Chapter 1 – Introduction to Treasury Management

Treasury function was confined to funds management maintaining adequate cash balances to meet day to day requirements, deploying surplus funds generated from operations and sourcing funds to bridge occasional gaps in cash flow

Organization of Treasury

• Treasury is under direct control of the Head Office, in a bank and has the following features:
• It can be organized as a Department of the bank or as a Specialized branch. As a branch it can have its books of account and as a department, it has the advantage of easier coordination with other departments.
• It has certain degree of autonomy with its own accounting system
• As a specialized branch it can enjoy status of an AD for forex business.
• It is headed by a senior executive normally a General Manager, who reports directly to the Chief Executive of the bank.

It has three main divisions

(a) Dealing room – called front office

(b) Back office – called treasury administration and

(c) Middle office.

(a) Dealing Room :

• It is headed by Chief Dealer with other dealers functioning under him, who undertake sale and purchase transactions. These dealers specialize in their respective areas such as forex, money market or securities market.
• There can be dealers dealing in different foreign currencies, depending upon the size of treasury operations.
• The dealers for securities market will be for secondary market only as primary market falls under the purview of investment department outside the dealing room but within the Treasury domain.

(b) Back office : This department:

• Undertakes the verification and settlement of deals concluded by the dealers.
• Deals are verified on the basis of deal slips and confirmation from the counterparties.
• Issues relating to book-keeping and reporting / returns are taken care of, by the Back office
• It also maintains Nostro Accounts, Funding and Security account with RBI, Demat accounts with depository participants etc.
• Settlement of transactions is the key function of back office which also ensures that the payments and receipts take place on value date basis (because delay results into Toss to the bank).

(c) Middle Office :

It is created to provide information to management and implement risk management system.

Its functions include the following:

• It monitors exposure limits and stop loss limits of Treasury.
• It reports to the management on key parameters of performance.
• It implements transfer price mechanism.
• In smaller banks, it also functions as ALM support group.

Investment Department

It deals with primary issues. The investment proposals are properly appraised and sanction is obtained from an appropriate level as per delegation system prevalent in the bank.

Other departments

These include accounts and administration, system administration, remittance etc, which are administrative in nature.