) which receive a
large number of payments via checks in the mail have the bank set up a
post office box for them, open their mail, and deposit any checks found. This is
referred to as a "lockbox" service.
8. Positive Pay: Positive pay is a service whereby the company
electronically shares its check register of all written checks with
the bank. The bank therefore wil l only paychecks listed in that register,
with exactly the same specifications as listed in the register (amount, payee, serial
number, etc.). This system dramatically reduces check fraud.
9. Sweep Accounts: are typically offered by the cash management
division of a bank. Under this system, excess funds from a
company's bank accounts are automatically moved into a money
market mutual fund overnight, and then moved back the next
morning. This allows them to earn interest overnight. This is the primary
use of money market mutual funds.
10. Zero Balance Accounting: can be thought of as somewhat of hack.
Companies with large numbers of stores or locations can very often be
confused if all those stores are depositing into a single bank account.
Traditionally, it would be impossible to know which deposits were from
which stores without seeking to view images of those deposits. To help correct
this problem, banks developed a system where each store is given their
own bank account, but all the money deposited into the individual store
accounts are automatically moved or swept into the company's main
bank account. This allows the company to look at individual
statements for each store. U.S. banks are almost all converting their
systems so that companies can tell which store made a particular deposit, even if
these deposits are all deposited into a single account. Therefore, zero
balance accounting is being used less frequently.
11. Wire Transfer: A wire transfer is an electronic transfer of funds. Wire transfers
can be done by a simple bank account transfer, or by a transfer of cash at
a cash office. Bank wire transfers are often the most expedient method
for transferring funds between bank accounts. A bank wire transfer is a
message to the receiving bank requesting them to effect payment in
accordance with the instructions given. The message also includes
settlement instructions. The actual wire transfer itself is virtually instantaneous,
requiring no longer for transmission than a telephone call.
12.Controlled Disbursement: T h i s i s a n o t h e r p r o d u c t o f f e r e d b y
b a n k s u n d e r C a s h Management Services. The bank provides a daily
report, typically early in the day, that provides the amount of
disbursements that will be charged to the customer's account. This
early knowledge of daily funds req uirement allows the customer
to invest any surplus in intraday investment opportunities, typically money
market investments. This is different from delayed disbursements,
where payments are issued through a remote branch of a bank and
customer is able to delay the payment due to increased float time. In the past, other
services have been offered the usefulness of which has diminished with the rise of
the Internet. For example, companies could have daily faxes of their most recent
transactions or be sendof images of their cashed checks.
CORPORATE SOCIAL RESPONSIBILITY FOLLOWED BY
1. Bank as part of its centenary celebrations promoted a Trust, „ABHAY‟, to offer credit
counseling services, free of cost, with the following objectives:
Advising on gaining access to structured financial system including banking
Counseling people who are struggling to meet the repayment obligations and helping
Helping in rehabilitation of borrowers in distress
2. Bank has pioneered a Mega Project for Integrated Development of 129 villages in
78Districts and 17 States covering 60,000 households, identified for holistic development
and showcased as Model Villages. The Bank has so far extended financial assistance over
Rs.150 crores to the rural households in the identified villages. An evaluation study
conductedin select villages has revealed that there is 20-25% improvement in the
household income after the implementation of the scheme.
MISSION AND VISION OF BANK OF INDIA
To provide superior, proactive banking services to niche markets globally, while providing
cost-effective, responsive services to others in our role as a development bank, and in so
doing, meet the requirements of our stakeholders.
To become the bank of choice for corporates, medium businesses and upmarket retail
customers and to provide cost effective developmental banking for small business, mass
market and rural markets.
1. To understand how cash is being managed by BANK OF INDIA
2. To gain knowledge about the system prevailing in Banks.
3. To suggest methods for improving cash management in Banks.
4. To analyze in detail, the way Banks currently manage their finances and make decisions to
achieve tradeoff between profitability and liquidity
For this research descriptive research design is used.
All the employees who are directly or indirectly related to the Bank of India, New Delhi.
All the employees who are directly or indirectly related to the Bank of India, New Delhi.
SOURCE OF DATA:
Primary Data: - Structured direct Interviews with the concerned persons of Finance &
Secondary Data: - Annual Report, Store Records & various books.
LIMITATIONS OF THE STUDY:
1- Some of the respondents refused to fill questionnaire during the research work.
2- Some of the lower level store department employees were not well educated.
Cash Management Services
The menu of cash management services offered by banks is indeed diverse and tempting. The
services broadly fall under collection services, disbursement services, information and
control services, services related to electronic data interchange commercial web banking
services, sweep services, fraud detection solutions, global trade solutions and investment
solutions. Collection Services accelerate receipt of payments from sales and quickly turn
them into usable cash in accounts. Disbursement Services make efficient payments by
reducing or eliminating idle balances in company‟s accounts. Information and Control
Services receive the data and provide the management capability needed to monitor company
cash picture, control costs, reconcile and audit bank accounts, and reduce exposure to fraud.
Financial Electronic Data Interchange is a computerized exchange of payments between a
company‟s business and its customers and vendors. Commercial Web Banking Services give
a wide range of services from any Internet connection, which can help streamline banking
process quickly and efficiently. Sweep Services maintain liquidity and increase earnings
without having to actively monitor accounts and move money in and out of them.
Information reporting solutions assist companies, which need to receive account data that is
timely, precise, and easy to access and interested in initiating online transactions. Investment
solutions help to minimize excess balances and maximize return on available funds.
Findings & Conclusions
Conclusions regarding cash management services
In today‟s competitive world the key differentiator between a successful bank and other bank
is the stress each lays on technology.
The above chart gives a clear explanation regarding the Cash Management infrastructure
provided by all the three sectors. The network, technology and the corporate relationship
services provided by all the three sectors are highly sophisticated and good but the
scalability, marketing provided by the Public sector is low in terms of the Private and MNC
sector. As well as the services provided by the public sector is not fairly good and up to the
standard. As Cash management is constantly changing to meet the needs of the corporate
treasurer. The challenge for both corporation and provider is to keep up with developments,
technology, changing regulations and fitting these in with normal business. A changing
regulatory environment, new technology and mergers that expand the scope of traditional
banking are redefining the traditional treasury management paradigm for both banks and
corporations. Electronic commerce is evolving far beyond simply ordering goods online or
buyer-to supplier commerce.
In a vast country like India Providing Cash Management Services do posses a challenge to
the Cash Manager as well as the banks. Considering the present Indian scenario, where
Cheques are the basic form of payment and cheque clearing takes a long time, cash
management services need to devise innovative methods and means to expedite the clearing
to benefit the corporate customer. As the Indian economy becoming an open market
economy, residents may maintain accounts in other countries and non-residents may hold
accounts in India. As a result, Indian treasurers may often find themselves managing cash
across geographies and time zones. In India the transaction types run from the classic paper
cheque to the latest Internet initiated electronic payment. Corporations initiate and receive
paper-based transactions, as well as high value and low value electronic transactions on a
daily basis. Expectations from new services may not eliminate or fully replace the older
traditional services. Change will be gradual but, probably, it will be firm. Fee structures for
cash management services in India vary from bank to bank and also from customer to
customer. Many banks price the services based upon the overall relationship, especially for
multiple product solutions. As Indian banks become more consultative and total solution
oriented rather than product-driven, pricing will become even more customized. Corporate
treasurers will consider the amount they can save on banking fees and the level of efficiency
in their departments as a sequel to the new cash management services. After they have
negotiated the best possible price, treasurers then focus on the return on excess balances.
SWOT Analysis of Competition in the CMS Market
The above Chart gives the explanation of the SWOT analysis and the competition in the cash
management services in the market. It tells about the products offered and the services it
Importance of Cash Management for a Corporate Entity
There is a need to put in place a specialized cash management system by Corporates. Good
Cash Management is a conscious process of knowing when, where, and how a company‟s
cash needs will occur; knowing what the best sources for meeting additional cash needs; and
being prepared to meet these needs when they occur by keeping good relationships with
bankers and other creditors. Cash management results in significant savings in time decrease
in interest costs, less paper work and greater accounting accuracy. Proper cash management
creates more control over time and funds; provides timely access to information; enables
easy employee related payments; supports electronic payments; produces faster electronic
reconciliation; allows for detection of bookkeeping errors; reduces the number of cheques
issued and earns interest income or reduces interest expense. Corporations with subsidiaries
worldwide can pool everything internationally so that the company can offset the debts with
the surplus monies from various subsidiaries. The end result will transform treasury function
as a profit-centre by optimizing cash and put it to good use. Creative and pro-active cash
management solutions can contribute dramatically to a company‟s profitability and to its
competitive edge. The ultimate purpose of proper management of liquidity, needless to
emphasize, is to improve the overall productivity of funds.
How Corporate Select a Bank for Sourcing Cash Management
Probably, it is important to consider what the companies expect from their bankers in this
regard. It is normally the client-bank relationship, which is a main consideration in choosing
a bank for cash management. Pricing, obviously, is a very dominant factor. Making a choice
between the local banks and the more highly priced foreign banks usually depends on how
cost savings are presented by the banks. Multinational corporate with complex treasury
operations admire their respective banks‟ expertise and ability to offer creative solutions.
There are some common requirements related to basic cash management systems. Flexibility,
reliability, security and stability have been cited as vital parameters for any electronic
banking system. The systems should be tailored to provide pertinent reports and the ability to
upgrade easily in future. The technology should allow real-time cash management with
strategic banking partners. It should integrate easily with legal framework in place. It should
lower operating costs and resolve disputes quickly by providing secure and legally
enforceable audit trails. It should be capable of reducing risk of fraud in electronic funds
transfers and other treasury activities. It should also be able to use a low-cost public network
infrastructure like Internet, which eliminates the need for dedicated leased lines.
For instance, availability of requisite bandwidth for Internet connection is still a problem
faced by various financial institutions. With a highly technology savvy there are several
exciting new opportunities for both user and provider in the cash management arena. Cash
management worldwide is constantly evolving to meet the needs of the corporate treasurer,
take advantage of new technology and support customers as they move into new markets.
The challenge for both company and service provider is to keep up with developments in
technology and changing regulations and espouse them to their normal business. The key to
success will be active partnerships between corporations and their providers as no one will be
able to keep up with all developments on their own.
Because of the mounting importance of fee-based financial services, all banks need to
finetune their strategies, if they want to harness the potential in this area. They need to
appreciate the dynamics of the new fee-based market, which is driven by the growth of the
Internet and inter-connect applications.
But it won‟t be easy for all banks to capture their share and profit of the swiftly expanding
fee-based market. Taking advantage of the opportunities and avoiding the threats of
unprofitable products, insufficient customer service, and diverse IT applications entails an
understanding of the market place, the needs and expectations of the customer and of course
the competition. It is an important point to note that offering fee-based services is no longer a
choice today to the beleaguered banker. It is a desirable compulsion to thrive. Managing cash
in the emerging milieu will require a new mind-set of banker and his client.
1- Introduction to operation Research By HamdyA.Taha
2- Introduction of operation Research By J.K.Sharma
3- Learning operation Research By S.K Jaiswal