Page 151 - DCOM208_BANKING_THEORY_AND_PRACTICE

Banking Theory and Practice

Notes There are a number of regulatory and policy changes that have facilitated an efficient Cash
Management System (CMS).

Example: The Enactment of Information Technology Act gives legal recognition to
electronic records and digital signatures.

The formation of the Clearing Corporation of India in order to establish a safe and dependable
institutional structure for the clearing and settlement of trades in foreign exchange (FX), money
and debt markets has surely helped the growth of financial infrastructure in terms of clearing
and settlement. Other innovations that have supported in contouring the process are:

Introduction of the Centralized Funds Management Service to facilitate better management
of fund flows.
Structured Financial Messaging Solution, a communication protocol for intra-bank and
interbank messages.

Self Assessment

Fill in the blanks:
1. Cash management is a term which pertains to the ................, ................, and ............... of cash.
2. Cash management is achieving trade-off between ..................and ..................
3. Account reconcilement is one a service that is planned for businesses that write ..................
4. .................. is a service that allows clients that receive a large number of checks in the mail
to set up their own box in the post office.
5. .................. allows businesses to have large sums of real cash, as well as other valuable
assets, transported from location to location with increased security and protection.

9.2 Evolution and Need of Cash Management Services (CMS)

One of the rising cash management services in India is payment outsourcing. Though cheques
and drafts are a popular mode of payment in India, it is evidently a time consuming procedure
because of the manual processing required. This is a domain where payment outsourcing can
help. It helps the corporate to cut-down their overheads and focus on their core competencies
and, as a result, benefit from speed and accuracy. The heightened security it offers also allows for
tighter fraud control. For the Indian payment system to become completely seamless there are
many variables that need to be harnessed, such as regulatory and legal issues, customer behaviour
and infrastructure.
As more corporate and banks have added technology to their procedures, the issues surrounding
connectivity security have become much important. Today, treasurers need to ensure that they
are equipped to make the best decisions. For this, it is essential that the information they require
to monitor risk and exposure is accurate, authentic and fast. A strong cash management solution
can give corporate a business advantage and it is very important in performing the financial
strategy of a company. The requirement of an efficient cash management solution in India is to
carry out payments, collect receivables and handling liquidity. Traditional or e-business
objectives, in India there are different cash management solutions.

9.2.1 Need of CMS

Managing liquidity is complex, as cash is volatile. For a business spread across various locations,
managing outstation fund-collections and disbursements can often be a time-consuming,

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