Treasury Management

MMS-II 2012-12 GROUP NO: 4 Presented By: Deepa Jaiswal

Allen Lopes Chirag Pagdhare Staynel Rodrigs Asha Tilwani
10/13/2012 1

Introduction
It is an crucial tool of finance.
It is the management of cash, fund, currency, bank and financial risk In this there is estimation of risk for investment of cash.

10/13/2012

Cont.
A place where stores of treasures are kept; the place of deposit, care, and disbursement of collected funds Collects funds and disburses money. Managing Funds through proper allocation Responsibilities fall under the scope of CFO The CFOs responsibilities include capital management, risk

management, strategic planning, investor relations and

financial reporting
10/13/2012 3

Treasury Management
Treasury forms a vital part of any commercial banks activities. It is the window through which the bank raises funds from or places funds in markets Traditionally, banks in India, the role of Treasury was limited to ensuring the maintenance of RBIs stipulated norms for cash reserve ratio (CRR) & Statutory Liquidity Ratio(SLR) The deregulation of financial markets began with the shift to market- determined exchange rates and moved ahead with the freeing of Bank deposit and lending rates The RBI began using monetary intervention tools such as LAF and Open Market Operations (OMOs) to manage liquidity
10/13/2012 4

Banks Treasury Departments

A Fixed Income or Money Market desk that is devoted to buying and

selling interest bearing securities

A Foreign exchange or "FX" desk that buys and sells currencies A Capital Markets or Equities desk that deals in shares listed on the stock market Proprietary Trading desk that conducts trading activities for the bank's own account and capital

ALM desk that manages the risk of interest rate mismatch and liquidity

10/13/2012

Integrated Treasury
Integrated Treasury refers to integration of money market, securities market and foreign exchange operations. Objectives a. Meeting reserve requirements b. Provision for adequate and timely liquidity c. Global cash management d. Optimizing profit by exploiting market opportunities in forex market, money market and securities market e. Risk management f. Efficient merchant services g. Assisting bank management in ALM
10/13/2012 6

OBJECTIVES OF INTEGRATED TREASURY MANEGEMENT POLICY

To maintain Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) in terms of RBI guidelines To achieve optimum level of return from the investment operation including forex transactions keeping in mind the liquidity and risk aspects of the portfolio. To manage liquidity i.e. to bridge temporary mismatch in fund position by resorting to various options viz. Call, CBLO etc. To maintain maturity pattern of investments consistent with the banks need for funds and in line with Asset Liability management Policy of the Bank To manage credit risks, liquidity risk, market risk and operational risk in tune with banks risk management policies
10/13/2012 7

Integrated Treasury Department

Domestic Treasury Operations
Make investment in their own account SLR, CRR, CP, CD, TB, Bonds & Debentures, Equities and various other derivatives

Forex Treasury Operations

10/13/2012

Conduct operation on behalf of clients Spot and forward markets, foreign exchange swap markets , FCNR and Nostro Account.

Structure of Treasury Department

Function Front office Responsible for Dealing

Mid-Office

Risk management, accounting and management information

Back office

Confirmations, settlement and reconciliation

9

10/13/2012

FRONT OFFICE

Dealing

MID OFFICE

BACK OFFICE

settlement MIS

10/13/2012

10

Bank Treasury Departments

Money market desk A Fixed Income or Money Market desk that is devoted to buying and selling interest bearing securities Foreign exchange or FX desk A Foreign exchange or "FX" desk that buys and sells currencies Equities Desk A Capital Markets or Equities desk that deals in shares listed on the stock market. Derivatives Desk
10/13/2012 11

Functions of Treasury Management

Reserve Management & Investment Cash Management Liquidity & Funds Management Risk Management Asset liability management Transfer Pricing Derivative products Arbitrage

10/13/2012

12

Reserve Management & Investment Meeting CRR/SLR obligations a) CRR 4.75% b) SLR 23% Appropriate mix of investment portfolio Cash Management Control & care of the cash assets and liabilities of the organization. Selection of investment products, investment brokers, methods of borrowing, cash management information systems.
10/13/2012 13

Liquidity & Funds Management Analysis of cash flow arising out of asset liability transaction Fund various asset of balance sheet Policy inputs to strategic planning and yield expected in credit and investment. Risk Management Changes in Interest rates Increasing NPAs Increasing level of disintermediation
10/13/2012 14

Transfer Pricing Transfer of funds to related party. Assist in enhancing profits Performance evaluation

Derivative Products Develop Interest Rate Swap and other cross currency derivative products Hedge banks own exposure and also sell to customers
Arbitrage Risk less profits
10/13/2012 15

What is Asset Liability Management

An attempt to match : Assets & Liabilities In Terms of : Maturities & interest rate sensitivities To Minimize: Interest rate risk & Liquidity Risk

10/13/2012

16

Asset Liability Management

Asset Management

Liability Management

How Liquid are assets of banks

How easily banks can generate loans from market

10/13/2012

17

ALM
ALM is an integral part of the financial management process of a bank. ALM is concerned with strategic balance sheet management involving risks caused by changes in interest rate, exchange rates and liquidity position of the bank. ALM can be termed as risk management technique designed to

earn an adequate return while maintaining a comfortable

surplus of assets beyond liabilities.
10/13/2012 18

Thank You
10/13/2012 19