STUDY OF CASH MANAGEMENT SYMMS(IV)

UNIVERSITY OF MUMBAI
PROJECT ON
“STUDY OF CASH MANAGEMENT ”

SUBMITTED BY
NISHAD RAHUL RAJENDRA
SEAT NO.: 2122035

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS

FOR

THE AWARD OF DEGREE OF MMS ( FINANCE )

OF

UNIVERSITY OF MUMBAI
2022-2023

UNDER THE GUIDANCE OF

PROF. DEEPIKA RAO

MATOSHRI USHATAI JADHAV INSTITUTE OF MANAGEMENT
STUDIES AND RESEARCH CENTER, BHIWANDI.
STUDY OF CASH MANAGEMENT SYMMS(IV)

CERTIFICATE

This is to certify that NISHAD RAHUL RAJENDRA , a student of Matoshri

Ushatai Jadhav Institute of Management Studies and Research Centre, Bhiwandi of
MMS Semester-III bearing SEAT No. and specializing in FINANCE has
successfully completed the project titled. " STUDY OF CASH
MANAGEMENT.” Under the guidance of PROF. DEEPIKA RAO in partial
fulfillment of the requirement of Masters of Management Studies by University of
Mumbai for the Academic Year 2022-2023.

Prof. Deepika Rao Prof. Vijay Vanjare Dr. Sopan Bhamre

( Project guide) ( Coordinator) ( Director)

Examiner: ___________

DATE: ___________
STUDY OF CASH MANAGEMENT SYMMS(IV)

ACKNOWLEDGEMENT

To list who all have helped me is difficult because they are so numerous, and the depth is so
enormous

I would like to acknowledge the following as being idealistic channel and fresh dimensions in
the completion of this project

I take this opportunity to thank the UNIVERSITY OF MUMBAI for giving me chance to do this
project

I would like to thank our Director Dr. Sopan Bhamre Sir for providing the necessary facilities
required for completion of this project

I take this opportunity to thank our CO ORDINATOR Prof. Vijay Vanjare Sir for his moral
support and guidance

I would like to express my sincere gratitude toward my project guide Prof. Deepika Rao whose
guidance and care made the project successfully

I would like to thank my college LIBRARY for having provided various reference Books and
magazines related to my project

Lastly, I would like to thank each and every person who directly or indirectly helped me in the
completion of the project especially MY PARENTS AND PEERS who supported me throughout
my project work

(NISHAD RAHUL RAJENDRA)

STUDY OF CASH MANAGEMENT SYMMS(IV)

EXECUTIVE SUMMARY
STUDY OF CASH MANAGEMENT SYMMS(IV)

OBJECTIVE

 To study the importance of cash management for every company.

 To study is cash management help to business allocate cash in proper way.
 To study the asset and liabilities of company while making cash flow
statement.
 To study a control excess flow of cash in market.
 To learn about various aspect of bank cash management.
 To explore the future prospectus of any bank cash management.
STUDY OF CASH MANAGEMENT SYMMS(IV)

SCOPE

 The study would help us to understand role of bank into the cash
management.
 The research tell about well managed flow of cash.
 The research help to control the liabilities.
 The research will help to make a prompt decision for investement.
 This would help us to understand the cash cycle.
 This would help to understand various ratio involved in cash management.
STUDY OF CASH MANAGEMENT SYMMS(IV)

INDEX
STUDY OF CASH MANAGEMENT SYMMS(IV)

INTRODUCTION

Cash is the most important asset for the operations of the business firms. It is the basic input
needed to keep the business running on a continuous basis and also the ultimate out for the
business operation. The business firms should always maintain sufficient cash reserve because
the excessive cash will remain idle, shortage will disrupt the firm operations. Normally, every
business firm holds 1 to 3 percent of its assets in the form of cash to enable itself to discharge its
routine obligations such as payment of salaries, bills, day-to-day expenses, repayment of loans,
dividends, interest, etc. The meeting capacity of business transactions depends more on the
amount of cash it holds either in bank or on hand. To enable its liquidity and paying capacity, a
sound cash management is necessary. Management of cash is one of the most important areas of
overall working capital management due to the fact that cash is the most liquid type of current
assets. As such it is the responsibility of the finance function to see that the various functional
areas of the business have sufficient cash whenever they require the same. At the same time, it
has also to be ensured that the funds are not blocked in the form of idle cash, as the cash
remaining idle also involves cost in the form of interest cost and opportunity cost. As such the
management of cash has to find a mean between these two extremes of shortage of cash as well
STUDY OF CASH MANAGEMENT SYMMS(IV)

as idle cash. The term cash management refers to the process of collecting and managing cash
flows. Cash is the important current asset for the operations of the business. Cash is the basic
input needed to keep the business running on a continuous basis; it is also the ultimate output
expected to be realized by selling the service or product manufactured by the firm. The firm
should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firm's
manufacturing operations while excessive cash will simply remain idle, without contributing
anything towards the firm's profitability. Thus, a major function of the financial manager is to
maintain a sound cash position. Cash is the money which a firm can disburse immediately
without any restriction. The term cash includes coins, currency and cheques held by the firm, and
balances in its bank accounts. Sometimes near-cash items, such as marketable securities or bank
time's deposits, are also included in cash. The basic characteristic of near-cash assets is that they
can readily be converted into cash. Generally, when a firm has excess cash, it invests it in
marketable securities. This kind of investment contributes some profit to the firm.
STUDY OF CASH MANAGEMENT SYMMS(IV)

TYPES OF CASH MANAGEMENT SYSTEMS :

1. Cash flows from operating activities :

This is one of the vital types of cash management. Here a company cash flow statement is
explained. The source and uses of cash from ongoing regular business activies are illustrated.
This is done for a particular financial period. This reflects any changes in the working capital for
the business financial health. If you a bit low on cash to cover day to day operation you may also
look for lender with low interest rates and apply fir cash flow loans to keep up with other
expense.

Cash Flow from Operations Formula

While the exact formula will be different for every company (depending on the items they have
on their income statement and balance sheet), there is a generic cash flow from operations
formula that can be used:

Cash Flow from Operations = Net Income + Non-Cash Items + Changes in Working
Capital
STUDY OF CASH MANAGEMENT SYMMS(IV)

2. Free cash flow to equity:

in cash management this is the amount of cash a business generate. His amount can be
distributed to shareholder in the event of a good performance of the business. This is important
in determining the financial position of your business. This amount is calculate by taking the
cash firm business operation less capital expenditure of the business. Your business should
always have increased cash flows to keep it above water.

3. Free cash flow to the firm :

Free cash flow to the firm (FCFF) represents the amount of cash flow from operations available
for distribution after depreciation expenses, taxes, working capital, and investments are
accounted for and paid. FCFF is essentially a measurement of a company’s profitability after all
expenses and reinvestments. It is one of the many benchmarks used to compare and analyze a
firm’s financial health. It is through this evaluation that a firm can determine the amounts paid
out to investors.

4. The net change in cash

The net change in cash is the amount by which a company’s cash balance increases or decreases
in an accounting period. When you own or consider buying stock in a company, it is important to
monitor its net change in cash to make sure it doesn’t run out. It is also important to know this
cash management type. It is through it that the effectiveness of your revenue-generating
strategies can be determined. It will thus enable you to adjust accordingly. The objectives of cash
management include fulfilling working capital requirements, handling of unorganized costs,
planning capital expenditure, appropriate utilization of funds, planning of capital expenditure,
initiating investments. These cash management types should always be put into consideration to
ensure the success of your business.
STUDY OF CASH MANAGEMENT SYMMS(IV)

 Function of cash management :

In an ideal scenario, an organization should be able to match its cash inflows to its cash outflows.
Cash inflows majorly include account receivables and cash outflows majorly include account
payables. Practically, while cash outflows like payment to suppliers, operational expenses,
payment to regulators are more or less certain, cash inflows can be tricky. So the functions of
cash management can be explained as follows :

1. Inventory management

Higher stock in hand means trapped sales and trapped sales means less liquidity. Hence, an
organization must aim at faster stock out to ensure movement of cash.

2. Receivables Management

An organization raises invoices for its sales. In these cases, the credit period for receiving the
cash can range between 30 – 90 days. Here, the organization has recorded the sales but has not
yet received cash for the transactions. So the cash management function will ensure faster
recovery of receivables to avoid a cash crunch.

If the average time for recovery is shorter, the organization will have enough cash in hand to
make its payments. Timely payments ensure lesser costs (interests, penalties) to the organization.
Receivables management also includes a robust mechanism for follow-ups. This will ensure
faster recovery and it will also assist the business to predict bad debts and unforeseen situations.

3. Payables management
STUDY OF CASH MANAGEMENT SYMMS(IV)

While receivables management is one of the primary areas in the cash management function,
payables management is also important. Payables arise when the organization has made
purchases on credit and needs to make payments for the same within a fixed time. An
organization can take short-term credit from banks and financial institutions. However, these
credit facilities come at a cost and therefore, an organization must ensure that they maintain a
good liquidity position; this will help in timely repayments of debts.

4. Forecasting

While planning investments, the managers need to be very careful as they need to plan for future
contingencies and also ensure profitability. For this, they must use efficient forecasting and
management tools. When the cash inflows and outflows are efficiently managed it gives the firm
good liquidity.

5. Short-term investments

Avoiding cash crunch, insolvency and ensuring financial stability are the main criterias of cash
management. But it is equally important to invest the surplus cash in hand wisely. Despite being
a liquid asset, idle cash does not generate any returns. While investing in short-term investments
an organization must ensure liquidity and optimum returns.

Therefore, this decision needs to be taken with prudence. Here, the quantum/amount of
investment needs to be calculated and decided carefully. This caution is necessary because an
organization cannot invest all the available funds. Businesses need to reserve cash for
contingencies (cash in hand) too.

6. Other functions

Cash management also includes monitoring the bank accounts, managing electronic banking,
pooling and netting of assets, etc. So the cash management for treasury can also be a core
function. Although for large corporates this function is managed by softwares, small businesses
have to monitor it manually and ensure liquidity at all times.
STUDY OF CASH MANAGEMENT SYMMS(IV)

To add, large businesses have access to credit facilities at competitive rates. For small businesses
that access is not available. Therefore cash management is vital for them. However, even large
corporations need to monitor their systems time and again to avoid a situation of bankruptcy.

 Factors Determining Cash Needs

Maintenance of optimum level of cash is the main problem of cash management. The level of
cash holding differs from industry to industry, organisation to organisation. The factors
determining the cash needs of the industry is explained as follows:

1. Matching of cash flows :

The first and very important factor determining the level of cash requirement is matching cash
inflows with cash outflows. If the receipts and payments are perfectly coincide or balance each
other, there would be no need for cash balances. The need for cash management therefore, due to
the non-synchronisation of cash receipts and disbursements. For this purpose, the cash inflows
and outflows have to be forecast over a period of time say 12 months with the help of cash
budget. The cash budget will pin point the months when the firm will have an excess or shortage
of cash.

2. Short costs

Short costs are defined as the expenses incurred as a result of shortfall of cash such as
unexpected or expected shortage of cash balances to meet the requirements. The short costs
includes, transaction costs associated with raising cash to overcome the shortage, borrowing
costs associated with borrowing to cover the shortage i.e. interest on loan, loss of trade-discount,
penalty rates by banks to meet a shortfall in compensating, cash balances and costs associated
with deterioration of the firm’s credit rating etc. which is reflected in higher bank charges on
loans, decline in sales and profits.

3. Cost of cash on excess balances

One of the important factors determining the cash needs is the cost of maintaining cash balances
i.e. excess or idle cash balances. The cost of maintaining excess cash balance is called excess
STUDY OF CASH MANAGEMENT SYMMS(IV)

cash balance cost. If large funds are idle, the implication is that the firm has missed opportunities
to invest and thereby lost interest. This is known as excess cost. Hence the cash management is
necessary to maintain an optimum balance of cash.

4. Uncertainty in business

Uncertainty plays a key role in cash management, because cash flows can not be predicted with
complete accuracy. The first requirement of cash management is a precautionary cushion to cope
with irregularities in cash flows, unexpected delays in collections and disbursements, defaults
and expected cash needs the uncertainty can be overcome through accurate forecasting of tax
payments, dividends, capital expenditure etc. and ability of the firm to borrow funds through
over draft facility.

5. Cost of procurement and management of cash

The costs associated with establishing and operating cash management staff and activities
determining the cash needs of a business firm. These costs are generally fixed and are accounted
for by salary, storage and handling of securities etc. The above factors are considered to
determine the cash needs of a business firm.

Cash Management Services offered :

The following is a list of services generally offered by banks and utilized by larger
businesses and corporations:

 Account Reconcilement Services: Balancing a checkbook can be a difficult

process for a very large business, since it issues so many checks it can take a lot of
human monitoring to understand which checks have not cleared and therefore
what the company's true balance is. To address this, banks have developed a
system which allows companies to upload a list of all the checks that they issue on
STUDY OF CASH MANAGEMENT SYMMS(IV)

a daily basis, so that at the end of the month the bank statement will show not only
which checks have cleared, but also which have not. More recently, banks have
used this system to prevent checks from being fraudulently cashed if they are
not on the list, a process known as positive pay.

 Armored Car Services: Large retailers who collect a great deal of cash may have
the bank pick this cash up via an armored car , instead of asking its employees to
deposit the cash

 positive pay : Positive pay is a service whereby the company electronically shares
its check register of all written checks with the bank. The bank therefore will
only pay checks listed in that register, with exactly the same specifications as
listed in the register (amount, payee, serial number, etc.). This system dramatically
reduces check fraud.
 sweep account : are typically offered by the cash management division of a bank.
Under this system, excess funds from a company's bank accounts are automatically
moved into a money market mutual fund overnight, and then moved back the next
morning. This allows them to earn interest overnight. This is the primary use of
money market mutual funds.
 zero balance accounting : Companies with large numbers of stores or locations
can very often be confused if all those stores are depositing into a single bank
account. Traditionally, it would be impossible to know which deposits were from
which stores without seeking to view images of those deposits. To help correct this
problem, banks developed a system where each store is given their own bank
account, but all the money deposited into the individual store accounts are
automatically moved or swept into the company's main bank account. This allows
the company to look at individual statements for each store. U.S. banks are almost
all converting their systems so that companies can tell which store made a
particular deposit, even if these deposits are all deposited into a single account.
Therefore, zero balance accounting is being used less frequently.

 wire transfer : A wire transfer is an electronic transfer of funds. Wire transfers

STUDY OF CASH MANAGEMENT SYMMS(IV)

can be done by a simple bank account transfer, or by a transfer of cash at a cash

office. Bank wire transfers are often the most expedient method for transferring
funds between bank accounts. A bank wire transfer is a message to the receiving
bank requesting them to effect payment in accordance with the instructions given.
The message also includes settlement instructions. The actual wire transfer itself is
virtually instantaneous, requiring no longer for transmission than a telephone call.

 controlled disbursement : A wire transfer is an electronic transfer of funds. Wire

transfers can be done by a simple bank account transfer, or by a transfer of cash
at a cash office. Bank wire transfers are often the most expedient method for
transferring funds between bank accounts. A bank wire transfer is a message to the
receiving bank requesting them to effect payment in accordance with the
instructions given. The message also includes settlement instructions. The actual
wire transfer itself is virtually instantaneous, requiring no longer for transmission
than a telephone call.

FACTS OF CASH MANAGEMENT

Cash management is concerned with the managing of:cash flows into and out of the firm, (ii)
cash flows within the firm, and (iii) cash balances held by the firm at a point of time by financing
deficit or investing surplus cash. Sales generate cash which has to be disbursed out. The surplus
cash has to be invested while deficit has to be borrowed. Cash management seeks to accomplish
this cycle at a minimum cost. At the same time, it also seeks to achieve liquidity and control.
Cash management assumes more importance than other current assets because cash is the most
significant and the least productive asset that a firm holds. It is significant because it issued to
pay the firm's obligations. However, cash is unproductive. Unlike fixed assets or inventories, it
does not produce goods for sale. Therefore, the aim of cash management is to maintain adequate
control over cash position to keep the firm sufficiently liquid and to use excess cash in some
profitable way.
STUDY OF CASH MANAGEMENT SYMMS(IV)

Cash management is also important because it is difficult to predict cash flows accurately,
particularly the inflows, and there is no perfect coincidence between the inflows and outflows of
cash. During some periods, cash outflows will exceed cash inflows, because payment of taxes,
dividends, or seasonal inventory builds up. At other times, cash inflow will be more than cash
payments because there may be large cash sales and debtors may be realized in large sums
promptly. Further, cash management is significant because cash constitutes the smallest portion
of the total current assets, yet management's considerable time is devoted in managing it. In
recent past, a number of innovations have been done in cash management techniques. An
obvious aim of the firm these days is to manage its cash affairs in such a way as to keep cash
balance at a minimum level and to invest the surplus cash in profitable investment opportunities.
In order to resolve the uncertainty about cash flow prediction and lack of synchronization
between cash receipts and payments, the firm should develop appropriate strategies for cash
management. The firm should evolve strategies regarding the following four facets of cash
management:

 optimum utilization of operating cash : Implementation of a sound cash

management programme is based on rapid generation, efficient utilization and
effective conversation of its cash resources. Cash flow is a circle. The quantum and
speed of the flow can be regulated through prudent financial planning facilitating
the running of business with the minimum cash balance. This can be achieved by
making a proper analysis of operative cash flow cycle along with efficient
management of working capital.

 cash forecasting : Cash forecasting is backbone of cash planning. It forewarns a

business regarding expected cash problems, which it may encounter, thus assisting
it to regulate further cash flow movements.
 Cash management techniques : Every business is interested in accelerating
its cash collections and decelerating cash payments so as to exploit its scarce
cash resources to the maximum. There are techniques in the cash management
which a business to achieve this objective.

 Liquidity analysis : The importance of liquidity in a business cannot be over

emphasized. If one does the autopsies of the businesses that failed, he would
find that the major reason for the failure was their usability to remain liquid.
Liquidity has an intimate relationship with efficient utilization of cash. It helps
in the attainment of optimum level of liquidity.
STUDY OF CASH MANAGEMENT SYMMS(IV)

 Profitable deployment of surplus funds : due to non-synchronization of ash

inflows and cash outflows the surplus cash may arise at certain point of time. If
this cash surplus is deployed judiciously cash management will itself become a
profit centre. However, much depends on the quantum of cash surplus and
acceptability of market for its short-term investments.

 Economical borrowing : Another product of non-synchronization of cash

inflows and cash outflows is emergence of deficits at various points of time. A
business has to raise funds to the extent and for the period of deficits. Rising of
funds at minimum cost is one of the important facets of cash management.

 Purpose of cash management :

Cash management is the stewardship or proper use of an entity’s cash resources. It

serves as the means to keep an organization functioning by making the best use of
cash or liquid resources of the organization.

The function of cash management at the u.s treasury is threefold :

1. To eliminate idle cash balances. Every dollar held as cash rather than used to
augment revenues or decrease expenditures represents a lost opportunity. Funds
that are not needed to cover expected transactions can be used to buy back
outstanding debt (and cease a flow of funds out of the Treasury for interest
payments) or can be invested to generate a flow of funds into the Treasury’s
account. Minimizing idle cash balances requires accurate information about
expected receipts and likely disbursements.

2. To deposit collections timely. Having funds in-hand is better than having accounts
receivable. The cash is easier to convert immediately into value or goods. A
receivable, an item to be converted in the future, often is subject to a transaction
delay or a depreciation of value. Once funds are due to the Government, they
should be converted to cash-in-hand immediately and deposited in the Treasury's
account as soon as possible.
3. To properly time disbursements. Some payments must be made on a specified or
legal date, such as Social Security payments. For such payments, there is no cash
STUDY OF CASH MANAGEMENT SYMMS(IV)

management decision. For other payments, such as vendor payments, discretion in

timing is possible.

4. Government vendors face the same cash management needs as the Government.
They want to accelerate collections. One way vendors can do this is to offer
discount terms for timely payment for goods sold.

 MOTIVES FOR HOLDING CASH

The firm's need to hold cash may be attributed to the following the motives:

 The transactions motive

 The precautionary motive
 The speculative motive Transaction Motive
1. The transaction motive :

The transaction motive requires a firm to hold cash to conducts its business in the ordinary
course. The firm needs cash primarily to make payments for purchases, wages and salaries, other
operating expenses, taxes, dividends etc. The need to hold cash would not arise if there were
perfect synchronization between cash receipts and cash payments, i.e., enough cash is received
when the payment has to be made. But cash receipts and payments are not perfectly
synchronized. For those periods, when cash payments exceed cash receipts, the firm should
maintain some cash balance to be able to make required payments. For transactions purpose, a
firm may invest its cash in marketable securities. Usually, the firm will purchase securities
whose maturity corresponds with some anticipated payments, such as dividends, or taxes in the
future. Notice that the transactions motive mainly refers to holding cash to meet anticipated
payments whose timing is not perfectly matched with cash receipts.

2. The Precautionary Motive :

The precautionary motive is the need to hold cash to meet contingencies in the future. It provides
a cushion or buffer to withstand some unexpected emergency. The precautionary amount of cash
depends upon the predictability of cash flows. If cash flow can be predicted with accuracy, less
cash will be maintained for an emergency. The amount of precautionary cash is also influenced
STUDY OF CASH MANAGEMENT SYMMS(IV)

by the firm's ability to borrow at short notice when the need arises. Stronger the ability of the
firm to borrow at short notice, less the need for precautionary balance. The precautionary balance
may be kept in cash and marketable securities. Marketable securities play an important role here.
The amount of cash set aside for precautionary reasons is not expected to earn anything:
therefore, the firm attempt to earn some profit on it. Such funds should be invested in high-liquid
and low-risk marketable securities. Precautionary balance should, thus, held more in marketable
securities and relatively less in cash. Speculative Motive.

3. The speculative motive Transaction Motive :

The speculative motive relates to the holding of cash for investing in profit-making opportunities
as and when they arise. The opportunity to make profit may arise when the security prices
change. The firm will hold cash, when it is expected that the interest rates will rise and security
prices will fall. Securities can be purchased when the interest rate is expected to fall; the firm
will benefit by the subsequent fall in interest rates and increase in security prices. The firm may
also speculate on materials prices. If it is expected that materials' prices will fall, the firm can
postpone materials purchasing and make purchases in future when price actually falls. Some
firms may hold cash for speculative purposes. By and large, business firms do not engage in
speculations. Thus, the primary motives to hold cash and marketable securities are: the
transactions and the precautionary motives.

 CASH PLANNING

Cash flows are inseparable parts of the business operations of firms. A firm needs cash to invest
in inventory, receivable and fixed assets and to make payment for operating expenses in order to
maintain growth in sales and earnings. It is possible that firm may be taking adequate profits, but
may suffer from the shortage of cash as its growing needs may be consuming cash very fast. The
'cash poor position of the firm can be corrected if its cash needs are planned in advance. At
times, a firm can have excess cash with it if its cash inflows exceed cash outflows. Such excess
cash may remain idle. Again, such excess cash flows can be anticipated and properly invested if
cash planning is resorted to. Cash planning is a technique to plan and control the use of cash. It
helps to anticipate the future cash flows and needs of the firm and reduces the possibility of idle
cash balances (which lowers firm's profitability) and cash deficits (which can cause the firm's
failure). Cash planning protects the financial condition of the firm by developing a projected
cashstate ment from a forecast of expected cash inflows and outflows for a given period. The
STUDY OF CASH MANAGEMENT SYMMS(IV)

forecasts may be based on the present operations or the anticipated future operations. Cash plans
are very crucial in developing the operating plans of the firm. Cash planning can be done on
daily, weekly or monthly basis. The period and frequency of cash planning generally depends
upon the size of the firm and philosophy of management. Large firms prepare daily and weekly
forecasts. Medium-size firms usually prepare weekly and monthly forecasts. Small firms may not
prepare formal cash forecasts because of the non-availability of information and small-scale
operations. But, if the small firm prepares cash projections, it is done on monthly basis. As a firm
grows and business operations become complex, cash planning becomes inevitable for its
continuing success. Cash Forecasting and Budgeting

Cash budget is the most significant device to plan for and control cash receipts and payments. A
cash budget is a summary statement of the firm's expected cash inflows and outflows over a
projected time period. It gives information on the timing and magnitude of expected cash flows
and cash balances over the projected period. This information helps the financial manager to
determine the future cash needs of the firm, plan for the financing of these needs and exercise
control over the cash and liquidity of the firm. The time horizon of the cash budget may differ
from firm to firm. A firm whose business is affected by seasonal variations.

may prepare monthly cash budgets. Daily or weekly cash budgets should be prepared for
determining cash requirements if cash flows show extreme fluctuations. Cash budgets for a
longer intervals may be prepared if cash flows are relatively stable. Cash forecasts are needed to
prepare cash budgets. There are two types of cash forecasting:

1 Short-term Cash Forecasting

2 Long-term Cash Forecasting

1.Short-term Cash Forecasts :

Generally, forecasts covering periods of one year or less are considered short-term cash
forecasting. It is comparatively easy to make short-term cash forecasts. The important functions
of carefully developed short-term cash forecasts are:

 To determine operating cash requirements To anticipate short-term financing

 To manage investment of surplus cash.

Short-run cash forecasts serve many other purposes. For example, multi-divisional firms use
them as a tool to coordinate the flow of funds between their various divisions as well as to make
financing arrangements for these operations. These forecasts may also be useful in determining
the margins or minimum balances to be maintained with banks. Still other uses of these forecasts
are:
STUDY OF CASH MANAGEMENT SYMMS(IV)

 Planning reductions of short and long-term debt

 Scheduling payments in connection with capital expenditures programmes
 Planning forward purchases of inventories
 Checking accuracy of long-range cash forecasts
 Taking advantage of cash discounts offered by suppliers
 Guiding credit policies.

Methods of Short-term Cash Forecasting:

Two most commonly used methods of short-term cash forecasting are:

1. The receipt and disbursements method

2. The adjusted net income method.

The receipts and disbursements method is generally employed to forecast for limited periods,
such as a week or a month. The adjusted net income method, on the other hand, is preferred for
longer durations ranging between few months to a year. Both methods have their pros and cons.
The cash flows can be compared with budgeted income and expenses items if the receipts and
disbursements approach is followed. On the other hand, the adjusted income approach is
appropriate in showing a company's working capital and future financing needs. Long-term Cash
Forecasting Long-term cash forecasts are prepared to give an idea of the company's financial
requirements in the distant future. They are not as detailed as the short-term forecasts are. Once a
company has developed long-term cash forecast, it can be used to evaluate the impact of, say,
new product developments or plant acquisitions on the firm's financial condition three, five, or
more years in the future. The major uses of the long-term cash forecasts are: It indicates as
company's future financial needs, especially for its working capital requirements. It helps to
evaluate proposed capital projects. It pinpoints the cash required to finance these projects as well
as the cash to be generated by the company to support them.

• It helps to improve corporate planning. Long-term cash forecasts compel each division to plan
for future and to formulate projects carefully. Long-term cash forecasts may be made for two,
three or five years. As with the short-term forecasts, company's practices may differ on the
duration of long-term forecasts to suit their particular needs. The short-term forecasting methods,
i.e., the receipts and disbursements method and the adjusted net income method, can also be used
in long-term cash forecasting. Long-term cash forecasting reflects the impact of growth,
expansion or acquisitions; it also indicates financing problems arising from these developments.
STUDY OF CASH MANAGEMENT SYMMS(IV)

CASH MANAGEMENT

Cash management is a broad term that refers to the collection, concentration, and disbursement
of cash. It encompasses a company's level of liquidity, its management of cash balance, and its
short-term investment strategies. In some ways, managing cash flow is the most important job of
business managers. For some time now, technology has been the key driving force behind every
successful bank. In such an environment, the ability to recognize and capture market share
depends entirely on the bank's competence to evolve technically and offer the customer a
seamless process flow. The objective of a cash management system is to improve revenue,
maximize profits, minimize costs and establish efficient management systems to assist and
accelerate growth.

Cash Management in India

The Reserve Bank of India (RBI) has placed an emphasis on upgrading technological
infrastructure. Electronic banking, cheque imaging, enterprise resource planning (ERP), real time
gross settlement (RTGS) is just few of the new initiatives. The evolution of payment systems
such as RTGS has posed some tough challenges for cash management providers. It is important
that banks now look towards a shift to fees from float although all those cash management
providers who have factored in float money in their product pricing might take a hit. But of
course there are opportunities also attached like collection and disbursal of payments on-line
across the banks. There are a number of regulatory and policy changes that have facilitated an
efficient cash management system (CMS). Fox example, the Enactment of Information
Technology Act gives legal recognition to electronic records and digital signatures. The
establishment of the Clearing Corporation of India in order to establish a safe institutional
structure for the clearing and settlement of trades in foreign exchange (FX), money and debt
markets has indeed helped the

development of financial infrastructure in terms of clearing and settlement. Other innovations

that have supported in streamlining the process are:

1. Introduction of the Centralized Funds Management Service to facilitate better management of

fund flows.

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

interbank messages.

Today, treasurers need to ensure that they are equipped to make the best decisions. For this, it is
imperative that the information they require to monitor risk and exposure is accurate, reliable and
fast. A strong cash management solution can give corporates a business advantage and it is very
STUDY OF CASH MANAGEMENT SYMMS(IV)

important in executing the financial strategy of a company. The requirement of an efficient cash
management solution in India is to execute payments, collect receivables and managing liquidity.

 Types of cash management services in ICICI BANK :

There are two types of cash management services they are as :

1. Collection : ICICI Bank's Cash Management Services helps you make optimum
use of your working capital, leveraging the float between faster collections and
just-in-time payments. ICICI Bank’s vast network across the length and breadth of
the country uses superior technology based solutions to deliver speedy, efficient
collections. You get customized daily transaction reports and online reports. CMS
solutions are customized to your specific needs for the most productive use of your
cash flow.
The collection services are of two types :

1. Local cheque collection (LCC)

2. Upcountry cheque collection (UCC)
 Local cheque collections (LCC) – internet clear collect & internet swift collect :

Under LCC, they offer collection facility for local cheques from more than 340 own
branch locations apart from over 315 tie-up locations and providing funds centrally
on guaranteed basis. This service includes location wise MIS, which is available online
too. We offer courier pick-up facility, flexible day arrangement, competitive pricing
and customized MIS.

 Upcountry cheque collection (UCC) – Internet smart Collect, Internet quick

Collect & Internet Anywhere Collect : Under UCC, we offer collection facility
for upcountry cheques, which a customer can draw on any location in India and
deposit at more than 340 ICICI Bank centers. We offer a huge network of more
than 4,900 locations covering the length and breadth of the country. This
network includes our own branch network at more than 340 locations apart
from our tie-up locations. Under this product, we offer flexible day arrangement,
competitive pricing and customized MIS.
 Processing fees & other charges : Processing Fees for CMS (cash management system)
Facilities : 3%Other Charges: Charges would be subject to volumes & value of
collections / disbursements & Locations for pickup with a maximum limit of Rs. 10/- per
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‘000 subject to minimum charges per instrument. Minimum Charges - Rs 10/- to Rs 30/-
per instrument. Courier Charges - maximum of Rs 50/- per instrument Cheque Return
Charges - maximum of Rs 500/- per instrument.
 Payments : ICICI bank cash management services helps you make optimum use
of your working capital, leaverging the float between faster collection and just-in-
time payment. Our vast network across the length and breadth of the country uses
superior technology based solutions to deliver speedy, efficient payments. Our
solution is customized to your needs. So you can leave the burden of bulk demand
drafts and pay orders, dividend and interest warrants, fund transfers, cheque
writing and more to ICICI Bank. You also get customized daily transaction reports
and online reports for complete MIS.

 Payments/ internet multi pay :

Under payments, who offers the following services?
 Bulk DD/PO printing.
 DDs can be issued payable at more than 540 locations in India.

 Remote printing of pay orders at 46 major centers.

 Fund Transfers.

 Cheque writing.

 Benefiiciry advices.

 A secure technology platform to meet bulk payment requests from client

quickly.
 ERP integration.

 At PAR payments –internet safe pay : Make payments through dividend

warrants, interest warrants, refund orders, redemption warrants, etc. These warrants
are payable at par at the centers/locations selected by you. You can avail of this
service through over 340 ICICI Bank locations and 200 correspondent bank
locations. You get monthly reconciliation statement showing the account status and
unpaid list of warrants on a monthly basis. I-Safe Pay offers you a complete
solution for executing your payments through different modes including Warrants,
Demand Drafts / PO, ECS, Direct Credit, Swift Remittances and Foreign DD.
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HISTORY OF ICICI BANK

 1955 The Industrial Credit and Investment Corporation of India Limited (ICICI) was
incorporated at the initiative of World Bank, the Government of India and representatives
of Indian industry, with the objective of creating a development financial institution for
providing medium-term and long-term project financing to Indian businesses.
 1994 ICICI established Banking Corporation as a banking subsidiary. formerly Industrial
Credit and Investment Corporation of India. Later, ICICI Banking Corporation was
renamed as 'ICICI Bank Limited'. ICICI founded a separate legal entity, ICICI Bank, to
undertake normal banking operations - taking deposits, credit cards, car loans etc.
 2001 ICICI acquired Bank of Madura (est. 1943). Bank of Madura was a Chettiar bank,
and had acquired Chettinad Mercantile Bank (est. 1933) and Illanji Bank (established
1904) in the 1960s.
 2002 The Boards of Directors of ICICI and ICICI Bank approved the reverse merger of
ICICI, ICICI Personal Financial Services Limited and ICICI Capital Services Limited,
into ICICI Bank. After receiving all necessary regulatory approvals, ICICI integrated the
group's financing and banking operations, both wholesale and retail, into a single entity.
Also in 2002, ICICI Bank bought the Shimla and Darjeeling branches that Standard
Chartered Bank had inherited when it acquired Grind lays Bank. ICICI started its
international expansion by opening representative offices in New York and London.
 2003 ICICI opened subsidiaries in Canada and the United Kingdom (UK), and I the UK it
established an alliance with Lloyds TSB. 2003 ICICI opened subsidiaries in Canada and
the United Kingdom (UK), and in the UK it established an alliance with Lloyds TSB. It
also opened an Offshore Banking Unit (OBU) in Singapore and representative offices in
Dubai and Shanghai.
 2004 ICICI opens a rep office in Bangladesh to tap the extensive trade between that
country, India and South Africa.
 2005 ICICI acquired Investitsionno-Kreditny Bank (IKB), a Russia bank with about
US$4mn in assets, head office in Balabanovo in the Kaluga region, and with a branch in
Moscow. ICICI renamed the bank ICICI Bank Eurasia.
 Also, ICICI established a branch in Dubai International Financial Centre and in Hong
Kong.
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 2006 ICICI Bank UK opened a branch in Antwerp, in Belgium. ICICI opened

representative offices in Bangkok, Jakarta, and Kuala Lumpur.
 2007 ICICI amalgamated Sangli Bank, which was headquartered in Sangli, in
Maharashtra State, and which had 158 branches in Maharashtra and another 31 in
Karnataka State. Sangli Bank had been founded in 1916 and was particularly strong in
rural areas. ICICI also received permission from the government of Qatar to open a
branch in Doha. ICICI Bank Eurasia opened a second branch, this time in St. Petersburg.
2008 The US Federal Reserve permitted ICICI to convert its representative office in
New York into a branch.

Cash Management to benefit from Electronic

Payments
The new electronic payment products and services offer the corporate clients an improved
bottom line by helping manage cash requirements. It helps corporate to make the best use
of their funds and provides an effective means of managing their financial requirements.

Several of the trends in cash flow forecasting favor the use of electronic payment products
like Electronic Funds Transfer (EFT) and card payments. Improved technology and
systems integration makes it more attractive to use electronic payment products because
these methods of payment can be incorporated into firm-wide computing systems.
Electronic payments and cards provide control over incoming funds, and allow companies
to limit access to these funds to authorized parties. In addition, limiting corporate
purchases to electronic payments makes it easier for firms to monitor cash outflows and
prevent unauthorized expenditures, because these payments are easier to document and
provide an audit trail. From the perspective of a corporate the electronic payment systems
ensure speed and security of the transaction processing chain, from verification and
authorization to clearing and settlement. Also it gives a great deal of freedom from more
costly labor, materials, and accounting services that are required in paper-based
processing, better management of cash flow, inventory, and financial planning due to swift
bank payments.
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BANK OF INDIA (BoI) & ICICI Bank Tie Up For

Cash Management
The state-owned Bank of India (BoI) has entered into a strategic correspondent banking
arrangement with ICICI Bank for making use of the former’s wide branch network
covering 1,000 branches for the latter’s cash management services. BoI expects an Rs
2,000-crore turnovers through the arrangement which will generate fee-based income for
it. The Mumbai-based BoI has its cash management service available at 29 operating
branches and 11 polling branches. More centres are being set up to provide wider coverage
to corporates. ICICI Bank, with its network of 409 branches and extension counters,
(another 100 ICICI centres will be converted into branches in the future) and over 1,000
ATMS, is making efforts to spread into larger part of the country via correspondent-
banking relationship with more public sector banks to implement its retail focus. The
second largest bank in the country is also one of the top 12 internet banks in the world.
Recently, it took over two branches of Stan Chart Grind lays in Shimla and Darjeeling
with a deposit base of over Rs 100 crore. BoI has a tie-up with ICICI Prudential Life
Insurance — the insurance subsidiary of ICICI Bank — to provide reference of its
customers to the life risk firm. BoI charges a referral fee for the service. The scheme is
being piloted at seven centers, covering 70 branches, which will be expanded to other
centers in a phased manner. Bank of India has been constantly exploring uncharted viable
and profitable business opportunities. Well distributed branch network and wide customer
base are the bank’s strength. These are being leveraged for generating new business to
augment fee income. Meanwhile, BoI has entered into a strategic tie-up with the Securities
Trading Corporation of India in facilitating secondary market sale of government
securities to retail investors through the bank’s branches. The bank has taken several
initiatives in providing value additon through various products and services to satisfy the
needs of the customers using technology to its full advantage. Multi-branch banking
project of the bank has been extended to cover around 194 branches in five cities which
will give the operational flexibility to the customers. The bank Is also in the advanced
stage of covering another 80 branches within the network the bank has already
commissioned 48 ATMs (both on-site and off-site) and another 102 ATMs are at
various stages of implementation through an outsourcing model.
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SOILED AND MUTILATED CURRENCY NOTES :

Members of public are hereby informed that the Reserve Bank of India (RBI) has
authorized all branches of public sector banks and all currency chest branches of private
sector banks to accept and exchange all types of soiled/mutilated notes of all
denominations. Refund value of such notes in exchange is, however, paid as per RBI (note
Refund) Rules, 1975.

With a view to render better service to the public the exchange facility for mutilated notes
is also offered by RBI through TLR (Triple Lock Receptacle) covers. Members of public
can obtain from the Enquiry Counter of all the Regional offices of RBI such TLR cover
and put their notes in the cover with particulars and deposit them in the respective RBI
office against a paper token. This box is kept at the Enquiry counter at each Issue Office of
RBI. The admissible exchange value of the mutilated notes will be remitted by means of a
bank draft or a pay order. Mutilated notes can also be sent to any of the RBI Offices
by registered/insured post.
Notes which have become excessively soiled, brittle or burnt and therefore cannot
withstand normal handling can be tendered only at Issue Office of the RBI. Persons
holding such notes may approach the Officer- in-Charge of the Claims Section, Issue
Department of the Reserve Bank for this purpose.

Soiled Notes

Soiled notes are those which have become dirty and slightly cut. Notes which have
numbers on two ends, i.e. notes in the denomination of Rs.10 and above which are in two
pieces, are also treated as soiled note. The cut in such notes, should, however, not have
passed through the number panels. All these notes can be exchanged at the counters of any
public sector bank branch, any currency chest branch of a private sector bank or any Issue
Office of the Reserve Bank of India. There is no need to fill any form for doing this.

Mutilated Notes

Notes which are in pieces and/or of which the essential portions are missing can also be
exchanged. Essential portions in a currency note are name of issuing authority, guarantee,
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promise clause, signature, Ashoka Pillar emblem/portrait of Mahatma Gandhi, water mark.
Refund value of these notes is, however, paid as per RBI (Note Refund) Rules. These can
also be exchanged at the counters of any public sector bank branch, any currency chest
branch of a private sector bank or any Issue Office of the RBI without filling any form.