Cash Management 317— Delay in realization
— Funds not cleared
— Irregularity in carrying out standing instructions
— Poor monitoring of collections- Higher cost of operation
- Hassles of operating multiple accounts at various locations
- Hassles of reconciliation
- Poor MIS support
The cash management service offered by banks is an effective solution for corporates to overcome the in-
efficiencies, constraints, costs and hassles involved in the traditional collection system. Banks play a critical
role in providing faster turnover of receivables, given the complexity of the clearing system (i.e., banking
system) in India, hence it is very important for a cash manager to understand the payment system in India.
The payment or clearing system in India can be understood in the following contexts:A. Paper-based payment system
(i) Local check clearing system
(ii) Outstation clearing system
B. Electronic payment systemA. Paper-Based Payment System
In India, payments are mainly paper-based and checks are the widely accepted method of funds transfer.
Clearing of these instruments is done at respective clearing centers at over 990 locations across India. The
Reserve Bank of India (RBI) conducts clearing at 17 centers, SBI at about 975 centers, and the rest are being
managed by associate banks and other public sector banks.High Value Clearing RBI offers this facility at select centers within certain geographical limits of that
center. High value clearing represents the instruments of value more than Rs 1 lac, issued and deposited
within that limited area of the clearing location. High value instruments are of significant importance to the
cash manager as he gets credit for the amount in his account on the same day.Local Clearing At certain identified clearing centers, having a large volume of transactions, RBI has made
Magnetic Ink Character Recognition (MICR) clearing mandatory for automated processing. Checks that
cannot be deposited in high value are processed in MICR clearing, the cycle for which is 48 hours. At centers
where MICR clearing is not followed, the clearing process takes place in the tradional manual method with
the same 48 hour clearing cycle.
The timeline for local clearing of checks is as follows:
- Day 0: Company deposits the cheques in the CMS bank branch before the stipulated clearing cut-off time.
- Day 1: The bank branch presents the check in local clearing.
- Paying bank credits funds to the presenting bank on uncleared basis to allow time for returns.
- Day 2: If the check is not cleared, paying bank returns the instrument to the presenting banker. If the
check is cleared the presenting bank makes the funds available to the depositor.