Treasury & Risk Management

Post Graduate Diploma in Management (ePGDM)

(Fourth Semester)

Mumbai Education Trust

October 2017 to February 2018

02nd December 2018
 TREASURY MARKET : CLASSIFICATION

TREASURY MARKET

DOM ESTI C T R EA SUR Y IN TER NAT ION AL O R FO R EX T R EA SUR Y

Money Capital Govt. Securities Commodities

Market Market Market Market Banks Central Banks Customers Brokers
 TRIPARTY REPO (CBLO) (1/2)

Triparty Repo (earlier called CBLO – Collateralized Borrowing & Lending Obligation)

Collateralized Borrowing and Lending Obligation (CBLO), as the name implies, is a fully
collateralized and secured instrument for borrowing / lending money
 It is a product conceived and developed by CCIL for facilitating deployment of surplus
funds in a collateralized environment
 CBLO is a RBI approved money market instrument with maximum tenor of one year
 Is an instrument backed by Gilts as collaterals deposited by the borrower with CCIL
 Provides right and authority to the lender to receive money lent along with interest
on the settlement date
 It is a discounted instrument traded on Yield-Time priority
 Eligible securities are Central Government securities including Treasury Bills as
specified by CCIL from time to time

CBLO Membership :
 granted to NDS Members and non-NDS Members
 entities eligible for CBLO Membership are Nationalized Banks, Private Banks, Foreign
Banks, Co-operative Banks, FIs, Insurance Companies, Mutual Funds, Primary Dealers,
NBFCs, Corporates, Provident/ Pension Funds etc.
 TRIPARTY REPO (CBLO) (2/2)

BORROWING LIMIT AND INITIAL MARGIN :

 Borrowing limit (BL) for the members is based on eligible securities deposited by member,
multiplied by market prices, less hair-cut applicable on respective security
 Members can borrow up to a maximum of BL including all amounts which are borrowed and
outstanding at that point in time
 Initial Margin (IM) is computed @ 0.50% on the total amount borrowed / lent by the members
 Members may seek intraday enhancement of BL/IM by depositing additional collaterals
 Members may withdraw securities intraday provided they are not utilized for borrowing / initial
margin purpose. However, one day prior notice is required for cash withdrawal
 BL and IM are blocked on pre-order basis and hence the onus is on the members to ensure prior
to placing the order that sufficient BL and IM are available

PAYMENT & SETTLEMENT :

 CBLO Dealing system is hosted and maintained by Clearcorp Dealing Systems (India) Ltd, a fully
owned subsidiary of CCIL
 CCIL becomes counterparty to all CBLO trades and guarantees settlement of CBLO trades
 The balances are maintained in electronic book entry
 Funds settlement of members in CBLO segment is achieved in the books of RBI for members who
maintain a Current Account with RBI
 For other members, CBLO Funds settlement is achieved in the books of the Settlement Bank
 MONEY MARKET : COMMERCIAL PAPER (CP)
Commercial Paper (CP) is an unsecured money market instrument issued in the form of a
promissory note.
 CP is issued at a discount to face value as may be determined by the issuer.
 CP is issued in denominations of Rs. 5 lakh and multiples thereof.
Eligibility for Issue of CP :
1) Companies, PDs and FIs are permitted to raise short term resources through CPs
2) A company would be eligible to issue CP provided:
• TNW of the company, as per its latest audited balance sheet, is not less than Rs. 4 crs
• company has been sanctioned working capital limit by bank/s or FIs; and
• borrowal account of the company is classified as a Standard Asset by the financing
bank / institution
Tenor
 Minimum of 07 days and a maximum of up to 01 year from the date of issue
 Maturity date of CP do not go beyond the date of validity of the credit rating of the issuer
Rating Requirement
 Issuers have to obtain credit rating for issuance of CP from any one of the SEBI registered
CRAs
 Minimum credit rating shall be ‘A3’ as per rating symbol & definition given by SEBI
 MONEY MARKET : CERTIFICATE OF DEPOSIT (CD)

CD is a negotiable money market instrument and issued in dematerialized form or as a Usance

Promissory Note against funds deposited at a bank or other eligible financial institution for a
specified time period
Eligibility : CDs can be issued by
(i) scheduled commercial banks {excluding Regional Rural Banks and Local Area Banks}
(ii) select All-India Financial Institutions (AIFIs) that have been permitted by RBI
Minimum Size of Issue
Minimum amount of a CD should be Rs.1 lakh, i.e., the minimum deposit that could be accepted
from a single subscriber should not be less than Rs.1 lakh, and in multiples of Rs. 1 lakh thereafter
Investors
CDs can be issued to individuals, corporations, companies (including banks and PDs), trusts, funds,
associations, etc. NRIs may also subscribe to CDs, but only on non-repatriable basis. Such CDs
cannot be endorsed to another NRI in the secondary market.
Tenor
• Not less than 07 days and not more than 01 year from the date of issue
• FIs can issue CDs for a period not less than 1 year and not exceeding 3 years from date of issue
Discount / Coupon Rate
• CDs may be issued at a discount on face value at a discount / coupon rate determined by bank / FI
• Banks / FIs are also allowed to issue CDs on floating rate basis provided the methodology of
compiling the floating rate is objective, transparent and market-based
Transferability : CDs in physical form are freely transferable by endorsement and delivery
 MONEY MARKET : FBIL MIBOR

FBIL Overnight ‘Mumbai Interbank Outright Rate’ (commonly called as FBIL-Overnight

MIBOR (Mumbai Inter-Bank Offer Rate) is the new benchmark rate for unsecured loans
of one day duration fixed by the Board of Financial Benchmarks India Pvt. Ltd (FBIL)
based on the actual transactions in the inter-bank call money market.
 It reflects the short term funding costs to banks in India and indicates the rate at
which banks in India borrow and lend money amongst themselves.
 The existing benchmark i.e., MIBOR based on ‘polled rates’ administered by Fixed
Income Money Market and Derivative Association of India (FIMMDA) and National
Stock Exchange (NSE) has been replaced by this new Benchmark with effect from July
22, 2015.
 FBIL overnight MIBOR is a financial benchmark and is mainly used for pricing,
settlement and valuation of financial contracts.
 MONEY MARKET : MUTUAL FUND (LIQUID FUNDS)
A mutual fund is a professionally-managed form of collective investment that pools
money from many investors and invests it in stocks, bonds, short-term money market
instruments, and/or other securities.
Liquid Funds
Under these schemes, money is invested primarily in short-term or very short-term
instruments e.g. T-Bills, CPs, CDs etc. with the purpose of providing liquidity. They are
considered to be low on risk with moderate returns and are ideal for investors with
short-term investment timelines.
Advantages of investing in Liquid Mutual Fund Schemes are:
 Professional management
 Diversification of risks (by holding a number of instruments by types, issuers,
industry etc.)
 Low costs on account of economies of scale
 Liquidity
 Flexibility regarding tenor
 Choice of schemes depending on risk appetite
 Transparency
 Well regulated
 CAPITAL MARKET

Capital Market is the financial market where the medium-term and long-term financial
needs of business and other undertakings are met by financial institutions and retail
investors which supply medium and long-term resources to borrowers

Features of Capital Market

Tenor More than 01 year

Type  Primary (through underwriting)

 Secondary (through exchanges or OTC)
Low (however benchmark Govt. securities, stock of blue-chip companies
Liquid are fairly liquid)
Cost Costlier compared to money market
Volume Daily turnover in Debt market is low but it is high in Equity market
Instruments Equity backed securities (ownership) or Debt securities (creditor)
Government, Corporates, Banks, FIs, DFIs, MFs, Pension Funds, Insurance
Players Companies, Brokers, Merchant Banks, Investment Banks, Primary
Dealers, ARCs
Regulator SEBI and RBI
 CAPITAL MARKET

Major Functions of Capital Market

1) To mobilize financial resources for medium and long-term investments

2) To facilitate buying and selling of medium and long tenor securities
3) To facilitate the process of efficient price discovery
4) To facilitate efficient settlement of financial transactions
 NEED FOR CAPITAL MARKET

1) Important and efficient conduit to channel and mobilize funds to enterprises from both private
and public investors.
2) Provides an effective source of investment in the economy.
3) Plays a critical role in mobilizing savings for investment in productive assets, with a view to
enhancing a country’s long-term growth prospects, and thus acts as a major catalyst in
transforming its economy more efficient, innovative and competitive.
4) In addition to resource allocation, capital markets also provide a medium for risk management by
allowing the diversification of financial risk in the economy.
5) A well-functioning capital market improves dissemination of market information and thus plays a
major role in improving corporate governance practices and efficient market.
6) Plays a crucial role in supporting technological progress and economic development.
7) Among other things, liquid markets make it possible to obtain financing for capital intensive
projects with long gestation periods.
8) Capital markets make it possible for companies to give shares to their employees via ESOPs.
9) Capital markets provide a market for mergers and acquisitions via share swaps.
10) Capital markets provide an excellent route for disinvestments.
11) Venture Capital and Private Equity funds investing in unlisted companies get an exit option when
they get listed on the capital markets.
12) Existence of deep and broad capital market is absolutely crucial for the economic growth of our
country. An essential imperative for India has been to develop its capital market to provide
alternative sources of funding for companies and thus to achieve more effective mobilization of
investors’ savings.
 CAPITAL MARKET : TYPE OF INSTRUMENTS / MARKETS

Corporate Bonds

Equity Market

Venture Capital

CAPTIAL MARKET

Private Equity

Angel Funds

Asset
Reconstruction
Companies