A Study of Treasury Management in A Non-Banking Entity-Namely Balmer Lawrie & Co. LTD

A
PROJECT REPORT ON
“A Study of Treasury Management in a Non-banking

Entity- namely Balmer Lawrie & Co. Ltd.”
SUBMITTED TO
SAVITRIBAI PHULE PUNE UNIVERSITY
In partial fulfilment of the requirement for the award of
MASTER OF BUSINESS ADMINISTRATION

(FINANCE)
By
Ms. Namrata Aslesha Soren
Under the guidance of
Dr. Rakesh K. Bhati
SINHGAD INSTITUTE OF MANAGEMENT (SIOM)
[2018-2020]
GUIDE CERTIFICATE
A Study of Treasury Management in a Non-banking 2

Entity- namely Balmer Lawrie & Co. Ltd.
DECLARATION
I, Namrata Aslesha Soren, being a student of Sinhgad Institute of Management, Pune

hereby declare that the Project Report titled “A Study of Treasury Management in a Non-
banking Entity- namely Balmer Lawrie & Co. Ltd.” is written and submitted by me, to
Savitribai Phule Pune University in partial fulfilment for the degree of Master of Business
Administration(Finance) under the guidance of Dr. Rakesh K. Bhati.
I, further declare that this is my original work and has not been submitted elsewhere for any
other purpose and the conclusions drawn in this report are based on the material collected by
myself.
I sincerely regret for any unintended discrepancies that might have crept into this report.
I shall be highly obliged if errors (if any) be brought to my attention.
Thanking You.
Namrata Aslesha Soren

(MBA – Finance)
Place: Sinhgad Institute of Management, Vadgaon-Budruk, Pune.

Date:

ACKNOWLEDGEMENTS
Prima facie, I am grateful to the God for the good health and well-being that were necessary to
complete this project.
I would like to express my warm thanks to Mr. Deepak Kumar, my Company Guide and
Treasury Manager at Balmer Lawrie & Co. Ltd., for imparting the theoretical knowledge
required for this project and giving me an overview about the structure of the Treasury
department in a non-banking entity, during my Winter Internship of 3 weeks at Balmer Lawrie
& Co. Ltd. in December of 2018.
I would also like to express my sincere gratitude to Prof. M. N. Navale (Founder and President
of Sinhgad Institutes), Dr. (Mrs.) Sunanda M. Navale (Founder Secretary), and Dr. Daniel
Penkar (Director of SIOM) and all the faculty members who have taught me in my entire
MBA curriculum for their guidance, inspiration and motivation.
I would also like to thank my Project Guide Dr. Rakesh K. Bhati and my Finance faculty,
Prof. Mangalgouri Patil, for their constant guidance, co-operation and advice, which helped
me in completing the project successfully.
Namrata Aslesha Soren

(MBA – Finance)
Sinhgad Institute of Management, Pune

TABLE OF CONTENTS
Chapter Page
Particulars.
No. No.
Executive Summary 6
1. Introduction to Study 8
2. Review of Literature 14
3. Research Methodology 21
4. Data Analysis & Interpretations 24
5. Observations, Findings, Suggestions and Conclusion 33
References 36
Annexures -NA-

Executive Summary
Finance is of crucial importance to any firm. The Finance division carries out a vast array of
tasks to ensure that the company as a whole does not have to suffer from shortage of funds, or
struggles to cope with staggering interest burdens.
To this regard, effective Treasury Management is vital to all organizations. It is a key element
in planning and in the effective functioning of all aspects of operations. Treasury Manageme nt
is to plan, organize and efficiently manage cash and borrowings so as to optimize interest
income and minimize the cost of the funds without hampering the operations and production
of the company.
For non-banking entities, the terms Treasury Management and Cash Management are
sometimes used interchangeably but in practical terms, the scope of treasury management is
larger as it includes the funding and investment activities. In general, a company’s treasury
operations come under the control of the CFO/Director (Finance), and is handled on a day-to-
day basis by the organization’s treasury team.
As a non-banking entity, Balmer Lawrie & Co. Ltd has various dealings and day-to-day
transactions when it comes to treasury management. All the dealings and transactions are
properly maintained, keeping in mind the policies of the company and guidelines by DPE
(Department of Public Enterprises). The Department of Public Enterprises acts as a Guiding
agency for all Public Sector Enterprises and assists in policy formulation pertaining to the role
of PSEs in the economy as also in laying down policy guidelines on performance improveme nt
and evaluation, financial accounting and in related areas. It also collects, evaluates and
maintains information on several areas in respect of PSEs.
This project entitled “A Study of Treasury Management in a Non-banking Entity- namely

Balmer Lawrie & Co. Ltd.” is an attempt to provide an overview of the level of efficie nc y
with which the funds are being utilized in the company.
Fund management is crucial exercise for any organization, irrespective of its type. This project
recognizes this fact and hence is prepared with the following objectives:
 To understand the importance of treasury management to an organization.

 To study how fund management is carried out in such vast and diversified organiza tio n
like Balmer Lawrie & Co. Ltd.
 To take advantage of the trading and arbitrage opportunities in the FOREX markets.
 To trace and highlight the sources and application of funds in the company and
investigate any discrepancies arising therein.
In this project, Primary data was not required because this type of study does not involve
sampling or survey, except for limited internal information of the company provided by the
company guide-Mr. Deepak Kumar (Senior Treasury Manager) as per his discretion.
Major portion of this project consists of Secondary data, collected from various sources. Data
was collected from the Annual Report (2018-19), Company website and sources from the
Internet. Thus, I have used Exploratory Research Methodology.
The company follows a Centrally Integrated System of Funds Management to enhance its
financial operations and carry out its functions in a better way. This project has attempted to
trace how efficiently funds are being utilized in the company.
It also includes the study of fund and non-fund based limit (i.e. Bank Guarantee and Letter of
Credit). It also highlights the various important documents that are required, to be filled for the
import of goods and services as well as the risks involved in carrying out the foreign exchange
transactions.

CHAPTER 1: Introduction to Study

1.1 Introduction-
Treasury Management includes management of financial assets and holdings of a business.

The goal of the treasury department is to optimize their company’s liquidity, make sound
financial investments for the future with any excess cash and reduce or enter into hedges against
its financial risks.
For non-banking entities, the terms Treasury Management and Cash Management are
sometimes used interchangeably, but in practical terms, the scope of treasury management is
larger as it includes the funding and investment activities. In general, a company’s treasury
operations come under the control of the CFO/Director (Finance), and is handled on a day-to-
day basis by the organization’s treasury team.
As a non-banking entity, Balmer Lawrie & Co. Ltd has various dealings and day-to-day
transactions when it comes to treasury management. All the dealings and transactions are
properly maintained, keeping in mind the policies of the company and guidelines by DPE
(Department of Public Enterprises). The Department of Public Enterprises acts as a Guiding
agency for all Public Sector Enterprises and assists in policy formulation pertaining to the role
of PSEs in the economy as also in laying down policy guidelines on performance improveme nt
and evaluation, financial accounting and in related areas. It also collects, evaluates and
maintains information on several areas in respect of PSEs.
As an intern, I was given a brief overview of the various dealings and day-to-day transactions
of undertaken by the treasury team of the organization. In a nutshell, treasury department of
Balmer Lawrie & Co. Ltd deals in all the activities listed and explained as follows:
A. Daily funds/ Working Capital management
Balmer Lawrie & Co. Ltd holds a number of bank accounts across India and all the accounts
have SWEEP facility, whereby day-end bank balances are transferred to HO (head office)
account. Corporate treasury takes note of the opening balances with all the banks and based on
the expected collection and payments, analyze the funds status. As these numbers are not
constant, they review all the bank accounts on regular basis throughout the day and at around
4.00pm, finalize the fund position by transferring the funds as wherever required.

B. Arrangement of short-term and long-term loans.
In managing the daily funds of the organization, there might arise a situation where the
company has shortage of funds. At that point, for arranging funds for payment, company goes
for either short-term or long-term loans, depending upon the amount and the time period for
which the fund is required. If the requirement is for short period, then the company also has
the options of Cash Credit(CC), Fixed Deposit Overdraft (FD/OD) or Short-term loans.
C. Investment of Surplus Funds
The company is pro-active in investing of any surplus funds at the end of the day. As per the
guidelines issued by DPE, PSUs can invest in Term deposits with any scheduled commercia l
bank incorporated in India and with a net worth of at least Rs. 500 crores. While investing,
PSUs shall ensure that minimum 60% of the total surplus funds must be placed with Public
Sector banks.
D. Management of Forex transactions including hedging of Forex liabilities
The Company has foreign currency exposure for importing raw materials for their
manufacturing units and payment to foreign associates for Logistic Services Business. These
payments are made centrally from the Head Office. Corporate treasury are also responsible for
hedging the foreign currency liabilities as per the policy approved by the Board of the
Company.
E. Issuance and maintaining record of Bank Guarantees and Letter of Credits
Treasury department is also responsible for issuance of Bank Guarantees (BG) and Letter of
Credit(LC) for its Strategic Business Units (SBU). The role of the department is to ensure
timely issuance of Bank Guarantees at minimum rate of commission. A proper record of BGs
issued and amendments made, is maintained by the company. For cancelling the BG from the
list, the company has to submit the original BG with a letter of cancellation to the bank, for
removing the expired BG from the list.

F. Coordinator between SBUs/ department and banks.
Co-ordination with banks for smooth transaction across the SBUs, is one the priority of the
treasury department. Effectively, Treasury department is one-point contact for all the issues
faced by the SBUs related to banking transactions.
G. Finalization of Banking agreements
Every bank agreement is properly made, read and understood by the Finance managers and
thereafter the department finalizes the agreement.
H. Accounting of various transactions
Balmer Lawrie & Co. Ltd maintains record of each and every transaction made. At the end of
the day, every transaction is recorded in the SAP system thus making proper accounting of
each transaction. Bank statements are prepared in a particular format, which are then uploaded
in the SAP module, by the end of each day.
I. Compliances with various agencies like Bank, RBI and Auditors
Treasury department always ensure to comply with the policies laid down by the banks and
RBI, as well as complying with the rules laid down by the Comptroller and Auditor General of
India (CAG), for the PSUs.
J. Coordinating with Credit Rating Agencies for credit rating of the Company
Treasury department coordinates with credit rating agencies approved by RBI/SEBI to conduct
credit rating of the Company. Credit rating shows the credulity of the company. High credit
rating helps in raising debt easily and at a low rate as it shows that the company is reliable and
vice-versa.
K. Preparation of approval notes
Being a PSU, all the payments and transactions are processed based on approval notes. The
company maintains Board- approved Purchase Manual. There is also a specified Power of
Delegation.

L. Maintenance of Bank accounts
The company follows centrally integrated system of funds management to enhance its financ ia l
operations and carry out its functions in a better way. The treasury department monitors every
account twice a day, to see the inflows and outflows of the funds and analyze the funds position
in the organization.
M. Implementation of latest banking tools
The company uses the latest banking tools for efficient management of the bank accounts such
as online RTGS/NEFT, EMD (for tender purposes), real-time monitoring of accounts, etc.
N. Reporting to top management and to the Board of the Company
Daily and periodical reports prepared by the treasury department regarding the daily funds
position, Status of fixed deposits, FX exposure, SBU-wise funds utilization and submitted to
the top management.
1.2 Brief Details of Organization-

In order to carry out this study, I undertook my Winter Internship Programme of 3 weeks at
Balmer Lawrie & Co. Ltd., 21, N S Road, Kolkata.
Balmer Lawrie & Co. Ltd. (BL) is the largest manufacturer of steel barrels in India. The
company has its headquarters in Kolkata, and has offices througho ut India and in Bedford in
the UK. The company was founded by two Scotsmen, Stephen George Balmer and Alexander
Lawrie, in Kolkata, as a Partnership Firm on 1st February 1867.
Traversing the 153 years gone by, today Balmer Lawrie is a Miniratna - I Public Sector
Enterprise under the Ministry of Petroleum and Natural Gas, Government of India, with a
turnover of Rs. 1857 crores and a profit of Rs. 280 crores.
BL products include steel barrels, industrial greases, specialty lubricants, corporate travel and
logistics services. It has a presence in performance chemicals and logistics infrastructure.
1.3 Scope & Limitations-

 This project studies how the Treasuries are the custodians of cash in a business.

 The study is non-specific and explores treasury activities, eliminating the need of
sample/population analysis.
 This study covers non-banking entity only and differs from purely banking entities.
 All information collected is relevant for the F.Y 2018-19.
1.4 Objectives-
 To understand the importance of treasury management to an organization.

 To study how fund management is carried out in such vast and diversified organiza tio n
like Balmer Lawrie & Co. Ltd.
 To take advantage of the trading and arbitrage opportunities in the FOREX markets.
 To trace and highlight the sources and application of funds in the company and
investigate any discrepancies arising therein.

CHAPTER 2: Review of Literature

2.1 Theoretical Context
Finance is of crucial importance to any firm. The Finance division carries out a vast
array of tasks to ensure that the company as a whole does not have to suffer from shortage of
funds, or struggles to cope with staggering interest burdens. The various activities carried out
by the Corporate Finance are swapping of high interest loans for low ones, remittance of funds
through bank operations and cash operations for meeting day-to-day cash requirements.
Structure of the Finance Department-
Functions of the Finance Department

The major functions of the finance department are as follows:
-Arrangement of funds for the divisions:
For any type of financial requirements by the divisions, they may draw funds from the sweep
accounts maintained centrally in Kolkata with consortium banks. The department, for proper
control, monitors the withdrawals and deposits by the divisions, on a daily basis.

-Investment of surplus funds:
If there is any surplus fund, the investment part of the same is taken care by the department
centrally. Quotes for interest rates for the tenure of the investment of the surplus funds are
called from consortium banks to determine the best deal. The company guidelines on investing
surplus funds only in Fixed Deposit and for the tenure not more than one year, to avoid risk
and speculation. The funds are parked with the bank which has the highest interest rate.
-Arrangements of deficit:
If there is any deficit, the company goes for a Short Term Loan, Cash Credit or Fixed Deposit
Overdraft Loan. Two things are taken into consideration-Quantum and Duration of the loan.
-Transfer Vouchers:
The units sent in the inter-departmental transfer vouchers which are duly signed by the
accountant of their respective units for settlement of inter-unit debts/recoveries. These are
incorporated in the head office current account.After incorporation of all transactions of the
day, a statement containing the net balances of all units is extracted from the system at the end
of the day.
-Foreign Exchange:
All kinds of foreign remittance are managed by Finance Department at the head office. Opening
of foreign LCs for any division is done through the Corporate Finance division to control the
foreign exchange funds.
How does Treasury Management come into the picture?

Treasuries are the custodians of cash in a business as they control this through- the
amount held, and its liquidity. The two levers of this is based on the size of the balance sheet
and the relative liquidity of the assets and liabilities held. Their management of this enables the
fundamentals of an organization, by allowing teams to operate and conduct activities by
ensuring that there is cash on hand, for any purpose-big or small.
In addition to enabling usual business activities, treasuries partake in the macro-
financial direction of a company and oversee the execution of company-wide strategies. For
example, if the board decides to buy a business or expand into new territories, Treasury will
help to determine the fit of the company from a balance sheet perspective and find the cash (or
issue stock) to purchase it ultimately.
By actively managing liquidity, treasuries ensure that businesses stay alive, save
money, and can respond quickly to change.

Areas Covered by a Treasury-
The basics of treasury management can be divided into five critical responsibilities-
ASSET LIABILITY MANAGEMENT (ALM)
ALM concerns the blend of assets and liabilities that sit on a balance sheet and the subsequent
mismatches between tenor, currency, and interest rate (cost). Companies hold a range of
instruments on balance sheets, which behave with varying characteristics. How they interact
with each other and represent the overall position could be metaphorically described as being
similar to the concept of Beta in portfolio management.
ALM is most relevant for treasury management in banks because their fundamental purpose is
based upon the gearing dynamic of borrowing and lending money. The graphic below
demonstrates generic balance sheet compositions for corporates and banks and, as you can see,
banks are generally more leveraged through their increased use of liabilities relative to equity
capital.
Because it’s generally cheaper to borrow short-term liabilities and invest in long-term assets,
there is a natural tendency for companies to stretch this funding mismatch to a limit. This can
all come crashing down during market flashpoints when credit dries up and liabilities become
harder to roll. An ALM function monitors this liquidity horizon, prescribing limit buffers and
advising on any changes that can be observed in advance.
Optimizing assets and liabilities in a proactive manner increases profitability and business
opportunities. Here are some examples of companies using treasury management to assist
business:
 Direct to consumer vendors (e.g., supermarkets, eCommerce) that have negative cash
conversion cycles and offer consumer credit services.
 Share repurchase schemes enacted at opportunistic periods.
 Factoring receivables to gain a competitive advantage by winning new customers with
attractive payment terms.
FUNDS TRANSFER PRICING (FTP)

Treasuries are mini-banks for their own companies (or banks) and must price up the liabilities
on hand for use in everyday asset-generating activities. The FTP reflects the cost of liabilities
and is charged to a business unit when it wishes to originate a new asset. Unlike the widely-
known cost of debt figure, which can be represented as a standalone loan or benchmark bond
yield, the FTP represents a fully- loaded cost. By that, I mean that it is the overall weighted

average cost of all liabilities plus the internally shared costs of the business minus treasury
profit.
Funds-transfer pricing is the process of costing a balance sheet and then setting the requisite
prices for asset creators or liability gatherers to pay or earn for their respective tasks. Without
this, there would be a free-for-all, with profitability and balance sheet structure left to its own
devices.
TRADING AND HEDGING
The responsibilities of hedging company-wide interest rate and FX risk sits with the treasury
function, who will use derivatives to balance the books. Depending on the sophistication of the
business, these risk management strategies can range up from FX spot trades to long- term
interest rate swaps.
For example, John worked at a bank with predominantly GBP-based liabilities, but with assets
written in EUR. A sudden change in either currency would distort the risk, in terms of the
proportions of the balance sheet and the relative profitability of deals. To counteract this, we
would trade cross-currency swap derivatives to “crystalize” the asset positions into GBP to
retain parity.
PORTFOLIO MANAGEMENT
Treasuries are financial asset managers for their company, investing spare cash that sits on the
balance sheet to generate a return (and thus, lower FTP). This is often a very creative exercise
that involves the search for yield, liquidity, and capital efficiency. Braeburn Capital, for
example, is the asset management arm of Apple, a company that regularly has reserve treasury
funds of over $200 billion!
INTEGRATION/PROJECTS
Overseeing all parts of the business and being agnostic towards any specific business line will
usually put the treasury as a useful tool for integrating acquisitions into the company, or for
spearheading IT transformation initiatives.
Thus, treasury contributes to:

 Net Profit Margin (Profit/Sales): Searching for cheaper borrowing costs increases
contribution margin = more competitive
 Asset Turnover (Sales/Assets): Getting more yield out of assets through ALM and
portfolio management = more revenue
 Financial Leverage (Assets/Equity): Managing debt to optimal levels = more
opportunities.

WORKING CAPITAL MANAGEMENT
Working Capital refers to the capital of a business, which is used in its day-by-day trading
operations, calculated as the Current Assets minus Current Liabilities.
Positive Working Capital means that the company currently is able to pay off its short-term
liabilities.
Negative Working Capital means that the company currently is unable to meet its short-term
liabilities with its current assets (cash, accounts receivable and inventory)
Positive Working Capital is required to ensure that a firm is able to continue its operations and
that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational
expenses. The management of working capital involves managing inventories, accounts
receivable and payable and cash.
Cash Conversion Cycle

The cash conversion cycle is a cash flow calculation that attempts to measure the time it takes
a company to convert its investment in inventory and other resources inputs into cash.
The cash conversion cycle has three distinct parts: (from annual report 2018-19)
The first part of the cycle represents the Current Inventory Level and Time Taken by Balmer
Lawrie to sell the inventory.
Calculation:
Days Inventory Outstanding
Cost of goods sold

Average Inventory= [(Opening Inventory + Closing Inventory)/2]
Inventory Turnover Ratio= [Cost of goods sold/Average Inventory]
Days inventory outstanding= [365 days in a year/Inventory Turnover]
The second part of the cycle represents the Current Sales and the Amount of Time it takes to
collect the Cash from these sales.

Calculation:
Average Collection Period
Credit Sales
Average Receivables= [(Opening Receivables + Closing Receivables)/2]
Receivables Turnover Ratio= [Credit Sales/Average Receivables]
Average Collection Period= [365 days in a year/Receivable Turnover]
The third stage of the cash cycle represents how much a company owes its current vendors for
inventory and goods purchases and when the company will have to pay of its vendors.
Calculation:
Days payable Outstanding
Credit Purchases
Average Payables= [(Opening Payables + Closing Payables)/2]
Payables Turnover Ratio= [Credit Purchases/Average Payables]
Days Payable Outstanding= [365 days in a year/Payables Turnover Ratio]
Therefore, Cash Conversion Cycle= [Days Inventory Outstanding + Days Sales

Outstanding -Dayx Payables Outstanding].
Analysis:
Cash Conversion cycles denotes the number of days, an entity takes, from paying for
its inventory to receive the cash from its sale.

CHAPTER 3: Research Methodology

3.1 Research Process –
Research Methodology refers to search of knowledge, one can also define research
methodology as a scientific and systematic search for required information on a specific
topic.
Once the research objective and design are through, the next and most important step is data
collection. Data are facts, figure and other parameters from both past and present, which serves
as a basis for study and analysis.
In this project, Primary data was not required because this type of study does not involve
sampling or survey, except for limited internal information of the company provided by the
company guide-Mr. Deepak Kumar (Senior Treasury Manager) as per his discretion.
Major portion of this project consists of Secondary data, collected from various sources. Data
was collected from the Annual Report (2018-19), Company website and sources from the
Internet. Thus, I have used Exploratory Research Methodology.
Exploratory research is "the preliminary research to clarify the exact nature of the problem
to be solved."
Exploratory research design does not aim to provide the final and conclusive answers to the
research questions, but merely explores the research topic with varying levels of depth. It has
been noted that “exploratory research is the initial research, which forms the basis of more
conclusive research. It can even help in determining the research design, sampling
methodology and data collection method”. Exploratory research “tends to tackle new problems
on which little or no previous research has been done”.
DATA COLLECTION
The main objective of this project was to understand the importance of treasury manageme nt
to an organization. The research method adopted for this study is secondary in nature.
-PRIMARY DATA
Primary sources are first-hand information from a person who witnessed or participated in an event.
Primary data could not be collected due to the confidential nature of the information that could not
be shared in a short internship of only 3 weeks.

- SECONDARY DATA:
Secondary data is information that is already available somewhere, whether it be in journals, on the
internet, in a company’s record or, on a large scale, in corporate or governmental archives.
Secondary data allows for comparisons of, say, several years’ worth of statistical information
relating to, this data is being used for some purpose other than that of which they were originally
collected.
Example of secondary data are:
 Theoretical context of Income Tax statutes of India.
 Books/magazines
 Investment related receipts
 Office statistics

CHAPTER 4: Data Analysis &
Interpretations

FUND-BASED AND NON-FUND BASED CREDIT FACILITIES AVAILED BY
TREASURY DEPARTMENT OF BALMER LAWRIE CO. LTD.
Credit Facility Sanctioned and Management of Bank Accounts-

Balmer Lawrie enjoy credit facilities (both funded & non-funded) from the consortium
banks. The Corporate Finance division has the sole responsibility to utilize the available credit
facility in proper and efficient manner. The Fund-Based Limit mainly used for Working Capital
Requirements on a daily basis.
For smooth functioning of the divisions, most of the divisions maintain a Current Account for
deposits and withdrawals. These Current Accounts are availed with sweep facilities at the end
of the day. As per the bank statement, the balance (debit or credit) gets transferred to the main
account of the Head Office in the respective bank. The Finance department monitors the daily
transactions made by the divisions on hourly basis and passes the necessary entries for balances
at the end of the day.
The divisions, which do not have the facility of sweep, account intimate their requirement to
the Head Office, which, in turn intimate the bank to transfer the funds requested by the divis io n
to the respective Current Account of the division. However, other divisions that have the
facility of sweep accounts also need to intimate the Head Office about the major transactions.
Consortium of Banks in the Company-

Serial Fund-Based Non-Fund-Based Total (in
Name of the Bank
No. Limit (in Crores) Limit (in Crores) Crores)
1 Allahabad Bank 3 1 4
2 Bank of Baroda 3 15 18
3 Canara Bank 2 5 7
4 HDFC Bank 2 - 2
5 IndusInd Bank 9 74 83
6 SBI Bank 5 15 20
7 Vijaya Bank 9 3 12
8 Standard Chartered Bank 15 15 30
Unallocated (Minimum
9 Balance) 2 2 2

Other than the consortium banks mentioned above, Balmer Lawrie also holds a bank account
in Yes Bank (for unsecured loans).
FUND-BASED LIMIT
Fund-based limit is a limit in which the company gets the money from a bank or financ ia l
institution in Cash. The following are types of fund based limits enjoyed by the organization-
Cash Credit (CC)-
To meet working capital requirements of the company, the bank gives the CC limit against the
hypothecation of stock and debtors. The bank deducts the company trade creditors, while
deciding the limit. The company needs to submit a statement consisting of the monthly report
of its stock and debtors with the bank, showing the position and aging of its debtors.
The withdrawal limit is sanctioned by the bank and it charges as per norms. This agreement is
made for a year and at the end of the year, it is to be renewed as per the requirement of the
company. Regular inspections are conducted by the bank officers, to check the Stock Level
and a Stock Audit is conducted by a Chartered Accountant on a yearly basis.
Balmer Lawrie has different limits sanctioned from different banks for CC at different rates.
As for example, Standard Chartered Bank, SBI & Vijaya bank provides CC at 8.35%, 8.40%
and 9.5% respectively
Working Capital Term Loan:

Sometime the company fails to bring immediately its own contribution as margin, while
enjoying the working capital limits. The bank may sanction Working Capital Term Loan to the
company which needs to be adjusted as soon as possible.
It normally carries high rate of interest in comparison to working capital limit.
Balmer Lawrie can avail a short-term loan from Standard Chartered Bank @ 8.85%.
FD OD Loan-
When a company invests in bank fixed deposit, they are eligible to apply for a loan against it
without even breaking it. It is similar to personal loan, which is structured as an overdraft
facility against the fixed deposits. The company enjoys the benefits of this loan, on the basis
of various interest rates charged by different banks. It compares the rates of various banks and
invests in only those fixed deposits that are beneficial for the company. Under this facility,
company can avail loan up to 90% of the Fixed Deposit amount.

Balmer Lawrie can avail loan against FD from two banks-Canara Bank and Vijaya Bank. The
interest rates charged by these banks are as follows-
Canara Bank provides loan against FD:

Loan Amount Interest Rates
0-5.40 Cr 6.05%
5.40-14.40 Cr 6.90%
14.40- 18 Cr 7.25%
18- 21.6 Cr 7.40%
Vijaya Bank provides loan against FD:

Loan Amount Interest Rates
0-4.5 Cr 6.77%
4.5-18.5 Cr 7.45%
NON-FUND BASED LIMIT
Balmer Lawrie also enjoys non-fund based limits, which are as follows-
Bank Guarantee(BG)-
Introduction: Business sometimes needs to guarantee payment and the best way to do so is by
providing a bank guarantee, which ensures the creditor that payment will be made, once the
transaction is complete. A bank guarantee is a guarantee from a lending institution, ensuring
that the liabilities of a debtor will be met. It is a promise from a bank or other lending institutio n
that if a particular borrower defaults a loan, the bank will cover the loss. Amount of Bank
Guarantee is generally the 10% of the contract amount.
It is mandatory to mention NotWithStanding(NWS) clause at the end of the guarantee,
mentioning amount of the guarantee, expiry date as well as the claim date. Any amendments
regarding the amount or the dates of the BG, can be made by writing a letter to the Bank for
the Same.
Bank issues guarantee against some commission. Bank may also ask for collateral security
covering the amount of bank guarantee, if that guarantee exceeds the consortium period of
company with the bank. In that case, Bank asks to make Fixed deposit, which acts as collatera l.
This is called BG margin money.

Reasons as to why Balmer Lawrie goes for bank guarantee :
 Bank guarantee reduces the loss, if the transaction doesn't go as planned for.
 Bank guarantee is an obligation against the payment made. The sum is only paid, if the
contracting party does not fulfill the stipulated obligations under the contract. This is
used, to essentially ensure the buyers or seller.
 At present, Balmer Lawrie has Bank Guarantees totaling more than Rs. 100 crores.
Major Banks that provide bank guarantee for Balmer Lawrie & Co. Ltd are:
 IndusInd Bank
 Yes Bank
 Standard Chartered Bank
 Bank of Baroda
 Canara Bank
Types of Bank Guarantees:

Balmer Lawrie avails both the types of bank guarantee:
 Financial guarantee - In this case, the bank guarantees that the beneficiary will mee t
the financial obligation and in case he fails, the bank as a guarantor is bound to pay. It
is a demand instrument issued by a bank.
 Performance guarantee - It is issued by an insurance company that obligates the
insurance company to pay to the named third party upon proof of loss. The insurance
company's client has not met its performance obligations under the contract that is being
guaranteed. This is most often provided for non-financial obligations (constructing a
road or building).
Letter of Credit(LC)-
Introduction: A letter of credit is a document from a bank (Issuing Bank), assuring that a seller
(Beneficiary) will receive payment up to the amount of the LC, as long as certain documentar y
delivery conditions have been met. In the event that the buyer (Applicant) is unable to make
payment on the purchase, the Beneficiary may make a demand for payment on the bank. The
Bank will examine the Beneficiary's demand and if it complies with the terms of the letter of

credit the Bank will honor the demand. It is a letter from a bank guaranteeing that a buyer's
payment to seller will he received on time and for the correct amount.
Reasons as to why Balmer Lawrie goes for Letter Of Credit-

 Letter of credit ensures that a transaction proceeds as planned and as per the agreement .
 Letter of credit is an obligation taken on by a bank to make payment once certain criteria
are met.
Major Issuers of Letter of credit for Balmer Lawrie & Co. Ltd is:
 Standard Chartered Bank
 IndusInd Bank
 Canara Bank
FOREIGN EXCHANGE DUE TO IMPORT/EXPORT OF GOODS & SERVICES
Import of Goods and Services-

Import of Goods and Services represent the value of all goods and other market services
received from rest of the world. They include the value of merchandise, freight, insurance,
transport, royalties, license fees and other services such as communication, financ ia l,
information, business, personal and government services.
Balmer Lawrie & Co. Ltd is engaged in both manufacturing and service business. The business
of the company comprises of the following strategic business units (SBUS)-
 Industrial Packaging (SBU-IP)
 Greases and Lubricants (SBU-G&L)
 Logistics Services (SBU-LS)
 Leather Chemicals (SBU-LC)
 Refinery & Oilfield Services (SBU-ROFS)
 Logistics Infrastructure (SBU-LI)
 Travel and Tours (SBU-T&T)
Reasons as to why Balmer Lawrie goes for outward remittance:

a) Payment for physical import of goods - Advance payment and Direct Transfers.
b) Payment to foreign associates mainly, for logistics services.
c) Outward remittance made for other services such as consultancy services, license fees
royalties, agency fees, etc.

Outward remittance is prohibited for the following:
a) For travel to Nepal/Bhutan
b) Forex transactions with a person resident in Nepal or Bhutan
c) Remittance out of winning from lotteries

d) Remittance of income from racing/riding or any other hobby
e) Remittance for purchase of lottery tickets, banned magazines, securing prize money/awards ,
etc.
Documents required for Import of Goods:

1. Form A1: Application by persons. firms and companies for making payments towards
import into India, must be made in Form Al. This form requires the name of the
applicant, the amount lo be remitted, bank details of the beneficiary, details of the
invoice, BOE details, etc.
2. Bill of Lading: It is a documentary proof for the dispatch of goods from the origina ting
country.
3. Bill of Entry: It is a proof for import of goods. It is issued by the Customs Department
and the triplicate copy of the Bill of Entry has to be submitted with the authorized dealer
bank before realizing the payment from the bank (as per RBI guidelines).
4. Invoice: A proof showing the amount of payment to be made.
5. FEMA Declaration: It is a requirement under the FEMA Act. It contains the name of
the party, amount to be remitted and the purpose for the remittance.
6. Request Letter: A letter by the SBUs division, requesting the payment to be made to
the party.
Documents required in case of Services:

1. Form A2: Application by persons, firms, and companies for making payments towards
services outside India, must be made in Form A2. This form requires the name of the
applicant, the amount to be remitted, beneficiary parties bank details, the purpose code,
etc.
2. Invoice: A proof showing the amount of payment to be made.
3. FEMA Declaration: It is a requirement under the FEMA Act. It contains the name of
the party, amount to be remitted and the purpose for the remittance.

4. 15CA and CB: When payments are being made to a non-resident or foreign company,
then I5CA and CB has to be issued. 15CB is a certificate given by Chartered Accountant
to determine tax implication on the nature of payment. Form 15CA is filed online on
the Income Tax website, filling the necessary information required therein.
5. Request Letter: A letter by the SBUs division, requesting the payment to be made to
the party
Foreign Currency and Exchange Risks-

Business involving exports or imports of goods or services need to consider protection against
changes in the exchange rates. A tiny variation in the rate could cost the business a huge
amount. It is necessary to decide how to make and receive payments in foreign currencies.
Key Issues:
1. Foreign currency transactions are sensitive to fluctuations in the exchange rate. The
agreed price with a customer or supplier on one day could rise or fall if the exchange
rate changes. This is especially true in the current economic climate, where currency is
fluctuating on a daily basis, making it more difficult to keep track of exchange rates.
2. Importing unit's components priced in a foreign currency that form part of goods, they
are selling and the need to decide how to price the goods to reflect the exchange rate
(pricing decicsions).
Option used by Balmer Lawrie to avoid Foreign exchange risk:

Forward foreign exchange contracts: It is a hedging option used by Balmer Lawrie to avoid
exchange risk. This is an arrangement initiated to buy and sell a specific amount of foreign
Currency, a certain rate, on or before certain date. It is a secure and simple way of hedging
when there is a currency requirement on a particular date. Balmer Lawrie avails a consultanc y
service for making forward contracts.
Advantages:
 Protected against any adverse movements in the exchange rate
 Can set budget knowing exactly how much the transaction costs.
Disadvantages:
 Has to go ahead with the contract once arranged, regardless of change in circumstance s :
 Since the rate is fixed, any benefit from the favorable movement in the exchange rate
cannot be used.

Limitations:
 The interpretation of the reports might not cover the whole area, as the informa tio n
shared is limited to some aspect.
 Company does not use any other hedging option other than forward contracts for
foreign transactions.

CHAPTER 5: Observations, Findings,
Suggestions and Conclusion

Major Findings-
1. The company is having sound commercial practices and there is a pre-defined policy
for every commercial activity.
2. The Treasury and Fund management is carried out in an efficient manner thus leading
to no debt at the end of the financial year. This shows that the organization has the
ability to deal efficiently with the financial risk.
3. The efficient management at treasury department is depicted in the books of account as
increase in the interest income of the company each year, showing the contribution of
Treasury department to other income of the company.
4. Every transaction is reviewed thoroughly by the finance department before the entry in
the books of accounts. All the payments and transfer of voucher are done
systematically.
5. The cash dealing is closed after demonetization as it is a Government enterprise. Every
transaction is done electronically and monitored centrally by the Head Office.
6. The company only invests in the Fixed Deposits. Although DPE allows PSUs of
availing other investment options, Balmer Lawrie only opts for Fixed Deposits, as per
the Board's policies. Also due to company's policy of not making any investment for
more than 1 year, the company cannot opt for other sale investments like Govt. bonds,
Post office term deposits and others.
Suggestions-
The management of working capital plays a vital role in running of a successful business.
Therefore, it should go with a proper understanding of managing cash, receivables and
inventory.
Balmer Lawrie & Co. Ltd. is managing its working capital in an adequate manner but there is
always a scope of further improvement in its management. This can help in raising its profits.
As per analysis and interpretation made, following are the suggestions-
1. Company may explore more hedging options other than forward contracts alone for
foreign exchange transactions.
2. The company can also opt for investment in Mutual Fundsm where company can make
investments for up to 1 year and can also withdraw money whenever required, thus
earning some extra income from the idle money kept aside as well as earning higher

returns than Fixed Deposits. Company can also to look for investing options like
Treasury Bills, etc., thus, not violating the companies’ policy.
Conclusion-
After a thorough study of Treasury and Fund Management at Balmer Lawrie Co. Ltd. it has
been seen that the process of procuring and utilization of funds especially in a diversified
organization, requires careful planning, monitoring and controlling exercises.
The company has a multitude of divisions spread over a large geographical area and allocatio n
of funds among the various divisions becomes a much more delicate and strategic task. On one
hand, the presence of so many far flung divisions, may lead to creation of manageme nt
problems, while on the other hand, it may often act as a safety net-that is under performance
incurred by one division being offset by overperformance by other division, leading to overall
profitability of the company, which is proving as a boon during the current pandemic situatio n.
In such an organization, it is important that information flows from one area to another area
smoothly. The company being a Government of India undertaking, complies with all
regulations, guidelines and procedures

References
2020. "Balmer Lawrie's travel logistics businesses hit by lockdown." April 19.
https://www.theweek.in/wire-updates/business/2020/04/19/ccm1-biz-balmer-
lawrie.html.
Bragg, Steven M. n.d. Steven Bragg's Treasury Management, the Practitioner's Guide . John
Wiley & Sons, Inc.
n.d. Google. https://www.google.co.in/.
n.d. "https://economictimes.indiatimes.com/balmerlawrie-company-
ltd/profitandlose/companyid-12675.cms."
n.d. https://www.balmerlawrie.com/pages/financialresultsinvestor.
https://www.balmerlawrie.com/pages/financialresultsinvestor.


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A

“A Study of Treasury Management in a Non-banking

In partial fulfilment of the requirement for the award of

MASTER OF BUSINESS ADMINISTRATION

SINHGAD INSTITUTE OF MANAGEMENT (SIOM)

A Study of Treasury Management in a Non-banking 2

I, Namrata Aslesha Soren, being a student of Sinhgad Institute of Management, Pune

Namrata Aslesha Soren

Place: Sinhgad Institute of Management, Vadgaon-Budruk, Pune.

A Study of Treasury Management in a Non-banking 3

Namrata Aslesha Soren

A Study of Treasury Management in a Non-banking 4

4. Data Analysis & Interpretations 24

5. Observations, Findings, Suggestions and Conclusion 33

A Study of Treasury Management in a Non-banking 5

This project entitled “A Study of Treasury Management in a Non-banking Entity- namely

A Study of Treasury Management in a Non-banking 6

A Study of Treasury Management in a Non-banking 7

A Study of Treasury Management in a Non-banking 8

Treasury Management includes management of financial assets and holdings of a business.

A. Daily funds/ Working Capital management

A Study of Treasury Management in a Non-banking 9

C. Investment of Surplus Funds

D. Management of Forex transactions including hedging of Forex liabilities

E. Issuance and maintaining record of Bank Guarantees and Letter of Credits

A Study of Treasury Management in a Non-banking 10

G. Finalization of Banking agreements

H. Accounting of various transactions

I. Compliances with various agencies like Bank, RBI and Auditors

K. Preparation of approval notes

A Study of Treasury Management in a Non-banking 11

M. Implementation of latest banking tools

N. Reporting to top management and to the Board of the Company

1.2 Brief Details of Organization-

1.3 Scope & Limitations-

A Study of Treasury Management in a Non-banking 12

 To understand the importance of treasury management to an organization.

A Study of Treasury Management in a Non-banking 13

A Study of Treasury Management in a Non-banking 14

Structure of the Finance Department-

Functions of the Finance Department

A Study of Treasury Management in a Non-banking 15

How does Treasury Management come into the picture?

A Study of Treasury Management in a Non-banking 16

FUNDS TRANSFER PRICING (FTP)

A Study of Treasury Management in a Non-banking 17

Thus, treasury contributes to:

A Study of Treasury Management in a Non-banking 18

Cash Conversion Cycle

Cost of goods sold

A Study of Treasury Management in a Non-banking 19

Therefore, Cash Conversion Cycle= [Days Inventory Outstanding + Days Sales

A Study of Treasury Management in a Non-banking 20

A Study of Treasury Management in a Non-banking 21

A Study of Treasury Management in a Non-banking 22

A Study of Treasury Management in a Non-banking 23

A Study of Treasury Management in a Non-banking 24

Credit Facility Sanctioned and Management of Bank Accounts-

Consortium of Banks in the Company-

A Study of Treasury Management in a Non-banking 25

Working Capital Term Loan:

A Study of Treasury Management in a Non-banking 26

Canara Bank provides loan against FD: