Treasury & Banking in India

20-06-2022 | treasuryXL | ComplexCountries | LinkedIn |

This call took place against the background of the war in Ukraine – but it was a useful chance to catch up on the ever-improving situation in India.

India has always been complex, with many regulations and poor clarity. This is clear from the comments below, where participants often have different experiences on the same topic. But, overall, the economy is working well, people are making profits (this was not always the case), and regulations are becoming more user-friendly, even if they remain challenging.

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Business structure: most participants have one legal entity which faces customers, and a different one which acts as an international shared service centre, invoicing other companies in the group on a cost plus basis. This can lead to inefficiencies in cash management: everyone struggles with domestic cash pooling and intercompany loans, while the shared service centre has guaranteed profits and cash generation. One participant has all activities in the same legal entity, which makes life easier.

Intercompany loans within India create transfer pricing and tax challenges: there is a required or recommended interest rate of 8%, compared to deposit rates of 4% to 4.5%.

Cross border cash pooling and intercompany loans are generally very difficult: many approvals are required. Dividends are subjected to withholding tax of 15%, which is sufficient to deter some, but not all, participants from paying dividends. However, this is an improvement on the previous 22% dividend tax, which was often not creditable against tax in the receiving country.

Netting of intercompany invoices is not allowed. However, one participant is using an Indian entity to centralise all invoices within the country using a POBO/ROBO process, and limiting the transactions to a single, large, gross in/gross out settlement. They are also looking at a non resident INR account.

Participants mostly use deposits for investing their excess cash. One is using the TIDE deposit: the bank automatically sweeps fixed amounts of cash above a defined threshold into deposits. These receive a higher rate if they remain for more than two weeks, but can be released if needed, with a lower interest rate being paid.

Most participants use international banks, mainly Citi and BNPP. Most complained that Citi are reluctant to use automated FX platforms, and are behind on the electronic transmission of import documentation – but one participant had a more positive experience. JPMorgan again received positive comments for their approach.

The participants who use local banks generally had positive comments about them, and found they were a big help with pricing, especially on loans and letters of credit.

Tax remains complex and challenging.

 

Bottom line: the – excellent – report below reflects the significant complexity of doing business and managing treasury in India. But it is an important market, and one which is improving. So it is definitely worth the effort!

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Winding Down Russia: Treasury Challenges

23-05-2022 | treasuryXL | ComplexCountries | LinkedIn |

 

This was our third call on the situation in Russia. It focused on the practical challenges people are facing: nearly all participants are either running down their businesses or continuing on humanitarian grounds for products which are exempted from sanctions, particularly in the healthcare sector. However, as one participant put it, winding down is easier said than done.

This report was compiled by Monie Lindsey. based on a Treasury Peer Call chaired by Damian Glendinning.

We are happy to share a copy of the full report FREE, please contact us and mention ‘Russia Report’ in your message.

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Chair’s Overview

This was our third call on the situation in Russia. It focused on the practical challenges people are facing: nearly all participants are either running down their businesses or continuing on humanitarian grounds for products that are exempted from sanctions, particularly in the healthcare sector. However, as one participant put it, winding down is easier said than done.

  • Many businesses operate through franchises in foreign countries. Terminating the franchise agreement may not be enough to stop them from continuing the business and using the brand name – some high-profile companies which have stopped operations still have franchisees who are continuing to trade, using the name.
  • In some cases, the name remains on the business. This makes it difficult for the brand owner to walk away, as the reputational risk remains.
  • People in the healthcare sector feel a need to carry on for humanitarian reasons. For them, there are significant logistical challenges getting new shipments into the country: no flights, very little sea freight, so heavy dependency on road transport, with limited willing suppliers. They are encountering an additional issue: sanctions apply based on customs codes, and some health care products have not been appropriately coded.
  • In other sectors, companies continue to sell down their existing inventory – but even this can be complicated, as fresh inputs can be required to make goods saleable.
  • Still, other participants have operations that are purely local, and do not require imports. These will typically continue to function, though moves are being made to make them fully independent.
  • Despite all the above, most participants continue to be able to pay down intercompany debt, pay dividends and settle outstanding intercompany invoices.
  • Cash operations are complicated by the need to segregate payments emanating from sanctioned banks. Again, this seems to work, and customers are usually willing to transfer their payments to non sanctioned banks.
  • Many Russian entities have taken steps to disguise their real ownership as a means of evading sanctions: some participants are using a database to identify the true beneficial owners to see whether sanctions apply.
  • Most international banks continue to function, but SocGen recently announced it is selling Rosbank. This raises the concern it may be sanctioned in the future.
  • Most international banks are refusing to open new accounts, and none is interested in taking deposits. This is a concern for participants who are building up cash balances as they sell down inventory. Raiffeisen seems to be the major exception to this.
  • It continues to be possible to convert RUB into hard currency – as long as you are not using a sanctioned bank. Hedging is also possible, but liquidity is limited and deliverable forwards are not available. NDFs seem to work.
  • Several participants have had to remove their Russian subsidiaries from their centralised treasury structures and in-house banks. This has resulted in the hiring of new local staff to manage the newly independent operations.
  • One participant raised the concern that Russia may be branded as a state sponsor of terrorism. This would complicate matters even further.

Bottom line: despite the length of this summary, there are still further details in the report below. Please read it. The overwhelming feedback from the call was that everyone is trying to comply with the sanctions, and business is either being scaled back, or completely localised. People have stopped looking for ways round sanctions – but compliance is complicated.

The full report on Winding Down Russia: Treasury Challenges is available to subscribers. Please get in touch for details. Enquire


HR Challenges of Global Treasury

26-04-2022 | treasuryXL | ComplexCountries | LinkedIn |

 

The twin challenges of being a people manager and handling essential cross-function communications have always added to the technical and strategic demands of being a treasurer – and these have become more difficult with COVID and remote working. This report explores the approaches of five senior treasurers from Europe.

The peer group discussion was chaired by Damian Glendinning.

This report was compiled by Monie Lindsey.

We are happy to share a copy of the full report FREE, please contact us and mention ‘HR Report’ in your message.

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Chair’s Overview

This session was suggested by a member and produced a thoughtful discussion. The twin challenges of being a people manager and handling essential cross-function communications have always added to the technical and strategic demands of being a treasurer – and these have become more difficult with COVID and remote working.

The shared input from all participants was that we have put a lot more effort into communications. When you don’t see people in the office all the time, you have to make the effort to pick up the phone and talk to them. The result has been an even greater emphasis on communications skills – and it is even harder to motivate and support employees who are working in different countries, as it is very hard to go and visit them. These skills are required, not only within the team, but when dealing with other functions such as Sales, and external providers, like banks.

A lot of emphases was put on the ability to keep things simple, and avoid confusing partners with technical jargon.

Initially, the impact of the pandemic was to reduce staff mobility, and cause people to stay in their jobs for longer. This is now giving way to increased mobility, and the need to hire and train people without physically meeting them. This has placed an even greater emphasis on the quality of procedures and process documentation. It has also led to an increase in remote learning, and, potentially, increased the available talent pool, since geographic proximity may no longer be required.

Finally, there was a lot of discussion about areas where the pandemic has simply accelerated trends that were already present – notably an increase in automation, and a reduction in the amount of manual transaction processing work. Again, this has resulted in an even greater emphasis on analytic and communications skills, with a reduced focus on operational ability. As an aside, there was a discussion about whether treasury staff still need to actually understand how the underlying systems work.

Bottom line: the pandemic has accelerated trends that already existed: more remote working and learning, more automation. This has put even more emphasis on the need to communicate well, especially as the phone and video conferencing, while they have undoubtedly saved us, make communications more difficult. The result is a need to put in more effort, and spend more time on it. Paradoxically, this may even prove to be beneficial.


Insurance within Treasury

07-04-2022 | treasuryXL | ComplexCountries | LinkedIn |

After many years of weak markets and low insurance premiums, many companies have probably been buying more cover than they may really need. A market where premiums are rising is causing companies to re-evaluate their approach. This re-evaluation involves many complex questions around risk appetite, collaboration with other functions (Legal, HR, Logistics, Manufacturing, IT), the use of brokers, tax, and others. This gives the treasurer the opportunity to really demonstrate his or her value to the business.

This report was compiled by Monie Lindsey. based on a Treasury Peer Call chaired by Damian Glendinning.

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Chair’s Overview

The strategic treasurer. The risk manager for the company. Where better for the treasurer to get out of the traditional disciplines of simply managing liquidity and bank accounts, than in managing insurance? Risk management meets budget and operational constraints, and it is a very financial discipline.

This call was initiated by a member who is struggling with increasing premiums as the market hardens, and wanted to know whether other treasurers who are responsible for insurance are taking the same measures, i.e., reducing the purchase of cover and increasing deductibles. The quick answer to that question is yes, in response to significant premium increases, many members are taking another look at the levels of cover. The other question was whether there are additional, more creative ideas.

This triggered a wide-ranging discussion:

  • Should insurance be in treasury? The consensus – not surprisingly – was yes, but responsibility often lies with, or is shared with, legal and HR.
  • How useful are captives? One member finds them useful to accelerate the tax deduction for losses. Others find them useful for centralising risk and losses away from the operating units – this can depend on the company’s management system. Others are wary of the cost and complexity of a captive.
  • Should you use brokers? If so, how effective are RFPs between brokers? One member made savings by changing brokers following an RFP. One member does some negotiating directly with the insurers – but this can be heavy lifting.
  • What is the correct balance between self-insurance and buying risk? There does not seem to be a scientific answer.
  • The classical approach to solving this question is to benchmark versus what other companies are buying – but this does not confirm that this is the correct level for your company.
  • Part of the equation is determining the level of risk and earnings volatility a company is prepared to accept.
  • A company will have different levels of risk retention for different lines of risk
  • Some risks can become very difficult to insure: one participant is having big issues with theft of cargo in the port of Los Angeles, with the activity of organised crime. This is a frequent issue in Latin America.
  • Several participants felt one of the benefits of buying insurance was access to expert advice on risk management, leading to better protected facilities, e.g., better fire prevention, and enhanced anti-theft measures.
  • The use of captives to self-insure HR benefits was raised. This is possible, and can be done easily for some benefits. However, it is an area which is heavily regulated, with many mandatory state run schemes, especially in Europe.
  • On the other hand, travel insurance can often be combined with useful services, such as emergency assistance.
  • There was a discussion about cyber insurance: one participant had experienced a hack, and found that the insurance company provided outstanding assistance in managing the situation before it got out of control. Others were less sure the risk was significant enough to justify the expense.
  • Changes to the business often bring changes to the insurance cover required.

Bottom line: After many years of weak markets and low insurance premiums, many companies have probably been buying more cover than they may really need. A market where premiums are rising is causing companies to re-evaluate their approach.

This re-evaluation involves many complex questions around risk appetite, collaboration with other functions (Legal, HR, Logistics, Manufacturing, IT), the use of brokers, tax, and others. This gives the treasurer the opportunity to really demonstrate his or her value to the business.

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Russia Ukraine Crisis Update

16-03-2022 | treasuryXL | ComplexCountries | LinkedIn |

Safety of employees and delivery of salary payments are the highest priorities of treasurers responsible for Russia and Ukraine who also shared their experiences approaches to sanctions compliance, local operations and FX hedging. This report is based on an emergency 90-minute peer call with participation from 15 major companies.

This report was compiled by Monie Lindsey. based on a Treasury Peer Call chaired by Damian Glendinning.

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Chair’s Overview

Today’s call was very somber. Two weeks ago (Report: Russia Treasury & Banking Update 21st Feb), members were looking at contingency plans, but the consensus was that most of what was happening was posturing, and that the worst would not happen. Today, there was no discussion of how long hostilities might last – most people agree that there is no easy or rapid solution in sight. Instead, the main priority of most participants is making sure their teams are safe, helping them leave Ukraine if they wish, and making sure salary payments get through in both countries. We all send our best wishes to the many people whose lives have been shattered by this conflict.

The actions and approaches were remarkably consistent across all the participants. Topics discussed and actions taken:

  • The main priority is the safety of the local teams. Nearly every participant has taken extra steps to make sure local staff have cash, including prepaying salaries by up to three months. This is being done in both Russia and Ukraine, as MNCs cannot be sure of being able to remit cash to Russia in the future.
  • Most participants have either exited, suspended, or slowed down their businesses in Russia. Those who are importing goods into Russia for sale locally are continuing business as long as inventories last, but they are not shipping new inventory into the country.
  • There were a few questions about the sanctions, but the general view is that these are clear. Even if a company wants to ship goods into Russia, it is proving very difficult to find logistics companies that are prepared to undertake the shipment.
  • Payments continue for the time being. In Ukraine, the banking system continues to function, and some participants have sent cash into the country to make sure salaries are paid. Paying cash out of Ukraine is no longer possible, but payments continue to be made out of Russia, even if they can be slowed down due to additional sanctions checks.
  • The main sanctions-related discussion was about the extent to which local payments within Russia can still be made using sanctioned banks. The general feeling was that this is allowed, though there was some confusion. Participants have received conflicting advice about whether there is an effective carve-out in the sanctions for salary payments.
  • Foreign banks are registered under local law in Russia, so they can, and do, continue to operate. As usual, some are providing better service than others.
  • One issue raised with sanctions is that they can cause issues for the local staff: it may be illegal under local law for them to apply the sanctions, or it can cause them personal issues. This is usually being monitored closely with HR and Legal.
  • Most companies are re-evaluating their hedging programs:
    • Hedging the rouble has become a lot more expensive, and there is unlikely to be much underlying business to hedge, so most programs will probably stop.
    • In many cases, it is proving difficult, or impossible, to roll existing hedges
    • For NDFs, the reference rate used for settlement is no longer being quoted *(see note below), so it will be necessary to negotiate with the banks about what alternative rate to use
    • No participant was concerned about forwards which require them to deliver roubles outside Russia. However, companies to whom this applies are advised to discuss this situation with their banks: if they find themselves unable to deliver the roubles on the due date, the situation can become messy and potentially expensive.
  • Some participants have bolstered local liquidity in Russia by taking out local bank loans, which continue to be available – though there is some nervousness about how long lines may be available. Many have sent in cash via intercompany loans to make sure salaries and taxes can be paid. Several participants have also bolstered the liquidity of their Ukrainian operations by sending in intercompany loans.
  • There was little discussion about how to continue making payments despite the sanctions. It was pointed out that, even if a bank is barred from SWIFT, payments can still be made using paper instructions – though delays may occur due to the need to implement new correspondent banking relationships and apply additional sanctioned party checks. In any case, the feeling is that sanctions will limit the amount of business giving rise to payments.
  • A couple of participants are being impacted by the removal of international credit cards: this impacts Russian staff currently outside the country on short-term assignments, and those receiving payment by credit card from inside Russia.

Bottom line: the main concern is the safety of local staff and making sure they have enough cash to survive. Business in Russia is basically on hold, but cash is still flowing where it is required, especially for salary payments. Participants are being very careful to adhere to the new sanctions.

Again, we all hope that the bloodshed will soon come to an end.

*Note: 10th March we have subsequently heard that the central bank is providing a daily fix against the USD at a rate that is lower than the market rate (105 – 115 compared to 130-140).

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Crypto Transactions & Corporate Treasury

28-02-2022 | treasuryXL | ComplexCountries | LinkedIn |

CompleXCountries has yet to meet a corporate treasurer who wants to transact in crypto currency, but we are speaking to many who are responding to commercial or regulatory initiatives and having to establish processes and procedures for doing so. This panel discussion between Damian Glendinnig, John Laurens, and Simon Jones explores the new risks and challenges that corporate treasurers face and suggests how they might respond.



Accepting Crypto Currency In Corporate Treasury

03-02-2022 | treasuryXL | ComplexCountries | LinkedIn |

As more treasuries will have to start accepting crypto, whether it be an emerging market like El Salvador, for digital assets, NFTs and other goods that are sold in the metaverse. This report explores the experiences of treasurers in setting up their systems to accept crypto currency.

This report is based on two treasury peer calls chaired by Simon Jones and was compiled by Monie Lindsey.



This report is based on two treasury peer calls chaired by Simon Jones and was compiled by Monie Lindsey.

The full 14-page detailed report is available to subscribers in our Report Library.

To find out about subscriptions and other value-added services, please make an enquiry.


Chair’s Overview

Following the CompleXCountries call ‘Accepting Bitcoin in Corporate Treasury – Lessons from El Salvador’, (Report Summary Here), the CXC community clearly did not see this as a one off.  The necessity to accept Bitcoin & Crypto may become a reality for more Treasurers, but the path is far from being very clear. The purpose of this call was to share experiences and challenges, and learn from the various solutions Treasurers are putting in place if they have to accept crypto currency to support their businesses.

The session was extremely insightful and even if a Corporate is not accepting Crypto now, this report required reading for the Treasury community.  It is a challenge that will increasingly become more common as corporations drive more digital sales channels.   The regulated Crypto exchanges have seen significant growth over the last few years and the ability to exchange fiat for crypto and back to fiat has become widely available in the marketplace.

We posed the questions: Is this something that they have had to deal with or are going to have to deal with in the future? El Salvador was the first newsworthy case but on this call we gained insight to how it is becoming more mainstream in digital businesses and therefore becoming far more common for corporates around the world.

Non-Fungible Token (NFT) Definition. “A unique digital certificate, registered in a blockchain, that is used to record ownership of an asset such as an artwork or a collectible.” Collins Dictionary, who picked ‘NFT’ as their word of the year 2021.

To summarise the key learning points:

  • Consumer businesses are targeting digital native consumers who are increasingly buying NFTs as collectibles or to demonstrate their alignment with a brand or product. This client base expects to be able to buy or trade NFTs in exchange for crypto assets that they might have accumulated from investments.
  • The marketplace and blockchain the NFT is issued on, will determine the crypto asset that can be used to buy the NFT, e.g. Ethereum or stable coins on the Ethereum blockchain.
  • Coinbase was the exchange of choice for the Corporate Treasurers who took part in this call, primarily because they are publicly listed and regulated in many markets around the world.
  • KYC & Onboarding procedures were no different for Coinbase than for opening a bank account at a relationship bank, it still took weeks, not days.
  • Some Treasurers allow NFTs to be purchased via a crypto currency, but immediately convert back to fiat currency, via the exchange provider, both to avoid volatility and because of uncertainty over the accounting, legal and tax implications of holding crypto currency.  Bitcoin was not widely used, as it was deemed to be more open to money laundering concerns by the exchanges.
  • Crypto Exchange commission continues to be quite expensive and is not as tight as fiat currency exchange.
  • Accepting Bitcoin seemed limited to only El Salvador, where it is legal tender in addition to USD. (Corporates are required to accept BTC in payment should their client require it.)  Other countries may follow.
  • Anti-Money Laundering controls continue to be top of mind and it’s important to make sure the NFT auction houses, marketplaces and collecting exchanges are able to trace the origin of coins to protect their corporate clients.

Conclusion:  Highly insightful session, brings home the reality that as more businesses issue and sell digital assets like NFTs online for their products & services, it will be a requirement to accept crypto coins.  No longer are crypto-assets like bitcoin just for speculative investment, but they are becoming the instrument of choice for some digital native consumers to use for purchases.  Understanding the digital product & services strategy at a Corporate and the implications that might have for a corporate treasurer is fast becoming a necessity to supporting the business.

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