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BANKING
Cashing In On Transactions
Managing cash for corporates means big business for banks
RAGHU MOHAN
14 Aug 2009
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| Illustration: Saurabh Deb |
A veteran banker who managed his bank’s treasury operations tells a story about the Birla companies of the mid-90s. Each day, at around 2:45 pm, the companies’ accounts with his bank would see a flurry of inward transfers amounting to several crores into what was a ‘concentration account’ in Mumbai. At 2:55 pm, all that money would be transferred to buy what was then the most favoured investment of corporate treasury chiefs: units of the US-64 scheme issued by the Unit Trust of India. The Birla finance people, he says, hated to lose even a paisa of income from their various balances.
Welcome to the world of cash management (CM), a financial management technique that corporate treasurers use to accelerate the collection of receivables, control payments to trade creditors and efficiently manage cash balances. It allows them to manage liquidity and plan short-term investments. Enter the banks, who with their distribution (branch networks) help bring all of that money together in one central branch.
Though the US-64 scheme is history now, the fundamental idea still underpins CM services which are a big fee income earner for many banks. “Cash flows were never as important as in today’s world,” says Zuzar Tinwalla, head of trade and cash management at Standard Chartered Bank in Mumbai. “The turbulence at large calls for it.” It is his job to see that his clients make the cash in their kitty sweat.
With CM, an Airtel or a Vodafone can not only collect and consolidate payments from customers efficiently, but also take care of payouts. A manufacturing firm such as Tata Motors can reduce its daily credit sales outstanding, cut working capital and, thereby, save on interest costs. It can even help offer multiple currency movements in dealing with a firm’s principals outside India. “Firms would like to have a view of their running balances while trying not to sit on idle funds,” Tinwalla adds.
Many bankers see CM as a solution rather than a service. “Real-time alerts of inward collections would enable release of dealer limits, dispatch of goods and thus manage credit risk more efficiently while achieving greater sales,” says Kaushik Shaparia, head, global transaction banking at Deustche Bank (India). “Such solutions have enabled clients to manage just-in-time working capital cycle efficiently.”
What’s In It For The Banks?
It is all about fee income. Despite the very large volumes, CM is still below the radar. The Reserve Bank of India (RBI) includes some data as part of its national electronic fund transfer (NEFT) data, which includes electronic clearing services and the real-time gross settlement system (RTGS) that stock exchanges use. But verifiable numbers on specific share of individual banks is hard to come by as they differ on what activities are included in CM. Some claim to handle anything between 3 and 5 per cent of India Inc.’s top 1,500 listed companies’ annual sales and domestic expenditure by way of CM. Others express it as a percentage of GDP.
Shaparia classifies his bank’s CM business into broad categories: for state-run undertakings, for local corporate entities, and for multinationals. “State-run banks and large private sector banks have a lion’s share of local companies,” he says. “Foreign banks dominate the business from multinationals as well as local multinationals (Indian companies expanding overseas).”
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