Treasury Division Plans In Final Stage

Nationalised banks are finalising the details for setting up of separate treasury divisions for consolidating the functions of trading in the money and forex markets within a year.

The banks include Bank of India (BoI), Union Bank of India (UBI), Bank of Baroda (BoB), and Central Bank of India. Most of these banks have appointed professional consultancy services to work out a game plan according to which the operation will be conducted. Bank of India is likely to launch its new division in a couple of months. According to V H Ramakrishnan, general manager, BoI, For banks to take advantage of the new developments, there will have to be deeper co-ordination between the two markets. With the two functions under one roof, a bank will have at its disposal the total corpus of funds it has at any point in time.

 

As of now, the forex trading desk comes under the international division and the money disk under the funds division.

On the salient features of the blue print, R Jayaraman, general manager, BoB, said it involved setting up of the requisite computer systems and other infrastructure and training of professionals as well as absorbing fresh expertise if required. Banks will also beef up their risk management systems, to be more actively involved in the market and provide more sophisticated products to their customers such as foreign currency-rupee swaps. The move follows the recent developments in the budget and the credit policy announcements.

The budget had promised capital account convertibility and the credit policy had announced various measures to integrate and deepen the money and forex markets .A senior official of UB said, the step is inevitable now that the ministry of finance had announced capital account convertibility. Analysts and bankers have welcomed the move saying that it will lead to a deepening of the forex markets providing greater scope making a profit on market movements. Nationalised banks are sitting on a corpus of $5 billion in terms of foreign currency. Once they enter the market and start trading, this will substantially increase trading volumes.

There is also likely to be a spurt in arbitrage activities as higher volumes would make it more profitable for banks to take advantage of differences in the call and forex markets.

As of now, the two divisions are separate with no co-ordination between the two. As a result the money division is not aware of the happenings in the forex front. Thus they lose out on opportunities that might arise.

Private sector and foreign banks, on the other hand, are in a position to take advantage of such opportunities.