Treasury In Banking

There is a lot of excitement in the Treasury Management team of the bank today as everyone waits with bated breath for the Monetary Policy and commentary by the RBI. With low core inflation, everyone is expecting a rate cut. Will the RBI governor and the MPC oblige? This has a big impact on the treasury management set up of banks. Will the RBI tinker with the Cash Reserve Ratio? What will be the impact on the rupee? How will government bonds trade? All of the above affect treasury operations at the bank with immediate effect.

If the above scene seems interesting to you, you could look at trying to get into the Treasury team at a bank! 

Treasury Management in a Banking setup 

A treasury controls and manages the bank's money (in terms of capital and liquidity) and makes sure that all parts of the bank can readily access the cash they need for their business activities. By doing so, it makes sure that the bank remains financially secure, stable and able to function effectively to help its clients. It liaisons with the bodies that regulate banks, which set rules regarding banks' capital and liquidity. It plays an external and internal role in the bank.

New regulatory guidelines - in particular Basel III - will require banks to hold significantly more capital in reserve than before. Treasury teams across the industry will continue to play a key role in ensuring all new regulation and standards are properly implemented. 

 Functions of a treasury:

• Cash Forecasting: Planning its use and hedging operations

• Working Capital Management

• Cash Management: Ensuring sufficient cash is available for operation needs

• Investment management: Risk management, maximum returns, asset-liability match

• Treasury Risk Management

• Credit Rating Agency Relations

• Bank Relations: Ensuring co-operation among banks

• Fund Raising: mainly IB

Treasury Management in a Corporate Finance Team

A reputed power company in India owns coal mines in Indonesia and received a dividend of over $100 Mn. Before the company makes a long term decision on how to apply the funds - whether for expansion or for repayment of old debt, the smart treasury team ensures that they make money on it even if it is a matter of a few days. They will park in a Fixed Deposit for 2 days in a bank in London. Multiple banks will pitch to them with quotes. 

Such decisions are taken by Treasury teams of Corporate Finance Departments of MNC companies on a day to day basis. A CFO and his team of Finance professionals manage the cash of a company. The treasury function in a company plans the application of funds. 

Functions :

1. Managing Cash required for day-to-day operations 

2. Cash Forecasting

3. Investing surplus funds in short term and long term assets

4. Risk Management

5. Capital Budgeting for Long term investments in operations

Up Next:

In the next chapter, find out how about credit analysis and appraisal.