Treasury management involves planning, organizing, and controlling an organization's cash flows, borrowings, and other financial transactions to maximize returns while minimizing costs. The key objectives of treasury management are ensuring availability of funds when needed, deploying funds efficiently, and profiting from these activities. Treasury management encompasses functions like cash management, liquidity management, risk management, reserves management, and investment management. It plays an important role in both macro-level national financial systems and micro-level operations of businesses and organizations.
Treasury management involves planning, organizing, and controlling an organization's cash flows, borrowings, and other financial transactions to maximize returns while minimizing costs. The key objectives of treasury management are ensuring availability of funds when needed, deploying funds efficiently, and profiting from these activities. Treasury management encompasses functions like cash management, liquidity management, risk management, reserves management, and investment management. It plays an important role in both macro-level national financial systems and micro-level operations of businesses and organizations.
Treasury management involves planning, organizing, and controlling an organization's cash flows, borrowings, and other financial transactions to maximize returns while minimizing costs. The key objectives of treasury management are ensuring availability of funds when needed, deploying funds efficiently, and profiting from these activities. Treasury management encompasses functions like cash management, liquidity management, risk management, reserves management, and investment management. It plays an important role in both macro-level national financial systems and micro-level operations of businesses and organizations.
Treasury management involves planning, organizing, and controlling an organization's cash flows, borrowings, and other financial transactions to maximize returns while minimizing costs. The key objectives of treasury management are ensuring availability of funds when needed, deploying funds efficiently, and profiting from these activities. Treasury management encompasses functions like cash management, liquidity management, risk management, reserves management, and investment management. It plays an important role in both macro-level national financial systems and micro-level operations of businesses and organizations.
and control cash and borrowings so as to optimize interest and currency flows, and minimize the cost of funds or in other words the handling of all financial matters, the generation of external and internal funds for business, the management of currencies and cash flows, and the complex strategies, policies, and procedures of corporate finance It involves ensuring that proper funds are available with the company at the time of outflow required & also that funds are not kept unutilized for a long time. This requires the management of cash flows, banking, money-market and capital-market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks. Objectives of Treasury Management: Availability of right quantityIt ensures that the funds have been arranged in the required quantity. This quantity is available to the firm either as external loans/source or as internal generation. Availability at right timeThe requisite funds for day to day working of the firm are available in time in addition to being available in quantity. Deployment of fund in right quantityIt ensures that right quantity of funds is deployed. For deploying the right amount of funds, the treasury manager keeps track of all receipts of funds and time table of deployment of funds is to be drawn up. Deployment of fund in right timeA logical corollary of sourcing funds at the right time is that funds should be deployed at the right time. The treasury manager has to honor the outstanding commitments on working capital account within a short span of time Profiting from availability and deployment One of the prime objectives of a treasury manager is to ensure timely procurement of right amount of funds and timely deployment of right amount of funds. The objective results in administrative smoothening and paves way for registered achievement of performance targets of the firm. Modern day treasury manager has another objective which is to profit from such sourcing and deployment. Scope of Treasury Management: Treasury management is concerned with both macro and micro facets of the economy. At the macro level, the inflows and outflows of cash, credit and other financial instruments are the functions of the government and the business sectors. These inflows are arranged by them as borrowing from the public. The micro units utilize these inflows and build up their capacities for production of output This leads to establishment of a production system which logically leads us to the natural consequence i.e. the establishment of distribution and consumption systems. Once the production, distribution and consumption systems are in place at the micro level, the generation of surpluses at the units begins. These surpluses are channeled back into the macro system as outflows from the micro system. The inflows are the taxes paid to the government and repayment of loans made to the banks and financial institutions. These inflows into the macro level have to be managed by the treasury managers at the macro level. Functions of Treasury Management: Cash Management:The Treasury Manager controls the cash assets and liabilities of the organization. Liquidity & Funds Management:Analysis of cash flow arising out of asset liability transaction and funding various asset of balance sheet is the function of treasury management. It also involves policy inputs to strategic planning and yielding expected returns in credit and investment. Risk Management:Treasury management plays an active role in risk management by managing the impact of the changes in interest rates, credit risk due to increasing NPAs. It includes customer credit management, vendor/contractor financial analysis, liability claims management, business disaster recovery, and employee benefits program risk. Reserve Management & Investment: It includes selection of investment products investment brokers and methods of borrowing. The treasury manager develops cash management information system and investment policy and processes. Maintaining good relations with supplier of funds, particularly the investors and shareholders. looking after the financial implications of strategic and policy decisions. Interaction with financial market in general and with capital market in particular Introduction to T.M It is necessary to understand and appreciate the three distinct roles Treasury of an Institution plays. a. Liquidity Management: Treasury is responsible for managing short term funds across currencies, and also for complying with reserve requirements (CRR and SLR) in case of Banks. b.Proprietary Positions: Treasury may trade in currencies, securities and other financial instruments, including derivatives, in order to contribute to Banks profits. c. Risk Management: Treasury will aid Management on one hand and Banks clients on the other hand, in managing market risk, using derivativ instruments The multiple roles necessitate Treasury to manage an;---- ALM Book for internal risk management. Merchant Book for client-related currency and derivative transactions. Trading Book for managing its proprietary positions. ALM Book also includes traditional role of Treasury in liquidity management. Treasury operates in markets which are almost free of credit risk, and hence requires very little capital allocation. Secondly, the treasury activity is highly leveraged the risk capital allocated to Treasury may range between 2% to 5% of the size of transactions handled, hence the return on capital is quite high. Role of treasury after Theeconomicliberalisation liberalisation in Indiarefers to ongoingeconomic reformsinIndiathat started on 24 July 1991. , after India faced a balance of paymentscrisis, it had to pledge 20 tonnes of gold toUnion Bank of Switzerlandand 47 tonnes toBank of Englandas part of a bailout deal with theInternational Monetary Fund(IMF). In addition, the IMF required India to undertake a series of structural economic reforms. As a result of this requirement, the government started breakthrough reforms, although they did not implement many of the reforms the IMF wanted. The newneo-liberalpolicies included opening for international trade and investment,deregulation, initiation of privatisation, tax reforms, and inflation- controlling measures. Before the process of reform began in 1991, the government attempted to close the Indian economy to the outside world. The Indian currency, the rupee, was inconvertible and high tariffs and import licencing prevented foreign goods reaching the market. . India also operated a system of central planningfor the economy, in which firms required licences to invest and develop. The government often led to absurd restrictionsup to 80 agencies had to be satisfied before a firm could be granted a licence to produce and the state would decide what to produce, how much, at what price and what sources of capital were used A Balance of Payments crisis in 1991 pushed the country to near bankruptcy. In return for an IMF bailout, gold was transferred to London as collateral, the rupee devalued and economic reforms were forced upon India. That low point was the catalyst required to transform the economy through badly needed reforms to unshackle the economy. Controls started to be dismantled, tariffs, duties and taxes progressively lowered, state monopolies broken, the economy was opened to trade and investment, private sector enterpriseand competition were encouraged and globalisationwas slowly embraced. . GLOBAL SCENARIO IN T.M The integration of national and foreign exchange market has taken place due to liberalization and deregulation of economies by various countries. The emergence of global unified financial market has resulted in the removal of distinction between national and off shore markets. Indian financial markets also started showing signs of integration since 1991 ,the year of starting of financial Financial Sector Reforms Mixed picture in different segments Sea change compared to financial repression of pre-reform era Interest rates largely deregulated Greater competition from private banks and foreign banks Government pre-empts reduced significantly Establishment of autonomous Board of Financial Supervision Residential norms on capital adequacy Improved debt recovery and restructuring mechanism Government Securities Market with primary dealers as market matures Delivery Version Payment System Establishment of Clearing Corporation of India Financial Sector Reforms
Improvements in reach and depth of banking
sector, its balance sheet, capital structure, net profits and NPAs. New financial products introduced Government Security Market has experienced increases in market size, lower yields and longer maturities Monetary Policy more independent and based on indirect instruments Turnover in foreign exchange markets increased Despite achievements problems remain Risk Assessment mechanisms not up to standard Not ready for Basel-II Public ownership a major problem Success in reforming of equity markets Following changes have been brought since 1991In the Banking system and financial system as a process of reforms Deregulation of interest rates. Liberalisation of exchange control Regulations FERA TO FEMA regulations. Permission to Banks and corporates to use derivatives as risk management measure. Introduction of market determined Exchange rates. Iuntroduction of REPO/REVERSE REPO to regulate call rates. Removal of interbank borrowing from perview of CRR/SLR etc. The Government of India borrows from public by issue of securities, to finance its deficit which is the difference between Governments income and expenses. RBI uses government securities to control liquidity in the market in order to influence the interest rates. RBI may absorb liquidity by selling the securities in the market and may infuse liquidity by buying back the securities from the public. These are known as open market operations (OMO) of the central bank. RBI, as lender of last resort, provides liquidity to the banks through Repo auction, where RBI purchases securities from banks with an agreement to sell back the securities after a fixed period. The difference in sale and purchase prices constitutes interest received by RBI. In case of excess liquidity, banks lend funds to RBI under Reverse Repo in similar manner and receive interest by way of price differentials. All the securities are held in the SGL account of the bank with RBI, hence no physical transfer of securities takes place either way All security dealings now take place on NDS through screen based trading, with anonymous order matching. The securities clearing against assured payment is handled by Clearing Corporation of India Ltd. (CCIL) a specialized institution promoted by major banks. Physical delivery of cheques and written confirmations are no longer necessary for settlement. All inter-bank money market deals are to be necessarily done through the NDS and reported to CCIL. Negotiated security transactions may also be reported on NDS. Real Time Gross Settlement System (RTGS) has been fully activated by RBI from October2004. All inter-bank payments and customer remittances are settled instantly under the RTGS. Banks accounts with all the branch offices of RBI are also integrated. Most of the urban centres of public and private sector banks are already partyicipating in the RTGS. Since RTGS involves instant payments, banks need to maintain adequate funds with RBI throughout the day. To meet any shortfall in funds, RBI has put in place systems to provide intra- day liquidity through automatic repo against securities lodged by respective banks. The Institute for Banking Research and Development of Technology (IBRDT) has developed the Indian Financial Net Work (INFINET) as a secure communication backbone for the banking and financial sectors. The INFINET has helped introduction of Structured Financial Messaging System (SFMS) which facilitates domestic transfer of funds and authenticated messages, similar to the SWIFT used by banks for international messaging Depository Institutions like NSDL (National Security Depository Ltd.) and CSDL (Central Security Depository Ltd.) provide delivery vs. payment (DVP) for secondary market deals in equity and debt paper. Since the funds transfer and securities transfer takes place between the buyer and seller on the electronic platform simultaneously, the settlement risk is eliminated. NEFT and on-line Payments All inter-bank and intra-bank remittances can now be effected on the same day by electronic funds transfer using the National Electronic Funds transfer system introduced by RBI. RBI has developed Structured Financial Messaging System (SFMS) similar to SWIFT adopted banks for international funds transfer etc. where interbank transfers are sorted out and cleared by National Clearing Cell of RBI. Banks which are fully computerized can access any account at any branch on line and remit / credit funds, instantly for inter-bank transfers, without using paper In view of the growing complexities in payment systems, the RBI has constituted Board for Regulation and Supervision of Payment and Settlement Systems at the highest level, as a sub- committee of Central Board. India today has sophisticated payment and settlement systems on par with developed markets Thank you