3. Cash Concentration Methods

OBLM supports various form of Sweeps/Cash Concentration methods. You can find a brief description about each method in this chapter. This chapter contains the following sections:

• Section 3.1, "Zero Balance"
• Section 3.2, "Fixed Sweep"
• Section 3.3, "Target Balance/Minimum Balance"
• Section 3.4, "Threshold"
• Section 3.5, "Collor"
• Section 3.6, "Percentage"
• Section 3.7, "Range Based Balancing"
• Section 3.8, "Investment Sweeps"

3.1 Zero Balance

In this method, all the balances from the sub account are automatically transferred into the master account at the EOD with original value dates. The top account will therefore hold the overall net cash position of the company or group of companies. The top account is normally held by the parent company or a group treasury.

1 way Scenario

Here the system will try to zero balance the child account. The child account balances are swept to leave a zero balance in the child account. If the child account balance is zero or negative, the system will not execute any sweep instruction

2 way Scenario

Here the system will try to bring the child account to zero balance in case it has a negative balance. If the balances in the parent account is not sufficient to cover the overdraft, no sweep transaction is done.

If more than one child account is in negative balance, the transfer from the parent account will be based on the priority set at the child account (Least numeric is given top priority) and the available balance on the major account.

If the child account balance is above zero, the system will sweep the entire balance from child account to the parent account.

When sweeping from Major account to minor account the major account balance cannot go below Zero if no limit is attached. If a limit is attached then, sweeps can happen till the limit is utilized but not beyond the specified limit. If the major account is linked with unlimited limit, then sweeps can happen from major to minor till all the minor account balances are zero

 

3.2 Fixed Sweep

A fixed amount is transferred from the sub account to the main account irrespective of the credit balance in the sub account. If the credit balance in the sub account is below the fixed amount then no transfers are affected.

1 way Scenario

If the minor account balance is above or equal to the fixed amount, the system will sweep fixed amount from the minor account.

If the minor balance is above zero, but less than the fixed amount, the system will not initiate the sweep instruction.

2 way Scenario

The 2 way sweep in this concentration method will transfer only that amount which is required to cover overdrafts on the child accounts i.e. Fixed 2 way sweep only covers the child overdraft balances and will not follow the fixed parameter, provided the parent account has sufficient balance to cover the debit balance on the child account

FIXED

In the fixed method, if the minor is overdrawn, and major balance is above or equal to the fixed amount, the system will use amount, equal to fixed amount for transfer from major to cover minor’s overdraft. If, however, the major balance is less than the fixed amount, the system will reject the sweep instruction.

If more than one child account is in negative balance the transfer from the parent account will be based on the priority set at the child account. Balance will be transferred from Major account to minor accounts based on priority (Least numeric is given top priority) and availability of funds (Fixed amount) in the major account. In this scenario if the balance available in the major account is not sufficient to carry out multiple fixed amount transfers, system will sweep till the available balance on the major account is exhausted keeping the fixed amount parameter in view.

If the major account is linked with a line then sweeps will be carried out till the line amount is exhausted and if the major account is linked to an unlimited limit then system will sweep balances to all the minor accounts.

If more than one child account is in negative balance, the transfer from the parent account will be based on the priority set at the child account (Least numeric is given top priority) and the available balance on the major account.

3.3 Target Balance/Minimum Balance

There are two different types under this:

• Constant Target Balance/Minimum Balance- Here the system ensures that a specific amount is present in the minor account by moving the balances from the sub accounts to the main account and vice versa. The balances in the sub accounts will be constant and cannot be zero
• Fixed Target Balance - Here the system ensures that a fixed target balance is present while moving funds from sub accounts to main account. when the sub accounts has a debit balance the 2 way sweep from main account to the sub account will be equal to the debit amount on sub account which will bring the sub account to zero balance.

1Way - Scenario

If the child account balance is above the minimum balance, the system will sweep the positive difference between the child account balance and minimum balance to the major account (sweep balances above the minimum balance from the child account).

If the child account balance is below or equal to the minimum balance, the system will not execute the sweep instruction.

2Way - Scenario

If the child account balance is below the minimum balance, the system will try to cover the negative difference between the minor balance and minimum balance with funds from the major account.

If the minor balance is below the minimum balance or is overdrawn, and the major balance is negative or not sufficient to cover the OD + minimum balance the system will not execute any sweep instruction

When sweeping from Major account to minor account the major account balance cannot go below Zero if no limit is attached, if limit is attached sweeps can happen till the limit is utilized but not beyond the specified limit, but if the major account is linked with unlimited limit sweeps can happen from major to minor till all the minor account balances are zeroised or reach the required levels.

If more than one child account is in negative balance, the transfer from the parent account will be based on the priority set at the child account (Least numeric is given top priority) and the available balance on the major account

When sweeping from Major account to minor account the major account balance cannot go below Zero if no limit is attached. If limit is attached then, sweeps can happen till the limit is utilized but not beyond the specified limit, If the major account is linked with unlimited limit, then sweeps can happen from major to minor till all the minor account balances are zero.

3.4 Threshold

Here the funds are moved only when the account has more balance than a set limit.The child account keeps accumulating funds till the threshold is reached and sweeps out all the balances from the child account.

1Way - Scenarios

If the child account balance is equal to or above the Threshold balance amount, the system will sweep the entire balances from the child account. If the child account balance is below the Threshold balance, the system will not execute the sweep instruction.

2Way - Scenario

If the child account balance is below the Threshold balance, the system will not perform any sweeps under any circumstances even if the major account is in credit balance. If the child account balance is below zero, then sweeps will be performed from major account to minor account to bring minor account balance to zero.

If more than one child account is in negative balance, the transfer from the parent account will be based on the priority set at the child account (Least numeric is given top priority) and the available balance on the major account

When sweeping from Major account to minor account the major account balance cannot go below Zero if no limit is attached, if limit is attached sweeps can happen till the limit is utilized but not beyond the specified limit, but if the major account is linked with unlimited limit, then sweeps can happen from major to minor till all the minor account balances are zero.

3.5 Collor

Here on reaching a threshold value, funds are swept from the minor account but leaving behind a balance.

1Way - Scenario

If the child account balance is above the Threshold balance amount or equal to the threshold balance amount, the system will sweep balances from the child account leaving behind the pre-set balance in the child account.

If the child account balance is below the threshold, the system will not execute the sweep instruction.

2Way - Scenarios

If the child account balance is below the Threshold balance, the system will not perform any sweeps under any circumstances even if the major account is in credit balance. If the child account balance is below zero, then sweeps will be performed from major account to minor account to bring the minor account balance to zero.

If more than one child account is in negative balance, the transfer from the parent account will be based on the priority set at the child account (Least numeric is given top priority) and the available balance on the major account

When sweeping from Major account to minor account the major account balance cannot go below Zero if no limit is attached, if limit is attached sweeps can happen till the limit is utilized but not beyond the specified limit, but if the major account is linked with unlimited limit sweeps can happen from major to minor till all the minor account balances are zero.

3.6 Percentage

Here a certain set percentage of funds available in the minor account is swept out. The system supports both 1 way and 2 way sweeps.

If more than one child account is in negative balance, the transfer from the parent account will be based on the priority set at the child account (Least numeric is given top priority) and the available balance on the major account

The 2 way sweep in this concentration method will transfer only that amount which is required to cover overdrafts on the child accounts i.e. Percentage 2 way sweep only covers the child overdraft balances and will not follow the Percentage parameter provided the parent account has sufficient balance to cover the debit balance on the child account.

When sweeping from Major account to minor account the major account balance cannot go below Zero if no limit is attached. If limit is attached, then sweeps can happen till the limit is utilized but not beyond the specified limit. If the major account is linked with unlimited limit, then sweeps can happen from major to minor till all the minor account balances are zero

3.7 Range Based Balancing

Here the funds are swept when the available balances are in a certain range.A minimum and a maximum range will be defined based on which sweeps are initiated from /to child account to make the child account attain a fixed balance.

For example, If a child account fixed balance is 50, Minimum range amount is 10 and Maximum range amount is 100 then, if the child account balance goes below 10, sweeps to child account will happen to make the child account balance 50 (Sweep of 40), but if the child account balance is more than 100 then balances above 50 will be swept away from the child account.

3.8 Investment Sweeps

System supports investment sweeps wherein funds are invested either in Money Market instruments or term deposits

 

Steps to achieve investment sweeps are as below:

• Create an account in OBLM which will be a Notional account with no balances (This account will be created only in OBLM and is not present in core banking)
• Create a structure with the notional account as the header
• Pair wise concentration methods to be defined for the structure including for the notional pair (ZBA, Percentage. Etc.)
• Pair wise sweep frequencies to be defined including the notional pair
• Payment instructions to be defined for all the pairs including the notional pair
• While defining payment instructions for the Notional pair either Money market placement or Term deposit creation parameters needs to be captured.
• OBLM will generate handoff message for the investment sweeps at the defined frequencies to the core banking system\external system.