Treasury and Trade Solutions
September 2014
India Day Series: Session 2
Treasury Strategy in a Resurgent India
Webinar Schedule:
10.00-10.05
Munir Nanji, Head, Asia Pacific, Treasury & Trade Solutions Sales, Citi:
Opening Remarks
Slide 2
10.05-10.25
MJ Akbar, National Spokesperson, Bharatiya Janata Party:
The 3 Ps of Economic Growth: Policies, Politics & Processes
Slide 3
10.25-10.40
Gourang Shah, Head, Asia Pacific, Treasury Advisory Group, Citi:
Treasury Best Practices in Emerging Markets
Slide 4-12
10.40-10.45
Ruchita Aggarwal, Head, North & East India, Treasury & Trade Solutions Sales, Citi:
Closing Remarks
Slide 13
Note: New York Time Zone
1
Opening Remarks
10.00-10.05 A.M.
Speaker
Munir Nanji, Head, Asia Pacific, Treasury & Trade Solutions Sales, Citi
Munir S. Nanji is Managing Director and Regional Sales Head for Citi Treasury and Trade Solutions in Asia
Pacific covering large and multinational corporations, financial institutions, and public sector organizations. Prior
to his current role, Munir was Regional Head for Bank Services Group and Public Sector. Munir brings over 20
years of international banking experience. He started his career at Citi in 1992, spending over a decade in
Emerging Markets covering Corporate Banking, products, relationship and risk management. His extensive
industry experience includes establishing and leading Citi’s transaction services business in Africa and Central
Europe, running a large corporate and middle market business, as well as helping to drive the bank’s business
development efforts in EMEA based in London. Munir holds a 1st Class Honors degree in Electrical Engineering,
Wharton alumni, MBA from INSEAD and currently doing a doctorate at Cranfield School of Management.
2
The 3 Ps of Economic Growth:
Policies, Politics & Processes
10.05-10.25 A.M.
Speaker
MJ Akbar, National Spokesperson, Bharatiya Janata Party:
Mr. Akbar has a long history working in politics. He was elected Member of Parliament in 1989, served in Lok
Sabha till 1991 with Congress support, was also the party’s spokesperson in 1989. He joined BJP in March 2014.
Over the course of his career, Mr. Akbar made significant contributions to the Indian Media as a journalist and
editor. He launched The Telegraph in 1982, widely recognized as India's first modern newspaper, The Asian Age
in 1994, India's first international newspaper, and The Sunday Guardian in 2010. Simultaneous with fulltime
journalism, he had a parallel career as an author of major internationally acclaimed books on the history of South
Asia, the volatile interplay of faith and nationalism on the Indian subcontinent, and conflicts between the Muslim
world and the Christian realms.
3
Treasury Best Practices in Emerging
Markets
10.25-10.40 A.M.
Speaker
Gourang Shah, Head, Asia Pacific, Treasury Advisory Group, Citi
As Head of Treasury Advisory, Gourang leads a team that provides advisory service to clients in setting up best
in class efficiency structures such as Treasury Center, Shared Service Center, Principal Structures, and In-house
Bank. Gourang has over 20 years of experience in Corporate Treasury, Mergers and Acquisition, Financial
Planning & Analysis, and Product Engineering. Prior to joining Citi, he was based in the United States as Vice
President and Assistant Treasurer of Tyco Electronics. Gourang holds a Master’s Degree of Business
Administration from the University of Michigan in Ann Arbor, United States and a Bachelor’s Degree from the
Indian Institute of Technology in Bombay.
4
Macroeconomic Environment
Economic growth is picking up, CPI inflation has eased to 30-month low, while current account deficit appears
under control. Against this backdrop, investment into India has revived.
CPI (% yoy)
GDP Growth (% yoy)
8.6%
14.9%
8.9%
6.7%
6.7%
6.5%
10.4%
5.6%
4.5%
2009
2010
2011
2012
2013
8.0%
4.7%
2010
2011
2012
2014E 2015E 2016E
-46
-78
2010
-88
-32
-39
2012
40
33
35
-2%
-40
-1.7% -1.9%
-2.3%
25
-3%
-2.0%
-2.7%
30
20
33
19
-100
Source: Citi Research, July 2014
-5%
5
30
25
20
15
17
15
15
11
15
-4.2%
35
27
7
10
Current account
balance (US$bn)
Current account deficit
(% GDP)
40
38
33
31
26
-4%
-80
2013 2014E 2015E 2016E
FDI, Net into India (US$bn)
FDI - To India (US$bn)
FDI - Abroad (US$bn)
42
45
-48
-1%
-2.8%
2011
2013 2014E 2015E 2016E
-20
-60
2009
0%
-38
8.0%
FDI
0
-28
8.3%
6.5%
Current Account Balance
2009
9.0%
8.8%
15
9
22
18
9
22
20
2009
2010
2011
2012
2013
22
18
10
5
23
0
-4.7%
-6%
0
2014E 2015E 2016E
5
Efficient Treasury Operations (1)
Various initiatives and relaxation of regulations have lowered the barriers to international trade
Bilateral Trade Netting

Goods trade allowed without RBI approval
Working Capital
Relief
Merchanting Trade


Simplification
Avail export / import financing
Reduced
Paperwork
3rd Party Payments for Import / Export now allowed
E-Bill Factoring Exchange

Quicker
Turnaround
E-acceptance and bill payments to MSMEs
Factoring Regulation Act

Ease of
Doing
Business
Allows A/R as financing tool
Export Challenges
Solution
Delay in BRC issuance
Same-day e-BRC issuance (separate request letter not required)
Need for partial BRC
Partial e-BRC in line with realization is available
No auto confirmation of BRC
Email alerts sent to client post issuance
Import Challenges
Solution
Manual filing and signing of documents
Online generation / authorization of A1 Form, debit authority
Warehousing and managing open account import bills
Document warehousing
6
Efficient Treasury Operations (2)
RBI’s vision for Payment and Settlement Systems (2012-2015) move India towards a “less-cash” society with
wider use of electronic payments
Paper to Electronic

~30%* yoy growth in e-payment since 2003 (chart 1)
NEFT Continuous Settlement


12 hourly settlement per weekday
India MoneyLine: 24x7 system for 1-to-1 transfers to replace NEFT
Automated Clearing House (NACH)


Integrated ECS for Debit & Credit
Covers 82,000+ bank branches across India
Standardization


Structured Financial Messaging System (SFMS)
–
–
Centralized, secured platform for NEFT, RTGS, NG-RTGS
Allows quicker domestic LC transmission
ISO 20022 to be adopted for NG-RTGS
Bharat Bill Payment System (BBPS)



Draft guidelines issued by RBI Aug 2014
Interoperability between multiple bill payment platforms
GIRO-based payment of essential services, insurance premia, utilities,
taxes, school fees
DSO
Turnaround
Standardization
Charts source: RBI annual report
*By transaction value with exception of 2008-2009, although cheque volumes were still high (52% of total payments turnover) in 2012
7
India: Domestic Interbank Pooling
Cash pooling is nascent in India
Features
•
•
•
•
Single currency
Pre-specified targeted balances in source
accounts
Mobilization based on pre-standing
parameters or instructions of periodicity,
timing, amount, direction
Monitor flows of company accounts across
banks
Benefits
•
STP results from automation across
interbank pooling mechanism
•
Eliminates O/D charges
•
Pools idle, dispersed funds for gainful
application
Before Pooling
0
+10
(5)
+30
(20)
Bank A
Bank B
Bank C
Bank D
0
0
After Pooling
15
0
0
Bank A Bank B Bank C Bank D
8
Investment Options
MIBOR-Linked Mutual Funds
Deposit
(Debt)
Commercial
Paper
Banks
MF Houses – CD,
CP, Govt Bonds
Govt, Public Co,
Private Co
7% – 8%
7.22%
(Mibor* – 100bps)
7.5% – 9%
8.6% – 9.8%
-
-
-
-
Yes
Principal Protection
Yes
Yes
Yes
-
-
Payout
Fixed rate paid daily
Fixed rate paid at
maturity
Floating rate paid
daily
Daily / weekly /
monthly available
Issued at discount
Terms
7d – 5yrs
7d – 5yrs
7d – 5yrs
O/N – 1096d
7d – 1yr
Breakage Costs
-
1%
-
Nil to 1%
MTM
Manual / Auto
Auto
Manual
Manual
Manual
Manual
TIDE
Fixed Deposits
Issuer / Counterparty
Banks
Banks
Indicative Rates
(30d – 2yrs p.a.)
3%
Tradable
* Overnight Mibor as of 13th Aug, 2014 was 8.22%
9
Subsidiary Funding
Indian subsidiaries cannot participate in global cash pools. Instead, working capital of Indian subsidiaries can be
funded by the Finance Company via commercial papers and INR bonds.
CP
INR Loans
(Bank Lending)
INR Bonds
• < 5 yrs
• RBI regulates max borrowing
limit per bank
Tenor /
Limits
• < 1 yr
Lenders
• Typically
• Insurance
• Indian banks (incl. branches),
mutual funds,
companies, FPI,
NBFI, NBFC
banks, FPI
banks, pension funds
• < 5 yrs
End uses • No restrictions • No restrictions
Remarks
• Credit rating
required
• Prepayment
not allowed
• Infrastructure & manufacturing
projects (syndicated loans)
• General corporate purposes
(bilateral loans)
• NOT for acquiring Indian
companies
•
• Credit rating required •
• Prepayment not
•
allowed
•
Credit rating required
Prepayment allowed
Covenants apply
Floating rate interest only,
linked to bank Base Rate
ECB*
(Interco Lending)
•
•
•
•
Max $750MM / yr via auto route
<$20MM: 3 yrs**
>$20MM: 5 yrs**
7 yrs now available for working capital
• Non residents (int’l banks, offshore
branches of Indian banks, parent co)
• CAPEX, ODI in JV / subs
• NOT for on-lending, real estate sector,
Indian co acquisition, INR loan
repayment
• Credit rating not required
• Prepayment < $500MM possible
without RBI approval (min avg
maturity applies)
• Only for select industries
• Can keep proceeds abroad or remit
funds to India, pending utilization for
permissible end-uses
• LIBOR-based
• Monthly RBI reporting
*External Commercial Borrowing, which refers to bank loans, buyers’/suppliers’ credit, securitized instruments availed of from non-resident lenders with 3yr min avg maturity
**Amount per financial year, with stated min. avg maturity
10
Risk Mitigation
Recent efforts from government and banks to develop solutions for risk mitigation in India
Aadhaar Bridge Payment Systems
Government
Direct credit of gov’t benefit payments to beneficiary a/c
Aadhaar number – common authentication tool across payment instruments


Solutions
Payment Analytics





Banking
Partner
Analytics
Payments Risk Manager
Prevents misuse of financial authority
Identifies unusual transactions by
stopping payments during payment
initiation in CitiDirect
Interactive dashboard allows data
analysis by region, legal entity, a/c, etc
View volume and value trends
Surveillance


Online portal to analyze A/P
data
Charts and reports
available
Facilitates easy cash flow
forecasting by identifying
payment trends
Tracking
Credit Card

2nd factor authentication improves
security for card-not-present transactions
Receivables Vision

Mobile Collect



Distributors / customers dial payments
24x7 using (IFSC and a/c #) or (MMID +
Amount + MPIN)
Pull transactions with customer’s mobile
number, MMID and distributors’ OTP
Eliminates risk of cash handling



Aggregate A/R data across
channels
Dashboard view of key A/R
indicators
Drill-down, detailed reports
Allows user customization
Audit
11
“Intelligent Centralization”
Balance centralization to attain the benefits of global efficiency and control, with proper distribution of resources
to capitalize on opportunities and mitigate risks occurring in key growth markets
Centralization Delivers Benefits…
INSEAD case study, in collaboration with Citi,
demonstrates value of centralization: companies with
sophisticated centrally managed Treasury (relative to
those who leave Treasury decentralized) are able to:
Operate at 5% lower Cash/ Market Value
Increase ROA by 1.44%
Multiple Tobin’s Q* by a factor of 1.1
…need to balance with optimal distribution of resources
Central Treasury:
 Sets policy
 Manages aggregate risk
 Forecasts / manages aggregate
liquidity
 Plans / raises capital
 Sets global bank relationship strategy
Regional Treasury Centers:
 Funds business units
 Forecasts cash flows
 Identifies risk exposures
 Executes investment and FX trades
 Coordinates bank relationships
 Provides close response to business
Central Treasury
Regional Treasury Center
Shared Service Center
Shared Service Centers:
 Processes vendor payments, payroll, & customer
receivables
 Provides cash forecasting support
 Supports accounting processes
Source: Blue Ocean Finance: The Evolution of Corporate Treasury Operations in the 21st Century, INSEAD, 2013
*Tobin’s Q is calculated as the market value of a company divided by the replacement value of the firm’s assets. Low Tobin’s Q implies undervaluation of firm’s stock.
12
Closing Remarks
10.40-10.45 A.M.
Speaker
Ruchita Aggarwal, Head, North & East India, Treasury & Trade Solutions Sales, Citi
As head of the North & East India Sales Management team, covering Global Banking & Global Subsidiary client
relationships, Ruchita has led her team to win new corporate and marquee public sector businesses, and
incremental mandates from existing clients. Prior to her current role, she was a Treasury & Trade Sales Manager
based out of New Delhi. She was responsible for managing over thirty multinational and large local corporate
clients across a variety of industries. Ruchita joined Citi in 2002 as a Management Associate and has held
various roles including Relationship & Sales Manager with the Commercial Banking Business of Citi, India. In
2008, Ruchita was a Senior Sales Consultant and championed the ‘Telecom sector’ for India. Ruchita has been
nominated twice to the “Global Chairman’s Club” in 2007 and 2008 and is recognized as a “Top Gun 2008” which
represents the top ten percent of the Chairman’s Club winners.
13
Have further questions for any of
today’s speakers?
Please forward all questions or remarks to
[email protected] to continue the
discussion!
14
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