CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Introduction to Treasury Management
Module C: Treasury Management
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
CAIIB – SUPER NOTES
Bank Financial Management: Introduction to Treasury Management
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Contents
Coverage:
1. The Concept
2. Functions of Integrated
Treasury
3. The Process of Globalisation
4. Evolving role of treasury as
profit center
5. Organisation of Treasury
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
THE CONCEPT
1.
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
The Concept
Funds Management
Funds Management
Liquidity Management
Liquidity Management
Profit Center Profit Center Asset Liability Management Asset Liability Management
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
FUNCTIONS OF INTEGRATED TREASURY
2.
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Integrated Treasury
• Integrated Treasury refers to integration of money market,
securities market and foreign exchange operations.
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Driving force for Integrated Treasury
Integrated Cash Flow
Management
Integrated Cash Flow
Management
Interest Arbitrage Interest Arbitrage
Access to Global Resources
Access to Global Resources
Corporate demand for high-
end services
Corporate demand for high-
end services
Risk Management
Risk Management
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Functions of Integrated Treasury
Meeting reserve requirements (CRR and SLR) Meeting reserve requirements (CRR and SLR)
Global cash management Global cash management
Efficient merchant services (Forex and Advisory Services) Efficient merchant services (Forex and Advisory Services)
Optimizing profit by exploiting market opportunities in ForEx market, money market and securities market (debt, equity and credit derivatives markets) Optimizing profit by exploiting market opportunities in ForEx market, money market and securities market (debt, equity and credit derivatives markets)
Risk management Risk management
Assisting bank management in ALM Assisting bank management in ALM
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
An overview of Integrated Treasury function
SLR/CRR SLR/CRR
Equity/MF/Venture Fund.
Equity/MF/Venture Fund.
Funds Management/L.A.F/CB
LO/Market repo/FC Buy sell swap/ALM
Funds Management/L.A.F/CB
LO/Market repo/FC Buy sell swap/ALM
Raising of Tier II capital.
Raising of Tier II capital.
Corporate Debt /Debenture.
Corporate Debt /Debenture.
Derivatives. Derivatives. Foreign Exchange Foreign Exchange
Call/Notice/Term MoneyCP,CD,IBPC,. Call/Notice/Term
MoneyCP,CD,IBPC,.
Front office/Mid Office./Back office.
Front office/Mid Office./Back office.
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Roles of Treasury
• Managing short term funds across currencies
• Complying with reserve requirements
Liquidity Management Liquidity Management
• Trade in currencies, securities and other financial instruments with a profit motive
Proprietary Positions Proprietary Positions
• Aid management in bridging Asset liability mismatches
• Provide derivatives to manage risks in client’s business
• Manage risks inherent in its own proprietary positions
Risk Management Risk Management
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Books
ALM Book ALM Book
• Internal risk management
Merchant Book Merchant Book
• Client related currency and derivative transactions
Trading Book Trading Book
• Managing Proprietary positions
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THE PROCESS OF GLOBALISATION
3.
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The Process of Globalisation
• The process of integrating domestic market with global
markets, characterised by free capital flows and minimum
regulatory intervention
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Funds flow on Capital Account
Portfolio Investment
•Foreign investors investing in domestic equity and debt markets
Portfolio Investment
•Foreign investors investing in domestic equity and debt markets
Direct Investment
•Foreign companies and FIIs bringing in long term funds
Direct Investment
•Foreign companies and FIIs bringing in long term funds
External Commercial Borrowings External Commercial Borrowings
Issue of equity/debt in global markets Issue of equity/debt in global markets
Cross border Mergers and Acquisitions Cross border Mergers and Acquisitions
Payment for technology transfer, royalties, financial services etc Payment for technology transfer, royalties, financial services etc
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Impact of Globalisation
• In turn influence exchange rates
• In an open economy exchange rates are further influenced by macro-economic factors like relative inflation, GDP growth rate, stock markets and commodity markets
Interest rates influenced by Global Trends Interest rates influenced by Global Trends
• Number of primary dealers have become active players
• Resulted in deepening of debt and equity markets and eliminating counterparty risks
New Institutional Structure has come into place New Institutional Structure has come into place
• Not only for hedging but also for trading and profit generation
Rupee Derivatives with innovative product structures Rupee Derivatives with innovative product structures
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EVOLVING ROLE OF TREASURY AS PROFIT CENTER
4.
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Importance of Treasury Profits
• Operates in inter-bank markets – almost free of credit risk
• Highly leveraged, hence return on capital is very high
• Operational costs are low
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Sources of Treasury Profits
Conventional Conventional
Foreign Exchange Business
Money Market Deals
Investment Activity
Contemporary* Contemporary*
Interest Arbitrage
Trading
Treasury Products
* In addition to the conventional sources
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ORGANISATION OF TREASURY
5.
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Organisation of Treasury
• Either as department or Specialised Branch
• Latter is preferred because
– Books of accounts can be maintained independently
– Can act as authorised dealer for For Ex business
– Can participate in clearing and settlement systems directly
• Headed by a senior management person
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Treasury Divisions
FRONT OFFICE/ DEALING ROOM FRONT OFFICE/ DEALING ROOM
BACK OFFICE/ TREASURY
ADMINISTRATION
BACK OFFICE/ TREASURY
ADMINISTRATION
MID OFFICE/ RISK
MANAGEMENT
MID OFFICE/ RISK
MANAGEMENT
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Dealing Room
• Headed by Chief Dealer
• Dealers buy and sell in the markets
• Deal in secondary markets. Primary markets are handled by
investment department
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Back Office
• Responsible for verification and settlement of deals
• Takes care of all related book-keeping and submission of
periodical RBI returns
• Also maintains Nostro accounts, funding and security
accounts with RBI and Demat accounts with depository
participants
• Ensures adequate money is held with CCIL for Rupee and
Dollar settlements
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Mid Office
• To provide information to management and implement risk
management systems
• Monitors exposure limits and stop loss limits
• Implements transfer pricing mechanism
• In smaller banks also functions as ALM support group
• Reports directly to Head of Treasury, or to Chief Risk Officer
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
TREASURY STRUCTURE
General Manager General Manager
Chief Dealer (Dealing Room)
Chief Dealer (Dealing Room)
Forex Forex Money Market Money Market
Currency Currency
Merchant Desk Merchant Desk
Derivative Desk Derivative Desk
Securities Trading
Securities Trading
Equity Trading Equity Trading
Equity Investment (Primary)
Equity Investment (Primary)
Chief Risk Officer Chief Risk Officer
Chief Dealer (Dealing Room)
Chief Dealer (Dealing Room)
Forex Forex
Money Market Money Market
Securities Trading
Securities Trading
Chief Dealer (Dealing Room)
Chief Dealer (Dealing Room)
Policy and MIS Policy and MIS
ALM Support Group
ALM Support Group
Chief Dealer (Dealing Room)
Chief Dealer (Dealing Room)
Accounts Accounts
HR & Training HR & Training
Internal Audit Internal Audit
Funds Transfer Branch
Funds Transfer Branch
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Investment Department
• Deals with primary issues
• Puts up investment proposal for approval
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Do you have any questions or queries or some feedback to give?
Just mark an email to [email protected]
CAIIB – Super-Notes © M S Ahluwalia Sirf Business For more Super-Notes: Click Here
M S Ahluwalia, amongst other things, is a visual artist, blogger,
blog designer and of course an MBA and Banker from New
Delhi, India.
To know more about him you may visit his blog-site: Estudiante De La Vida
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