UNDER THE GUIDANCE OF Shri Arun Kumar Sharma Deputy Manager (finance) IOCL,Northern Region Delhi

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CERTIFICATE OF THE GUIDE

This is to certify that the Project Work titled “study of Banking operations in Indian oil corporation ltd. And the effectiveness of CMP(cash management product)” is a bonafide work of Ms Sarita Mahapatra Carried out in partial fulfilment for the award of degree of MBA of Indian institute of planning and management,Delhi under my guidance. This project work is original and not submitted earlier for the award of any degree / diploma or associateship of any other University / Institution.

Date :28 may 2008 Signature of the Guide: (Mr. Arun Sharma) Deputy manager finance Indian oil corporation ltd. Northern region Yusuf Sarai , Delhi

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STUDENTS’ DECLARATION

I, Ms Sarita Mahapatra hereby declare that the Project Work titled “study of Banking operations in Indian oil corporation ltd. And the effectiveness of CMP(cash management product)”is the original work done by me and submitted to the Indian Institute of planning and management,Delhi in partial fulfilment of requirements for the award of Master of Business Administration in finance is a record of original work done by me under the supervision of Sri Arun Sharma of Indian Oil corporation ltd.

Date : 28 may 2008

(Signature of the Student)

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ACKNOWLEDGEMENTS

I am extremely thankful to shri Arun sharma ,finance manager,Indian oil corporation ltd,Northern region,Delhi , for his extreme support,guidance and patience ,without which it would not have been possible for me to accomplish this project.

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EXECUTIVE SUMMARY

The effectiveness of any organization depends upon the management of its finance operations.The Indian Oil corporation ltd.has identified this as a key area and has set up a benchmark in bringing about centralized financial operations across the country by taking advantage of the latest technology – ERP and SAP. All the offices of Indian Oil corportation ltd. Are SAP enabled which allows effective and quick transactions and subsequent recording by minimizing any kind of error that might arise in the process.Another important application is that of the CMP(cash management product),which is in collaboration with the State Bank of India,helps in enhancing liquidity,centralized control of the cash and cost reduction apart from other advantages like cash forecasting and scheduling.The Indian oil corporation ltd.has 4 different divisions in four zones namely northern region , western region , southern region , and eastern region.Each region has its different state offices with a unique code meant for banking operations. All the cash that is collected is first sent to Mumbai head office from different regions and the the cash collected is distributed back to the different zones.All the credits and debits are reconcilliated on SAP for any error avoidance.

The project was undertaken to conduct a study on the procedure of the cash management and the banking operations of I.O.C.L and the and the various accounts and reconciliations prepared for managing cash and controlling that are exercised on it as per the banking provisions. The study is done in the banking section of Indian oil. It covers the various problems encountered in the preparation of the reconciliations and the important steps taken to solve them.

The project deals with various collections in the banking sections, receiving timely credit, transfers at appropriate times and also their withdrawals. The project encompasses detailed view on different kinds of Bank Accounts maintained with SBI(the sole banker with IOCL) right from the grass root level i.e. the collection point, storage areas to the central fund pooling point viz. Cash Credit Account maintained at Head Office to ensure that the funds are not to be borrowed because of their non availability at right time and also that the excess funds can be landed to earn interest.The project also deals with various discrepancies that creep up during the functioning of accounts called as OPEN ITEMS and their effective handling.

There are areas where the banks fail to credit according to our MOU with the bank, the taking up of amounts is called Valuedation which has also been a part of it.New features such as Real Time Gross Payment to our suppliers and electronic fund transfers to our employees also form part of the project.

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TABLE OF CONTENTS

S.No TOPIC PAGE No.

1 About the organization 7-102 Department bifurcation 113 SWOT analysis 12-164 Cash management 17-185 Objective of study 18 6 Types of account Collection Account 19-22 Regional credit credit account 23 RCC withdrawal account 24 RCC collection account 25 CMP 26 Valuadation 27 Railway credit note account 28 Dishonour of cheques 29-307 CMP of SBI 318 Bank reconciliation statement 37

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INDIAN OIL CORPORATION LTD.

ABOUT THE ORGANIZATION :

Indian Oil Corporation Ltd. is currently India's largest company by sales with a turnover of Rs. 220,779 crore , the highest-ever for an Indian company, and profits of Rs. 7499 crore for fiscal 2006. IndianOil is also the highest ranked Indian company in the prestigious Fortune 'Global 500' listing, having moved up 18 places to the 135th position this year based on fiscal 2006 performance. It is also the 20th largest petroleum company in the world. IndianOil's vision is driven by a group of dynamic leaders who have made it a name to reckon with.

VISION, MISSION & VALUES:

Vision :

A major diversified, trans-national, integrated energy company, with national leadership and a strong environment conscience, playing a national role in oil security & public distribution.

Mission :

To achieve international standards of excellence in all aspects of energy and diversified business with focus on customer delight through value of products and services, and cost reduction.

To maximise creation of wealth, value and satisfaction for the stakeholders. To attain leadership in developing, adopting and assimilating state-of- the-art

technology for competitive advantage. To provide technology and services through sustained Research and

Development. To foster a culture of participation and innovation for employee growth and

contribution. To cultivate high standards of business ethics and Total Quality Management for

a strong corporate identity and brand equity.

To help enrich the quality of life of the community and preserve ecological balance and heritage through a strong environment conscience.

Values :

CARE: Concern Empathy

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Understanding Cooperation

INNOVATION :

Creativity Ability to learn Flexibility

PASSION :

Commitment Dedication Pride Inspiration Ownership

TRUST :

Delivered Promises Reliability Dependability Integrity Truthfulness

OBJECTIVES :

To serve the national interests in oil and related sectors in accordance and consistent with Government policies.

To ensure maintenance of continuous and smooth supplies of petroleum products by way of crude oil refining, transportation and marketing activities and to provide appropriate assistance to consumers to conserve and use petroleum products efficiently.

To enhance the country's self-sufficiency in crude oil refining and build expertise in laying of crude oil and petroleum product pipelines.

To further enhance marketing infrastructure and reseller network for providing assured service to customers throughout the country.

To create a strong research&development base in refinery processes, product formulations, pipeline transportation and alternative fuels with a view to minimizing/eliminating imports and to have next generation products.

To optimise utilisation of refining capacity and maximize distillate yield and gross refining margin.

To maximise utilisation of the existing facilities for improving efficiency and increasing productivity.

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To minimise fuel consumption and hydrocarbon loss in refineries and stock loss in marketing operations to effect energy conservation.

To earn a reasonable rate of return on investment. To avail of all viable opportunities, both national and global, arising out of the

Government of India’s policy of liberalisation and reforms. To achieve higher growth through mergers, acquisitions, integration and

diversification by harnessing new business opportunities in oil exploration&production, petrochemicals, natural gas and downstream opportunities overseas.

To inculcate strong ‘core values’ among the employees and continuously update skill sets for full exploitation of the new business opportunities.

FINANCIAL OBJECTIVES :

To ensure adequate return on the capital employed and maintain a reasonable annual dividend on equity capital.

To ensure maximum economy in expenditure. To manage and operate all facilities in an efficient manner so as to generate

adequate internal resources to meet revenue cost and requirements for project investment, without budgetary support.

To develop long-term corporate plans to provide for adequate growth of the Corporation’s business.

To reduce the cost of production of petroleum products by means of systematic cost control measures and thereby sustain market leadership through cost competitiveness.

OBLIGATIONS

1. TOWARDS CUSTOMERS AND DEALERS- To provide efficient service and quality products at competitive prices.

2. TOWARDS SUPPLIERS – To ensure prompt dealings with integrity, impartiality and courtesy and help promote ancillary industries.

3. TOWARDS EMPLOYEES – To develop their capabilities and facilitate advancement through appropriate training and career planning. To have fair dealings with recognized representatives of employees in pursuance of healthy industrial relations practice and sound personnel policies.

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4. TOWARDS COMMUNITY –To develop economically viable and environment-friendly products. To maintain the highest standards in respect of safety, environment protection and occupational health at all production units.

5. TOWARDS DEFENCE SERVICES - To maintain adequate supplies to Defence and other para-military services during normal as well as emergency situations

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HEAD OFFICE

REGISTERED OFFICE STATE OFFICE

HUMAN RESOURCES

AVIATION

LAW

FINANCE

INTERNAL AUDIT

SALES

QUALITY CONTROL

MAINTAINANCE AND INSPECTION

OPERATIONS

ENGINEERING

INFORMATION SYSTEMS

CORPORATE COMMUNICATIONS

LPG

SALES

DIVISION OFFICE

FINANCE

AREA OFFICE

FIELD OFFICE

LUBES

P&A

OPERATIONS

ENGINEERING

INFORMATION SYSTEMS

TERMINALS

DEPARTMENTS UNDER THE MARKETING DIVISION

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SWOT ANALYSIS

For a long time the company had monopoly in the downstream sector but with the changing time, more and more private and multinational companies

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are entering the sector, IOC is facing competition. But with the vast distribution and pipeline network, it will have an edge over them. The following analysis throws light on the various facets of the present position of IndianOil.

STRENGTHS

Most powerful player - IOC being the only Indian Company to be listed and ranked 191 in the fortune global 500 companies holds a strong brand image. It is the most powerful petroleum corporate in the downstream sector. It owns 7 out of the 17 refineries of the country in public sector contributing to 55% of the nation’s requirements.

Experience- IndianOil has been in the petroleum sector for the past 41 years. During these years it has gathered a lot of valuable expertise and learned the trick of trade, the tougher way. It has enjoyed unlimited protection and nurturing from the government, which helped it grow and gain a substantial hold of the market. This experience will be valued more as and when it will face competition with the upcoming firms in the sector.

Pipeline network- IndianOil has a pipeline network of 6268 kms throughout the country running right from Guwahati in the East to Kanda in the West. It also reaches the Northern Region to Jallandar and plans to extend till Udhampur. This decreases the transportation cost to a great extent for the company. This is a major advantage as the other private refineries coming up will have very little infrastructure for transporting both crude oil as well as finished products. So IndianOil has a natural edge over these companies.

WEAKNESSES

Government’s control- The functioning of IOC is greatly influenced by the government’s policy and regulations. The government has 82% stake in the company, thus, gaining the control of the company. There

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is always a risk of its proposal being rejected as there is uncertain political environment prevailing in the country.

Large size- IndianOil is a huge organization having its head office at Mumbai, 4 regional offices, 15 state offices, 44 divisional offices and 33 area offices. It employs 30162 employees in various levels of organizational hierarchy. This leads to slowing down of processes and inefficient performance due to numerous departmental layers. Handling such large pool of human resource and channelizing their skills in a direction same as that of the organization is not an easy task. This hinders the fast growth required by the organization.

People’s perception - In our country, the perception of the corporate and consumers towards government organizations and offices is not favorable, hence though IOC is the only Fortune 500 company and has grown by leaps and bounds, it is still viewed as an inefficient company, not getting the due importance.

Retail market share - Even though IOC controls most of the retail outlets it has market share of only 33.8% in petrol and 39.6% in diesel registering an increase of 0.5% and 0.3% respectively over the last year. This is comparatively very small as compared to its size, reach and production. This is because of the fact that its retail outlets are concentrated more in semi-urban areas and rural areas.

Distribution infrastructure - The Company operates the largest marketing network of 19000 sale points in the country. It has 5026 captive consumer outlets and 52 jubilee retail outlets. It has over 3000 LPG distributorships bottled in 50 bottling plants throughout the country. It also owns 92 Aviation Fuel Stations and 1294 SERVO shops across the nation. It also handles 853 tankers. This facilitates uninterrupted supply of products throughout the year. Such extensive distribution network is nothing but the muscles of the organization making it stronger and tougher to compete with others. The wide distribution network of the corporation takes care of the imports and exports.

Rural reach - in rural areas it has 231 multipurpose distribution centers. IndianOil has over 100 Indane LPG distributorship

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commissioned in rural and semi-rural areas. This helps to cater to the need of population of rural, remote and far flung areas constituting about 75% of the country’s population.

OPPORTUNITIES

More revenue - with the dismantling of APM by 2002, IOC will be able to fix the prices of its products without government intervention resulting in an upsurge in the revenue earned. Firstly, the new players will use the infrastructure facilities provided by IOC and pay for the services rendered; for example, IOCL has signed the marketing rights agreement for 10 years with RPL. Secondly, by reducing the existing prices to the permissible extent and providing better facilities. This will help them capture more market share making it harder for the new players to grab the market.

Modernization- The liberation of the economy has attracted many foreign players to invest in our country. Again, with the liberalization of the oil economy, more and more MNC’s are entering the sector. They will bring with them the latest technology available. IOCL can utilize their services by means of joint ventures, collaborations and tie-ups, for modernization and capacity augmentation of its plants and refineries increasing the quality as well as the quantity of its product

Intensifying infrastructure - the competitors entering the sector are still not fully operational. While they are building up there infrastructure IOC should grab the opportunity to extend and strengthen it in deficient areas. It can modernize its plants and augment its capacity, extend pipelines to central and southern regions facilitating cheaper transport in those areas. Also more jubilee retail outlets, which are state-of-the-art, should be commissioned in different parts of the country for greater customer satisfaction.

THREATS

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Tastes of competition- as we are closing in on the dismantling of APM we already see a lot of private participation in the sector. With the government opening the upstream sector and taking away the sole right of distribution from PSU’s, private players see a lot of scope for business. As a result Reliance has already entered the field and has started production and ESSAR refineries is following suite. If these companies are able to do profitable business in this sector then other national and multinational companies will also be lured into this field. IOC’s shift from a monopoly in the protected environment to a free market will not be easy.

Price wars- In this free market operation, where all the firms have the full liberty to control the prices of their products, a price war is certain to happen in the near future, since this will be a major factor in determining their market share. If MNC’s with deep pockets decide to enter this sector then they may be able to make this war tougher by cutting down prices even below the permissible level, initially to capture market share.

Better-equipped competitors- The new players will give tough competition, as they will have latest technology and more advanced research and development resources, skills and expertise. They will have better and more efficient machines capable of producing more and better. They will have easy access to foreign markets due to their global presence and standards.

BANKING SECTION :

IOCL

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PIPELINE REFINERY MARKETING AOL

NORTHERN WESTERN EASTERN SOUTHERN

UPSO PSO RSO DSO

DSO-DELHI STATE OFFICE CODE : 1000

PSO-PUNJAB STATE OFFICE CODE :1200

RSO-RAJASTHAN STATE OFFICE CODE : 1300

UPSO- UP STATE OFFICE CODE : 1400

In Banking section different kinds of bank accounts are maintained by IOCL with SBI, right from the grass root level i.e. storage points, to the center fund pooling point viz. Cash Credit Account maintained at Head office.

CASH MANAGEMENT is a marketing term for certain services offered primarily to larger

business customers. It is used to describe all bank accounts (such as checking accounts)

provided to businesses of a certain size, but it is more often used to describe specific services

such as cash concentration , zero balance accounting and automated clearing house facilities.

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Cash Management Services

The following is a list of services generally offered by banks and utilized by larger

businesses and corporations:

Account Reconcilement Services: Balancing a chequebook can be a difficult

process for a very large business, since it issues so many cheques it can take a lot

of human monitoring to understand which cheques have not cleared and therefore

what the company's true balance is. To get around this, banks have developed a

system which allows companies to upload a list of all the cheques that they issue

on a daily basis, so that at the end of the month the bank statement will show not

only which cheque have cleared, but also which have not. More recently, banks

have used this system to prevent cheques from being fraudulently cashed if they

are not on the list, a process known as positive pay.

Advanced Web Services: Most banks have an Internet-based system which is

more advanced than the one available to consumers. This enables managers to

create and authorize special internal logon credentials, allowing employees to

send wires and access other cash management features normally not found on the

consumer web site.

Automated Clearing House: services are usually offered by the cash

management division of a bank. The Automated Clearing House is an electronic

system used to transfer funds between banks. Companies use this to pay others,

especially employees (this is how direct deposit works). Certain companies also

use it to collect funds from customers (this is generally how automatic payment

plans work). This system is the subject of the ire of some consumer groups,

because under this system all banks assume that the company initiating the debit

is correct until proven otherwise.

Balance Reporting Services: Corporate clients who actively manage their cash

balances usually subscribe to secure web-based reporting of their account and

transaction information at their lead bank. These sophisticated compilations of

banking activity may include balances in foreign currencies, as well as those at

other banks. They include information on cash postitions as well as 'float' (e.g.,

checks in the process of collection). Finally, they offer transaction-specific details

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on all forms of payment activity, including deposits, checks, wire transfers, ACH

(automated clearinghouse debits and credits), investments, etc.

Cash Concentration Services: Large or national chain retailers often are in areas

where their primary bank does not have branches. Therefore, they open bank

accounts at various local banks in the area. To prevent funds in these accounts

from being idle and not earning sufficient interest, many of these companies have

an agreement set with their primary bank, whereby their primary bank uses the

Automated Clearing House to electronically "pull" the money from these banks

into a single interest-bearing bank account.

Lockbox services: Often companies (such as utilities) which receive a large

number of payments via cheque in the mail have the bank set up a post office box

for them, open their mail, and deposit any cheque found. This is referred to as a

"lockbox" service.

Positive Pay: Positive pay is a service whereby the company electronically shares

its check register of all written checks with the bank. The bank therefore will only

pay cheques listed in that register, with exactly the same specifications as listed in

the register (amount, payee, serial number, etc.). This system dramatically reduces

check fraud.

Sweep Accounts: are typically offered by the cash management division of a

bank. Under this system, excess funds from a company's bank accounts are

automatically moved into a money market mutual fund overnight, and then moved

back the next morning. This allows them to earn interest overnight. This is the

primary use of money market mutual funds.

Zero Balance Accounting: can be thought of as somewhat of a hack. Companies with large

numbers of stores or locations can very often be confused if all those stores are depositing

into a single bank account. Traditionally, it would be impossible to know which deposits

were from which stores, without seeking to view images of those deposits. To help this

problem, banks developed a system where each store is given their own bank account, but all

the money deposited into the store account is automatically moved into the company's main

bank account. This allows the company to look at individual statements for each store.

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OBJECTIVES OF THE STUDY

Study is conducted to understand and analyze the working of Banking Section in IOCL.

To understand the various Accounts prepared in the Banking

To understand the various Reconciliation’s prepared in the Banking Section.

To find out the various causes of the unmatching of the Reconciliation.

To identify the open items and unmatched items.

To analyze and clear the open items.

To interpret the results thereof and to reach at some conclusion.

To understand the practical difficulties faced in the Banking Section.

TYPES OF ACCOUNTS

All the accounts that IOCL has are broadly divided into:01. Collection Account02. Special Current (Withdrawal) Account 03. Regional Cash Credit Account04. Cash Management Product05. Cash Credit Account06. Valuedations.07. Real Time Gross settlement (R.T.G.S)08. Railway credit note09.Dishonor of Instrument10. Letter Of Authority Account

COLLECTION ACCOUNT

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Collection Accounts are opened for various locations and other offices for depositing various instruments collected from customers/parties.

Also while deciding the branch, assess the quantum of outstation cheques that are likely to be deposited every month and accordingly get the DDP limit allocated to the branch. This will enable to get the immediate credit for all outstation instruments deposited in the account.

DDP limit is a facility under which SBI purchases all outstation cheques and gives immediate credit against them, ending actual realization of cheques from the dealers.

Quantum of DDP limit should be calculated estimating the value of outstation cheque that the location will be depositing in a period of 15 days.

For all instruments that IOCL receives, they generate a DCR (Daily Collection Report) that acts as a receipt for the organization as it gets it stamped from the bank, which can also act as a proof for all future references.

Since we have a DDP limit, depending upon the clearinghouse arrangement for local banking instruments, at present all cities in the country can be divided into three different categories namely

Day zero center Day one center Day two center

In all day zero center credit and transfer of funds for local instruments is given to us on the same day of deposit provided the instruments are deposited before the cut off time for acceptance of instruments by the branch for presenting it in the days clearing.

Similarly in all day one credit and transfer of funds for local instruments is done on the next day provided the instrument are deposited well before the cut off time for acceptance of instrument by the branch.

However as per the understanding with SBI, credit and transfer of funds for local instruments in all day two centers should be given to bank on day one itself. This should be ensured by all the location of day two centers. Step 1: DCR is deposited

Bank A/c Dr 100To Party A/c 100

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Step 2: Amount transferred to SBI, HO

SBI, HO A/c Dr 100To Bank A/c 100

Dr Party A/c Cr Dr Bank A/c Cr

By Bank 100 To party 100 By SBI,HO 1

Dr SBI, HO A/c Cr

To Bank 100

WITHDRAWAL ACCOUNT

All regions and state offices operate the Special Current (Withdrawal) account. Even some major locations having monthly payments of more than Rs.1crore are given the facility of Special Current (Withdrawal) account.

In case of Special Current account no Pre –funding of the account is done .The daily balances are transferred via Regional Cash Credit account at Mumbai.

All payments made from the account are centrally funded from the operations Main Cash Credit Account at Mumbai

No deposit of any instrument is permitted in this account.

Cheques that are more than six months old should not be revalidated and the same should be transferred to time barred cheque code.

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Care should be taken for safe keeping of computerized chequebooks printed by us. As a precaution it is recommended not to keep stock of more than six months requirement of computerized cheques.

Computerized cheques should be pre-printed with “Account –Payee” only crossing.

Debit entries in the bank statement for bank recovered by SBI for issues of demand draft etc. are to be verified in line with MOU.

It should be verified that the bank charges debited by the bank are in line with the charged agreed by the cooperation.

It must be ensured that the instrument given by the customer are not deposited in Special Current Account or the bank should not credit our Special Current Account by mistake in case both our Collection and Special Current Account are maintained at the same branch.

Step 1: Issuance Of Cheque.

Expenses A/c Dr 100To bank A/c 100

Step 2: When Cheque Is Presented With SBI

Bank A/c Dr 100To SBI, HO A/c 100

Dr Expenses A/c Cr Dr Bank A/c Cr

To Bank 100 To SBI HO 100 By Expenses 100

SBI HO A/c

By Bank 100

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REGIONAL CASH CREDIT

Each regional office of marketing and other divisions of the corporation individually operates a Regional Cash Credit Account.

In this account, pooling of Debits and Credits from the various accounts other than Current account operated by locations are effected.

Debit entries to the Regional Cash Credit Account is from the following two accounts, which are:

Withdrawal account andRailway credit note

Credit entry to the Regional Cash Credit Account is from the Collection account. Separate code no are allotted to identify each type of transactions in the Regional Cash Credit account which are:

For Collection - code01 For Withdrawal - code02 For RCN debits - code05

SBI branches having any of the above-mentioned account transfer the daily balance to the respective Regional Cash Credit Account.

Net balances pooled in the Regional Cash Credit Account are to be daily transferred to our main Cash Credit at Mumbai.

A separate code no “19”identifies this transfer amount. No balance is retained in this account.

RCC WITHDRAWAL ACCOUNT

Step 1: Issuance Of Cheque.

Expenses A/c Dr 100

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To bank A/c 100

Step 2: Bank Transfer To SBI CAG, New Delhi

Bank A/c Dr 100 To SBI CAG, New Delhi A/c 100

Step 3: SBI CAG, New Delhi Transfer To SBI , HO

SBI CAG, New Delhi A/c Dr 100 To SBI, HO A/c 100

Dr Expenses A/c Cr Dr Bank A/c Cr

To Bank 100 TO SBI CAG1100 TO EXP 100

Dr SBI CAG, New Delhi A/c Cr Dr SBI HO A/c Cr

To SBI,HO 100 By Bank 100 By SBI CAG 100

RCC COLLECTION ACCOUNT

Step 1: DCR is deposited

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Bank A/c Dr 100 To Party A/c 100

Step 2: Bank Transfer to SBI CAG, New Delhi.

SBI CAG, N. Delhi A/c Dr100 To Bank A/c 100

Step 3: SBI CAG, New Delhi Transfer to SBI, HO

SBI, HO Dr 100 To SBI CAG, N. Delhi A/c 100

Dr Party A/c Cr Dr Bank A/c Cr

By Bank 100 To Party 100 By SBI CAG 100

Dr SBI CAG, N. Delhi A/c Cr Dr SBI, HO A/c Cr

To Bank 100 By SBI, HO 100 To SBI CAG 100

CASH MANAGEMENT PRODUCT

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Cash Management Product (CMP) is a new facility provided by SBI whereby the collections and withdrawals from upcountry branches are transferred via electronic mode to our cash credit account at Mumbai.

The facility provides DCR Number in the daily reports in place of Instrument Number and to suit our MOU terms and conditions.

The Cash Management Product facility can be divided into two main categories namely: -

Credit Module of CMP and Debit Module of CMP.

Credit Module of CMP deals with Collection Proceeds and Debit Module of CMP deals with Withdrawal.

Entire transaction data is provided in soft copy to all Regional offices and Sate Offices on monthly basis from Mumbai.

All the Memorandum Terms and conditions of Collection Account are equally applicable to the facility under CMP except that instead of TT transfer to RCC A/c, now daily fund transfer takes place through electronic media direct to CC A/c at HO. Under CMP virtually no new account is opened rather on receipt of the request for collection account for a location.

CASH CREDIT ACCOUNT

CCA is operated by H.O. marketing division and is a very important account of the corporation.

Only the board of directors can open a CCA upon passing a resolution to the effect.

Transfer of funds from all other types of accounts like collection account, withdrawal account etc. are to CCA.

Apart from transfer entries all payments handled by H.O. like purchase of foreign currencies, repayment of loan availed etc. is directly debited to CCA. Similarly

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loans availed for working capital purpose and major receipts handled by H.O. are mostly credited to CCA directly.

The limits sanctioned by SBI for the CCA are required to be renewed every year by submitting yearly credit monitoring arrangement data in the prescribed form by the bank. The data to be given are current and previous year’s actual and next two years projections.

Monthly bank reconciliation and clearance of open items etc. are applicable to CCA as well.

The bank balances of CCA is monitored on daily basis to ensure that the overdraft balances do not exceed the sanctioned limit and also no surplus balances are kept idle.

VALUEDATION

As corporation maintains number of bank accounts through out the country for different purposes like separate account for withdrawal of funds and separate account for sales realization etc., it is pertinent to pool all this debits and credits together to avoid idling of funds at one account and paying interest to bank on withdrawals from another account.

In order to pool all the debits and credit at one account, Regional Cash credit Account were opened. Such Regional Cash Credit were opened region wise for easy control and proper accounting.

To overcome the drawback of time gap between transfer of funds and receipt of funds from various collections accounts and other withdrawal accounts at Regional Cash Credit Account, the concept of “Valuedation” was introduced.

Under this facility the amount received at Regional Cash Credit are recorded with the date of original transfer of amount from the Collection account or other Withdrawal accounts.

Interest to be paid to SBI on amount borrowed is calculated for the Corporation as a whole on the basis of daily “Valuedated” balance of the Main Cash Credit account by applying the effective rate of interest.

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REAL TIME GROSS SETTLEMENT(R.T.G.S)

New mode of payment Real Time Gross Settlement has been introduced

Under these new mode , payment to suppliers &vendors is very fast and hassle free in terms of avoiding collection/deposit of cheques and getting credit after clearing which are existing I the present conventional mode.

The payment is through RBI and the facility is available in more than 5000 branches of various banks. RTGS facility can be availed if the fund transfer is to be made to a bank other than the bank from where fund is transferred. In our case since we are having our account with SBI, Vendors/suppliers having account in banks other than SBI, can avail this a facility provided their bank is RTGS enabled.

RAILWAY CREDIT NOTE ACCOUNT

This facility is given to us by the SBI to enable our locations to make Railway freight payments. Under this facility, locations are authorized to make payment of Railway freight. The bank cannot permit any other payment under this facility.

At present we have 3 ways of making payment of railway freight:

By having a special current (withdrawal) account at the location. By issuing cheques of special current (withdrawal) account maintained at the RCC

branch. By issuing RCN.

Opening of RCN facility

Request for opening of any type of RCN Account should be forwarded to Head Office after ensuring the following aspects:

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Ensure that the Branch is able to handle the workload of our account by inquiring about the Branch’s infrastructure, staff strength etc.

The branch should be selected in consultation with the Railway Authorities so that their requirements are met and IOC does not incur any bank charges.

More than one officer should be posted in that location. The proposal contains all necessary details like:

# IOC location name

# IOC location code

# SBI branch name

# SBI branch code

# SBI branch address

# Monthly withdrawal limit

Checklist of various aspects to be verified by Region/Location

The chequebooks should be pre-printed with the Name of the Railway Authority to whom payment is made. There should not be any blank cheque book/ leaf without the name pre-printed.

Region should not distribute to different locations; the cheque leafs from the same chequebook. In other words separate chequebooks should be given to each location.

While issuing new chequebook to the Location it should be ensured that all the cheque leafs of the earlier chequebook are utilized and proper accounting for all cheques is submitted by the Location.

Proper explanation should be obtained from the Location in case of any missing cheque number in the Bank Statement.

Bank charges for the facility is 0.50ps per RS 100/-

Reconciliation should be done on the monthly basis by the region based on statement received from locations containing details of RCN’s issued during the month.

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DISHONOUR OF INSTRUMENT

Dishonor of instruments is one of the areas of major concern in banking activity. Timely realization of all instruments/cheques has to be constantly and closely monitored by all concerned and immediate corrective steps to be taken whenever the cases of dishonor or delay in realization are noticed so that no financial losses occur to the corporation.

All debit entries for dishonor of instrument, the original instrument are collected /obtained from the bank. This aspect is equally applicable to centers having CMP facility.

As soon as the dishonor of instrument is received, ensure to pass the necessary entry immediately debiting the customer for the value of instrument along with interest and incidental charges.

Action to be taken for obtaining replacement cheques/DD from the concerned party. Divisional manager to be immediately informed of the dishonor.

WORKING

Northern Region (NR) is divided into four state offices Punjab State Office(PSO),Rajasthan State Office (RSO), Delhi State Office(DSO),Uttar Pradesh State Office(UPSO) each of which have their own banking transaction with the main banker SBI

Banking

DSO NR PSO RSO UPSO

GREEN PARK PARLIAMENT STREET

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Northern Region undertakes the transactions occurred at these state offices and it also has their own account with SBI at Green Park and Parliament Street.

All the accounts of IOC are broadly divided into two types, which are

TYPES

RCC CMP

Regional cash credit (RCC) accounts and Cash Management Product(CMP) RCC accounts are those accounts where the amount collected by the various state offices are first transferred to the central CAG office in Delhi, and from there it is transferred to SBI ,Mumbai

CMP Account is that account, where each location passes their daily collection to SBI Mumbai, our final cash credit account. The day end balance has to be nil.

Everyday collections are deposit through DCR (daily credit report), which is a form of pay-in-slip. According to MOU we need to receive credit for high value cheques on the same day and all other cheques by the next day.

REALISATION Statement is received everyday from bank, which gives a picture of the total amount credited in our account in lieu of the DCR deposited.Any discrepancies in the two are taken up with the bank immediately as they lead to delay in receiving of funds which may lead to loss of interest.

RCC Papers are also received on an everyday basis, which gives a clear picture of the total credits and debits of the entire marketing division of the Northern Region, which includes all the state offices and their various locations.

Northern region does reconciliation of the accounts that it operates, i.e. the withdrawal and the collection account at Green Park and the withdrawal account at the Parliament Street.

CASH MANAGEMENT PRODUCT

STATE BANK OF INDIA provides cash management services to Corporate Clients under the brand name SBI-F.A.S.T. (Funds Available in Shortest Time) from 320

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collecting locations across the country with Pooling facility at different branches as per client's choice, which are physically connected to central hub at Mumbai.The product is aimed at enhancing liquidity, reducing costs and providing opportunities for profit for our clients. The product is technology-driven and the entire network is linked through VSATs / leased lines. Under SBI F.A.S.T., funds are transferred directly to the client's main account.SBI FAST also offers disbursement/ payment services through a separate Debit transfer module to facilitate payments at various expenditure centers & plant locations. On a daily basis detailed MIS reports, covering location-wise presentations, location-wise credit and cheque returns, are made available to Corporates' Head office as well as to the local offices / representatives at the various centres through Email.

This enables in the following

Guaranteed transfer of collection proceeds on the same day the funds are cleared at CMP Collecting Centres located all over the country to the Central Account of Corporates at a designated Pooling Centre. No account need be maintained at the collecting centre.

Day-end-Balance Sweep of debit balances in Operative Accounts maintained at CMP centres to facilitate local disbursements.

Transfer of Day-end-Balances in Collection Accounts maintained at various CMP centres to the main account.

Centralised Reconciliation Support.

ADVANTAGES OF CMP

Centralised Control of cash Cost reduction Enhanced Liquidity Interchange of Information between treasury & operating units Reduced excess cash balance Cash forecasting & scheduling Effective control over disbursements Efficient Financial Management.

REGIONAL CASH CREDIT (RCC) ACCOUNTS AND CASH MANAGEMENT PRODUCT (CMP)

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RCC accounts are those accounts where the amount collected by the various state offices are first transferred to the central CAG office in Delhi, and from there it is transferred to SBI, Mumbai

CMP Account is that account, where each location passes their daily collection to SBI Mumbai, our final cash credit account. The day end balance has to be nil.

Everyday collections are deposit through DCR (daily credit report), which is a form of pay-in-slip. According to our understanding of MOU we need to receive credit for high value cheques on the same day and all other cheques by the next day.

REALISATION Statement is what we receive everyday from bank, which gives us a picture of the total amount credited in our account in lieu of the DCR deposited.Any discrepancies in the two are taken up with the bank immediately as they lead to delay in receiving of funds which may lead to loss of interest.

RCC Papers are also received on an everyday basis, which gives a clear picture of the total credits and debits of the entire marketing division of the Northern Region, which includes all the state offices and their various locations.

Northern region does reconciliation of the accounts that it operates, i.e. the withdrawal and the collection account at Green Park and the withdrawal account at the Parliament Street.

As discussed we receive the data of Green Park in hard copy for which we format the file according to the given format, which is:

A B C D E F G H I J K

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INCO FOR COLLECTION/OUT FOR WITHDRAWAL IN TEXT FORMATE

DATE IN TEXT FORMAT(BOTH)

AMOUNT IN NUMBEWR FORMAT(BOTH)    

AMOUNT IN TEXT FORMAT(BOTH)

DCR NUMBER IN THE CASE OF COLLECTION TEXT FORMAT

CHEQUE NUMBER IN THE CASE OF WITHDRAWAL

CHRGES IN TEXT FORMATE(BOTH)  

INCO IN TEXT FORMATE

                     

INCO1102005 10000.00       01       INCO

CHRG1102005 100.00           M01006   CHRG

EDEB1102005 5000.00               EDEB

ECRE1102005 5000.00               ECRE

TRANSFER1102005

1000000.0     1000000        

TRANSFER

And we finally come out of this type of file

inco 27032006 16000.00       124       incoinco 29032006 115000.00       126       incochrg 30032006 1500.00       128       chrgecre 31032006 7500.00       129       ecreinco 31032006 5000.00       130       incoh000 311032006 145000     145000         h000

The point to be noted here is the last entry, which is h010, which indicates that the total amount of credits received during a month, has also been transferred to our CCA at Mumbai. While working on the format if the total of transfers does not match with the credit received it has to be taken up the bank.

For Withdrawal Account of Parliament Street we receive data as a soft copy, which is then formatted according to the DBASE format to make it SAP enabled.

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After formatting the file looks like this

LOC_CODE CREDIT_DT AMNT BDS_NO REMARKS STATE24 1/3/06 365944 1 GEN Clg. 100024 2/3/06 3456 1 GEN Clg. 1000    369400                 25 1/3/06 45678 774 GEN Clg. 100025 1/3/06 1999666 775 GEN Clg. 1000    2045344                 26 1/3/06 5678 34835 GEN Clg. 100026 2/3/06 288190 34836 GEN Clg. 1000    5123356                   TOTAL = 7538100                 567 1/3/06 400000 456 GEN Clg. 1100678 1/3/06 12059 457 GEN Clg. 1100    412059                 987 2/3/06 40646 7726 ONBRANCH Clg. 1200998 2/3/06 1906472 7727 ONBRANCH Clg. 1200    1947118                 1234 3/3/06 791303 976 GEN Clg. 13001235 3/3/06 805640 977 ONBRANCH Clg. 1300    1596943                 657 4/3/06 4695971 1234 GEN Clg. 1400789 5/3/06 6758 1235 GEN Clg. 1400    4702729                   TOTAL= 16196949      

It has a location code different for each state indicating that there is different CMP account within each state, which explains quick flow of funds in the organization.

The file has the following features:

LOCATION CODE –It indicates the SBI branch within the state.

CREDIT DATE- it indicates the date on which the credit was transferred to SBI, Mumbai.

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BDS_NO – This is the most important factor that helps in differentiating accounts and accounts with-in accounts.

It is actually the DCR no of different states.

STATE- each state office has a different location code

Region –1000DSO-1100PSO-1200RSO-1300UPSO-1400

The data is sorted according to state offices and the total amount for each state office is calculated and then the entire division is calculated to reach upon the amount that indicates the total amount of transactions occurred during the month.

The data for each state office is send to them.

We take the data of the NR and as can be seen from the BDS_NO that there are three different type of BDS_NO given each indicating a different type of account.

The BDS_NO indicating ‘1’ is for EFT account

The BDS_NO indicating three digit numbers is for CAG account

The BDS_NO indicating five digit numbers is for R.K.PURAM Account.

The total of each of those is taken and worked on in a manner similar to the collection file for RCC account.

We collect the total data of EFT and format it to make it SAP enabled. After formatting the file it looks like this

BANK RECONCILIATION STATEMENT

Definition

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Bank Reconciliation Statement is prepared on a particular date to reconcile the bank balance in the cashbook with the balance as per passbook by showing all the causes of difference between the two.

The difference between the two balances arises due to some entries, which have been recorded in the cashbook but not in the passbook. Similarly, there may be some entries recorded in the passbook but not in the cashbook. Besides, disagreement between the two balances can happen on account of errors committed either by the customer or by the bank while recording entries in their respective books.

Reconciliation and identification of open items

At state office matching of the transactions as per bank statements and cashbook shall be carried out on monthly basis and unmatched items can be identified and listed in the following manner:

DCR booked in bankbook but not credited by the bank. Amount debited in bank statement but not booked in the bankbook on account of

dishonors, overdue interest and other bank charges etc. Amounts credited by bank but not booked in bankbook.

Difference in amount between the amounts booked as per DCR and amount credited by bank.

Causes of difference in Cashbook and Bankbook

1. Cheques issued but not yet presented for payment.2. Cheques paid into the bank but not yet cleared.3. Interest allowed by the bank.4. Interest and expenses charged by the bank directly.5. Interest and dividend collected by the bank directly.6. Direct payments by the bank on our behalf.7. Direct payment into the bank by the customer.

Time frame for completing the reconciliation

And Clearance of open items

State offices must complete the bank reconciliation in respect of all locations under them by 12th of following month.

The open items emerging out of the reconciliation should be analyzed and cleared within three days of the completion of the bank reconciliation.

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It is the responsibility of the Divisional manager to ensure the timely response on the report by state office.

Reports

The reports to state office should be sent by 20 th of the following month and also a report to the regional office confirming that there are no open items. It should be informed to HO on monthly basis by mentioning “status on the key issues”.

Importance

It helps to bring out any errors that may have been committed either in the cashbook or in the bankbook.

Any undue delay in the clearance of cheques will be shown up by the reconciliation.

It helps in the detection of frauds. Accuracy of the entries can be easily checked and a regular check on it can be

done.

Format of reconciliation of withdrawal account

1. The cheques issued during the month :

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Cheque issued but not presented

It includes the total of the cheques issued during the month. Whenever a

a cheque is issued expenses A/c will be debited and Bank Withdrawal

A/c is credited.

Expenses A/c Dr.

To Bank Withdrawal A/c

2. Cheques issued during the previous month which were not presented:

It contains the closing balance of previous month’s Reconciliation i.e. the

grand total. For e.g. in the reconciliation of Aug., the closing balance of

July is to be taken.

3. Items to be cleared : 4. Bank transfers :

The total of the Green Park and Parliament Streets transfers given by the

bank is taken under it. For e.g.: The total collection made by the bank on

IOC’s behalf on the particular month and the transfer given by the bank

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for the same .The bank will credit its A/c and debit the CAG Branch’s

A/c with the same amount.

5. Cancellation of cheques :

6. Bank Charges :

The total charges imposed by the bank on collection and payment of

cheques.The bank charges are directly charged by the bank and the

information of the same is send to the IOC as being unmatched amount.

7. Cheques issued but not presented

Total of the cash unmatched (44*).

Various Code Words Used For the Preparation of Reconciliation:

Unmatched :

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The cheques which are issued by us but not presented for payment on

that date. In this case IOC have to make a separate list of all these

amounts and try to clear them.

Matched :

The cheques which are presented for payment and cleared by the bank

on that date.

44 *:

Code word used for the cash book of IOCL.

92 *:

Code word used for the bank book of IOCL

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