Management of

Current Assets UNIT 6 MANAGEMENT OF MARKETABLE

SECURITIES

Objectives
The objectives of this unit are to:
• Highlight the need of investments in marketable securities.
• Explain different types of securities available for investments.
• Provide an overview of markets for securities.
• Explain models to optimize the cost and opportunity income.
• Provide a guideline to develop strategies in the management of
securities.

Structure
6.1 Introduction
6.2 Need for Investments in Securities
6.3 Types of Marketable Securities
6.4 Market for Short-term Securities
6.5 Optimisation Models
6.6 Strategies for Managing Securities
6.7 Summary
6.8 Key Words
6.9 Self-Assessment Questions
6.10 Further Reading

6.1 INTRODUCTION
Cash and marketable securities are normally treated as one item in any
analysis of current assets. Holding cash in excess of immediate requirement
means the firm is missing out an opportunity income. Excess cash thus is
normally invested in marketable securities, which serves two purposes
namely, provide liquidity and also earn a return. Marketable securities form a
major component of cash and marketable securities.
Investing surplus cash in marketable securities is normally a part of overall
cash management. It becomes a separate activity of the firm, if the
investments in marketable securities form a major part of the current assets.
Many firms in India today are very active in money and capital markets,
where marketable securities are traded. A cursory look at the investments by
some of the companies makes us believe that they are very active in the
securities market. For example, Reliance Industries has investment in
securities to the tune of Rs.3,47,285 crore, which is 58.33 per cent of the total
assets. As can be seen from the data incorporated in Table-6.1., companies
like ONGC, Vedanta, Tata Steel, Bharti Airtel, IOC, Larsen, Maruti Suzuki,
128 Grasim, etc., have significant amounts invested in securities.
 Management of
Table 6.1: Investment in Securities by Select Companies by 2-04-2022
Cash
(Rs. in Crore)

S. No. Name of the Company Investments % of Total

Assets
1. Reliance 3,47,285 58.33
2. ONGC 81,376 47.19
3. Vedanta 62,903 69.08
4. Tata Steel 57,471 50.65
5. Bharti Airtel 52,273 41.10
6. IOC 48,619 24.95
7. Larsen 47,024 146.95
8. Maruti Suzuki 41,787 88.14
9. Grasim 33,640 75.00
10. Hindalco 31,731 48.02
11. TCS 31,667 49.87
12. NTPC 28,626 12.16
13. Infosys 28,336 61.52
14. ITC 26,997 48.64
15. Oil India 26,414 72.02
16. Tata Power 26,368 80.19
17. Wipro 25,701 60.74
18. Mah Scooters 24,654 107.93
19. M&M 24,065 66.76
20. Bajaj Auto 23,819 99.99
21. Adani Ports 21,694 43.81
22. Adani Power 19,358 86.09
23. Tata Motors 17,693 56.60
24. TML-D 17,693 56.60
25. BPCL 17,684 24.91
26. Ultra Tech Cement 17,569 34.22
27. Sun Pharma 16,999 61.93
28. Tech Mahindra 16,552 86.22
29. Hind Zinc 15,052 42.50
30. HPCL 14,992 20.56
31. Reliance Power 14,107 102.45
32. Bajaj Holdings 14,020 100.95
33. GMR Infra 13,795 111.61
34. JSW Holdings 13,450 107.57
35. Coal India 13,225 160.39
36. JSW Steel 12,458 15.59
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Management of 37. Ambuja Cements 11,796 57.84
Current Assets
38. HCL Tech 11,096 27.70
39. Shree Cements 11,050 72.19
40. Cipla 9,725 53.58
41. GAIL 9,723 20.22
42. Lupin 9,563 54.90
43. Tata Chemicals 9,337 76.83
44. JSW Energy 8,211 74.40
45. Tata Steel Long 8,093 53.86
46. Reliance Infra 7,655 109.68
Source: BSE data (www.moneycontrol.com)

Though this gives a positive outlook for investing in marketable securities,

there are many companies, which have lost heavily by investing in
marketable securities.

If we look at the international financial markets, companies such as Procter &

Gamble (US), Gibson Greetings (US), Showa Shell (Japan), Mettalgesells
chaft (Germany), Allied Lyons (UK), Orange Country (US), British Councils
(UK), etc., have lost millions of dollars heavily by entering into financial
transactions of wrong types. In the domestic markets too, several firms have
incurred huge loss during the last few years and many of them have taken a
public stand in the company’s annual general body meeting that they will not
excessively deal in the securities market. Nevertheless, many companies are
willing to deal in marketable securities at different levels. While some of
them have an active treasury management and willing to take risk, others
have restricted themselves in investing their short-term surplus money for a
limited period.

Managers need to acquire some basic knowledge on the nature of marketable

securities, operation of markets where such securities are traded and finally
the models used in recognising short-term surplus and managing such surplus
to improve overall profitability of the firm.

6.2 NEED FOR INVESTMENT IN SECURITIES

Marketable securities result from investment decisions that really are not the
main part of the firm’s business. But marketable securities cannot be ignored,
as they constitute a part of the value of the firm that is entrusted to
management.

Another prominent reason for holding marketable securities is on account of

mismatch between the borrowing and investment programme. Companies in
the field of infrastructure, which are presently executing several projects, are
constant borrowers of money in both domestic and international markets.
These projects are executed over a period oftime. It is often difficult to
borrow money exactly for the requirement of the year or month since the cost
of borrowing, sentiment of the market and regulatory requirements are to be
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taken into account in deciding the amount to be borrowed. Companies thus Management of
Cash
borrow more than their current requirement. It not only applies to borrowing
but also applies to equity financing. Money raised in the form of debt or
equity has a cost and it cannot be immediately put into use for any long-term
purpose. They are invested in short-term securities with an intention to
recover at least a part of the cost of borrowing.
Many companies, which adopted the profit centre concepts, have made the
finance department as one of the profit centres. It means the finance
department has to add revenue to the firm. Top management wants financial
department to show how they helped the company to improve the bottomline.
By dealing with marketable securities in the form of securities and foreign
exchange derivatives, financial managers’ ought to demonstrate their ability
to cut down the cost or increase the benefit. Investments in marketable
securities also depend on the aggressiveness of the financial managers’ in
dealing with such assets.
Many companies today have a separate treasury division that operates in
marketable securities and other financial products. But aggressive dealings in
marketable securities will increase the risk of financial operations.
The task of financial managers, who become involved with marketable
securities either full-time or part-time, consists of three issues. First,
managers must understand the detailed characteristics of different short-term
investment opportunities. Second, managers must understand the markets in
which those investment opportunities are bought and sold. Third, managers
must develop a strategy for deciding when to buy and sell marketable
securities, which securities to hold, and how much to buy or sell in each
transaction. We will discuss these issues in the next few sections.

Activity 6.1
i) What are the major reasons for deciding to invest “excess” cash balances
in marketable securities?
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ii) What characteristics should an investment have to qualify as an
acceptable marketable security?
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Management of iii) Give an account of the activity of marketable securities of a company
Current Assets
you are aware of.
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6.3 TYPES OF MARKETABLE SECURITIES

Marketable securities available for investments can be grouped in several
ways. They can be classified under three broad heads namely debt securities,
equity securities and contingent claim securities, which in turn can be
grouped under several heads. We will give an overview of these securities
below.

A) Debt Securities
All debt securities represent a promise to pay a specific amount of money
(the principal amount) to the holder of the security on a specific date (the
maturity date). In exchange for investing in security, the investor or holder of
the security, receives interest. This interest may be paid upon maturity of the
security (as with most short term debt instruments) or in periodic instalments
(as with most long term debt instruments). Different types of debt securities
are discussed below.

a) Money market instruments

The market for debt securities of relatively short maturity (generally one year
or less) is called money market. The money market gives a considerable
amount of liquidity to all participants in financial market. Companies and
government entities that find themselves temporarily short of cash can raise
funds quickly by issuing money market instruments. Investors who have cash
to invest for short periods of time can invest in money market instruments
that will provide them with a return while not committing their funds for long
periods.

i) Call money
The demand and time liabilities (DTL) of a bank are evaluated every
fortnight on a Friday called the ‘Reporting Friday’. During the first fortnight
following the Reporting Friday, the bank is expected to maintain daily 4% of
its DTLs (as on the Reporting Friday) in cash with RBI. This is known as
cash reserve ratio CRR. The banks are expected to maintain this balance in
such a way that the average daily balance is within the stipulated
requirement. The market that arises as a result of borrowing and lending by
banks in order to maintain their CRR is known as the call market.
Theoretically call money is money that is literally on call, i.e., it can be called
back at short notice. In the case of interbank market, the notice period can be
132 as short as one day.
 Management of
ii) Certificates of Deposit
Cash
A certificate of deposit (CD) is an instrument issued by a bank or other
depository institution representing funds placed on deposit at the bank for a
certain period of time. They are called negotiable certificates of deposit.
Negotiable CDs are generally not redeemable before maturity, but an investor
who purchases, for example, a six-month CD may sell it to another investor
one month later rather than wait until the CD matures. The interest on CDs is
calculated on the face amount of the CD. It is a Non-discount instrument and
pays the face amount plus accrued interest at maturity. The rates available to
investors in CDs are typically somewhat higher (averaging about 1 percent
higher) than those on T-bills of equal maturity. This yield differential can be
attributed to several factors: a) the somewhat thinner market for CDs, b) the
tax differential, c) the risk factor of the issuing financial institution.
iii) Commercial paper
Commercial paper (CP) is the term, for the short-term promissory notes
issued by large corporations with high credit ratings. Commercial paper
usually carries no stated interest rate and sells at a discount from its face
value as T-bills. The objective of the RBI introducing CP as an instrument
to finance working capital needs was to reduce the dependence of corporates
on banks. Also, by pricing the CP at market rates, the financial efficiency of
corporates was coveted to increase. Also, this instrument securitises the
working capital limits. CPs can be issued to individuals, banking companies,
corporate bodies, whether located in India or outside India, including NRIs
and FIIs. The companies can now issue CP for a maturity period ranging
from 3 months to less than a year. Minimum net worth of issuer is also
reduced from Rs. 5 crores to Rs. 4 crores and the minimum working capital
(fund-based) limit is also being reduced from Rs. 5 crores to Rs. 4 crores.
And the borrowable account of the company is classified as the Standard
Asset by the Banks. CPs now can be issued in multiples of Rs. 5 lakhs.
(iv) Bankers Acceptances
Bankers’ Acceptances are time drafts drawn on a commercial bank for which
the bank guarantees payment of the face value upon maturity. They are
commonly used to finance international transactions for the short term. For
e.g., a jewellery retailer in India might purchase watches from a manufacturer
in Switzerland, paying for the goods by sending a time draft (a draft payable
at some future date) drawn upon the jeweller’s bank. When the bank accepts
the draft, it stamps “accepted” on the reverse side of the draft, meaning that
the bank guarantees payment of the draft upon maturity. In effect, the bank is
guaranteeing the credit of the jeweller. Since the credit behind the draft is
now on the bank, the draft can be traded in the money market along with
other short-term debt instruments. Although bankers’ acceptances are
available to individual investors, they are typically most popular with
commercial banks and foreign investors.
(v) Government Securities or Securities Guaranteed by the Government
Government securities are public debt instruments issued by the Government
of India, State Governments or Financial Institutions, Electricity boards,
Municipal Corporation, etc. guaranteed by the governments to finance their
133
Management of projects. The default risk of these securities is perceived to be lower than that
Current Assets
of corporate bonds or equity shares since they are issued on account of
Sovereign risk. These securities are therefore termed as Gilt-edged securities.
Government securities traded in the money markets fall within 5 distinct
categories.
a) Treasury Bills
b) Central Loans
c) State Loans
d) Central Guaranteed loans
e) State Guaranteed loans

The order of these securities ranges from most liquid to less liquid and also
safest to less safe. All these securities are of different maturities and coupon
rates. Currently, the coupon rates of government securities range from lowest
of 5 per cent to the highest of 11 per cent.

You may refer money market page of economic dailies such as The
Economic Times or The Hindu Business Line, Business Standard, Financial
Express. Where you get indicative rates for many of these securities for
different maturity periods. Exhibit-6.1 shows some of the inputs, which you
normally see in a money market page of economic dailies.

Treasury bills have of late started attracting good response, especially since
the introduction of 364 days T Bill in April 1992. Presently, there are 3
maturities - 91 days, 182 days and 364 days. Government securities are one
of the lowest yielding securities that one can invest in. Most investments in
these securities are made due to regulatory reasons. Generally, Banks and
Financial Institutions buy these T-Bills from out of the funds, they are
supposed to maintain as part of SLR.

b) Capital Market Debt Instruments

The capital market supplies long-term funds to corporations, government
entities and other users of capital. The general type of debt instrument of the
capital market is the bond. Bonds usually pay interest to the holder once
every six months (semi-annually) and pay the principal or face amount upon
maturity. Although the face amounts of bonds do vary, the typical bond has a
face value of Rs. 1000. The market value of the bond, the price for which it
trades in the market, can be greater or less than par depending on interest
rates and other market factors.

(i) Government B onds

In India both Central Government and various State Governments are issuing
bonds for diverse purposes with varying maturity periods. These Bonds are
issued by the Governments to support various infrastructure and
developmental activities. Issuing bonds for large infrastructure projects such
as Construction of Roads, Air Ports, Sea Ports, Development of Industrial
Parks has become common now. These are called ‘Government Securities.
They are being issued for periods ranging from 5 to 40 years. In these Bonds,
134 primarily, there are two varieties, viz., fixed rate bonds and floating rate
bonds. While the former carries a fixed rate of interest throughout the period Management of
Cash
of its life, the interest rate in the case of latter type of bonds, would be
varying and the same is indicated before hand. Generally, of late the Central
Government through RBI has started issuing Sovereign Gold Bonds (SGBs),
linking to the prices of Gold; which carry an interest of 2.5 per cent per
annum. The intention is to prevent the people from purchase of physical gold
and invest in Bonds. These SGBs have a fixed maturity period of 8 years; but
can be traded in the stock market.

(ii) Municipal Bonds

Municipal bonds are those issued by Municipal Authorities. Like the Central
and State Governments, Municipal Corporations and other Local Bodies are
permitted to raise loans for their development. As per the Constitution of
India, these are called Local Self Governments. Subject to certain restrictions,
they are independent in designing their own activities. For financing their
development, they can issue bonds or raise loans. The Securities and
Exchange Board of India has formulated guidelines for the issue of these
bonds in 2015. The list of corporations that issued Bonds in India included
Lucknow, Bhopal, Surat, Kanpur, Varanasi, Ghaziabad, etc. For instance, the
Lucknow Municipal Corporation has raised Rs.200 crore through Bonds,
which also got listed on BSE.

(iii) Public Sector Undertaking (PSU) Bonds

PSU bonds are issued to finance projects of various public sector
undertakings like NTPC (National Thermal Power Corporation), IRFC
(Indian Railways Finance Corporation), etc. There are two kinds of bonds
Tax free with a coupon of 9% or 10% or 10.5%, and taxable with a coupon of
13% to18%. The public sector undertakings have been raising resources from
the capital markets, through the issue of bonds, termed as PSU bonds since a
long time. In the recent past, National Highways Authority of India is
mobilizing funds through bonds in a large measure. The face value of these
bonds is varying from as low as Rs.1000 to as high as Rs.10 lakhs. The
Interest rates are varying between 5 to 10 per cent. Of late, IOC has issued 5-
year Bonds with maturity by February 2027 at an interest rate of 6.14%.

c) Corporate Bonds
Debt securities of corporations with maturity of longer than one year are
corporate bonds. The usual par value of a corporate bond is Rs. 100 and
sometimes Rs. 10,000, and maturities range from about 2 years to as many as
30 years. In recent years, however, corporate bond issues have been of
shorter maturities as inflation and economic uncertainties have caused
investors to be less willing to commit their funds for longer periods of time.

B) Equity Investments
Equity securities represent the residual ownership of the firm. Residual
ownership means that the debt holders must first be paid off, before the
company belongs completely to the equity holders. The two types of equity
securities are common stock and preferred stock.
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Management of a) Common Stock
Current Assets
The common stockholders are the risk takers; they own a portion of the firm
that is not guaranteed, and they are last in line with claims on the company’s
assets in the event of a bankruptcy. In return for taking this risk, they share in
the growth of the firm because the growth in the value of the company
accrues to the common shareholders. The company may make a periodic cash
payment called a cash dividend to the common stockholders. Cash dividends
are commonly paid to shareholders on a quarterly basis, but they may be paid
annually, irregularly, or even not at all. The common shareholder has no
guarantee of receiving a dividend payment. Common stockholders usually
have voting rights that allow them to vote on the corporation’s board of
directors. Since the board of directors hires the top management of the
company, the stockholders indirectly determine the company’s management.

b) Preferred Stock
Preferred stock is technically an equity interest in the company, but its
characteristics are more like those of bonds. Preferred means that this type of
stock has a stated par value that represents a claim against corporate assets
that supersedes the claims of the common stockholders, but is subordinate to
the claims of bondholders. Preferred stock also carries a fixed cash dividend
to the common shareholders. Like debt, preferred stock is often
systematically retired through a sinking fund. It also does not represent true
residual ownership because preferred shareholders usually do not participate
in earnings growth by receiving higher dividends, as common shareholders
do.

C) Contingent Claim Securities

Contingent claim securities are securities that give the holder a claim upon
another asset, contingent upon the holder’s meeting certain contract
conditions. Although there are many types of contingent claim securities, the
three most popular kinds of investments today are options, warrants, and
convertible securities.

(a) Options

An option is a contract giving its holder the right to buy or sell an asset or
security at a fixed price. All options are valid only for a specified time period,
after which they expire. A call option gives its holder the right to buy the
underlying asset and thereby guarantees the purchase price of the asset for the
duration of the option. A put option carries the right to sell and guarantees the
selling price of the underlying security.

(b) Warrants

Warrants are like call options that are issued by the corporation. They give
their holders the right to purchase the common stock from the corporation
at a fixed price. Warrants usually have longer life than options (typically
five to seven years), although a few perpetual warrants do exist. Corporations
usually issue warrants in conjunction with another issue of securities and
offer a “package deal.” For example, the purchase of one share of preferred
136
stock might entitle the investor to receive one warrant to purchase common Management of
Cash
stock of the company. Companies offer such packages to sweeten the deal
and make the other security easier to sell.

(c) Convertible securities

Convertible securities are securities that may be converted into common

stock. A convertible bond is a bond that the holder may exchange for
common stock of the corporation. The other common type of convertible
security is the convertible preferred stock, which is simply a preferred stock
that the holder can exchange for a certain number of shares of common stock
of the corporation.

(d) Futures contracts

A contract that arranges for delivery and payment of an asset at a future

date is a futures contract. Futures contracts are traded publicly on the futures
exchanges, and these exchanges have developed contracts on a number of
assets, such as corn, wheat, soybeans, and frozen pork bellies. These
contracts, often called commodity futures because of the nature of the
underlying asset, allow producers and consumers of the commodities to plan
their production and sales in advance as well as allow speculators to enter the
market. A second group of futures, on such assets as U.S. Treasury bills,
negotiable CDs, and stock markets indexes, is called financial futures. These
futures allow investors in such securities to spread some of the risk to
speculators and aid in the investment process.

There is still one more security in the list, called units of mutual funds,
which is not a separate security on its own but backed by an investment in the
above securities. Indian companies traditionally prefer mutual funds units,
particularly Unit-64 of Unit Trust of India, to invest their surplus money for
short period because of reasonable return, high liquidity and tax concession
(tax provisions governing mutual funds investments have seen significant
changes during the last few years). Since many private sector mutual funds
have also started offering a reasonable return in their debt-oriented schemes,
corporate attention is slowly moving towards the units of private sector
funds. Another instrument similar to mutual funds units that is likely to
emerge in the future is the unit arising out of securitisation process. These
are units backed by mortgages of housing loan or any other receivables. A
few securitisation deals have already taken place in the Indian market but
they were restricted to financial institutions. This market is the second largest
segment of the market, immediately next to government securities market,
and is also very active.

Activity 6.2
i) List out the different kinds of instruments in the money market.
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Management of ii) What is call money market?
Current Assets
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iii) Trace out the trends in the Indian Debt Market?
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6.4 MARKET FOR SECURITIES

Securities market can be broadly classified into short-term securities market
(also called money market) and long-term securities market. These markets
along with banking and financial institutions are called capital markets,
where different needs for money are exchanged. Financial managers, though
interested in investing their surplus assets for a short period, are not bound to
restrict their investments in short-term securities. What is important, is
liquidity of investments. It is quite possible to invest in long-term securities
such as 20-year government bond and sell it after a week, which is essentially
a short-term investment in a long-term bond. Similarly investment can be
made for a short period in equity or derivative securities. An understanding of
different markets is important for the financial managers in this context. We
will discuss some of the major characteristics of the market under three broad
heads namely money market, market for long-term capital and market for
derivative securities.

(a) Money Market

Money market is a place where borrower meets the lender to trade in money
and other liquid assets that are close substitutes for money. A developed
money market will have large number of instruments, both in terms of variety
and volume, presence of large number of traders and existence of requisite
infrastructure to facilitate efficient settlement of transactions. Till 1991,
money market in India was in a dormant state. It was operating in a closely
regulated environment, where interest rates are fixed and regulated. The
operations were also restricted in a few securities involving commercial
banks. The conditions of the money market improved after the Reserve Bank
of India initiated many changes on the basis of the recommendation of the
Vaghul Committee, which recommended deregulation of interest rates,
introduction of new instruments and increase in the number of participants.
As a result, India now has fairly developed money market with a number of
138 instruments and active trading. The establishment of institutions like,
Discount and Finance House of India Ltd. (DFHL), SBI Guilt, etc., and Management of
Cash
arrival of several wholesale dealers has provided liquidity to the market.
Mutual funds have also started actively investing in short- term securities
along with banks and other institutional investors.

Investing short-term surplus in short-term securities has an advantage over

other securities because short-term securities will reflect the interest accrued
on a day-to-day basis. For instance, if a company has Rs. 50 lakhs surplus
money for a short period, it can invest in a commercial paper or treasury bill
or a long-term government bond. If the prices of all the three instruments are
observed at the end of the week, the first two securities will reflect the
interest earned and thus move upward whereas there is no guarantee that the
prices of long-term securities reflect the interest earned part for such small
interval. Also, the short- term securities are less affected by the interest rate
changes (called interest rate risk). For example, if the central bank increases
the interest rate during the week, the prices of long-term bond will decline
more than short-term bonds.

Before investing in money market securities, it is better to look into yield

curve of securities traded in the market. A yield curve is the one, which
shows the return available for securities having different maturities. This
curve is useful to managers to trade-off between return and interest rate risk.
Further, the yield curve will show the expectation of the market on the future
interest rate scenario, which is a vital input for any treasury managers.
Interest rate is the one which affects almost every aspect of the economy like
business performance, stock market, money market, foreign exchange market
and derivatives market.

(b) Market for long-term Securities

Market for long-term securities is a place where the borrowers raise capital
for longer term. Due to active secondary market for many of the long-term
securities, there is no need that only investors having long-term surplus alone
enter into the market. For instance, a significant percentage of volume of
trading (more than 75%) in stocks, which are long-term instruments, are
settled within a trading cycle of five days. Now ‘T + 1’ trading is going on in
the market. Long- term securities - debt, equity and other types of securities -
are actively traded in the stock exchanges like National Stock Exchange,
Mumbai Stock Exchange. These exchanges deal in corporate securities,
government securities PSU securities and units of mutual funds, etc. Stock
exchanges are more organised than the money market, due to volume of
operations and huge participation of players.

The objective of investing in marketable securities need not always be for

short- term purpose. If the surplus money is available for fairly longer period,
investment in long-term securities can be considered because the return will
be more. Due to active secondary market, there is no liquidity risk in the
event of sudden need of funds. Of course, investment in equity oriented
securities has some amount of investment risk. Investing in portfolio of
stocks or investing through mutual funds can reduce a part of investment risk.

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Management of (c) Market for Derivative Securities
Current Assets
Derivatives market in India is relatively new and started developing since
2000, when NSE and BSE commenced trading in equity derivatives. Since
then derivatives market in India has grown by leaps and bonds. Actually,
there are four types of derivatives that can be traded in the Indian Stock
Exchanges. They are: Equities, Bonds, Currencies and Commodities. While
the market for equities, bonds and commodities has evolved, the derivative
market for currencies growing now. The following are the usual types of
derivatives traded in India. (a) Forward contracts, (b) Future contracts, (c)
Option contracts, (d) Swap contracts. Though the market for derivatives is of
recent origin, it has recorded phenomenal growths over the years. During the
last 10 years (2011-2021) daily turnover of derivatives grew by 4.2 times
from Rs. 33,305 crore in 2011 to Rs.1,41,267 crore by 2021. Dealings in cash
derivatives also grew by 6.2 times from Rs.11,187 crore to Rs. 69,644 crore
in the same period. In this trade, NSE has emerged the top global Exchange
with about 17.3 billion turnover in 2021 alone.

Activity 6.3
i) What are the reasons for the corporate sector in accessing the capital
markets? List down the various instruments used in capital markets?
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ii) Describe briefly the market for the Government Securities?
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iii) Briefly explain the role played by Debt Instruments in the investment of
surplus funds?
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iv) How far derivatives can serve as a market for surplus cash?
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140 …………………………………………………………………………
 Management of
6.5 OPTIMISATION MODELS Cash

At the beginning of this unit, we have observed that holding cash in excess of
immediate requirement means missing out an opportunity to earn an income.
However, it is necessary to find the cost associated with investing activity
before taking investment decision. For example, if Rs. 5,00,000 is surplus
available for one-week and it can earn an interest income of Rs. 750 for one
week, the interest income is to be compared with cost associated with buying
and selling of securities. Suppose, the security dealer charges 0.1%
commission. The firm will incur Rs. 500 when it buys the security and
another Rs.500 when it sells the security. The total cost of Rs. 1000 is greater
than Rs. 750 and thus, the net effect of the investment is loss. The investment
decision is feasible, if the surplus money is available for two weeks or more.
Thus, the decision on investing surplus money needs a careful analysis of
cost and benefit. A few models are available to balance the cost and benefit
and five of such models are discussed below:

Bierman - McAdams Model: This model is different from other models

because it assumes that the investment in marketable securities is on account
of raising excess funds from long-term sources. The reason for raising excess
capital from long-term sources is due to high cost of raising capital from the
long-term sources and thus, the cost is to be optimised. An example will be
useful to understand the concept. Suppose a firm requires Rs.10,00,000 every
year from long-term resources for next four years for certain capital
expenditure. The interest cost prevailing for long-term funds is 14% and
flotation cost (cost of brokerage or processing and legal fee paid to bankers or
financial institutions, stamp duty, etc.) is Rs. 50,000. The flotation cost is one
time cost and not always proportional to amount raised. It is a fixed cost at
least for a range of capital raised from the market. Assume if the firm raises
more than Rs.10 lakhs, the excess amount can be invested at 11.5% in
marketable securities. With this set of information, assess the impact of the
following two alternatives.
1. Rs.10 lakhs every year and;
2. Rs. 20 lakhs in the first year and another Rs. 20 lakhs in the third year.
In the Table given below, the yearly cash outflow under the two conditions is
given.

Year Loan Flotation Cost Interest Outflow Interest Income Netcost

(A) Interest Outflow in Option 1 (Raising Rs. 10 lakhs every year)

0 1000000 50000 0 0 50000

1 1000000 50000 140000 0 190000

2 1000000 50000 280000 0 330000

3 1000000 50000 420000 0 470000

4 0 0 560000 0 560000

141
Management of (B) Interest Outflow in Option 2 (Raising Rs. 20 lakhs Year 1 and Year 3)
Current Assets
0 2000000 50000 0 0 50000

1 0 0 280000 115000 165000

2 2000000 50000 280000 0 330000

3 0 0 560000 115000 445000

4 0 0 560000 0 560000

(C) Comparison of Interest Outflow under Two Options

Net Cost in Option 1 Net Cost in Option 2 Difference

0 50000 50000 0

1 190000 165000 25000

2 330000 330000 0

3 470000 445000 25000

4 560000 560000 0

Option 2 is preferable because Net Cost is lower than Option1

The net interest outflow in Option 2 is lower than the interest outflow of
Option 1. Thus, the firm benefits by raising Rs. 20 lakhs at the beginning of
year 1 (Year 0 in the Table), spends Rs. 10 lakhs and invests the balance in
marketable securities at 11.5% for a year. The marketable securities are sold
at the end of year 1 and the value is used for capital expenditure of year 2.
There is no need to raise fresh funds in year 2 because the required amount is
already raised. The process is repeated again in year 3. This strategy leads to
reduction of overall cost of funds because the total amount spent on flotation
is only Rs.1,00,000 against Rs. 2,00,000 under Option 1. What about other
options like raising Rs. 30 lakhs in year 1 and Rs. 10 lakhs in Year 4 or Rs. 40
lakhs in year 1? None of these options give you a lower cost than raising
Rs.20 lakhs in year 1 and Rs. 20 lakhs in year 3. Bierman and McAdams
showed the way to get the optimal financing through the following equation.

Q= 2FD i Y
Where F = the fixed flotation cost of obtaining new financing
D = the firm’s total net outlay of cash for the next period
i = the percentage of interest rate on new financing
Y= the percentage yield on marketable securities
Substituting the value of funds required (Rs. 10 lakhs), flotation cost of Rs.
50000, interest rate of 14% on new financing and 11.5% interest income on
marketable securities in the above equation, we get the following:

Q= 2 50000 1000000 0.14 0.115 Rs.20,00, 000

142
The model basically optimise the flotation cost with the difference between Management of
Cash
interest outflow and interest income on marketable securities. This model
helps the financial managers to decide on how much to be raised from the
market given the requirement of funds and how much to be invested in
marketable securities. On the other hand, the remaining four models guide the
finance managers on how to switch funds from marketable securities to cash
and vice versa.

Baumol Model: This model assumes that the demand for cash is continuous
and frequent withdrawal of cash from investment will cost more. Thus, the
model gives an approach to find the optimal withdrawal of cash from
investments. An example will be useful to understand the concept. Colleges
or Universities like IGNOU collect fee from the students at the beginning of
the year or term. Assume the receipt for the year is Rs. 12 lakhs. There is no
major cash inflow during the year or term. However, the institution requires
cash continuously to meet various operational expenses during the year or
term. Assume the total demand for the cash during the year is Rs. 10 lakhs.
Suppose the initial receipt of Rs. 12,00,000 is invested in marketable
securities. The issue before us is how much worth of marketable securities is
to be sold and cash be realised. If there is no transaction cost of selling
securities, the amount could be as low as possible. If the cost of each
transaction is Rs. 575, how much money is to be withdrawn every time. The
cost affects our decision because if we withdraw too many times, it will cost
more. At the same time if we withdraw a large amount, then the cash is idle
and we lose an opportunity to earn a return. Baumol resolves the problem
using the following equation, which gives an optimal withdrawal quantity.

C= 2bD /Y
Where b = cost of each transaction
D = total amount required during the period
Y = the percentage of yield on marketable securities

Substituting the value of funds required (Rs.10 lakhs), transaction cost (Rs.
575) and interest on marketable securities (11.5%) in the above equation, we
get the following:

C= 2 575 1000000 / .115 Rs.1, 00, 000

The institution has to sell securities worth of Rs. 1,00,000 every time to
optimise the transaction cost and interest income on marketable securities.
That means, the sale will be effected at the end of every fifth week.

Beranek Model: Beranek’s model is similar to Baumol’s model but the

assumption here is different. Beranek’s model assume that the firms
disbursement takes place periodically whereas the inflows are continuous.
Since buying of the securities also costs the firm, it is not desirable to invest
on daily basis. The inflows are accumulated to a level and then invested with
an objective of minimising the cost of buying of the securities. Since any
delay in investment will affect the opportunity income, the two are to be
balanced. We will give a different example to illustrate this model. Suppose,
143
Management of a supermarket requires cash at the end of every month to pay salaries, rent
Current Assets
and settle the dues of suppliers. The firm on the other hand receives the cash
of Rs. 1 lakh daily from the sale of provision and other items and the total
amount collected during the month is Rs. 30 lakhs. Assume the entire
collection is required at the end of month. That means whatever purchases
has been made during the month in marketable securities, they have to be
liquidated at the end of the month. The interest on marketable securities per
month and transaction cost of purchasing securities are 0.95833% (11.5% per
year) and Rs. 255 respectively. The issue before the finance manager of the
super market is whether the investment is to be done on daily basis or the
receipts are accumulated upto a point before investment. Substituting the
values in the Baumol’s equation, we get the optimal investment as
approximately Rs. 4.00 lakhs. That means, funds are to be accumulated for
four days before buying marketable securities and optimal ordering lot is Rs.
4.00 lakhs. We will see similar concepts in the next unit also when we deal
with inventory management.

Miller and Orr Model: The earlier two models assume that one of the two
cash flow variables namely cash inflow or cash outflow is constant and thus
come out with a solution on optimal withdrawal value or investment value. In
a situation where both inflow and outflow are not constant, Miller and Orr
model is useful. The model is based on control-limit approach. According to
the approach, the optimum level is first derived based on certain assumptions
and this optimum level needs to be disturbed only when the assumptions are
violated. Miller and Orr model using the interest rate on marketable
securities, transaction cost and minimum desired level of cash, derive the
optimal cash holding for the firm with the use of following equation

Z = [(4bσ2) / (4 Y)] ˄ 1/3 + L

Where Z = Optimum cash holding
b = the fixed transaction cost per transfer
Y = the daily yield on marketable securities
σ2 = Variance of daily changes in the cash balance
L = Minimum desirable cash prescribed by the management

Using the minimum desirable cash limit called Lower Limit (L), Miller and
Orr model gives the Upper Limit of cash holding (H), which is equal to

H = 3 Z – 2L

As long as cash is within upper limit (H) and lower limit (L), no action is
required. The moment the cash balance breached one of these two limits, an
action is required. If the cash balance touched the upper limit (H), then all the
excess cash above the optimal holding (Z) is invested in marketable
securities. Similarly, if the cash balance touched the lower limit (L), the firm
sells marketable securities to an extent that brings the cash balance back to
optimal cash holding (Z). The following example shows how the three values
given in the Miller and Orr model are derived.

144
The Treasurer of Blue Diamond Hotel wants to develop a cash management Management of
Cash
model for investing surplus cash in marketable securities. Since the cash
flows show a volatile behaviour, the treasurer feels the Miller and Orr model
is the most suitable for the situation. An analysis of last three-year daily cash
flows shows a standard deviation of Rs. 12,200. Investment in marketable
securities currently offers a return of 12% per annum. The transaction cost
per transaction is Rs.300. The Treasurer believes the hotel should have
minimum cash balance of Rs. 20,000. What is the optimal cash holding?
When an investment or disinvestment action is to be taken?

Substituting the above values in the Miller and Orr model, we get the
following:

Z = [(4×300×122002)/(4×(.12/365))] ^ 1/3 + 20000 = 46702

H = (3 × 46702) – (2 × 20000) = 100107
L = 20000

Thus, the cash management policy is when the cash balance goes below Rs.
20,000, marketable securities are sold and cash balance is brought back to Rs.
46,702. If the cash balance exceeds Rs. 1,00,107, the cash value above Rs.
46,702 is invested in marketable securities. The cash balance is allowed to
move between Rs. 20,000 and Rs.1,00,107 and occasionally brought down to
the optimum level.

Stone Model: Bernell Stone suggested that instead of mechanically taking

action on the basis of Miller and Orr model whenever the cash balance is
breached the upper or lower limit, the treasurer can forecast the behaviour of
future cash flows of two or more days and use this information in taking
investment decision. Under this model, the firm sets out two inner limits. For
instance, in the above example, if the firm sets an inner limit for minimum
balance at Rs. 30,000 and another inner limit for maximum balance at Rs.
90,000, the treasurer evaluates the cash flows for the next two days whenever
the cash balance hits the previously defined Miller and Orr model. Assume
the cash balance touched Rs. 20,000. The firm evaluates whether the next two
days inflows will bring back the cash position at Rs. 30,000 or more. If the
forecast fails to show such an improvement, the securities are sold and cash
balance is brought towards the optimum level. On the other hand, if the cash
balance is likely to move above Rs. 30,000 no action is required at this stage.
Investment in marketable securities will also be taken on the same line. The
two inner limits are provided mainly to avoid unwanted transaction.

Activity 6.4
i) What is the essential theme of Bierman-McAdams Model?
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
145
Management of ii) Do you believe that the Cash Management Models have any appeal to
Current Assets
the Cash Managers? Comment.
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………

6.6 STRATEGIES FOR MANAGING

SECURITIES
As indicated at the beginning of this unit, the financial managers need to have
an understanding on different types of securities and the markets in which the
securities are traded before venturing into investments in securities. In
addition to giving a fair amount of overview on the above two, we have also
discussed different models useful in taking decision on investments in
marketable securities. Using this set of information and knowledge, the
financial manager has to design a strategy in managing securities. In
developing a strategy, the first and foremost issue is an understanding of the
firm’s cash flow behaviour. This is essential because the model, which is
useful for managing the securities, depends on the cash flow behaviour. An
analysis of historical cash flows and volatility measures such as variance or
cash out positions will be useful to set control limits. In other words, the first
set of actions in developing a strategy is to come out with a reasonable cash
management model for the firm.

The second step in the process of designing the strategy is the extent to which
the firm should take risk while investing in securities. In other words, in stage
one, we have identified the amount available for investments but we haven’t
specified the nature of investments. A set of guidelines needs to be developed
that will direct the operational managers while taking investment decisions.
For instance, many banks have a clearly defined investment policy that lists
the kind of securities where the surplus cash can be invested. It is advisable to
prescribe the proportion of investments in different securities like
government securities 60%, corporate securities 20%, etc. The firm should
have a clear mechanism to get the risk of the portfolio and this information
should be made available to chief of treasury operations. If the level of
operation is very high, it is worth to implement the concepts like Value-at-
Risk (VAR) to avoid major losses on such transactions.

The last step is to develop systems in continuous monitoring of this activity

and improving the reporting system. Many companies during the securities
scam period that occurred occasionally in India have suffered because of lack
146 of monitoring and faulty system. If the companies are cautious and
understand the trends in the money and capital markets, there would be no Management of
Cash
need to repent later.

Activity 6.5
i) Imagine yourself as the finance manager of a leading firm. What are the
basic criteria you would follow in making optimum investment decisions
on a portfolio of securities with the surplus cash available with the firm?
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………

6.7 SUMMARY
Firms invest surplus cash in marketable securities because it enables firms to
earn a return or at least recover a part of the cost of funds. Since the risk,
return and liquidity of marketable securities are different, an understanding of
them is essential before the selection of securities. An understanding of the
markets in which such securities are traded is also useful. Since firms incur a
cost in buying and selling of securities, the opportunity return needs to be
compared with the cost before deciding the investment decision. There are
different models that enable the managers to optimise the cost and decide the
quantum of investments. What is more important in managing marketable
securities is developing a system that enables the managers not only to take
investment decisions but also monitoring the investments in securities. In the
process of earning an opportunity income, the firms should not incur a loss
by investing wrongly or giving an opportunity for operational managers to
make personal gains. Studying the behaviour of cash flows is important,
before devising a strategy. Each firm should develop its own strategy. The
companies in India have compiled a very rich experience in managing their
cash balances and investing them intelligently in Indian and global securities.
Indian companies are no longer at the receiving end now. They have turned
transnational and are able to dictate global stock markets.

6.8 KEY WORDS

Marketable Securities: Those instruments that can be bought and sold in a
market, which imply adequate liquidity.
Call money: Call money is that amount lent for very short periods and the
borrower may be asked to payback the money in that short period. This short
period can be as short as one day also.
147
Management of Certificates of deposit: is an instrument issued by a bank or any other
Current Assets
depository institution representing funds placed on deposit at the bank for a
certain period of time.
Commercial paper: is a short-term promissory note issued by large
corporations having high creditworthiness.
Options: are contracts giving their holders right to buy or sell an asset or a
security at a fixed price.
Warrants: these are like options, which give their holders the right to
purchase the common stock from the company at a fixed price.
Convertible securities: these are securities that will be converted into
common stock at agreed price and at agreed date.
Money Market: is a place where borrower meets the lender to trade in
money and other liquid assets that are close substitutes for money.
Derivatives: Derivative is the one derived from another. In Finance
Literature, it is referred to a financial contract, whose value depends upon the
value of the underlying asset or group of assets. Derivatives are traded either
through stock exchanges or through over-the counter (OTC) mode.

6.9 SELF-ASSESSMENT QUESTIONS

1. Explain the objective of management of marketable securities system.
How do you deal with the conflicting nature of the objectives?

2. What is the primary cause of interest rate risk?

3. Discuss the important features of the Miller-Orr model.

4. Trace out the trends in Bond Market?

5. What are the advantages and disadvantages of floating rate securities for
both issuer and the investor?

6. What are liquid assets? Why do firms hold cash and cash equivalents?

7. What are commonly used money market instruments? Discuss.

8. In the money market, there is a well-established relationship among

yields of different types of instruments. What does it reflect?

9. Describe the Baumol and Miller-Orr cash management models and

explain how they differ from each other.

10. What are the options available to a firm for investing surplus cash?
Discuss strategies that a company employ to gain from the market?

11. Alpha Trading Corporation requires Rs 2.5 mn in cash for meeting its
transaction needs over the next 6 months. It currently has the amount in
the form of marketable securities. The cash payments will be made
evenly over the 6-month planning period. It earns 10% annual yield on
148 the marketable securities. The conversion of marketable securities into
 Management of
cash entails a fixed cost of Rs 1200 per transaction. What is the optimal Cash
conversion size as per the Baumol Model?

12. Excel Enterprises expects its cashflows to behave in a random manner,

as assumed by the Miller Orr model. Excel wants you to establish the
“Upper Control Limit (UCL)” and the “return point”. It provides the
following information as required by you-
♦ The fixed cost of effecting a marketable securities transaction is
Rs.1500.
♦ The standard deviation of the change in daily cash balances is Rs.6000.
♦ The minimum cash balance maintained is Rs.100,000.
13. Pheonix Electronics has used the Baumol to estimate its optimal cash
balance to be Rs 10 lakhs. Its opportunity cost is 10% and there is a cost
of Rs. 250 every time the marketable securities have to be converted into
cash. Estimate the weekly cash usage rate?
14. The financial manager of a large multinational company Jax Ltd., is
studying the firm’s cash management. He knows that it costs an average
of Rs. 1000 per transaction to sell marketable securities. Short term
Treasury bills are currently yielding 6%. In studying the firm’s cash
flows, he determines that the standard deviation of daily cash balance is
Rs. 5 lakhs. The firm must maintain a minimum balance of Rs. 50 lakhs
to comply with compensating balances requirements. He sees no reasons
to hold more than this amount in cash.
(a) Using the Miller-Orr model, what is the cash return point for the Jax
Ltd?
(b) What is the Upper Control Limit?
(c) Using the values, explain how the firm will manage cash and
marketable securities balances. At what point will the firm sell
marketable securities and how much will it sell?
(d) How will the firm’s holdings of cash be affected by a) an increase in
the opportunity cost of holding cash, b) an increase in the daily
variance of cash balances, c) a decrease in the transaction cost
associated with selling marketable securities

6.10 FURTHER READINGS

Brealey, Richard A and Myers, Stewart C., Principles of Corporate Finance,
Tata-McGraw Hill, New Delhi

Frederick C. Scherr, Modern Working Capital Management: Text and Cases,

Prentice Hall, Englewood Cliffs, NJ.

Joshi, R.N. Cash Management: Perspectives, Principles &Practice, New

Age International (P) Ltd. New Delhi.
149
Management of Keith V. Smith, Guide to Working Capital Management, McGraw-Hill Book
Current Assets
Company, New York

Pandey, I.M., Financial Management, Vikas Publishing house, New Delhi

Prasanna Chandra, Financial Management, Tata-McGraw Hill, New Delhi

Ramesh, K. S. Rao, Fundamentals of Financial Management, Prentice Hall

International.

150
 Management of
Exhibit 6.1: Money Market Operations as on May 2, 2022
Cash
(Amount in Crore, Rate in Per cent)

MONEY MARKETS@ Volume (One Weighted Range

Leg) Average
Rate
A. Overnight Segment (I+II+III+IV) 4,55,953.51 3.75 2.00-5.70
I. Call Money 9,524.38 3.65 2.30-3.90
II. Triparty Repo 3,14,234.60 3.76 3.65-3.83
III. Market Repo 1,32,089.53 3.73 2.00-3.90
IV. Repo in Corporate Bond 105.00 5.70 5.70-5.70
B. Term Segment
I. Notice Money** 326.25 3.50 3.05-3.75
II. Term Money@@ 192.00 - 3.65-3.95
III. Triparty Repo 2,530.00 3.81 3.75-3.90
IV. Market Repo 300.00 3.15 3.15-3.15
V. Repo in Corporate Bond 0.00 - -
RBI OPERATIONS@ AuctionDate Tenor Maturity Amount Current
(Days) Date Rate/Cut
off Rate
C. Liquidity Adjustment Facility (LAF), Marginal Standing Facility (MSF) & Standing
Deposit Facility (SDF)
I Today's Operations
1. Fixed Rate
2. Variable Rate&
(I) Main Operation
(a) Reverse Repo
(II) Fine Tuning Operations
(a) Repo
(b) Reverse Repo
3. MSF Mon, 2 Wed, 0.00 4.25
02/05/2022 04/05/2022
4. SDFΔ Mon, 2 Wed, 1,38,634.00 3.75
02/05/2022 04/05/2022
5. Net liquidity injected -
from today's 1,38,634.00
operations [injection
(+)/absorption (-)]*
II Outstanding Operations
1. Fixed Rate
2. Variable Rate&
(I) Main Operation
(a) Reverse Repo Fri, 14 Fri, 4,51,901.00 3.99
22/04/2022 06/05/2022
(II) Fine Tuning Operations
(a) Repo
(b) Reverse Repo Tue, 28 Tue, 50,010.00 3.99
19/04/2022 17/05/2022
3. MSF
151
Management of 4. SDFΔ
Current Assets
5. Long-Term Repo Mon, 1095 Thu, 499.00 5.15
Operations# 17/02/2020 16/02/2023
Mon, 1094 Wed, 253.00 5.15
02/03/2020 01/03/2023
Mon, 1093 Tue, 484.00 5.15
09/03/2020 07/03/2023
Wed, 1094 Fri, 294.00 5.15
18/03/2020 17/03/2023
6. Targeted Long Term Fri, 1092 Fri, 11,987.00 4.40
Repo Operations^ 27/03/2020 24/03/2023
Fri, 1095 Mon, 16,423.00 4.40
03/04/2020 03/04/2023
Thu, 1093 Fri, 17,512.00 4.40
09/04/2020 07/04/2023
Fri, 1091 Thu, 19,746.00 4.40
17/04/2020 13/04/2023
7. Targeted Long Term Thu, 1093 Fri, 7,450.00 4.40
Repo 23/04/2020 21/04/2023
Operations 2.0^
8. On Tap Targeted Long Mon, 1095 Thu, 5,000.00 4.00
Term Repo Operations€ 22/03/2021 21/03/2024
Mon, 1096 Fri, 320.00 4.00
14/06/2021 14/06/2024
Mon, 1095 Thu, 50.00 4.00
30/08/2021 29/08/2024
Mon, 1095 Thu, 200.00 4.00
13/09/2021 12/09/2024
Mon, 1095 Thu, 600.00 4.00
27/09/2021 26/09/2024
Mon, 1095 Thu, 350.00 4.00
04/10/2021 03/10/2024
Mon, 1095 Thu, 250.00 4.00
15/11/2021 14/11/2024
Mon, 1095 Thu, 2,275.00 4.00
27/12/2021 26/12/2024
9. Special Long-Term Repo Mon, 1095 Thu, 400.00 4.00
Operations (SLTRO) for 17/05/2021 16/05/2024
Small Finance Banks
(SFBs)£
Tue, 1095 Fri, 490.00 4.00
15/06/2021 14/06/2024
Thu, 1093 Fri, 750.00 4.00
15/07/2021 12/07/2024
Tue, 1095 Fri, 250.00 4.00
17/08/2021 16/08/2024
Wed, 1094 Fri, 150.00 4.00
15/09/2021 13/09/2024
Mon, 1095 Thu, 105.00 4.00
15/11/2021 14/11/2024
Mon, 1095 Thu, 100.00 4.00
22/11/2021 21/11/2024
Mon, 1095 Thu, 305.00 4.00
29/11/2021 28/11/2024
152
 Mon, 1095 Thu, 150.00 4.00 Management of
13/12/2021 12/12/2024 Cash

Mon, 1095 Thu, 100.00 4.00

20/12/2021 19/12/2024
Mon, 1095 Thu, 255.00 4.00
27/12/2021 26/12/2024
D. Standing Liquidity Facility (SLF) Availed 26,521.23
from RBI$
E. Net liquidity injected from outstanding -
operations 3,88,641.77
[injection (+)/absorption (-)]*
F. Net liquidity injected (outstanding -
including today's 5,27,275.77
operations) [injection (+)/absorption (-)]*

RESERVE POSITION

G. Cash Reserves Position of Scheduled Commercial

Banks
(i) Cash balances with RBI as on May 02, 2022 6,83,134.67
(ii) Average daily cash reserve requirement for the May 06, 2022 6,76,950.00
fortnight ending
H. Government of India Surplus Cash Balance May 02, 2022 0.00
Reckoned for Auction as on¥
I. Net durable liquidity [surplus (+)/deficit (-)] as on April 08, 2022 7,20,395.00

Source: RBI Press Release on Money Market Operations as on May 02, 2022

153