and us—but the rest of the conundrum is not
yet completely solved.”
Tenex Capital’s Bedi says foreign inves-
tors face barriers in other industries, such
as telecom, insurance and airlines, where
businesses must be majority-owned and
controlled by Indian companies. “Insurance,
for instance, is limited to a 26% foreign own-
ership,” he says.
And while foreign banks are now allowed
to operate in India, the process is compli-
cated. “The central bank requires you to
obtain licenses to build brick-and-mortar
branches,” Iyengar says. “It’s a challenge for
every foreign bank, but at least we’re all on
the same level playing field.”
Certainly, the banks aren’t letting onerous
licensing requirements stand in the way of
progress. Large, global banks like Citibank,
J.P. Morgan and Deutsche Bank continue to
build out their presence, and the days of a
shingle outside a small building are long
gone. Deutsche Bank, for instance, now has
7,800 employees in India, 15 retail branches
in 14 cities and more than 500,000 retail cus-
tomers in the region. It offers a transaction
banking platform with solutions across cash
management, trade finance and custodial
services. Citibank’s services are comparable,
and J.P. Morgan is catching up.
Paul Simpson, global head of trade and
treasury solutions at Citibank, says another
factor explaining India’s attraction is its
legal framework, which is based on Anglo-Saxon law.
“India has been pretty consistent in being
very predictable from a legal standpoint,”
Simpson explains. “Concerns you might run
into in other emerging markets you don’t
run into in India. We’ve also seen significant
improvements in mobile platforms, Web
access and telecom. Mobile platforms, for
instance, have added another channel from
a wholesale and consumer perspective. Re-
sponse times on local networks used to be
a big problem, with the bandwidth just not
there. This has changed dramatically.”
While foreign banks continue to provide
estimable service to their clients, it is still
important for multinationals to work with
local banks as well. “You need to have rela-
tionships with both a large global bank and
a local bank, the former as your cash con-
Some challenges remain. But so much as been accomplished. —P&G INDIA’S BuCh
solidation and liquidity bank and the latter
as your receivables bank,” says Simpson.
Despite the presence of these sophisticated
bankers in India, treasurers still face prob-
lems, chief among them currency convert-
ibility. “With a rupee futures exchange only
recently introduced, companies for now still
have to rely on a mix of options and forwards,
which cost more from an over-the-counter
currency standpoint,” Bedi explains. “If a
company is selling in the Indian market, it
can at least convert its indigenous currency
into rupees and tap this capital to fund its
Indian operations.”
Another nagging problem from a treasury
standpoint is the slow growth of electronic
payments. “In India in 2003, over 80% of all
non-cash transactions were checks,” says
Bedi. “While electronic payments have grown
by more than 50% a year, over half of all
transaction volume remains checks, which
creates check-clearing obstacles. You’re col-
lecting tiny amounts of cash or checks in
remote areas where there are only local bank
branches that can take weeks to clear them.”
“Only 13% of Indians have debit cards,”
says Ford’s Schloss. “A large portion of the
population is still rural, compelling banks to
expand in the villages. India’s Finance Min-
istry recently asked banks to prepare a blue-
print on their plans to reach villages with
populations of 2,000 people and more.”
Harding says a key problem for treasur-
ers of multinationals is getting currency out
of the country. “The currency controls are
overly tight, and the central bank has to im-
prove all outflows,” he explains. “You have
to have all these documents to achieve ap-
proval. The onus is on the government and
the banking sector to streamline the rules.”
Another challenge is liquidity manage-
ment. Bhushan Tinekar, deputy general man-
ager of treasury at Vodafone Essar, a large
provider of mobile communications services
in India, and part of the Vodafone Group,
says cash management is virtually on par
with the West, but liquidity management is a
“problem.”
He cites the disallowance of notional
pooling, the mechanism for calculating
interest on the combined credit and debit
balances of accounts. “Companies like ours,
with a decentralized organization compris-
ing multiple legal entities in India, are un-
able to do notional pooling,” Tinekar says.
“Companies can only do actual pooling
of monies within each legal entity. Money
transfers between legal entities have to be
manual and are governed by tax and other
regulations.”
Shah of Deutsche Bank, Vodafone Essar’s
banker, agrees that ever-expanding domestic
consumption for products and services is
not only an opportunity but also a challenge
from a treasurer’s perspective. “Treasurers in
India are extremely keen to get tailor-made
transaction banking solutions which aid col-
lections and payments at remote locations
across the country to facilitate their business
growth while managing the liquidity risk
efficiently,” he explains.
