Q.1.

What are the diverse functions of an Integrated treasury as compared to a conventional treasury Integrated Treasury basically does the same thing as the traditional Treasury i.e. effective management of the funds. The difference is that the Integrated Treasury paints on a wider canvas. It is necessary that the Treasury has an eye on every market of the world, and every type of financial market in the country. Funds have to be moved from one sector to another to achieve maximum returns. With the full current account convertibility and financial sector reforms, the Indian corporates are also able to achieve this. Integrated Treasury requires professionals with expertise in all the markets. The portfolio has to be churned not only within a market, but also from one market to another. Such a portfolio activity calls for searching for investment opportunities in all the markets. Apart from movement of funds, making use of derivatives to cover every type of risk has become an important function of the Integrated Treasury. Functions of Integrated Treasury of a Bank The banks have the compulsions of operating in almost all the organised markets. Apart from this, they also have to manage the risks arising from liquidity, interest rates, foreign exchange etc. Therefore, the functions of an Integrated Treasury of a bank cover most of the functions of a modern Treasury. a) Statutory Investment Management: Every bank has to maintain a Cash Reserve Ratio (CRR) and statutory liquidity ratio (SLR). The law requires every bank to maintain the investment and its form in order to ensure the liquidity of the banks. Treasury has the basic duty of statutory compliance by making suitable investment and maintaining sufficient cash reserves in the manner prescribed. b) Funds Management: It is also necessary to determine the suitable mix of deposits and other borrowings. This will determine the cost of funds and the liquidity position of the banks. It is also necessary to design the assets mix, which will include the investment and loans mix, designing the investment portfolio, and designing the loan portfolio in line with the social banking policies of the government. Such a planning of assets will determine the liquidity of the bank and its profitability. c) Asset- Liability Management (ALM): The ALM has the objectives of achieving all the organisational objectives of the bank. The organisational objectives of the

bank are solvency (survival in the long-term), profitability and sufficient liquidity. In performing the necessary functions to achieve the objectives, the Treasury decides on important aspects like designing deposit products, loan products etc. d) Risk Management: As the bank is operating in all the organised markets, it is subject to every type of risk like currency risk, interest rate risk, market risk etc. Ever since the RBI liberalized interest rates and the banks started offering floating rate loans, the banks are subject to the risk arising from the changes in the interest rates. It becomes necessary for the banks to use every type of derivative to manage the risk like interest rate swap, arbitrage and hedging. e) Capital Adequacy: The Treasury must ensure that the bank has sufficient TIER I capital i.e., equity share capital and reserves & surplus. This is to ensure long-term solvency of the bank, as only the equity share capital will bear the loss of bad loans ultimately. Reserve Bank Of India has also prescribed the deadline of March 31,2009 to comply with capital adequacy norms. In the light of this, Treasury has the responsibility to raise the necessary equity capital through the issue of equity shares.