Global Markets - Business
In today’s banking set up, treasury plays a vital role in boosting bottom line by optimally managing bank’s liquidity, enhancing return on deployment of surplus available and extending a range of foreign exchange related services to the customers. At SBI, these functioning are conducted in an integral manner by the Global Markets Department.
Global Markets Deptt. plays a very critical role in ensuring regulatory reserve requirements as mandated by the RBI from time to time. The department also offers products like derivatives, gold forwards, and portfolio management services and manages bank’s proprietary trading and investment portfolio. The dynamic liquidity management ensures that short term investment portfolio is actively churned to generate better returns. The debt portfolio’s performance, which constitutes a significant portion of Bank’s investment portfolio, depends significantly on interest rate movements and system wide liquidity conditions. However, active management of portfolio ensures that portfolio yield is kept at optimal level and profit is continuously booked.
The equity desk does proprietary trading and also manages strategic investments of the bank. The desk keeps on exploring good investment opportunities to enhance returns while maintaining a reduced risk appetite during uncertain times. The Private Equity and Venture Capital desk invests in capital scarce starts up which offer higher returns with enhanced risks. Being the biggest bank of the country and with the role of a market maker, the Forex desk endeavours to provide the best prices to corporates, ranging from the behemoths to emerging SMEs, both in the Public and Private Sector. In addition, forex treasury facilitates liquidity in the inter-bank market.
In addition to these, the bank also provides Indian Rupee and Foreign Exchange Derivatives to corporates for hedging their interest rate and currency exposures, within the regulatory stipulations. Treasury Marketing Group markets various treasury products offered by the Bank, to its customers to mitigate Exchange Rate Risk /Interest Rate Risk in their exposures. Dedicated Treasury Marketing Officers continuously engage with the customers giving them various inputs about markets as part of the advisory services offered by the Bank.
Portfolio Management Services Section of Global Markets, one of the largest fund managers, is managing terminal benefit funds of various provident fund trusts since 1995. It also manages investments of funds of RRBs sponsored by SBI.
Equity Desk, a subset of Global markets Department, deals in equity investments in primary as well as secondary market. It also manages the Bank’s investment in Mutual Funds. Equity & Mutual Fund investments are part of Non-SLR Investments of the Bank. The framework for investments is defined in the Bank’s Domestic Investment Policy and Trading Policy. Apart from Bank’s internal policy, it is also guided by RBI guidelines, SEBI Guidelines & Guidelines formulated by respective Exchanges for Institutional Investors.
Investments in equity shares & mutual funds are restricted to the companies and mutual fund schemes which are part of the respective Universe. The scrips in the Equity Universe are short listed on the basis of specific themes, members of some important indices etc. It is approved by Corporate Centre Investment Committee-I (CCIC-I) and is reviewed at half-yearly intervals. Mutual fund Universe comprises of Liquid,Debt,Duration&Equity schemes which are shortlisted on the basis of Value Research rating,CPR ranking, Portfolio composition and various other parameters. The Universe is approved by various committees depending on their sanctioning powers.
Important Regulatory Ceilings
- Aggregate exposure of the bank to the Capital market in all forms should not exceed 40% of its net worth as on 31st March of previous year.
- Overall ceiling for direct investment in shares & units of equity-oriented mutual funds - 20% of the Bank's Net Worth.
- Ceiling for investment in units of Liquid schemes of Debt Oriented Mutual Funds-10% of the Bank's Net Worth.
- Ceiling for HFT portfolio - 20% of the Bank's net worth or Rs. 400 crore, whichever is lower.
- Banks are not allowed to undertake arbitrage trading and short-selling of shares.
Forex & Financial Engineering & New Products
The Forex department is divided into the following sections
- Merchant : The dealers at this desk deal with bank's customers directly or through the forex designated branches of the bank and complete transactions involving foreign exchange in all major currencies of the world.
- USD/INR Spot : The majority of the transactions taking place in forex necessarily involve the pair of USD/INR. This desk handles all those forex flows where INR- Indian Rupee is one of the currencies. It covers the merchant flows i.e. positions arising out of purchase and sale of foreign exchange from/to customers in the interbank market. The desk also acts as the market maker for USD/INR pair in the inter-bank market. Some of the very high value merchant transactions are also handled directly at this desk. Along with that, the desk does proprietary trading i.e., purchase and sale of foreign exchange in the interbank market with a specific purpose of benefiting from short/medium/long term price swings in the market and making profit from such trades. The spot desk also submits rates for punch marking to FEDAI & RBI.
- USD/ INR forwards : SBI is the biggest market maker in USD/INR forwards market. It also quotes and covers the merchant positions. The maturity period of such transactions is usually up to one year though positions in long term forward contracts (LTFX) are also taken. The desk also executes swaps for funding and arbitrage purposes.
- Crosses and Majors : This desk covers merchant transactions in all currencies other than USD/ INR. It deals in currencies of G7 countries and those of all other major countries in which the bank is maintaining a NOSTRO account .
- Gold : The desk covers gold related spot and forwards transactions. The desk also covers the bullion sale of the bank including sale of gold coins.
- Structured Products (FENP) : Structured Products Desk handles structuring of Forex & Interest Rate Products to provide complete hedging solution to customers. Desk primarily handles Currency Options and Foreign Currency interest rate derivatives. We run Option book for USD-INR pair and a MIFOR book. Running the books give us an edge over other market participants who quote on back-to-back basis and it also allows us to offer an innovative product line. Most of the products offered are over-the-counter (OTC) in nature and are tailor made to suit customer specific requirements. Our customer base includes some of the well known Indian corporate with underlines of loans (both rupee as well as FC).
PRODUCTS & SERVICES
- Forex Markets : The foreign exchange transactions done by the branches are reported to the Global Markets for covering those transactions in the inter-bank market. Forex Markets section has various desks to handle these transactions. The Merchant Desk at the department takes reporting of all transactions involving foreign exchange in all major currencies from the designated branches as well as customer's directly.
- Currency Purchase/Sale : The positions arising out of purchase and sale of foreign exchange from/to customers are to be covered in the interbank market. The majority of the transactions taking place in forex necessarily involve USD/INR pair which necessitates purchase/sale of USD in cash/tom or spot market. The currency pairs other than USD/INR (Cross currency pairs) are dealt separately.
- USD/ INR forwards : The USD/INR forward is a derivative product which involves purchase/sale of a definite quantity of USD at a pre-determined rate on a pre-determined date. These are used to hedge the currency or exchange rate risk. The party buying the contract assumes a long position while the party selling the contract assumes a short position. The market is active upto 1 year. SBI is the largest market maker in USD/INR forwards market. Forwards are traded in the OTC market and hence no standardization of contract is required. The exchange traded variant of the forwards is Futures.
- Gold Purchase/Sale : The purchase of Gold in the spot and forward markets is undertaken to cover the customer transactions and bullion sale of the bank including sale of gold coins.
- Structured Products : Structured Products involves structuring of Forex & Interest Rate Products to provide complete hedging solutions to customers. Various products involved in designing such solutions are as under :
- Options : A contract between two parties in which the option buyer (holder) purchases the right (but not the obligation) to buy/sell a fixed quantity of an asset, at a predetermined price from/to the option seller (writer) within a fixed period of time. There are mainly two types of options viz. Call and Put. There are two styles of options which depend upon whether option can be exercised on the expiry or prior to expiry date. The option which can be exercised on the expiry date is called European Option while the one which can be exercised any time during the life of option is called American option. The buyer of the option has to pay a premium to obtain the right. The option premium dependents on the volatility, strike price, time remaining to expiration, rate of interest. The underlying of an option contract can be stock, currencies, indices, commodities etc.
- Swap : Swap is a contractual agreement to exchange specified cash flows at future dates. The cash flows could be:
- Fixed to floating interest rates - Interest Rate Swap
- Or in different currencies - Currency swap, or a combination of these
- Interest Rate Swap is an agreement between two parties in which one party agrees to pay cash flows equal to interest at a predetermined rate while the other agrees to pay interest at floating rate on a notional principal amount for a number of years.
- A Currency Swap involves exchange of principal and interest payments in one currency for principal and interest payments in another currency. The Principal amounts in each currency are usually exchanged at the beginning and at the end of life of Swap. The interest rates in both the currencies are fixed.
- Forward Rate Agreement: An OTC contract between parties that determines the rate of interest, or the currency exchange rate, to be paid or received on an obligation beginning at a future start date.
Interest Rate Markets
- Interest Rate Markets (IRM), as the name signifies, handles the portfolio of interest rate instruments for the Bank. This primarily includes managing investments for regulatory requirements like CRR and SLR, and deploying Bank's funds in various interest rate instruments for generating profits. The instruments we invest in vary from money market instruments like Commercial Papers (CPs), Certificates of Deposits (CDs) and T-Bills to dated Government Securities (G-Secs) and State Development Loans (SDLs). In addition, we also invest in Corporate Bonds issued by financially sound Indian companies. Activity at IRM desk is broadly divided into two desks – SLR and non-SLR
- The SLR desk can be further divided based on its various functions like CRR product management, investment in dated G-Secs, investment in money market instruments, etc.
- The CRR desk manages daily CRR product to maintain the Cash Reserve Ratio at the RBI prescribed percentage of Net Demand and Time Liabilities (NDTL) of the Bank. The CRR dealer has to keep a tab on all the withdrawals and deposits happening across the Bank and maintain the CRR through various borrowing and lending windows provided by the RBI like overnight Liquidity Adjustement Facilifty (LAF)/Marginal Standing Facility (MSF), Export Refinance and Term Repo as well as others available in the market like CBLO, Call and Market Repo. In addition to maintaining the CRR product based on various parameters given by RBI from time-to-time, the CRR desk has to optimize the funding costs while also deploying liquid short term funds optimally among the various avenues available.
- For funds available for a slightly longer duration, the SLR desk takes the call to invest in money market instruments like T-Bills or CDs. These funds may also be passed on to the non-SLR desk for investment in shorter duration instruments viz. CPs, shorter duration corporate bonds. The SLR desk may even raise funds through issuance of CDs to add to Bank's cash position, if required.
- The SLR desk also maintains the Statuary Liquidity Ratio (SLR) of the Bank, as prescribed by RBI. Banks have to compulsorily invest part of their NDTL in SLR securities like dated G-Secs and Treasury Bills issued by the Government of India and SDLs issued by State Governments. SLR securities are sovereign in nature and thus offer a safe haven investment. In addition, SLR securities can be tendered in repo/CBLO market to generate liquidity for the Bank. The desk also manages Bank's investment portfolio in these instruments over and above the SLR requirements.
- The non-SLR desk looks at all investments in securities issued by Indian companies like Corporate Bonds and CPs. It also handles trading in Interest Rate Futures Market (IRF) and in Overnight Indexed Swaps (OIS).
- Managing the Interest Rate portfolio of a large Bank like ours involves a large number of calls to be taken by the IRM desk. Traders on the desk have to choose between various instruments for deployment of or for raising funds. Along with the interest rate instruments mentioned above, we also collaborate with the FX Swaps desk to make use of opportunities for deploying or generating funds in the FX Swap market if it provides better returns for the Bank. Such decisions are taken by the desk on a regular basis for various tenors from overnight to 3 months to 10 years with an aim of maintaining a smooth flow of cash for the Bank's lending and deposits business and to generate superior returns from whatever funds are available to us, all while meeting the regulatory requirements.
Portfolio Management and Custodial Services (PM & CS) Section
State Bank of India (SBI) is the only Public Sector Bank to receive approval from Reserve Bank of India (RBI) to provide Portfolio Management Service and has been offering this service since 1995. SBI is also registered with the Securities and Exchange Board of India (SEBI) as a Portfolio Manager. The registration with SEBI is current and is valid till 31st January 2016. SBI is also registered with SEBI as a custodian.
The Bank provides portfolio management services to an array of retirement funds in the country consistently giving superlative returns. The Portfolio Management Services section, with an AUM of over 2,79,000 crores has consistently outperformed private sector peers in generating returns for the Employees Provident Fund Organisation (EPFO) funds. For the last three years, State Bank of India has been consistently adjudged by CRISIL as the best fund manager for EPFO.
The PMS Section, Global Markets offers discretionary Portfolio Management Services to various retirement benefit funds. Investment on behalf of RRBs sponsored by State Bank of India is also done for maintenance of their Statutory Liquidity Ratio (SLR) requirements since 2003.
The PMS section undertakes investment of funds on behalf of the clients in terms of investment pattern followed by the respective provident/pension fund trusts and in accordance with the guidelines prescribed by the Ministry of Finance, Government of India
Fund Managementis carried out with the primary objective of generating optimum yields for the client by investing in a judicious mix of various securities like Central Government Securities, State Development Loans, Corporate Bonds (PSU and Private), Fixed Deposits, Money Market Instruments and equity (if permitted by the Client).The three pillars of investment strategy adopted by the PMS section are:
(i)Safety, (ii)Yield, and (iii)Liquidity
Custodial services are provided by the Bank through our Securities Services Branch (SSB), Mumbai. All the securities purchased, except Bank Fixed Deposits, are held in Dematerialized form by the Branch and reconciled and accounted for on a regular basis. A memorandum for reconciliation of CSGL and SGL accounts is put up to the Audit Committee of the Board (ACB) at quarterly intervals. The settlement of all investments is also carried out by the SSB.There is a clear functional separation of trading and back office functions relating to Bank’s own investment accounts and PMS clients' accounts as per regulatory requirements.
State Bank of India is rendering Portfolio Management Services (PMS) to the following clients :
|Sr. No.||Client||Managing Since|
Central Board of Trustees, Employees’ Provident Fund Organization (EPFO)
Delhi Vidyut Board Employees’ Terminal Benefit Trust (DVBETBF)
Coal Mines Provident Fund Organization (CMPFO)
State Bank of India Employees’ Pension Fund (SBIE Pension Fund)
Imperial Bank of India Employees’ Pension and Guarantee Fund (IBIEPGF)
Vishakhapatnam Port Trust Employees’ General Provident Fund Trust (VPTEGPFT)
State Bank of India Employees’ Gratuity Fund (SBIE Gratuity Fund)
State Bank of India Employees’ Provident Fund (SBIE Provident Fund)
Kendriya Vidyalaya Sangathan (KVS) 2011
Seamen’s Provident Fund Organization (SPFO)
Regional Rural Banks sponsored by the State Bank of India
Custodial servicesare provided by the Bank through our Securities Services Branch (SSB), Mumbai. All the securities purchased, except Bank Fixed Deposits, are held in Dematerialized form by the Branch and reconciled and accounted for on a regular basis. A memorandum for reconciliation of CSGL and SGL accounts is put up to the Audit Committee of the Board (ACB) at quarterly intervals. The settlement of all investments is also carried out by the SSB.There is a clear functional separation of trading and back office functions relating to Bank’s own investment accounts and PMS clients' accounts as per regulatory requirements.
The SBI PMS section is also the Portfolio Manager for superannuation funds of State Bank of India. The following superannuation funds of SBI are managed by PMS section
- State Bank of India has been reappointed as one of the four fund managers of the Employees’ Provident Fund Organization (EPFO) with increase in share of corpus of funds to 35% from 20% in the previous arrangement. EPFO is the largest client of PMS section in terms of Assets Under Management (AUM). The other fund managers appointed by EPFO are HSBC AMC, ICICI Securities PD, and Reliance AMC. Among the four fund managers of EPFO, SBI has consistently given the best return during the current assignment w.e.f. 01st November 2011. CRISIL the consultant appointed by EPFO has adjudged SBI PMS as the best fund manager for the last three successive years.
- State Bank of India has been appointed as the sole fund manager of Coal Mines Provident Fund Organization (CMPFO). The PMS section has been managing the Pension Fund, Deposit Linked Insurance Fund and Administrative Charges Fund of the Coal Mines Provident Fund Organization (CMPFO) since 2007. The largest fund of CMPFO, i.e., the Provident Fund, was being managed by ICICI Securities Primary Dealership Limited. The management of Provident Fund of CMPFO has also been taken over by SBI PMS w.e.f. January 2012.
- State Bank of India Employees’ Pension Fund
- IBI Employees’ Pension and Guarantee Fund
- State Bank of India Employees’ Provident Fund
- State Bank of India Employees’ Gratuity Fund
- On the basis of our excellent performance, the following clients have extended the term of agreement for Portfolio Management during the last one year :
- Coal Mines Provident Fund Organization (CMPFO),
- Kendriya Vidyalaya Sangathan (KVS), and
- Seamen’s Provident Fund Organization (SPFO).
- Vishakhapatnam Port Trust Employees’ General Provident Fund Trust (VPTEGPFT)
Private Equity & Venture Capital
- The Private Equity/Venture Capital (PE/VC) investments in India commenced in the early 90s and the same has grown substantially over the years. Private Equity is a specialized field where investors acquire a significant minority or even majority stake in companies. Investors normally take a hands-on role in the operations of the company and contribute towards accretion of value by virtue of specialized skills that they bring to the table. The gestation period is often quite long and could extend beyond 5 years before we start getting any returns. It is worth considering only if we want to tie up our funds that long. Private Equity investments require regular attention and follow-up of a significantly different nature compared to the portfolio of secondary market investments. Further, risk associated with this kind of investment is very high. That is why our approach has been to Grow Selectively".
- Private Equity Investments can be done by two means; one by acquiring direct stake in the company and the other by way of investing in a Private Equity/Venture Capital fund which is akin to investing in a mutual fund. However, while mutual funds primarily invest in listed companies, private equity fund/venture capital funds invest in unlisted companies.
- The Bank made its foray into the business of Private Equity and Venture Capital (PE/VC) Investments in 2003 when an investment of Rs 84.38 crore was made in India Development Fund, a fund floated by IDFC Private Equity Co Ltd. Initially, such investments were being made under the Domestic Investment Policy. Such investments were at that time managed by the Rupee Treasury Section of Global Markets Department (then known as Treasury Department).
- Alternate Assets Group was conceived and created within the Global Markets Department (earlier Treasury Department) in February 2008 and a General Manager (Alternate Assets) was posted to head the group. The group was entrusted with the task of managing Bank's investments in Private Equity/Venture Capital Funds. A separate policy for Bank's investment in PE/VC was approved by the Central Board on 11th June 2008 and put in place.
- In December 2013, Private Equity investments of Bank's New Business Department were consolidated in the Global Markets and the entire portfolio was brought under Private Equity vertical. The vertical is currently headed by General Manager-Private Equity, who looks after the PE-VCF portfolio of ~Rs 3000 Crore. In addition to PE-VCF investments, our Bank has also floated two Joint Venture Funds; one with Macquarie group of Australia and the other with State General Reserve Fund of Oman. Besides, we have also committed Rs 52.00 Crore in 2 Asset Reconstruction Funds.
Treasury Marketing Group
Global Market’s Treasury Marketing Group came into existence in 2005-06 as a part of Treasury process reengineering for providing adequate thrust to the marketing of Treasury Products to the Institutional and Corporate clients of the Bank. 8 Treasury Marketing Units (7 RTMUs and 1 CTMU) were created across the country. The locations of TMUs and satellite centers are such that we have presence in all CAG/MCG/NBG centers. TMUs are staffed with Treasury Marketing Officers (TMOs) and are headed by an AGM/CM with adequate dealing/forex background. TMOs are recruited internally through Dealer’s tests from a pool of young officers. Satellite centers at Cochin and Kanpur are being proposed for catering to those specific geographies in response to the demand.
- To provide end-to-end solutions in the entire gamut of Treasury Products to Customers for management of their portfolios.
- To maintain link between the Branches / Relationship Managers (RMs) / Customers on one hand and the Treasury functions and delivery platform on the other.
- To expand customer activities in Money Market and Fixed Income products.
- To interact with customers about the markets and their requirements through daily telephonic conversations, emails and the most important aspect of marketing – visiting customer’s work place/branches and inviting them at our workplace (Customer Calls).
- To identify the Treasury related needs of the Customers on an ongoing basis and devise effective strategies for product push.
- To efficiently market our products:
Forex Products Derivative Products Money Market Products
- To directly quote rates to customers, up to USD 0.25 mio in case of USD/INR and equivalent of USD 0.25 mio in case of other currencies.
- To co-ordinate and assist RMs/Branch officials in various treasury related issues.
- To provide continuous feedback to other desks about customer’s requirements and the market trends.
- To interact with other desks in Treasury for pricing and product structuring.
- To participate in various P-reviews and synergy meetings with various Business Groups which facilitate constant exchange of information on business updates, opportunities and risks.
- To keep a track on changes in RBI guidelines with respect to Fx, derivatives and other treasury variants and advise the RMs/other units/customers accordingly.
- To contribute by suggesting changes/improvements to the existing systems and procedures so that they are in line with the RBI guidelines
- To expand customer activities in Money Market and Fixed Income products.
Awards & Accolades:
- Asia Money, a leading Asian financial magazine, conducts poll among bankers and corporates on various banking parameters every year. State Bank of India was voted as “The Best Bank in Asiamoney FX Poll of Polls 2014” for best overall performance as domestic provider of FX services over the last 10 years. The results were published in their May 2014 issue.
- SBI has been voted best in various categories consistently over the years (2007-2014).
It Initiatives :
- Introduction of Digital signature for all forward contract agreements.
Hr Initiatives :
- Regular skill building training programs conducted for all Business Groups officials. We regularly arrange various one day sessions for officials on market awareness.