Q.

1 Explain how organization structure of commercial bank treasury facilitates in

Handling various treasury operations.

Ans:- The treasury organisation deals with analysing, planning, and implementing treasury
functions. It deals with issues of profit centre, cost centre etc. The organisations managing
interfaces with treasury functions include intragroup communications, taxation, recharging,
measurement and cultural aspects.

Structure of treasury organization
Figure 1.2 depicts the structure of treasury organization which is divided into five groups.

Figure 1.2: Treasury Organizations

Fiscal This group includes budget policy planning division, industrial and
environmental division, common wealth state relationships, and social policy division.

Macroeconomic This group deals with economic sector of the organisation. It includes
domestic and international economic divisions, macroeconomic policy and modeling
division.

Revenue This group is concerned with the taxes in an organisation. It includes business
tax division, indirect tax, international and treaties division, personal and income
division, tax analysis and tax design division.

Markets This group mainly deals with selling of products in the competitive market. It
includes competition and consumer policy, corporations and financial services policy,
foreign investments and trade policy division.

Corporate services This group deals with overall management of the treasury
organization. It includes financial and facilities division, human resource division,
business solutions and information management division.
What is Integrated Treasury?
An integrated treasury system offers several significant benefits in managing public
funds more effectively and efficiently
In earlier times, the banks forex dealing room used to manage the foreign dealings
mainly arising out of merchant and subsequent cover operations in inter-bank market. The
domestic treasury, investment operations were independent of forex dealings of a bank. Treasury
also undertook investment in both Government and non-government securities.
The need for integration of forex dealing and domestic treasury operation aroused in
setting of interest rate deregulation, liberalization, Development of forex market, Introduction of
derivative products, technological advancement etc. The integrated treasury performs the
traditional roles of forex dealings room and treasury unit
In era of high profile corporate failures and increasing volatility in financial markets,
management of financial risk and strategic cash are gaining prime focus for a corporates to
survive. Unlike the past, the changes in treasury management arena are increasing at a rapid
pace. Financial professionals now have the opportunity and tools to mange corporate liquidity.
This has come as a boon due to advancements in technology and liberalization process
across the globe in financial environment. In addition, the desire to rapidly adopt technological
advancements has led the companies to migrate from the existing to a new innovative platform.
In general terms and from the perspective of commercial banking treasury refers to the
fund and revenue at the possession of the bank and day to day management of the same. Idle
funds are usually source of loss, real or opportunate and thereby need to be managed, invested
and deployed with intent to improve profitability. There is no profit or reward without risk.
Thus, treasury operations seek to maximize profit and earning by investing available
funds at an acceptable level of risks. Returns and risks both need to be managed.
If we have a look at the balance sheet of commercial banks, we see that investment /
deposit ratio has by far overtaken credit / deposit ratio. Interest income / investments have
overtaken interest income from loans / advances. The special feature of such portfolio is that
more than 85 % of it is invested in government securities. The reasons for such developments
appear to be as under:
Poor credit off-take coupled with high increase in Non Performing Assets
Banks reluctance to cut down the size of their balance sheet
Governments aggressive role in lowering cost of debt, resulting in high inventory profit
to commercial banks.
Capital adequacy requirements.
In this context, treasury operations are becoming more important to the banks and a need
for integration both horizontal and vertical has come to the attention of the corporates. The basic
purpose of integration is to improve portfolio profitability risk insulation and also to synergize
banking assets with trading assets.
In horizontal integration, dealing / trading rooms engaged in the same trading activity are
brought under same policy, hierarchy, technological and accounting platform, while in vertical
integration, all existing and diverse trading and arbitrage activities are brought under control with
one common pool of funding and contribution.
Since 1990s, the prime movers of financial intermediaries and services have been the
policies of globalization and reform. All players and regulators had been actively participating
only with variation of the degree of participation, to globalize the economy.
With growing forex reserves, Indian banks and financial institutions have no alternative
but to be directly affected by global happenings and trades. This is where integrated treasury
operation has emerged as a basic tool for key financial performance.
Banks in India now have the option and opportunity to conduct treasury operations in
numerous ways. Domestic and cross-border markets are now available to banks virtually for 24
hours, 365 days a year. However, opportunities in trading activities are also full of risk. Chain
reaction of risk-failures in integrated treasury operations could be sweeping.