Cash Management Trends

in India
Niraj Vedwa President Head Global Sales and Marketing Nucleus Software
(Original article published in gtnews.com)

This article examines the cash management and payments developments in India, in terms of bank offerings and new corporate best practice.

Traditionally having a paper-based clearing system involving not only high processing cost but security risk, cash management in India has certainly undergone a paradigm change. From a product-centric approach, the focus for almost all banks today has shifted emphatically to the customer. And success is all about bringing the maximum possible delivery channels to the prospect's doorstep. In the rapidly transforming world of business, banking faces its biggest challenge yet - constant change. With every bank seeming to offer service possible, efficiency coupled with innovative value added solutions have emerged as the key business differentiators that affect a bank's bottom line. Confronted with shrinking deposits/margins, rising customer expectations and intensifying competition, banks must at all times strive to be a step ahead of industry standards. At the same time, they cannot lose sight of credit risk, a natural byproduct of the increasingly complex relationships in today's dynamic markets. For some time now, technology has been the key driving force behind every successful bank. In such an environment, the ability to recognise and capture market share depends entirely on the bank's competence to evolve technically and offer the customer a seamless process flow. The objective of a cash management system is to improve revenue, maximise profits, minimise costs and establish efficient management systems to assist and accelerate growth. Today a corporate treasurer's dilemma is multifaceted. With more movement towards the regional/central liquidity management in the complex structure of rules and regulations, further complication is caused by taxation issues. I describe what a corporate treasurer needs as VOC - Visibility of funds, Optimised returns on funds, and Control over receivables and payables. Treasury can face a number of issues related to the slow movement of funds, locked working capital, loss of float income, high cost of funds, time consuming reconciliation and manual processes. In India the cash management business primarily involves collections and payments services. Cash Management in India Products offered by banks under collections (paper and electronic):

Local cheque collections. High value (0 Day clearing). Magnetic ink character recognition (MICR) (three day clearing of cheques). Outstation cheque collections.

Cheques drawn on branch locations. Cheques drawn on correspondent bank locations. Cheques drawn on coordinator locations. House cheque collections. Outside network cheque collections. Cash collections. ECS-Debit. Post dated cheque collections. Invoice collections. Capital market collections.

Products offered by banks under payments (paper and electronic):

Demand drafts/bankers cheques. Customer cheques. Locally payable. Payable at par. RTGS/NEFT/ECS. Cash disbursement. Payments within bank. Capital market payments.

Cash Management In India The Reserve Bank of India (RBI) has placed an emphasis on upgrading technological infrastructure. Electronic banking, cheque imaging, enterprise resource planning (ERP), real time gross settlement (RTGS) are just few of the new initiatives. The evolution of payment systems such as RTGS has posed some tough challenges for cash management providers. It is important that banks now look towards a shift to fees from float although all those cash management providers who have factored in float money in their product pricing might take a hit. But of course there are opportunities also attached like collection and disbursal of payments on-line across the banks. There are a number of regulatory and policy changes that have facilitated an efficient cash management system (CMS). Fox example, the Enactment of Information Technology Act gives legal recognition to electronic records and digital signatures. The establishment of the Clearing Corporation of India in order to establish a safe institutional structure for the clearing and settlement of trades in foreign exchange (FX), money and debt markets has indeed helped the development of financial infrastructure in terms of clearing and settlement. Other innovations that have supported in streamlining the process are:

Introduction of the Centralised Funds Management Service to facilitate better management of fund flows. Structured Financial Messaging Solution, a communication protocol for intra-bank and interbank messages. Evolution of Services One of the emerging cash management services in India is payment outsourcing. Though cheques and drafts are a popular mode of payment in India, it is obviously a time consuming procedure because of the manual processing required. This is an area where payment outsourcing can help. It allows corporates to reduce their overheads and focus on their core competencies and, as a result, benefit from speed and accuracy. The enhanced security it offers also allows for tighter fraud control. For the Indian payment system to become completely seamless there are many variables that need to be tackled, such as regulatory and legal issues, customer behaviour and infrastructure. As more corporates and banks have added technology to their processes, the issues surrounding connectivity security have become much important.

Today, treasurers need to ensure that they are equipped to make the best decisions. For this, it is imperative that the information they require to monitor risk and exposure is accurate, reliable and fast. A strong cash management solution can give corporates a business advantage and it is very important in executing the financial strategy of a company. The requirement of an efficient cash management solution in India is to execute payments, collect receivables and managing liquidity. Traditional or e-business objectives, in India there are different cash management solutions. Cash Management Solutions Offered in India Account reconciliation services Balancing a chequebook for a very large business can be quite a difficult process. Banks have developed a system to overcome this issue. They allow companies to upload a list of all the cheques whereby at the end of the month, the bank statement will show not only the cleared cheques but also uncleared ones. Positive pay An effective anti-fraud measure for cheque disbursements. Using the cheque issuance data, updated regularly with cheque issuance and payment, the bank balances all cheques offered for payment. In the case of any discrepancies, the cheque is reported as an exception and is returned. Balance reporting services Balance reporting provides help in procuring a company's current banking information from its accounts. With this service the banks can offer almost all types of transaction-specific details on activities related to payment like deposits, cheques, wire transfers etc. It also helps in an effective and efficient management of regular cash flow. Lockbox Facilitates the cash improvement where, instead of being delivered to business address, customer payments are delivered to a special post office (PO) box. It is only the customers' payments that are delivered in the PO box and the company's own bank collects the amount and delivers them to the banks of the customers. The bank of the customers opens and processes the payments for direct deposit to the bank account. Lockbox contents regularly removed and processed. --