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Contents
Acknowledgements
Preface
Executive Summary
Work Experience
Retail Processing Centre
Treasury Back Office
Finance Department
Financial Analysis
Acknowledgements
I personally feel grateful to be given the opportunity to complete a
two-week internship period at the ICICI Bank Ltd. Colombo Branch. It has
been an honor to work at multi-national bank with a network of 3100
branches and 10481 ATMs spread out globally. I would express my
gratitude to the Country Head, Mr. Biju Jacob who personally welcomed
me prior to my internship term and warmly accepted my request for a
placement as an intern at the bank. I am also deeply thankful to Ms.
Nadeeka Samaranayake, the country Operations Head for assisting me in
making arrangements with other workers at the bank and Ms. Dulamini
Jayawardhana, the HR Manager for introducing me to several other people
at the branch and guiding me on different issues that I faced during the
work. I would also like to pay my thanks to Ms. Kristina as she made me
familiar with procedures followed at the RPC and Mr. Sohan in the Trade
Department for explaining me the trade cycle steps that are the work norm
at the department. I feel indebted to Mr. Madhava Hettiarachi for
discussing with me the working fundamentals at the Treasury Back Office
at a full depth and fully answering my questions on the various doubts and
misconceptions that I had regarding the Treasury. I am also deeply grateful
to Mr. Chanaka at the Finance Department as he told me at a length about
the daily, weekly, monthly and yearly working practices that are conducted
at the department apart from detailing the various methods to analyze
financials of a given company.
Yours,
Osama Mahmood
(AS-Level)
Preface
Internship is an integral part of an educational life as a student gets the
valued opportunity to learn by practically applying his knowledge and skills
which has gained through the books and classrooms by years of study. As a
person experiences the working procedures of a particular organization it
turns up extra learning potential and prepares the mind for a clearer grasp
of concepts when further education/knowledge is sought in the relevant
field i.e. Banking.
With the working experience of two weeks at the ICICI Bank Ltd I feel
equipped with the confidence to pursue my education in commercial field
as skills that I gained at the bank would help me in bringing up brighter
ideas during my education at the University and enable me to quote
examples from the latest Banking practices. Moreover, the work experience
would be an advantage to the Bank that employs me in the future as it
would get an employee who is already well-acquainted with the basic
practices in various departments of a bank.
Executive Summary
The two-week work at the ICICI Sri Lanka has been particularly enriching
and educational. The report elaborates the working practices learnt at the
RPC, Treasury, Finance and Trade departments at the internship. It is
followed by a Financial analysis of the bank coupled with a few suggestions
from the point-of-view of an intern.
The work experience section would list out basics of the mentioned depts.
and the Financial Analysis section would discuss the Financial performance
of the Bank in the past few years at an International scope.
Work Experience
Retail Processing Centre
The RPC deals with Cash and cash transactions and importantly, clearing. Clearing denotes all activities from the time a commitment is made for a transaction until it is settled. Clearing of payments is necessary to turn the promise of payment (for example, in the form of a cheque or electronic payment request) into actual movement of money from one bank to another.
In trading, clearing is necessary because the speed of trades is much faster than the cycle time for completing the underlying transaction. It involves the management of post-trading, pre-settlement credit exposures to ensure that trades are settled in accordance with market rules, even if a buyer or seller should become insolvent prior to settlement. Processes included in clearing are reporting/monitoring, risk margining, netting of trades to single positions, tax handling, and failure handling.
Tuesday, 13 Aug 2013
Practically, clearing is one of the simplest and most logical processes in a bank done on a daily basis. The need arises when a customer turns up at the branch handing over a cheque of a different bank than ICICI. These cheques are collected by the Clearing department and the first step of the clearing process involves scanning these cheques through a scanner. Thereafter, only the softcopy of the cheque routes whereas the physical cheques rests in a fire-proof cabinet at the Clearing Department, as per regulations. A several number of cheque batches are made in a day following a maker-checker process where a person first passes entries into the system from the cheque image and the other confirms it by one-by-one matching each and every cheque entry.
A cut-off time is set at 11 00 am, which implies that any check processed after the time would be cleared on the following day. After all the check entries are recorded in the soft form a CD would be composed which would be then collected by an agent from LankaClear Ltd at around 3 00 pm.
The online interbank system used to settle the transactions is called SLIPS
of which ICICI is a participant. Sri Lanka Interbank Payment System
(SLIPS) is an online interbank electronic fund transfer system catering
mainly for low-value payments (up to Rs 5 million). Electronic Funds
Transfer (EFT) is a movement of funds from one account to another
without the corresponding piece of paper to authorize or prove that the
transfer had occurred. Thus, crediting and debiting of accounts are handled
more promptly and accurately without the need to write cheques, pay
orders or vouchers. Moving electronic records rather than paper results in
payments being processed much efficiently with advanced security features
and audit trails.
During the first I went through the SLIPS manual which laid out the
guidelines and regulations governing the settlement of transactions in the
banking system. The manual detailed solutions to various problems and
risks that might arise during the clearing function and designated
responsibilities to various working units such as the participant bank,
clearing house, clearing agent and the bank representative to SLIPS.
Wednesday, 14 Aug 2013
During the second day at the RPC I was handed a manual “Global
Remittances Manual”. As ICICI is India’s largest private bank it serves the
needs of Indians throughout the world at their doorstep. Reputedly, India
receives more remittances every year than any other country in the world.
Therefore remittance sending to India is one of the most feasible products
in the bank’s portfolio. The programme used to transfer funds to India is
schemed as “Money2India”. The product facilitates quickest transfer of
funds to India and is widely popular among the Indian customers of the
bank who send money to their country on monthly basis.
The manual lists out guidelines governing the transfer of funds to India,
eligibility of the remitter maximum limits and other regulations by the
Central Bank such as retaining at least 10% of the income in Sri Lanka.
The core banking system in use at the ICICI is Finacle. Finacle is a core
banking software package developed by Infosys, designed to address retail
banking, wealth management, CRM, Islamic banking and treasury
requirements of retail, corporate and universal banks. Finacle is used in 168
banks across 81 countries.
Data received by the bank from the LankaClear Ltd is verified, sought for
any discrepancies such as wrong name/account number and then entered
into the personal accounts via Finacle. At the day end a summary of the
financial transactions at the RPC are to be compiled and reported to the
Treasury.
Treasury Back Office
The treasury department of a bank is responsible for balancing and
managing the daily cash flow and liquidity of funds within the bank. The
department also handles the bank's investments in securities, foreign
exchange, asset/liability management and cash instruments.
Thursday & Friday, 15 & 16 Aug 2013
The Treasury Back Office is specifically required to support the Front Office
which is hitting live deals in the open money markets. Middle office serves
as an intermediary between the Front and the Back Office. However, in the
case of ICICI the Middle Office (TMOG) is located in India connected
through the online banking systems with the Back Office. This confronts
the department with several challenges as work is slowed down due
collaboration issues. Nonetheless, overseas location might have its own
cost-saving and economies of scale advantages.
The treasury department is basically concerned with earning a surplus over
the bank’s funds so that a return is made after the interest deductions to the
customers and savers. It is therefore often termed that a job in treasury is
the most stress-full and challenging, nevertheless, the most rewarding job
in the bank.
Some tasks needed to be done on a daily basis in the department include
reconciling the day-end treasury balance with the data received from the
TMOG. This reconciliation is to be done before 4 30 pm which is the closing
time for the system and therefore if any differences in the balances are
found they have to be quickly probed in settled. With this, as clear, a
permanent record of entries into the Finacle is to be duly maintained using
the information received from other departments such as RPC, Finance and
Trade on a daily basis.
As per the CBSL revised regulations, a new system of Statutory Reserve
Ratio has been enforced by 1 May 2013. The previous system requires banks
to have a cash equivalent reserve with the central bank of 6% of the total
liabilities, updated on a weekly basis. Under the new system the updating
would be done on a bi-monthly basis. SRR calculated during the first half of
a month (1st to 15th date) will be applicable to the first half of the following
month while the SRR calculated for the second half (16th to last date) would
apply to the second half of the following month. Hence the maintenance of
the ratio would done on a daily basis by tracking the liquidity level at the
end of each day while the updating has to carried out before 22nd of month
for the first half while 7th of the next month for the second half ( As per
CBSL requirements).
During my work at the Treasury I was recommended a manual on the
Currency dealings in the exchange market. The manual interestingly laid
out the way deals are done at the live market. It also instructed the ethics
and morals to be kept in mind while making the deals explained certain
tricks to get better deals. For example, in the market dealings it is never to
be specified whether the Asker’s intention is to buy or sell the currency.
Therefore the question raised in the Reuters’s system would be “Spot
USD/LKR please?”. Hence the Quoter would quote two different rates such
as “43/53”. It may seem confusing but things have been made simple. It is
the common market knowledge that the on-going USD/LKR rate is 131.2,
hence the quote means that quoter is willing to buy USD at LKR 131.243
and will sell it at LKR 131.253. The difference between the two quotes is
generally called the “spread” which serves as a profit margin for the quoter.
Deals done on the exchange market generally have their own jargon. There
different derivatives such as call, put etc. and time duration of currency
dealings classified as Tom (tomorrow), Spot (Day after tomorrow) and
TomSpot (Day after Spot). Hence the correct use of the market language is
to be made in order to deal effectively with the participants.
A major drawback faced by the Treasury Office at ICICI is that deals with
many banks are not permitted moreover, there a few banks upon which all
the Treasury dealings are concentrated. This lemmatizes the profiteering
scope of the Treasury and therefore exposes the bank to liquidity risks.
Each day a major portion of the bank’s Treasury funds is loaned out to the
CBS as a Reverse Repo upon which only a 7% interest is payable as per the
CBS rules and regulations. If dealings with other banks are allowed, then a
higher mark-up would be earned on the call-money lending.
The Bank’s DBU and FCBU, both act as uniquely disjoint units. Hence if
FCBU/DBU is under the minimum limit at the closing of a particular date
then the coverage will have to be borrowed from DBU/FCBU at an interest
charged.
Finance Department
The Finance Department (FIN) is responsible for the mobilization and
administration of the Bank's financial resources, both the assets and
liabilities, and for the management of the Bank's liquidity, accounting and
financial records, and the relations with financial markets and
intermediaries. FIN is divided in the Treasury Division and Accounting
Division. Hence it is often termed as the ‘heart’ of a bank since cash-flow is
deemed as blood-flow for a bank.
Tuesday, 20 Aug 2013
On the very first day I was familiarized with the Detailed Balance Sheet,
Profit and Loss Account and the Cash-flow Statement of the Bank. A task
was delegated to me which required me to segregate account holders on the
basis of the currency denominated in their accounts. It is necessary to have
a separate record for each and every currency account and then tally the
total with the reserves which are listed in the Detailed Balance Sheet since
such pieces of information are often sought by the internal and the external
auditors for scrutinizing. Major denominations of currency in the ICICI are
LKR, USD, EUR and GPB.
I also got the opportunity to read the 2012-13 annual report of the bank.
Detailed financial derivations are elaborated under the “Financial Analysis”
section.
Wednesday, 21 Aug 2013
Finance is not mere a game of numbers but it also requires constant
improvement through regular review and comparison. A Variance Analysis
of Expenses is done where expenses of one time period such a month are
compared to that of the previous month and reasons underlying and
considerable variations are reported, both, favorable and non-favorable.
The latter are done clearly to prevent any mistakes, that are made. in the
future while the former is done to seek the reasons behind the
improvements and give them extra focus to exploit them.
The task was practically done on an excel sheet by calculating variance
percentage of all the expenses over the June and the July month. Any
considerable change in the amount of the expense such as > 10% requires
probing by entering the account number in the General Ledger through the
Finacle and seeking out details underlying the variations and reporting
them in short words. Hence, this facilitates better financial analysis as
many reasons backing the variations in financial figures are unveiled and
explained.
A weekly task at the Finance department is to send a weekly report to the
CBS that details out the Minimum and Maximum rates offered by the bank
to any organization during the week. Hence the data of all the corporate
and personal customers of the bank is obtained, organized, strictly verified
and then properly sorted to get the maximum and minimum rates charged
by the bank. The verification process is done through one-by-one ticking
out of customers and their respective rates based on information provided
by other departments and previous week’s report. This also follows a
maker-checker system as the report produced will be then verified by the
Head of Finance and authorized by the Treasury Front Office before final
uploading to the CBS.
Another interesting book handed over was the “Earnest & Young Good
Bank” which specifies the qualities and tips over producing coherent and
appealing banking financial reports.
Financial Analysis
Following are the Balance Sheet and Profit and Loss accounts for the past
few years.
Balance Sheet 2013
Profit & Loss Account 2013
Balance Sheet 2012
Profit and Loss Account 2012
Balance Sheet 2011
Profit and Loss Account 2011
Balance Sheet 2010
Profit and Loss Account 2010
Equity Growth
Growth = (Equity at year-end – Equity at year start)/(Equity at year
start)*100
Growth %
Equity (INR mn)
2010
516183
2011 6.73 550906
2012 9.64 604028
2013 10.43 667014
Return on Investment
RoI= (Total Profit)/(Total Assets)*100
INR mn Total Assets
Total Profit
Return on Investment %
2010 3633997 68346 1.880739032
2011 4062336 86158 2.120897927
2012 4736470 114834 2.424463788
2013 5367946 153797 2.865099612
0
2
4
6
8
10
12
2010 2011 2012 2013
Growth %
Growth %
0
1000000
2000000
3000000
4000000
5000000
6000000
2010 2011 2012 2013
Total Assets
Total Assets
0
50000
100000
150000
200000
2010 2011 2012 2013
Total Profit
Total Profit
0
0.5
1
1.5
2
2.5
3
2010 2011 2012 2013
Return on Investment %
Return onInvestment %
Gearing Ratio
GR= (Total Liabilities)/(Total Assets)*100
(INR Mn)
Gearing Ratio %
Total Liabilities
Total Assets
2010 85.795723 3117814 3633997
2011 86.43868946 3511430 4062336
2012 87.24729598 4132442 4736470
2013 87.57412984 4700932 5367946
Earnings per Share
Earning per Share (INR)
2010 36.14
2011 46.27
2012 56.11
2013 72.2
84.5
85
85.5
86
86.5
87
87.5
88
2010 2011 2012 2013
Gearing Ratio %
Gearing Ratio %
Net Profit Margin
NP margin = NP/Total Income * 100
INR Mn NP Margin % Total Profit
Total Income
2010 20.60 68346 331846
2011 26.41 86158 326219
2012 27.98 114834 410454
2013 31.76 153797 484212
0
10
20
30
40
50
60
70
80
2010 2011 2012 2013
Earning per Share (INR)
Earning per Share (INR)
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
2010 2011 2012 2013
NP Margin %
NP Margin %
Return on Equity
RoE = (Total Profit)/(Total Equity)*100
Return on Equity %
Total Profit
Equity (INR mn)
2010 13.24065 68346 516183
2011 15.63933 86158 550906
2012 19.01137 114834 604028
2013 23.05754 153797 667014
Two More Important Efficiency Ratios
Investment to Assets Ratio
I/A Ratio = Total Investments/ Total Assets * 100
0
5
10
15
20
25
2010 2011 2012 2013
Return on Equity %
Return on Equity %
Ivestments to Assets Ratio % Investments Total Assets
2010
33.27
1,208,928.00
3,633,997.00
2011
33.15
1,346,860.00
4,062,336.00
2012
33.69
1,595,600.00
4,736,470.00
2013
31.93
1,713,935.00
5,367,946.00
Deposits to Liabilities Ratio
Deposits to Liabilities % Deposits
Total Liabilities
2010 64.79
2,020,165.00
3,117,814.00
2011 64.25
2,256,021.00
3,511,430.00
2012 61.83
2,554,999.00
4,132,442.00
2013 62.25
2,926,136.00
4,700,932.00
60.00
61.00
62.00
63.00
64.00
65.00
2010 2011 2012 2013
Investments to Assets Ratio %
Deposits to Liabilities%
@@@@@@@@@@
60.00
60.50
61.00
61.50
62.00
62.50
63.00
63.50
64.00
64.50
65.00
2010 2011 2012 2013
Deposits to Liabilities %
Deposits to Liabilities %
