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Banking > Advanced Banking
> Head Office > Treasury Operations
Treasury Operations
The Bank cannot predict the amounts likely to be received as deposit and also the amounts
likely to be disbursed as loans, yet at any given time, it has to ensure that cash is
available for both activities in sufficient quantities. At the same time, any surplus cash
lying with the banker does not earn anything and hence has an opportunity cost. To
minimise the opportunity cost, the Bank has to run treasury operations. The treasury of
the Bank operates in money market as well financial markets so that at the close of
business on any day, there are no or minimum idle cash balances. The operation assumes
more complications when the bank has many branches spread over a wide geographical
location. In such Banks, the surplus/deficit of all branches is transferred to the central
treasury, which carries out the cover operations.
At any given time, the investment portfolio of a bank would normally consist of both 'approved securities' (predominantly Government securities) and 'others' (shares, debentures, and bonds).
As per RBI guidelines, every Bank has to bifurcate its investments in approved securities into those, which the bank intends to hold till maturity and those which the bank intends to retain temporarily for the purpose of buying and selling in the market. The former type of investments are called 'Permanent' and the latter as 'Current'.
One of the major responsibilities of a successful treasury is to manage the risk arising out of the financial transactions entered into by the treasury. Risks generally arise out of the mismatch between the currency, maturity and interest rate structure of assets and Liquidities. The three most important risks are Interest Rate mismatch risk, Liquidity Risk, and Foreign Exchange Risk.
click here to read about "Use of Derivatives for Interest Rate Risk Management"
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