India’s treasury shift

As a result, the country’s payments infrastructure has grown in sophistication and the range of innovative working capital funding options has increased. This has proved particularly helpful for corporates in the process of transforming their treasury platforms and processes.

With reform paving the way, Indian corporates have greater impetus to migrate payments from paper to electronic channels. They also have multiple choices in executing local currency domestic payments with same day value. This is due largely to the multiple payment platforms, supporting low-value and high-value payments within the country. Even more encouraging is the participation of local banks in the adoption of core banking infrastructure. This increasingly ensures that the end consumer can participate in all forms of wire transfers, minimising the use of cheques when doing business in India.

As payments migrate from paper to electronic and/or digital, traditional bricks-and-mortar branches may become less relevant from a corporate cash management standpoint. This change has introduced a more level playing field in India on the treasury management front, particularly for international banks with limited branch presence in the country. Large multinational corporations (MNCs) have segregated their banking needs, by retaining their corporate treasury management requirements with global banks that have a multi-country presence across Asia – and working with local banks for payroll accounts and financing their dealers and distributors on the channel finance side.

A greater choice

So how does this environment support growth for large local corporations and MNCs in India? In a nutshell, their funding options have never been broader. Equity infusion, local currency borrowing from banks and accessing the capital markets all have a strategic role to play. However, equity infusion – while a popular mode of funding – may present a number of challenges, such as MNCs repatriating excess cash which can be hamstrung by tax implications.

This explains why local bank borrowing options, along with minimal equity infusion, are often a preferred option. Whether denominated by the Indian rupee (INR) or in foreign currency, the nature of borrowing is characterised by the underlying cost and the working capital cycle of the company itself. There has recently been increasing interest in customised forms of working capital solutions, which crucially avoids adding to the debt levels of the corporate’s local balance sheet.

Regardless of the positive shift in the domestic market, there are recurrent challenges that confront corporates, particularly for MNCs operating in India. From the repatriation of trapped cash and profits to restrictions around notional pooling, they are limited in their ability for interest optimisation of local currency surplus cash held in the country.

From a treasury management perspective, there is growing deployment of custom treasury management systems (TMSs) for enhancing visibility as a solution to the repatriation dilemma.  These newer, more innovative systems allow for enhanced control over working capital funds and end-to-end integration between enterprise resource planning (ERP) platforms and bank systems to achieve scale, automation and cost efficiency.

At the same time, using bank agnostic-market standard integration solutions as dominant techniques is one way to help companies feeling ‘trapped’ within a proprietary bank platform. More frequently, corporations in India are embracing processes that allow movement of transactions from paper to electronic, cash flow forecasting, faster realisation and application of funds for efficient working capital management. Encouragingly, we’re observing an active increase in those using shared service centres (SSCs) and centres of excellence in India, thanks to the low cost and wide availability of a local talent pool.

Naturally, there are areas for improvement that will drive the next stage in the sophistication of India’s payments infrastructure. There is scope to leverage the clearing system to gather invoice data and enable a seamless flow of data transfer between the remitter and beneficiary bank. We would also like to see an increase in the use of card-based programmes for making vendor and utility payments and a move towards longer clearing hours backed by an extended settlement time for money market borrowing between banks.

The adoption of digital technology and automation is an obvious point and has the opportunity to bring Indian treasury management practices up to a more global standard. Here, we see the impact on several processes: increased efficiency in working capital through faster realisation and cash application; end-to-end integration with ERP systems for scalable, centralised and cost efficient processes, and real-time access and flow of important payer information to corporate at head office, regional and branch level. More recently, corporate clients have entered into tie-ups with technology companies to offer multiple payment options to end-customers. This, in turn, has ensured a faster application of cash.

Although treasury management remains a work in progress in India, we are seeing positive changes every day to the way that corporates manage their cash. Reform will gain momentum, expansion will continue and the range of funding options will broaden; all of which are welcome. These developments are clearly front-of-mind for treasurers and front offices alike. Reaching that next stage, however, will depend on the extent to and speed with which local banks and corporations embrace India’s treasury shift.


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