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Principles & Practices of Banking

Unit – 18 : Cash Management Services and its Importance

1. Cash management is a broad term that refers to the collection, concentration, and disbursement of cash.

2. It encompasses a company’s level of liquidity, its management of cash balance, and its short-term investment strategies

3. The objective of a cash management system is to improve revenue, maximize profits, minimize costs and establish efficient management systems to assist and accelerate growth.

4. In India, the cash management business primarily involves collections and payments services.

5. Products Offered by Banks Under Collections (Paper and Electronic)

a. Local cheque collections
b. High value (0 Day clearing)
c. Magnetic ink character recognition (MICR)
d. Outstation cheque collections
e. Cheques drawn on branch locations
f. Cheques drawn on correspondent bank locations
g. Cheques drawn on coordinator locations
i. House cheque collections
j. Outside network cheque collections
k. Cash collections
l. ECS-Debit
m. Post dated cheque collection
n. Invoice collections
o. Capital market collections

6. Products Offered by Banks Under Payments (Paper and Electronic)


a. Demand drafts/banker’s cheques
b. Customer cheques
c. Locally payable
d. Payable at par
f. Cash disbursement
g. Payments within bank
h. Capital market payments

7. In a dynamic economy, markets need to play a key role in guiding the development of infrastructure, including mechanisms like payments systems.

8. This means that innovation and competition will be central to the future development of the payments system - as they are in other areas of the economy.

9. Efficient cash management is a must to support an institution’s growth, and therefore, adopting the best cash management practices is necessary.




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