cms _ case of axis bank

8/8/2019 CMS _ Case of Axis Bank

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CASH MANAGEMENT SERVICES

-ByDhruv Malani (081015)Gursimar Sahwney (081019)Aditya J (081020)MOCB Section Y

FMG 17


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WHAT IS CMS?


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Introduction to CMS

Cash is the lifeline of Corporates

Corporates need to have ready & liquid cash

flows Anytime & Anywhere available

information about their funds

Banks serve this need!

Dilution of banks role from traditional

financing role to fee based services


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Types of Services

Lockbox services

Positive Pay

Sweep accounts

Zero Balance

Accounting

Wire Transfer

Controlled Disbursement

Account Reconcilement

Services

Advanced Web Services

Armored Car Services

Automated Clearing

House:

Balance ReportingServices

Cash Concentration

Services


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Account Reconcilement Services

Company issues many cheques in its daily

transactions

Upload cheques in banks system End of month bank statement shows cleared &

uncleared cheques

Bank sends report of both paid & unpaidcheques for comparison with companys

accounts


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Account Reconcilement Services

Advantage to company

Saves employee man hours

Company gets to know which cheques havebeen cleared & which were not


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Armored Car Services

Bank appoints a Armored Car Services vendor

to collect cash from companies to the bank

branches Company outsources this job to bank instead

of employing its workforce on this job

Advantage: Saves Cos time by outsourcing


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Automated Clearing House

An inter-bank funds electronic transfer facility

Used to

Pay employees & other parties

Collect funds from customers


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CashConcentration Services

Cos Primary bank doesnot have branches

Open bank a/cs in localbanks in area of opn

Prim Bank pullsmoney through ACH

Advantage: Preventidling of funds , earninterest

Bank1Bank2

Bank3

Primar

y Bank


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LockBox Services

Some Cos (e.g., utilities)receive large no ofpayment cheques

Bank sets up a postoffice box for them

Collect all cheques in themail & deposit them

Advantage: Speed ofdeposits, improved cashflows, administrativeconvenience

CosBank

Co 1post

box

Co 2post

box

Customerscheques

Customerscheques


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PositivePay

Co electronically shares its cheque register

with Bank

Bank will pay only those cheques listed in Cosregister

Advantage: Avoid discrepancies & fraud


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SweepAccounts

Excess funds from a company's bank accounts

are automatically moved into a money market

mutual fund overnight, and then moved backthe next morning

Earns interest overnight

Advantage: Utilization of idle funds to make

money


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ZeroBalanceAccounting

Single Bank A/c

Store 1 Store 2 Store 3 Store 6Store 5Store 4


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Store 1 Store 2 Store 3 Store 6Store 5Store 4

A/c1

A/c2

A/c3

A/c4

A/c5

A/c6

Main Bank A/c


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Helpful to companies with large no of retail

outlets or locations

Difficult to know/track which outlet hasdeposited which cheque

Each outlet is given its own account

All the money deposited in individualaccounts are transferred to the cos mainbank account


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Controlled Disbursements

Daily report that provides the amount of

disbursements that will be charged to the

customer's account This early knowledge of daily funds

requirement allows the customer to invest any

surplus in intraday investment opportunities


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Indian Scenario

Indian banks are offering services like electronic

funds transfer services, provision of cash related

MIS reports, cash pooling services, collection

services, debit transfer services, guaranteed credit

arrangements, sweep products, etc

Services ofIndian Banks now comparable to their

counterparts in advanced countries Made possible by efforts by RBI towards

facilitating electronic transfer of funds & clearing

mechanisms


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Indian Scenario

Cheque imaging, MICR, RTGS to name a few

Enactment ofInformation Technology Act giveslegal recognition to electronic records and digital

signatures The establishment of the Clearing Corporation ofIndia: Clearing activities in money, debt & forexmkts

Centralised Funds Management Service tofacilitate better management of fund flows

Structured Financial Messaging Solution, acommunication protocol for intra-bank andinterbank messages


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Advantages of CMS to Bank

Diversification of income in competitive

times

Pressure on interest spread More stable revenue

Helps build long term relationships with cos

Helps add to bottomline


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CashManagementProcess

The client deposits

cheques at various

branches across the

country.

The cheques aresent in clearing.

The bank receives

the credit from the

clearing house.

The payout is

made to the clientbased on a day

arrangement allotted

to the client.

A centralized MIS

is sent to the client.

The client gives an

instruction for

effecting payouts.

The bank executesthe instructions as

per the request letter.

A centralized MIS

is sent to the client.


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Collection Methods

Two broad categories of collection products:

Local cheque clearing (LCC)

Up-country collections (UCC)(out-stationcheque clearing)

The case ofICICI Bank


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Local Cheque Collection

The customer deposits the instruments at the designated ICICI Bank or

ICICI Bank arranges for a courier pick up from the clients

representative offices

The initial data entry takes place in CMS software.

Data is transmitted by the branches to the centralised CMS Hub.

The HUB acts as a data processing centre computing the amounts to be

paid to the client as per agreed arrangement.


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CMS for Small ValueCheques

Main users include service providers for telecom, cellularphone operators, magazine companies for subscriptioncheques, finance companies, companies for theirIPOsetc.

Process flow:

Instruments are collected either from the clientsagencies/agents, collection centres or drop boxes

Instrument processing and payout within the assured time

frame Additional details captured for client along with cheque

particulars and reported along with daily MIS includingMIS on instruments including detailed MIS on returnedinstruments.


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WHAT DO YOUTHINKWOULD BE

THEBENEFITS OFCMS TO THECORPORATES?


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Benefits of CMS to Corporates

Benefits of Collection Services

Efficient management of receivables.

Improves your asset turnover.

Pooling of funds at a centralized location.

Surety of credit on specified date.

Reduced working capital requirement.

Interest savings.

Reduced efforts for account reconciliation.

Customized MIS.

Online Information giving status ofInstruments.


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Benefits of CMS to Corporates

Benefits ofPayment Services

Convenience of fund disbursement.

Funds to be provided just a few days beforedisbursement.

Cheque payable at par facility.

Cost savings.

Optimizes human resource. Online information regarding Instrument status.

No headaches


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Challenges and Issues

Provision of Customized Services

Need to Comprehend the Clients Line of

Activity Shift to Web-enabled Services

Decisions Regarding Sourcing of Software

Need to Work with Technology Vendors


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WHAT DO YOUTHINKWOULD BE

SOME OFTHE RISKSASSOCIATED

WITH CMS?


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Risks

1. Threats Posed by Third Parties2. Concerns about Security and Risk Management

Corporate treasury information is quite sensitive.

Commercial cash management is one of the mostrisky forms ofInternet banking

Trust elements may include the authentication andauthorization, preventing eavesdropping, ensuring

non alteration in transit, providing integrity andauthentication that is legal.

When the value delivered is very high and the risk isvery low, you have a viable and secure system.


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CMS Case ofAxisBank

Axis bank offers the followingfacilities/services:

1. Collection/Receivables Management

a. Local Cheque Collection

b. Outstation Cheque Collection

2. Electronic Clearing Systems

a. Credit Clearing

b. Debit Clearing

3. Disbursements


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Target Customers

Corporate

Insurance Companies

PSUs State Level Undertakings

NBFCs , Foreign Banks and Co-op Banks

MFs FIs

Stock Exchanges and Brokers


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CMS Software/Program

Bank uses software provided by Laser Soft

Company for CMS Activities.

Processing of local and upcountry cheques isdecentralized and is carried out by all branches

of Axis Bank.

Transmission of data files is done through

Lotus Notes

Exhaustive in-built MIS is present


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ON WHAT BASIS CAN A BANKPRICE ITS CMS SERVICES?


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Pricing of Services

Done on case to case basis with the approval of

central office. Main factors are:

Collection Relationship Value

Business Volumes

Number and average size of instruments

Number ofLocations

Process Flow Number of days


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Pricing of Services

Float funds Number of days

Average number of returns

MIS and other services provided

Compensation for delayed credit


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Pricing of Services

Payments

Relationship Value

Payout volume on axis bank locations and otherlocations

Segment wise volume

Expected Float

Clearing house charges/Reconciliation/Courier


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Electronic Clearing Services

Facility devised by RBI for corporates who

undertake large volumes of credit/debit

transactions with various constituents. The user company obtains a mandate from its

constituents

The company prepares the electronic database

on the basis of the mandate received from

constituent


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Electronic Clearing Services

It then forwards the data to sponsoring bank.

The bank then verifies the data and forwards it

to RBI about a week before the value date. RBI forwards the details to individual banks

about 3 days in advance for action.

The individual bank acts on the value date as

per instruction.


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ECS - Eligibility

Corporates having periodic large payments to

a fixed group

Large volume payments, say atleast 2500transactions per settlement.

Transaction limit is Rs. 5 Lac Max. No

minimum limit.

Charges @ Rs. 1.5 per instrument (Rs. 0.50

for clearing house and Rs. 1 for destination

bank)


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AXIS BANKPRICING FORIFFCO


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THANK YOU

cms _ case of axis bank

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