IDBI Bank’s cash management tools beat clearing cycle

IDBI Bank deployed cash management tools in mid-2001 to service corporate customers by managing their entire fund inflows and outflows. Today, the bank has more than 400 corporate customers using this service. CHITRA PADMANABHAN finds out how the bank has leveraged on cash management as a strategic corporate banking product

Through cash management tools IDBI Bank could provide corporates with early access to funds by acting as a guarantor, says Neeraj B Bhai

Reckoned as a technologically savvy bank today, IDBI Bank has been a quick adopter of technology right from its inception in 1993. Before its foray into the retail segment, the bank’s IT initiatives primarily revolved around the corporate customer. "IDBI Bank was formed in a period of intense competition from emerging private sector banks and it was clear that we had to make utmost use of technology to provide the best possible service to our customers," says Neeraj B Bhai, chief technology officer for IDBI Bank.

CMS as a corporate banking tool

On the corporate side, the bank felt that cash management services (CMS) would prove to be an ideal customer retention tool. CMS meant that the bank would guarantee availability of funds for corporate customers on a given date. For instance, if a company receives payments from its customers based out of various locations in the country, the bank would make all these funds available to the company on a particular date. This would be done even before the instrument had gone through the normal clearing process. Back then, these collections were largely being processed through the traditional cheque payment method, having varied clearing cycles, depending upon the location. "The clearing cycle for upcountry outstation instruments in India even today is traditionally in the range of 10 to 21 days. Through CMS we felt that the bank could provide corporates with early access to funds by acting as a guarantor," says Bhai.

IDBI Bank was keen to provide this service to its corporate customers and began scouting for a vendor in mid-2001. "Though there were a host of vendors like Infrasoft, Nucleus, etc, we chose CashTech Solutions’ suite of cash management products since it focused on cash management as its core product," says Captain Anil Dhankher, head of operations for CMS at IDBI Bank. The bank also had the responsibility of providing detailed reports of all transactions so that the customer could be freed from the nitty-gritty of managing cash flows. Also, CashTech’s products had built-in customised enrichment, which meant that IDBI Bank could provide MIS reports to customers as per their preferences.

Customer gains

The implementation began in September 2001 and was completed within a span of three months, following which the bank was ready to roll out its collection module in early 2002. With this facility in place, the bank could provide collection services across 3,500 locations, enabling fast turnaround of dues, in turn saving customers collection costs. The bank’s collection software is today linked to all these locations, ensuring that MIS reports reach the customer in real-time. Another benefit is that MIS reports can be customised according to the customer’s needs and can be easily uploaded to the customer’s backend processing systems, thus reducing all manual intervention. "In locations where we do not have branches of our own, we can ensure that clearing of cheques takes place through our partner banks," says A Praveeen Kumar, who heads the Software Development Group at IDBI Bank.

The bank has recently completed the second phase of the CMS, which involved the implementation of the disbursement module. Through this module, the bank now makes payments on behalf of its customer on specified due dates. The payments are made in various forms as specified by the customer, such as cheques, demand drafts and pay orders. This service is offered through 68 branch locations and over a large number of partner bank locations. On the payments side, IDBI Bank also provides issuance of dividend warrants, which is accompanied by online status reporting of the payouts.

Benefits derived

CMS has proved to be a high revenue-earning tool for the bank. The float income earned out of the CMS adds a huge amount to the bank’s bottom line, thanks to the sheer volume of transactions. However, the main source of income for the bank is the fee that the bank levies on customers for CMS. "The fees levied on customers depends upon various factors, such as the duration where the money remains with the bank or the location of the customer’s collection centres. Sometimes we even provide discounts based on the volume of transactions," says Kumar. Secondly, CMS is also seen as an ideal customer retention tool. For instance, if a customer has availed the cash management facility, it involves a series of negotiations with partner banks, work related to customisation of MIS reports and a host of other integration issues. So at the completion of this process, the customer would have achieved a certain comfort level with the bank and is least likely to turn to some other bank for the same facility.

Future

The bank is also in the process of networking with the clients’ clients. These clients are essentially channel partners of corporates—their suppliers and distributors, for instance. The advantage here is that the money will always remain with IDBI Bank. So if the vendor of the corporate also banks with IDBI Bank, then the payment to the vendor can be directly made through an intra-bank fund transfer. The same is true for collections from distributors.

However, the ultimate value proposition of CMS is the reduced time cycles in clearing. Once the Reserve Bank of India implements RTGS (Real-time Gross Settlement System) and image-based clearing, clearing cycles for instruments will come down drastically. "With the advent of RTGS in the country, the value proposition of CMS will change from early credit to information reporting and services," says Captain Dhankher. IDBI Bank is all geared up for this drastic change in the clearing mechanisms of the country.