CAFTA

Certification in Applied Finance,

Treasury and Analytics

1
 Welcome to the CAFTA community

Different companies Diverse Educational Background

Manufacturing Oil & Gas, Steel, Power, Pharma, Auto, , CA, CFA, FRM, MBA, Engineering

Financial Institutions Banks, NBFC, Broking firm, Credit rating agencies, Fintech, Insurance
Services Consulting, IT, Retail

Varied work profiles

▪ Corporate Treasury ▪ Internal Audit

▪ Transaction banking ▪ Company Secretary
▪ Treasury Advisory ▪ Finance Controller
▪ Capital markets ▪ Forensic Audit
▪ Practicing CA ▪ Credit Monitoring
▪ FP&A ▪ Credit Risk Analyst
 Hemal Shah Saurabh Batra Pranav Chudgar
Partner Associate Partner, Director
Trainers in CAFTA

Prateek Chaturvedi Vikrant Sankhyanan

Ankit Tulsyan
Director Senior Manager, EY Senior Manager

Kinjal Gupta Abhishek Anand Kriya Bhansali

Senior Manager Manager Shahrag Trikha
Manager
Senior Consultant

Simone Aranha Nishchay Nagpal Jay Mehta

Kanika Rana
Senior Consultant Senior Consultant Consultant
Senior Consultant
 CAFTA: Course content

Managing Develop strong base of

Statistical risk and Financial
Basic Understand Introduction return Treasury Introduction the theoretical concepts
risk to financial methods of statements & to Power BI
Module markets finance
through
ratios
Accounting through practical
financial
instruments examples

Orientation to treasury

Liquidity and cash management

Acquire
Corporate finance practitioners’
insights and learn
leading industry
Core
Module
Supply chain finance & Trade finance practices in each
area
Investment and portfolio risk management

Financial risk management

Treasury Analytics
Orientation to Treasury
Know your speaker

Pranav Chudgar
Director, EY

www.linkedin.com/in/pranavchu
dgar/
Decision making

Would you invest 1 million Euros at annual returns of

2% for tenor of 100 years?

Source: http://www.worldgovernmentbonds.com/country/germany/
Decision making

Would you invest 1 million Euros at annual returns of

2% for tenor of 100 years?

Source: http://www.worldgovernmentbonds.com/country/germany/
Decision making

Would you invest at 2%

for 100 years?
Austrian government thinks you would!
Decision making

Would you invest at 2%

for 100 years?
Austrian government thinks you would!
Cash and
Liquidity How are the cashflows impacted due to such a long tenor bond?

Investment
Management Why will a fund manager with surplus cash invest in this bond?

Corporate
Finance How will Austrian govt or any company issue such a bond?

Financial Risk
Management What are the associated risks & how will companies hedge risk for 100 years?

Supply Chain
Finance How would a company’s working capital be impacted

Treasury
Analytics How does analytics support decision making in this case?

Orientation to Treasury
Decision making

Would you invest at 2%

for 100 years?
Austrian government thinks you would!
Cash and
Liquidity How are the cashflows impacted due to such a long tenor bond?
By the end of the
CAFTA course, Investment
Management Why will a fund manager with surplus cash invest in this bond?

you will be able to Corporate

look at such Finance How will Austrian govt or any company issue such a bond?

information from Financial Risk

Management What are the associated risks & how will companies hedge risk for 100 years?
various point of
views Supply Chain
Finance How would a company’s working capital be impacted

Treasury
Analytics How does analytics support decision making in this case?

Orientation to Treasury
What does finance mean to you?

Finance

Accounting and
Reporting

Business
Planning

Direct & Indirect

Tax
Over the years, treasury has been carved out from finance function and has become an important pillar
for companies

Finance Treasury & Banking

Treasury has evolved to
Front Office Middle Office Back Office become a strategic business
partner taking key decisions
around organization’s
financial activities
Cash & Mergers and
Accounting and Foreign Exchange
Liquidity Acquisitions
Reporting Management Risk
A day in life of Treasury
Business Credit Rating Commodity Risk Investment professional is always
Planning Banking dynamic

Direct & Indirect Fund Raising Interest Rate Risk Corporate

Tax Banking
Treasury attracts the best
Investment Management talent. Be among the
brightest minds in any
organization
Data Analytics
Treasury Technology
Machine Learning & Artificial Intelligence
What is Treasury?

Treasury function manages the organization’s liquidity risks, financial risks, banking
relationships, working capital and supporting management and business units.

In some organizations, the Treasury department might also include the mergers and
acquisitions team, corporate finance, corporate planning, pension fund management,
economic analysis

Fintech companies have disrupted the treasury domain by combining the knowledge
of finance, technology and financial engineering

Treasury function exists in all industries

Banks and Insurance Management Credit rating

NBFCs company consulting agencies

AMC and Fintech & Brokerage

Corporate
mutual funds start-ups firms
Key functions for treasury that help to drive value
Key functions include managing the organization’s liquidity risks, financial risks, banking relationships, working capital and
supporting management and business units.
Liquidity and cash management
Liquidity management and its key components such
as cash forecasting, cash management, cash pooling
(notional, physical and hybrid), payment factory,
inhouse banks and payment/settlement systems
Investment management
Investment management strategy deployed by
corporates, banks, insurance companies and
AMCs. Operational aspects of corporate portfolio
management
23 August 2021
Supply chain and trade finance
Working capital management including cash
conversion cycle, sources of short-term financing
etc, trade finance and supply chain financing
solutions
Financial risk management
Identify financial risks including currency, interest
rate and commodity risk faced by entities and
adopt techniques to measure, quantify and
effectively mitigate those risks
Orientation to Treasury
Draft- For discussion purposes only
Corporate finance
Capital structure decision making including long
term financing products, capital market or bank
financing sources. Focus on credit assessment
carried out by banks/ credit rating agencies
Reporting and analytics
Fundamental concepts of data analytics, big data,
visualization and learn applications relevant from
industry perspective with analytical use cases
covering areas specified in each of the module
1. Investment Management

Risk-Return profile of Major Asset Classes

Objective of the
function
• Earn yield on surplus
cash
• Ensure safety of
principal amount and
liquidity of funds
• Ensure credit risk is
monitored and
corrective steps are
taken to mitigate it

Factors affecting choice of investment

Return Risk Liquidity Internal External

Time horizon
Objective tolerance needs policies regulations
1. Investment Management

Investment Credit Quality

Category Type Fund Name AUM Amount (In Cash &
Percent AAA AA Below AA Sovereign Unrated
INR Cr) Others
Kotak Liquid Fund 26,459 184 14% 73.80% -- -- 28.08% --
Tata Liquid Fund 21,439 276 21% 76.00% -- -- 20.47% 3.53% --
Liquid Fund
IDFC Cash Fund 13,603 184 14% 64.18% -- -- 14.11% 21.69% 0.02%
Franklin India Liquid Fund 11,999 138 11% 77.94% 0.29% 0.21% -- 21.56% --
HDFC Credit Risk Debt Fund 14,625 61 5% 28.26% 30.04% 36.85% 1.03% 3.81% --
Credit Risk Fund
Franklin India Low Duration Fund 5,704 92 7% 23.11% 15.60% 54.83% -- 2.01% --
Banking and PSU IDFC Banking & PSU Debt Fund 11,210 107 8% 96.64% -- -- 0.03% 3.34% --
Debt Fund Axis Banking & PSU Debt Fund 9,832 153 12% 87.65% -- -- 1.19% 4.10% --
Gilt Fund SBI Magnum Gilt Fund 1,944 112 9% -- -- -- 85.87% 14.13% --
Total Investment in Mutual Fund 1,308 65% 3% 6% 18% 8% 0%

Investment Instrument-wise break-up

Franklin factsheet
Category Type Fund Name AUM Amount (In Bond /
Percent Cash CD CP FD Gilt T Bill Others
INR Cr) Debentures
Kotak Liquid Fund 26,459 184 14% -- 7.59% 63.34% 2.50% -- 1.90% 26.18%
Tata Liquid Fund 21,439 276 21% -- 16.96% 57.98% 1.05% -- -- 20.47% 3.53%
Liquid Fund
IDFC Cash Fund 13,603 184 14% -- 17.17% 31.24% 15.77% 0.02% -- 14.11% 21.69%
Franklin India Liquid Fund 11,999 138 11% 21.56% 9.55% 68.18% 0.71% -- -- -- --
HDFC Credit Risk Debt Fund 14,625 61 5% -- 1.48% 1.19% 65.69% -- 0.68% -- 30.96%
Credit Risk Fund
Franklin India Low Duration Fund 5,704 92 7% 2.01% 1.95% 18.79% 56.12% -- -- -- 0.2113
Banking and PSU IDFC Banking & PSU Debt Fund 11,210 107 8% -- 3.47% -- 88.65% -- -- -- 7.88%
Debt Fund Axis Banking & PSU Debt Fund 9,832 153 12% -- 2.21% 4.79% 86.32% -- -- -- 6.68%
Gilt Fund SBI Magnum Gilt Fund 1,944 112 9% -- -- -- -- -- 61.91% 22.93% 15.16%
Total Investment in Mutual Fund 1,308 2% 9% 35% 27% 0% 6% 12% 9%
1. Investment Management – Roles and responsibilities

Investment management strategy deployed by corporates, banks, insurance companies and

AMCs. Operational aspects of corporate portfolio management
Key Roles and responsibilities

Corporate BFSI – Front office

➢ Ensure utilization of surplus funds to achieve higher
return
➢ Execute investment transactions in various asset
class to generate yields
➢ Manage credit risk and counterparty risk of the
portfolio
➢ Driving strong investment performance
through optimum asset allocation
➢ Monitor investment performance and
performance attribution of portfolio
➢ Evaluate and manage credit risk and
counterparty risk of the portfolio

BFSI – Research Analyst

➢ Perform research and analysis, evaluate and
recommend different investment instruments
for the Fund Manager
➢ Assess macro-economic developments,
micro-economic situations, market trends,
earnings prospects and financial statements
to determine suitable investment strategies
 2. Liquidity and Cash management

• Manage cash flows and liquidity position of the company

• Ensure cash is available to pay a company’s obligations and source additional funds whenever required.
• Ability to convert an instrument into cash quickly and without loss of value

► Obtain forecast of a company's future financial position

Cash flow
forecast ► Its future financial position based on anticipated payments and
receivables

Benefits of Cash flow forecasting

Cash flow ❑ Minimize cost of funds
forecast for
❑ Maximize interest on surplus funds
an auto
company ❑ Financial control
❑ Plan strategic investment
2. Liquidity and Cash management
Scenario:
A company has branches in India and USA.
Following are the expected receipts of the
company:
1.$50000 - 24th May - US branch
2.$50000 – 22nd May - India branch
The company has to make a payment of $80000
in US on 31st May.
Key points the company needs to address:
a. Accuracy of forecast
b. Availability of sufficient funds on 31st May?
c. Whether the company should transfer $30,000
from India to US and then make the payment,
or borrow $30,000 in US and make the
payment?
d. Whether the company can earn interest on the
funds till the time payment has to be made?
e. What if the funds are not received on time?
Cash pooling is the ability to concentrate
or aggregate cash by location, currency
and account.
 Physical pool: physically moves funds to
combine funds from various accounts
into one single account to be utilised
 Notional pool: allows the company to
combine balances of several entities
without any actual movement of funds
within or across borders while still
gaining centralised access.
 Hybrid: combination of notional and
physical pooling to optimize the
company’s liquidity
2. Liquidity and Cash management - Roles and responsibilities

Liquidity management has key components such as cash forecasting, cash management,
cash pooling (notional, physical and hybrid), payment factory, inhouse banks and
payment/settlement
Key systems
Roles and responsibilities

Corporate
➢ Assess funding requirements, manage daily liquidity
needs and execute fund movements
➢ Manage intercompany settlement process and
maintain intercompany loans/settlements
➢ Forecast, monitor and track cash flow (weekly,
monthly, quarterly etc.).
➢ Prepare cash flow reports, and identify and evaluate
variances in cash flow
Bank
➢ Advise clients on optimum cash management
solutions for different geographies
➢ Identify opportunities to grow fee and deposit
revenue in existing client base
➢ Monitor industry trends to identify product
and service trends including new products /
services
 3. Supply chain finance and trade finance

Trade There are multiple risks involved when there is exchange of goods & services between two parties
Finance This risk increases when there is export / import ie trade happens between two parties in two
different countries

❑ Buyer/ seller are not known Objective of the

Issues with Method to reduce risk in international function
❑ Lack of trust
international trade
trade ❑ Limited contact due to
• To ensure that trade
geographical restrictions
between two parties is
❑ Trade credit insurance
seamless
❑ Letter of credit • Risks involved in
❑ Adhere to International standard international trade are
banking practice eliminated for importer
and exporter
❑ Agree INCO terms
❑ Follow UCPDC (Uniform Customs and
Practice for Documentary Credits )
guidelines
❑ Adhere to regulatory policy such as
EXIM policy
 3. Supply chain finance and trade finance

Supply Supply chain is movement of goods from procurement to manufacturing to warehouse and
Chain finally delivering the end product to customer
Finance Supply chain finance is financing of goods at each of the above stage

Trade transaction timeline Objective of the

Days Payable Days Inventory outstanding Days Sales outstanding function
outstanding (DPO) (DIO) (DSO)
• To reduce company’s
►Production Cycle ►Inventory period ►Sales cycle working capital
requirement
• In simple terms: Reduce
Purchase Raw material Payment of Covert to Customer Goods Payment reliance on company’s
Goods stored
order received raw material finished as inventory order delivered received from cash and use someone
goods received customer else’s cash
• Since someone else’s
Pre-shipment finance Post-shipment finance money is used, there is
a cost
• This function’s role is to
Examples of some products ensure this cost is
Letter Buyers Factoring Forfaiting Reverse minimized
of Credit credit factoring
3. Supply Chain Finance & Trade Finance – Roles and responsibilities

Working capital management includes optimizing cash conversion cycle, sources of short-
term financing etc, trade finance and supply chain financing solutions
Key Roles and responsibilities

Corporate
➢ Managing the centralized trade finance operations
activities – Bank Financing, Letters of Credit,
Guarantees, Bills/TRs
➢ Analyze key business drivers and financial impact to
the income statement, balance sheet, and cash flow
➢ Execute transactions within pre-set standardized
turnaround times for all trade finance activities
Bank
➢ Advise clients on trade finance products to
mitigate risks in international trade
➢ Advice clients on supply chain finance
products by financing parts of the trade
lifecycle through the use of various products
➢ Originating and promoting bank's trade
services and finance products
➢ Develop new business and promote existing
trade finance products
4. Corporate finance

Corporate finance deals with decisions relating to sources of funds, capital structure most suitable to an organisation,
impact of a capital structure, different products available in the market and process for raising funds.

Overview of corporate finance activities

Available sources of Issue of shares, debentures, borrowing from banks/

financing Objective of the
financial institutions, retained earnings, inter-company
debt, etc function
Suitable capital • Corporates: Avail long
structure What combination of debt, equity and preference shares term and short term
should a company adopt? financing at competitive
rates
Different borrowing Commercial papers, working capital loans, short term
products borrowings, term loans, bonds/NCDs, foreign currency • Banks: Lend to
loans, etc companies which are
financially sound
❑ Assess repaying capacity ❑ Assess past performance and future • Credit rating agencies:
Rating based on internal outlook
❑
Credit rating Assign credit rating
Bank models agencies ❑ Talk with management and conduct based on risk profiling
❑ Monitor exposure to company / due diligence
sector / country / ❑ Peer company analysis
4. Corporate Finance – Roles and responsibilities

Capital structure decision making including long term financing products, capital market or
bank financing sources. Focus on credit assessment carried out by banks/ credit rating
agencies
Key Roles and responsibilities

Corporate
➢ Fund raising through short term and long term
borrowing at optimum rates for the Group
➢ Engage with debt capital market investors, lenders
and international & domestic rating agencies
➢ Covenant tracking and its compliance
Bank
➢ Advise clients on funding needs via working
capital, long term financing, project
financing, trade finance
➢ Drive P&L by deploying financing solutions
and capital raising solutions
➢ Credit appraisal of corporates prior to loan
disbursement

NBFC Credit rating

➢ Borrow funds at optimal rates and reduce
cost of capital
➢ Evaluate the product mix through which
funding cost and risk combination would be
most economical
➢ Evaluating clients' credit data and financial
statements to determine risk
➢ Undertake industry, competitor and client
level analysis
 5. Financial Risk Management – FX Risk

On Jan 01, 2020, Company ABC forecasts to import 10 mobile phones from
Types of ❑ Foreign Exchange Risk US for the next 3 months. Each mobile phone costs USD 1,000. Expects to
financial ❑ Commodity price risk sell each of these phones for INR 80,000. USD/INR rate is 70.00.
risk ❑ Interest rate risk

USD / INR movement from Jan 2020 to March 2020

External ❑ Futures
hedging ❑ Forwards
techniques ❑ Options
5. Financial Risk Management – FX Risk

Factors affecting FX markets

FX market news Central Bank news

Technical analysis Economic news

5. Financial Risk Management – Roles and responsibilities

Identify financial risks including currency, interest rate and commodity risk faced by
entities and adopt techniques to measure, quantify and effectively mitigate those risks
Key Roles and responsibilities

Corporate
➢ Implement strategies to hedge FX, interest rate and
commodity risk across group
➢ Settlement of FX inward / outwards for all group
companies
➢ Evaluate macro-economic parameter’s impact on
financial markets and on company’s portfolio
Bank
➢ Advise corporate clients to proactively
manage FX and interest rate risk exposure
➢ Manage bank’s FX position in line with
regulatory guidelines
➢ Derivatives documentation (ISDA, CSA) with
clients
 Trends in Treasury - Reporting and analytics

Treasury technology landscape – key Business Data Acquisition &

levers Understanding Management
Data Preperation Data Exploration Modelling Data Reporting/Publishing

continuous feedback loop

Robotic Process Modular Tech
Automation Platforms

Machine Big Data Manage Perform Drive

Learning Data Analytics Decisions

Relevant data Insights

Analytics Cloud
Computing Treasury Cycle

Appropriate Answers to
data sources business questions

Transaction / behavior history

Agile Distributed
Integration Ledgers continuous feedback loop
Core functions for treasury across industry

Supply Chain Finance / Financial Risk

Industry Corporate Finance Cash & Liquidity Investment
International Trade Management

Corporates
Banks
NBFC XX XX
Insurance XX XX
AMC/MF XX XX XX
Fintech
Management Consulting

Cost centre / support function Profit centre Business function

Factors that influence a treasury structure

Factors that influence a Treasury structure

Size of company Industry norms Nature of cash flows Geographic distributions

Number of regions Retail sales distribution Electronic v/s paper Time zone
Entities and geographies Decentralized manufacturing Scale of business Communication
Revenue share Use of technology Local regulations

Fully Centralised Treasury Centre

BU BU
• All business units report into a
single centralised entity
BU
BU Global Treasury globally.
centre • Treasury operations are pooled, BU BU
BU BU coordinated and carried out
BU
centrally. Global Treasury
BU BU Centre acts as an ‘in-house Decentralised
BU
bank’.
BU • Each Country business units
BU
perform their own treasury
BU
BU operations and are quite
independent of each other.
BU
BU
Putting CAFTA learnings into practice
Putting CAFTA learnings into practice

• In Jan 21, Tesla

reported that it had
invested $1.5 billion in
Bitcoin in last 1 year.

• It made more profit in

Jan 21 by investing in
bitcoin that in 17
years by selling car
Putting CAFTA learnings into practice

• In Jan 21, Tesla

reported that it had
invested $1.5 billion in
Bitcoin in last 1 year.

• It made more profit in

Jan 21 by investing in
bitcoin that in 17
years by selling car
Putting CAFTA learnings into practice
Putting CAFTA learnings into practice
 CAFTA: Course content

Managing Develop strong base of

Statistical risk and Financial
Basic Understand Introduction return Treasury Introduction the theoretical concepts
risk to financial methods of statements & to Power BI
Module markets finance
through
ratios
Accounting through practical
financial
instruments examples

Orientation to treasury
Acquire
practitioners’
Liquidity and cash management insights and learn
leading industry
practices in each
Corporate finance area

Core
Module
Supply chain finance & Trade finance

Investment and portfolio risk management

Financial risk management www.linkedin.com/in/pranavc

hudgar/
Treasury Analytics