ANALYSIS OF FACTORS RESPONSIBLE FOR RETURNED UNPAID CHEQUES IN CMS AT

PRESENTED BY:SIDDHARTH SHARMA JIMJ (2010-2012)

CLEARING MECHANISM
Clearing is the process of realising proceeds of cheques and other similar instruments from other banks through an intermediary, (RBI/SBI etc.)

Banks have two basic responsibility :Presentment of instrument Settlement of funds

CASH MANAGEMENT SERVICES:Citi

bank pioneered the concept of cash management in 1989-90. Manage clients cash flow and liquidity-Effectively and Efficiently ,

Cash Management can generally be defined as the efficient utilization of cash through coordinated management of payments, collections and cash balances.

BENEFITS OF CASH MANAGEMENT SERVICES

To corporate:

Management of high value of funds over a distributed network involving large collections and disbursements, eliminating inherent delays of a traditional funds transfer mechanism, Enhancement of liquidity, thereby ensuring optimum planning and utilization of funds, Manage funds for the client in the best possible way Providing informative MIS to the client

To banks :

CMS gives an opportunity to banks to enter into new business relationship with leading corporate, who are currently not banking with their bank, Surplus funds generated through CMS can be deployed effectively in call money market to generate income

With the increased collection from CMS clients, there can be a reduction in the instances of clearing shortfall/deficit. This ultimately affects Banks profitability favourably.

CASH MANAGEMENT SERVICES - HDFC BANK LTD

HDFC BANK began its cash management services operations in Aug. 1996. ISO 9001 certification for CMS operations received in April,2003. Decentralised data capturing vs. Centralised control. Servicing more than 1200 clients across various segments of the industry. Types of Cash Management Services offered :Collection Product Disbursement Product Remittance Product

OBJECTIVE OF ANALYSIS

To reduce no. of factors by using factor analysis.

To identify key factors through Pareto Analysis which are responsible for most of the returned cheques. To educate customer in respect of filling the instrument in right manner to help Bank as well as customer too.

ANALYSIS METHODOLOGY
Factor analysis tool of SPSS : Factor analysis extracts maximum common variance from all variables and puts them into a common score. ASSUMPTION :

No outlier Adequate sample size No perfect multicollinearity No Homoscedasticity Linearity Interval Data

ANALYSIS METHODOLOGY CONT.

PARETO CHART-ANALYSIS :

The Pareto Chart is named after Vilfredo Pareto, a 19th century economist who postulated that a large share of wealth is owned by a small percentage of the population. It is a statistical technique in decision making that is used for selection of a limited number of tasks that produce significant overall effect. The idea that by doing 20% of work, 80% of the advantage of doing the entire job can be generated. Or in terms of quality improvement, a large majority of problems (80%) are produced by a few key causes (20%).

ANALYSIS METHODOLOGY CONT.

A Pareto Chart can answer the following questions:

What are the largest issues facing by business?

What 20% of sources are causing 80% of the problems?

Where should we focus our efforts to achieve the greatest improvements?

CONCLUSION

Considering the present Indian scenario, where Cheques are the basic form of payment and cheque clearing takes a long time, cash management services need to devise innovative methods and means to expedite the clearing to benefit the corporate customer. Factor analysis of SPSS software helped to make 8 major component according to their Eigen value among 30 factors which are responsible for return of cheques. Rotation component matrix used to divide 18 factors or variables under 8 component on the basis of mutuality and compatibility with other factors and variables.

CONCLUSION CONT...

Pareto analysis through pareto chart helped in identifying those 20 % factors or variables which are responsible for 80 % return cheques (i.e. 3687 out of 4580) . These are :Insufficient fund Crossed on two banks Payment stop Stale cheques Post dated Not drawn on us A/c closed Amount encoded wrongly Alteration required drawer confirmation Words and figure differs Through analysis it is also found that among above selected factors or variables many are arising because of customer or clients irresponsible behaviour.

RECOMMENDATIONS

Electronic Transactions have increased in popularity. They should be emphasized more for transactions. Applied some charges as penalty if cheque is returned due to customer fault it will result into reduction in no. of cheques return and also helps in saving processing time. Banks should educate their client or customer about various reasons arises because of their mistake e.g. wrong amt., wrong client code, due to insufficient fund and others... Banks should inform their clients about the various reasons responsible for unpaid cheques or returned cheques before opening an account. More use of electronic fund transfer method e.g. RTGS , NEFT.

RECOMMENDATIONS CONT....

Customer or client must maintain and know about their account balance to reduce insufficient fund problem. Bank should stop void cheques at collection level which results into error free and time saving remittance process.

Banks t give a formal warning to their customers each time when their cheques get returned unpaid.
Those account holders whom at least 4-5 Cheques get returned unpaid for insufficient funds, with a minimum time span of 4-6 months, their accounts should be closed, remaining cheques collected and the name reported to the Banks headquarter along with the amounts of each returned cheque.