Agriculture and Allied Industry - Transparent rates are perquisites

• XYZ is one of the leading Agro Commodity companies in the business of exporting rice, with an exposure of USD 250 million.
• XYZ had multiple banking relationships with a public sector bank and a private sector bank to fulfil its financing, treasury, cash management & investing needs.
• Since XYZ had an old relationship with its banks, they fully trusted the banks on the spreads, margins and charges levied by them.

Challenge and Observation

Long Standing Relationship: Difficulty in overcoming XYZ’s faith on its banks since it regarded alternate suggestions with scepticism.

Observation: In the absence of any negotiations made by XYZ in its dealing with banks, IFA Global observed a wide scope for reductions and improvements in its banking costs and operations.

Process

• IFA performed a detailed check for historical & current transaction costs levied, and the FX margins charged by each of XYZ’s banks.
• This was compared to industry & banking standards which provided us a basis for negotiation.
• Next, we analysed the findings made above and compared it to our Banking Standard Charge (BSC) Sheet for assessing the deviations which helped us gauge the efficiency of their banks’ rates compared to other banks operating in similar industries.
• The negotiation process was initiated to reduce inter-bank FX rates & transaction charges.
• We performed various live checks and analysed the style of booking of the treasury to eliminate vague charges.

Outcome

By following IFA Global’s recommendations , A Ltd.:

• The above processes yielded benefits of approx 0.5% (i.e. INR 87.5 mn) which were a direct addition to the bottom-line of XYZ and increased its EBITDA by 8%.
• These benefits would perpetually accrue for XYZ.
• The bank charges were reduced and larger FX profits were generated because of higher FX margins.
• We conducted this check periodically to ensure accuracy & consistency.
• This entire practice helped set up an efficient banking system.