For years, the corporate treasury playbook in India was simple: park surplus funds in fixed deposits and liquid funds, accept the modest return, and protect the capital. That playbook is being rewritten. A wider universe of instruments, growing cash reserves, and pressure from boards to make idle money work are pushing treasury teams into territory many were never built for.
In this conversation with Digital Trade Outlook, Sachin Jain, Head – Family Office and Corporate Treasury at TriGen Wealth, explains what typically goes wrong first when a preservation-minded team is handed a returns mandate, why Indian conservatism proved its worth through episodes like IL&FS and Yes Bank, and where he believes the next wave of innovation in Indian treasury will come from.
Digital Trade Outlook – Institutional treasury was built to preserve capital, yet treasurers are increasingly being asked to generate returns on surplus funds. What breaks when a defensive function is handed an offensive mandate, and how are the best institutions managing that shift?
Sachin Jain, Head – Family Office and Corporate Treasury, TriGen Wealth: A few years back, the only option for treasuries was to invest in fixed deposits and liquid funds / money market funds. But these options, although liquid, yield lower returns of between 5% and 7%. There are a few banks who offer higher FD rates. However, now there are options such as short tenure bonds, commercial papers etc. which provide higher returns. However, they come with their own set of risks. Although many listed companies do not permit investing in risky and illiquid assets, I have seen some unlisted and closely held companies adopting this approach of earning higher returns on their treasury investments. They can afford to do so as they are not liable to answer to any shareholders. Some of the illiquid but higher yielding options are individual bonds of higher tenure, AIF credit funds etc. Some unlisted and 100% promoter owned treasuries also pledge their bonds and do derivatives trading by selling call options / put options to earn the premium income.
Typically, in an organisation, when a treasury team is asked to generate more returns, they quickly jump to options such as credit risk mutual funds or NCDs with an A rating to get better yields. In such cases, if the CFO is not aware of the underlying in credit risk mutual funds or the risk with the NCD, it can affect the returns negatively. According to me, the skill goes for a toss, as most of the treasuries that I have seen do not have people who understand investments. Governance is second, as in the rush to earn returns, underlying papers are ignored and the IPS (Investment Policy Statement) is not considered while investing in such bonds and funds. Many treasuries do not know what credit risk funds are, or sometimes they do not know that a AAA rating is not always safe (IL&FS) or that perpetual bonds can be risky (Yes Bank). But they invest anyway, as such products are often mis-sold.
What are the biggest challenges institutions face in generating sustainable returns on surplus funds without compromising on liquidity or risk, and where do most of them get the balance wrong?
As mentioned earlier, the universe of options is limited. Also, the income on these debt instruments is added to your income, making the post-tax returns all the more unattractive. Most of the listed firms have the mandate to park their treasury money in AAA bonds only. AAA bonds have yields of 7% to 7.5% only. Even within unlisted companies, corporates who have a very tight cash flow will never risk parking in bonds which cannot be liquidated in a couple of days. Hence, the right balance lies in adopting an approach where you forecast your cash flow accurately, and then maybe park 10% of your total treasury surplus in AA or A rated bonds to get a slightly higher yield on your total surplus.
India’s institutional treasury landscape has its own character: regulatory constraints, the dominance of mutual funds and PMS as deployment vehicles, and corporates sitting on growing cash reserves. How does treasury management at Indian institutions differ from their global peers, and where are Indian corporates ahead or behind?
Treasury management in India is far more conservative than its global peers. However, this has made them more powerful and resilient. Foreign treasuries do park their funds in many assets, including fixed coupon notes (FCNs). All of that depends on the company’s cash flow projections. During difficult or unpredictable and uncertain times, most of the companies would take a conservative stance and park their money in safe liquid mutual funds, or even park in their bank accounts in the form of FDs. For Indian corporates, it is not easy and fast to raise capital from the market, as we do not have that kind of depth in the bond market, and hence we remain conservative. We cannot quickly raise money in the form of commercial papers or get a quick loan from a bank / NBFC. So I think increasing the depth of the bond market is a necessity to transform the treasury landscape in India.
Cases of avoiding perpetual bonds and avoiding credit risk funds paid off. Many treasuries avoid taking interest rate calls and do not park money in long duration funds. These calls have helped corporate treasuries to earn less but preserve capital, which is their core job. Indian treasuries can hire professional investment experts in their teams to earn that extra 0.25% to 0.50% on their treasury by investing in safe investment grade bonds of shorter tenure or liquid bonds. Though these resources may come expensive, they are worth it considering the absolute alpha that they can generate by parking in better investment options.
How is TriGen Wealth helping institutions rethink their approach to treasury management, and where do you see the greatest opportunities to create value for clients?
We at TriGen work closely with corporates on understanding their cash flow requirements. Only after understanding their cash flow projections do we suggest a particular investment strategy. We offer short term products, from liquid mutual funds to commercial papers of 3 / 6 / 9 / 12 months as well. We have also come up with a flexible buy-back plan, where we buy back certain NCDs from corporates on a 7-day notice. This helps corporates park their surplus funds in high yielding NCDs, which offers them liquidity as well. This buy-back is available only on select NCDs where TriGen as a group is comfortable with the credit quality of the issuing group.
Over the next three to five years, what fundamental shifts do you expect in institutional treasury management, and how should organisations prepare for them today?
We expect a lot of innovation in Indian treasury functioning. On the investment part, I see them taking part in solutions that offer liquidity as well as better returns. I also expect a lot of digital solutions to be offered in the market which would help the CFO and the treasury team to project cash flows in a better manner. I also expect a lot of regulations coming up to improve the depth of the bond market, as well as improve the time taken for corporates to raise money from the market. Organisations today should definitely hire relevant managers who understand the complex products that are available in the market for treasury. A lot of AIFs (Alternative Investment Funds) are available for corporate treasuries which can be liquidated on a 15 days’ notice, but many corporates are not aware of them. Organisations should also be adopting solutions that help them forecast cash flows better. Investment in high quality talent is non-negotiable for these corporates.