PROJECT REPORT

(Submitted for the degree of B .COM. (Honours) in accounting &

Finance under the University of Calcutta)

“CASH MANAGEMENT WITH RESPECT TO BOI”

SUBMITTED BY

Name of the Candidate : VIVEK KUMAR GUPTA

Name of the College : BANGABASI EVENING COLLEGE
College Roll No. : 133
Registration No. : 143-1121-1450-12

SUPERVISED BY

Name of the Superviser : PROF

Name of the College : BANGABASI EVENING COLLEGE

Chapter I

1.1 Introduction to top

1.2 Objective of the stud

1.3 Literature review And/or Theoretical Background

Chapter II
Company Profile / Industry profile or details

Chapter III
Research Methodology

3.1 Purpose of the study

3.2 Research Objectives of the study

3.3 Research Methodology of the study

3.3.1 Research Design

3.3.2 Data Collection Techniques

3.3.3 Sample design

3.3.3.1 Population

3.3.3.2 Sample size

3.3.3.3 Sampling method

3.3.4 Method of data collection

3.3.4.1 Instrument for data collection

3.3.4.2Drafting of a questionnaire
3.3.5 Limitations

Chapter IV
Data Analysis and Interpretation

Chapter V
Findings & Conclusions

Chapter VI
Suggestion/ Recommendation

ANNEXURES

BIBLIOGRAPHY

Chapter1
 Introduction

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 s u f f i c i e n t c a s h , n e i t h e r m o r e n o r l e s s . C a s h s h o r t a g e w i l l
d i s r u p t t h e f i r m ’ s m a n u f a c t u r i n g 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
b a n k a c c o u n t s . 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 contributessome profit to the firm

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
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 w h e n 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.

Precautionary Motive
The precautionary motive i s t h e n e e d t o h o l d c a s h t o m e e t c o n t i n g e n c i e s i n t h e
future. It provides a cushion or buffer to withstand some unexpected
e m e r g e n c y . T h e p r e c a u t i o n a r y 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 by the firm’s ability to
borrow at short notice when the need arises. Stronger the a b i l i t y o f t h e f i r m t o b o r r o w
a t s h o r t n o t i c e , l e s s t h e n e e d f o r p r e c a u t i o n a r y b a l a n c e . T h e 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 e a r n
anything; therefore, the firm attempt to earn some profit on it. Such funds
s h o u l d b e 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
The speculative motive r e l a t e s t o t h e h o l d i n g o f c a s h f o r i n v e s t i n g i n
p r o f i t - m a k i n g 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 s p e c u l a t i o n s . T h u s , t h e p r i m a r y
m o t i v e s t o h o l d c a s h a n d m a r k e t a b l e s e c u r i t i e s a r e : t h e 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 cashstateme
nt from a forecast of expected cash inflows and outflows for a given period. The 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
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:
• 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:
• The receipt and disbursements method
• 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
anddisbursements 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 capitalrequirements.
• 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.

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
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.

FACTS OF CASH MANAGEMENT

Cash management is concerned with the managing of: (i) 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 iss u e d t o p a y t h e f i r m ’ 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.
Cash management is also important because it is difficult to predict cash
f l o w s a c c u r a t e l y , 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 p a y m e n t s b e c a u s e t h e r e m a y b e
l a r g e c a s h s a l e s a n d d e b t o r s m a y b e r e a l i z e d i n l a r g e s u m s 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
t e c h n i q u e s . A n 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. I n o r d e r t o r e s o l v e t h e u n c e r t a i n t y a b o u t c a s h
f l o w p r e d i c t i o n a n d l a c k o f s y n c h r o n i z a t i o n 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 t h e r u n n i n g o f b u s i n e s s w i t h t h e
m i n i m u m c a s h b a l a n c e . T h i s c a n b e a c h i e v e d b y m a k i n g 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
r e g a r d i n g expected cash problems, which it may encounter, thus assisting it to
regulate further cash flow movements. Lack of cash planning results in spasmodic cash
flows.
 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 inability to remain liquid. Liquidity has an intimate relationship with
efficient utilization of cash. It helps in the attainment of optimum level of liquidity.
 Profitable Deployment of Surplus Funds
Due to non-synchronization of ash inflows and cash outflows the surplus cash may arise at
certain points of time. If this cash surplus is deployed judiciously cash management will itself
become a profit center. However, much depends on the quantum of
c a s h s u r p l u s a n d acceptability of market for its short-term investments.
 Economical Borrowings
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.
The ideal cash management system will depend on the firm’s products, organization
structure, competition, culture and options available. The task is complex, and
decisions taken can affect important areas of the firm. For example, to improve collections if
the credit period is reduced, it may affect sales. However, in certain cases, even without
fundamental changes, it is possible to significantly reduce cost of cash management
system by choosing a right bank and controlling the collections properly.

Baumol model of cash management

Baumol model of cash management helps in determining a firm's optimum cash balance under
certainty. It is extensively used and highly useful for the purpose of cash management. As per the
model, cash and inventory management problems are one and the same. William J. Baumol
developed a model (The transactions Demand for Cash: An Inventory Theoretic Approach)
which is usually used in Inventory management & cash management.Baumol model of cash
management trades off between opportunity cost or carrying cost or holding cost & the
transaction cost. As such firm attempts to minimize the sum of the holding cash & the cost of
converting marketable securities to cash.

There are certain assumptions that are made in the model. They are as follows:

1. The firm is able to forecast its cash requirements with certainty and receive a specific amount
a regular intervals.
2. The firm’s cash payments occur uniformly over a period of time i.e. a steady rate of cash
outflows.
3. The opportunity cost of holding cash is known and does not change over time. Cash holdings
incur an opportunity cost in the form of opportunity forgone. .
4. The firm will incur the same transaction cost whenever it converts securities to cash. Each
transaction incurs a fixed and variable cost.
For example, let us assume that the firm sells securities and starts with a cash balance of C
rupees. When the firm spends cash, its cash balance starts decreasing and reaches zero. The firm
again gets back its money by selling marketable securities. As the cash balance decreases
gradually, the average cash balance will be: C/2. This can be shown in following figure:

The firm incurs a cost known as holding cost for maintaining the cash balance. It is known as
opportunity cost, the return inevitable on the marketable securities. If the opportunity cost is k,
then the firm’s holding cost for maintaining an average cash balance is as follows:

Holding cost = k (C/2)

Whenever the firm converts its marketable securities to cash, it incurs a cost known as
transaction cost. Total number of transactions in a particular year will be total funds required (T),
divided by the cash balance (C) i.e. T/C. The assumption here is that the cost per transaction is
constant. If the cost per transaction is c, then the total transaction cost will be:
Transaction cost = c (T/C)

The total annual cost of the demand for cash will be:

Total cost = k (C/2) + c (T/C)

Optimum level of cash balance

As the demand for cash, ‘C’ increases, the holding cost will also increase and the transaction cost
will reduce because of a decline in the number of transactions. Hence, it can be said that there is
a relationship between the holding cost and the transaction cost.

The optimum cash balance, C* is obtained when the total cost is minimum.

Optimum cash balance (C*) = Ö2cT/k

Where, C* is the optimum cash balance.
T is the total cash needed during the year.
k is the opportunity cost of holding cash balances.
With the increase in the cost per transaction and total funds required, the optimum cash balance
will increase. However, with an increase in the opportunity cost, it will decrease.

Limitations of the Baumol model:

1. It does not allow cash flows to fluctuate.

2. Overdraft is not considered.
3. There are uncertainties in the pattern of future cash flows.

Miller-Orr Model for Cash Management

Most firms maintain a minimum amount of cash on hand to meet daily obligations or as a
requirement from the firm's bank. A maximum amount may also be specified to reflect the
tradeoff between the transactions cost of investing in liquid assets (e.g. Money Market Funds)
and the cost of lost interest if the cash is not invested. The Miller-Orr model computes the spread
between the minimum and maximum cash balance limits as.
Spread= 3(0.75 x transaction cost x variance of daily cash flows / daily interest rate) ^(1/3)
(wherea^b is used to denote "a to the power b").
The maximum cash balance is the spread plus the minimum cash balance, which is assumed to
be known.
The "return point" is defined as the minimum cash balance plus spread/3.
Whenever the cash balance hits (or exceeds) the maximum, the firm should invest the difference
between the amount available and the return point; if the minimum is reached, sufficient
securities should be sold to bring it up to the return point.
Graph Explanation:
i. When cash balance reaches point ‘A', the upper limit, company will invest the surplus to
bring down the cash balance to return point.
ii. When cash balance touches down point `B', the lower limit, the company would liquidate
some of its securities to increase the balance back to return point.
iii. Upper and lower limits are determined as explained above.
iv. These limits depend upon variance of cash flow, transaction cost and interest rate.
v. If variability of cash flow is high and transaction cost is high too, then the limits will be
wide apart, otherwise narrow would suffice.
vi. If interest rates are high then the narrow limits would be set
vii. To keep interest cost as low as possible, the return point is set 1/3 of the spread between
the lower and upper limit.
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. T o e l i m i n a t e i d l e c a s h b a l a n c e s . E v e r y d o l l a r h e l d a s c a s h r a t h e r
t h a n u s e d t o a u g m e n t 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. T h e c a s h i s e a s i e r t o c o n v e r t i m m e d i a t e l y i n t o v a l u e o r
g o o d s . A r e c e i v a b l e , a n i t e m t o b e converted in the future, often is
subject to a transaction delay or a depreciation of value. Once funds aredue 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
management decision. For other payments, such as vendor payments, discretion in timing
is possible. 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.
The importance of cash management
1. Cash is crucial for every business. Every company has to have cash on hand or at least
access to cash in order to be able to pay for the goods and services it uses, and
consequently, to stay in business. By ensuring the company with the necessary funds for
supporting its everyday operations, cash management becomes a vital function for the
company. Cash flows have an impact on the company’s liquidity. Liquidity is the ability
of the company to pay its obligations when they come due. It is comprised of: cash on
hand, assets readily convertible into cash, as well as ready access to cash from external
sources, such as bank loans (Coyle, 2000, p. 3). If cash flows and liquid funds are not
effectively and successfully planned and managed, a company may not be able to pay its
suppliers and employees in a timely manner. It may be profitable according to its
financial statements, but in fact, this company will not be able to pay its obligations when
they come due. Moreover, lack of liquidity will incur increased costs in the form of
interest charges on loans, late payment penalties and losing supplier discounts for paying
obligations on time. Proper cash management can avoid the costs of additional funding
and can provide the opportunity for more favorable terms of payment (Dropkin&
Hayden, 2001, p. 3). In the worst case scenario, if the liquidity shortage continues for the
longer term, the company might face no access to external resources, ending into
insolvency (Coyle, 2000, p. 3). Therefore, once again, it follows that cash management
has a critical importance for the life of every company.5 another benefit of cash
management to the company is that it makes the company financially flexible. Ready
access to cash enables the company to undertake expenditure decisions if and whenever it
wishes, without the trouble and constraint of finding new financial support (Coyle, 2000,
p. 3). The ultimate goal of every company is maximizing shareholder value, i.e.
maximizing the net present value of future cash flows. Cash management contributes to
 attaining that goal as well. If a firm keeps high levels of cash, it increases its net working
capital and the costs of holding cash, both of which decrease the value of the firm. Cash
management influences the value of the firm by limiting cash levels so that an optimal
balance between the costs of holding cash and the costs of inadequate cash is achieved.
“In addition, cash management influences firm value, because its cash investment levels
entail the rise of alternative costs, which are affected by net working capital levels. Both
the rise and fall of net working capital levels require the balancing of future free cash
flows, and in turn, result in firm valuation changes” (Michalski, 2006, p. 180).

OBJECTIVE OF THE PROJECT

1. To understand how cash is being managed by BANK OF INDIA

2. To gain knowledge about the system prevailing in Banks.
3. To suggest methods for improving cash management in Banks.
4. To analyze in detail, the way Banks currently manage their finances and make decisions to achieve
tradeoff between profitability and liquidity

LITERATURE REVIEW

Davidson (1992) defined cash management as a term which refers to the collection concentration
and disbursement of cash. It encompasses a company’s level of liquidity, management of cash
balance and short term strategies. Weak cash flow makes it difficult to hire and retain good
employees (Beranek, 2000). Ross (2000) says that, it is only natural that major business expenses
are incurred in the production of goods or the provision of services. In most cases, a business
incurs such expenses before the corresponding payment is received from customers. In addition,
employee salaries and other expenses drain considerable funds from most business. These make
effective cash management an essential part of the business financial planning. Vanhorne (2001)
says that, a common cash management tool found in companies is a cash budget. Most
companies prepare budgets on the departmental level and roll these individual budgets into one
master budget. Creating several smaller budgets, can help managers determine which operations
use more cash and struggle to stay on the projected budget amounts. This discovery gives
managers an idea of when improvements needed to correct the company’s cash flow problems.
Therefore, cash budgeting is another aid to an effective cash management. Pindado (2004) also
defines cash management as part of working capital that makes up the optimal level needed by a
company. Bort (2004) noted that, cash management is of importance for both new and growing
businesses. Companies may suffer from cash flow problems because of lack of margin of safety
in case of anticipated expenses such that they experience problems in finding the funds for
innovation or expansion According to Bort (2004) cash is the lifeblood of the business. The key
to successful cash management lies in tabulating realistic projections, monitoring collections and
disbursements, establishing effective billing and collection measures, and adhering to budgetary
parameters because cash flow can be a problem to the business organization. According to
Moffet (2004), postponing capital expenditure is one method that can ease cash shortage hence,
suggests efficient cash management. Kirkman (2006) states that, some capital expenditures are
more important and urgent than others hence, it might be imprudent to postpone expenditure on
fixed assets which are needed for the development and growth of business. On the other hand,
some expenses are routine and might be postponable without serious consequences. When a lot
of cash is used to pay for fixed assets, the company may come up against a cash crunch that
prevents it from paying suppliers, buying materials and even paying salaries. It’s a good idea, to
maintain a level of working capital that allows making through those crunch times and
continuing to operate the business.

Chapter2
 Company Profile

HISTORY OF

BANK OF INDIA

Bank of India was founded on 7th September, 1906 by a group of eminent businessmen
from Mumbai. The Bank was under private ownership and control till July 1969 when it was
nationalized along with 13 other banks.

Beginning with one office in Mumbai, with a paid-up capital of Rs.50 lakh and 50 employees,
the Bank has made a rapid growth over the years and blossomed into a mighty institution with a
strong national presence and sizable international operations. In business volume, the Bank
occupies a premier position among the nationalized bank.
The Bank has 3752 branches in India spread over all states/ union territories including
specialized branches. These branches are controlled through 50 Zonal Offices. There are 29
branches/ offices (including five representative offices) and 3 Subsidiaries and 1 joint venture
abroad.
The Bank came out with its maiden public issue in 1997 and follow on Qualified Institutions
Placement in February 2008. . Total number of shareholders as on 30/09/2009 is 2, 15,790.
While firmly adhering to a policy of prudence and caution, the Bank has been in the forefront of
introducing various innovative services and systems. Business has been conducted with the
successful blend of traditional values and ethics and the most modern infrastructure. The Bank
has been the first among the nationalized banks to establish a fully computerized branch and
ATM facility at the Mahalaxmi Branch at Mumbai way back in 1989. The Bank is also a
Founder Member of SWIFT in India. It pioneered the introduction of the Health Code System in
1982, for evaluating/ rating its credit portfolio.
The Bank's association with the capital market goes back to 1921 when it entered into an
agreement with the Bombay Stock Exchange (BSE) to manage the BSE Clearing House. It is an
association that has blossomed into a joint venture with BSE, called the BOI Shareholding Ltd.
to extend depository services to the stock broking community. Bank of India was the first Indian
Bank to open a branch outside the country, at London, in 1946, and also the first to open a
branch in Europe, Paris in 1974. The Bank has sizable presence abroad, with a network of 29
branches (including five representative offices) at key banking and financial centers viz. London,
New York, Paris, Tokyo, Hong-Kong and Singapore. The international business accounts for
around 17.82% of Bank's total business.

BANK’S NEW INITIATIVES

1. ACQUISITION
The Bank has finalized acquiring 76% stake in P T Bank SwadesiTbk, a listed Bank in
Indonesia and the formalities to take over the management of the said Bank is in final
stages
2. JOINT VENTURE
Bank entered into an arrangement with Dai-Ichi Mutual Life Insurance Company, second
largest Japanese company in the field of Life Insurance (sixth largest in the world) and
Union Bank of India for setting up a Joint Venture Life Insurance Company with capital
stake of 51%, 26%, and 23% respectively. Formalities for incorporation of JV Company
are in advanced stage.
3. BRANCH EXPANSION
Bank opened 63 new branches and converted 41 Extension counters to full-fledged
branches. Total number of domestic outlets is 2845.
4. INTERNATIONAL OPERATIONS
 a) With the opening of a branch at Antwerp (Belgium), number of overseas offices
stands at25 spread in 13 countries. Shenzen Representative Office in China was
upgraded as a Branch in March 2007. A new Representative Office was opened in
Beijing (China).
b) Bank has taken over management of Almana Exchange House in Doha Qatar.
c) Arrangements with Bank Azizi, Kabul in Afghanistan made for money remittance to
India.
d) Bank’s International Operations contribute 20% of Bank’s total Business.
e) Bank is holding approval of Reserve Bank of India for setting up:
 Subsidiaries in Tanzania and Canada,
 Branches in DIFC (Dubai) and Dhaka (Bangladesh), and
 Representative Offices in Dubai, Johannesburg (South Africa) and Doha (Qatar).

BACK OFFICE SERVICES OF BANK

 Delegation of powers
Bank will ensure that authorities at various levels will be empowered with adequate powersto
take prompt decisions with regard to sanctioning of loans and advances, issuance of guarantees,
settlement of claims of deceased depositors, issuance of duplicate demand drafts,deposit receipts,
other claims and administrative matters concerning customer service.
 Reorganization
In order to facilitate quick decision-making and to suit the changing requirements, the
organizational structure has been revamped. More specialized branches like Personal Banking
Branches, Corporate Branches, Small Scale Industries Branches, Hi-tech Agricultural Finance
Branches, Housing Finance Branches, Capital Market Branches, Overseas and NRI Branches
have been opened at important centers. in all business operations at all stages. Customers will be
educated about the various products and facilities available. A uniform strategy will always be
adopted to eliminate any possibility of discrimination on caste, creed and religion or economic
status of the clients. Secrecy norms will be simultaneously observed to protect the interests of
our customers.

 Surveys by outside agencies

All steps will be taken by bank to improve Customer Service and enhance customer satisfaction.
Towards this end, bank services will be got evaluated through outside reputed marketing
agencies with a view to assessing the quality of services extended at the branches and to ensure
that bank customer service match the expectations of bank’s variousclientele.

Cash Management Services generally offered by banks

The following is a list of services generally offered by banks and utilized by
larger businesses and corporations:
1. Account Reconcilement Services: Balancing a checkbook can be a difficult process
for a v e r y l a r g e b u s i n e s s , s i n c e i t i s s u e s s o m a n y c h e c k s i t
can take a lot of human monitoring to understand which
c h e c k s h a v e n o t c l e a r e d a n d t h e r e f o r e w h a t t h e 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 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 aspositive
pay
2. Advanced Web Services: M o s t b a n k s h a v e a n I n t e r n e t - b a s e d s y s t e m
which is more advanced than the one available to consumers. This
e n a b l e s m a n a g e r s t o c r e a t e a n d authorize special internal logon credentials,
allowing employees to send wires and access other cash management features normally
not found on the consumer web site.
3. Armored Car Services: Large retailers who collect a great deal of cash may
have the bank pick this cash up via an armored car company, instead of
asking its employees to deposit the cash.
4. Automated Clearing House: s e r v i c e s a r e u s u a l l y o f f e r e d b y t h e c a s h
management division of a bank. The Automated Clearing House is
a n e l e c t r o n i c s y s t e m u s e d t o transfer funds between banks. Companies
use this to pay others, especially employees (this is how direct deposit
works). Certain companies also use it to collect funds from c u s t o m e r s
 (this is generally how automatic payment plans work). This system
i s criticized by some consumer advocacy groups; because under this system banks
assume that the company initiating the debit is correct until proven otherwise.
5. Balance Reporting Services: Corporate clients who actively manage their cash balances
usually subscribe to secure web-based reporting of their account
a n d t r a n s a c t i o n information at their lead bank. These sophisticated compilations of
banking activity may i n c l u d e b a l a n c e s i n f o r e i g n c u r r e n c i e s , a s w e l l a s
t h o s e a t o t h e r b a n k s . T h e y i n c l u d e information on cash positions as well as
'float' (e.g., checks in the process of collection).Finally, they offer transaction-specific
details on all forms of payment activity, including deposits, checks, wire transfers
in and out, ACH (automated clearinghouse debits and credits), investments, etc.

CORPORATE SOCIAL RESPONSIBILITY FOLLOWED BY BANK:

1. Bank as part of its centenary celebrations promoted a Trust, ‘ABHAY’, to offer credit
counseling services, free of cost, with the following objectives:
 Advising on gaining access to structured financial system including banking
 Counseling people who are struggling to meet the repayment obligations and helping debt
resolution
 Helping in rehabilitation of borrowers in distress
2. Bank has pioneered a Mega Project for Integrated Development of 129 villages in 78Districts
and 17 States covering 60,000 households, identified for holistic development and showcased
as Model Villages. The Bank has so far extended financial assistance over Rs.150 crores to
the rural households in the identified villages. An evaluation study conductedin select
villages has revealed that there is 20-25% improvement in the household income after the
implementation of the scheme.

Chapter3
 ResearchMethodology

OBJECTIVE OF THE PROJECT

1. To understand how cash is being managed by BANK OF INDIA

2. To gain knowledge about the system prevailing in Banks.
3. To suggest methods for improving cash management in Banks.
4. To analyze in detail, the way Banks currently manage their finances and make decisions to achieve
tradeoff between profitability and liquidity

RESEARCH DESIGN:
For this research descriptive research design is used.

POPULATION:
All the employees who are directly or indirectly related to the Bank of India, New Delhi.

SAMPLE UNIT:
All the employees who are directly or indirectly related to the Bank of India, New Delhi.

SOURCE OF DATA:
Primary Data: - Structured direct Interviews with the concerned persons of Finance & Stores
Department
Secondary Data: - Annual Report, Store Records & various books.

LIMITATIONS OF THE STUDY:

1- Some of the respondents refused to fill questionnaire during the research work.
2- Some of the lower level store department employees were not well educated

Chapter4
 DataCollection&Analysis
Cash Management Services
The menu of cash management services offered by banks is indeed diverse and tempting. The
services broadly fall under collection services, disbursement services, information and control
services, services related to electronic data interchange commercial web banking services, sweep
services, fraud detection solutions, global trade solutions and investment solutions. Collection
Services accelerate receipt of payments from sales and quickly turn them into usable cash in
accounts. Disbursement Services make efficient payments by reducing or eliminating idle
balances in company’s accounts. Information and Control Services receive the data and provide
the management capability needed to monitor company cash picture, control costs, reconcile and
audit bank accounts, and reduce exposure to fraud. Financial Electronic Data Interchange is a
computerized exchange of payments between a company’s business and its customers and
vendors. Commercial Web Banking Services give a wide range of services from any Internet
connection, which can help streamline banking process quickly and efficiently. Sweep Services
maintain liquidity and increase earnings without having to actively monitor accounts and move
money in and out of them. Information reporting solutions assist companies, which need to
receive account data that is timely, precise, and easy to access and interested in initiating online
transactions. Investment solutions help to minimize excess balances and maximize return on
available funds.

Chapter-5
Findings & Conclusions
Conclusions regarding cash management services
In today’s competitive world the key differentiator between a successful bank and other bank
is the stress each lays on technology.

The above chart gives a clear explanation regarding the Cash Management infrastructure
provided by all the three sectors. The network, technology and the corporate relationship services
provided by all the three sectors are highly sophisticated and good but the scalability, marketing
provided by the Public sector is low in terms of the Private and MNC sector. As well as the
services provided by the public sector is not fairly good and up to the standard. As Cash
management is constantly changing to meet the needs of the corporate treasurer. The challenge
for both corporation and provider is to keep up with developments, technology, changing
regulations and fitting these in with normal business. A changing regulatory environment, new
technology and mergers that expand the scope of traditional banking are redefining the
traditional treasury management paradigm for both banks and corporations. Electronic commerce
is evolving far beyond simply ordering goods online or buyer-to supplier commerce.
In a vast country like India Providing Cash Management Services do posses a challenge to the
Cash Manager as well as the banks. Considering the present Indian scenario, where Cheques are
the basic form of payment and cheque clearing takes a long time, cash management services
need to devise innovative methods and means to expedite the clearing to benefit the corporate
customer. As the Indian economy becoming an open market economy, residents may maintain
accounts in other countries and non-residents may hold accounts in India. As a result, Indian
treasurers may often find themselves managing cash across geographies and time zones. In India
the transaction types run from the classic paper cheque to the latest Internet initiated electronic
payment. Corporations initiate and receive paper-based transactions, as well as high value and
low value electronic transactions on a daily basis. Expectations from new services may not
eliminate or fully replace the older traditional services. Change will be gradual but, probably, it
will be firm. Fee structures for cash management services in India vary from bank to bank and
also from customer to customer. Many banks price the services based upon the overall
relationship, especially for multiple product solutions. As Indian banks become more
consultative and total solution oriented rather than product-driven, pricing will become even
more customized. Corporate treasurers will consider the amount they can save on banking fees
and the level of efficiency in their departments as a sequel to the new cash management services.
After they have negotiated the best possible price, treasurers then focus on the return on excess
balances.

Importance of Cash Management for a Corporate Entity

There is a need to put in place a specialized cash management system by Corporates. Good Cash
Management is a conscious process of knowing when, where, and how a company’s cash needs
will occur; knowing what the best sources for meeting additional cash needs; and being prepared
to meet these needs when they occur by keeping good relationships with bankers and other
creditors. Cash management results in significant savings in time decrease in interest costs, less
paper work and greater accounting accuracy. Proper cash management creates more control over
time and funds; provides timely access to information; enables easy employee related payments;
supports electronic payments; produces faster electronic reconciliation; allows for detection of
bookkeeping errors; reduces the number of cheques issued and earns interest income or reduces
interest expense. Corporations with subsidiaries worldwide can pool everything internationally
so that the company can offset the debts with the surplus monies from various subsidiaries. The
end result will transform treasury function as a profit-centre by optimizing cash and put it to
good use. Creative and pro-active cash management solutions can contribute dramatically to a
company’s profitability and to its competitive edge. The ultimate purpose of proper management
of liquidity, needless to emphasize, is to improve the overall productivity of funds.

How Corporate Select a Bank for Sourcing Cash Management

Services?
Probably, it is important to consider what the companies expect from their bankers in this regard.
It is normally the client-bank relationship, which is a main consideration in choosing a bank for
cash management. Pricing, obviously, is a very dominant factor. Making a choice between the
local banks and the more highly priced foreign banks usually depends on how cost savings are
presented by the banks. Multinational corporate with complex treasury operations admire their
respective banks’ expertise and ability to offer creative solutions.
There are some common requirements related to basic cash management systems. Flexibility,
reliability, security and stability have been cited as vital parameters for any electronic banking
system. The systems should be tailored to provide pertinent reports and the ability to upgrade
easily in future. The technology should allow real-time cash management with strategic banking
partners. It should integrate easily with legal framework in place. It should lower operating costs
and resolve disputes quickly by providing secure and legally enforceable audit trails. It should be
capable of reducing risk of fraud in electronic funds transfers and other treasury activities. It
should also be able to use a low-cost public network infrastructure like Internet, which eliminates
the need for dedicated leased lines.
For instance, availability of requisite bandwidth for Internet connection is still a problem faced
by various financial institutions. With a highly technology savvy there are several exciting new
opportunities for both user and provider in the cash management arena. Cash management
worldwide is constantly evolving to meet the needs of the corporate treasurer, take advantage of
new technology and support customers as they move into new markets.
The challenge for both company and service provider is to keep up with developments in
technology and changing regulations and espouse them to their normal business. The key to
success will be active partnerships between corporations and their providers as no one will be
able to keep up with all developments on their own.
Because of the mounting importance of fee-based financial services, all banks need to finetune
their strategies, if they want to harness the potential in this area. They need to appreciate the
dynamics of the new fee-based market, which is driven by the growth of the Internet and inter-
connect applications.
But it won’t be easy for all banks to capture their share and profit of the swiftly expanding fee-
based market. Taking advantage of the opportunities and avoiding the threats of unprofitable
products, insufficient customer service, and diverse IT applications entails an understanding of
the market place, the needs and expectations of the customer and of course the competition. It is
an important point to note that offering fee-based services is no longer a choice today to the
beleaguered banker. It is a desirable compulsion to thrive. Managing cash
in the emerging milieu will require a new mind-set of banker and his client.

Supervisor’s Certificate
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Honours in Accounting & Finance of BANGABASI EVENING COLLEGE under
the University of Calcutta has under my supervision and guidance for his/her
project work and prepared a project with the title
………………………………………………………………………………

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title…………………………………………………..submitted by me for the

partial fulfillment of the degree of B.com. Honours in Accounting & Finance

under the University of Calcutta is my original work and has not been

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course of study.

I also declare that no chapter of this manuscript in whole or in part has been

incorporated in this report from any earlier work done by others or by me.

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BIBLIOGRAPHY

Internet:Websites

1- www.google.com

2- www.wikipedia.org/

3- http://wiki.answers.com

4- http://www.slideshare.net

5- www.wikipedia.org/inventory

6- www.pdfsearchengine.com/cashmanagement

7- www.scribd.com

Books:

Introduction of operation Research By J.K.Sharma

Learning operation Research By S.K Jaiswal