Bank Accounts

Mexico - Corporate Treasury Update

Report date: 
12 Jan 2024

Commentary

In many ways, Mexico is a paradox. It has a vital, and complicated, relationship with its northern neighbour: apart from anything else, migration across its land border into the USA is a significant, and highly contentious, topic in US domestic politics.

But the reality is that Mexico has a thriving economy, and has modernised its financial and banking infrastructure to the point where the consensus on the call was that it is a country where it is relatively easy to work, and where most modern treasury management techniques can be used. There are no exchange controls, cash can be freely transferred across the national borders, and cross border cash pooling is regularly practiced. FX hedging can be done freely both onshore and offshore, and the country is well banked, with both good local banks and most international banks being well represented.

Despite this overall positive environment, we still had a lively call. There are a series of challenges, and some points were not always totally clear. None is particularly serious, but they still take up management time and attention:

  • Citibank operate through a relationship with Banamex. While this works well, several participants reported service level issues, and there were challenges with data not being transmitted through the IT systems. This resulted in manual interventions which should not have been required.
  • Consistent with their global strategy, Citi/Banamex are withdrawing from the retail banking sector. For some participants, this caused a problem, as banks in Mexico share the Latin American practice of giving employees a better deal on their retail banking services if the company pays payroll through them.
  • Otherwise, some participants reported issues setting up and managing local
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Topics covered in this report: 
Bank Accounts, Bank Relationships, Cash Pooling - cross border, intercompany netting, payroll, POBO/ROBO
Service providers discussed in this report: 
Banamex, JP Morgan, HSBC, Bank Mendes Gans, BAML, BBVA, Citi

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Treasury & Banking in India

Report date: 
25 Apr 2022

Commentary

This call took place against the background of the war in Ukraine – but it was a useful chance to catch up on the ever improving situation in India.

India has always been complex, with many regulations and poor clarity. This is clear from the comments below, where participants often have different experiences on the same topic. But, overall, the economy is working well, people are making profits (this was not always the case), and regulations are becoming more user friendly, even if they remain challenging.

Business structure: most participants have one legal entity which faces customers, and a different one which acts as an international shared service centre, invoicing other companies in the group on a cost plus basis. This can lead to inefficiencies in cash management: everyone struggles with domestic cash pooling and intercompany loans, while the shared service centre has guaranteed profits and cash generation. One participant has all activities in the same legal entity, which makes life easier.

Intercompany loans within India create transfer pricing and tax challenges: there is a required or recommended interest rate of 8%, compared to deposit rates of 4% to 4.5%.

Cross border cash pooling and intercompany loans are generally very difficult: many approvals are required. Dividends are subjected to withholding tax of 15%, which is sufficient to deter some, but not all, participants from paying dividends. However, this is an improvement on the previous 22% dividend tax, which was often not creditable against tax in the receiving country.

Netting of intercompany invoices is not allowed. However, one participant is using an Indian entity to centralise all invoices within the country using a POBO/ROBO process, and limiting the transactions to a single, large, gross in/gross out settlement. They are also looking at a non resident INR account.

Participants mostly use deposits for investing their excess cash. One is using the TIDE deposit: the bank automatically sweeps fixed amounts of cash above a defined threshold into deposits. These receive a higher rate if they remain for more than two weeks, but can be released if needed, with a lower interest rate being paid.

Most participants use international banks, mainly Citi and BNPP. Most complained that Citi are reluctant to...please sign in to continue reading

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Topics covered in this report: 
Bank Accounts, Tide deposits, POBO/ROBO, Cash Repatriation, FX, Cash Pooling - domestic, Intercompany loans, Cash Pooling - cross border, Dividends, Netting, Tax
Service providers discussed in this report: 
JP Morgan, HSBC, BNP Paribas, Citi, ICICI, FXall, 360T, CoProcess

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