UNDER THE GUIDANCE OF

Shri Arun Kumar Sharma

Deputy Manager (finance)
IOCL,Northern Region
Delhi

1
 CERTIFICATE OF THE GUIDE

This is to certify that the Project Work titled “study of Banking operations in Indian oil
corporation ltd. And the effectiveness of CMP(cash management product)” is a bonafide
work of Ms Sarita Mahapatra Carried out in partial fulfilment for the award of degree of
MBA of Indian institute of planning and management,Delhi under my guidance. This
project work is original and not submitted earlier for the award of any degree / diploma or
associateship of any other University / Institution.

Date :28 may 2008 Signature of the Guide

:
(Mr. Arun Sharma)
Deputy manager finance
Indian oil corporation ltd.
Northern region
Yusuf Sarai , Delhi

2
 STUDENTS’ DECLARATION

I, Ms Sarita Mahapatra hereby declare that the Project Work titled “study of Banking
operations in Indian oil corporation ltd. And the effectiveness of CMP(cash management
product)”is the original work done by me and submitted to the Indian Institute of
planning and management,Delhi in partial fulfilment of requirements for the award of
Master of Business Administration in finance is a record of original work done by me
under the supervision of Sri Arun Sharma of Indian Oil corporation ltd.

Date : 28 may 2008

(Signature of the Student)

3
 ACKNOWLEDGEMENTS

I am extremely thankful to shri Arun sharma ,finance manager,Indian oil corporation

ltd,Northern region,Delhi , for his extreme support,guidance and patience ,without which
it would not have been possible for me to accomplish this project.

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 EXECUTIVE SUMMARY
The effectiveness of any organization depends upon the management of its finance
operations.The Indian Oil corporation ltd.has identified this as a key area and has set up a
benchmark in bringing about centralized financial operations across the country by taking
advantage of the latest technology – ERP and SAP. All the offices of Indian Oil
corportation ltd. Are SAP enabled which allows effective and quick transactions and
subsequent recording by minimizing any kind of error that might arise in the process.
Another important application is that of the CMP(cash management product),which is in
collaboration with the State Bank of India,helps in enhancing liquidity,centralized control
of the cash and cost reduction apart from other advantages like cash forecasting and
scheduling.The Indian oil corporation ltd.has 4 different divisions in four zones namely
northern region , western region , southern region , and eastern region.
Each region has its different state offices with a unique code meant for banking
operations. All the cash that is collected is first sent to Mumbai head office from
different regions and the the cash collected is distributed back to the different zones.
All the credits and debits are reconcilliated on SAP for any error avoidance.

The project was undertaken to conduct a study on the procedure of the cash management
and the banking operations of I.O.C.L and the and the various accounts and
reconciliations prepared for managing cash and controlling that are exercised on it as per
the banking provisions. The study is done in the banking section of Indian oil. It covers
the various problems encountered in the preparation of the reconciliations and the
important steps taken to solve them.

The project deals with various collections in the banking sections, receiving timely credit,
transfers at appropriate times and also their withdrawals. The project encompasses
detailed view on different kinds of Bank Accounts maintained with SBI(the sole banker
with IOCL) right from the grass root level i.e. the collection point, storage areas to the
central fund pooling point viz. Cash Credit Account maintained at Head Office to ensure
that the funds are not to be borrowed because of their non availability at right time and
also that the excess funds can be landed to earn interest.
The project also deals with various discrepancies that creep up during the functioning of
accounts called as OPEN ITEMS and their effective handling.

There are areas where the banks fail to credit according to our MOU with the bank, the
taking up of amounts is called Valuedation which has also been a part of it.
New features such as Real Time Gross Payment to our suppliers and electronic fund
transfers to our employees also form part of the project.

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 TABLE OF CONTENTS

S.No TOPIC PAGE No.

1 About the organization 7-10

2 Department bifurcation 11
3 SWOT analysis 12-16
4 Cash management 17-18
5 Objective of study 18
6 Types of account
Collection Account 19-22
Regional credit credit account 23
RCC withdrawal account 24
RCC collection account 25
CMP 26
Valuadation 27
Railway credit note account 28
Dishonour of cheques 29-30
7 CMP of SBI 31
8 Bank reconciliation statement 37

6
INDIAN OIL CORPORATION LTD.

ABOUT THE ORGANIZATION :

Indian Oil Corporation Ltd. is currently India's largest company by sales with a turnover
of Rs. 220,779 crore , the highest-ever for an Indian company, and profits of Rs. 7499
crore for fiscal 2006. IndianOil is also the highest ranked Indian company in the
prestigious Fortune 'Global 500' listing, having moved up 18 places to the 135th position
this year based on fiscal 2006 performance. It is also the 20th largest petroleum company
in the world. IndianOil's vision is driven by a group of dynamic leaders who have made it
a name to reckon with.

VISION, MISSION & VALUES:

Vision :

A major diversified, trans-national, integrated energy company, with national leadership

and a strong environment conscience, playing a national role in oil security & public
distribution.

Mission :

• To achieve international standards of excellence in all aspects of energy and

diversified business with focus on customer delight through value of products and
services, and cost reduction.
• To maximise creation of wealth, value and satisfaction for the stakeholders.
• To attain leadership in developing, adopting and assimilating state-of- the-art
technology for competitive advantage.
• To provide technology and services through sustained Research and
Development.
• To foster a culture of participation and innovation for employee growth and
contribution.
• To cultivate high standards of business ethics and Total Quality Management for
a strong corporate identity and brand equity.

To help enrich the quality of life of the community and preserve ecological balance and
heritage through a strong environment conscience.

Values :

CARE:

• Concern
• Empathy

7
 • Understanding
• Cooperation

INNOVATION :

• Creativity
• Ability to learn
• Flexibility

PASSION :

• Commitment
• Dedication
• Pride
• Inspiration
• Ownership

TRUST :

• Delivered Promises
• Reliability
• Dependability
• Integrity
• Truthfulness

OBJECTIVES :

• To serve the national interests in oil and related sectors in accordance and
consistent with Government policies.
• To ensure maintenance of continuous and smooth supplies of petroleum products
by way of crude oil refining, transportation and marketing activities and to
provide appropriate assistance to consumers to conserve and use petroleum
products efficiently.
• To enhance the country's self-sufficiency in crude oil refining and build expertise
in laying of crude oil and petroleum product pipelines.
• To further enhance marketing infrastructure and reseller network for providing
assured service to customers throughout the country.
• To create a strong research&development base in refinery processes, product
formulations, pipeline transportation and alternative fuels with a view to
minimizing/eliminating imports and to have next generation products.
• To optimise utilisation of refining capacity and maximize distillate yield and
gross refining margin.

8
 • To maximise utilisation of the existing facilities for improving efficiency and
increasing productivity.
• To minimise fuel consumption and hydrocarbon loss in refineries and stock loss
in marketing operations to effect energy conservation.
• To earn a reasonable rate of return on investment.
• To avail of all viable opportunities, both national and global, arising out of the
Government of India’s policy of liberalisation and reforms.
• To achieve higher growth through mergers, acquisitions, integration and
diversification by harnessing new business opportunities in oil
exploration&production, petrochemicals, natural gas and downstream
opportunities overseas.
• To inculcate strong ‘core values’ among the employees and continuously update
skill sets for full exploitation of the new business opportunities.

FINANCIAL OBJECTIVES :

• To ensure adequate return on the capital employed and maintain a reasonable

annual dividend on equity capital.
• To ensure maximum economy in expenditure.
• To manage and operate all facilities in an efficient manner so as to generate
adequate internal resources to meet revenue cost and requirements for project
investment, without budgetary support.
• To develop long-term corporate plans to provide for adequate growth of the
Corporation’s business.
• To reduce the cost of production of petroleum products by means of systematic
cost control measures and thereby sustain market leadership through cost
competitiveness.

OBLIGATIONS

1. TOWARDS CUSTOMERS AND DEALERS- To provide efficient service and quality

products at competitive prices.

2. TOWARDS SUPPLIERS – To ensure prompt dealings with integrity, impartiality and

courtesy and help promote ancillary industries.

3. TOWARDS EMPLOYEES – To develop their capabilities and facilitate advancement

through appropriate training and career planning. To have fair dealings with recognized
representatives of employees in pursuance of healthy industrial relations practice and
sound personnel policies.

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4. TOWARDS COMMUNITY –To develop economically viable and environment-
friendly products. To maintain the highest standards in respect of safety, environment
protection and occupational health at all production units.

5. TOWARDS DEFENCE SERVICES - To maintain adequate supplies to Defence and

other para-military services during normal as well as emergency situations

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DEPARTMENTS UNDER THE
MARKETING DIVISION HEAD OFFICE

REGISTERED OFFICE STATE OFFICE

HUMAN RESOURCES LPG

AVIATION SALES

LAW DIVISION OFFICE

FINANCE FINANCE

INTERNAL AUDIT AREA OFFICE

SALES FIELD OFFICE

QUALITY CONTROL LUBES

MAINTAINANCE AND INSPECTION P&A

OPERATIONS
OPERATIONS

ENGINEERING
ENGINEERING

INFORMATION SYSTEMS
INFORMATION SYSTEMS

CORPORATE COMMUNICATIONS TERMINALS

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 SWOT ANALYSIS

For a long time the company had monopoly in the downstream sector but
with the changing time, more and more private and multinational companies
are entering the sector, IOC is facing competition. But with the vast
distribution and pipeline network, it will have an edge over them. The
following analysis throws light on the various facets of the present position
of IndianOil.

STRENGTHS

• Most powerful player- IOC being the only Indian Company to be

listed and ranked 191 in the fortune global 500 companies holds a
strong brand image. It is the most powerful petroleum corporate in the
downstream sector. It owns 7 out of the 17 refineries of the country in
public sector contributing to 55% of the nation’s requirements.

• Experience- IndianOil has been in the petroleum sector for the past 41
years. During these years it has gathered a lot of valuable expertise
and learned the trick of trade, the tougher way. It has enjoyed
unlimited protection and nurturing from the government, which
helped it grow and gain a substantial hold of the market. This
experience will be valued more as and when it will face competition
with the upcoming firms in the sector.

• Pipeline network- IndianOil has a pipeline network of 6268 kms

throughout the country running right from Guwahati in the East to
Kanda in the West. It also reaches the Northern Region to Jallandar
and plans to extend till Udhampur. This decreases the transportation
cost to a great extent for the company. This is a major advantage as
the other private refineries coming up will have very little
infrastructure for transporting both crude oil as well as finished
products. So IndianOil has a natural edge over these companies.

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 WEAKNESSES

• Government’s control- The functioning of IOC is greatly influenced

by the government’s policy and regulations. The government has 82%
stake in the company, thus, gaining the control of the company. There
is always a risk of its proposal being rejected as there is uncertain
political environment prevailing in the country.

• Large size- IndianOil is a huge organization having its head office at

Mumbai, 4 regional offices, 15 state offices, 44 divisional offices and
33 area offices. It employs 30162 employees in various levels of
organizational hierarchy. This leads to slowing down of processes and
inefficient performance due to numerous departmental layers.
Handling such large pool of human resource and channelizing their
skills in a direction same as that of the organization is not an easy
task. This hinders the fast growth required by the organization.

• People’s perception- In our country, the perception of the corporate

and consumers towards government organizations and offices is
not favorable, hence though IOC is the only Fortune 500 company and
has grown by leaps and bounds, it is still viewed as an inefficient
company, not getting the due importance.

• Retail market share- Even though IOC controls most of the retail
outlets it has market share of only 33.8% in petrol and 39.6% in diesel
registering an increase of 0.5% and 0.3% respectively over the last
year. This is comparatively very small as compared to its size, reach
and production. This is because of the fact that its retail outlets are
concentrated more in semi-urban areas and rural areas.

• Distribution infrastructure- The Company operates the largest

marketing network of 19000 sale points in the country. It has 5026
captive consumer outlets and 52 jubilee retail outlets. It has over 3000
LPG distributorships bottled in 50 bottling plants throughout the
country. It also owns 92 Aviation Fuel Stations and 1294 SERVO
shops across the nation. It also handles 853 tankers. This facilitates
uninterrupted supply of products throughout the year. Such extensive

13
 distribution network is nothing but the muscles of the organization
making it stronger and tougher to compete with others. The wide
distribution network of the corporation takes care of the imports and
exports.

• Rural reach- in rural areas it has 231 multipurpose distribution

centers. IndianOil has over 100 Indane LPG distributorship
commissioned in rural and semi-rural areas. This helps to cater to the
need of population of rural, remote and far flung areas constituting
about 75% of the country’s population.

OPPORTUNITIES

• More revenue- with the dismantling of APM by 2002, IOC will be

able to fix the prices of its products without government intervention
resulting in an upsurge in the revenue earned. Firstly, the new players
will use the infrastructure facilities provided by IOC and pay for the
services rendered; for example, IOCL has signed the marketing rights
agreement for 10 years with RPL. Secondly, by reducing the existing
prices to the permissible extent and providing better facilities. This
will help them capture more market share making it harder for the
new players to grab the market.

• Modernization- The liberation of the economy has attracted many

foreign players to invest in our country. Again, with the liberalization
of the oil economy, more and more MNC’s are entering the sector.
They will bring with them the latest technology available. IOCL can
utilize their services by means of joint ventures, collaborations and
tie-ups, for modernization and capacity augmentation of its plants and
refineries increasing the quality as well as the quantity of its product

• Intensifying infrastructure- the competitors entering the sector are still

not fully operational. While they are building up there infrastructure
IOC should grab the opportunity to extend and strengthen it in
deficient areas. It can modernize its plants and augment its capacity,
extend pipelines to central and southern regions facilitating cheaper

14
 transport in those areas. Also more jubilee retail outlets, which are
state-of-the-art, should be commissioned in different parts of the
country for greater customer satisfaction.

THREATS

• Tastes of competition- as we are closing in on the dismantling of

APM we already see a lot of private participation in the sector. With
the government opening the upstream sector and taking away the sole
right of distribution from PSU’s, private players see a lot of scope for
business. As a result Reliance has already entered the field and has
started production and ESSAR refineries is following suite. If these
companies are able to do profitable business in this sector then other
national and multinational companies will also be lured into this field.
IOC’s shift from a monopoly in the protected environment to a free
market will not be easy.

• Price wars- In this free market operation, where all the firms have the
full liberty to control the prices of their products, a price war is certain
to happen in the near future, since this will be a major factor in
determining their market share. If MNC’s with deep pockets decide to
enter this sector then they may be able to make this war tougher by
cutting down prices even below the permissible level, initially to
capture market share.

• Better-equipped competitors- The new players will give tough

competition, as they will have latest technology and more advanced
research and development resources, skills and expertise. They will
have better and more efficient machines capable of producing more
and better. They will have easy access to foreign markets due to their
global presence and standards.

15
BANKING SECTION :

IOCL

PIPELINE REFINERY MARKETING AOL

NORTHERN WESTERN EASTERN SOUTHERN

UPSO PSO RSO DSO

DSO-DELHI STATE OFFICE CODE : 1000

PSO-PUNJAB STATE OFFICE CODE :1200

RSO-RAJASTHAN STATE OFFICE CODE : 1300

UPSO- UP STATE OFFICE CODE : 1400

In Banking section different kinds of bank accounts are maintained by IOCL with SBI,
right from the grass root level i.e. storage points, to the center fund pooling point viz.
Cash Credit Account maintained at Head office.

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CASH MANAGEMENT is a marketing term for certain services offered primarily to larger
business customers. It is used to describe all bank accounts (such as checking accounts)
provided to businesses of a certain size, but it is more often used to describe specific services
such as cash concentration , zero balance accounting and automated clearing house facilities.

Cash Management Services

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

• Account Reconcilement Services: Balancing a chequebook can be a difficult

process for a very large business, since it issues so many cheques it can take a lot of human
monitoring to understand which cheques have not cleared and therefore what the company's
true balance is. To get around this, banks have developed a system which allows companies
to upload a list of all the cheques that they issue on a daily basis, so that at the end of the
month the bank statement will show not only which cheque have cleared, but also which
have not. More recently, banks have used this system to prevent cheques 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.
• 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 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 the subject of the ire of
some consumer groups, because under this system all 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

17
include balances in foreign currencies, as well as those at other banks. They include
information on cash postitions 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, 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 cheque in the mail have the bank set up a post office box for them,
open their mail, and deposit any cheque 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
cheques listed in that register, with exactly 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 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 this
problem, banks developed a system where each store is given their own bank account, but all
the money deposited into the store account is automatically moved into the company's main
bank account. This allows the company to look at individual statements for each store.

18
OBJECTIVES OF THE STUDY

• Study is conducted to understand and analyze the working of Banking

Section in IOCL.

• To understand the various Accounts prepared in the Banking

• To understand the various Reconciliation’s prepared in the Banking

Section.

• To find out the various causes of the unmatching of the Reconciliation.

• To identify the open items and unmatched items.

• To analyze and clear the open items.

• To interpret the results thereof and to reach at some conclusion.

• To understand the practical difficulties faced in the Banking Section.

TYPES OF ACCOUNTS
All the accounts that IOCL has are broadly divided into:
01. Collection Account
02. Special Current (Withdrawal) Account
03. Regional Cash Credit Account
04. Cash Management Product
05. Cash Credit Account
06. Valuedations.
07. Real Time Gross settlement (R.T.G.S)
08. Railway credit note
09.Dishonor of Instrument
10. Letter Of Authority Account

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COLLECTION ACCOUNT
• Collection Accounts are opened for various locations and other offices for
depositing various instruments collected from customers/parties.

• Also while deciding the branch, assess the quantum of outstation cheques that are
likely to be deposited every month and accordingly get the DDP limit allocated to
the branch. This will enable to get the immediate credit for all outstation
instruments deposited in the account.

• DDP limit is a facility under which SBI purchases all outstation cheques and
gives immediate credit against them, ending actual realization of cheques from the
dealers.

• Quantum of DDP limit should be calculated estimating the value of outstation

cheque that the location will be depositing in a period of 15 days.

• For all instruments that IOCL receives, they generate a DCR (Daily Collection
Report) that acts as a receipt for the organization as it gets it stamped from the
bank, which can also act as a proof for all future references.

• Since we have a DDP limit, depending upon the clearinghouse arrangement for
local banking instruments, at present all cities in the country can be divided into
three different categories namely

Day zero center

Day one center
Day two center

• In all day zero center credit and transfer of funds for local instruments is given to
us on the same day of deposit provided the instruments are deposited before the
cut off time for acceptance of instruments by the branch for presenting it in the
days clearing.

• Similarly in all day one credit and transfer of funds for local instruments is done
on the next day provided the instrument are deposited well before the cut off time
for acceptance of instrument by the branch.

However as per the understanding with SBI, credit and transfer of funds for local
instruments in all day two centers should be given to bank on day one itself. This should
be ensured by all the location of day two centers.
Step 1: DCR is deposited

Bank A/c Dr 100

To Party A/c 100

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Step 2: Amount transferred to SBI, HO

SBI, HO A/c Dr 100

To Bank A/c 100

Dr Party A/c Cr Dr Bank A/c Cr

By Bank 100 To party 100 By SBI,HO 1

Dr SBI, HO A/c Cr

To Bank 100

WITHDRAWAL ACCOUNT

• All regions and state offices operate the Special Current (Withdrawal) account.
Even some major locations having monthly payments of more than Rs.1crore are
given the facility of Special Current (Withdrawal) account.

• In case of Special Current account no Pre –funding of the account is done .The
daily balances are transferred via Regional Cash Credit account at Mumbai.

• All payments made from the account are centrally funded from the operations
Main Cash Credit Account at Mumbai

• No deposit of any instrument is permitted in this account.

• Cheques that are more than six months old should not be revalidated and the same
should be transferred to time barred cheque code.

21
 • Care should be taken for safe keeping of computerized chequebooks printed by
us. As a precaution it is recommended not to keep stock of more than six months
requirement of computerized cheques.

• Computerized cheques should be pre-printed with “Account –Payee” only

crossing.

• Debit entries in the bank statement for bank recovered by SBI for issues of
demand draft etc. are to be verified in line with MOU.

• It should be verified that the bank charges debited by the bank are in line with the
charged agreed by the cooperation.

• It must be ensured that the instrument given by the customer are not deposited in
Special Current Account or the bank should not credit our Special Current
Account by mistake in case both our Collection and Special Current Account are
maintained at the same branch.

Step 1: Issuance Of Cheque.

Expenses A/c Dr 100

To bank A/c 100

Step 2: When Cheque Is Presented With SBI

Bank A/c Dr 100

To SBI, HO A/c 100

Dr Expenses A/c Cr Dr Bank A/c Cr

To Bank 100 To SBI HO 100 By Expenses 100

SBI HO A/c

By Bank 100

22
REGIONAL CASH CREDIT
• Each regional office of marketing and other divisions of the corporation
individually operates a Regional Cash Credit Account.

• In this account, pooling of Debits and Credits from the various accounts other
than Current account operated by locations are effected.

• Debit entries to the Regional Cash Credit Account is from the following two
accounts, which are:

Withdrawal account and

Railway credit note

• Credit entry to the Regional Cash Credit Account is from the Collection account.
Separate code no are allotted to identify each type of transactions in the Regional
Cash Credit account which are:

For Collection - code01

For Withdrawal - code02
For RCN debits - code05

• SBI branches having any of the above-mentioned account transfer the daily
balance to the respective Regional Cash Credit Account.

• Net balances pooled in the Regional Cash Credit Account are to be daily
transferred to our main Cash Credit at Mumbai.

• A separate code no “19”identifies this transfer amount. No balance is retained in

this account.

RCC WITHDRAWAL ACCOUNT

Step 1: Issuance Of Cheque.

23
 Expenses A/c Dr 100
To bank A/c 100

Step 2: Bank Transfer To SBI CAG, New Delhi

Bank A/c Dr 100

To SBI CAG, New Delhi A/c 100

Step 3: SBI CAG, New Delhi Transfer To SBI , HO

SBI CAG, New Delhi A/c Dr 100

To SBI, HO A/c 100

Dr Expenses A/c Cr Dr Bank A/c Cr

To Bank 100 TO SBI CAG1100

TO EXP 100

Dr SBI CAG, New Delhi A/c Cr Dr SBI HO A/c

Cr

To SBI,HO 100 By Bank 100 By SBI CAG 100

RCC COLLECTION ACCOUNT

24
Step 1: DCR is deposited

Bank A/c Dr 100

To Party A/c 100

Step 2: Bank Transfer to SBI CAG, New Delhi.

SBI CAG, N. Delhi A/c Dr 100

To Bank A/c 100

Step 3: SBI CAG, New Delhi Transfer to SBI, HO

SBI, HO Dr 100
To SBI CAG, N. Delhi A/c 100

Dr Party A/c Cr Dr Bank A/c Cr

By Bank 100 To Party 100 By SBI CAG

100

Dr SBI CAG, N. Delhi A/c Cr Dr SBI, HO A/c Cr

To Bank 100 By SBI, HO 100 To SBI CAG 100

CASH MANAGEMENT PRODUCT

25
 • Cash Management Product (CMP) is a new facility provided by SBI whereby the
collections and withdrawals from upcountry branches are transferred via
electronic mode to our cash credit account at Mumbai.

• The facility provides DCR Number in the daily reports in place of Instrument
Number and to suit our MOU terms and conditions.

• The Cash Management Product facility can be divided into two main categories
namely: -

Credit Module of CMP and

Debit Module of CMP.

• Credit Module of CMP deals with Collection Proceeds and Debit Module of CMP
deals with Withdrawal.

• Entire transaction data is provided in soft copy to all Regional offices and Sate
Offices on monthly basis from Mumbai.

• All the Memorandum Terms and conditions of Collection Account are equally
applicable to the facility under CMP except that instead of TT transfer to RCC
A/c, now daily fund transfer takes place through electronic media direct to CC
A/c at HO. Under CMP virtually no new account is opened rather on receipt of
the request for collection account for a location.

CASH CREDIT ACCOUNT

• CCA is operated by H.O. marketing division and is a very important account of

the corporation.

• Only the board of directors can open a CCA upon passing a resolution to the
effect.

• Transfer of funds from all other types of accounts like collection account,
withdrawal account etc. are to CCA.

• Apart from transfer entries all payments handled by H.O. like purchase of foreign
currencies, repayment of loan availed etc. is directly debited to CCA. Similarly

26
 loans availed for working capital purpose and major receipts handled by H.O. are
mostly credited to CCA directly.

• The limits sanctioned by SBI for the CCA are required to be renewed every year
by submitting yearly credit monitoring arrangement data in the prescribed form
by the bank. The data to be given are current and previous year’s actual and next
two years projections.

• Monthly bank reconciliation and clearance of open items etc. are applicable to
CCA as well.

• The bank balances of CCA is monitored on daily basis to ensure that the overdraft
balances do not exceed the sanctioned limit and also no surplus balances are kept
idle.

VALUEDATION

• As corporation maintains number of bank accounts through out the country for
different purposes like separate account for withdrawal of funds and separate
account for sales realization etc., it is pertinent to pool all this debits and credits
together to avoid idling of funds at one account and paying interest to bank on
withdrawals from another account.

• In order to pool all the debits and credit at one account, Regional Cash credit
Account were opened. Such Regional Cash Credit were opened region wise for
easy control and proper accounting.

• To overcome the drawback of time gap between transfer of funds and receipt of
funds from various collections accounts and other withdrawal accounts at
Regional Cash Credit Account, the concept of “Valuedation” was introduced.

• Under this facility the amount received at Regional Cash Credit are recorded with
the date of original transfer of amount from the Collection account or other
Withdrawal accounts.

• Interest to be paid to SBI on amount borrowed is calculated for the Corporation as

a whole on the basis of daily “Valuedated” balance of the Main Cash Credit
account by applying the effective rate of interest.

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REAL TIME GROSS SETTLEMENT(R.T.G.S)

• New mode of payment Real Time Gross Settlement has been introduced

• Under these new mode , payment to suppliers &vendors is very fast and hassle
free in terms of avoiding collection/deposit of cheques and getting credit after
clearing which are existing I the present conventional mode.

• The payment is through RBI and the facility is available in more than 5000
branches of various banks. RTGS facility can be availed if the fund transfer is to
be made to a bank other than the bank from where fund is transferred. In our case
since we are having our account with SBI, Vendors/suppliers having account in
banks other than SBI, can avail this a facility provided their bank is RTGS
enabled.

RAILWAY CREDIT NOTE ACCOUNT

This facility is given to us by the SBI to enable our locations to make Railway
freight payments. Under this facility, locations are authorized to make payment of
Railway freight. The bank cannot permit any other payment under this facility.

At present we have 3 ways of making payment of railway freight:

• By having a special current (withdrawal) account at the location.

• By issuing cheques of special current (withdrawal) account maintained at the RCC
branch.
• By issuing RCN.

Opening of RCN facility

Request for opening of any type of RCN Account should be forwarded to Head
Office after ensuring the following aspects:

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• Ensure that the Branch is able to handle the workload of our account by inquiring
about the Branch’s infrastructure, staff strength etc.
• The branch should be selected in consultation with the Railway Authorities so that
their requirements are met and IOC does not incur any bank charges.
• More than one officer should be posted in that location.
• The proposal contains all necessary details like:

# IOC location name

# IOC location code
# SBI branch name
# SBI branch code
# SBI branch address
# Monthly withdrawal limit

Checklist of various aspects to be verified by Region/Location

• The chequebooks should be pre-printed with the Name of the Railway Authority to
whom payment is made. There should not be any blank cheque book/ leaf without the
name pre-printed.

• Region should not distribute to different locations; the cheque leafs from the same
chequebook. In other words separate chequebooks should be given to each location.

• While issuing new chequebook to the Location it should be ensured that all the
cheque leafs of the earlier chequebook are utilized and proper accounting for all
cheques is submitted by the Location.

• Proper explanation should be obtained from the Location in case of any missing
cheque number in the Bank Statement.

• Bank charges for the facility is 0.50ps per RS 100/-

• Reconciliation should be done on the monthly basis by the region based on statement
received from locations containing details of RCN’s issued during the month.

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DISHONOUR OF INSTRUMENT

• Dishonor of instruments is one of the areas of major concern in banking activity.

Timely realization of all instruments/cheques has to be constantly and closely
monitored by all concerned and immediate corrective steps to be taken whenever
the cases of dishonor or delay in realization are noticed so that no financial losses
occur to the corporation.

• All debit entries for dishonor of instrument, the original instrument are
collected /obtained from the bank. This aspect is equally applicable to centers
having CMP facility.

• As soon as the dishonor of instrument is received, ensure to pass the necessary

entry immediately debiting the customer for the value of instrument along with
interest and incidental charges.

• Action to be taken for obtaining replacement cheques/DD from the concerned

party. Divisional manager to be immediately informed of the dishonor.

WORKING

Northern Region (NR) is divided into four state offices Punjab State
Office(PSO),Rajasthan State Office (RSO), Delhi State Office(DSO),Uttar Pradesh State
Office(UPSO) each of which have their own banking transaction with the main banker
SBI

Banking

DSO NR PSO RSO UPSO

GREEN PARK PARLIAMENT STREET

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Northern Region undertakes the transactions occurred at these state offices and it also has
their own account with SBI at Green Park and Parliament Street.

All the accounts of IOC are broadly divided into two types, which are

TYPES

RCC CMP

Regional cash credit (RCC) accounts and Cash Management Product(CMP)

RCC accounts are those accounts where the amount collected by the various state offices
are first transferred to the central CAG office in Delhi, and from there it is transferred to
SBI ,Mumbai

CMP Account is that account, where each location passes their daily collection to SBI
Mumbai, our final cash credit account. The day end balance has to be nil.

Everyday collections are deposit through DCR (daily credit report), which is a form of
pay-in-slip. According to MOU we need to receive credit for high value cheques on the
same day and all other cheques by the next day.

REALISATION Statement is received everyday from bank, which gives a picture of the
total amount credited in our account in lieu of the DCR deposited.
Any discrepancies in the two are taken up with the bank immediately as they lead to
delay in receiving of funds which may lead to loss of interest.

RCC Papers are also received on an everyday basis, which gives a clear picture of the
total credits and debits of the entire marketing division of the Northern Region, which
includes all the state offices and their various locations.

Northern region does reconciliation of the accounts that it operates, i.e. the withdrawal
and the collection account at Green Park and the withdrawal account at the Parliament
Street.

CASH MANAGEMENT PRODUCT

STATE BANK OF INDIA provides cash management services to Corporate Clients

under the brand name SBI-F.A.S.T. (Funds Available in Shortest Time) from 320

31
collecting locations across the country with Pooling facility at different branches as per
client's choice, which are physically connected to central hub at Mumbai.
The product is aimed at enhancing liquidity, reducing costs and providing opportunities
for profit for our clients. The product is technology-driven and the entire network is
linked through VSATs / leased lines. Under SBI F.A.S.T., funds are transferred directly
to the client's main account.
SBI FAST also offers disbursement/ payment services through a separate Debit transfer
module to facilitate payments at various expenditure centers & plant locations. On a daily
basis detailed MIS reports, covering location-wise presentations, location-wise credit and
cheque returns, are made available to Corporates' Head office as well as to the local
offices / representatives at the various centres through Email.

This enables in the following

• Guaranteed transfer of collection proceeds on the same day the funds are cleared
at CMP Collecting Centres located all over the country to the Central Account of
Corporates at a designated Pooling Centre. No account need be maintained at the
collecting centre.

• Day-end-Balance Sweep of debit balances in Operative Accounts maintained at

CMP centres to facilitate local disbursements.

• Transfer of Day-end-Balances in Collection Accounts maintained at various CMP

centres to the main account.

• Centralised Reconciliation Support.

ADVANTAGES OF CMP

• Centralised Control of cash

• Cost reduction
• Enhanced Liquidity
• Interchange of Information between treasury & operating units
• Reduced excess cash balance
• Cash forecasting & scheduling
• Effective control over disbursements
• Efficient Financial Management.

REGIONAL CASH CREDIT (RCC) ACCOUNTS AND

CASH MANAGEMENT PRODUCT (CMP)

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RCC accounts are those accounts where the amount collected by the various
state offices are first transferred to the central CAG office in Delhi, and from
there it is transferred to SBI, Mumbai

CMP Account is that account, where each location passes their daily
collection to SBI Mumbai, our final cash credit account. The day end
balance has to be nil.

Everyday collections are deposit through DCR (daily credit report), which
is a form of pay-in-slip. According to our understanding of MOU we need to
receive credit for high value cheques on the same day and all other cheques
by the next day.

REALISATION Statement is what we receive everyday from bank, which

gives us a picture of the total amount credited in our account in lieu of the
DCR deposited.
Any discrepancies in the two are taken up with the bank immediately as they
lead to delay in receiving of funds which may lead to loss of interest.

RCC Papers are also received on an everyday basis, which gives a clear
picture of the total credits and debits of the entire marketing division of the
Northern Region, which includes all the state offices and their various
locations.

Northern region does reconciliation of the accounts that it operates, i.e. the
withdrawal and the collection account at Green Park and the withdrawal
account at the Parliament Street.

As discussed we receive the data of Green Park in hard copy for which we
format the file according to the given format, which is:

A B C D E F G H I J K

33
 CHEQU
DCR E
NUMBER NUMBE
INCO FOR IN THE R IN
COLLECTIO AMOUNT CASE OF THE
N/OUT FOR DATE IN IN AMOUNT COLLECT CASE CHRGES
WITHDRAW TEXT NUMBEWR IN TEXT ION OF IN TEXT INCO IN
AL IN TEXT FORMAT FORMAT FORMAT( TEXT WITHD FORMATE TEXT
FORMATE (BOTH) (BOTH) BOTH) FORMAT RAWAL (BOTH) FORMATE

INCO 1102005 10000.00 01 INCO

CHRG 1102005 100.00 M01006 CHRG
EDEB 1102005 5000.00 EDEB
ECRE 1102005 5000.00 ECRE
TRANSFE
TRANSFER 1102005 1000000.0 1000000 R

And we finally come out of this type of file

inco 27032006 16000.00 124 inco

inco 29032006 115000.00 126 inco
chrg 30032006 1500.00 128 chrg
ecre 31032006 7500.00 129 ecre
inco 31032006 5000.00 130 inco
h000 311032006 145000 145000 h000

The point to be noted here is the last entry, which is h010, which indicates
that the total amount of credits received during a month, has also been
transferred to our CCA at Mumbai. While working on the format if the total
of transfers does not match with the credit received it has to be taken up the
bank.

For Withdrawal Account of Parliament Street we receive data as a soft copy,

which is then formatted according to the DBASE format to make it SAP
enabled.

After formatting the file looks like this

34
LOC_CODE CREDIT_DT AMNT BDS_NO REMARKS STATE
24 1/3/06 365944 1 GEN Clg. 1000
24 2/3/06 3456 1 GEN Clg. 1000
369400

25 1/3/06 45678 774 GEN Clg. 1000

25 1/3/06 1999666 775 GEN Clg. 1000
2045344

26 1/3/06 5678 34835 GEN Clg. 1000

26 2/3/06 288190 34836 GEN Clg. 1000
5123356

TOTAL = 7538100

567 1/3/06 400000 456 GEN Clg. 1100

678 1/3/06 12059 457 GEN Clg. 1100
412059

987 2/3/06 40646 7726 ONBRANCH Clg. 1200

998 2/3/06 1906472 7727 ONBRANCH Clg. 1200
1947118

1234 3/3/06 791303 976 GEN Clg. 1300

1235 3/3/06 805640 977 ONBRANCH Clg. 1300
1596943

657 4/3/06 4695971 1234 GEN Clg. 1400

789 5/3/06 6758 1235 GEN Clg. 1400
4702729

TOTAL= 16196949

It has a location code different for each state indicating that there is different CMP
account within each state, which explains quick flow of funds in the organization.

The file has the following features:

LOCATION CODE –It indicates the SBI branch within the state.

CREDIT DATE- it indicates the date on which the credit was transferred to SBI,
Mumbai.

35
BDS_NO – This is the most important factor that helps in differentiating accounts and
accounts with-in accounts.
It is actually the DCR no of different states.

STATE- each state office has a different location code

Region –1000
DSO-1100
PSO-1200
RSO-1300
UPSO-1400

The data is sorted according to state offices and the total amount for each state office is
calculated and then the entire division is calculated to reach upon the amount that
indicates the total amount of transactions occurred during the month.

The data for each state office is send to them.

We take the data of the NR and as can be seen from the BDS_NO that there are three
different type of BDS_NO given each indicating a different type of account.

The BDS_NO indicating ‘1’ is for EFT account

The BDS_NO indicating three digit numbers is for CAG account

The BDS_NO indicating five digit numbers is for R.K.PURAM Account.

The total of each of those is taken and worked on in a manner similar to the collection file
for RCC account.

We collect the total data of EFT and format it to make it SAP enabled. After formatting
the file it looks like this

BANK RECONCILIATION STATEMENT

Definition

36
Bank Reconciliation Statement is prepared on a particular date to reconcile the bank
balance in the cashbook with the balance as per passbook by showing all the causes of
difference between the two.
The difference between the two balances arises due to some entries, which have
been recorded in the cashbook but not in the passbook. Similarly, there may be some
entries recorded in the passbook but not in the cashbook. Besides, disagreement between
the two balances can happen on account of errors committed either by the customer or by
the bank while recording entries in their respective books.

Reconciliation and identification of open items

At state office matching of the transactions as per bank statements and cashbook shall be
carried out on monthly basis and unmatched items can be identified and listed in the
following manner:

 DCR booked in bankbook but not credited by the bank.

 Amount debited in bank statement but not booked in the bankbook on account of
dishonors, overdue interest and other bank charges etc.
 Amounts credited by bank but not booked in bankbook.

 Difference in amount between the amounts booked as per DCR and amount
credited by bank.

Causes of difference in Cashbook and Bankbook

1. Cheques issued but not yet presented for payment.

2. Cheques paid into the bank but not yet cleared.
3. Interest allowed by the bank.
4. Interest and expenses charged by the bank directly.
5. Interest and dividend collected by the bank directly.
6. Direct payments by the bank on our behalf.
7. Direct payment into the bank by the customer.
Time frame for completing the reconciliation
And Clearance of open items

 State offices must complete the bank reconciliation in respect of all locations
under them by 12th of following month.

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  The open items emerging out of the reconciliation should be analyzed and
cleared within three days of the completion of the bank reconciliation.
 It is the responsibility of the Divisional manager to ensure the timely response on
the report by state office.

Reports

The reports to state office should be sent by 20 th of the following month and also a report
to the regional office confirming that there are no open items. It should be informed to
HO on monthly basis by mentioning “status on the key issues”.

Importance

 It helps to bring out any errors that may have been committed either in the
cashbook or in the bankbook.
 Any undue delay in the clearance of cheques will be shown up by the
reconciliation.
 It helps in the detection of frauds.
 Accuracy of the entries can be easily checked and a regular check on it can be
done.

Cheque issued but

not presented

Format of reconciliation of withdrawal account

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 1. The cheques issued during the month :

It includes the total of the cheques issued during the month. Whenever a

a cheque is issued expenses A/c will be debited and Bank Withdrawal

A/c is credited.

Expenses A/c Dr.

To Bank Withdrawal A/c

2. Cheques issued during the previous month which were not

presented:

It contains the closing balance of previous month’s Reconciliation i.e. the

grand total. For e.g. in the reconciliation of Aug., the closing balance of

July is to be taken.

3. Items to be cleared :
4. Bank transfers :

The total of the Green Park and Parliament Streets transfers given by the

bank is taken under it. For e.g.: The total collection made by the bank on

39
 IOC’s behalf on the particular month and the transfer given by the bank

for the same .The bank will credit its A/c and debit the CAG Branch’s

A/c with the same amount.

5. Cancellation of cheques :

6. Bank Charges :

The total charges imposed by the bank on collection and payment of

cheques.The bank charges are directly charged by the bank and the

information of the same is send to the IOC as being unmatched amount.

7. Cheques issued but not presented

Total of the cash unmatched (44*).

Various Code Words Used For the Preparation of Reconciliation:

• Unmatched :

40
 The cheques which are issued by us but not presented for payment on

that date. In this case IOC have to make a separate list of all these

amounts and try to clear them.

• Matched :

The cheques which are presented for payment and cleared by the bank

on that date.

• 44 *:

Code word used for the cash book of IOCL.

• 92 *:

Code word used for the bank book of IOCL

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