Learn · Treasury management
Treasury management: the job, in plain words.
Treasury manages an organisation’s money: making sure there is enough cash every day, investing what is spare, raising what is short and managing the risks of rates and currencies. In a bank the treasury also runs the bank’s own liquidity, its investment book and its FX and money market dealing. In a company it forecasts cash, funds working capital and hedges exposures.
What a bank treasury does
- Liquidity and reserves: keeps the cash reserve ratio (CRR) with RBI and the statutory liquidity ratio (SLR) in eligible securities, and funds the day’s position.
- Money market: lends and borrows short term through call money (overnight, between banks), TREPS (tri-party repo cleared by CCIL), certificates of deposit and treasury bills.
- Investments: manages the bond portfolio, mainly G-Secs, within its limits.
- FX: prices and covers customer FX deals and runs the bank’s currency positions.
Front, middle and back office
Indian banks separate treasury work into three offices so that no one person can deal, check and settle the same trade. The front office (dealers) agrees deals within limits. The middle office measures risk, checks limits and values positions independently. The back office confirms, settles, reconciles and accounts for every deal. This segregation, and maker-checker on every step, is one of the first things an auditor or an interviewer asks about.
Corporate treasury
A company’s treasury forecasts cash, pools balances across accounts and group companies, decides how to fund working capital and capital spending, invests surplus cash safely, and hedges FX and interest rate exposures under a board-approved policy. Its tools are the cash forecast, bank limits and a treasury management system.
A worked example: the morning cash position
The virtual bank’s treasury builds its rupee position for the day (illustrative figures, in crore rupees):
| Item | Crore rupees |
|---|---|
| Expected inflows (maturing loans and investments, clearing) | +620 |
| Expected outflows (maturing deposits, settlements, large payments) | −710 |
| Change needed to keep the reserve balance on target | −60 |
| Shortfall to fund today | 150 |
| Interest on borrowing 150 crore overnight at 6.50% (illustrative) | 150 crore × 6.50% × 1 ÷ 365 = about 2.67 lakh rupees |
The dealer compares call money, TREPS and other sources, borrows within the bank’s limits, and the back office settles and reconciles it. If the shortfall is structural, not a one-day event, it goes to ALCO as a funding question rather than being rolled overnight every day.
Key terms
- CRR: The share of its net demand and time liabilities (broadly, its deposits) a bank must keep as a balance with RBI.
- SLR: The share of net demand and time liabilities a bank must hold in liquid assets, mainly government securities.
- Call money: Unsecured overnight lending and borrowing between banks.
- TREPS: Tri-party repo: short-term borrowing secured by government securities, cleared through CCIL.
- Maker-checker: Every entry made by one person is checked and approved by another.
Practise it in TrezCap
Reading is the start. In TrezCap you do the job in FinTreasury Bank, our virtual bank: the platform calculates every figure, you take the decision and see the consequence. Free to try.
Run Complete Treasury Day
One day in the virtual bank’s treasury, front office to accounts.
Open in TrezCap →Group cash: sweep, pool and the bank limit
Move group cash and stay inside the bank limit.
Open in TrezCap →Cash forecast: choose the model, read the band
Pick the forecasting model and act on its range.
Open in TrezCap →Treasury management simulations
Corporate cash, funding, investment and treasury system cases.
See the page →Questions
What does a bank treasury do?
It manages the bank's liquidity and reserves, borrows and lends in the money market, runs the investment portfolio of mainly government securities, and prices and covers FX deals, all within limits set by the board and ALCO.
What is the difference between front, middle and back office in treasury?
The front office deals, the middle office independently measures risk and checks limits, and the back office confirms, settles, reconciles and accounts for every deal. The separation stops one person from controlling a trade end to end.
What is the difference between call money and TREPS?
Call money is unsecured overnight borrowing between banks. TREPS is a tri-party repo, borrowing secured by government securities and cleared through CCIL, open to a wider set of participants.
Is corporate treasury different from bank treasury?
Yes. A company's treasury manages its own cash, funding and hedging. A bank treasury also runs the bank's regulatory liquidity, its investment book and dealing for customers.
Ready to see TrezCap in action?
Want to see what happens behind the screen? Request a demonstration and we’ll walk you through the full simulation environment.
Or write to us at hello@trezcap.com