Enhancing Liquidity and Control: A Study on Cash Management Practices at India Infoline Stock Broking

Abstract

This study examines the cash management and liquidity frameworks at India Infoline Securities (IIFL Securities), evaluating fund segregation, liquidity optimization, internal controls, regulatory failures, and reforms. Drawing on regulator findings and industry responses, it highlights lessons for improving practices across the brokerage sector. This study investigates the cash management practices at IIFL Securities, focusing on enhancements in both liquidity and control. The objective is to understand how IIFL structures its governance, operational procedures, and risk frameworks to safeguard client funds while ensuring operational liquidity. The research draws on regulatory cases, internal risk governance disclosures, historical compliance incidents, and liquidity-related metrics.
IIFL has institutionalized a robust risk governance framework aligned with a “three-lines-of-defense” model, featuring oversight by the Board of Directors, a dedicated Risk Management Committee, a Chief Risk Officer, and incident-management protocols. The company also leverages an Asset Liability Committee (ALCO) to dynamically oversee balance sheet composition, interest rate exposure, and liquidity funding mix across wholesale, retail, fixed and floating instruments. Operational controls prohibit cash acceptance for client transactions; all client receipts/payments are processed via account-payee cheques / DDs linked to client IDs, reducing misappropriation risk. Further, advanced back-office and collateral-management systems allow real-time tracking of cash and securities, position limits and clearing obligations fortifying transparency and timely settlement across cash and F&O segments.
Despite these systems, IIFL has experienced notable regulatory lapses: cases included commingling of proprietary and client funds, misuse of client credit balances for its own trades, and non-segregated bank accounts, resulting in SEBI action, fines, and restrictions on new client onboarding during 2011–2017. These incidents underscore the gaps between policy design and implementation effectiveness. More recently, IIFL Capital’s consolidated liquidity position (₹1,115 Cr as of Sept 30 2024) comprised of cash, liquid investments, and unused credit line provides a strong buffer to meet debt obligations and absorb operational shocks. IIFL has developed comprehensive frameworks for cash control, collateral management, and liquidity oversight, historical breaches expose weaknesses in execution.
The study concludes that bridging these gaps requires stronger enforcement of operational protocols, periodic audits, continuous technology upgrades, and tighter reconciliation practices. Such enhancements are critical for bolstering trust, ensuring regulatory compliance, and sustaining both liquidity and control in stock-broking operations.