PROJECT REPORTS ON

GENERAL MANAGEMENT

A Study On Cash Management (SBI)

Submitted in partial fulfillment for the award of the degree of

MASTER OF MANAGEMENT STUDIES

UNIVERSITY OF MUMBAI

Submitted by Mr. Sagar Pradeep Chauhan

ROLL NO. 2019029

2019-2021

Under The Guidance of Dr. / Prof. Aditya khandwe

LALA LAJPATRAI INSTITUTE OF MANAGEMENT

MAHALAXMI, MUMBAI – 400 034

 PROJECT REPORTS ON

GENERAL MANAGEMENT

A Study On Cash Management (SBI)

Submitted in partial fulfillment for the award of the degree of

MASTER OF MANAGEMENT STUDIES

UNIVERSITY OF MUMBAI

Submitted by Mr. Sagar Pradeep Chauhan

ROLL NO. 2019029

2019-2021

Under The Guidance of Dr. / Prof. Aditya khandwe

LALA LAJPATRAI INSTITUTE OF MANAGEMENT

MAHALAXMI, MUMBAI – 400 034

GENERAL MANAGEMENT
 DECLARATION

I hereby declare that this project report submitted by me to the partial fulfillment of
the requirement for the award of MASTER OF MANAGEMENT STUDIES
(MMS) of the University of Mumbai is a bonafide work undertaken by me and it
has not been submitted to any other University or institution for the award of any
other degree or diploma certificate or published any time before

Name: Sagar Pradeep Chauhan

Roll No: 2019029 Signature of the student

Sagar Pradeep Chauhan

 Certificate

This is to certify that the “A Study On Cash Management (SBI)”, has been
successfully completed by Mr.Sagar Pradeep Chauhan during the MMS II,
SEM IV in partial fulfillment of the Master’s degree in Management Studies
recognized by the University of Mumbai for the academic year 2019 – 2021.
This project work is original and has not been submitted earlier for the award of
any degree, diploma or associateship of any other University / Institution

Date : 13th March, 2021

------------------------------ ---------------------------

DR. V. B. ANGADI DR. /PROF

DIRECTOR (Prof. Aditya khandwe)

 ACKNOWLEDGEMENT

This project has been a great learning experience for me. I take this
opportunity to thank Dr. / Prof. Aditya khandwe, my internal project guide
whose valuable guidance & suggestions made this project possible. I am
extremely thankful to him/her for his/her support. He has encouraged me and
channelized my enthusiasm effectively.
I express my heart-felt gratitude towards my parents Pradeep mulji Chauhan,
siblings and all those friends who have willingly and with utmost commitment
helped me during the course of my project work.

I also express my profound gratitude to Dr. V. B. Angadi, Director of Lala

Lajpatrai Institute of Management for giving me the opportunity to work on
the projects and broaden my knowledge and experience.

I would like to thank all the professors and the staff of Lala Lajpatrai
Institute especially the Library staff who were very helpful in providing books
and articles I needed for my project.

Last but not the least, I am thankful to all those who indirectly extended their
co-operation and invaluable support to me.
 EXECUTIVE SUMMARY

The evolution of State bank of India can be traced back to the first decade of
the 19th century. It began with establishment of the bank of Calcutta on 2 june
1806.

We briefly review the main trends that are affecting the global banking
industry, underlining the effects of each of these changes on the risk profile
for banks. For the past three decades India’s banking system has several
outstanding achievementsto its credit.

The market research survey undertaken at SBI BANK aims to discover

preference of various consumer awareness of the SBI BANK and the different
products of SBI. The general objectives of the survey is to create existing
customer base and to identify competition and also emboss SBI BANK in the
minds of people.

This project in its endeavor provide a picturesque depiction, aims to boost

decision making regarding how to aware of bank service and having identify
them as prospective customer.

This project contain information regarding consumer awareness of

respondents of SBI BANK.

This project report also undertakes different aspects on management as well

as it also include all department thou the project report brings these finding
and suggestion to capture still futher area.
 Contents of General Management Project

Chapte Description Page No.

r No.

I INTRODUCTION 1-4

General Introduction to the study 1-3

Objectives 4

Scope of the Study 4

Need of Study 3

II REVIEW OF LITERATURE & 5-45

THEORETICAL FREAMEWORK

III METHODOLOGY 46-47

Data collection Methods 46

Sampling Design 47

IV DATA ANALYSIS(RESULTS OF THE 48-55

STUDY)

Tables, Graphs, Charts and inferences

V FINDINGS(DISCUSSION) 56-61

VI CONCLUSION 62-64

BIBLIOGRAPHY / REFERENCES
 CHAPTER1

INTRODUCTION:
Cash is the basic input needed to keep the business running on continuous basis. Cash is also the
ultimate output expected to be realized by selling the product or services of the firm. Cash is the
important current assets for any operation of the business. The company should keep enough
cash neither more nor less. There should not be any shortage of cash which could disrupt the
manufacturing process nor there should be excessive cash which just remains idle and would not
contribute anything towards firm’s profitability. So, the important and basic function is to
maintain the financial position of the firm.

Cash is the money which the firm can disburse immediately without any restriction. The term
cash includes coins notes and cheques of the firm and balances in its bank account. Near cash
items such as marketable securities and bank deposits are also included in cash. Generally, when
a firm has excess cash, it invests it in marketable services. This kind of investment contributes
some profit to the firm.

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Features of Cash Management:

Cash management is concerned with features of managing:

i. Cash flows into and out of the firm.

ii. Cash flows within the firm.

iii. Cash balances held by the firms at a point of time by financing deficit or investing
surplus cash.

Cash is created by sales, which must be disbursed out. If there is a surplus cash it must be
invested, and if there is a deficit cash it must borrowed. Cash management seeks to accomplish
the cycle at a minimum cost. At the same time, it also aims 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 is used to
pay firms obligations. However, cash is unproductive. Unlike fixed assets and inventories, it
does not produce goods for sale.

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Cash management is also important because it is difficult to predict cash flows accurately,
particularly the inflows, and there is no perfect coincidence between the inflows and the outflows
of cash. During some periods cash out flows will exceed cash inflows, because payment of taxes,
dividends or seasonal inventory builds up.

At other times, cash inflows will be more than cash payments because there may be large cash
sales and debtors may be realized in large sums promptly. Further cash management is
significant because cash constitutes the smallest portions of the total current assets, yet
management’s considerable time is devoted in managing it. In recent past, several innovations
have been done in cash management techniques. An 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.

Need of the Study:

Many business owners disregard the importance of cash managements because they unwittingly
believe that their current financial standing can be construed from other financial reports and
projections. Unfortunately, however, a cash flow is necessary to adequately assess the incoming
and outgoing flow of cash and other resources in a business.

Not only will a business owner with a cash flow system be more aware of his or her financial
standing, but it will but it also helps investor to make educated decisions on future investment. A
business with regular and reliable cash flow statements shows more economic solvency and is
more attractive to investors.

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Scope of the study:
Since it will not be possible to conduct a micro level study of all BANKING in Telangana. To
know cash flow from one to one, as the available is very limited and the subject are very vast, the
study is continued to overall financial condition of a firm. This study is to know working capital
increase or decrease funds from operation, sources, and application of funds from bank.

Financial analysis consists of fund flow analysis. To know cash flow from one to one, as the time
available is very limited and study is continued to overall financial condition of a firm. The study
to know working capital increase or decrease, cash from operation, source an application of
funds.

Objectives of the study:

Objectives of a project tell us why project has been taken under study. It helps us to know more
about the topic that is being undertaken and helps us to explore prospects of that organization.
Basically, it tells what all have been studied while making the project.

1. To understand how cash is being managed by SBI (Vidyanagar, Hyderabad)

2. To gain knowledge about the system prevailing in Banks.

3. To suggest methods for improving cash management in Banks.

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 CHAPTER 3-Review
of Literature &
Theoretical Framework
Hari Kusuma (2013): investigated and assess statements relative of cashflow disclosures as
needed by the Australian Accounting Standard Board (AASB) 1026statement of cash flow. The
information capacity is estimated in terms of degree of the relationship between cash flow
variable and security returns. After examining the data relative to cash flow the researcher found
out two important factors such as:

i. To examine the capacity of the cash flow component in predicting future cash flow.

ii. To compare the capacity of cash flows and earning in predicting future cash flows.

The best result from hypothesis tests reflecting the second objective show that cash flow has
information content more than that provided by earnings alone and cash flow information have
relative content, given earnings alone. This finding suggests that the cash flow statement and
income statement provide mutually exclusive information and previous study from USA and UK
that indicated cash flow data had less information value than that of conveyed by earnings. This

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proof may suggest that data reported in cash flow statement may be original data for decision
making, separated from the income statement.

Nicholas Davis (2014): tried for move from the cash basis to accrual basis of accounting in
the Australian public sector (APS). That was an important item of NPM for an improvement
planning and an event of historical significance. In this research the researcher identified key
events in these changes and to analyze them through the theoretical. Lens Habermas
(1976) theory of legitimating. The main discussion of this paper expressed within this paper
that accrual accounting is better device used by different level of Government in
Australian public sector APS in an attempt to combat the tendencies for economic, rationality
and legitimacy difficulties that are commensurate with welfare state societies such as Australia.

Jeni’s Cormier (2015): mentioned that the finance manager may use the received
funds management to voluntary receive funds forecasting. Put on document of the range of
earning management guarantee with Canadian Initial Public Offerings(IPOs) and study
the scope to which firms with best corporate control systems are less likely to use achieving
funds management to obtain their achieving funds estimates forecasting IPOs prospectus.

Bin Du et al (2016): found out that again meet the role of the cash and accrual component of
accounting earning in predicting future cash flow and using out of sample predictions. The
researcher understands on average accruals improve upon current cashflow from operations in
predicting future cash flow. This paper clears that positive accruals are more likely to
improve upon current cash flow in prediction future cashflow. In this paper the researcher has
found out the continuity development of business management depend on good adequate cash
flow but not the best profit. Accrual cashflow prediction can measure adequate liquidity. The
paper centralization on cash flow of company in short time and in this paper, researcher clears
that MELLRAL network method has better prediction effect than ARIMA method. However,
after short term abnormal data adjustment the prediction effect has shown some improvement

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and he can take as a result large amount of cash flow data have relatively within a company for
prediction.

Farzan Rezaei, and Zahra Safari (2016): reported determining the effective factors on
market value of equity can help shareholders to make an appropriate decision and allocate
economic resources efficiently. Profitability of companies is one of the most important criteria
for investors to assess companies but relying on net profit regardless of its constituent items
will lead to loss of important and effective information on decision making and
therefore making improper decisions. The present study was carried out in order to investigate
and compare the explanatory power of different components of profit including operating cash
flow Occurrent accruals, and non-current accruals and free cash flow, as well as to help explain
the behavior of abnormal accruals in Tehran Stock Exchange. The results indicate that
information content of cash components of earnings is higher than other components of earnings
and also findings of the research show that division of profit into two components of operating
cash flow and accruals relative to other profit combinations has a higher explanatory value.

CONCEPTUAL REVIEW:

Optimum Utilization of Operating Cash:

Implementation of a sound cash management programmed 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 the running
of business with the minimum cash balance. This can be achieved by making a proper analysis of
operative cash flow cycle along with efficient management of working capital

Cash forecasting:

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Cash forecasting is backbone of cash planning. It forewarns a business regarding 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 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 will find that the major reason for the failure was their un-ability 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 cash surplus
and acceptability of market for its short-term investments.

Economical Borrowings:

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Another product of non-synchronization of cash inflows and cash outflows is emergence of
deficits at various points of time. A business must raise funds to the extent and for the period of
deficits. Raising 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.

MOTIVES FOR HOLDING CASH

The firm’s need to hold cash may be attributed to the following the motives:

i. The transactions motive

ii. The precautionary motive

iii. 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
when the payment must be made. But cash receipts and payments are not

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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, affirm 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 is the need to hold cash to meet contingencies in the future. It
provides a cushion or buffer to withstand some unexpected emergency. The
precautionary 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 ability of the firm to borrow at short notice, less the need
for precautionary balance. The 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 earn anything therefore, the firm attempt to earn some
profit on it. Such funds should be 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 relates to the holding of cash for investing in profit-making
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
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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 falls. Some firms
may hold cash for speculative purposes. By and large, business firms do not engage in
speculations. Thus, the primary motives to hold cash and marketable securities are the
transactions and the precautionary motives.

Cash planning
Cash flows are inseparable parts of the business operations of firms. A firm needs cash to
investing inventory, receivable and fixed assets and to make payment for operating expenses 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. 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 cash statement 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

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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.

Short-term Cash Forecasts

It is comparatively easy to make short-term cash forecasts. The important functions of carefully
developed short-term cash forecasts are:

i. To determine operating cash requirements.

ii. To anticipate short-term financing.

iii. To manage investment of surplus cash.

The short-term forecast helps in determining the cash requirements for a predetermined period to
run a business. If the cash requirements are not determined, it would not be possible for the
management to know-how much cash balance is to be kept in hand, to what
extent bank financing be depended upon and whether surplus funds would be
available to invest in marketable securities. To know the operating cash requirements, cash
flow projections must be made by a firm. As stated earlier, there is hardly a perfect matching
between cash inflows and outflows. With the short-term cash forecasts, however, the financial
manager is enabled to adjust these differences in favor of the firm. It is well known that, for their
temporary financing needs, most companies depend upon banks. One of the significant roles of
the short-term forecasts is to pinpoint when the money will be needed and when it can be repaid.
With such forecasts in hand, it will not be difficult for the financial manager to negotiate
short-term financing arrangements with banks. This in fact convinces bankers about the ability
of the management to run its business. The third function of the short-term cash forecasts is to

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help in managing the investment of surplus cash in marketable securities. Carefully and skillfully
designed cash forecast helps a firm to:

i. select securities with appropriate maturities and reasonable risk,

ii. avoid over and under-investing and

iii. maximize profits by investing idle money.

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:

i. Planning reductions of short and long-term debt

ii. Scheduling payments in connection with capital expenditures programmed

iii. Planning forward purchases of inventories

iv. Checking accuracy of long-range cash forecasts

v. Taking advantage of cash discounts offered by suppliers

vi. Guiding credit policies.

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:

i. It indicates as company’s future financial needs, especially for its working capital
requirements.

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 ii. 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.

iii. It helps to improve corporate planning. Long-term cash forecast compels each division
to plan for future and to formulate projects carefully.

Long-term cash forecast may be made for two, three or five years. As within short term forecast,
company’s practices may differ on the duration of long-term forecast to suit their needs.

Cash Collection Instruments in India

The main instruments of collection used in India are:

i. cheques,

ii. drafts,

iii. documentary bills,

iv. trade bills, and

v. letter of credit.

Instrument Pros Cons

i. Cheques  No charge  Can bounce
 Payable through  Collection times can be
clearing long
 Can be discounted after  Collection charge
receipts
 Low discounting
charge
ii. Drafts  Payable in local clearing  Cost of collection
 Chances of bouncing  Buyers account debited
are less on day one
iii. Documentary Bill  Low discounting charge  Not payable through
 Theoretically, goods clearing

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 are not released till  High collection cost
payments are made or  Long delays
the bill is accepted
iv. Trade Bill  No charge except stamp  Procedure is relatively
duty cumbersome
 Can be discounted  Buyers are reluctant to
 Discipline of payment accept the due date
on due date discipline
v. Letter of Credit  Good credit control as  Opening charges
goods are released on  Transit period interest
payment or acceptance  Negotiation charges
of bill  Need bank lines to
 Seller forced to open LC
meet delivery  Stamp duty on usance
schedule because of bills
expiry date

Determining the Optimum Cash Balance

One of the primary responsibilities of the financial manager is to maintain a sound liquidity
position of the firm so that the dues are settled in time. The firm needs cash to purchase raw

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materials and pay wages and other expenses as well as for paying dividend, interest, and taxes.
The test of liquidity is the availability of cash to meet the firm’s obligations when they become
due. A firm maintains the operating cash balance for transaction purposes. It may
also carry additional cash as a buffer or safety stock. The amount of cash balance will depend
on the risk-return trade-off. If the firm maintains small cash balance, its liquidity position
weakens, but its profitability improves as the released funds can be invested in
profitable opportunities (marketable securities). When the firm needs cash, it can sell
its marketable securities. On the other hand, if the firm keeps high balance, it will have a
strong liquidity position, but its profitability will be low. The potential profit foregone on holding
large cash balance is an opportunity cost to the firm. The firm should maintain- just enough,
neither too much nor too little- cash balance. How to determine optimum cash balance if cash
flows are predictable and if they are not predictable.

Optimum Cash Balance under Certainty:

Baumol’s Model

The Baumol model of cash management provides a formal approach for determining a firm’s
optimum cash balance under certainty. It considers cash management like an inventory
management problem. As such, the firm attempts to minimize the sum of the cost of holding cash
(inventory of cash) and the cost of converting marketable securities to cash. The Baumol’s model
makes the following assumptions:

 The firm can forecast its cash needs with certainty.

 The firm’s cash payments occur uniformly over a period.

 The opportunity cost of holding cash is known and it does not change over time.

 The firm will incur the same transaction cost whenever it converts securities to cash.

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Let us assume that the firm sells securities and starts with a cash balance of C rupees. As the firm
spends cash, its cash balance decreases steadily and reaches to zero. The firm replenishes its cash
balance to C rupees by selling marketable securities. This pattern continues over time. Since the
cash balance decreases steadily, the average cash balance will be: C/2

Baumol’s model for cash balance

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The firm incurs a holding cost for keeping the cash balance. It is an opportunity cost; that is, the
return foregone 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) (1)

The firm incurs a transaction cost whenever it converts its marketable securities to cash. Total

number of transactions during the year will be total funds requirement, T, divided by the cash

balance, C, i.e. T/C. The per transaction cost is assumed to be constant. If per transaction cost is

c, then the total transaction cost will be:

Transaction cost = c(T/C) (2)

The total annual cost of the demand for cash will be: Total cost = k(C/2) + c(T/C) (3)

What is the optimum level of cash balance, C*? We know that the holding cost increases as the

demand for cash, C, increases. However, the transaction cost reduces because with increasing C

the number of transactions will decline. Thus, there is a trade-off between the holding cost and

the transaction cost

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

optimum cash balance is as follows:

C* = 2cT/k (4)

where, C* is the optimum cash balance, c is the cost per transaction, T is the total cash needed

during the year and k is the opportunity cost of holding cash balance. The optimum cash balance

will increase with increase in the per transaction cost and total funds required and decrease with

the opportunity cost

Optimum Cash Balance under Uncertainty:

The Miller-Orr Model

The limitation of the Baumol model is that it does not allow the cash flows to fluctuate. Firms in

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practice do not use their cash balance uniformly nor are they able to predict daily cash inflows

and outflows. The Miller-Orr (MO) model overcomes this shortcoming and allows for daily

cash flow variation. It assumes that net cash flows are normally distributed with a zero value of

mean and standard deviation. The MO model provides for two control limits—the upper control

limit and the lower control limit as well as a return point. If the firm’s cash flows fluctuate

The firm sets the lower control limit as per its requirement of maintaining
minimum cash

balance. At what distance the upper control limit will be set? The difference between the upper

limit and the lower limit depend on the following factors:

 The transaction cost (c)

 The interest rate, (i)

 The standard deviation of net cash flows.

The formula for determining the distance between upper and lower control limits (called Z) is as

follows:

(Upper Limit—Lower Limit) = (3/4 * transaction cost * cash flow variation/ interest per day) ⅓
(5)

We can notice from equation (5) that the upper and lower limit will be far off from each other

(i.e. Z will be larger) if transaction cost is higher or cash flows show greater fluctuations. The

limits will come closer as the interest increases. Z is inversely related to the interest rate. It is

noticeable that the upper limit is three times above the lower control limit and the return point

lies between the upper and the lower limit. Thus,

Upper Limit = Lower Limit + 3Z (6)

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Return point = Lower Limit + Z (7)

The net effect is that the firms hold the average cash balance equal to:

Average Cash Balance = Lower Limit +4/3 Z

The MO model is more realistic since it allows variation in cash balance within lower and upper

limits. The financial manager can set the lower limit according to the firm’s
liquidity

requirement. The past data of the cash flow behavior can be used to determine the standard

deviation of net cash flows. Once the upper and lower limits are set, managerial attention is

needed only if the cash balance deviates from the limits. The action under these situations are

anticipated and planned in the beginning.

INVESTING SURPLUS CASH IN MARKETABLE SECURITIES

There is a close relationship between cash and money market securities or other short-term
investment alternatives. Investment in these alternatives should be properly managed. Excess
cash should normally be invested in those alternatives that can be conveniently and promptly
converted into cash. Cash more than the requirement of operating cash balance may be held for
two reasons. First, the working capital requirements of the firm fluctuate because of the elements
of seasonality and business cycles. The excess cash may build up during slack seasons but it
would be needed when the demand picks up. Thus, excess cash during slack season is idle
temporarily, but has a predictable requirement later. Second, excess cash may be held as a buffer
to meet unpredictable financial needs. A firm holds extra cash because cash flows cannot be
predicted with certainty. Cash balance held to cover the future exigencies is called
the precautionary balance and is usually invested in the short-term money market investments
until needed. Instead of holding excess cash for the above-mentioned purpose, the
firm may meet its precautionary requirements as and when they arise by making short-term

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borrowings. The choice between the short-term borrowings and liquid assets holding will depend
upon the firm’s policy regarding the mix of short-term financing.

The excess amount of cash held by the firm to meet its variable cash requirements and future
contingencies should be temporarily invested in marketable securities, which can be regarded as
near moneys. Several marketable securities may be available in the market. The financial
manager must decide about the portfolio of marketable securities in which the firm’s surplus
cash should be invested. Types of Short-term Investment Opportunities The following short-term
investment opportunities are available to companies in India to invest their temporary cash
surplus:

 Treasury bills -- Treasury bills (TBs) are short-term government securities. The usual practice
in India is to sell treasury bills at a discount and redeem them at par on maturity. The difference
between the issue price and the redemption price, adjusted for the time value of money is return
on treasury bills. They can be bought and sold any time; thus, they have liquidity. Also, they do
not have the default risk.

 Commercial papers – Commercial papers (CPs) are short-term, unsecured securities issued by
highly credit worthy large companies. They are issued with a maturity of three months to one
year. CPs are marketable securities, and therefore, liquidity is not a problem.

 Certificates of deposits – Certificates of deposits (CDs) are papers issued by banks

acknowledging fixed deposits for a specified period of time. CDs are negotiable
instruments that make them marketable securities.

 Bank deposits – A firm can deposit its temporary cash in a bank for a fixed period of time. The
interest rate depends on the maturity period. For example, the current interest rate for a 30 to 45
days deposit is about 3 percent and for 180 days to one year is about 6- 7 percent. The default
risk of the bank deposits is quite low since the government owns most banks in India.

 Inter-corporate deposits – Inter-corporate lending borrowing or deposits (ICDs) is a popular

short-term investment alternative for companies in India. Generally, a cash surplus
company will deposit (lend) its funds in a sister or associate company or with outside companies
with high credit standing. In practice, companies can negotiate inter-corporate borrowing or
lending for very short periods. The risk of default is high, but returns are quite attractive.

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 Money market mutual funds – Money market mutual funds (MMMFs) focus on short-term
marketable securities such as TBs, CPs, CDs, or call money. They have a minimum lock-in
period of 30 days, and after this period, an investor can withdraw his or her money any time at a
short notice or even across the counter in some cases. They offer attractive yields; yields are
usually 2 percent above than on bank deposits of same maturity. MMMFs are of
recent origin in India, and they have become quite popular with institutional investors and some
companies.

Cash Management Services generally offered

The following is a list of services generally offered by banks and utilized by larger businesses
and corporations:

 Account Reconcilement Services: Balancing a checkbook can be a difficult process fora

very large business, since it issues so many checks it can take a lot of
human monitoring to understand which checks have not cleared and therefore
what the 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 as
positive pay.

 Advanced Web Services: Most banks have an Internet-based system which is more
advanced than the one available to consumers. This enables managers to create and
authorize special internal logon credentials, allowing employees to send wires and access
other cash management features normally not found on the consumer web site.

 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.

 Automated Clearing House: services are usually offered by the cash

management division of a bank. The Automated Clearing House is an
electronic system used to transfer funds between banks. Companies use this to pay

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 others, especially employees (this is how direct deposit works). Certain companies also
use it to collect funds from customers (this is generally how automatic payment
plans work). This system is criticized by some consumer advocacy groups, because
under this system banks assume that the company initiating the debit is correct until
proven otherwise.

 Balance Reporting Services: Corporate clients who actively manage their cash balances
usually subscribe to secure web-based reporting of their account and
transaction information at their lead bank. These sophisticated compilations of banking
activity may include balances in foreign currencies, as well as those at other banks. They
include 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.

 Cash Concentration Services: Large or national chain retailers often are in areas where
their primary bank does not have branches. Therefore, they open bank accounts at various
local banks in the area. To prevent funds in these accounts from being idle and not
earning sufficient interest, many of these companies have an agreement set with their
primary bank, whereby their primary bank uses the Automated Clearing
House to electronically "pull" the money from these banks into a single interest-
bearing bank account.

 Lockbox services: Often companies (such as utilities) which receive a large number of
payments via checks in the mail have the bank set up a post office box for them, open
their mail, and deposit any checks found. This is referred to as a "lockbox" service.

 Positive Pay: Positive pay is a service whereby the company electronically shares its
check register of all written checks with the bank. The bank therefore will only pay
checks listed in that register, with the same specifications as listed in the register
(amount, payee, serial number, etc.). This system dramatically reduces check fraud.

 Sweep Accounts are typically offered by the cash management division of a bank.
Under this system, excess funds from a company's bank accounts are

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 automatically moved into a money market mutual fund overnight, and then
moved back the next morning. This allows them to earn interest overnight. This is the
primary use of money market mutual funds.

 Zero Balance Accounting: can be thought of as somewhat of a hack. Companies with

large numbers of stores or locations can very often be confused if all those stores are
depositing into a single bank account. Traditionally, it would be impossible to know
which deposits were from which stores without seeking to view images of those deposits.
To help correct this problem, banks developed a system where each store is given their
own bank account, but all the money deposited into the individual store accounts are
automatically moved or swept into the company's main bank account. This allows the
company to look at individual statements for each store. U.S. banks are
almost all converting their systems so that companies can tell which store made a
deposit, even if these deposits are all deposited into a single account. Therefore, zero
balance accounting is being used less frequently.

 Wire Transfer: A wire transfer is an electronic transfer of funds. Wire transfers can be
done by a simple bank account transfer, or by a transfer of cash at a cash office. Bank
wire transfers are often the most expedient method for transferring funds between bank
accounts. A bank wire transfer is a message to the receiving bank requesting them to
effect payment in accordance with the instructions given. The message also includes
settlement instructions. The actual wire transfer itself is virtually instantaneous, requiring
no longer for transmission than a telephone call.

 Controlled Disbursement: This is another product offered by banks under

Cash Management Services. The bank provides a daily report, typically early in the day,
that provides the amount of disbursements that will be charged to the customer's account.
This early knowledge of daily funds requirement allows the customer to invest
any surplus in intraday investment opportunities, typically money market investments.
This is different from delayed disbursements, where payments are issued
through a remote branch of a bank and customer can delay the payment due to
increased float time. In the past, other services have been offered the usefulness of which
has diminished with the rise of the Internet. For example, companies could have daily

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 faxes of their most recent transactions or be sent CD-ROMs of images of their cashed
checks.

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:

i. To eliminate idle cash balances. Every dollar held as cash rather than used to
augment 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.

ii. To deposit collections timely. Having funds in-hand is better than having accounts
receivable. The cash is easier to convert immediately into value or goods. A receivable,
an item to be converted in the future, often is subject to a transaction delay or a
depreciation of value. Once funds are due to the Government, they should be converted
to cash-in-hand immediately and deposited in the Treasury's account as soon as possible.

iii. 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.

Company Profile

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History of Banking in India
Without a sound and effective banking system in India it cannot have a healthy economy. The
banking system of India should not only be hassle free, but it should be able to meet new
challenges posed by the technology and any other external and internal factors. For the past three
decades India’s banking system has several outstanding achievements to its credit. The most
striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in
India. In fact, Indian banking system has reached even to the remote corners of the country. This
is one of the main reasons for India’s growth. The government’s regular policy for Indian bank
since 1969 has paid rich dividends with the nationalization of 14 major private banks of India.
The first bank in India, though conservative, was established in 1786. From 1786 till today, the
journey of Indian Banking System can be segregated into three distinct phases. They are as
mentioned below:

i. Early phase from 1786 to 1969 of Indian Banks.

ii. Nationalization of Indian Banks and up to 1991 prior to Indian. Banking sector Reforms.

iii. New phase of Indian Banking System with the advent of Indian.

iv. Financial & Banking Sector Reforms after 1991.

SBI Group

27 | P a g e
The Bank of Bengal, which later became the State Bank of India. State Bank of India with its
seven associate banks commands the largest banking resources in India.

Nationalization

The next significant milestone in Indian Banking happened in late 1960s when the then Indira
Gandhi government nationalized on 19th July 1949, 14 major commercial Indian banks followed
by nationalization of 6 more commercial Indian banks in 1980.The stated reason for the
nationalization was more control of credit delivery. After this, until1990s, the nationalized banks
grew at a leisurely pace of around 4% also called as the Hindu growth of the Indian economy.
After the amalgamation of New Bank of India with Punjab National Bank, currently there are 19
nationalized banks in India.

Liberalization

In the early 1990’s the then Narasimha Rao government embarked a policy of liberalization and
gave licenses to a small number of private banks, which came to be known as New generation
tech-savvy banks, which included banks like ICICI and HDFC. This move along with the rapid
growth of the economy of India, kick started the banking sector in India, which has seen rapid
growth with strong contribution from all the sectors of banks, namely Government banks, Private
Banks and Foreign banks. However there had been a few hiccups for these new banks with many
either being taken over like Global Trust Bank while others like Centurion Bank have found the
going tough. The next stage for the Indian Banking has been set up with the proposed relaxation
in the norms for Foreign Direct Investment, where all Foreign Investors in Banks may be given
voting rights which could exceed the present cap of 10%, at present it has gone up to 49% with
some restrictions. The new policy shook the Banking sector in India completely. Bankers, till
this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of
functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for
traditional banks. All this led to the retail boom in India. People not just demanded more from
their banks but also received more.

Current Scenario

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SBI is the 43rd largest bank in the world and ranked 221st in the Fortune Global 500 list of the world's
biggest corporations of 2020, being the only Indian bank on the list. A nationalised bank, it is the largest
in India with a 23% market share by assets and a 25% share of the total loan and deposits market.

Domestic presence

Samriddhi Bhavan,  Kolkata

SBI has over 24000 branches in India. In the financial year 2012–13, its revenue was ₹2.005 tril-
lion (US$28 billion), out of which domestic operations contributed to 95.35% of revenue. Similarly, domestic
operations contributed to 88.37% of total profits for the same financial year.

Under the Pradhan Mantri Jan Dhan Yojana of financial inclusion launched by Government in August 2014,
SBI held 11,300 camps and opened over 3 million accounts by September, which included 2.1 million ac-
counts in rural areas and 1.57 million accounts in urban areas.

International presence

State Bank of India branch located in Ramat Gan, Israel

As of 2014–15, the bank had 191 overseas offices spread over 36 countries having the largest presence in for-
eign markets among Indian banks.[17]

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In 1989, SBI established an offshore bank, State Bank of India International (Mauritius) Ltd. This then amalga-
mated with The Indian Ocean International Bank (which had been doing retail banking in Mauritius since
1979) to form SBI (Mauritius) Ltd. Today, SBI (Mauritius) Ltd has 14 branches – 13 retail branches and 1
global business branch at Ebene in Mauritius.[18] SBI Sri Lanka now has three branches located
in Colombo, Kandy and Jaffna. The Jaffna branch was opened on 9 September 2013. SBI Sri Lanka is the old-
est bank in Sri Lanka; it was founded in 1864.

State Bank of India branch at Southall, United Kingdom

In 1982, the bank established a subsidiary, State Bank of India, which now has ten branches—nine branches in
the state of California and one in Washington, D.C. The 10th branch was opened in Fremont, California on 28
March 2011. The other eight branches in California are located in Los Angeles, Artesia, San Jose, Canoga
Park, Fresno, San Diego, Tustin and Bakersfield.

In Nigeria, SBI operates as INMB Bank. This bank began in 1981 as the Indo–Nigerian Merchant Bank and re-
ceived permission in 2002 to commence retail banking. It now has five branches in Nigeria. In Nepal, SBI
owns 55% of "Nepal SBI Bank Limited". (The state-owned Employees Provident Fund of Nepal owns 15%
and the general public owns the remaining 30%.) Nepal SBI Bank Limited has branches throughout the coun-
try.

In Moscow, SBI owns 60% of Commercial Bank of India, with Canara Bank owning the rest. In Indonesia, it
owns 76% of PT Bank Indo Monex. State Bank of India already has a branch in Shanghai and plans to open
one in Tianjin.[19] In Kenya, State Bank of India owns 76% of Giro Commercial Bank, which it acquired
for US$8 million in October 2005.[20] In January 2016, SBI opened its first branch in Seoul, South Korea.

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Banking in India

1 Central Bank Reserve bank of India

2 Nationalized Bank State Bank of India, Allahabad Bank, Andhra Bank, Bank of Baroda,
Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of
India, Corporation Bank, Dena Bank, Indian Bank, Indian overseas
Bank, Oriental Bank of Commerce, Punjab and Sind Bank,
Punjab National Bank, Syndicate Bank, Union Bank of India, United
Bank of India, UCO Bank, and Vijaya Bank

31 | P a g e
 3 Private Banks Bank of Rajasthan, Bharat overseas Bank, Catholic Syrian Bank,
Centurion Bank of Punjab, City Union Bank, Development
Credit Bank, Dhana Laxmi Bank, Federal Bank, Ganesh Bank of
Karonda , HDFC Bank, ICICI Bank, IDBI, IndusInd Bank, ING
Vysya Bank, Jammu and Kashmir Bank, Karnataka Bank
Limited, Karur Vysya Bank, Kotak Mahindra Bank, Lakshmi Vilas
Bank, Lord Krishna Bank, Niantic Bank, Ratnakar Bank, Sangli Bank,
SBI Commercial and International Bank, South Indian Bank, Tamil
Nadu Mercantile Bank Ltd., United Western Bank, UTI Bank, YES
Bank.

Structure of Indian Banking

Reserve Bank of India is the regulating body for the Indian Banking Industry. It is a mixture of
Public sector, Private sector, Co-operative banks, and foreign banks. The private sector banks are
further spilt into old banks and new banks

32 | P a g e
Bank Overview
STATE BANK OF INDIA

Not only many financial institution in the world today can claim the antiquity and majesty of the
State Bank Of India founded nearly two centuries ago with primarily intent of imparting stability
to the money market, the bank from its inception mobilized funds for supporting both the public

33 | P a g e
credit of the companies governments in the three presidencies of British India and the private
credit of the European and India merchants from about 1860s when the Indian economy book a
significant leap forward under the impulse of quickened world communications and ingenious
method of industrial and agricultural production the Bank became intimately in valued in the Old
Private financing of practically and mining activity of the Sub- Continent Although large
European and Indian merchants and manufacturers were undoubtedly thee principal
beneficiaries, the small man never ignored loans as low as Rs.100 were disbursed in agricultural
districts against gold ornaments. Added to these the bank till the creation of the Reserve Bank in
1935 carried out numerous Central – Banking functions.

Adaptation world and the needs of the hour has been one of the strengths of the Bank, In the
post-depression exe. For instance – when business opportunities become extremely restricted,
rules laid down in the book of instructions were relined to ensure that good business did not go
post. Yet seldom did the bank contravene its value as depart from sound banking principles to
retain as expand its business. An innovative array of office, unknown to the world then, was
devised in the form of branches, subbranches, treasury pay office, pay office, sub pay office and
out students to exploit the opportunities of an expanding economy. New business strategy was
also evaded way back in 1937 to render the best banking service through prompt and courteous
attention to customers.

A highly efficient and experienced management functioning in a well-defined organizational

structure did not take long to place the bank an executed pedestal in the areas of business,
profitability, internal discipline and above all credibility An impeccable financial status
consistent maintenance of the lofty traditions if banking an observation of a high standard of
integrity in its operations helped the bank gain a pre- eminent status. No wonders the
administration for the bank was universal as key functionaries of India successive finance
minister of independent India Resource Bank of governors and representatives of chamber
of commercial showered economics on it.

Modern day management techniques were also very much evident in the good old day’s years
before corporate governance had become a puzzled the banks bound functioned with a high
degree of responsibility and concerns for the shareholders. An unbroken record of profits and a
fairly high rate of profit and fairly high rate of dividend all through ensured

34 | P a g e
satisfaction, prudential management and asset liability management not only protected the
interests of the Bank but also ensured that the obligations to customers were not met. The
traditions of the past continued to be upheld even to this day as the State Bank years itself to
meet the emerging challenges of the millennium.

About Logo

35 | P a g e
Togetherness is the theme of this corporate loge of SBI where the world of banking services
meets the ever-changing customers’ needs and establishes a link that is like a circle, it indicates
complete services towards customers. The logo also denotes a bank that it has prepared to do
anything to go to any lengths, for customers. The blue pointer represents the philosophy of the
bank that is always looking for the growth and newer, more challenging, more promising
direction. The keyhole indicates safety and security.

Mission Statement:

To retain the Bank’s position as premiere Indian Financial Service Group, with world class
standards and significant global committed to excellence in customer, shareholder and employee
satisfaction and to play a leading role in expanding and diversifying financial service sectors
while containing emphasis on its development banking rule.

Vision statement

 Premier Indian Financial Service Group with prospective world-class

Standards of efficiency and professionalism and institutional values

36 | P a g e
  Retain its position in the country as pioneers in Development banking.

 Maximize the shareholders’ value through high-sustained earnings per Share.

 An institution with cultural mutual care and commitment, satisfying and

 Good work environment and continues learning opportunities.

VALUES

 Excellence in customer service

 Profit orientation

 Belonging commitment to Bank

 Fairness in all dealings and relations

 Risk taking and innovative

 Team playing

 Learning and renewal

 Integrity

 Transparency and Discipline in policies and systems.

Cash Management at State Bank of India

Cash Management As part of State Bank's global transaction solutions to
Corporates and Institutions, we provide Cash Management, Securities Services and Trade
Services through our strong market networks in Asia. We are committed to providing you with

 Integrated, superior cross-border and local services

 Efficient transaction processing o Reliable financial information

 Innovative products

37 | P a g e
  World-class clearing services thus ensuring a full suite of transactional products for
your needs.

For Corporates

State Bank is highly recognized as a leading cash management supplier across the emerging
markets. Our Cash Management Services cover local and cross border Payments, Collections,
Information Management, Account Services and Liquidity Management for both corporate and
institutional customers. With State Bank's Cash Management services, you will always know
your exact financial position. You have the flexibility to manage your company's complete
financial position directly from your computer workstation. You will also be able to take
advantage of our outstanding range of Payments, Collections, Liquidity, and Investment
Services and receive comprehensive reports detailing your transactions. With State Bank, you
have everything it takes to manage your cash flow more accurately.

i. Payments Services

ii. Collection Services

iii. Liquidity Management

For Financial Institutions

Standard Chartered is highly recognized as a leading cash management supplier

across the emerging markets. Our Cash Management Services cover local and cross
border Payments, Collections, Information Management, Account Services and Liquidity
Management for both corporate and institutional customers. If you are looking for a
correspondent banking partner you can trust, Standard Chartered can help you. We have more
than 500 offices located in 50countries throughout the world and, with 150 years of on-the-
ground experience, we can help our bank clients with all their cash management needs.

 Clearing Services

 Asian Gateway

Payment Services: Global payments solution for efficient transaction processing Looking to
outsource your payments to enable:

38 | P a g e
  Efficient processing of all your payables in the most cost-effective way

 Straight through processing both at your end as well as your bank's back-end

 Efficient payables reconciliation with minimal effort and delay

 Quick approval of payments from any location o Minimum hindrance to automation

due to local language difficulties

 Centralized management of payables across departments, subsidiaries, and countries

Our Solution

State Bank's Straight Through Services (STS) Payments Solution can be tailored to the different
payment needs of companies, whatever industry, size or country you may be in.With a
comprehensive End-to-end Payment Processing Cycle, STS allows companies to process a
variety of payment types, whether they be domestic or international, local or central in different
countries, all in a single system file. To realize the benefits of STS, please contact your local
Relationship Manager or Cash Management representative. Our Coverage We are the foreign
bank having the largest geographical representation in the country. We are the only bank which
provides draft status to you on the website.

Collection Services

Comprehensive receivables management solution State Bank understands that operating and
sustaining a profitable business these days is extremely tough. In an environment of constant
changes and uncertainties, most businesses face challenges of costs and efficiency. Key concerns
include:

 Receivables Management - ensuring receivables are collected in an efficient and timely

manner to optimize utilization of funds.

 Risk Management - ensuring effective management of debtors to eliminate risk of

returns and losses caused by defaulters and delayed payments

 Inventory Management - ensuring efficient and quick turnaround of

inventory to maximize returns.

39 | P a g e
  Cost Management - reducing interest costs through optimal utilization of funds.

Our Solution

The State Bank Collections Solution leverages the Bank’s extensive regional knowledge
and widespread branch network across our key markets to specially tailor solutions for your
regional and local collection needs. This Collections Solution, delivered through a standardized
international platform, has the flexibility to cater to your local needs, thus enabling you to meet
your objectives of reducing costs and increasing efficiency and profitability through better
receivables and risk management. The key components of our solution include the
following:

 Extensive Clearing Network

 Guaranteed Credit

 Comprehensive MIS

 System Integration

 Outsourcing of Collection

Liquidity Management

Solutions for efficient management of your funds A corporate treasurer's main challenge often
revolves around ensuring that the company's cash resources are utilized to their
maximum advantage. You need a partner bank that can help you: o Maximize interest
income on surplus balances; minimize interest expense on deficit balances for
domestic, regional and global accounts to Minimize FX conversion for cross-currency cash
concentration of Customize liquidity management solutions for different entities in different
countries to Centralize information management of consolidated account balances Our Solution
With our global experience and on-the-ground market knowledge, State Bank will help you
define an overall cash management strategy which incorporates a liquidity management
solution that best meets your needs. Key Features Based on your needs and the regulatory
environment that you are in, you can choose any of the following features: o Physical Sweeping
o Notional Pooling Liquidity Management in Measuring and managing the liquidity needs are

40 | P a g e
vital for effective operation of commercial banks. By assuring a bank's ability to
meet its liabilities as they become due, liquidity management can reduce the probability
of an adverse situation developing. The importance of liquidity transcends individual
institutions, as liquidity shortfall in one institution can have repercussions on the entire
system. Bank managements should measure, not only the liquidity positions of banks on an
ongoing basis, but also examine how liquidity requirements are likely to evolve under different
conditions. Banks are in the business of maturity transformation. They lend for longer time
periods, as borrowers normally prefer a longer time frame. But their liabilities are typically
short term in nature, as lenders normally prefer a shorter time frame (liquidity preference). This
results in long-term interest rates typically exceeding short-term rates. Hence, the incentive for
banks for performing the function of financial intermediation is the difference between interest
receipt and interest cost which is called the interest spread. It is implicit, therefore, that banks
will have mismatched balance sheet, with liabilities greater than assets in short term, and with
assets greater than liabilities in the medium and long term. These mismatches, which represent
liquidity risk, are with respect to various time horizons. Hence, the overwhelming concern of a
bank is to maintain adequate liquidity.

Liquidity has been defined as the ability of an institution to replace liability run off and fund
asset growth promptly and at a reasonable price. Maintenance of superfluous liquidity will,
however, impact profitability adversely. It can also be defined as the comprehensive ability of a
bank to meet liabilities exactly when they fall due or when depositors want their money back.
This is a heart of the banking operations and distinguishes a bank from other entities. Cash
Reserve Ratio A scheduled bank is under the obligation to keep a cash reserve called the
Statutory Cash Reserve, with the Reserve Bank of India (RBI) under Section 42 of the
Reserve Bank of India Act, 1934.

Every scheduled bank is required to maintain with the Reserve Bank an average daily balance
equal to least 3% of its net demand and time liabilities. Average daily balances mean the
average of balances held at the close of business on each day of the fortnight. The Reserve
Bank is empowered to increase the rate of Statutory Cash Reserve from 3% to 20% of the Net
Demand and Time Liabilities (NDTL).Statutory Liquidity Ratio Section 24(2A) of Banking
Regulation Act, 1949, requires every banking company to maintain in India in Cash, Gold or

41 | P a g e
Unencumbered Approved Securities or in the form of net balance in current accounts
maintained in India by the bank with a nationalized bank, equivalent to an amount which shall
not at the close of the business on any day be less than 25% or such other percentage not
exceeding 40% as the RBI may from time to time, by notification in the Gazette of India,
specify, of the total of its demand and time liabilities in India as on the last Friday of the second
preceding fortnight, which is known as SLR.

At present, all Scheduled Commercial Banks are required to maintain a uniform SLR of 25%
of the total of their demand and time liabilities in India as on the last Friday of the second
preceding fortnight which is stipulated under Section 24 of the RBI Act, 1949. RBI can
enhance the stipulation of SLR (not exceeding 40%) and advise the banks to keep a large
portion of the funds mobilized by them in liquid assets, particularly government and other
approved securities. As a result, funds available for credit would get reduced.

All banks must maintain a certain portion of their deposits as SLR and must invest that amount
in these Government securities. Government securities are sovereign securities. These are
issued by the RBI on behalf of the Government of India, in lieu of the Central Government's
market borrowing program. The term government securities include:

Government Dated Securities, i.e., Central Government Securities State Government Securities
Treasury Bills. The Central Government borrows funds to finance its fiscal deficit. The market
borrowing of the Central Government is raised through the issue of dated securities and 364
days Treasury Bills, either by auction or by floatation of fixed coupon loans.

In addition to the above, Treasury Bills of 91 days are issued for managing the temporary cash
mismatches of the government. These do not form part of the borrowing program of the Central
Government.

Based on the required CRR and SLR per day, the treasury department of the bank ensures that
sufficient balance is maintained in the Reserve Bank (at its different branches).
The fund manager calculates daily the RBI balances based on opening RBI balances and
considering various inflows and outflows during the day. The fund manager takes the summary
of inflows and outflows and the net effect is added to/subtracted from the opening RBI
balances. By this method, an RBI balance of all the 14 days is arrived at. For instance, on the

42 | P a g e
opening day of the fortnight, if there is an anticipated surplus, banks can generally lend it at an
average, subject to subsequent inflows/outflows. Conversely, for a shortfall, the bank may
borrow the required amount in call/repo/Collateralized Borrowings and Lending
Obligations (CBLO)markets daily.

Successful functioning of the funds department depends mostly on the prompt collection of
information from branches/other departments regarding the inflow and outflow of funds. The
information should also be collected accurately and collated properly/correctly.
Improper maintenance of liquidity and CRR position by the fund manager may lead to either a
default Oran excess which does not earn any interest for the bank.

A Framework for Measuring and Managing Liquidity

Measuring and managing liquidity needs are vital for effective operation of commercial banks.
By assuring a bank's ability to meet its liabilities as they become due, liquidity management can
reduce the probability of an adverse situation developing. The importance of liquidity
transcends individual institutions, as liquidity shortfall in one institution can have
repercussions on the entire system. Bank managements should measure not only the liquidity
positions of banks on an ongoing basis, but also examine how liquidity requirements are likely
to evolve under different assumptions. Experience shows that assets like government securities
and other money market instruments, which are generally treated as liquid could also become
illiquid when the market and players are unidirectional. Therefore, liquidity must be tracked
through maturity or cashflow mismatches.

The framework for assessing and managing bank liquidity has three dimensions:

 Measuring and managing net funding requirements

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  Managing market access and

 Contingency planning.

SWOC analysis of SBI

SBI has its roots since 1806 which was later transformed under various names, finally SBI Was
established after the act in parliament in May 1955. In the year 1959 SBI took over 8 state
owned banks and since then it started to grow up carrying its heritage of servicing people at
various economic levels.

Strengths in the SWOC analysis of SBI

SBI is the largest bank in India in terms of market share, revenue, and assets.

As per recent data the bank has more than 13,000 outlets and 25,000 ATM centers

The bank has its presence in 32 countries engaging currency trade all over the world

The bank has a merged with State Bank of Saurashtra, State bank of Indore and the bank is
planning to go further acquisition in the current FY2012.

SBI has the first mover advantage in commercial banking service

SBI has recently changed its vision and mission statements showing a sign of inclination
towards new age banking services

Weaknesses in the SWOC analysis of SBI

Lack of proper technology driven services when compared to private banks

Employees show reluctance to solve issues quickly due to higher job security and customers’
waiting period is long when compared to private banks

The banks spend a huge amount on its rented buildings

SBI has the largest number of employees in banking sector, hence the bank spends a
considerable amount of its income in employee’s salary compensation

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Despite modernization, the bank still carries the perception of traditional bank to new age
customers

SBI fails to attract salary accounts of corporate and many government sector employee’s salary
accounts are also shifted to private bank for ease of operations unlike before

Opportunities in the SWOC analysis of SBI

SBI’s merger with five more banks namely State Bank of Hyderabad, State bank of Patiala,
State bank of Bikaner and Jaipur, State of bank of Travancore and State bank of Mysore are in
approval stage

Mergers will result in expansion of market share to defend its number one position

SBI is planning to expand and invest in international operations due to good inflow of money
from Asian Market

Since the bank is yet to modernize few of its banking operations, there is a better scope of using
advanced technologies and software to improve customer relations

Young and talented pool of graduates and B schools are in rise to open new horizon to so called
“old government bank”

Challenges in the SWOC analysis of SBI

Net profit of the year has decline from 9166.05 in the year FY 2010 to 7,370.35 in the year
FY2011

This shows the reduce in market share to its close competitor ICICI

Other private banks like HDFC, AXIS bank etc.

FDIs allowed in banking sector is increased to 49%, this is a major threat to SBI as people tend
to switch to foreign banks for better facilities and technologies in banking service

Other government banks like PNB, Andhra, Allahabad bank and Indian bank are showing

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Customers prefer to switch to private banks and financial service providers for loans and
mortgages, as SBI involves stringent verification procedures and take long time for processing.

CHAPTER 2-Research
Methodology :

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Type of Data collected:

There are two types of data used. They are primary and secondary data. Primary data is defined
as data that is collected from original sources for a specific purpose. Secondary data is data
collected from indirect sources.

Primary Sources:

These include the survey or questionnaire method, as well as the personal interview methods of
data collection.

Secondary Sources:

These include books, the internet, company brochures, the company website,
competitor’s websites, newspaper articles etc.

Sampling method:
Sampling refers to the method of selecting a sample from a given universe with a view to draw
conclusions about that universe. A sample is a representative of the universe selected for study.
The sample size is 20

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48 | P a g e
 CHAPTER4-Data
Analysis and
Interpretation

Q1. On which bank you depend for your regular transaction?

SBI 65%
ICIC 28%
HDFC 5%

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 OTHER 2%
Total number of people 100%

Analysis of the above diagram

It has been observed that approximately 65% correspondents are using the service of SBI for
their daily transaction, around 28% of people are using ICICI Bank for their transaction and
only5% & 2% of people are using HDFC & other Bank service respectively in
Kumaraswamy Layout. It also shows that SBI have the highest market position in Kumaraswamy
Layout as per my sample.

Q2. Are you aware of products & services provided by SBI?

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 Yes 80%

No 20%

Total no of people 100%

Analysis of the above diagram

From the above data it is clear that most of the customers (around 80%) of K.S.layout have the
idea about the product & services of SBI, the rest 20% have the idea about the product they are
using.

Q3. Are you aware of SBI’s straight to bank services?

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Yes 55%
No 45%
Total number of people 100%

Analysis of the above diagram

It is very good for SBI as most of the companies are aware of the cash management services
provided by the bank. The bank can investigate companies as to propose its services to
the concerned company personals.

Q4. Are you satisfied with your company services?

Yes 65%
No 35%

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 Total number of people 100%

Analysis of the above diagram

From the above analysis it can be interpreted that most of the companies were satisfied by their
CMS provider but still they found few areas of improvement, SBI can give solutions for those
areas.

Q5. What are your main modes of premium collection?

Cash 20%
Cheque 75%

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 Demand draft 5%
Total number of people 100%

Demand
draft 5%

Cash 20%

Cheque 75%

Analysis of the above diagram

Most of the companies accept premium in the form of cheque as it is a safer instrument than cash
and is easily handled as compared to demand draft SBI can provide various chequecollections
options to the companies.

Q6. What are your main modes making payments?

Cheque 80%
Cash 15%
Demand draft 5%

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 Total number of people 100%

Analysis of the above diagram Like premium most of the companies distribute their payments
through cheques only DD and cash are made out under special circumstances.

Q7. Does the financial crisis during covid pandemic affect your functioning here in INDIA?

Yes 70%
No 30%

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 Total number of people 100%

During this lockdown, the banking sector was the one that went much worse.

However, banks were given directions to be open to service customers and came under essential
service.

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 CHAPTER5-
FINDINGS
How to maintain liquidity during the coronavirus pandemic?
The coronavirus outbreak has resulted in a major cash flow challenge for the small and mid-sized
companies that have seen business dry up as normal economic activity comes to a standstill.

Many small businesses such as restaurants, bars, gyms, and salons have been forced to shutter
amid government-declared lockdowns while others have seen customer demand plummet as
people isolate at home to avoid social contact.

The biggest immediate challenge for these companies is that the cash flow simply is not there,
says Magnus Fronses Krogstad, Head of Business Insight Norway at Nordea, who advises
companies on cash management and liquidity issues.

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“Liquidity is at the core when income disappears,”

i. Liquidity, liquidity, liquidity

Krogstad says the first step for companies facing a cash-flow strain is to get an accurate
overview of their liquidity situation. How much liquidity do you have, where is it and in which
currencies? With that in hand, companies should come up with a list of tangible actions they can
take to improve their liquidity. See several potential actions to consider in the accompanying fact
box.

With these options in mind, companies can then map out several different scenarios. For
example:

How long can we survive in the “as is” situation with our current liquidity position?

How long will our cash position take us if we do actions (a) and (b)?

How long will we survive if we do actions (a), (b) and (c)?

“The ideal scenario would give you a comfortable liquidity runway. It’s up to each company to
decide how long that runway should be in this situation,” Krogstad says. He also cautions that
most of these actions focus on cost-cutting, which also carries the hidden cost of making it more
difficult to ramp up again when the crisis ends. Also keep in mind that some of the usual
parameters have likely changed in the current situation. For example, tax payments that have
typically been highly prioritized may now have extended deadlines under some countries’
government support packages. So, reassess what you do and do not need to pay when and
reprioritize accordingly.

See this overview from Nordea Research of some of the measures Nordic governments have
already adopted to try to contain the economic fallout of the corona crisis.

ii. Communicate, communicate, communicate

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It is crucial to open the lines of communication with all relevant stakeholders as early as
possible, says Krogstad.

Start a dialogue with your creditors as soon as possible. Explain your situation and see if they are
willing to alter the terms of your obligation. Reach out to your bank to discuss instalment-free
periods. Nordea, for example, has decided to offer six-month instalment-free periods to small
and medium companies in need of help due to the coronavirus outbreak, as well as other credit
facilities.

Also enter a dialogue with your suppliers. They will likely benefit if you survive this period,
Krogstad says, so it may be possible to negotiate extended payment terms. Communicate with
your existing customers and make sure they know you are still in business and able to deliver on
their purchases, he advises. See if some customers may be willing to pay ahead of schedule. In
addition, keep your staff continuously updated and involved in the situation. Be transparent with
them and acknowledge their efforts.

iii. Get creative

Nordea cash management experts Magnus Fronses Krogstad and Joakim Bergdahl host a regular
Norwegian podcast, Betalingspodden, focusing on payments and payment technologies.

Another component to liquidity, alongside cost cutting, is perhaps an obvious one: maximizing
“cash in.” That is where companies need to start getting creative and adapting to the current
situation, says Joachim Bredahl, a cash management consultant also on Nordea’s Business
Insight Norway team.

“If you can no longer engage with customers in person, then you have to go online. Now could
be the time to launch your first digital distribution channel,” he says. Some hotels and
restaurants, for example, have transitioned into online food delivery. Bergdahl also cites the
example of a hardware store that is now allowing customers to order online, drive to the store
and have their purchase dropped off into their car trunk by an employee wearing gloves.

“The challenge is to rethink your business model in order to sell things from a distance, with
minimal physical touchpoints during this period,” he says. That likely means e-commerce, social

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media campaigns and mobile payment solutions. As a bank, Nordea can help companies with
setting up payment service on a website and connecting to mobile payment schemes.

iv. Optimize your cash position

When it comes to liquidity, companies also need to ensure that the cash they do have is set up in
the most optimal way, says Bergdahl.

“You need to be aware of your currency exposure because the volatility is extreme in the FX
market these days,” he says, citing the example of the Norwegian krone, which has seen historic
falls. “Your liquidity could be hit quite hard if you owe a lot of money in a foreign currency,” he
adds. One possible solution is to use banks’ cash pool solutions, which allow companies to
combine different currency accounts into one pool of liquidity, allowing them to borrow one
currency against another currency account without doing the actual exchange. Then you can seek
advice from your bank to see if your home currency is expected to recover or if this is “a new
normal,” which translates to either hold off for a while or just make the trade. Beware, though,
that the nature of a cash pool is to calculate your cash position based on all of your available
liquidity, so do not stretch your currency exposure or you run the risk of ending up with a
negative cash position.

v. Plan for when the crisis ends

If your liquidity position allows it, there are alternatives to layoffs. Consider whether your
resources can be used in another way. For example, a hotel staff of skilled cleaners could be
dispatched in these times when there is a high demand for labour to disinfect office spaces where
COVID-19 infections have been found. Companies can also use this time to train and upskill
their employees. Don’t lose sight of the fact that the crisis will come to an end at some point,
says Krogstad. Businesses that can ramp up quickly have the potential to steal market share from
competitors that lag in the restart. Deep cost-cutting and massive layoffs will make the restart
that much harder, so keep that in mind when cutting costs today. You can hear Krogstad and
Bergdahl in their regular podcast, Betalingspodden (in Norwegian). Access it on Soundcloud or
Apple Podcasts. In this related article, Nordea’s relationship managers across the Nordics share
their insights about the biggest challenges small and mid-size businesses are facing due to the
coronavirus outbreak. And don’t miss this full overview of Nordea Research’s coronavirus-

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related research to stay on top of all the latest market developments, the policy responses from
central banks and governments as well as the impact on the global economy and our own Nordic
economies.

SBI sees drop in banking transactions during lockdown but most ATMs
running: Official

The nationwide lockdown due to coronavirus outbreak has led to a decline in banking
transactions at SBI but customers are using online and digital modes as usual, a senior official of
the state-run lender said. Online transactions are going on but overall, there is a decline in
banking activities, P K Gupta, Head of Retail, Payments & Digital Banking, State Bank of India
NSE -1.51 % (SBI) said. He mentioned that amid the lockdown, the bank is coordinating with
state and district authorities on the opening of branches and the time of operations.

"What our people are doing at the local level is that in consultation with the state governments or
with the district authorities, they are deciding on which branches to open, how many to open and
for how much time to open," Gupta told .

The government has announced banking services as "essential services" and would continue
amid the lockdown to contain Covid-19 spread. It has asked all the banks to keep only desired
number of staff at bank branches alongside promoting customers to use digital mode of
transaction to the maximum possible extent.SBI is operating through all these means in
consultation with the local district authorities and state government authorities.

He exuded confidence in keep providing the banking services to the needy at this hour even as
bank’s own staff are also facing challenges to reach their offices due to the travel restrictions.

Prime Minister Narendra Modi on Tuesday night announced a nationwide lockdown on all kinds
of activities for the next three weeks, barring essential services, in a bid to prevent social contact
and curtail the spread of the deadly coronavirus which has infected over 550 people and claimed
12 lives in India.

Time has already been given by Sebi for the delay in earning announcements by listed
companies. "It all depends on when the situation becomes normal. So, when that happens, I do

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not think declaring the results should be a big problem," said by P.K. Gupta Head of Retail,
Payments & Digital Banking State Bank of India.

CHAPTER6-
CONCLUSION &
SUGGESTION
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Suggestion:
I suggest that in this unprecedent time of pandemic State bank should try to communicate with
their customer their problem faced by them. This will help SBI providing best service in this
competitive market.

It is crucial to open the lines of communication with all the relevant stakeholder as early as
possible.

In addition, keep your staff continuously updated and involved in situation.

GO DIGITAL

If you no longer engage with customer in person, then you must go online. Promote social
distancing it may help bank in cost cutting measure and it is the best time to launch and promote
your digital platform.

SBI should focus on getting the business other business clients other than existing one as it
would help them to increase their business opportunities.

Plan for when the crisis ends

Do not lose your sight of the fact that the crisis will come to an end at some point. Businesses
that can ramp up quickly have the potential to steal the market share from the competitors that
lag. Deep cost-cutting and massive layoffs will make the restarts that much harder, so keep that
in mind when cutting costs today

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Conclusion
Finally, here I am concluding the project Almost all customers once educated about the service
readily enrolled for it whereas a mere portion did not would have they are not putting forward
Many clients who enrolled for the staright2bank service would have problems using it as the
drop boxes are not strategically placed many areas do not even have drop box facility; State
Bank must look into the policies of installing the drop box. They should assign it to the regional
office or allow branches to put up boxes where the branch thinks it would be optimally utilized
no matter which area of the city as of now that branches are allowed to put up drop boxes in a
radius which falls in close by areas to the branch. A customer who lives close by to the branch
would not use this service whereas customers who are far of require the service, however the
branch cannot provide them with the facility as they cannot install the boxes in that area and it is
the duty of the local branch of that area to put up boxes which is not happening they hardly know
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where customers of the other branch are located. There are six ways that your finance operation
can unlock during this corona pandemic

i. Make account payable strategic and intelligent.

ii. Strengthen and accelerate receivables
iii. Tackle inventory management head on.
iv. Take another look at supply chain financing.
v. Audit payable and receivable transactions.
vi. Enable an end to end cash conversion cycle and sharper forecasting.

Bibliography

i. https://www.marketing91.com/swot-analysis-sbi/
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 ii. https://www.lopol.org/article/sbi-fast-funds-available-in-shortest-time-cash-
management

iii. https://en.wikipedia.org/wiki/Cash_management

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