Handling Treasury In The New Era

Corporate treasury has assumed critical importance in the current uncertain times with mounting risks from populism driven governments, rising cyber threats, tax-driven changes and digitalisation of the finance function. We spoke to some of our T20 winners to find out what drives treasury and the qualities required of a treasury leader, as s/he takes on a more critical role and a seat at the top table.

1. “Now treasury is seen as a support centre for the business” 
Deepak Kalera, Financial Controller, Quick Heal Technologies Pvt Ltd


 

Q : What makes treasury an important and central function of a company?
Deepak Kalera: The treasury department occupies a central role in the company’s finances. It takes responsibility for the company’s liquidity—ensures that a company has enough cash available at all times to meet the needs of its primary business operations and generate optimum income and returns on surplus funds.

Q: How does a corporate treasurer play a crucial role in improving/maintaining the financial health of an organization?
DK: Corporate treasurer helps the organisation in cash forecasting, working capital management, investment management, risk management function, bank relations, and fund raising.

Q: What are the functional requirements of a treasurer? What are the challenges associated with them?
DK: A good treasurer should be able to handle figures and cash, should have a methodical way of thinking, have experience in handling budgets and large sums of money and be an expert in financial controls. He should also have good communication and interpersonal skills, should be able to take informed decisions at right time and also possess good analytical skills.
The challenges are manifold. As globalisation increases and currencies remain highly volatile, I consider cash and liquidity risk as a major challenge. Cash management, cash forecasting and risk management are strategic priorities. Another challenge that confront us is the continuous change in interest rates and currency fluctuations.

Q: Treasurers are increasingly assuming more strategic roles in companies. Please elaborate on the financial and other risks that treasurers have to address today in the interest of the company?
DK: The increased emphasis on data analysis has made technology the backbone of effective treasury management; yet systems remain inadequate, and foreign currency exchange management and visibility into global operations remain difficult.

Q: In this complex business environment, the role of a treasurer has transitioned from the back-office to center-stage. Can you elaborate on the qualities that help treasurer stay on the top of things?
DK: Treasury was a controlling and policing function. Its role was to minimise corporate risk by controlling cash inflows and outflows. Now treasury is seen as a support centre for the business – it helps manage the cash flows and integrates with the business to help the company work more efficiently and effectively. Treasurers have a thorough understanding of risk management, due to their experience in the financial sphere. This emphasis on risk-based insurance is a widespread development. It integrates financial and business risk. Rather than taking out a generic form of insurance, treasurers are now being required to quantify the risk – be it financial or business-related – and to determine the appropriate level of insurance to mitigate it. The treasurer can also play a more important role in mergers and acquisitions since the treasurers usually have a thorough understanding of the company’s finances.

Q: What is the competitive differential advantage that technology can bring to the treasury rooms?
DK: Increased automation in treasury function has contributed in relieving treasurers from day-to-day administrative burdens. Time previously devoted to performing traditional treasury functions has been reduced, thanks to improved efficiency created by the development of treasury technology. Now treasurers can spend more time on strategic projects, and help treasurers in taking up more specialised functions in areas such as risk management and reporting and compliance requirements. There is a pool of data available for business analysis. With support of proper technology platforms, treasurer can do proper peer company review, connect to happenings in other domains and take the company to new levels in this competitive age.

Q: How do you think treasurers can cope with the growing complexity of financial instruments and volatile financial markets?
DK: Keep investment objectives clear at all times, invest in simple and easy to understand products which are best suited to meet defined objectives, take assistance of financial advisors, regular monitoring of portfolio performance and risk, align portfolio as per changing business needs.

Q: Any three mistakes a treasurer should never commit?
DK: One, do not go beyond defined investment objectives; second is never invest until you have thoroughly understood the pros and cons. Third, follow SLR (safety, liquidity and returns) principle. Business surplus is meant to be invested in business again and should not be invested in very high risk avenues.

Q: Your vision as a treasurer?
DK: Provide sufficient liquidity to the business all time and generate optimum returns and income on surplus funds with minimum possible risk.

 

2. “Treasurers need to read a lot more to be able to add value to business.”
Sandip Basu, Chief Treasury, Tata Steel


 

Q : What makes treasury an important and central function of a company?
Sandip Basu: Every company needs to come up with great financial results at the end of the day. Further, the business objective is to reduce the volatility of future cash flows by a host of activities which include efficient cash management, proper liquidity planning and control, optimal hedges on foreign exchange, interest rate and commodity exposure, procurement of finance and financial investments, contacts with banks, etc. Someone needs to monitor, control and highlight to the CFO the extent of leverage in the company as well as on the cash flow position of a company. In today’s context, many large corporations have treasury coordinate and monitor all of these important aspects and more.  

Q: How does a corporate treasurer play a crucial role in improving/maintaining the financial health of an organisation?
SB: A treasurer works in a number of ways to ensure the financial health of an organisation:

By determining financial strategy. For example, if sales are likely to face a slowdown for considerable period, liquidity needs to be conserved though different means,

By formulating investment and hedging policies and as underlying market parameters change amending them as required by business. To illustrate: (a) if rupee is appreciating against dollar, a company is better off keeping their import exposure unhedged instead of hedging it; (b) if rupee interest rates are going to firm up and a company has a very large working capital borrowing, cost curtailment needs to be done by taking a rupee interest rate hedge; (c) if a company has poor cash flow forecasting, it will either keep lazy capital (if actual realisation is forecasted) or continuously be overdrawn (if realisation is forecasted). Both ways a company suffers by advising on what businesses to invest in; by arranging appropriate funding; by managing overall financial risks in an organisation; by periodic MIS to senior management and by exercising adequate controls.

Q: What are the functional requirements of a treasurer? What are the challenges associated with them?
SB: a) To have a deep understanding of core underlying business and being closely aligned with business and their changing needs from treasury; b) to understand the nuances of business better so as to be in a position to help key internal clients like marketing, sales, procurement, etc., and c) to have a clear understanding, and of internal benchmarks and expectation.

Q: Treasurers are increasingly assuming more strategic roles in companies. Please elaborate on the financial and other risks that treasurers have to address today in the interest of the company?
SB: a) The liquidity risk, counter-party risk, price risk, execution risk, the importance of control and reporting, including regulatory reporting; b) to have an understanding of relevant markets (currency, interest rate, commodities, equity and MF segments) and the broad risks associated with each market; c) to do business continuity planning.

Q: In this complex business environment, the role of a treasurer has transitioned from the back-office to centre-stage. Can you elaborate on the qualities that help treasurer stay on top of things?
SB: a) Treasurers need to read lot more to be able to add value to business, to imbibe and institute best practices, to adopt more sophisticated risk management techniques and insight in financial risk management and finally to highlight any challenges facing the business; b) treasurers need to employ analytical tools to aid decision-making; and c) they need to understand what assistance important business leaders seek from treasury. As businesses expand their operations into new markets and global territories, corporate treasurers are well equipped with acute knowledge and be in a position to offer advice concerning issues such as regulations, foreign exchange, and international money markets.

Q: What is the competitive differential advantage that technology can bring to the treasury rooms?
SB: The corporate treasury has transitioned to an essential element of business operation, extending its reach. With this increased responsibility has come the need for effective technologies, be it treasury automation, electronic banking, which can help it offer meaningful and value added MIS to management, to not only stay on top of trends, but anticipate potential changes and use them to deliver competitive advantage.

Q: How do you think treasurers can cope with the growing complexity of financial instruments and volatile financial markets?
SB: Finding a workable definition of the complexity of a financial instrument is not as easy as it seems. Some things have changed for the better in India. Some corporates during 2008 crisis took on their balance sheets as a result of highly risky and leveraged derivative transactions sold by banks. The RBI, then, made a sweeping set of changes, which means that many complex derivative products are no longer permitted in India. Hence treasurers should avoid getting into instruments or products that are not fully understood. They can do this through market insight and through careful selection of appropriate hedging instruments and by exploiting market opportunities optimally. It is also important that banks are acting as counterparties and not as advisors and that in the event of a loss they have absolved themselves of all or any responsibility.

Q: Any three mistakes a treasurer should never commit?
SB: Do not take financial risks more than what is permitted by the company. Never compromise on core values governing our businesses. Do not underestimate the importance of monitoring and regulatory control.

 

3.  “You have to connect with the business, align with the business, go with the business, win the business.”
Mayank Agarwal, AGM Treasury - Greater India Zone, Schneider Electric

Q : What makes treasury an important and central function of a company?
Mayank Agarwal: Nowadays what I see is that the cash has become the essence of the company. Everybody knows when turnover is vanity and profit is sanity, cash is always the key. So, in that scenario, cash function is making this treasury function a very important and central function. Basically, you are having an in-depth knowledge about the company, you are connecting with each and every stakeholder, you are connecting with back offices, centralised office and business control team. So, you are connected all across business, and that’s why treasury role is very important to drive through the technology, cash flow, going for the risk mitigation skills, risk mitigation and process innovation parts are very important.

Q: What according to you are the most important values that a treasury leader must demonstrate?
MA: In my opinion, treasury should work on four major pillars – cash flow improvement side, which includes balance sheet dressing, mitigation aspects, improving the things in overall way, going for the profitable growth, technology and innovation. Today, treasury is not limited to cash to cash function. It’s a very wide area. You have to connect with the business, align with the business, go with the business, win the business.

 

4.  “Treasurers serve as financial risk managers who seek to protect a company’s value from the financial risks it faces from its business activities.”
Ruchi Puri, Vice President - Finance, Everest Industries Limited

Q : What makes treasury an important and central function of a company?
Ruchi Puri: The general mission of the treasury function is to manage the liquidity of a business which implies that all current and projected cash inflows and outflows are to be monitored to ensure that there is sufficient cash to fund company operations and excess cash is properly invested.

Treasury has increasingly become a strategic business partner across all areas of the business, adding value to the operating divisions of the company. The objective is to help business manage its working capital position in the best way possible, by providing services and systems.

The end goal of any for-profit enterprise is to maximise shareholders wealth. Treasury function drives value creation through maximising cash liquidity for companies that often have fluctuating cash flow and needs.

Treasurers ensure that there is accurate valuation of financial instruments, they implement and manage treasury policies and procedures. One of the important functions of treasury is to critically evaluate and optimise the various strategic uses of cash, ranging from financial options such as share buy-backs, debt repayment or dividend increases, to operational activities such as capital expenditures, acquisitions or product development. The treasury function liaises with internal and external stakeholders and plays a key role in the smooth functioning and value creation.

Q: Treasurers are increasingly assuming more strategic roles in companies. Please elaborate on the financial and other risks that treasurers have to address today in the interest of the company?
RP: Treasurers play a vital role in an organisation. They are expected to perform two critical functions of financial risk management and financial supply chain management. Financial risk management includes currency, commodity price and interest rate risk management. It is necessary to keep business margins insulated from market volatility. Financial supply chain is focused on reducing the cost of borrowings, minimise the working capital across the business value chain, redeploying business cash flows efficiently and optimising the risk-return of the investments.

Treasurers serve as financial risk managers who seek to protect a company’s value from the financial risks it faces from its business activities such as volatility in interest rates, currency markets and commodity prices which create exposure to loss and business disruption.

Treasurers are increasingly assuming more strategic roles in companies. They have moved beyond managing working capital to becoming increasingly involved with working with the company’s senior management to manage risk and boost the bottom line. An optimal treasury function can significantly reduce financial risks and financial costs of a business enterprise.

 

5. “A treasury leader should infuse money in the right place at the right time.”
Vairavan Thangavelu, General Manager – Finance, Future Retail Limited – eZone Format

Q : What makes treasury an important and central function of a company?
Vairavan Thangavelu: Treasury is the central function of a company. Take it as a circle. Everything is connected to treasury in a company, right from the planning stage to research and development and finally to implementation of the plan. Moreover, each and every value chain is interlinked to the treasury department of a company. It plays a vital role wherever money is flowing right from the procurement stage to the payment stage.          

Q: What are the most important values a treasury leader must demonstrate?
VT: In a nutshell, I would say a treasury leader should infuse money in the right place at right time.  

Q: How does a corporate treasurer play a crucial role in improving/maintaining the financial health of an organisation?
VT: Rating is important for the treasury function as based on the rating, an organisation gets funding. We need to ensure that the credit rating of the organisation is always maintained and improve further. There should be no default as far as payment is concerned. The payment should be done on time. A treasurer should do everything to maintain good ratings of an organisation.

 

6.  “A treasurer can’t afford to not know his business well.”
Sumit Poddar, Treasury Manager, Manipal Health Enterprises Private Limited

Q : What makes treasury an important and central function of a company?
Sumit Poddar: Treasury deals with money both inflows as well as outflows. The treasury department also arranges money whenever required by the company. If a treasurer is not able to manage finance well, it can lead the company into a lot of problems and it can become stagnant. The treasurer should manage funds well to run the show for long. If there is lack of funds, he should arrange funds quickly.

Q: What are the three mistakes a treasurer should never commit?
SP: First of all, a treasurer can’t afford to not know his business well. He should know minutely the business he is a part of. He needs to deal well with all the stakeholders in terms of flow of funds. Secondly, he should be able to minimise the business risks as much as possible. He can’t be ignorant of any negative change. Finally, he should not be an unethical person and be morally upright. If he is involved in any unethical work, the total system can collapse.

 

7.  “The role of corporate treasurers will continue to expand...”
Sushil Burnwal, India Treasurer, The Mosaic Company

Q : What makes treasury an important and central function of a company?
Sushil Burnwal: Frequent risks and turbulence in global financial markets has made treasury critical function of a company. Treasury is placed at the nexus of control, relating to investors and stakeholders. Currently, businesses require visibility into cash transactions, mutual faith in operations and a forward looking approach toward risks.
 
Q: What are the most important values a treasury leader should demonstrate?
SB: The role of a treasurer in managing financial details has long been recognised. However, sharing the information with various stakeholders in the right way has become important nowadays. Before disseminating any important information, one should think twice.  

Q: How does a corporate treasurer play a crucial role in improving/maintaining the financial health of an organisation?
SB: The role of the treasury department has certainly become more prominent in all organisations – big or small. Its responsibilities have broadened over a period of time. Two main areas that bring treasury into spotlight are – cash management and supply chain sustainability. With cash management centralisation, the focus is now on cash flow optimisation. The three factors crucial for optimisation of working capital management are efficiency, visibility and control on receivables and payables.
 
Q: Treasurers are increasingly assuming more strategic roles in companies. Please elaborate on the financial and other risks that they have to address in the interest of a company?
SB: The role of corporate treasurers will continue to expand in coming years. Foreign exchange risk is the most important area of risk management for treasuries. Rise in currency volatility has been an important tool to measure risks. Next focus remains on counterparty risks, counterparty exposures relating to banks or suppliers. Traditionally, counterparty risks associated with suppliers were managed at the business unit level but slowly treasuries are increasingly involved in managing the risks related to large commercial counterparties i.e. buyers and suppliers. Supply chain finance programmes or trade finance structures can play a crucial role in managing supplier risks.
 
Q: What is the competitive differential advantage that technology can bring to the treasury rooms?
SB: Having optimum liquidity management solution at a global level can provide significant competitive advantage to businesses. Technology can help corporate to achieve greater efficiencies in treasury management by reducing idle balances in FX exposure. Technology will continue to develop in ‘bank agnostic’ delivery and information channels, such as SWIFT.
 
Q: How do you think treasurers can cope with the growing complexity of financial instruments and volatile financial markets?
SB: The peer comparison and bench marking approach can help treasurers to know about various risk mitigations in volatile markets. They should also keep track of market and financial information.
 
Q: Any three mistakes a treasurer should never commit?
SB: a) Not investing into technology.
b) Not spreading business among different banks. Treasury services could be adversely impacted in the wake of a bank failure.
c) Not keeping track of latest financial details.
 
Q: How can treasurers widen their vision and hone their skills to make treasury functions strategically integral to corporate strategy?
SB: With much volatility in the world economy, companies need to build agile and flexible treasuries that will help the organisation to sail during tough times. The corporate treasurer has responsibilities which stretch from the daily work of collecting and investing money to the long-term funding of the business and include everything between the two.


Event date: 
Monday, July 31, 2017

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