Introduction to Treasury Management

CAIIB
Bank Financial Management
Module C
Risk Management
Prepared By: Jagat Nagar (M : 9909792440)
- jagatnagar@yahoo.co.in

Introduction to Treasury Management

Treasury function was essentially liquidity management,
Organizational point of view, treasury was considered as a
service centre.
Integrated treasury, in a banking set-up, refers to integration of
- Money market
- Securities market
- Foreign exchange operations

Functions of Integrated Treasury: Page No. 310 (Important)

Prepared By: Jagat Nagar (M : 9909792440)
- jagatnagar@yahoo.co.in

Introduction to Treasury Management

Important roles of Treasury:
a. Liquidity Management: Treasury is responsible for managing
short term funds across currencies, and also for complying
with reserve requirements (CRR and SLR)
b. Proprietary Positions: Treasury may trade in currencies,
securities and other financial instruments, including
derivatives, in order to contribute to Banks profits
c. Risk Management: Treasury will aid Management on one
hand and Banks clients on the other hand, in managing
market risk, using derivative instruments
Prepared By: Jagat Nagar (M : 9909792440)
- jagatnagar@yahoo.co.in

Introduction to Treasury Management

Role of Treasury
1. ALM Book for internal risk management. ALM Book also
included traditional role of Treasury in liquidity management.
2. Merchan Book for client related currency and derivative
transactions
3. Trading Book for managing its proprietary positions.
Treasury operates in markets which are almost free of credit risk,
and hence requires very little capital allocation.
Secondly, the Treasury activity is highly leveraged the risk
capital allocated to Treasury may range between 2% to 5% of the
size of transactions handled, hence the return on capital is quite
high.
Prepared By: Jagat Nagar (M : 9909792440)
- jagatnagar@yahoo.co.in

Introduction to Treasury Management

RBI has permitted banks to borrow and invest through their
overseas correspondents, in foreign currency subject to a ceiling
of 50% of their Tier-I capital, or USD 10 million, whichever
amount is higher.
Treasury department role as profit centre because of
1. Treasury largely operates in inter-bank markets which are
almost free of credit risk.
2. Treasury activity is highly leveraged.
3. Operational costs in Treasury are low compare to branch
banking.
4.Profit by foreign exchange business, money market deals,
investment activities, Interest arbitrage, Trading etc.
Prepared By: Jagat Nagar (M : 9909792440)
- jagatnagar@yahoo.co.in

Introduction to Treasury Management

Organisation of treasury: 3 main divisions:
1. The Dealing Room (Front office):
Buying and selling of securities fom primary and secondary
market
2. The back office (Trasury Administration):
Confirmations, settlement and reconciliation.
It is verification and settelment of deals concluded by the dealer.
- The Back office take care of all related book-keeping and
submission of periodical returns to RBI.
- Back office is also maintain Nastro account, funding and
security account with RBI.
- Back office is also maintain Demat account with Depository
participants and adequate margin money is held with clearing
corporation of india for rupee and dollor settelment.
Prepared By: Jagat Nagar (M : 9909792440)
- jagatnagar@yahoo.co.in

Introduction to Treasury Management

3. Mid-office (Risk Management):

Risk management, accounting and management information
it is provided information to the management (MIS) and to
implement risk management systems.

Prepared By: Jagat Nagar (M : 9909792440)

- jagatnagar@yahoo.co.in

Introduction to Treasury Management

Thank You

Prepared By: Jagat Nagar (M : 9909792440)

- jagatnagar@yahoo.co.in