You are on page 1of 51


 To know about Cash Management of Banks

 To analyze the Cash Management Process of Bank

 To analyze in detail, the way Banks currently manage their finances and make

decisions to achieve trade off between profitability and liquidity

Scope of the Project

Efficient cash management processes are pre-requisites to execute payments, collect

receivables and manage liquidity. This study done, taking consideration of Thane

Janta Sahakari Bank. With reference to experience availed at branch. The study of this

topic will help to get the knowledge about cash management policy of banks as

particularly in co-operative sector. The mounting pressure from competitors forces the

Banks to look for an Information Technology vendor who can offer better solutions

and services in Cash Management and Internet Banking.

Hence the study will lead to analysis of policies and procedure of managing cash

inflow and outflow, also this project focus on RBI norms and rules regarding PCBs

(Primary Co-operative Banks) cash management policies. This will give brief view

about entire structure of liquidity management of banks and solutions offered by



Thane Janata Sahakari Bank’s cash management policy is in conformity

with rules and regulation of RBI.


Proble m Formulation

Efficient management of cash (outflows/inflows) to improve liquidity and

returns will be important factors for the banking sector. This project analyzed

cash management of banks on this basis.

Research Design

The research design for this study is basically analytical because it utilizes the

large number of data of the Banks.

Data Type

Primary data takes much time and are also expensive whereas the secondary

data are easy to search and are not expensive too.

Mainly secondary data utilised for this project study. The annual reports of the

TJSB bank and master circulars of RBI were used for getting information.

Executive Summary

In a business anything done financially affects cash eventually.

“Cash Is To A Business Is What Blood Is To A Living Body”.

A business cannot operate without its life blood cash, & without cash management

there may remain no cash to operate. Cash movement in a business is two way traffic.

It keeps on moving in & out of business. The inflow & outflow of cash never

coincides. Important aspect which is unique to cash management is time dimension

associated with the movement of cash. Due to non-synchronicity of cash inflow

outflow, the inflow may be more than outflow or outflow may be more than inflow at

a particular point of time. Hence there is a direct need to control its movement

through skilful cash management. The primary aim of cash management is to ensure

that there should be enough cash availability when the needs arise not too much but

never too little.

Banking History

Banks are the most significant players in the India n financial market. They are the

biggest purveyors of credit, and they also attract most of the savings from the

population. Dominated by public sector the banking industry has so far acted as an

efficient partner in the growth and the development of the country. Public sector

banks have long been the supporters of agriculture and other priority sectors. They act

as crucial channels of the government in its efforts to ensure equitable economic


The Indian banking can be broadly categorized into:

1. Nationalized (Government owned)

2. Private Banks and

3. Specialized Banking Institution.

The reserve bank of India acts as a centralized body monitoring any discrepancies and

shortcoming in the system. It is the foremost monitoring body in the Indian financia l

sector. Since the nationalization of banks in 1969, the public sector banks or the

nationalized banks have acquired a place of prominence and has since then seen

tremendous progress. The need to become highly customer focused has forced the

slow- moving public sector banks to adopt a fast track approach. The unleashing of

products and services through the net has galvanized players at all levels of the

banking and financial institutions market grid to look a new at their existing portfolio

offering. Conservative banking practices allowed Indian banks to be insulted partially

from the Asian currency crisis.

Indian banks are now quoting at higher valuation when compared to banks in other

Asian countries (viz. Hongkong, Singapore) that have major problems linked to huge

Non Performing Assets & payment defaults.

Co-operative banks are nimble footed in approach and armed with efficient branch

networks focus primarily on the high revenue nicknames of the new Indian market

and is addressing the relevant issues to take on the multifarious challenges of the retail


The Indian banking finally worked up to the competitive dynamics of the new Indian

market and is addressing the relevant issues to take on the multifarious challenges of

globalization. Private Banks have been fast on the uptake and are reorienting their

strategies using the internet as a medium. The internet has emerged as the new and

challenging frontier of marketing with the conventional physical world tenets being

just as applicable like in any other marketing medium.

The Indian banking has come from a long way from being a sleepy business

institution to a highly proactive & dynamic entity. This transformation has been

largely brought about by the large dose of liberalization and economic reforms that

allowed banks to explore new business opportunities rather than generating revenues

from conventional stream (borrowing and lending).

The banking in India’s highly fragmented with 30 banking units contributing to

almost 50 % deposits and 60% advances. Indian nationalized banks continue to be

major lenders in the economy due to their sheer size and penetrative networks which

assures them high deposits mobilization. The nationalized banks continue to dominate

the Indian banking area. Industry estimates that out of 274 commercial banks

operating in India 223 banks are in the public sector and 51 are in the private sector.

The private sector bank also includes 24 foreign banks.


Cash management is a broad term that refers to the collection, concentration, and

disbursement of cash. It encompasses a bank’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 in today’s scenario. Efficient cash management

involves proper outflow and inflow of cash to improve liquidity and returns while

implementing adequate controls to manage risks. Cash management is achieving

tradeoff between liquidity and profitability.


The Reserve Bank of India (RBI) has placed an emphasis on upgrading technological

infrastructure to manage cash efficiently. Electronic banking, cheque imaging,

enterprise resource planning (ERP), real time gross settlements (RTGS) are just few

of the new initiatives for efficient cash management.

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:

Introduction of the Centralized Funds Management Service to facilitate better

management of fund flows.

Structured Financial Messaging Solution, a communication protocol for intra-bank

and interbank messages.


One of the emerging cash management services in India is payment outsourcing.

Though cheques and drafts are a popular mode of payment in India, it is obviously a

time consuming procedure because of the manual processing required. This is an area

where payment outsourcing can help. It allows corporate to reduce their overheads

and focus on their core competencies and, as a result, benefit from speed and

accuracy. The enhanced security it offers also allows for tighter fraud control. For the

Indian payment system to become completely seamless there are many variables that

need to be tackled, such as regulatory and legal issues, customer behavior and

infrastructure. As more corporate and banks have added technology to their processes,

the issues surrounding connectivity security have become much important.

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 corporate 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. Traditional or e-

business objectives, in India there are different cash management solutions.



Account Reconciliation Services

Balancing a chequebook for a very large business can be quite a difficult process.

Banks have developed a system to overcome this issue. They allow companies to

upload a list of all the cheques whereby at the end of the month, the bank statement

will show not only the cleared cheques but also unclear ones.

Positive Pay

An effective anti- fraud measure for cheque disbursements. Using the cheque issuance

data, updated regularly with cheque issuance and payment, the bank balances all

cheques offered for payment. In the case of any discrepancies, the cheque is reported

as an exception and is returned.

Balance Reporting Services

Balance reporting provides help in procuring a company's current banking

information from its accounts. With this service the banks can offer almost all types

of transaction-specific details on activities related to payment like deposits, cheques,

wire transfers etc. It also helps in an effective and efficient management of regular

cash flow.


Facilitates the cash improvement where, instead of being delivered to business

address, customer payments are delivered to a special post office (PO) box. It is only

the customers' payments that are delivered in the PO box and the company's own bank

collects the amount and delivers them to the banks of the customers. The bank of the

customers opens and processes the payments for direct deposit to the bank account.

Lockbox contents regularly removed and processed.


CCIL (Clearing Corporation of India) launched a new money market instrument with

RBI, the Collateralized Borrowing and Lending Obligation (CBLO).

It is a variant of liquidity adjustment facility, permitted by RBI. It is a mechanism to

borrow and lend funds against securities for maturities of 1 day to 1 year. CBLO is

expected to meet the needs of banks, FIs, PDs, MFs, NBFCs and companies for

deploying their surplus funds. Borrowing limits for members will be fixed by CCIL at

the beginning of the day taking into account the securities deposited by borrowers in

their CSGL account with CCIL.

•It is an obligation by the borrower to return the money borrowed, at a specified

future date.

• It is an authority to the lender to receive money lent, at a specified future date with

an option/privilege to transfer the authority to another person for value received;

• It is an underlying charge on securities held in custody (with CCIL) for the amount


RTGS System

The acronym “RTGS” stands for Real Time Gross Settlement. RTGS system is a

funds transfer mechanism where transfer of money takes place from one bank to

another on a “real time” and on “gross” basis. This is the fastest possible money

transfer system through the banking channel. Settlement in “real time” means

payment transaction is not subjected to any waiting period. The transactions are

settled as soon as they are processed. “Gross settlement” means the transaction is

settled on one to one basis without bunching with any other transaction.


Brief History of Urban Cooperative Banks in India

The term Urban Co-operative Banks (UCBs), though not formally defined, refers to

primary cooperative banks located in urban and semi- urban areas. These banks, till

1996, were allowed to lend money only for non-agricultural purposes. This distinction

does not hold today. These banks were traditionally centered around communities,

localities work place groups. They essentially lent to small borrowers and businesses.

Today, their scope of operations has widened considerably.

Unde r State Purvie w

There was the general realization that urban banks have an important role to play in

economic construction. This was asserted by a host of committees. The Indian Central

Banking Enquiry Committee (1931) felt that urban banks have a duty to help the

small business and middle class people. The Co-operative Planning Committee (1946)

went on record to say that urban banks have been the best agencies for small people in

whom Joint stock banks are not generally interested. The Rural Banking Enquiry

Committee (1950), impressed by the low cost of establishment and operations

recommended the establishment of such banks even in places smaller than Taluka


The first study of Urban Co-operative Banks was taken up by RBI in the year 1958-

59. The Report published in 1961 acknowledged the widespread and financially sound

framework of urban co-operative banks; emphasized the need to establish primary

urban cooperative banks in new centers and suggested that State Governments lend

active support to their development. In 1963, Varde Committee recommended that

such banks should be organized at all Urban Centers with a population of 1 lakh or

more. The committee introduced the concept of minimum capital requirement and the

criteria of population for defining the urban centre where UCBs were incorporated.

Duality of Control

However, concerns regarding the professionalism of urban cooperative banks gave

rise to the view that they should be better regulated. Large cooperative banks with

paid-up share capital and reserves of Rs.1 lakh were brought under the perview of the

Banking Regulation Act 1949 with effect from 1st March, 1966 and within the ambit

of the Reserve Bank’s supervision. This marked the beginning of an era of duality of

control over these banks. Banking related functions (viz. licensing, area of operations,

interest rates etc.) were to be governed by RBI and registration, management, audit

and liquidation, etc. governed by State Governments as per the provisions of

respective State Acts. In 1968, UCBS were extended the benefits of Deposit


Towards the late 1960s there was much debate regarding the promotion of the small

scale industries. UCBs came to be seen as important players in this context. The

Madhavdas Committee (1979) evaluated the role played by urban co-operative banks

in greater details and drew a roadmap for their future role recommending support

from RBI and Government in the establishment of such banks in backward areas and

prescribing viability standards.

The Hate Working Group (1981) desired better utilization of banks' surplus funds and

that the percentage of the Cash Reserve Ratio (CRR) & the Statutory Liquidity Ratio

(SLR) of these banks should be brought at par with commercial banks, in a phased

manner. The Madhava Rao Committee (1999) focused on consolidation, control of

sickness, better professional standards in urban co-operative banks and sought to align

the urban banking movement with commercial banks.

Recent Developments

Over the years, primary (urban) cooperative banks have registered a significant

growth in number, size and volume of business handled. As on 31st March, 2003

there were 2,104 UCBs of which 56 were scheduled banks. About 79 percent of these

are located in five states, - Andhra Pradesh, Gujarat, Karnataka, Maharashtra and

Tamil Nadu.


Introduction of Thane Janata Sahakari Bank

With the modest beginning in 1972 in the co-operative field, the dynamism infused by

the Board of Directors, unflinching loyalties of clientele and devotion of staff has

propelled the sound foundation of The Thane Janata Sahakari Bank Ltd (TJSB) and

has emerged as one of the leading multi state scheduled co-operative Bank in the


TJSB presently is catering to the needs of society through a close network of 48

Branches and 2 Extension Counters spread all over the city of Thane, Mumbai, Navi

Mumbai, Nasik, Pune & Satara. All these Branches have made remarkable progress

on all fronts in all these years.

TJSB believes that "customer delight" is the ultimate goal and has a strong belief that

Customers & all Stakeholders wholehearted support, absolute faith and their

patronage has largely been responsible for its enviable growth. TJSB is committed to

provide banking with speed, comfort and convenience.

TJSB feels proud to acknowledge the growth of large number of successful

industrialists, traders and professionals who have grown leaps & bound due to timely

assistance and support of the Bank.

TJSB has set before a Visionary Growth Plan focusing all business strategies solely

on creation of Stakeholders value.

Technological Initiatives

TJSB, a Techno-savvy Bank has implemented successfully the Core Banking Solution

(CBS). This has helped the Bank to migrate the Branches from being the processing

centers to marketing customer centric outfits. It will also extend the Bank’s reach to

its customers by multiple delivery channels such as ATM, Internet, Mobile etc. This

has brought the Bank on par with the leading Banks. Bank has network of 49 ATM’s

across Thane, Mumbai, Navi Mumbai, Pune & Nashik.

TJSB is the first Bank in Co-operative sector to install Cheque Depository Machines

at 37 branches, which are operational 24 X 7.

TJSB has put in place Real Time Gross Settlement System (RTGS) transactions. With

Core Banking Solution in place the Bank is Providing RTGS facility to all its


TJSB has initiated process for strategic alliance with other Banks for the usage of

their delivery channels by which nearly 5000 ATMs will be available to Bank’s

customers across the country.

TJSB is first Bank In the country to introduce Automated Cheque Issuance Machine

which enables Customers to take Personalized Cheque Book 24 X 7

Bancassurance :

TJSB is having arrangement with Max New York Life Insurance Co. Ltd. for Life

Insurance products and with The Oriental Insurance Co. Ltd. for General

Insurance. TJSB’s bancassurance is recognized as one of the most successful

bancassurance in the country.

Business Expansion Plans :

TJSB has recognized the opportunity for its expansion through the Merger and

Takeover of the other Banks. To step forward it has recently acquired two Pune based

Co-operative Banks namely The Navjeevan Nagrik Sahakari Bank Ltd and The

Sadguru Jungli Maharaj Sahakari Bank Ltd.

Special Mention :

TJSB has been awarded 1st Prize for the Best Co-Operative Bank in Maharashtra

by “Maharashtra State Urban Bank’s Federation Ltd.” for the F.Y.2004-2005.

TJSB has been awarded 1st Prize as “Padmabhushan Vasantdada Patil Utkarsha

Nagri Sahakari Bank” for the F.Y.2003-2004 from Kokan Region for the second time


TJSB was recognized amongst top 5 Co-Operative banks in the country, during

centenary celebration of Co-Operative movement by Kalupur Commercial Co-

Operative Bank Ltd.

Cash management of TJSB

Generally cash manage ment in banks done in two ways :

Actual transfer of cash among branches

Proper management of surplus cash

Interbank transfer of cash in TJSB :

Guidelines & system for effective cash management-

i. In TJSB every branch has maximum retention limit i.e. amount of cash every

branch can hold with them, this limit can decided by estimated transaction

takes place in particular branch i.e. as per inflow and outflow of cash in that


ii. In any branch of TJSB, retention limits decided as per business mix by board

authority, maximum retention limit for any branch should not exceed 1% total

deposits and advances.

iii. it is necessary to run the software/programme installed at cash pool regarding

daily cash balance of all branches. After running the said software programme

will show the daily current balance at the time of running the software

programme along with the receipt & payment and cash retention limit of the

respective branch at the time of running the same.

iv. It is necessary to take into account each branch’s cash position & cash limit

while managing the daily cash requirement. Many of the branches are not in

need of cash viz-a-viz they are having surplus cash which they need to deposit

with the cash pool where as some of the branches have to fulfill their cash

requirement daily or on alternate days. The cash pool has to fulfill all the cash

needs as & when necessary.

v. The corporate office has decided the limit of branches which also includes the

ATM cash. Also, likewise cash pool, the branches have also to run the

software/programme in respect of daily cash balance and closely monitor that

whether the cash limit of their respective branch do not exceed. However at

present while running the said programme, the ATM cash is not shown

separately in the said programme. The official have to keep record in the

register maintained at the cash pool by telephonic enquiry with the branches

volume of average daily cash they require for ATM transactions which

enables the cash pool to take into account the daily cash requirement of the

branches. The total daily cash required for the ATM transaction and across the

counter is to be considered while managing cash and the branch heads should

be communicated asked to deposit the excess cash if any, with the cash pool.

vi. On 7th & 10th of every month on which generally the salaries of the customer

are being credited at the branches and so also, the huge withdrawals from the

customers takes place on the said dates which results into increase in daily

cash requirement up to Rs 50 lacs to 70 lacs. The cash pool has to provide this

cash requirement to the branches. This cash requirement gets reduced after

15th of every month.

vii. It is the duty & responsibility of the cash pool to bring down the cash

requirement by Rs 1.50 crores to Rs.2 crores than the total prescr ibed cash

limit after 15th to 30th of every month.

viii. On Saturday, many of the branches in thane city function during 9 a.m. to

12.15 afternoon. As such cash pool should provide the cash on Sunday only to

local branches and cash should be provided to the branches such as, Airoli and

Vashi on Friday itself and not on Saturday.

ix. The cash pool should ask telephonically to the branches at western suburbs

about their cash requirement or deposit of excess cash if any and accordingly

cash should be provided or to be carried out for depositing the same with the

cash pool. This will enable the cash pool to manage the carrying of cash on the

same day only.

x. Cash pool can easily find out the exact daily cash requirement of the branches

by running the above software. While managing daily cash requirement, the

cash pool should ask telephonically the branches during 7 pm to 7.30 pm

about the exact cash requirement of their respective branches and note the said

into their diaries. To keep the balance between the required / excess cash the

cash pool should inform daily to the accounts department of the corporate

office to enable them to issue the cheque for withdrawal from the state bank of

India. The cash pool should maintain their total cash limit prescribed by

proper co-ordination & communication with the branches.

xi. As per existing practice, the cash pool withdrew the required cash from the

state bank of India as & when necessary. It is the duty & responsibility of the

manager and all the official of the cash pool to maintain relationship with the

official of the state bank of India, their cash department in charge, subordinate

staff etc. this will enable the cash pool to obtain new notes in required

denomination from both the above SBI branches.

It is mandatory for every bank to affix the round seal of the respective branch

on each soiled note while depositing the soiled cash with SBI on and after 10 th

every month the cash pool should collect the soiled cash along with the letter

addressed to bank where the soiled cash is to be deposited as per the norms

prescribed in the clean note policy of the RBI. A copy of the said letter should

be kept at the respective branches for record purpose.

The cash pool should ensure that the said cash is deposited with the SBI, TCC

branch by the accounts department of the corporate office and the

acknowledgement of the same & the counter foil number should be sent to the

accounts department on same day and the zerox copy of the same should be

kept on record of the cash pool. As it is mandatory to follow this procedure

during 11th to 20th of every month. The cash pool scrupulously adhere the

same and the soiled cash should not be kept in the custody of the cash pool for

more than two days.

xii. Cash pool officials should submit the letter of intimation one & half month in

advance for denomination wise cash requirement of Rs 25 cores during the

festivals seasons, especially at the time of Ganpati and Diwali to the manager

currency cash ,HDFC bank , kamal mill compound, Parel, Mumbai so also

such denomination wise letter of intimation for Rs 20 crores should be

submitted to the SBI, TTC one month before the festival season start.

The cash pool should ensure that confirmation for collection of the cash the

cash pool in charges of respective banks three days before Ganpati & Diwali

to enable the cash pool official to distribute the same to the branches.

xiii. For example maximum retention limit for Noupada branch of TJSB is 75 lakh

as this is a industrial area where need for cash is maximum due to business

transaction, whereas for thane east branch maximum limit is 30 lakh as there

are less transaction.

Rules and Regulation Of Primary Co-Operative Banks In India

The banking regulation act 1949 which had come into force from 1 st march 1966, has

vested the Reserve Bank with various statutory powers of control and supervision

over the co-operative banks.

Sec.5 (CCV): in terms of this section a primary co-operative bank means a co-

operative society other than a primary agricultural credit society:

1. Primary object of which is the transaction of banking business

2. The paid-up share capital and reserves of which are not less than one lakh


3. The bye- laws of which do not permit admission of any other co-operative

society as a member.

Legal And Regulatory Regime Regarding Cash Management

Of Co-Operative Banks

Maintains of statutory reserves- cash reserve ratio (CRR) & statutory

Liquidity ratio (SLR)

All primary (urban) co-operative banks (PCBs) are required to maintain stipulated

level of cash reserve ratio and statutory liquidity ratio.

1. CRR reserves for scheduled PCBs-

The scheduled PCBs were required to maintain with the RBI during the

fortnight, a minimum average daily balance of 5% of their demand and time

liabilities (DTL) in India obtaining on the last Friday of the second preceding


In order to provide flexibility to banks and enable to choose an optimum

strategy for cash management depending upon their intra period cash flow

scheduled PCBs are presently required to maintain on average daily balance a

minimum of 70 percent of the prescribed CRR balance on their NDTL(Net

Demand and Time Liabilities) as on the last Friday of the second preceding


In order to improve the cash management by banks, as a measure of

simplification a lag of two weeks has been introduced in the maintenance of

stipulated CRR by the scheduled banks. Thus with effect from the fortnight

beginning from 1999 the prescribed CRR during a fortnight has to be

maintained by every bank based on its NDTL as on the last Friday of the

second preceding fortnight i.e. based on the NDTL.

For the purpose of maintain CRR every scheduled bank is required to maintain

a principal account with the deposit accounts department (DAD) of the reserve

bank of India.

i) Average daily balance- It shall mean the average of the balances held

at the close of business on each day of a fortnight.

ii) Fortnight- It shall mean the period from Saturday to second following

Friday, both days inclusive.

Generally ASSETS and LIABILITIES of banks include:

Liabilities to the banking system include:

Deposit of the banks

Borrowing from banks (call money/notice deposits)

Other miscellaneous items of liabilities to the banks

Assets with the banking system:

Balances with banking system in current account

Balances with the banks and notified financial institution

Money at call and short notice up to 14 day lent to banks and notified

financial institution

Loans other than money at call and short notice

Any other amounts due from the banking system, like amount held by

the bank with inter-bank remittance facility etc.

2. Statutory liquidity reserves-

In terms of provisions of section 24 of the Banking Regulation Act 1949, (As

applicable to co-operative societies), every primary (urban) co-operative bank

is required to maintain liquid assets which at the close of business on any day

should not be less than 25 percent of its demand and time liabilities in India

(in addition to the minimum cash reserve requirement).

Current prescription for SLR: presently the PCBs are required to maintain a

uniform SLR of 25 percent on their total DTL in India.

Manner of maintaining Statutory Liquidity reserves:

The liquid assets may be maintained-

In cash or

In gold valued at a price not exceeding the current market price, or

In unencumbered approved securities

Holding in Government/other approved Securities

All primary (urban) co-operative banks are required to achieve certain

minimum level of their SLR holdings in the form of government and other

approved securities as percentage of their Net Demand and Time Liabilities

(NDTL) as indicated below:

Sr. Category of bank Minimum SLR holding in

No. government and other

approved securities as

percentage of Demand

and Time Liabilities

1. Scheduled banks 25%



In order to improve the cash management by banks, as a measure of

simplification, a lag of two weeks has been introduced in the maintains of

stipulated CRR by the scheduled banks.

Thus for example fortnight beginning from November 6 2009 the prescribed

CRR during a fortnight has to be maintained by every bank based on its NDTL

as on the last Friday of the second preceding fortnight i.e. based on the NDTL

as on reporting Friday i.e. October 22, 2009 and so on.

CRR doesn’t include interbank deposit- for the purpose of computation of

liabilities the aggregate of the liabilities of a co-operative bank to the state

bank of India, a subsidiary bank, a corresponding new bank, a regional rural

bank, a banking company or any other financial institution notified b y the

central government in this behalf shall be reduced by the aggregate of the

liabilities of all such banks and institution to the co-operative bank.

SLR requirement of banks- every PCB is required to maintain on a daily basis

liquid assets the amount of which shall not be less than 25 percent of its

demand and time liabilities in India as on last Friday of the second preceding


For SLR purpose- banks are required to maintain SLR on borrowing through


All the PCBs are required to maintain investments in government securities

only in SGL accounts with reserve bank of India, primary dealers, state co-

operative banks.

Computation of net demand & time liabilities (NDTL)

Liabilities of a bank may be in the form of demand or time deposits or

borrowings or other miscellaneous items of liabilities.

Demand liabilities include all liabilities which are payable on demand.

Time liabilities are whose which are payable otherwise than on demand.

 Time liabilities include

Fixed deposits

Cash certificates

Cumulative and recurring deposits

Staff security deposits

Time liabilities portion of savings bank

 Demand liabilities include

Current deposits

Margins held against letter of credit

Outstanding telegraphic and mail transfer

Demand drafts

unclaimed deposits


With a view to allowing UCBs greater flexibility in making Non-SLR investments.

Non-SLR investments would be governed by the following guidelines.

(i) Non-SLR investments will be limited to 10% of a bank's total deposits as on

March 31 of the previous year.

(ii) Investments will be limited to "A" or equivalent rated Commercial Papers (CPs),

debentures and bonds that are redeemable in nature.

(iii) Investments in unlisted securities should not exceed 10% of the total non-SLR

investment at any time. Where banks have already exceeded the said limit, no

incremental investment in such securities will be permitted.

(iv) Investments in units of Mutual Funds, except Debt Mutual Funds and Money

Market Mutual Funds, will not be permitted.

(vi) All fresh investments under Non-SLR category should be classified under Held

for Trading (HFT) / Available for Sale (AFS) categories only and marked to

market as applicable to these categories of investments.

(vii) Balances held in deposit accounts with commercial banks and in permitted

scheduled UCBs and investments in Certificate of Deposits issued by

Commercial Banks will be outside the limit of 10% of total deposits prescribed

for Non-SLR investments

(viii) The total amount of funds placed as inter-bank deposits (for all purposes

including clearing, remittance, etc) shall not exceed 10% of the DTL of a UCB

as on March 31 of the previous year.

(ix) Exposure to any single bank should not exceed 2% of the depositing bank's DTL

as on March 31 of the previous year, inclusive of its total non- SLR investments

and deposits Placed with that bank.

(xi) All investments, other than those in CPs (commercial papers) and CDs (certificate

Of deposits), shall be in instruments with an original maturity of at least one year.


In the context of rapid growth of primary co-operative banks (PCBs),

qualitative aspects of lending, such as adequacy of lending to meet credit

requirements of their borrowers and effective supervision and monitoring of

advances have assumed considerable importance.

Consistent with the policy of liberalisation and financial sector reforms,

several indirect measure to regulate bank credit such as exposure norms for

lending to individual/group borrowers, prudential norms for income

reorganisation, asset classification and provisioning for advances, capital

adequacy ratios,etc. were introduce by RBI.

UCBs are permitted to determine their lending rates taking into account their

cost of funds, transaction cost etc.with the approval of their board

However it may be appreciated that though interest rates have been

deregulated, rates of interest beyond a certain level may be seen usurious and

can neither be sustainable nor be conforming to normal banking practice.

Banks also required publishing the minimum and maximum interest rates

charged on advances and displaying the information in every branch.


Keeping in view the various regulatory and the banks own internal requirements,

primary (urban) co-operative banks should lay down with the approval of their board

of directors, the broad investment policy which efficiently manage their cash.

The investment policy of the bank should include guidelines on the quantity and

quality of each type security to be held on its own investment account.


Objective of policy

To decide investment policy for financial year and to revise it from time to


To decide investment strategies in respect of government securities, PSU

bonds (Public sector bonds), CD, CP, T-bills, MF.

To fix borrowing limits under Call/CBLO, government securities.

TJSB can invested in following securities-

Central/state government securities

Treasury bills

Approved security

Call money deposit

CBLO, bonds/NCDs(Non-Convertible Debenture) issue PSU

Debt/money market

Certificate deposit

Deposit with nationalised

Shares of cooperative banks

Repo in government security

Commercial papers

Delegation of Powers:

The powers for investment decision are proposed to be delegated as under :

Government approved PSU Non trustee Call Bank

security/T-bills bonds security CBLO fixed


CEO 50 crore 40 10 100 50

General 25 15 - 100 25


Deputy - - - 100 10



Investment Strategies of TJSB-

In the monthly meeting the investment committee shall review the economic

scenario & market condition.

The investment department shall take a view on interest rates as per the

prevailing market & economic condition

The exposure under short/medium/long term government securities may be

taken considering various aspects such as liquidity position in the system

duration of portfolio etc. If the yield curve is flat more risk is involved at the

longer maturity and therefore exposure in the same may be reduced, if the

yield curve is steep the exposure in the longer term may be increased as per

availability of the funds because chances of appreciation in the value are more.

If the interest rates are likely to go down and condition are conducive for

investment, a certain percentage of the excess g-securities over and above the

SLR requirement may be shifted for aggressive trading in the market to grab

the available opportunity of increasing trading income.

Impact of change in interest rate on entire portfolio in the existing condition

shall be analyzed by the investment department on monthly basis.

The investment department shall analysed average modified duration of the

portfolio on monthly basis.

The average modified duration at any point of time shall not be allowed to

increase above six years.

If the interest rate scenario is conducive for the longer and maturity,

investment committee may take a decision about increasing portfolio duration.

This is an estimated portfolio as on 31 st march 2010 considering deposit and advance

target for 09-10.

The estimated portfolio mix of investment as follows-

Particulars 31st Mar 2009 31st Mar 2010

G-securities 66253 75000

Treasury bills 2843 3500

Trustee securities 50 50

Bonds/NCDs 18466 23200

Commercial papers 1375 00

Fixed deposit with banks 17283 27500

Certificate of deposit 893 0

Mutual fund 450 750

Call deposit 0 0

Shares of co-operative 44 44


Various Measures UCB Can Take For Efficient Cash Management :

The bank shall borrow funds in CBLO as per its requirements within limit and

as per the basis of collateral security pledged by the bank

The bank shall lend money in CBLO depending upon surplus funds in hand

The bank shall borrow money in CBLO depending upon deficit funds in hand.

The bank may borrow in call money market for maintaining liquidity or

fulfilment of CRR requirement.

The bank may lend in call money market for same purpose.

As per RBI borrowing in call money market shall not exceed amount

equivalent to 2% of aggregate deposit as at end of year last financial year.

The PSU bonds may be sold according to the liquidity positio n opportunity for

improving the yield.

Investment in bonds which are considered for non-SLR investment will be for

higher yields.

The total transaction in case of government securities (sale/purchase both)

In a day can done upto Rs.100 crore. The bank shall sell/purchase government

securities & T-bills should be minimum 25% of NDTL (SLR) as per RBI.

Purchase of government securities will be made according to the availability

of funds prevailing market condition and SLR requirement as per RBI.

Sale of government security will be made according to the liquidity position

and requirement of funds for credit deployment and prevailing market


Measures Taken By TJSB For Efficient Cash Management:

TJSB target investment margin for FY 2009-2010 is 8.53%.

For risk management TJSB- total exposure in government securities should

not exceed 45% of the NDTL and the excess portion over and above SLR

requirement i.e. 20% kept for trading purpose.

For SLR requirement it maintains daily register.

Sale of government security will be made according to the liquidity position

and requirement of funds for credit deployment and prevailing market


In CBLO rates are low but it involves securitization with CCI, it offer

instrument for management of cash.

TJSB use this instrument very efficiently to fulfil its CRR requirement.

TJSB use this instrument for trading purpose also i.e. if they have excess cash

they can lend at higher interest rates

For maintain SLR, TJSB invest in government securities as they offer higher

interest rates with security, compare to invest in gold as well as cash,

Because if SLR maintained in cash it would remain ideal cash result in

generating no margin.

Only 0.15 basis points they aim from trading in market, rest they planned to

invest in secure securities.

They restricted their investment in unlisted securities up to 10% of total non-

SLR portfolio.

Investment other than in those held against term deposits with

banks/institutions/mutual fund/certificate of deposits and shares of co-op

institutions are classified into “held for trading” (HFT), “available for sale”

(AFS) and “held to maturity” (HTM) categories in accordance with the reserve

bank of India guidelines.

TJSB’s fixed deposits with other banks include deposits which are lodged as

margin to secure overdraft limits/issuance guarantees.


These are some key points which analyzed while studying this project which reflects

some major factors about cash management of TJSB as follows:

TJSB bank manages its daily requirement of CRR as per guidelines of RBI

every day.

Every day it calculate its CRR requirement and try to maintain this

requirement as per norms of RBI , if there is shortfall of cash it borrow

through CBLO and vice versa.

It doesn’t maintain more cash as CRR, it try to avoid cash remain ideal.

TJSB purchase government securities according to the availability of funds,

prevailing market condition and SLR requirement

By using CBLO,TJSB can take arbitrage opportunity as all security on CBLO

are pledged with CCIL

For NON-SLR option TJSB invest mainly in –

Government securities

Inter bank exposure- not more than 5% of deposits of previous FY

PSU bonds

IDBI, IFCI bonds

Commercial Papers

TJSB invest more in government securities as compare to call money market

or CBLO instrument because of risk purpose.

TJSB doesn’t invest much in money market mutual fund instrument as it not

offers higher return as compared to government securities.

TJSB manage its cash efficiently and it shows by their investment policy and

by its financial performance as follows-

( crores)

Financial Performance






Paid up Investment Working
Reserves Deposits Advances
capital s Funds
% increse 50 12.4 15 17 24 16.5
31.03.2009 27 281 2347 1506 1098 2951
31.03.2008 18 250 2039 1285 883 2533


Recommendations of The Study

After analyzing TJSB bank’s cash management policy, I would like to place

following recommendation -

TJSB bank should try to make more use of current money market instrument

such as CBLO, as risk involve in CBLO is less, Since CBLO is fully

collateralized by government securities, the risk weight as applicable to

government securities for market risk would be applicable to CBLO.

TJSB should go for more techno savvy products for payment and collection


TJSB already introduce core banking solution, it should implement it for all its

branches as soon as possible so it can make use of tech-savvy instruments

such as RTGS

Conclusion of the Study

TJSB manage its cash efficiently as per rules and regulation of RBI, as it

manages it’s inter branch cash very efficiently among various branches.

TJSB also manage to achieve balance between its liquidity and profitability

through various instrument, maintained its requirement for CRR and SLR

regularly and invest its surplus cash in secure instruments and try to maximise

its profit.

In India RBI frame policies on cash management which helps to banks for

proper management of their cash.


Every research is conducted under some constraints and this research is not an
exception. Limitations of this study are as follows:-

1. There were several time constraints.

2. Difficulty in getting information due to internal policies and procedure.

3. The study is based on information given by concerned persons.

4. People were reluctant to go in to details because of their busy schedules.

5. Due to continuous change in environment, what is relevant today may be

irrelevant tomorrow.


Understanding of various norms and procedure of RBI for cash


Understanding about how one bank manage its liquidity position

Importance of time and investing funds in right instruments.

It helps me to increase my confidence, also thought me how to

communicate with personnel in esteemed organization.


38th Annual Report 2008-09

Co-operative Diary of PCB

Master Circular of RBI on Investment

Paper and Journal:

International Research Journal of Finance and Economics

ISSN 1450-2887 Issue 19 (2008)

Article on Cash Management and Payment Developments in India :Bank Offerings

and New Corporate Best Practices by Niraj Vedwa