“A corporate treasurer’s job has become extremely challenging in closing any agreement that requires negotiation with the bank”

Corporate treasury

Vikas Khandelwal, Manager, Corporate Treasury at HCL Technologies, tells CFO Dialogues about the challenges of corporate treasury and how he is working to mitigate them for business growth. 

Q1: Currently, banks (particularly, corporate lenders) are in VUCA phase (volatility, uncertainty, complexity, ambiguity) in the backdrop of: a) RBI’s revised stress recognition framework leading to up-fronting of credit cost; b) sudden mushrooming of frauds compelling banks to be more vigilant & curtail their risk appetite; c) turning interest rate tables & volatile bond yield movement; d) complex developments in resolution of cases under National Company Law Tribunal (NCLT); and e) RBI’s leeway of amortizing hits or lowering coverage on NCLT cases providing a breather. How have these impacted corporate treasuries that have to deal with banks? What has been the impact on businesses?

Vikas Khandelwal: Challenges have gone up at multiple levels, right from negotiation of credit agreements where banks’ compliance teams have become more adamant with their standard clauses, so much so that sometimes their stance is not practical. A corporate  treasurer’s job has become extremely challenging in closing any agreement that requires negotiation with the bank.

Now, even a single day of delay in repayment, irrespective of reason, triggers reporting from the concerned bank to the Reserve Bank of India (RBI). This, technically, can trigger a default event even if delay in repayment is due to administrative/technical difficulties or a bank holiday in a particular state. In this scenario, corporate treasury has to be on its toes in monitoring of loan maturities.

 Another issue arises because banks are reviewing export/import documents more closely now. As such, small non-significant issues are taking longer to resolve on the banker’s side. Export Data Processing and Monitoring System (EDPMS) is another issue where delay on the part of bank is giving sleepless nights to the treasurer. New Pre-Shipment Credit in Foreign Currency (PCFC), roll over, export documents, etc., have also got stuck.

 Increased reporting requirement has added to the work pressure of the treasurer.  However, we are not affected with NCLT related changes.

 Also, RBI’s interest rate changes have resulted in increase in cost of funds for corporate treasuries, which has been going up steadily.

 Q2: The world of a corporate treasurer is complex. How would you define yours? Have the complexities multiplied? Please elaborate.

VK: My world is pretty complex. I am part of an agri trading company. Typically agri commodity is a high volume and low margin business. There is a lot of subjectivity in quality assessment of agri commodities. On top of it, agri commodities are amongst the most volatile assets class. Here, for the treasurer, each stage of business cycle poses unique challenges. For example:

    • Volume and time of procurement cannot be planned with much certainty. How much fund and how long do we need funds, is a lot more uncertain. As a treasurer, I have to rely on my experience to raise funds at a very short notice for appropriate duration. As the duration of inventory cycle also changes from year to year, it makes cash management task even more challenging.
    • Volatile prices, coupled with low margins, make hedging of commodity and FX critical, not only for profitability, but also sometimes for the survival of a company.  We have to be very sharp not only with hedging policy but also with execution and monitoring.
    • Ratio of counter-party default is pretty high in our industry. Corporate treasury has to manage credit risk and counter-party risk closely with active decision making.
    • Cost of funds is the biggest cost for any trading company and managing it in different currencies – interest rate forecast – is  again critical for business profitability. To borrow at cheapest possible  rate, looking at interest rates in different currencies and global markets, makes  borrowing interesting and challenging.

 To sum up, each area of corporate treasury – borrowing, hedging, risk management – plays an important role and the dynamic nature of business coupled with low margins makes each day a “happening day” in my world.

 Q3: Treasury is a corporate level function. It cuts across all enterprise functions, geographies and legal entities/business units, and hence it is imperative for corporate treasury to know, understand and work closely with different (global) groups/teams to ensure financial well-being of an enterprise. Given the volatility in the world and the geopolitics, this is not a simple task. So how are you managing with these diverse realities? How have they impacted business?

 VK: Very true. For us, volatility in currencies, increase in rate of interest, and trade also have direct negative impact on enterprise.

We, as a treasury group, have regular monthly calls and update other geographies about happenings in our own region. As a group, we keep an eye on key events across the globe. Different market reports and interactions with bank treasuries help in understanding global markets’ economic happenings. Having a strong ERP and Treasury Management System helps us in monitoring and control.

Q4: How has your role expanded and what does it now entail in the VUCA world?

VK: My role has expanded over the years where apart from managing day-to-day cash flow, FX hedging, and risk management, I need to actively educate myself on new happenings in cash management, frauds, changes in Indian and global regulatory environment, and key economic events in India as well as globally. In the current VUCA (volatility, uncertainty, complexity and ambiguity) world, where uncertainties have gone up substantially, all these have a direct/indirect impact on business. As a treasurer, this knowledge helps me in adding value to business by helping me take active measures to avoid pitfalls due to volatile economic scenario or spot opportunities. 

Q5: Cost-cutting pressures are pushing the treasury units too, and the demand is to do more with less. How are you tackling this? 

VK: We are using technology to streamline work – cash management, reconciliation, hedging, interaction with banks, etc., and are using online platforms as much as possible. 

Q6: What are the technological changes that you have implemented in treasury to keep pace with the changing business requirements?

VK: We have implemented Treasury Management System from SunGard and that allows us access straight to bank platform to meet our FX hedging needs. This platform is used to book/cancel deals and to submit underlying documents as well. The online platform helped us minimize human intervention in booking of deals, reconciliation, contract confirmations, and in submission of physical copies of underlying assets.

About Vikas Khandelwal

Vikas is Group Manager in Corporate Treasury at HCL Technologies. He was formerly heading corporate treasury of an Agro MNC, Ecom. He is a seasoned finance professional with  20 years of experience in various aspects of corporate treasury,  banking and operations. He has worked in entire gamut of corporate  Treasury – FX management, fund/liquidity management, investment, credit lines, bank relationship, trade finance, negotiation of credit documentations, ISDA agreements, regulatory compliance and risk management. Earlier, he was working with the State Bank of India in various roles. An ex-banker, Vikas has done FRM, Diploma in Treasury, Investment and Risk Management, Bourses Training, JAIIB,CAIIB, Future CFO Program from ACCA,  and Certification Courses in NSE. 

 

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