davesh nhpc project FINAL.docx

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JAIPURIA INSTITUTE OF MANAGEMENT, NOIDA Page 1

A REPORT

ON

TREASURY MANAGEMENT

&

BANKING FUNCTION

AT NHPC

This project report is submitted in partial fulfillment of the

requirements of the PGDM (Finance) program ofJaipuria Institute of Management, Noida

Under supervision of Submitted By:

Dr. Pratibha Wasan Davesh Kadian

PGFA1113


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TABLE OF CONTENTS

1) Introduction1.1An overview 61.2 Objective, Limitation of study 71.3Methodology .. 8

2.) About Company

2.1 NHPC- overview . 9

3.) Treasury Management

3.1 Introduction .10

3.2 DPE guidelines for investing surplus cash .10

3.3 Investment of surplus cash 12

3.4 Eligible Instruments where NHPC can invest ....13

3.5 Procedure for investment 14

3.6 Comparison ofNHPCs Investment pattern with other companies

3.6.1 NTPC ....163.6.2 TATA POWER ..17

3.6.3 RELIANCE POWER ..................18

3.7 Analysis of result ....20

3.8 Recommendations .24

4.) Is Investing in T.Ds a sound decision?

4.1 Methodology ..25

4.3 Why UTI LIQUID SCHEMES? ..26

4.4 Opportunity cost of not investing in that schemes ...27

4.5 Interpretation of result ..28

4.6 Comparison of Effective ROI on FDs &UTI MF Return ....29

4.7 Interest that could have been earned ...33


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4.8 Conclusion ...35

5.) Banking Section

5.1 Function of Banking section .....37

5.1.1 Payment function .37

5.1.2 Collection from beneficiaries .41

5.1.3 Equity from GOI ....41

5.1.4 Cash Credit and Loans ..42

5.2 Recommendation 43

6.) References ...44


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Declaration

I hereby declare that this project report entitled Treasury Management & Banking Functions

at NHPC has been prepared by me with the help of industrial mentor and is an original work

submitted to Jaipuria Institute of Management, Noida towards fulfillment of the requirement forthe award of Post Graduate Diploma in Management (2011-13). I also hereby declare that this

project report has not been submitted at any time to any other university or institute for the award

of any Degree of Diploma.

Davesh Kadian

PGFA1113

Jaipuria Institute of Management Noida


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Acknowledgement

I owe a debt of gratitude to many people who helped me in this project report. They shared their

experience, insights, research and writings and were so helpful and gracious to me during the

preparation of this project report.

I am thankful to Mr. Ashish Saigal, Sr. Manager Finance for giving me opportunity to work and

get valuable learnings regarding professional and corporate world from this prestigious

organization. I also express my gratitude and thanks to Mr. Anil Gaba my company guides for

their invaluable guidance and inspiring suggestion. They provided me an insight for the project

and helped me to merge my theoretical concepts with their practical application.

I pay my sincere thanks to Dr. Pratibha Wasan Faculty JAIPURIA INSTITUTE OF

MANAGEMENT, NOIDA for her invaluable suggestions in completing the project. I would like

to thank her for her constant attention and for motivating me during the preparation of the

project.

I also thank my colleagues and friends who helped me in this project by providing their valuable

suggestion and help.


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INTRODUCTION

This project is divided into 2 parts.

1 TREASURY MANAGEMENT:One of the most important functions of Finance manager is optimum utilization of ideal

funds so as to get good returns for his company. My project includes

Finding out How much ideal fund is available in NHPC and for how many days. Finding out various investment options available to NHPC. Comparison of NHPCS investment pattern with other PSU and Private Sector Power

companies. Determining whether NHPCs current investment pattern is good?

2 Banking Function:The most important aspect of treasury department is its Banking function. Banking is

always an important part of treasury department in big organisations. This section is

responsible for making Payments to various suppliers, employees, various projects of NHPC.

This project involves finding out

How Banking department works? What are its functions and its importance in Cash Management?


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Objective of the Project:

The objective of the project is to determine How NHPC invests its surplus cash and comparing

NHPCS investment pattern with other power sector companies so as to provide a clear picture

whether NHPCS investment portfolio needs amendment or not. It will help the company to

assess its present policy regarding investment and provide a base to change its policy if there will

be a need to do so.

After that Determining whether investing in FDs is sound option or not by comparing it with

different schemes of UTI Liquid fund.

This project helps the company in knowing whether its cash management is efficient or not?

It will help the company in making its investment decision by providing important data about

various mutual fund schemes their performance in past.

Limitations of the Study:

Since this project involves getting knowledge about all the aspects of treasury management in

just 8 weeks so it is not possible to get knowledge about each and every aspect in detail.

Therefore TIME LIMIT is a limitation of my study.

As I have to compare NHPCs investment pattern with other power sector companies and

determining whether NHPCs decision of investing in FDs is good or not and for that getting

complete data for such a study is not easy which again is a limitation of my study.

Past data is collected for comparing FD return and MF returns which is a limitation of my study

because for making investment decision past data is not considered as reliable source.


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METHODOLOGY

TREASURY MANAGEMENT

To know how to prepare daily rolling cash flow How to calculate minimum cash balance To know for how many days surplus cash is available to the company To know what are the various sources where surplus cash can be invested. Comparison of NHPCs investment pattern with other companies.

Is Investing in FD a sound Decision?

Selecting various liquid schemes of UTI. NAV for year 2009-10 and 2010-11 is taken to calculate the return generated by a

particular scheme in a particular period.

Average rate of interest is taken for FDs for a particular time period. Comparison of return from different schemes of UTI with return from FDs.

BANKING:

To know what are the functions of banking section. To know how Banking section helps in efficient utilization of funds?


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NHPC AN OVERVIEW

In India, electricity is produced in various sector hydro, tidal, winds, geothermal &gas

potential. NHPC is the power organization in the field of hydro sector. It was established in 7th

November 1975.NHPC is a schedule an enterprise of the government of India. With an

authorized share capital of Rs. 15,000 crore and an investment base of about Rs. 25,000crore.

NHPC is ranked as a premier organization in the country for development ofhydropower.

NHPC is among the TOP TEN companies in the country in terms of investment. A credited

with ISO-9001:2000 &ISO-14001:2004 certificates for its quality

system & environment concerns. NHPC Corporate office is in FARIDABAD. The saga of

NHPC is replete with many challenges. To begin with NHPC took over three most difficult &

almost abandoned projects in geologically weak Himalayan Ranges from the erstwhile central

hydroelectric projects Control Board.

These projects were the 180MW Baira Siul in Himachal Pradesh, 105 MW Loktak in Manipur &

the 345 MW Salal Stage-1 in J&K. The initial mandate given to the corporation to complete

these three projects were fulfilled with the commissioning of Baira Siul in 1981, Loktak in 1983

& Salal Stage-1 in1987.The successful completion of these projects in most difficult areas &

their operation is a testimony to NHPCs success.

So far, NHPC has completed 12 projects with a total installed capacity of5175 MW which

includes 1000MW.Indira Sager project &520 MW Omkareshwar 2 Project through Narmada

Hydroelectric Development Corporation Ltd. (NHDC)-a joint Venture of NHPC with

government of Madhya Pradesh. Besides this; NHPC has commissioned the 14.1 MW Devi hat
http://www.nhpc.gov.in/default.asphttp://www.nhpc.gov.in/default.asp


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projects in Nepal, 60MW Kurichu project in Bhutan, 5.25 MW Kalpong project in Andaman &

Nicobar Islands &4MW Sippi projects in Arunachal Pradesh as deposit work. At present 12

projects with a total installed capacity of 5132MW are under execution.

TREASURY MANAGEMENT

Treasury management (ortreasury operations) includes management of an enterprise'

holdings in and trading in government and corporate bonds, currencies, financial futures, options

and derivatives, payment systems and the associated financial risk management. It involves

optimum utilization of surplus cash available in a company for a particular time period.

Today in every big organization Treasury Department is responsible for this function. At NHPC

there is also Treasury Department which does this function very efficiently. Being a PSU it has

to follow certain guidelines issued by DEPARTMENT FOR PUBLIC ENTERPRISES for

investing its surplus cash in various sources. The guidelines are:

D.P.E GUIDELINES FOR INVESTMENT OF SHORT TERM

CASH SURPLUS

1) The surplus availability should be worked out for a maximum period of one year at anypoint of time.

2) In the present scenario as applicable to NHPC the surplus arising are only cash surplusand not fund surplus, i.e. to say that the corporation is resorting to short term borrowings

and any short term cash surplus does not offset such short term borrowings, thus in

actuality NHPC holds surplus cash and not surplus funds. However in order to gainfully

utilize such excesses rather than to keep the funds idle there is a need to formulate the

system for utilizing such cash surplus to the benefit of the Corporation.


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3) NHPC can invite bids for deposit of surplus cash from only those banks with which it hascommercial interest.

4) The exposure limit for individual banks for NHPC is as follows:

Sl.

No.

Net worth Maximum amount of Investment with onesingle Bank/Financial Institution at a time

1. Between Rs. 500 Crs. and Rs.

5000 Crs.10% of Net Worth

2. Above Rs. 5000 Crs

a) Private Bank

a) Nationalised Bank

Rs. 500 Crs.

Without any limit

5) While allocating investment to the banks within the prescribed exposure limit it shall benecessarily ensured that the 60:40 ratio amongst public sector banks and private sector

banks as stipulated in recent DPE Guidelines is strictly adhered to.

6) NHPC can invest in Mutual Funds floated by Public Units.


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INVESTMENT OF SURPLUS CASH

When the company anticipates the condition of surplus cash, the treasury management of the

company looks for the avenue available for the investment of this cash in such a way that the

return can be maximized and the investment can be converted into cash as and when required

without any loss of time. Investing surplus cash involves two basic problems:

1. DETERMINATION OF SURPLUS CASHThe determination of amount of surplus cash can be done only after calculating the minimum

cash level that is required by the company termed as safety level of cash. The safety level of

cash is determined by the finance department separately for normal and peak period. In both the

cases, the two basic factors are to be decided which are, first the desired days of cash theminimum number of days for which cash balance should be sufficient to cover payments, second

is average daily cash outflow

Safety level of cash during periods = Desired days of cash * Average daily cash outflows

Safety level of cash during peak periods =

Desired days of cash at the business period * Average of highest daily cash outflows.

2. DETERMINATION OF CHANNELS OF INVESTMENTThe finance manager can determine the amount of surplus cash by comparing the actual amount

of cash available with the highest safety level of cash. Such surplus cash may be of two type

temporary or permanent surplus. Temporary cash surplus consist of funds which are available for

investment on a short term basis maximum for a period of six months, since they are required to

meet regular obligations like taxes, dividends etc. permanent cash surplus consists of fundswhich are kept by the firm to use in some unknown or unforeseen profitable opportunity of

expansion or acquisition of some assets. Such funds are available for investment for a period

ranging from six months to a year.


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ELIGIBLE INSTRUMENTS

Investments may be made in one or more of the following instruments:

Public Deposit Account of Govt. of India. Term Deposits with any Scheduled Commercial Bank (i.e. banks incorporated in India)

and with a NET WORTH (Paid up Capital plus Free Reserves) of atleast Rs. 500 Crores,

fulfilling the Capital Adequacy norms as prescribed by the RBI from time to time.

Instruments which have been rated by an established Credit Rating Agency and havebeen accorded the highest investment grade credit rating signifying highest safety e.g.

certificates of Deposit, deposit Schemes or similar instruments issued by scheduled

commercial Private Sector banks/term lending institutions including their subsidiaries as

well as commercial paper of corporate and eligible schemes of UTI. Investment of funds

in Fixed/Term deposits of Public Sector Banks may be made without credit rating for

them.

Any other Debt Instrument which has obtained highest credit rating from one of theestablished Credit Rating agencies.

Treasury Bills and Government of India securities. Though DPE guidelines permitinvestment upto 3 years in this instrument but investment shall not be made for a period

exceeding one year.

AMOUNT & AUTHORITY COMPETENT TO INVEST

APPROVING AUTHORITY

1. For amount upto Rs.1000 crores Director (Finance)

2. For amount above Rs. 1000 cr.upto Rs.2000 crores Chairman & Managing

Director

3. Beyond Rs. 2000 Crore without any limit Board of Directors


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PROCEDURE ADOPTED FOR INVESTING SURPLUS CASH AT

NHPC

First of all investment committee is formed which take decisions regarding Where the

investment is to be done among available options, DPE guidelines are being met. Treasury Department from the monthly budget prepares a Daily rolling cash flow. Whenever a case of cash surplus arises it will firstly be used to offset the debit balances

appearing in the Cash Credit accounts maintained with different Banks as well as offset

of WCDL account/MIBOR linked loans etc. at the earliest available opportunity.

Finding the minimum cash balance that is required to be maintained during normalworking hours.

The next step is to work out the expected number of days for which the excess cash willremain available. The investment of the same will depend upon the number of days for

which such amount would be available.

After this NHPC invites bids from various banks with which it is has commercial interest. Quotations from various banks along with the amount and the number of days the cash is

available is sent to the investment committee for their approval.

After getting the approval from the committee surplus cash is invested in that bank whichoffers the highest rate of interest.

MINIMUM CASH BALANCE REQUIRED = 10 Crores


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COMPARISION OF NHPCS INVESTMENT PATTERN WITH

OTHER POWER COMPANIES

INVESTMENT PATTERN OF NHPC

All the investments of NHPC during the period were in only one kind out of the various

options provided, namely term deposits with scheduled banks. It can be said that the

investment policy being followed is- to avoid any kind of hassles or tricky situation and place

the surplus funds in the safest possible option without paying much heed to the maximization

of returns by meticulously choosing from the available avenues.

TOTAL INVESTMENT: 4230 CRORE

Among the investments made in financial year 2009-10 the following points were noticed:-

More than 80% of the investments made by NHPC exceeded an amount ofRS 85

CRORE

The range of investments varied from a minimum of Rs.4 cr to a staggering

maximum of Rs 300 cr.Average investment through the year being a remarkable Rs. 50 Cr per investment.

Among the investment made in the current financial year 2010-11 the following points were

noticed.

TOTAL INVESTMENT: 5212.9 CRORE

Among the investments made in financial year2010-11 the following points were noticed:-

More than 70% of the investments made by NHPC exceeded an amount ofRS 100

CRORE


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The range of investments varied from a minimum of Rs.1 cr to a staggering

maximum of Rs 216 cr.

Average investment through the year being a remarkable Rs. 75 Cr per investment.

NTPCS INVESTMENT PATTERN IN YEAR 2009 & 2010

TOTAL INVESTMENT IN 2009-10 = 2701.13 CRORESFIGURES IN CR.

TOTAL INVESTMENT IN 2010-11 = 3352.98 CRORES

1488.13909.2

59.2244.6

0

NTPC 2009

BONDS

Invstmnt in JV

INVST IN SUBSIDIRES

SURPLUS CASH IN VARIOUS INST

ON BEHALF OF CUSTOMERS


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TATA POWERS INVESTMENT PATTERN IN YEAR 2009 &

2010

FIGURES IN CR.


1770.68

681.8

30.4

850.8

19.3

NTPC 2010

BONDS

Invstmnt in JV

INVST IN SUBSIDIRES

SURPLUS CASH IN VARIOUS INST

ON BEHALF OF CUSTOMERS

203.57

397.43

1367.35

41.72

contigency reserve investments

defferd taxatn liability fund

invstmnt

Mutual funds

other securities

TATA POWER (2009-2010)


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RELIANCE ENERGY LTDS INVESTMENT PATTERN IN YEAR 2009 &

2010


203.57

397.43

1497

215.39

contigency reserve investments

defferd taxatn liability fund

invstmnt

Mutual funds

other securities

TATA POWER (2010-2011)

75.46 0

214.5545.05

150

Reliance Energy Ltd.

2009

goi- bonds

covrtble pref shares

unquoted equity shares

redeemable preferance shares

mutual funds


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206

88.64

285.33

45.05

417.67

Reliance Energy Ltd.

2010

goi- bonds

covrtble pref shares

unquoted equity shares

redeemable preferance shares

mutual funds


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Analysis and Investment Pattern

For the purpose of comparison of investment practices data of last two years of each company is

taken into account. As it is already discussed for the purpose of investment four things are

considered mainly which are security, liquidity, maturity and yield.


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NHPCS INVESTMENT PATTERN:

The investment pattern followed at NHPC is very simple. More than 50% of surplus cash is

available for period 46 to 180 days. As shown in the graph all the surplus cash is invested in

Term Deposits which shows that it is very much concerned about SECURITY. The reason why

NHPC goes for this pattern is:

The guidelines issued by DPE for investing surplus cash.

It does not want to take risk.

It is very easy and most secured way of investing surplus cash.

This investment pattern is giving NHPC good return i.e. in 2009-10 8.5% and in20010-11 (8.6%)


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NTPCS INVESTMENT PATTERN:

It can be noticed clearly that NTPC is very high on security point as it has its 92% of investment

in the Government bonds; also the reason behind its major investment in government bonds is

that it has to abide by the rules and regulation set by DPE which gives most preference to the

safety. So the investment of NTPC being a PSU is mainly into Government Bonds.

The Average return for NTPC in 2009-10 is 8.45%.

In 2010-11 8.8%.


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TATA POWERS INVESTMENT PATTERN:

If the investment pattern ofTata power is considered it had its 65% of investment in the

Mutual Funds in 2009-10., the investment in other securities is decreased by Tata Power in year

2008. It has most aggressive practice of investment as its major part of investment is MFs

schemes which include Debt and some part of it in Gold ETFs.


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RELIANCES INVESTMENT PATTERN:

The investment pattern of Reliance Energy is completely different from NHPC, NTPC and Tata

power. Its major investments are in mutual funds. In the year 2010, it has maximum

investments in Shares Mutual funds and Government Bonds but it has changed its strategy in the

year 2011 by increasing its investment in mutual funds up to 87% and decreasing its

investment in government bonds and shares. This move of reliance energy indicates that safety

and yield are on the top priority for the company as by increasing its investment in mutual

funds they have diversified their investments thereby decreasing their risk on the other hand they

reduce the %age of investment in the shares and debentures which shows they have maintained

balance between security and yield. Another reason for investing in mutual funds may be

saving tax.

Avg. Return in 2009-10 is 9.45%

Avg. Return in 2010-11 is 10.2%


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RECOMMENDATIONS:

Policies adopted by NHPC for the investment purpose are quite stringent, if compared with that

of the policies adopted by Tata Power and Reliance Energy.

NHPC doesnt have liberty to invest in many instruments which can yield much better

returns. They have investment mainly in Government security which are better option

from security point of view but yield is relatively low, here it can be recommended that

surplus money can be invested in the mutual funds which will diversify risk as well as it

will increase return ratio.

The reason for investing in FDs is because of Tax Advantage that NHPC enjoy being a

Power sector company but this advantage remains only for 2 years from now which willreduce the effective rate of interest from FDs. So in that situation investing in mutual

funds will also be a good option because dividend received from MF is exempted from

tax. It can also look for other investment options like CP, T-Bills etc.

Investment in bonds can also be considered as good investment option keeping in mind

the present scenario where the interest rates on Deposits are decreasing and chances are

that it will decrease further.

IS INVESTING IN T.Ds A SOUND DECISION?

Various liquid schemes of UTI are selected because the guideline issued by DPE has

to be followed.

NAV for year 2009-10 and 2010-11 taken to calculate the return generated by a

particular scheme in a particular period.

Return from MF =

NAV on last day + Dividend (for that period if any)NAV on 1st

day / NAV on 1st

day


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Average rate of interest is taken for FDs for a particular time period.

Comparison of return from different schemes of UTI with return from FDs.

Finding correlation of various UTI schemes and FDs rates.

Those schemes whose correlation is +ve and S.D is low is selected for analysis

WHY UTI LIQUID FUND SCHEMES?

The reason why I have selected liquid schemes of UTI is that:

They conform to the guidelines issued by DPE. LIQUID schemes are considered as one of the safest mutual fund schemes. The portfolio of UTI schemes has positive relationship with FD rates. No entry load and exit load on many of the schemes.

UTI LIQUID FUND CASH PLAN- GROWTH

MEAN .15

S.D .02

CORRELATION .04

SHARP RATIO 2.20


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UTI LIQUID FUND CASH PLAN- MONTHLY DIVIDEND

MEAN .11

S.D .12

CORRELATION -.39

SHARP RATIO .03

UTI LIQUID FUND CASH PLAN- WEEKLY DIVIDEND

MEAN .14

S.D .14

CORRELATION -.06

SHARP RATIO .09

The correlation is between T.Ds and MF return where as Sharp ratio is calculated for

determining how much excess return you are receiving for the extra volatility that you endure for

holding a riskier asset.

The result above shows that out of the available 3 schemes only UTI LIQUID FUND CASH

PLAN- GROWTH is selected because it has least risk associated with it and also the SHARPERATIO is high for this fund which again is good from risk point of view.


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OPPORTUNITY COST OF NOT INVESTING IN LIQUID

FUND CASH PLAN GROWTH

FOR YEAR 2009-10

Fig in lakhs

NO OF DAYS

Return from F.D in

lakh

Return from M.F in

lakhs NET PROFIT/LOSS

1 TO 7 0 0

8 TO 14 647.2219 710.95 -63.7281

15 TO 30 1506.091 1380.73 125.361

31 TO 45 2501.301 2150.675 350.6264

46 TO 60 8637.458 6466.91 2170.548

61 to 90 4549.256 4664.46 -115.204

91 TO 135 2419.614 2425.302 -5.68775

136 to 180 3362.591 3342.201 20.38971

180 TO MORE 2184.595 2003.3 181.295

TOTAL 2663.6

FOR YEAR 2010-11 Fig in lakhs

PERIOD IN DAYS

Return from

F.D in lakh

Return from

M.F in lakhs

NET

PROFIT/LOSS

1 TO 7 57.031 62.632 -5.601

8 TO 14 612.418 683.520 -71.102

15 TO 21 1210.843 1381.950 -171.107

22 TO 30 1877.123 1903.865 -26.742

31 TO 45 1256.188 1221.760 34.428

46 TO 90 3317.016 3003.654 313.362

91 TO 180 3826.944 3578.784 248.160

180 TO MORE 6735.592 6534.180 201.412

TOTAL 522.809


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INTERPRETATION

The total profit that NHPC had generated by not investing in UTI Liquid Growth Plan scheme

FOR FY 2009-10 is 2663.6 Crores

FOR FY 2010-11 is 522.809 Crores

Therefore it can be said that NHPCs decision of investing in Term Deposits was right. But

here one point needs to be mentioned i.e. NHPC enjoys TDS exemption on its interest income

on Term Deposits and because of that so far it is able to fetch good return in comparison to

UTI Liquid plan.

But this Tax exemption will remain valid for the next two years and after that the effective

Rate of Return will decrease and it might make investing in Term Deposit less attractive.

The next part ofmy report will focus on IF NHPC did not enjoy this tax advantage then

could it be able to earn better return than UTI Liquid plan.

COMPARISON OF EFFECTIVE ROI ON TDs AND UTI LIQUID

FUND CASH PLAN GROWTH RETURN

Being a Power Sector Public Unit NHPC enjoys advantage of not paying any TDS on interest

income earned on its Term Deposits which makes its decision of investing in Deposits a right

one. But NHPC can enjoy this advantage for the next two years only after that it has to pay TDS

on its TERM DEPOSITS with any bank i.e. @ of 22.6% which will reduce the effective rate of

return on FDs.

Therefore an attempt is made to find out if NHPC does not enjoy this tax advantage then would it

be able to earn more return than those offered by UTI Liquid Growth Plan scheme.


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FOR F.Y. 2009-10

GRAPH SHOWING T.D ANNUAL RATE AND UTI LIQUID SCHEME ANNUAL RETUNS

GRAPH SHOWING EFFECTIVE T.D RATE AND UTI LIQUID SCHEME RETUNS


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FOR F.Y. 2010-11

GRAPH SHOWING T.D ANNUAL RATE AND UTI LIQUID SCHEME ANNUAL RETUNS

GRAPH SHOWING EFFECTIVE T.D RATE AND UTI LIQUID SCHEME RETUNS


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FOR F.Y. 2009-10

PERIOD IN DAYS Return from F.D in lakh Return from M.F in lakhs NET PROFIT/LOSS

1 TO 7 44.142 62.632 -18.490

8 TO 14 474.011 683.52 -209.509

15 TO 21 937.192 1381.95 -444.758

22 TO 30 1452.893 1903.865 -450.972

31 TO 45 972.289 1221.76 -249.471

46 TO 90 2567.370 3003.654 -436.284

91 TO 180 2962.055 3578.784 -616.729

180 TO MORE 5236.119 6534.18 -1298.061

TOTAL -3724.273

FOR F.Y. 2010-11

NO OF DAYS Effective TD ROI UTI LIQUID PLAN RET. NET LOSS/PROFIT

1 TO 7 0

8 TO 14 500.9497644 710.95 -210.0002356

15 TO 30 1090.409854 1380.73 -290.3201458

31 TO 45 1810.942192 2150.675 -339.7328082

46 TO 60 6253.519453 6466.91 -213.3905468

61 to 90 3293.661265 4664.46 -1370.798735

91 TO 135 1751.800715 2425.302 -673.5012855

136 to 180 2434.515656 3342.20098 -907.6853241

180 TO MORE 1581.647127 2003.300445 -421.6533179

Total -4427.082399


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INTERPRETATION

It is clear from the above table and graph that if NHPC didnt have the Tax

advantage then NHPCs decision of investing in FDs was proved wrong because the data above

shows that the opportunity cost of not investing in UTI Liquid plan Growth

In F.Y 09-10 would be ---- 373 crores.

In F.Y.10-11 would be ---- 443 Crores.

Therefore it can be said that NHPC has to look for other investment option other than T.D

because after 2 years when it doesnt have Tax advantage the result could be same as it has come

now.

So here it can be suggested that investing in this scheme can be a good option and while looking

for other investment options in future this scheme can be a good option. Though decision

regarding future investment cannot be taken solely on the basis of this data because of different

market and economic condition at that time but this data can be very helpful for the management

while taking investment decision in future.

INTEREST THAT COULD HAVE BEEN EARNED IF SURPLUS

CASH INVESTED IN UTI LIQUID FUND SCHEME

NHPC at present doesnt invest its surplus cash for less than 7 days because no bank accepts

deposit for less than 7 days. Therefore a lot of surplus cash remain idle. The table below shows

amount of surplus cash available to NHPC which remain idle and generating no returns.

This table is not exhaustive and contains surplus cash not for the complete year. It is just to show

if the amount could have been invested in UTI LIQUID PLAN GROWTH then NHPC would be

able to earn handsome amount of return on it.


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FOR F.Y 2009-10

INVESTMENT

DATE

MATURITY

DATE

NO OF

DAYS AMOUNT

MF RATE

(p.a)

INTEREST COULD

HAVE EARNED

27-03-09 31-03-09 4 250,000,000.00 8.98 24,603,288.65

17-04-09 22-04-09 5 320,000,000.00 8.16 35,789,187.73

17-04-09 20-04-09 3 90,000,000.00 8.11 6,000,516.98

14-05-09 19-05-09 5 100,000,000.00 8.48 11,616,944.90

05--06-2009 09--06-2009 4 50,000,000.00 8.23 4,507,463.95

03--12-2009 07--12-2009 4 150,000,000.00 8.21 13,500,203.56

17-12-09 22-12-09 5 800,000,000.00 8.48 92,966,184.31

14-01-10 19-01-10 5 200,000,000.00 7.67 21,014,907.04

14-01-10 20-01-10 6 150,000,000.00 7.65 18,870,263.86TOTAL 228,868,960.98

For F.Y 2010-11

INVEST. DATE MATURITY DATE DAYS AMOUNT MF Rate (p.a)

INTEREST COULD

HAVE EARNED

27-Mar-10 2-Apr-10 6 800,000,000.00 9.00 118,417,441.32

17-Apr-10 22-Apr-10 5 200,000,000.00 8.16 22,368,242.33

14-May-10 17-May-10 3 250,000,000.00 8.49 17,436,569.62

11-Jun-10 15-Jun-10 4 340,000,000.00 8.31 30,968,605.78

11-Jun-10 16-Jun-10 5 250,000,000.00 8.33 28,527,973.56

11-Jun-10 14-Jun-10 3 20,000,000.00 8.31 1,366,151.20

11-Jun-10 16-Jun-10 5 60,000,000.00 8.33 6,846,713.65

12-Jun-10 18-Jun-10 6 100,000,000.00 8.39 13,796,533.66

17-Jun-10 20-Jun-10 3 50,000,000.00 8.40 3,451,645.93

12-Aug-10 16-Aug-10 4 100,000,000.00 8.53 9,349,549.12


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9-Jan-11 14-Jan-11 5 90,000,000.00 7.95 9,804,598.52

9-Jan-11 15-Jan-11 6 210,000,000.00 7.92 27,333,687.41

14-Jan-11 18-Jan-11 4 50,000,000.00 7.71 4,222,978.90

14-Jan-11 17-Jan-11 3 150,000,000.00 7.71 9,501,965.65

TOTAL 303,392,656.66


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Conclusion

After considering all the points above it can be said that investment decision making process

at NHPC is very simple and here Security is given priority over yield. That is the reason why

NHPC invest only in Term Deposits with banks.

Though investment in mutual fund can be a good option from return point of view but it

involves more risk as compared to investing in FDs and it also needs a good forecasting skills

and constant watch over economic condition because MFs are subject to market fluctuation.

NHPC can invest in Liquid Schemes of UTI but so far it has restricted itself from doing that

because till now it has generated good returns from FDs and the main advantage that NHPCenjoys is that it doesnt have to pay any TDS on interest income because being a POWER

sector PSU it is exempted. But NHPC can enjoy this exemption for the next 2 years and after

that returns from FDs will not be as good as compared to now therefore keeping this thing in

mind NHPC has to look for other investment options so as to earn better returns.

UTI LIQUID PLAN GROWTH can be considered as an investment option because the return

from this fund has outperformed the returns that NHPC had generated if TDS has been

deducted from it.

The best option that is available to NHPC for investing its surplus cash forperiod ranging

less than 7 days is MFs or C.Pbecause at present NHPC doesnt invest its money for less

than 7 days because no bank pays interest on deposits for less than 7 days which means that

the money lies ideal and it is not earning any income But if NHPC invest that money in

Liquid schemes of UTI than it can earn a reasonable amount of money which so far it is not

earning.


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Banking Function at NHPC

Cash and banking section is another important department of TD which is responsible for

making payments to suppliers and projects. As the name suggest this department involves all

aspects of Funds Utilization. The following are the functions of this department:

PAYMENT FUNCTION

Making timely payment to various suppliers and employees is the main function of Banking

section of NHPC. NHPC has adopted E-payment system for achieving this.

Various modes of E-payment adopted by NHPC are:

Real Time Gross Settlement (RTGS) National Electronic Fund Transfer (NEFT) Electronic Clearing System (ECS) Direct Payment (DP) Internet Banking (IB) Inland letter of credit

For making payment through RTGS and NEFT IFSC is required.

Indian Financial System Code (IFSC) is an alpha numeric code designed to uniquely identify

the bank-branches in India. This is 11 digit code with first 4 characters representing the bankscode, the next character reserved as control character (Presently 0 appears in the fifth position)

and remaining 6 characters to identify the branch. The MICR code has 9 digits to identify the

bank-branch.

RTGS: RTGS system is a funds transfer mechanism where transfer of money takes place from

one bank to another on a 'real time' and on 'gross' basis. This is the fastest possible money

transfer system through the banking channel. The minimum amount that NHPC can send through

RTGS is Rs. 1 lakh. The party receives the payment within 2hr of making the payment. All

payments through RTGS is done through their SBI CAG account and Axis bank account.


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NEFT:

It is a nationwide funds transfer system to facilitate transfer of funds from any bank branch to

any other bank branch. The maximum amount that can be sent through NEFT is Rs. 2 lakhs. The

party gets the credit on the same Day or the next Day depending on the time of settlement. All

the NEFT is done through their SBI CAG account.

ECS:

It is a mode of electronic funds transfer from one bank account to another bank account using the

services of a Clearing House. This is normally for bulk transfers from one account to many

accounts or vice-versa. NHPC can send only 1 file of ECS in a day. The party gets credit after 4

days of sending the ECS file to the bank. The file is sent to RBI for processing and from there

the amount is credited to partys account. NHPC has tie up AXIS BANK for sending its ECS

file. Max amount that can be send through ECS in a single file is Rs 5 lakhs.

DP:

When payment is done within the same bank but in a different account then Direct payment is

used. NHPC used this mode of payment for making payments like Salary, Convenience

allowances, Lease Payment etc .

IB:

This mode of payment is used by NHPC when sending the amount to its projects. NHPC has

used this facility with the help of SBI and make all their payments to their projects with the help

of Internet Banking.

Letter of credit:

A Letter of credit is a document issued bybank, guaranteeing that a buyers payment to a seller

will be received on time and for the correct amount on presentation of certain set of documents

within a given time frame.

A Letter of credit is basically a document issued by a bank guaranteeing a client's ability to pay

for goods or services. A bank or finance company issues a Letter of credit on behalf of an

importer or buyer, authorizing the exporter or seller to obtain payment within a specified

timeframe once the terms and conditions outlined in the Letter of credit are met. The Letter of

credit acts like an insurance contract for both the buyer and seller and practically eliminates the

credit risk for both parties, while at the same time reducing payment delays. A Letter of credit

provides the exporter or seller with the greatest degree of safety when extending credit. It is


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useful when the importer or buyer is not well known and when exchange restrictions exist or are

possible. Beneficiaries are required to open LC in favour of NHPC with the beneficiaries

bank. The dates on which LC becomes operational are predecided and mentioned in the LC. CO

has bank accounts with the bank branch in which the LC is opened by the beneficiary and the

funds credited on operating the LC are immediately transferred to the bank account in CO. In

normal course, collection from beneficiaries is received through cheque/ DD. In case the

payment is not made by the beneficiary on due date, NHPC can operate the LC and collect

payment directly from the bank

Types of Letter Of Credit

Banks may issue several types of letters ofcredit. It is best for importers and exporters to meet

with their banking officer to determine which type ofcredit best suits their needs. The most

common type of letters ofcredit are described follows:

Revocable:

A revocable letter ofcredit allows for amendments, modifications and cancellation of the terms

outlined in the letter ofcredit at any time and without the consent of the exporter or beneficiary.

Because this places the exporter at risk, revocable letters ofcredit are not generally accepted andare regarded as worthless.

Irrevocable:

An irrevocable letter ofcredit requires the consent of the issuing bank, the beneficiary and

applicant before any amendment, modification or cancellation to the original terms can be made.

This type ofletter ofcredit is commonly used and preferred by the exporter or beneficiary

because payment is always assured, provided the documents submitted comply with the terms of

the letter ofcredit. Irrevocable letters ofcredit can be both confirmed and unconfirmed. Such

creditors cannot be withdrawn by the issuing banker without the consent of the beneficiary even

if his customer i.e. buyer requires to do so.


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Expenditures and collections at the accounting unit

TD has a Drawing limit system which is an arrangement with State Bank of India under which

the funds are deposited by TD on 1st

and 15th of every month (and on any day on need basis) for

enabling SBI to issue instructions to all its specified branches at projects to make payment, up to

specified limit, on behalf of SBI. The project is simultaneously informed about the limit / revised

limit up to which the cheques can be issued and funds can be drawn by authorized signatory on

monthly basis.

The unutilized limit as per bank statement at month end is not carried over to next month

and is transferred to separate a collection account.

Important Factors to be taken into consideration

It is imperative that drawing limit is to be judiciously identified as it involves blocking of the

costly funds. Remittance to collection account during the course of month does not earn any

interest to the Corporation unless the money is actually drawn and deployed elsewhere.

Accordingly, any major remittance into collection account is to be specifically brought to the

notice of the Corporate Office for effective deployment.

Drawing limit is fixed/ revised after a careful review of the anticipated cash flow estimate based

on budget provisions, site requirements, progress of work, manpower deployment, un-encashed

cheques of the earlier period etc.

Any increase in this limit is authorized on the requirement of unit and recommendation of

concerned Director.

Monthly permanent drawing limit is authorised by Cash and bank section with the approval of

Director (Fin) on the basis of requirement from the units/ projects.


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Collections from Beneficiaries

The payment for sale of energy is received at any of the following units:

Corporate Office

Liaison office

ED office

Project

Regional office

As per the existing system the receipts against sale of energy are being received from beneficiary

states through the following modes:

Through Cash Management Product service

Through cheques

Through Letter of Credit

Through collection account from project

Operation of collection account

The collection account is an arrangement with SBI for centralized receipts. All the projects and

units are required to remit the cheque/draft into respective collections account. Receipts on

account of sale of energy from SEBs are preferably received through `Cash Management

Product` Services. It is the duty of the Head of Finance of the unit to verify weekly that the

branch has complied with this arrangement and not allowed the credit balance to

accumulate.


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EQUITY FROM GOI

An annual plan is prepared by the planning section and sent to Ministry of Power, GoI for

approval, which provides project wise detail of funds required during the year. These funds canbe utilized only for the purpose for which they are being approved/ sanctioned for by the GoI.

Revision for the annual requirement for current year is done by the end of October by way of an

application along with the fresh requirement with project wise break up and reasons for the same

The equity is drawn on quarterly basis from Ministry of Power against the sanctioned

annual plan.

Cash and bank section writes the request letter to Ministry of Power on quarterly basis in format

prescribed by the Ministry along with necessary enclosures which generally contains following

details:

Project-wise details of amount/budgetary support sanctioned, expenditure incurred in the

previous quarter, expected requirement of fund and net requirement for the current quarter in the

prescribed format

Cash flow statement

Milestones achieved and proposed

Activity wise financial requirement

Status of Government approval/PIB clearance of the projects etc

Cash credit and short terms loans

An arrangement for cash credit facility by way of sanction of cash credit limits is entered into

with the banks. The cash credit facility entitles the company to utilize funds to the extent of the

limits sanctioned by the banks for financing the working capital requirement of the company.

Cash credit account is operated like a normal bank account.

In NHPC efforts are made to minimize the interest cost on these cash credit limits and short term

loans. In lieu of this NHPC has negotiated with the banks to provide the interest rate on these

short term deposits and cash credit limits linked with Mumbai Interbank Overnight Average

(MIBOR).


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NHPC has Rs.5000cr Cash Credit limit with SBI.

NHPC has Rs.1000cr Cash Credit limit with IOB Faridabad.

NHPC has taken loan worth 9000 Crores from different banks and financial institutions.

NHPC has raised Rs. 600 Crores from Bonds issue.

Recommendations

All the payments should be done on the next day for the smooth functioning ofdepartment. It will help in making timely payment of customers and employees because

certain modes of payment like RTGS has to be done before a particular time so to avoid

any misplacing of VOUCHERS it is essential that all payments has to be made on the

next day.

The cash section should avoid dealing with customers while making payments. So therehas to be a fix time for customers queries i.e. 2pm to 3pm. It will help not only the

organisation but also customers for better redressal of their complaints.

Reconciliation of accounts has to be done weekly.


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References

www.rbi.org.in

www.nhpc.nic.in

www.investopedia.com

www.businessworld.in

www.amfiindia.com

www.moneycontrol.com

www.nseindia.com

Internal reports of NHPC like various Manuals on every department
http://www.rbi.org.in/http://www.rbi.org.in/http://www.nhpc.nic.in/http://www.nhpc.nic.in/http://www.investopedia.com/http://www.investopedia.com/http://www.businessworld.in/http://www.businessworld.in/http://www.amfiindia.com/http://www.amfiindia.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.nseindia.com/http://www.nseindia.com/http://www.nseindia.com/http://www.moneycontrol.com/http://www.amfiindia.com/http://www.businessworld.in/http://www.investopedia.com/http://www.nhpc.nic.in/http://www.rbi.org.in/

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