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This project report is submitted in partial fulfillment of the requirements of the PGDM (Finance) program of

Jaipuria Institute of Management, Noida

Under supervision of Dr. Pratibha Wasan

Submitted By: Davesh Kadian PGFA1113


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1) Introduction
1.1 An overview 1.2 Objective, Limitation of study 1.3 Methodology …………………………… 6 …………………………… 7 …………………………….. 8


About Company
2.1 NHPC- overview ……………………………. 9

3.) Treasury Management 3.1 Introduction 3.2 DPE guidelines for investing surplus cash 3.3 Investment of surplus cash 3.4 Eligible Instruments where NHPC can invest 3.5 Procedure for investment …………………………….10 …………………………….10 ……………………………12 ………...………………….13 ……………………………14 …………………………....16 …………………………..17 .................……………….18 ..…………………………..20 …………………………….24

3.6 Comparison of NHPC‟s Investment pattern with other companies 3.6.1 NTPC 3.6.2 TATA POWER 3.6.3 RELIANCE POWER 3.7 Analysis of result 3.8 Recommendations


Is Investing in T.Ds a sound decision?
4.1 Methodology 4.3 Why UTI LIQUID SCHEMES? ……………………………..25 ….………………………….…26 …………………………………..28 ……..…………………..29

4.4 Opportunity cost of not investing in that schemes ………………………………...27 4.5 Interpretation of result

4.6 Comparison of Effective ROI on FDs &UTI MF Return

4.7 Interest that could have been earned ………………………………………………...33 JAIPURIA INSTITUTE OF MANAGEMENT, NOIDA Page 2

4.8 Conclusion


5.) Banking Section
5.1 Function of Banking section 5.1.1 Payment function 5.1.2 Collection from beneficiaries 5.1.3 Equity from GOI 5.1.4 Cash Credit and Loans 5.2 Recommendation ..………………………………………………...37 .…………………………………………………37 ………………………………………………….41 .………………………………………………...41 .……………………………………………….42 ………………………………………………43

6.) References



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I hereby declare that this project report entitled “Treasury Management & Banking Functions at NHPC” has been prepared by me with the help of industrial mentor and is an original work submitted to Jaipuria Institute of Management, Noida towards fulfillment of the requirement for the award of Post Graduate Diploma in Management (2011-13). I also hereby declare that this project report has not been submitted at any time to any other university or institute for the award of any Degree of Diploma.

Davesh Kadian PGFA1113 Jaipuria Institute of Management Noida


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insights. Sr. Anil Gaba my company guides for their invaluable guidance and inspiring suggestion. NOIDA for her invaluable suggestions in completing the project. Pratibha Wasan Faculty JAIPURIA INSTITUTE OF MANAGEMENT. I am thankful to Mr. JAIPURIA INSTITUTE OF MANAGEMENT. research and writings and were so helpful and gracious to me during the preparation of this project report. I would like to thank her for her constant attention and for motivating me during the preparation of the project. NOIDA Page 5 . I also express my gratitude and thanks to Mr. They provided me an insight for the project and helped me to merge my theoretical concepts with their practical application. I pay my sincere thanks to Dr.Acknowledgement I owe a debt of gratitude to many people who helped me in this project report. Manager Finance for giving me opportunity to work and get valuable learning‟s regarding professional and corporate world from this prestigious organization. Ashish Saigal. I also thank my colleagues and friends who helped me in this project by providing their valuable suggestion and help. They shared their experience.

1 TREASURY MANAGEMENT: One of the most important functions of Finance manager is optimum utilization of ideal funds so as to get good returns for his company. Determining whether NHPC‟s current investment pattern is good? 2 Banking Function: The most important aspect of treasury department is its Banking function. NOIDA Page 6 . Finding out various investment options available to NHPC. My project includes     Finding out How much ideal fund is available in NHPC and for how many days. Banking is always an important part of treasury department in big organisations. employees. various projects of NHPC.INTRODUCTION This project is divided into 2 parts. This section is responsible for making Payments to various suppliers. Comparison of NHPC‟S investment pattern with other PSU and Private Sector Power companies. This project involves finding out   How Banking department works? What are its functions and its importance in Cash Management? JAIPURIA INSTITUTE OF MANAGEMENT.

Limitations of the Study: Since this project involves getting knowledge about all the aspects of treasury management in just 8 weeks so it is not possible to get knowledge about each and every aspect in detail. After that Determining whether investing in FDs is sound option or not by comparing it with different schemes of UTI Liquid fund.Objective of the Project: The objective of the project is to determine How NHPC invests its surplus cash and comparing NHPC‟S investment pattern with other power sector companies so as to provide a clear picture whether NHPC‟S investment portfolio needs amendment or not. Past data is collected for comparing FD return and MF returns which is a limitation of my study because for making investment decision past data is not considered as reliable source. JAIPURIA INSTITUTE OF MANAGEMENT. As I have to compare NHPC‟s investment pattern with other power sector companies and determining whether NHPC‟s decision of investing in FDs is good or not and for that getting complete data for such a study is not easy which again is a limitation of my study. NOIDA Page 7 . This project helps the company in knowing whether its cash management is efficient or not? It will help the company in making its investment decision by providing important data about various mutual fund schemes their performance in past. Therefore TIME LIMIT is a limitation of my study. It will help the company to assess its present policy regarding investment and provide a base to change its policy if there will be a need to do so.

Comparison of return from different schemes of UTI with return from FDs. Comparison of NHPC‟s investment pattern with other companies. Average rate of interest is taken for FDs for a particular time period. To know how Banking section helps in efficient utilization of funds? JAIPURIA INSTITUTE OF MANAGEMENT. NOIDA Page 8 . NAV for year 2009-10 and 2010-11 is taken to calculate the return generated by a particular scheme in a particular period. Is Investing in FD a sound Decision?     Selecting various liquid schemes of UTI. BANKING:   To know what are the functions of banking section.METHODOLOGY TREASURY MANAGEMENT      To know how to prepare daily rolling cash flow How to calculate minimum cash balance To know for how many days surplus cash is available to the company To know what are the various sources where surplus cash can be invested.

25.NHPC AN OVERVIEW In India. 15. (NHDC)-a joint Venture of NHPC with government of Madhya Pradesh. NHPC Corporate office is in FARIDABAD. A credited with ISO-9001:2000 &ISO-14001:2004 certificates for its quality system & environment concerns. NHPC has completed 12 projects with a total installed capacity of 5175 MW which includes 1000MW.Indira Sager project &520 MW Omkareshwar 2 Project through Narmada Hydroelectric Development Corporation Ltd. Besides this.The successful completion of these projects in most difficult areas & their operation is a testimony to NHPC‟s success. 105 MW Loktak in Manipur & the 345 MW Salal Stage-1 in J&K. The initial mandate given to the corporation to complete these three projects were fulfilled with the commissioning of Baira Siul in 1981. It was established in 7th November 1975.000 crore. To begin with NHPC took over three most difficult & almost abandoned projects in geologically weak Himalayan Ranges from the erstwhile central hydroelectric projects Control Board. NHPC is among the TOP TEN companies in the country in terms of investment. NHPC is ranked as a premier organization in the country for development ofhydropower. The saga of NHPC is replete with many challenges. winds. NOIDA Page 9 .NHPC is a schedule „an‟ enterprise of the government of India. tidal. electricity is produced in various sector hydro.000 crore and an investment base of about Rs. geothermal &gas potential. Loktak in 1983 & Salal Stage-1 in1987. These projects were the 180MW Baira Siul in Himachal Pradesh. NHPC has commissioned the 14. So far.1 MW Devi hat JAIPURIA INSTITUTE OF MANAGEMENT. With an authorized share capital of Rs. NHPC is the power organization in the field of hydro sector.

i.E GUIDELINES FOR INVESTMENT OF SHORT TERM CASH SURPLUS 1) The surplus availability should be worked out for a maximum period of one year at any point of time.e. JAIPURIA INSTITUTE OF MANAGEMENT. 2) In the present scenario as applicable to NHPC the surplus arising are only cash surplus and not fund surplus. It involves optimum utilization of surplus cash available in a company for a particular time period.projects in Nepal. Being a PSU it has to follow certain guidelines issued by DEPARTMENT FOR PUBLIC ENTERPRISES for investing its surplus cash in various sources. financial futures. NOIDA Page 10 . payment systems and the associated financial risk management. to say that the corporation is resorting to short term borrowings and any short term cash surplus does not offset such short term borrowings.P. thus in actuality NHPC holds surplus cash and not surplus funds. However in order to gainfully utilize such excesses rather than to keep the funds idle there is a need to formulate the system for utilizing such cash surplus to the benefit of the Corporation. TREASURY MANAGEMENT Treasury management (or treasury operations) includes management of an enterprise' holdings in and trading in government and corporate bonds. The guidelines are: D. currencies. 60MW Kurichu project in Bhutan. At present 12 projects with a total installed capacity of 5132MW are under execution. At NHPC there is also Treasury Department which does this function very efficiently.25 MW Kalpong project in Andaman & Nicobar Islands &4MW Sippi projects in Arunachal Pradesh as deposit work. 5. Today in every big organization Treasury Department is responsible for this function. options and derivatives.

NOIDA Page 11 . Above Rs. 500 Crs. and Rs. Net worth No. 1. Between Rs.3) NHPC can invite bids for deposit of surplus cash from only those banks with which it has commercial interest. 500 Crs. 2. JAIPURIA INSTITUTE OF MANAGEMENT. Without any limit a) Nationalised Bank 5) While allocating investment to the banks within the prescribed exposure limit it shall be necessarily ensured that the 60:40 ratio amongst public sector banks and private sector banks as stipulated in recent DPE Guidelines is strictly adhered to. 6) NHPC can invest in Mutual Funds floated by Public Units. 5000 Crs a) Private Bank Maximum amount of Investment with one single Bank/Financial Institution at a time 10% of Net Worth Rs. 4) The exposure limit for individual banks for NHPC is as follows: Sl. 5000 Crs.

Temporary cash surplus consist of funds which are available for investment on a short term basis maximum for a period of six months. Such funds are available for investment for a period ranging from six months to a year. NOIDA Page 12 . the treasury management of the company looks for the avenue available for the investment of this cash in such a way that the return can be maximized and the investment can be converted into cash as and when required without any loss of time. since they are required to meet regular obligations like taxes.INVESTMENT OF SURPLUS CASH When the company anticipates the condition of surplus cash. The safety level of cash is determined by the finance department separately for normal and peak period. DETERMINATION OF CHANNELS OF INVESTMENT The finance manager can determine the amount of surplus cash by comparing the actual amount of cash available with the highest safety level of cash. permanent cash surplus consists of funds which are kept by the firm to use in some unknown or unforeseen profitable opportunity of expansion or acquisition of some assets. Investing surplus cash involves two basic problems: 1. 2. DETERMINATION OF SURPLUS CASH The determination of amount of surplus cash can be done only after calculating the minimum cash level that is required by the company termed as “safety level of cash”. Such surplus cash may be of two type temporary or permanent surplus. first the desired days of cash the minimum number of days for which cash balance should be sufficient to cover payments. second is „average daily cash outflow‟ Safety level of cash during periods = Desired days of cash * Average daily cash outflows Safety level of cash during peak periods = Desired days of cash at the business period * Average of highest daily cash outflows. the two basic factors are to be decided which are. dividends etc. In both the cases. JAIPURIA INSTITUTE OF MANAGEMENT.

Term Deposits with any Scheduled Commercial Bank (i. certificates of Deposit. For amount upto Rs.ELIGIBLE INSTRUMENTS Investments may be made in one or more of the following instruments:   Public Deposit Account of Govt. Though DPE guidelines permit investment upto 3 years in this instrument but investment shall not be made for a period exceeding one year. 1000 cr.upto Rs. For amount above Rs. fulfilling the Capital Adequacy norms as prescribed by the RBI from time to time. banks incorporated in India) and with a NET WORTH (Paid up Capital plus Free Reserves) of atleast Rs.  Instruments which have been rated by an established Credit Rating Agency and have been accorded the highest investment grade credit rating signifying highest safety e. Beyond Rs. 2000 Crore without any limit JAIPURIA INSTITUTE OF MANAGEMENT. 500 Crores. Treasury Bills and Government of India securities.2000 crores Director (Finance) Chairman & Managing Director Board of Directors 3.g. NOIDA Page 13 .1000 crores 2. Investment of funds in Fixed/Term deposits of Public Sector Banks may be made without credit rating for them. deposit Schemes or similar instruments issued by scheduled commercial Private Sector banks/term lending institutions including their subsidiaries as well as commercial paper of corporate and eligible schemes of UTI.   Any other Debt Instrument which has obtained highest credit rating from one of the established Credit Rating agencies. AMOUNT & AUTHORITY COMPETENT TO INVEST APPROVING AUTHORITY 1.e. of India.

 Treasury Department from the monthly budget prepares a Daily rolling cash flow.  After getting the approval from the committee surplus cash is invested in that bank which offers the highest rate of interest.PROCEDURE ADOPTED FOR INVESTING SURPLUS CASH AT NHPC First of all investment committee is formed which take decisions regarding Where the investment is to be done among available options.  Quotations from various banks along with the amount and the number of days the cash is available is sent to the investment committee for their approval. at the earliest available opportunity.  The next step is to work out the expected number of days for which the excess cash will remain available. DPE guidelines are being met. MINIMUM CASH BALANCE REQUIRED = 10 Crores JAIPURIA INSTITUTE OF MANAGEMENT. NOIDA Page 14 .  After this NHPC invites bids from various banks with which it is has commercial interest.  Whenever a case of cash surplus arises it will firstly be used to offset the debit balances appearing in the Cash Credit accounts maintained with different Banks as well as offset of WCDL account/MIBOR linked loans etc. The investment of the same will depend upon the number of days for which such amount would be available.  Finding the minimum cash balance that is required to be maintained during normal working hours.

to avoid any kind of hassles or tricky situation and place the surplus funds in the safest possible option without paying much heed to the maximization of returns by meticulously choosing from the available avenues. TOTAL INVESTMENT: 4230 CRORE Among the investments made in financial year 2009-10 the following points were noticed:More than 80% of the investments made by NHPC exceeded an amount of RS 85 CRORE The range of investments varied from a minimum of Rs. NOIDA Page 15 . It can be said that the investment policy being followed is. Among the investment made in the current financial year 2010-11 the following points were noticed. Average investment through the year being a remarkable Rs.9 CRORE Among the investments made in financial year 2010-11 the following points were noticed:More than 70% of the investments made by NHPC exceeded an amount of RS 100 CRORE JAIPURIA INSTITUTE OF MANAGEMENT.4 cr to a staggering maximum of Rs 300 cr. TOTAL INVESTMENT: 5212.COMPARISION OF NHPC‟S INVESTMENT PATTERN WITH OTHER POWER COMPANIES INVESTMENT PATTERN OF NHPC All the investments of NHPC during the period were in only one kind out of the various options provided. 50 Cr per investment. namely term deposits with scheduled banks.

6 BONDS 909.1 cr to a staggering maximum of Rs 216 cr.98 CRORES JAIPURIA INSTITUTE OF MANAGEMENT. 75 Cr per investment. NTPC 2009 0 59. NOIDA Page 16 . NTPC‟S INVESTMENT PATTERN IN YEAR 2009 & 2010 TOTAL INVESTMENT IN 2009-10 = 2701.2 244. Average investment through the year being a remarkable Rs.The range of investments varied from a minimum of Rs.13 Invstmnt in JV INVST IN SUBSIDIRES SURPLUS CASH IN VARIOUS INST ON BEHALF OF CUSTOMERS TOTAL INVESTMENT IN 2010-11 = 3352.13 CRORES FIGURES IN CR.2 1488.

35 Mutual funds other securities contigency reserve investments JAIPURIA INSTITUTE OF MANAGEMENT.8 1770.NTPC 2010 19.43 defferd taxatn liability fund invstmnt 1367.4 681.68 Invstmnt in JV INVST IN SUBSIDIRES SURPLUS CASH IN VARIOUS INST ON BEHALF OF CUSTOMERS TATA POWER‟S INVESTMENT PATTERN IN YEAR 2009 & 2010 FIGURES IN CR.3 850.72 203.8 BONDS 30. TOTAL INVESTMENT IN 2009-10 = 2313.57 397.39 CRORES TATA POWER (2009-2010) 41. NOIDA Page 17 .

46 150 0 goi.07 CRORES TATA POWER (2010-2011) 215.57 397.39 203.43 contigency reserve investments defferd taxatn liability fund invstmnt Mutual funds 1497 other securities RELIANCE ENERGY LTD‟S INVESTMENT PATTERN IN YEAR 2009 & 2010 TOTAL INVESTMENT IN 2009-10 = 485.bonds covrtble pref shares unquoted equity shares 45.TOTAL INVESTMENT IN 2010-11 = 2010.05 214.06 CRORES Reliance Energy Ltd. 2009 75. NOIDA Page 18 .55 redeemable preferance shares mutual funds JAIPURIA INSTITUTE OF MANAGEMENT.

64 goi.TOTAL INVESTMENT IN 2010-11 = 1042. NOIDA Page 19 .bonds covrtble pref shares unquoted equity shares redeemable preferance shares 285.33 mutual funds 45.67 88.05 JAIPURIA INSTITUTE OF MANAGEMENT. 2010 206 417.67 CRORES Reliance Energy Ltd.

maturity and yield. As it is already discussed for the purpose of investment four things are considered mainly which are security.Analysis and Investment Pattern For the purpose of comparison of investment practices data of last two years of each company is taken into account. JAIPURIA INSTITUTE OF MANAGEMENT. NOIDA Page 20 . liquidity.

e. NOIDA Page 21 .NHPC‟S INVESTMENT PATTERN: The investment pattern followed at NHPC is very simple. It does not want to take risk. It is very easy and most secured way of investing surplus cash. in 2009-10 8. More than 50% of surplus cash is available for period 46 to 180 days.6%) JAIPURIA INSTITUTE OF MANAGEMENT. As shown in the graph all the surplus cash is invested in Term Deposits which shows that it is very much concerned about SECURITY.5% and in 20010-11 (8. This investment pattern is giving NHPC good return i. The reason why NHPC goes for this pattern is: The guidelines issued by DPE for investing surplus cash.

So the investment of NTPC being a PSU is mainly into Government Bonds. JAIPURIA INSTITUTE OF MANAGEMENT. The Average return for NTPC in 2009-10 is 8.8%.45%. NOIDA Page 22 .NTPC‟S INVESTMENT PATTERN: It can be noticed clearly that NTPC is very high on security point as it has its 92% of investment in the Government bonds. also the reason behind its major investment in government bonds is that it has to abide by the rules and regulation set by DPE which gives most preference to the safety. In 2010-11 8.

TATA POWER‟S INVESTMENT PATTERN: If the investment pattern of Tata power is considered it had its 65% of investment in the Mutual Funds in 2009-10. It has most aggressive practice of investment as its major part of investment is MFs schemes which include Debt and some part of it in Gold ETFs. JAIPURIA INSTITUTE OF MANAGEMENT.. the investment in other securities is decreased by Tata Power in year 2008. NOIDA Page 23 .

NOIDA Page 24 . Return in 2009-10 is 9. This move of reliance energy indicates that safety and yield are on the top priority for the company as by increasing its investment in mutual funds they have diversified their investments thereby decreasing their risk on the other hand they reduce the %age of investment in the shares and debentures which shows they have maintained balance between security and yield. Its major investments are in mutual funds.45% Avg. it has maximum investments in Shares Mutual funds and Government Bonds but it has changed its strategy in the year 2011 by increasing its investment in mutual funds up to 87% and decreasing its investment in government bonds and shares. Return in 2010-11 is 10. Another reason for investing in mutual funds may be saving tax. Avg.RELIANCE‟S INVESTMENT PATTERN: The investment pattern of Reliance Energy is completely different from NHPC.2% JAIPURIA INSTITUTE OF MANAGEMENT. In the year 2010. NTPC and Tata power.

NOIDA Page 25 . They have investment mainly in Government security which are better option from security point of view but yield is relatively low. here it can be recommended that surplus money can be invested in the mutual funds which will diversify risk as well as it will increase return ratio. The reason for investing in FDs is because of Tax Advantage that NHPC enjoy being a Power sector company but this advantage remains only for 2 years from now which will reduce the effective rate of interest from FDs. Investment in bonds can also be considered as good investment option keeping in mind the present scenario where the interest rates on Deposits are decreasing and chances are that it will decrease further.RECOMMENDATIONS: Policies adopted by NHPC for the investment purpose are quite stringent. NAV for year 2009-10 and 2010-11 taken to calculate the return generated by a particular scheme in a particular period. T-Bills etc. if compared with that of the policies adopted by Tata Power and Reliance Energy. IS INVESTING IN T. Return from MF = NAV on last day + Dividend (for that period if any) – NAV on 1st day / NAV on 1st day JAIPURIA INSTITUTE OF MANAGEMENT.Ds A SOUND DECISION? Various liquid schemes of UTI are selected because the guideline issued by DPE has to be followed. So in that situation investing in mutual funds will also be a good option because dividend received from MF is exempted from tax. It can also look for other investment options like CP. NHPC doesn‟t have liberty to invest in many instruments which can yield much better returns.

04 2. LIQUID schemes are considered as one of the safest mutual fund schemes.Average rate of interest is taken for FDs for a particular time period. Finding correlation of various UTI schemes and FDs rates.D CORRELATION SHARP RATIO .GROWTH MEAN S. The portfolio of UTI schemes has positive relationship with FD rates. NOIDA Page 26 . UTI LIQUID FUND CASH PLAN.15 . Those schemes whose correlation is +ve and S. No entry load and exit load on many of the schemes. Comparison of return from different schemes of UTI with return from FDs.20 JAIPURIA INSTITUTE OF MANAGEMENT.02 .D is low is selected for analysis WHY UTI LIQUID FUND SCHEMES? The reason why I have selected liquid schemes of UTI is that:     They conform to the guidelines issued by DPE.

06 . The result above shows that out of the available 3 schemes only UTI LIQUID FUND CASH PLAN.03 UTI LIQUID FUND CASH PLAN. NOIDA Page 27 .09 The correlation is between T.12 -.GROWTH is selected because it has least risk associated with it and also the SHARPE RATIO is high for this fund which again is good from risk point of view.11 .MONTHLY DIVIDEND MEAN S.14 . JAIPURIA INSTITUTE OF MANAGEMENT.D CORRELATION SHARP RATIO .WEEKLY DIVIDEND MEAN S.UTI LIQUID FUND CASH PLAN.39 .14 -.D CORRELATION SHARP RATIO .Ds and MF return where as Sharp ratio is calculated for determining how much excess return you are receiving for the extra volatility that you endure for holding a riskier asset.

418 1210.742 34.654 3578.188 3317.107 -26.95 1380.160 201.2219 1506.D in lakh 57.016 3826.180 TOTAL NET PROFIT/LOSS -5.601 -71.428 313.D in lakh 0 647.38971 181.295 2663.6 FOR YEAR 2010-11 Fig in lakhs PERIOD IN DAYS 1 TO 7 8 TO 14 15 TO 21 22 TO 30 31 TO 45 46 TO 90 91 TO 180 180 TO MORE Return from F.591 2184.91 4664.46 2425.F in lakhs 62.950 1903.809 JAIPURIA INSTITUTE OF MANAGEMENT. NOIDA Page 28 .361 350.6264 2170.592 Return from M.031 612.843 1877.3 TOTAL NET PROFIT/LOSS -63.68775 20.256 2419.091 2501.362 248.201 2003.760 3003.944 6735.73 2150.301 8637.F in lakhs 0 710.302 3342.102 -171.7281 125.412 522.123 1256.614 3362.548 -115.OPPORTUNITY COST OF NOT INVESTING IN LIQUID FUND CASH PLAN GROWTH FOR YEAR 2009-10 Fig in lakhs NO OF DAYS 1 TO 7 8 TO 14 15 TO 30 31 TO 45 46 TO 60 61 to 90 91 TO 135 136 to 180 180 TO MORE Return from F.675 6466.204 -5.520 1381.595 Return from M.632 683.865 1221.458 4549.784 6534.

INTERPRETATION The total profit that NHPC had generated by not investing in UTI Liquid Growth Plan scheme FOR FY 2009-10 is 2663. JAIPURIA INSTITUTE OF MANAGEMENT.809 Crores Therefore it can be said that NHPC‟s decision of investing in Term Deposits was right. The next part of my report will focus on IF NHPC did not enjoy this tax advantage then could it be able to earn better return than UTI Liquid plan. NOIDA Page 29 . Therefore an attempt is made to find out if NHPC does not enjoy this tax advantage then would it be able to earn more return than those offered by UTI Liquid Growth Plan scheme. But this Tax exemption will remain valid for the next two years and after that the effective Rate of Return will decrease and it might make investing in Term Deposit less attractive. COMPARISON OF EFFECTIVE ROI ON TDs AND UTI LIQUID FUND CASH PLAN GROWTH RETURN Being a Power Sector Public Unit NHPC enjoys advantage of not paying any TDS on interest income earned on its Term Deposits which makes its decision of investing in Deposits a right one. But here one point needs to be mentioned i. But NHPC can enjoy this advantage for the next two years only after that it has to pay TDS on its TERM DEPOSITS with any bank i. @ of 22.6% which will reduce the effective rate of return on FDs.6 Crores FOR FY 2010-11 is 522.e. NHPC enjoys TDS exemption on its interest income on Term Deposits and because of that so far it is able to fetch good return in comparison to UTI Liquid plan.e.



Y.18 NET PROFIT/LOSS -18.370 2962.784 6534. 2010-11 NO OF DAYS 1 TO 7 8 TO 14 15 TO 30 31 TO 45 46 TO 60 61 to 90 91 TO 135 136 to 180 180 TO MORE Effective TD ROI UTI LIQUID PLAN RET.76 3003.471 -436.519453 3293.FOR F.972 -249.46 2425.289 2567.300445 -210.9497644 1090.798735 -673.91 4664.490 -209.3201458 -339.7328082 -213.758 -450.D in lakh 44.6533179 -4427. NOIDA Page 32 .647127 Total 710.800715 2434.273 FOR F.082399 JAIPURIA INSTITUTE OF MANAGEMENT.509 -444.20098 2003.192 1452.6853241 -421.632 683.729 -1298.942192 6253.0002356 -290.95 1903.284 -616. 0 NET LOSS/PROFIT 500.055 5236.95 1380.52 1381.893 972.142 474.119 TOTAL Return from M.302 3342.654 3578.3905468 -1370.661265 1751.5012855 -907.73 2150.F in lakhs 62.Y. 2009-10 PERIOD IN DAYS 1 TO 7 8 TO 14 15 TO 21 22 TO 30 31 TO 45 46 TO 90 91 TO 180 180 TO MORE Return from F.865 1221.515656 1581.409854 1810.675 6466.011 937.061 -3724.

Though decision regarding future investment cannot be taken solely on the basis of this data because of different market and economic condition at that time but this data can be very helpful for the management while taking investment decision in future. JAIPURIA INSTITUTE OF MANAGEMENT. The table below shows amount of surplus cash available to NHPC which remain idle and generating no returns.INTERPRETATION It is clear from the above table and graph that if NHPC didn‟t have the Tax advantage then NHPC‟s decision of investing in FDs was proved wrong because the data above shows that the opportunity cost of not investing in UTI Liquid plan Growth In F.Y 09-10 would be ---. Therefore it can be said that NHPC has to look for other investment option other than T. It is just to show if the amount could have been invested in UTI LIQUID PLAN GROWTH then NHPC would be able to earn handsome amount of return on it. This table is not exhaustive and contains surplus cash not for the complete year.D because after 2 years when it doesn‟t have Tax advantage the result could be same as it has come now.10-11 would be ---. So here it can be suggested that investing in this scheme can be a good option and while looking for other investment options in future this scheme can be a good option.Y. INTEREST THAT COULD HAVE BEEN EARNED IF SURPLUS CASH INVESTED IN UTI LIQUID FUND SCHEME NHPC at present doesn‟t invest its surplus cash for less than 7 days because no bank accepts deposit for less than 7 days. NOIDA Page 33 . Therefore a lot of surplus cash remain idle.373 crores.443 Crores. In F.

000.48 7.16 8.86 228.000.98 8.000.000.a) 9.000.451.960.000.16 8.90 4.000.463.000.00 100.66 3.789.968.151.65 TOTAL INTEREST COULD HAVE EARNED 24.349.000.000.973.Y 2009-10 INVESTMENT DATE 27-03-09 17-04-09 17-04-09 14-05-09 05--06-2009 03--12-2009 17-12-09 14-01-10 14-01-10 MATURITY DATE 31-03-09 22-04-09 20-04-09 19-05-09 09--06-2009 07--12-2009 22-12-09 19-01-10 20-01-10 NO OF DAYS 4 5 3 5 4 4 5 5 6 AMOUNT 250.000.53 27-Mar-10 17-Apr-10 14-May-10 11-Jun-10 11-Jun-10 11-Jun-10 11-Jun-10 12-Jun-10 17-Jun-10 12-Aug-10 2-Apr-10 22-Apr-10 17-May-10 15-Jun-10 16-Jun-10 14-Jun-10 16-Jun-10 18-Jun-10 20-Jun-10 16-Aug-10 6 5 3 4 5 3 5 6 3 4 800.67 7.366.98 11.31 250.000.441.65 92.00 100.527.000.00 100.014.FOR F.605.00 MF RATE (p.48 22.20 6.00 50.78 28.33 8.000.00 250.00 20.95 8.000.00 150.507.12 INVEST.966.73 6.31 8.242.417.Y 2010-11 INTEREST COULD HAVE EARNED 118. DATE MATURITY DATE DAYS AMOUNT MF Rate (p.000.870.98 For F.846.533.000.33 17.00 90.000.00 JAIPURIA INSTITUTE OF MANAGEMENT.00 320.796.000.00 60.62 30.000.436.000.56 1.a) 8.944.65 35.569.000.00 50.203.00 200.39 8.500.184.549.187.00 800.000.31 8.11 9.00 8.868.04 18.21 8. NOIDA Page 34 .907.645.00 340.516.368.23 8.000.00 150.713.49 8.

71 7.392.95 7.000.598.71 TOTAL 9.00 50.000.52 27.9-Jan-11 9-Jan-11 14-Jan-11 14-Jan-11 14-Jan-11 15-Jan-11 18-Jan-11 17-Jan-11 5 6 4 3 90.00 150.000.00 210.92 7.333.000.978. NOIDA Page 35 .656.41 JAIPURIA INSTITUTE OF MANAGEMENT.000.90 9.00 7.965.65 303.222.000.804.501.

That is the reason why NHPC invest only in Term Deposits with banks.P because at present NHPC doesn‟t invest its money for less than 7 days because no bank pays interest on deposits for less than 7 days which means that the money lies ideal and it is not earning any income But if NHPC invest that money in Liquid schemes of UTI than it can earn a reasonable amount of money which so far it is not earning.Conclusion After considering all the points above it can be said that investment decision making process at NHPC is very simple and here Security is given priority over yield. NHPC can invest in Liquid Schemes of UTI but so far it has restricted itself from doing that because till now it has generated good returns from FDs and the main advantage that NHPC enjoys is that it doesn‟t have to pay any TDS on interest income because being a POWER sector PSU it is exempted. NOIDA Page 36 . But NHPC can enjoy this exemption for the next 2 years and after that returns from FDs will not be as good as compared to now therefore keeping this thing in mind NHPC has to look for other investment options so as to earn better returns. Though investment in mutual fund can be a good option from return point of view but it involves more risk as compared to investing in FDs and it also needs a good forecasting skills and constant watch over economic condition because MFs are subject to market fluctuation. JAIPURIA INSTITUTE OF MANAGEMENT. UTI LIQUID PLAN GROWTH can be considered as an investment option because the return from this fund has outperformed the returns that NHPC had generated if TDS has been deducted from it. The best option that is available to NHPC for investing its surplus cash for period ranging less than 7 days is MFs or C.

The minimum amount that NHPC can send through RTGS is Rs. The following are the functions of this department: PAYMENT FUNCTION Making timely payment to various suppliers and employees is the main function of Banking section of NHPC. JAIPURIA INSTITUTE OF MANAGEMENT. This is 11 digit code with first 4 characters representing the banks code. Indian Financial System Code (IFSC) is an alpha numeric code designed to uniquely identify the bank-branches in India. 1 lakh. RTGS: 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. the next character reserved as control character (Presently 0 appears in the fifth position) and remaining 6 characters to identify the branch. Various modes of E-payment adopted by NHPC are:       Real Time Gross Settlement (RTGS) National Electronic Fund Transfer (NEFT) Electronic Clearing System (ECS) Direct Payment (DP) Internet Banking (IB) Inland letter of credit For making payment through RTGS and NEFT IFSC is required. NHPC has adopted E-payment system for achieving this. As the name suggest this department involves all aspects of Funds Utilization. The MICR code has 9 digits to identify the bank-branch. This is the fastest possible money transfer system through the banking channel. The party receives the payment within 2hr of making the payment.Banking Function at NHPC Cash and banking section is another important department of TD which is responsible for making payments to suppliers and projects. All payments through RTGS is done through their SBI CAG account and Axis bank account. NOIDA Page 37 .

Lease Payment etc . guaranteeing that a buyer‟s payment to a seller will be received on time and for the correct amount on presentation of certain set of documents within a given time frame. Letter of credit: A Letter of credit is a document issued by bank. The party gets the credit on the same Day or the next Day depending on the time of settlement. IB: This mode of payment is used by NHPC when sending the amount to its projects. NHPC can send only 1 file of ECS in a day. NHPC has used this facility with the help of SBI and make all their payments to their projects with the help of Internet Banking. A Letter of credit provides the exporter or seller with the greatest degree of safety when extending credit. The file is sent to RBI for processing and from there the amount is credited to party‟s account. ECS: It is a mode of electronic funds transfer from one bank account to another bank account using the services of a Clearing House. The Letter of credit acts like an insurance contract for both the buyer and seller and practically eliminates the credit risk for both parties. The maximum amount that can be sent through NEFT is Rs. A bank or finance company issues a Letter of credit on behalf of an importer or buyer. NOIDA Page 38 . Max amount that can be send through ECS in a single file is Rs 5 lakhs. authorizing the exporter or seller to obtain payment within a specified timeframe once the terms and conditions outlined in the Letter of credit are met. A Letter of credit is basically a document issued by a bank guaranteeing a client's ability to pay for goods or services. NHPC has tie up AXIS BANK for sending its ECS file. while at the same time reducing payment delays.NEFT: It is a nationwide funds transfer system to facilitate transfer of funds from any bank branch to any other bank branch. 2 lakhs. DP: When payment is done within the same bank but in a different account then Direct payment is used. All the NEFT is done through their SBI CAG account. This is normally for bulk transfers from one account to many accounts or vice-versa. NHPC used this mode of payment for making payments like Salary. The party gets credit after 4 days of sending the ECS file to the bank. Convenience allowances. It is JAIPURIA INSTITUTE OF MANAGEMENT.

CO has bank accounts with the bank branch in which the LC is opened by the beneficiary and the funds credited on operating the LC are immediately transferred to the bank account in CO. The dates on which LC becomes operational are predecided and mentioned in the LC. Because this places the exporter at risk. modifications and cancellation of the terms outlined in the letter of credit at any time and without the consent of the exporter or beneficiary. collection from beneficiaries is received through cheque/ DD. Beneficiaries are required to open LC in favour of NHPC with the beneficiaries bank. buyer requires to do so. revocable letters of credit are not generally accepted and are regarded as worthless. Such creditors cannot be withdrawn by the issuing banker without the consent of the beneficiary even if his customer i. provided the documents submitted comply with the terms of the letter of credit. modification or cancellation to the original terms can be made. Irrevocable: An irrevocable letter of credit requires the consent of the issuing bank. This type of letter of credit is commonly used and preferred by the exporter or beneficiary because payment is always assured. NOIDA Page 39 . Irrevocable letters of credit can be both confirmed and unconfirmed. In case the payment is not made by the beneficiary on due date. the beneficiary and applicant before any amendment. NHPC can operate the LC and collect payment directly from the bank Types of Letter Of Credit Banks may issue several types of letters of credit. It is best for importers and exporters to meet with their banking officer to determine which type of credit best suits their needs.useful when the importer or buyer is not well known and when exchange restrictions exist or are possible. JAIPURIA INSTITUTE OF MANAGEMENT. The most common type of letters of credit are described follows: Revocable: A revocable letter of credit allows for amendments.e. In normal course.

manpower deployment. The project is simultaneously informed about the limit / revised limit up to which the cheques can be issued and funds can be drawn by authorized signatory on monthly basis. up to specified limit.Expenditures and collections at the accounting unit TD has a Drawing limit system which is an arrangement with State Bank of India under which the funds are deposited by TD on 1st and 15th of every month (and on any day on need basis) for enabling SBI to issue instructions to all its specified branches at projects to make payment. progress of work. JAIPURIA INSTITUTE OF MANAGEMENT. Any increase in this limit is authorized on the requirement of unit and recommendation of concerned Director. NOIDA Page 40 . un-encashed cheques of the earlier period etc. any major remittance into collection account is to be specifically brought to the notice of the Corporate Office for effective deployment. on behalf of SBI. Important Factors to be taken into consideration It is imperative that drawing limit is to be judiciously identified as it involves blocking of the costly funds. Remittance to collection account during the course of month does not earn any interest to the Corporation unless the money is actually drawn and deployed elsewhere. Drawing limit is fixed/ revised after a careful review of the anticipated cash flow estimate based on budget provisions. Monthly permanent drawing limit is authorised by Cash and bank section with the approval of Director (Fin) on the basis of requirement from the units/ projects. The unutilized limit as per bank statement at month end is not carried over to next month and is transferred to separate a „collection account‟. site requirements. Accordingly.

Collections from Beneficiaries The payment for sale of energy is received at any of the following units: • Corporate Office • Liaison office • ED office • Project • Regional office As per the existing system the receipts against sale of energy are being received from beneficiary states through the following modes: • Through “Cash Management Product” service • Through cheques • Through Letter of Credit • Through collection account from project Operation of collection account The collection account is an arrangement with SBI for centralized receipts. All the projects and units are required to remit the cheque/draft into respective collections account. JAIPURIA INSTITUTE OF MANAGEMENT. It is the duty of the Head of Finance of the unit to verify weekly that the branch has complied with this arrangement and not allowed the credit balance to accumulate. NOIDA Page 41 . Receipts on account of sale of energy from SEBs are preferably received through `Cash Management Product` Services.

JAIPURIA INSTITUTE OF MANAGEMENT.EQUITY FROM GOI An annual plan is prepared by the planning section and sent to Ministry of Power. Revision for the annual requirement for current year is done by the end of October by way of an application along with the fresh requirement with project wise break up and reasons for the same The equity is drawn on quarterly basis from Ministry of Power against the sanctioned annual plan. These funds can be utilized only for the purpose for which they are being approved/ sanctioned for by the GoI. expected requirement of fund and net requirement for the current quarter in the prescribed format • Cash flow statement • Milestones achieved and proposed • Activity wise financial requirement • Status of Government approval/PIB clearance of the projects etc Cash credit and short terms loans An arrangement for cash credit facility by way of sanction of cash credit limits is entered into with the banks. expenditure incurred in the previous quarter. In lieu of this NHPC has negotiated with the banks to provide the interest rate on these short term deposits and cash credit limits linked with Mumbai Interbank Overnight Average (MIBOR). Cash credit account is operated like a normal bank account. In NHPC efforts are made to minimize the interest cost on these cash credit limits and short term loans. which provides project wise detail of funds required during the year. GoI for approval. The cash credit facility entitles the company to utilize funds to the extent of the limits sanctioned by the banks for financing the working capital requirement of the company. Cash and bank section writes the request letter to Ministry of Power on quarterly basis in format prescribed by the Ministry along with necessary enclosures which generally contains following details: • Project-wise details of amount/budgetary support sanctioned. NOIDA Page 42 .

1000cr Cash Credit limit with IOB Faridabad. 2pm to 3pm. It will help in making timely payment of customers and employees because certain modes of payment like RTGS has to be done before a particular time so to avoid any misplacing of VOUCHERS it is essential that all payments has to be made on the next day.5000cr Cash Credit limit with SBI. So there has to be a fix time for customer‟s queries i. It will help not only the organisation but also customers for better redressal of their complaints. NHPC has raised Rs. NHPC has Rs. JAIPURIA INSTITUTE OF MANAGEMENT. NOIDA Page 43 . Recommendations  All the payments should be done on the next day for the smooth functioning of department. 600 Crores from Bonds issue. NHPC has taken loan worth 9000 Crores from different banks and financial institutions.  The cash section should avoid dealing with customers while making payments.e.NHPC has Rs.  Reconciliation of accounts has to be done weekly.

com www. NOIDA Page 44 .in www.businessworld.investopedia.References Internal reports of NHPC like various Manuals on every department JAIPURIA INSTITUTE OF www.