Citi Commercial Bank Newsletter Q2-2014

Transcription

1 Tushar Vikram Citi Commercial Bank Newsletter Q Dear Client, It is my pleasure to present to you the latest edition of the Citi Commercial Bank quarterly newsletter for 2014, to keep you updated with latest changes in our business environment. The newsletter highlights key products, trends across industries, important regulatory updates and also showcases a few of our successful events conducted in the recent past. The last quarter has been an exciting one for us and I am happy to announce that Citibank took home multiple awards. I am pleased to inform that Citi India has once again been recognized by FinanceAsia, in its 2014 Country Awards for Achievement. The magazine has awarded Citi India Best Foreign Investment Bank for the eighth consecutive year. These accolades are a tribute to your active support and confidence vested in our teams to deliver the best quality service and products to suit your specific needs. We look forward to continue our work as your trusted partner and commit to adding more value to your business. I do hope you will find this edition interesting and look forward to your suggestions and feedback. Warm regards, Tushar Vikram Head - Commercial Bank, Citibank India

2 Product Showcase NEW PRODUCT OFFERING CITI SUPPLIER FINANCE Citi Supplier Finance (CSF) is Citi s latest offering designed to help the Clients meet their objectives of automation in purchase/sales bill discounting thereby managing their Cash Flow and Supply Chain more efficiently. What is Citi Supplier Finance (CSF): CSF is a unique offering which uses Citi s proprietary web-based portal for financing to its Clients in a seamless manner. It focuses on migrating a purchase/sales bill discounting proposition from current manual and tedious format to an automated online banking platform. It interacts directly with Clients ERP platforms and effectively integrates for processing financing requests. How the Citi Supplier Finance platform works: Option - 1 Buyer initiated structures (Purchase bill/invoice discounting) Buyer 1 3 Supplier 2 1. Buyer does an online upload and authorization of purchase bill discounting request on CSF 2. Citi makes payment to the supplier with interest to account of supplier. Only credit lines of Buyer are availed 3. On due date, Buyer makes the invoice payment to Citi 2

3 How the Citi Supplier Finance platform works: Option - 2 Supplier initiated structures (Sale bill/invoice discounting) Buyer 3a 2 Supplier Supplier does an online upload and authorization of sales bill discounting request on CSF 2. Citi makes payment to the supplier with interest to account of supplier. Credit lines of Supplier are availed 3 a. On due date the Buyer makes payment to Citi and asset liquidated 3. In case Buyer fails to make payment on due date, Supplier s account with Citi is debited to liquidate the asset Benefits of Citi Supplier Finance: Online portal with ERP integration capability empowers Buyers and Suppliers to expedite financing Reduces manual submission of request and documents to avail bank financing Upfront cash availability helps suppliers to effectively plan their working capital cycle Extend Days Payable Outstanding (DPO) Why Citi for Supplier Finance? Citi supports well over 600 Supplier Finance programs across the globe US: 40 buyers, 4,000 suppliers Europe: 58 buyers, 1,000 suppliers Asia: 387 buyers, 50,000 suppliers Latin America: 151 buyers, 2,250 suppliers Citi is the only major supplier finance provider that operates its own proprietary processing platform. For the Clients and their suppliers, it means there is never an interruption in service since Citi has complete control over the quality, functionality and security of the system and its processes. 3

4 IT/ITES Sector Updates Software industry s sales grow 27.6% in December 2013 quarter Realisation driven sales growth results in improved profitability The software industry reported a robust financial performance during the December 2013 quarter. Aggregate sales of the 180 companies that declared their results grew by 27.6 per cent as compared to the December 2012 quarter. The industry s PAT too rose by 37.3 per cent during the period, led by a healthy rise in sales during the quarter. The December quarter is a seasonally weak one owing to the fewer number of working days impacting volume growth. However, a rise in discretionary spending, improvement in the pricing environment and the favourable currency movement aided the healthy rise in sales. Companies like Infosys, Wipro and TCS also reported higher realisations due to improvements in pricing and the service mix. Additionally, the rupee depreciated by around 12.7 per cent y-o-y as compared to the USD and by 16.8 per cent vis-a-vis the Euro. This further pushed up the sales growth of the software industry which earns around 85 per cent of its revenues from the US and European regions. As the industry s sales growth was realisation driven, its wage bill, the single largest cost component, grew by a slower 23.6 per cent as compared to sales. Wage costs as a proportion of sales too fell to 42.4 per cent from 43.9 per cent a year ago. This restricted the rise in operating expenses to 23.7 per cent. Consequently its operating profit surged by 38.2 per cent and its operating margin improved by 2.8 percentage points to 28.6 per cent. The sharp rise in operating profits prompted many companies to increase their tax provisioning. This, together with the imposition of minimum alternate tax on SEZs led to a 48.9 per cent increase in the industry s tax expenses during the quarter. Although some of this was offset by the rise in other income, the growth in the industry s net profits was restricted to 37.3 per cent. It earned a net margin equivalent to 20.9 per cent of its income during the quarter. 4

5 Sector Updates Automobile Ancillaries Passenger vehicle sales grow 2.7% in May 2014 First rise in sales since August 2013 Sales of passenger vehicles grew by 2.7 per cent y-o-y in May A total of 255,414 vehicles were sold during the month as against 248,651 vehicles sold in May This was the first increase in sales since August New model launches, heavy discounts by dealers and the formation of a new stable government at the centre helped boost buying sentiments and led the rise in sales. While sales of passenger cars increased by a marginal 0.2 per cent to 190,168 units, that of utility vehicles grew by a faster 16.8 per cent. Most other automobile segments too reported an increase in sales during the month. Two wheeler sales surged by 19.3 per cent y-o-y during the month. A strong rural demand and capacity additions by companies helped two wheeler manufacturers sell 1.6 million units in May All two wheeler segments reported a healthy rise in sales. While scooter sales grew by 35.5 per cent, that of motorcycles and mopeds rose by 15.9 per cent and 4.8 per cent, respectively. Sales of three wheelers too grew by 15.1 per cent during the month. In contrast, commercial vehicles (CV) continued their poor sales performance in May Overall CV sales fell by 11.7 per cent y-o-y to 53,330 units during the month. While medium & heavy commercial vehicle sales fell by 4.6 per cent, that of light commercial vehicles declined by 15.1 per cent. 5

6 Sector Updates Drugs & Pharmaceuticals Projects worth ` 15.2 billion commissioned in drugs & pharmaceutical industry in Lowest since seven years Project completion in the drugs & pharmaceutical industry dropped significantly during the year ended March As per CMIE s CapEx database, 19 projects envisaging an investment of ` 15.2 billion got completed during the year. This was the lowest investment seen by the industry since the year This can be attributed to a substantial increase in project shelving. In , 10 projects worth ` 15.1 billion were stalled. This was significantly higher than the average project shelving seen by the industry in the last five years. The average cost of projects that got shelved in each of the years during stood at ` 9.6 billion. 6

7 Client In-Focus Import Financing for a Merchanting Trade Transaction The Reserve Bank of India came up with certain relaxations for merchanting trade transactions in their th circular dated March , the key ones being: 1) The entire merchanting trade transaction should be completed within an overall period of nine months (earlier limit was six months). 2) There should not be any outlay of foreign exchange beyond four months (earlier limit was three months). 3) Short term credit either by way of suppliers' credit or buyer s credit will be available for merchanting trade transactions to the extent not backed by advance remittance for the export leg, including the discounting of The relaxation in point 3 enables clients undertaking merchanting trade transactions to avail of import financing to the extent the payment for the imports leg is made prior to receipt of proceeds of the exports leg subject to a maximum tenor of four months. Pursuant to the above changes in the regulation, we structured a buyer s credit for an importer client in north India for a merchanting trade transaction where the movement of goods was from China to Colombia. export leg LC by an AD bank (earlier regulation explicitly prohibited funding by way of buyer s credit or supplier s credit). 7

8 Client In-Focus In order to ensure compliance with the merchanting trade guidelines, we took the following additional documents: Declaration from the client stating the following points: Total tenor of the trade is within nine months Foreign currency outlay is within four months The client would follow-up for export realization and will liquidate Buyer s Credit on due date or immediately receipt of export proceeds whichever happens first Goods involved are allowed as per the Foreign Trade Policy Both legs of the trade would be routed through same bank Client is not availing of double financing under the merchanting trade transaction. In the said case since buyer s credit funding was being provided, the client was to declare that export LC discounting was not being taken for the same transaction Apart from the above we also took the regular set of documents needed for processing a buyer s credit transaction namely Proof of shipment in the form of Bill of lading/airway bill Purchase order/invoice depicting expected export realization date. All of the above documents can be in copies 8

9 Client Events Citi Commercial Bank Webinar Date th : 25 June, 2014 Theme : Current Market Outlook 2014 The Way Ahead A webinar was conducted for Commercial Bank clients where users could login to the session from the comfort of their workplace/ home. The webinar speaker for the session was Mr. Rahul Arora Director, Corporate Sales & Structuring, Head- South & East The topic of the webinar was Current Market Outlook 2014 The Way Ahead. The webinar attended by client across industries, was very interactive with attendees posting a number of questions to the Citi experts for their opinion. India, Asia Pacific Markets, Citibank, India & Mr. Gautam Das - Director, Treasury, Citibank, India. 9

10 Client Events Commercial Bank Knowledge Series Event, Delhi This workshop was conducted in association with Dun & Bradstreet, one of the leading firms for trusted insights on business. The theme of the session was Managing Macroeconomic Risks in the Current Environment. The session began with an opening session by Ms. Preeta Misra ( Director Learning Solutions, Dun & Bradstreet India), followed by an engaging session on the macroeconomic outlook by Dr. Himanshu (Assistant Professor Economics, Centre for Study of Regional Development, School of Social Sciences, Jawaharlal Nehru University ). Other speakers for the session were Mr. Nirdesh Karnawat (CFO India, Delphi Automotive Systems Private Limited) who shared a perspective on Understanding & Managing Risks in the Current Market with specific reference and examples from the auto sector. The session was concluded with a perspective from Citibank where Mr. Navnit Nakra (Regional Head - North Liabilities, Citi Commercial Bank- India) addressed the gathering. All speakers took some time out at the end of their respective sessions to interact with the audience and answer their queries. The workshop concluded with lunch at the venue Venue : Taj Mahal Hotel, New Delhi th Date : 29 May, 2014 Theme : Managing Macroeconomic Risks in the Current Environment 10

11 Key Regulatory Updates st The Key regulatory updates during the period April 1 till date are as follows: The revised Master Circulars were updated by RBI on website on July 1, RBI released a circular dated April 22, 2014 on Fund/Non-Fund based credit facilities to Overseas JV/WOS/Wholly owned Step down Subsidiaries of Indian Companies covering the following points 1. Banks, including overseas branches/subsidiaries of Indian banks, shall not issue standby letters of credit/guarantees/letter of comforts etc. on behalf of overseas JV/WOS/WoSDS of Indian companies for the purpose of raising loans/advances of any kind from other entities except in connection with the ordinary course of overseas business. It is further advised that while extending fund/non-fund based credit facilities to overseas JV/WOS/WoSDS of Indian companies in connection with their business, either through branches in India or through branches/subsidiaries abroad, banks should ensure effective monitoring of the end use of such facilities and its conformity with the business needs of such entities. 2. Indian companies in the manufacturing and infrastructure sector are allowed to avail of external commercial borrowings (ECBs) for repayment of Rupee loans availed of from domestic banking system and/or for fresh Rupee capital expenditure, under the approval route, subject to satisfying certain conditions. However, if the ECB is availed from overseas branches/subsidiaries of Indian banks, the risk remains within the Indian banking system. It has, therefore, been decided that repayment of Rupee loans availed of from domestic banking system through ECBs extended by overseas branches/subsidiaries of Indian banks will, henceforth, not be permitted. 3. Authorised Dealer Banks have been allowed to issue guarantees in respect of a debt, obligation or other liability incurred by an exporter, on account of exports from India. It was intended to facilitate execution of export contracts by the exporter and not for other purposes (else approved under FEMA by RBI). Some exporter borrowers are using export advances, received on the strength of guarantees issued by Indian banks, for repayment of loans availed of from Indian banks in violation of RBI instructions. Banks are advised to desist from such practices. 11

12 Key Regulatory Updates RBI released a circular dated May 9, 2014 on External Commercial Borrowings (ECB) Policy: Reschedulement of ECB - Simplification of procedure. As a measure of simplification of the existing procedures, RBI has decided to delegate the power to the designated AD Category I bank to allow reschedulement of ECB due to changes in draw-down schedule and/or repayment schedule with the following conditions: 1. Changes, if any, in all-in-cost (AIC) is only on account of the change in average maturity period (AMP) due to re-schedulement of ECB and post re-schedulement, the AIC and the AMP are in conformity with applicable guidelines. There should not be any increase in the rate of interest and no additional cost (in foreign currency/indian Rupees) should be involved. 2. The re-schedulement is allowed only once, before the maturity of the ECB. 3. If the lender is an overseas branch of a domestic bank, the prudential norms applicable on account of re-schedulement should be complied with. 4. The changes on account of re-schedulement should be reported to DSIM through revised Form The ECB should be in compliance with all applicable guidelines related to eligible borrower, recognised lender, AIC, AMP, end-uses, etc. 6. The borrower should not be in the default/caution list of RBI and should not be under the investigation of Directorate of Enforcement. The facility will be available for ECBs raised both under the automatic and approval routes. Provisions of this Circular do not apply to FCCBs. 12

13 Key Regulatory Updates RBI has revised guidelines to permit receipt of advance payment towards exports, where shipment of goods would take more than one year to manufacture and ship vide its A.P. (DIR Series) Circular No.132 dated May 21, AD banks may now allow exporters having a minimum of three years satisfactory track record to receive long term export advance up to a maximum tenor of 10 years to be utilized for execution of long term supply contracts for export of goods subject to fulfillment of conditions prescribed in this guideline. RBI released a circular dated July 7, 2014 (ref. no. A.P. (DIR Series) Circular No. 2) on Import of Rough, Cut and Polished Diamonds vide which, the clean credit period (i.e. credit given by a foreign supplier to its Indian customer/ buyer, without any Letter of Credit (Suppliers Credit)/Letter of Undertaking (Buyers Credit)/Fixed Deposits from any Indian financial institution) permitted for imports of rough, cut and polished diamonds has been extended from 90 days to 180 days from the date of shipment. RBI has issued a circular dated July 3, 2014 on Financial Commitment (FC) by Indian Party under Overseas Direct Investments (ODI) - Restoration of Limit in which it has been decided to restore the limit of Overseas Direct Investments (ODI)/ Financial Commitment (FC) to be undertaken by an Indian Party under the automatic route to the limit prevailing, as per the extant FEMA provisions, prior to August 14, It has, however, been decided that any financial commitment exceeding USD 1 (one) billion (or its equivalent) in a financial year would require prior approval of the Reserve Bank even when the total FC of the Indian Party is within the eligible limit under the automatic route (i.e., within 400% of the net worth as per the last audited balance sheet). 13

14 Disclaimer: Nothing in this News Letter is an offer, invitation to offer, commitment or agreement on the part of Citibank or on the part of any Citibank entity, including to prepare, negotiate, execute or deliver any product/s, service/s, arrangement/s, lending or subscription and does not give rise to any liability or obligation on the part of any Citigroup entity. Not all products and services are necessarily applicable to all prospects/customers or available at all locations or at all times. All products and services are subject to the provisions of the applicable laws and regulations and Terms and Conditions applicable from time to time. Availability and issuance of products and/or services is also subject to, among other factors, where relevant, such due diligence as may be required by Citibank, an offer being made by Citibank and an acceptance of that offer, internal approvals and external approvals (if any) and the customer meeting regulatory as well as Citibank's internal policy requirements. This News Letter is merely descriptive of various products that are currently available. Terms and Conditions, without limitation, the nature of products and services, rates operational particulars etc., may be modified or supplemented by Citibank for its products/services in its sole discretion at any time and from time to time including during the course of a due diligence and/or credit approval process or as a result of changes in market or economic or other relevant conditions or criteria otherwise (including the absence of any material adverse change in the financial markets or in the financial condition, operations or prospects of relevant persons). The source of the information in the 'Sector Updates' section of this News Letter has been taken from the CMIE databases and therefore, it does not represent Citibank s view on any sector. For more information on the awards, please visit and Global Finance ( Prior to availing of any products or services or entering into any transaction including a borrowing, subscription or Investment ("Transaction/s"), you should determine, without reliance upon Citibank or its affiliates, the economic risks and merits (and independently determine that you are able to assume these risks), as well as the legal, tax and accounting characterizations and consequences of any such transaction. Please note that neither Citibank nor any other Citigroup entity is in the business of providing legal, tax or accounting advice. All products and services are at the sole discretion of Citibank and subject to RBI/FEMA/SEBI/Other regulatory guidelines issued from time-to-time. Citibank and Citigroup entities work within the regulatory framework of India and US Citigroup Inc. Citi, Citibank and Arc Design are registered service marks of Citigroup Inc. or its affiliates used and registered throughout the world. All other trademarks are the property of their respective owners.