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8/3/2019 Evaluation of Cash Management & Banking System
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Evaluation of Cash
Management & Banking Systemin Indian Oil Corporation Ltd.
MADE BY:-
RAVISH CHANDRA
BBA 4544\09
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Company ProfileIndian Oil Corporation is an Indian public-sector
petroleum company. It is Indias largest commercial
enterprise, ranking 98th on the Fortune Global 500 listing
(2011). Indian oil and its subsidiaries accounts for a 47%
share in the petroleum products market, 40% share in
refinery capacity and 67% downstream sector pipelines
capacity in India. The Indian oil group of companies owns
and operates 10 of Indias 20 refineries with a combined
refining capacity of 60.2 million metric tons per year.
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Vision
The company has a vision with value. It focuses on six basic
values which are: Ethics setting high standards for ethics & values
Customer fostering relationship for the lifetime
People leading with passion to excel
Technologies harnessing frontier technology
Innovation pioneering the spirit of research and creativity
Environment caring for the environment and community
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Corporate Objectives
To serve the national interests in the oil and related sectors in
accordance and consistent with government policies.
To ensure and maintain continuous and smooth supplies of petroleum
product by way of crude Refining, Transportation and marketing
activities and to provide appropriate assistance to the consumer to
conserve and use petroleum products efficiently.
To earn a reasonable rate of interest on investment.
To work towards the achievement of self- sufficient in the field of oil
refining by setting up adequate capacity and to build up expertise in
laying of crude & petroleum product pipelines.
To maximize utilization of the existing facilities in order to improve
efficient and increase productivity.
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SWOT ANALYSIS
HIGH FOREIGN EXCHANGE DEBT.
IOCL has managed to significantly cut its borrowing cost due to high shareof foreign exchange debt. Its share of foreign exchange is increasing with
foreign exchange loan crossing 50% of its total debt compared to 42% atthe end of the last financial years.
HIGHEST MARKET SHARE
As Indias flagship national oil company, Indian Oil account for 56%petroleum product market share, 42% national financing capacity and 67%downstream Pipeline throughput capacity.
EXPERTISING IN OIL & GAS INDUSTRYIndian Oil is one of the leader in providing engineering, construction andconsultancy service to the pipe line industry. Highly qualified professionalswith vast experience execute pipeline project from concept tocommissioning and provide service for construction supervision andproject management.
STRENGTHS
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WEAKNESS
STRINGENT CORPORATE POLICIES
The decision related to administration is taken at the corporate level.Even minor proposals are to be referred to the top management. Thisleads to a delay in decision-making.
LACK OF MARKETING EFFORTSAmong the public sector oil companies, Indian Oil Corporation is the onlyone to follow a weak marketing strategy. It is only in the recent years thatthe company has started to market its products. However, still the effortsseem to be weak when compared with the competitors like BPCL andHPCL.
PROMOTION POLICYMost of public sector companies seem to suffer from these lacunae. Theemployees are promoted mainly on the basis of experience and not onthe efforts and initiative displayed by the employee in his work. This resultin demotivation and lack of interest for their work on the part of thehardworking employee, who then tend to shift job to satisfied their needfor self-esteem.
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OPPORTUNITIES
EXPLORATION AND PRODUCTION
Indian Oil is metamorphosing from a pure sectorial company
with dominance in downstream in India to a vertically integrated,
transactional energy behemoth. The corporation is making
investment in E&P and import/marketing venture for Oil & gas in
India & abroad, and is implementing a master plan to emerge as
a major player in petrochemicals by integrating its core refiningbusiness with petrochemical activities.
THREATS
ENTRY OF BIF PRIVATE PLAYER
The opening up of the Oil sectors for private players poses a threateven for this well-established company. With Indian companies like
Reliance and Essar and foreign player like Shell planning their entry
into the Indian scenario, the road seems to be tough for Indian Oil.
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OBJECTIVE OF THE STUDY
To get an exposure of the actual working environment within amulti-national.
To thoroughly understand the cash flow management and
various aspects related to banking at Indian Oil.
To study and analyze all the details of Cash ManagementProduct (CMP) facility provided by SBI.
To understand the benefits of electronic solutions in bankingfunctions.
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CASH FLOW FORECASTINGOVERVIEW
A key element of treasury management involves projections of
inflows and outflows of cash of the corporation. It also requires
constant updation on day to day basis for ensuring effective fund
management.
Projection is done in two stages:
Monthly --- by 7th of every month
Rolling --- by 22nd of every month for 15 days of next month
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Daily Updation of Accruals and
Refinement of Projections
Cash Management Product- Through downloading data from CMSService Providers.
Web-banking / emails from banks.
Regional Collection Centers - through emails / telephone from:
Refinery division
Pipeline division
Assam oil division
Information is received from networks spread all over India.
SBI
570 collection centers with SBI in 250 locations most of the centers
have CMP (Cash Management Product) facility.
460 total withdrawal account with SBI about 150 special withdrawal
account with the facility of transferring the balance at the end of the
day to the centralized cash credit account with SBI, Mumbai.
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The following is a cash flow reconciliation statement for the month of March2011, depicting the total of collections among all the four regions (North,East, West, and South) across India, also including the Assam Oil Divisionand the head office here in Mumbai. The statement is divided into threemain aspects namely, the budgeted collections, the actual receivables and
the variance among the two.
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Problems faced by Cash
Management Department
The major problem or bottleneck faced by the cash management
department is the huge variance between the budgeted receivables and
the actual accruals. The prime reasons why variances occur are:
Debtors failing to make a payment on time.
Delay in clearance of payment from banks. Over estimation of receivables.
Problems of clearance through the electronic modes of payment.
Extra Ordinary state of affairs.
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Research Methodology
The study conducted is to investigative in nature that is to say it probes
into the cash & banking department at Indian Oil figuring out its major
functions with the help of secondary sources of data available from the
department itself.
The major parameters of the methodology include:
Data Collection (Cash Flow Statements, Income Statements, Balance
Sheets etc)
Analysing and interpreting the information available in the financialstatements and drawing meaningful conclusions from them.
Brainstorming with the personnel in cash department in applying various
tools and techniques to bring out the various results.
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Interpretation
INFLOWS The budgeted collection was 21746 cr and actual collection was
23635 cr, so the variance of 1889 cr took place.
REASONS FOR VARIATION IN COLLECTIONS OF Rs. 1889
CRORES 5.85% growth in MS and HSD sales in comparison to last year and
9.44% in comparison to Feb 2011 Rs.1200 crores.
Aviation O/s realization in March 2011 Indian Airlines Rs. 422crores.
Grant from ONGC under RGGLV scheme Rs. 48 crores.
Advance collections from M/s Zauri & Nepal Oil Rs. 99 crores.
The variance of - Receipt on Crude import is 358 cr due to Shifting ofCPCL collection from April
The variance of Maturity of FD of USD bonds under REG S is 250crdue to
Premature receipt of FD
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OUTFLOWS
The variance of (769)cr of Crude Related FE Payments is due to Increasein Import Quantity by around USD 150 MN.
The variance of (502) cr of Region Payments is due to Increase in advanceSales tax including additional demand for sales Tax and custom duty GSO.
The variance of ( 233) cr of Payment for Indegenous Crude is due to importpayment.
The variance of (168)cr of OMC Payments is due to Increased inpurchases from OMC.
The reason for variance of (248) cr of Misc. HO Payments due to :-REASONS FOR VARIATION IN MISCELLANEOUS HEAD OFFICEPAYMENTS OF Rs. 248 CRORES
Interest on WXDL loans & Adhoc Interest for March Rs. 34 crores.
Equity contribution to Indian Oil Petronas on 31st march Rs. 34 crores.
Payment to airport authority of India by - Rs. 69 crores.
Payment to Lubrizol (against 1 crore in Feb) - Rs. 16 crores. Demurrage, Freight, charter hire payment by import section Rs. 35
crores.
Misc increased payments in leiu of March closing by LPG & capital assetssection Rs. 40 crores.
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E-Collection ModelsE Collection uses the internet banking facility by adapting to
the latest technology in use. Some of the important concepts
coming under it are:
Electronic Funds Transfer (EFT)
Real Time Gross Settlement (RTGS)
National Electronic Funds Transfer (NEFT)
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The RTGS solution at Indian Oil has been implemented by its primarybanker i.e. SBI. The main parameters behind choosing SBI as theirRTGS vendor are:
A Primary & Lead Banker
Has long term Business Relation with IOCL
Flexible in the past to accommodate IOCL requirements
Zero day float of funds
Besides customer code detail, also provides product details by
generating them in the MIS and then for posting it in SAP CMP annual charges currently incurred shall be reduced once
replaced by RTGS having nil cost
In March 08 during severe liquidity crisis in market RTGS collectionswere received in IOC A/c after 5 6 hours from the time of remittance.
Also there are delayed settlements due to high volume of transactions
at RBI end on next working day of any holiday all such instances willlead to loss of float in case BNP or HDFC are explored
RTGS with one banker is recommended as customer should not havechoice to select banks in which case there may be no control overcollections
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Suggestions
Integrating the system, so details of customers directly appear inSAP, so middleman can be avoided.
Still a number of people using e-banking is not significant, so
create awareness among customers by telling them advantagesof system.
Giving them assurance about security of payment can increasenumber of users.
Indian Oil and its bankers should drive for the convergencetowards electronic payments and collections to better integratemoney and information flows. This will help the treasurers toexactly determine the cash position of the company on the realtime basis.
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Conclusion
Indian Oil has certainly improved a lot from the history of its banking and
cash management to its present one.
As IOCL is the biggest customer of State Bank of India, so it also enjoys a
lot of value added services being provided by the bank.
SBI has also sanctioned authority for various Fund based and Non-Fundbased credit facility to the company.
Cash flows are received from all the networks spread all over the country
for the updated information.
The major problem faced by the Cash Management department of IOCL
is the huge variance between the Budgeted Receivables and ActualAccrual