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. GDP Growth (% yoy) CPI (% yoy) 8.6% 8.9% 14.9% 6.7% 6.7% 4.5% 4.7% 5.6% 6.5% 8.0% 8.8% 9.0% 10.4% 8.3% 8.0% 6.5% 2009 2010 2011 2012 2013 2014E 2015E 2016E 2009 2010 2011 2012 2013 2014E 2015E 2016E Current Account Balance 0-20 -40-60 -80-100 2009 2010 2011 2012 2013 2014E 2015E 2016E -28-38 -46-78 -88-32 -39-48 -2.3% -2.8% -2.7% Current account balance (US$bn) Current account deficit (% GDP) -4.2% -4.7% -1.7% -1.9% -2.0% 0% -1% -2% -3% -4% -5% -6% 45 40 35 30 FDI 42 25 19 15 20 15 10 5 0 33 17 26 FDI, Net into India (US$bn) FDI - To India (US$bn) FDI - Abroad (US$bn) 11 33 22 18 9 22 20 22 18 23 7 2009 2010 2011 2012 2013 2014E 2015E 2016E 27 9 31 15 33 15 38 40 35 30 25 20 15 10 5 0 Source: Citi Research, July 2014 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 Merchanting Trade Simplification Avail export / import financing Working Capital Relief Reduced Paperwork 3 rd Party Payments for Import / Export now allowed E-Bill Factoring Exchange E-acceptance and bill payments to MSMEs Factoring Regulation Act Allows A/R as financing tool Quicker Turnaround Ease of Doing Business Export Challenges Delay in BRC issuance Need for partial BRC No auto confirmation of BRC Import Challenges Manual filing and signing of documents Warehousing and managing open account import bills Solution Same-day e-brc issuance (separate request letter not required) Partial e-brc in line with realization is available Email alerts sent to client post issuance Solution Online generation / authorization of A1 Form, debit authority 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 Before Pooling 0 +10 (5) +30 (20) Bank A Bank B Bank C Bank D Benefits STP results from automation across interbank pooling mechanism After Pooling 15 Eliminates O/D charges Pools idle, dispersed funds for gainful application 0 0 0 0 Bank A Bank B Bank C Bank D 8
Investment Options TIDE Fixed Deposits MIBOR-Linked Deposit Mutual Funds (Debt) Commercial Paper Issuer / Counterparty Banks Banks Banks MF Houses CD, CP, Govt Bonds Govt, Public Co, Private Co Indicative Rates (30d 2yrs p.a.) 3% 7% 8% 7.22% (Mibor* 100bps) 7.5% 9% 8.6% 9.8% Tradable - - - - 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 * Overnight Mibor as of 13 th 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. Tenor / Limits CP < 1 yr < 5 yrs INR Bonds INR Loans (Bank Lending) < 5 yrs RBI regulates max borrowing limit per bank ECB* (Interco Lending) Max $750MM / yr via auto route <$20MM: 3 yrs** >$20MM: 5 yrs** 7 yrs now available for working capital Lenders Typically mutual funds, banks, FPI Insurance Indian banks (incl. branches), companies, FPI, NBFI, NBFC banks, pension funds Non residents (int l banks, offshore branches of Indian banks, parent co) End uses No restrictions No restrictions Remarks Credit rating required Prepayment not allowed 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 allowed Covenants apply Floating rate interest only, linked to bank Base Rate 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 Government Aadhaar Bridge Payment Systems Direct credit of gov t benefit payments to beneficiary a/c Aadhaar number common authentication tool across payment instruments Surveillance Solutions Analytics Banking Partner 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 Credit Card 2 nd factor authentication improves security for card-not-present transactions 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 Payment Analytics Online portal to analyze A/P data Charts and reports available Facilitates easy cash flow forecasting by identifying payment trends Receivables Vision Aggregate A/R data across channels Dashboard view of key A/R indicators Drill-down, detailed reports Allows user customization Tracking 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 saurabh.r.gupta@citi.com to continue the discussion! 14
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