Treasury Products

Treasury Products

Treasury Products are of 3 types:
 Products of Forex Market
 Products of Money Market
 Products of Security Market

Forex Market Products: It is virtual market without boundaries, highly volatile and liquid and
most transparent. It includes the following products.
1. Spot Trades: Currencies are generally bought and sold at spot rates when payment and
settlement takes place on 2nd working day. Cash and Tom rates are quoted at discount
from Spot rate.
2. Forward Trades : Purchase or sale of currency at future rates. Exchange takes place
after few days/months. Importers and Exporters cover risks by Forward trades. Forward
rates are arrived at on the basis of interest rate differentials of two currencies.
3. Swaps: Foreign Exchange transactions where one currency is sold and purchased for
another simultaneously is called Swap. Swap Deal may involve:Simultaneous purchase
of spot and sale of forward or vice versa. It may also involve Simultaneous sale and
purchase, both forward but for different maturities. It is called ―Forward to Forward
Swap‖.
4. Investment in Foreign Currencies: If forex is surplus with bank, it makes investment.
Surplus arises from profits of treasury business, overseas operations, forex borrowings,
NRE, FCNR and EEFC deposits. Investment can be of following 3 types:
 Interbank loans- normally not more than 1 year
 Short term investments in T-bills and CPs issued by multinational agencies
 Some Correspondent banks offer automatic investment facility in Nostro
Accounts subject to minimum balance.
5. Foreign Currency Loans: Banks extend WC loans in foreign currency and for this
purpose, clearance of Treasury is required.
6. Rediscounting of Foreign Bills :Treasury refinances the Foreign currency bills
purchased/negotiated by another bank. The advance covers Usance period 15-360
days.

Money Market Products: Money market products relate to raising and deploying short
term resources with maturity Maximum 1 year. The money market products are:
1. Call Money: It refers to Overnight placement. It needs to be repaid on Next Working
Day. O/N MIBOR Rate is the indicative rate. Non bank players (FIs/MFs) are not
eligible to participate.
2. Notice Money: It is placement of funds beyond overnight up to maximum period of
14 days.
3. Term Money: It deals with placement of funds in excess of 14 days up to 1 year.
1 to 6 month products are very common.
Other Money Market Products:
1. Treasury Bills:
 These are issued by Govt. of India through RBI.
 Tenure is 91Days, 182 Days and 364 Days.
 These are issued at Discount in auction.
 Banks and PDs participate in the auction.
 The auction is also available to all financial players (FIs/MFs/Corporate).
 Auction takes place on Wednesday every week in case of 91 days bills.
 It takes place on Wednesday every Fortnight in case of 182 D and 364 D bills.
2. Commercial Papers & 3. Certificates of Deposits
CP and CD Commercial Papers – CP:
 CP is issued by Corporate with Net Worth minimum 4
Crore, Rating min.P2 (now A2) and availing WC limit from
any bank.
 CP is issued with tenure 7 Days to 1 year.
 CP is issued in multiples of Rs. 5.00 lac.
 CP is Promissory Note and is Negotiable and also attracts
Stamp Duty.
 It is fairly active in Secondary market.
 It is in Demat form and the price is less than Face Value.
Certificate of Deposit – CD
 CD is issued by banks
 CD is issued with tenure 7 Days to 1 year.
 CD is issued in multiples of Rs. 1.00 lac
 CD is Promissory Note and is Negotiable and also attracts
Stamp Duty.
 CD is not very active in Secondary market
 .
3. LAF – Repo and Reverse Repo
It is Lending and Borrowing money for short term period (1 day to 1 year)
Under Repo, RBI purchases securities with commitment to sell at a later date in order to
Inject Liquidity. Presently, Govt. securities are dealt with. All Repo transactions are
routed through CCIL. RBI has permitted Repo in Corporate securities for only ―AA‖ rated
companies. But the market is yet to be activated.
Under Reverse Repo, RBI sells securities with a commitment to buy at a later date in
order to Contain Liquidity.

Repo and Reverse Repo transactions are generally conducted for Overnight period
through Auction Twice Daily. The minimum Bid is Rs. 5.00 crore and its multiples.
Margin is normally 5%.
(Total available funds to a bank under LAF will be capped at 0.5% of NDTL w.e.f.
24.7.2013)
Latest Repo Guidelines as per Monetary policy dt. 3.6.2014
 Cap of Overnight Repo reduced from 0.5 % to 0.25% of NDTL
 Continuation of Term Repo up to 0.75% (cap) of NDTL under 7 days to 14 days
term repos.
4. CBLO : Collateralized Borrowings and Lending Obligations:
It is money market instrument launched by CCIL. Borrower can deposit G-sec with CCIL
and borrow funds from others who have surplus funds subject to re-purchase of
securities. The tenure is 1 day to 1 year.
Bills Rediscounting:
Treasury re-discounts bills which are already discounted by other banks. The tenure is
3-6 months.
Security Market Products: Securities constitute Shares, Debentures, Bonds, and Govt
Securities etc. The various types of securities are:
1. Govt. Securities
 These are issued by PDO (Public Debt Office) of RBI.
 Price is determined in auction
 There is active trading in Secondary market.
 If Yield rate is more than coupon rate, these are issued at a discount.
 Open Market Operations are conducted by GOI to maintain liquidity position.
 SLR requirements are met by banks by investing in HTM securities.
2. Corporate Debt Papers
 These are medium and long term Bonds and Debentures issued by Corporate
and FIs.
 These are non-SLR securities.
 These form part of Tier –II Capital.
 Yield is more than that of Govt. Securities.
3. Debentures and Bonds: Both are Debt instruments and form part of Tier-II Capital.
SEBI has control over issuance and redemption.

Debenture Bond
Issued by Corporate in Private sector Issued by institutions in Public sector
It is Secured by Floating charge It is not secured
Provisions of Company Law applies It is governed by Indian Contract Act
It can be transferred through registration It is negotiable instrument
It can be convertible or non-convertible  Bond, if given option can be
convertible into equity shares.
It can be
 Zero Coupon Bond
 Perpetual Bond
 Floating Bond
 Deep Discount
4. Equities: It is Share Capital issued by both Private sector and Public sector Companies
to raise funds from public. The people who invest are called Shareholders:
 Bank can invest subject to limit exposure set by RBI for Capital Market
 SEBI has full control and these are traded in Stock Exchanges.
 Derivative products are also available.
 If offered by Company, it is called Primary Market. If purchased through Stock
Exchanges, it is called Secondary market.
Equity Share Preference Share
It is permanent capital and is not
redeemed. It forms part of Tier-I Capital.
It may be redeemable or non-redeemable.
If redeemable, forms part of Tier-II Capital
Dividend is paid out of profits after making
payment to Preference Share-holders.
Preference is given while paying
dividend.Unpaid dividend can be carried
forward. This is why these are called
Cumulative Preference shares.
The Company, if liquidated, pays to Equity
Shares at last.
Preference Shares are given preference
for payment at the time of liquidation.
These carry Voting Rights. These don’t carry Voting rights.
Generally Preference Shares are
Cumulative and Redeemable.