What is Treasury management ?

“Treasury management includes the management of cash flows, banking, money-market and capital-market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks. This definition is intended to embrace an organization’s use of capital and project financings, borrowing, investment, and hedging instruments and techniques”.

Commercial organizations may properly anticipate that, within appropriate risk exposure criteria, their treasury-management activities will make a contribution towards their profits or surpluses. On the other hand, the essentially more cautious nature of many organizations, particularly those in the public services, will lead to the focus of treasury management falling largely on the effective control of risk.

Whatever the organizations, the achievement of optimum performance consistent with its risk exposure criteria in its treasury management activities is an important indicator of effective corporate management

Idle funds are usually source of loss, real or opportune, and, thereby need to be managed, invested, and deployed with intent to improve profitability. There is no profit or reward without attendant risk. Thus treasury operations seek to maximize profit and earning by investing available funds at an acceptable level of risks. Returns and risks both need to be managed. If we examine the balance sheets of Commercial Banks (Public Sector Banks, typically), we find investment/deposit ratio has by far overtaken credit/deposit ratio. Interest income from investments has overtaken interest income from loans/advances. The special feature of such bloated portfolio is that more than 85% of it is invested in government securities.