The globalization has intensified the activities in the international bank market to a very large extent.
The competition has increased manifold and each bank is in search of mean to differentiate itself from the others. Similarly domestic banks in developing countries are striving to sustain in the market.
Banks in the international arena are playing an important role in bringing various sectors together. They are bridging the gap between the lenders and borrowers in a more effective manner and are participating in enhancing the world’s output.
Banks also need certain regulations to guide them.
Greater domestic and foreign competition can lift the efficiency of local banks and other financial institutions. This is a development to manage, but not to impede.
Supervisory oversight also needs to continuously evolve to keep pace with market changes. Basel II is an important step in this direction.
Finally, accounting standards need, as far as possible, to become more harmonized internationally.
INTRODUCTION The emphasis is on the theory and practice of international banking, because of its critical importance in the modern banking framework. International banking is not a new phenomenon; international bank activity can be traced back to as early as the 13th century.
In this topic we
understand the difference between Indian banking and international. International banking helps us to know how important international banking for the progress of India and also for the counter. It is one of the most important factors responsible for economic growth of the nation. Banks in many nations have internationalized their operation since 1970. The quantum of operation has increased in such a manner that the concept evolved into a subject in itself. The term multinational banking signifies the presence of banking facilities in more than one country. Aiber has defined International banking as a subset of commercial banking transactions and activity having a cross border or cross currency element. Domestic operation such as the currency of denomination of the transaction, the residence of the bank customer and location of the banking office the range of transactions comprised by International banking can be easily distinguished. A deposit or a loan transacted in local currency between a bank in its home country and a resident of that same country is termed as pure domestic banking.
BRIEF HISTORY The origin of international banking dates back to the second century BC when Babylonian temples safeguarded the idle funds and extended loans to merchants to finance the movements of goods. The loans extended by the Florentine banking houses were the first instance of international lending by the prerunners of the modern banks to the forerunners of the modern governments. During the nineteenth century many innovations were witnessed in the international lending, leading to trade financing and investment banking. Trade financing started as short term lending. Of the two investments banking accounted further great bulk of the international lending and financial companies acted as agents or underwriters for the placement of funds and thus originated the concept of “Capital Markets”. By 1920, American banking institutions dominated international lending, and the European nations were the major borrowers. There was perfect international banking system existing till the time of First World War. The Bretton system had installed a secured financial framework and revolutionized the economic life by creating a global shopping center. International banking speeded up after the first oil crisis in 1973. Progress in the telecommunications sector across the world supplemented the growth of international banking.
REASONS FOR THE GROWTH OF INTERNATIONAL BANKING There are number of explanations or theories provided to support the growth in international banking operations. International banking theories explain the reasons behind the banks choice of a particular location for their banking facilities, maintaining a particular organizational structure, and the underlying causes of international banking. Certain theories are as such:• Follow the leader, explanations suggests that banks expand across national borders to continue to serve customers by establishing branches or subsidiaries abroad. • Expansion abroad has a pervasive effect on competition. • Banks use management technology and marketing know how developed countries for domestic uses at very marginal cost abroad. • Eletic theory of productions says that, banks can take ownershipspecific and location-specific advantages while operating abroad. • Market imperfections due to domestic rules, regulations and taxations along with the drastic reduction in the cost of communications prompt the banks to set up operations abroad. • Intercountry differences in the cost of capital attract banks to set up their operations in different countries. • The multi-lateral system of payments came into existence after the creation of the IMF and the World Bank. Resources were new raised 4
through financial markets for financing the development projects in member countries. Effectively it was the commercial banks which mobilized savings and channelized them to these institutions for development use. • With the introduction of the flexible exchange rate system, exchange rates were determined by market demand- supply forces. Since all transactions went through the banking system involved with International Banking were ideally placed to establish the demand supply equilibrium. The role of establishing exchange rate was therefore transferred from central banks to commercial banks.
CHARACTERISTICS AND DIMENSIONS Though international banking concept is quite old, it has acquired certain new characteristics and dimensions. The number of participants, which at the beginning of the period were mainly American banks, has widened to include German, UK, Japanese, and French and Italian banks. Nearly three quarters of the deficit of less developed countries are financed by commercial banks operating internationally. The maturities have risen considerably and now the average maturities are about ten years. Banks have started diversifying their sources of funds along with the assets. Apart from the above, two novel kinds of overseas bank operations characterized international bank expansion in the late 1960s and 1970s. i)
A multinational consortium bank, was created by several established by parent banks, and
The shell branch, which is not really a bank but a device to get around the domestic government regulation, was created.
RECENT TRENDS • In the past two decades, people around the world have come across complex developments in the financial sector which have evolved gradually. • The increasing domination of securities of markets by financial institutions managed by professional bankers has led to the institutionalization of markets. Globalization has affected the financial markets in the world almost entirely. •
Foremost among the global trends in the world’s financial industry are consolidation and convergence. These two encompass financially driven mergers within domestic market.
TABLE 1 CAUSES OF GLOBALISATION
GLOBALISATION DEREGULATION ABROAD
ALTERNATIVES FOR CLINTS
SUCCESS OF EURO-MARKETS
INTEGRATION OF MARKETS
NEED FOR LARGER FIRMS
FEATURES OF INTERNATIONAL BANKING International banks are organized in various formal and informal ways from simply holding account with each other to holding common ownership. i)
CORRESPONDENT BANKING – This represents an informal linkage between banks and its customers in different countries. The linkage is setup when banks maintain correspondent accounts with each other and facilitates international payments and collections for customers.
BANK AGENCIES – The agencies mostly deal in the local currency markets and in the foreign exchange markets, arrange loans and clears cheques.
FOREIGN BRANCHES – These are operating banks and are subject to local banking rules and the rules at home. These branches most of the time offer quality services and safety that are provided by a large bank to the customers in small countries.
INTERNATIONAL PRIVATE BANKING International private banking consists of banking services primarily provided for non-residents. It differs in the priorities given to the clients. Investment options for the clients include: • Equity portfolio management • Fixed income portfolio • Balanced portfolio • Offshore mutual fund, and • Short-term Portfolio Management. Private international banks also provide wide ranging personal services for international clients on similar lines as those provided for domestic clients. The globalization has intensified the activities in the international bank market to a very large extent. The competition has increased manifold and each bank is in search of means to differentiate it from the others. Similarly domestic banks in developing countries are striving to sustain in the market. Banks in the international arena are playing a vital role in bringing various sectors together. Banks also need certain regulations to guide them.
WHAT YOU NEED TO KNOW ABOUT INTERNATIONAL BANKING? In order to be a success in your export activities, you need to know how to finance your import or export and how to get paid, especially when dealing in foreign currencies. Your banker can and should be a key member of your advisory team. Finding a bank that is comfortable and proficient in providing the various products and services required by exporting and importing firms is becoming easier as international sales become more and more common. The expansion of the internet and the advent of e-banking are also helping to increase the number of banks that companies can work with for their international banking requirements.
I. INTERNATIONAL BANKING (WITH CASE STUDY OF UCO BANK) UCOBANK has international presence for over 50 years now. UCO presently has four overseas branches in two important international financial centres in Singapore and Hong Kong and representative office at Kuala Lumpur, Malaysia. The international linkage from India is supported by a large Indian network through Integrated Treasury Branch, International Banking Branches and Authorized Forex Branches. UCO Bank’s other branches in India also provide international banking facilities through the Authorized Branches of UCO bank.
LIST OF AUTHORISED FOREIGN EXCHANGE BRANCHES SL. NAME OF BRANCH
Treasury Branch, Mumbai
D. N. Road, Mumbai
Nariman Point, Mumbai
Church Gate, Mumbai
13. Jubilee Hills
14. International Banking Branch- Chennai Chennai 15. Mount Road
18. Pondicherry Main
19. International Banking Branch,
Kolkata 20. Park Street, Kolkata
21. Johar Bazar, Jaipur
22. M. I. Road, Jaipur
23. M. G. Road, Ernakulam
26. Cochin Main
27. Parliament Street, New Delhi
28. Nehru Place, New Delhi
29. Defence Colony, New Delhi
30. Sector 17B, Chandigarh
32. Civil Lines, Ludhiana
33. Jalandhar City
35. Shimla Main
37. Silpukhuri, Guwahati
42. Ashok Market, Bhubaneswar
43. Nehru Park, Jodhpur
47. Moradabad Main
48. Arera Colony, Bhopal
49. New Palasiya, Indore
50. Cooch Behar
51. Ashram Road, Ahmedabad
This international network is further augmented by correspondent arrangements with leading Banks at all important world centre’s in various countries. Thus UCO has a true global presence and can offer a variety of international banking products, services and financial solutions to all crosssections of clients, tailor-made to their banking requirements through one of the best international banking relationship networks both in terms of strength and spread.
1. PRODUCTS & SERVICES: The international banking services in India is provided for the benefit of Indian customers, corporate’s, NRIs, Overseas Corporate Bodies, Foreign Companies/ Individuals as well as Foreign Banks etc. by UCO Banks International Banking Branches, Authorized Forex Branches and Integrated Treasury Branch. Other branches in India also provide international banking facilities through the aforesaid network of UCO Banks branches. All the facilities are subject to the prevalent rules & guidelines of the Bank and RBI. Brief details of services provided are as under:1.
NRI Banking (Please visit NRI Corner)
Foreign Currency Loans
Finance/Services to Exporters
Finance/Services to Importers
Forex & Treasury Services
Resident Foreign Currency (Domestic) Deposits
Correspondent Banking Services
All General Banking Services (Please visit Domestic Banking Sections)
DEPOSIT SCHEMES FOR NRI's Foreign Currency Non resident (FCNR-B) Deposits: Customer’s overseas earnings remain fully repatriable in an FCNR (B) Deposit account with UCO bank. •
The principal amount and interest earned are fully repatriable. •
The Deposit is exempted from Indian Wealth tax. Interest is exempted from Indian Income tax. •
Choice of Currency
Place your deposit in any of the six international currencies USD, GBP, Euro, JPY, AUD & CAD. For deposit at any of our authorized branches in India, please remit money to our Treasury Branch Mumbai accounts with full details. •
Remit in any Currency
Customers can remit in any convertible currency. UCO Bank shall convert it in any of the above six currencies of your choice. During the customers visit to India the customer may also tender foreign currency notes/travelers cheques to UCO banks branches. 16
Minimum & Maximum Amount
There is no upper ceiling; customer can put any amount in these deposits. The minimum amount for each currency is: USD 2,000 or its equivalent in any of the hard currencies. •
Earn Attractive Interest
Large Number of Branches to choose from
Pease check the list of UCO Banks branches spread across India accepting FCNR Deposits. •
Choose the Term of Deposit
From a minimum period of 12 months to a maximum period of 60 months, customer has the choice of keeping the deposit with the bank. Bank also allows the customer the flexibility of closing the customers Fixed Deposit account before the due date but the interest rate payable will be subject to a penalty of 1%. Customers deposit should have run for a minimum period of one year to be eligible for interest. •
Customers deposits are automatically renewed on maturity for the same tenure in case no other instructions are received before due date. •
Customer can open a joint account with the bank with other Non-Resident Indian(s). •
Power of Attorney (P/A)
P/A to Residents permitted for local disbursements only. •
Customer can register nomination for this Account. Nomination Form •
Loans available against FCNR deposits
Banks offer Rupee as well as Foreign Currency Loans in the currency of Deposit against security of your FCNR Deposits in UCO banks authorized branches in India. The overseas branches also offer foreign currency loans against these deposits, subject to rules, if any, applicable in that country.
2) RESIDENT FOREIGN CURRENCY (RFC) DEPOSITS: Returning Indians for permanent settlement, after staying abroad for not less than one year, can •
Retain their savings in foreign currency in a RFC account
with UCO •
Get the proceeds of FCNR (B)/NRE Deposits credited to
this account •
Permitted for bonafide purposes for self & dependents including exchange required for travel, other personal purposes and investments. •
Conversion into FCNR (B)/NRE
On becoming an NRI again, customers can transfer these funds into an FCNR (B) or NRE account. •
Choice of Currency
Place the deposit in any of the six international currencies USD, GBP, Euro, JPY, CAD and AUD. •
Remit in any Currency
Customers can remit in any convertible currency. Bank shall convert it in any of the above six currencies of your choice. •
Earn Attractive Interest
3) NON RESIDENT EXTERNAL (NRE) DEPOSITS : NRE deposits can be placed with us in following a/cs Savings Bank A/c – at present interest rate is 3.5%. Fixed Deposit A/c – at following interest rates For creation of NRE deposits, remittances from abroad should be made to us in convertible rupees or in any hard currencies like USD, GBP, EUR and JPY etc. Above deposits are repatriable in any currency 19
4) NON RESIDENT ORDINARY (NRO) DEPOSITS: NRO account may be opened in the following manner: Where an Indian citizen having a resident account leaves India and becomes non-resident, his resident account should be designated as NRO account. Where non-resident Indian receives income in India, he can open a NRO a/c with such funds. NRO a/c may also be opened by foreign exchange remitted through normal banking channels. All types of a/c like SB, CD and all term deposits as applicable to domestic deposits can be opened Interest rates are as per domestic deposits. Interest is taxable. Rupee Deposits - HIGHLIGHTS •
Type of Accounts
You can open Savings Bank, Current, Recurring and Fixed Deposit accounts with us. •
For our Indian branches accepting Indian Rupee NRE Deposits, please get in touch with NRI Relationship Centre at our Head Office or the respective Regional Offices of your choice. •
We offer attractive rate of interest on your deposits. •
Remit in any Currency
For NRE accounts you can remit in any convertible currency. We shall convert it in Indian Rupees. •
Joint Accounts, Power of Attorney, Nomination
NRE Accounts – Same as in case of FCNR (B). NRO Accounts – Joint accounts with residents permitted, Nomination facility available.
REMITTANCE TO INDIA Remit through us EITHER to your own account with us or any other bank OR to your near and dear ones. We offer an efficient, easy and convenient channel to transfer money back home in any corner in India. Through our Overseas Branches Just walk in to any of our branches in Singapore and Hong Kong or call them for assistance. • Through our Accounts with Correspondents •
The most convenient way of remitting the money from any part of the world is a direct credit into UCOBANK Treasury Branch Mumbai Account with correspondents.
We have correspondent arrangements worldwide. The details of our Treasury Branch Mumbai accountsin six major currencies are placed on the web for your convenience. Just send full remittance instructions to your bank for a direct credit into our Treasury Branch Mumbai Account with correspondents. Through Drafts/Cheques Send your Bank Drafts or Cheques to any of our branches in India with full particulars of remittance/beneficiary.
If you are remitting from Singapore or Hong Kong, avail the facility of remittance provided by our overseas branches. 1. LOANS TO NRIs Against Deposits Bank gives loans against NR deposits to NRI deposit account holder and third parties in Indian Rupees. Bank gives loans against FCNR (B) deposits to NRI deposit account holder in foreign currency in India. This facility is available at our overseas branches, subject to local directives, if any in that country. NRI Home Loans Bank has attractive schemes to accommodate the housing needs of NRIs. 1.
Loans for Residential Property NRIs can avail of loans for i.
Purchase of a residential flat or residential house
Extension of a residential flat or residential house
Renovation of a residential flat or residential house
Loan for Plot of Land for residential use
NRIs can avail of loans for purchase of a residential plot of land for residential use. 3.
Loans against existing residential property
NRIs can avail of loans by mortgaging an existing residential property for any of the following purposes. The loan shall be utilised for meeting the borrower's personal requirements or for his own business purposes. Education Business Medical treatment Prohibition: The proceeds of rupee loan should not be utilised for any of the following activities: i.
Agricultural or plantation activities or in real estate
or Rights or
Investment in capital market including margin
trading and derivatives.
2. FOREIGN CURRENCY LOANS a) In India (FCNR 'B' Loans): The foreign currency denominated loans in India are granted out of the pool of foreign currency funds of the Bank in FCNR Deposit etc. accounts as permitted by Reserve Bank of India. These loans are commonly known as FCNR Loans.UCO has a broad base of NRI customers/depositors. Therefore, with the resource base of FCNR deposits etc. UCO is in a position to offer the Foreign Currency Loans in India to our customers as an alternative to loans in Rupees. These loans are denominated in foreign currency such as US Dollars and are offered as short term loans. The interest is fixed with a reasonable spread over LIBOR UCO also allows loans in foreign currency to NRIs against their FCNR Deposits at the Indian Branches. The details are available in NRI banking section. b) From Outside India: With presence at two major financial centers of the world, UCO has foreign currency resources to arrange /grant Foreign Currency Loans to Indian as well as multinational corporate’s at the competitive rates.The foreign currencies denominated loans are granted by our overseas branches to Indian Corporate’s as per External Commercial Borrowing (ECB)Policy of Govt.ofIndia/RBI.
3. FINANCE/SERVICES TO EXPORTERS UCOGOLD CARD FOR EXPORTERS UCO launches Gold card for creditworthy exporters - Simplified access to export credit on very good terms: Better terms of credit including rates of interest than those extended to other exporters by the Bank. Processing of applications for credit faster than for other exporters.Simpler norms, subject to specific requirements in each case, if any. 'In-principle' limits for a period of 3 years with a provision for automatic renewal, subject to fulfillment of the terms and conditions of sanction. Preference for grant of packing credit in foreign currency (PCFC), subject to availability of foreign currency funds. Lower charges schedule and fee-structure than those provided to other exporters. Relaxations in the norms in respect of security and collaterals, wherever feasible. Other facility/benefit to the exporters, subject to the fulfillment of extant rules and regulations applicable to export finance.
TYPES of FACILITIES FOR EXPORTS a) Rupee Export Credit (pre-shipment and post-shipment): UCO provides both pre and post shipment credit to the Indian exporters through Rupee Denominated Loans as well as foreign currency loans in India. Credit facilities are sanctioned to exporters who satisfy credit exposure norms of UCO. Exporters having firm export orders or confirmed L/C from a bank are eligible to avail the export credit facilities. Rupee export credit is available for a maximum period of 180 days from the date of first disbursement. In deserving cases extension may be permitted within the guidelines of RBI. The corporate’s may also book forward contracts with UCO in respect of future export credit drawls, if required, as per the guidelines/directives provided by RBI. b) Pre-shipment Credit in Foreign Currency (PCFC): UCO offers PCFC in the foreign currency to the exporters enabling them to fund
requirements. These loans are available at very competitive international interest rates covering the cost of both domestic as well as import content of the exports. The corporate’s /exporters with a good track record can avail a running account facility with UCO for PCFC. PCFC in foreign currency is available for a maximum period of 180 days from the date of first disbursement similar
In the PCFC drawls permitted in a foreign currency other than the currency of export, exporter bears the risk in currency fluctuations. The foreign currency drawls are restricted to major currencies at present. In case, the export order is in a non-designated currency, PCFC is given in US$. For orders in Euro, Pound Sterling and JPY, PCFC can be availed in the respective currencies or US$ at the choice of exporter. Multi-currency drawls against the same order, are not permitted at present due to operational inconvenience. Repayment: PCFC is to be repaid with the proceeds of the export bill submitted after shipment. In case of cancellation of export order, the PCFC can be closed by selling equivalent amount of foreign exchange at TT selling rate prevalent on the date of liquidation. The PCFC in foreign currency are granted at our various branches through our Integrated Treasury Branch in Mumbai. c) Negotiation of Bills under L/C: UCO's International Banking Branches and Authorized Forex Branches are active in negotiation/discounting of sight /usance international export bills under L/Cs opened by foreign banks as well as branches of Indian banks abroad. UCO offers the most competitive rates. These
Bank/Country Exposure ceilings prescribed by UCO. 28
d) Export Bill Rediscounting: UCO provides financing of export by way of discounting of export bills, as post shipment finance to the exporters at competitive international rate of interest. This facility is available in four currencies i.e. US$, Pound Sterling, Euro
The export bills (both Sight and Usance) drawn in compliance of FEMA can be purchased/ discounted. Exporters can avail this facility from UCO to cover the bills drawn under L/C as well as other export bills. e) Bank Guarantees: UCO, on behalf of exporter constituents, issues guarantees in favor of beneficiaries abroad. The guarantees may be Performance and Financial. For Indian exporters, guarantees are issued in compliance to RBI guidelines.
4. FINANCE/SERVICES TO IMPORTERS a) Collection of Import Bills: UCO has correspondent relationship with reputed International Banks throughout the world and can thus provide valuable services to importers who may be importing from any part of the Globe. The import bills are collected by our International Banking Branches and Authorised Forex Branches at very competitive rates. The import bills drawn on customers of other branches are also collected through these branches. b) Letter of Credit: On account of UCO's presence in international market for decades, UCO has established itself as a well known international bank. L/Cs of UCO are well accepted in the International market. For any special requirement UCO can get the L/C confirmed by the top international banks. Thus UCO's L/C facility for the purchase of goods/services etc. fulfills the requirements of all importers to arrange a reliable supply. UCO offers this facility to importers in India within the ambit of FEMA and Exim policy of Govt. of India. UCO uses state of the art SWIFT network to transmit L/Cs and with a worldwide network of correspondents and our overseas branches facilitates prompt & efficient services to the importers. L/C facility is granted to the importers on satisfying credit exposure norms of the Bank.
c) Financing of import: Usance L/C facility UCO's Usance L/C facility provides the importer an opportunity to avail credit from their supplier/supplier's bank. Deferred Payment Guarantee/Standby LC UCO's Deferred Payment Guarantee/Standby LC facility also provides the importer an opportunity to avail credit from their supplier/supplier's bank. Foreign Currency Loans Short term External Commercial Borrowings or Trade Credits for less than three years as permitted by RBI for imports into India is allowed by our overseas branches to Indian importers at very competitive rates. These are generally backed by L/Cs opened by importer's bank. Indian importers can also avail this facility from our overseas branches as roll-over credit on their bank agreeing to extend the L/C in favor of our overseas branches. d) Bank Guarantees: UCO, on behalf of importer constituents or other customers, issues guarantees in favor of beneficiaries abroad. The guarantees may be both Performance and Financial.
5. REMITTANCES UCO, through its worldwide network of correspondents, Indian branches and overseas branches, offers prompt inward and outward foreign remittance facilities at very competitive rates. The use of SWIFT network adds to reliability and efficient handling. The remittances are handled by our International Banking Branches and Authorized Forex Branches. The outward remittances of customers of other branches are also remitted through these branches. Through our wellspread network of branches in India, inward remittances reach every nook & corner in India. UCO has tie-up arrangements with Western Union Money Transfer.
6. FOREX & TREASURY SERVICES UCO operates in the Forex Market in India as well as abroad. In India the inter-bank forex operations is centralized at our Integrated Treasury Branch in Mumbai, country's undisputed financial hub. UCO's International Banking Branches
transactions. The forex requirements of customers of other branches are also routed through these branches. Overseas branches undertake the forex treasury operations in Singapore and Hong Kong centre. All the forex treasuries are equipped with state of art technology and professionally skilled staff to handle forex treasury operations efficiently.
UCO deals in all the important international currencies. Our Forex Treasuries generally undertake the following treasury related activities:Forex Inter Bank Placements/Borrowings Sale & Purchase of currency on behalf of customers Forward Cover Bookings Cross Currency Swaps Interest Rate Swaps (IRS) Forward Rate Arrangements (FRAs) Forex Money Market Operations 33
FOREX SERVICES FOR CORPORATES To improve the standard of service to the valued clientele, UCO has integrated its Forex and Domestic Treasury Operations under one roof in Mumbai. UCO's Forex Inter-bank desk at Treasury Branch is an active market player. UCO's integrated operation at one place in Mumbai enables it to participate in inter-bank transactions on a large scale. Forex Dealing Rooms in Singapore and Hong Kong and a worldwide network of correspondents add to UCO's strength in providing the best forex corporate services. International Banking Branches and Authorized Forex Branches spread across the country cater to needs of all customers in foreign exchange. Corporate Forex Services include Foreign Currency Sale & Purchase, Forward Booking, and Cross Currency Forward etc. Other products like Collection & Negotiation of Export & Import Bills under LC, LC Issuance, Advising & Confirmation Services, Arrangement of Trader Credits, the guarantees on behalf of Indian Corporate/Projects, EEFC Accounts, and Remittance etc. are all available to corporate customers from UCO. UCO is establishing a Derivative Desk in India to offer various Derivative Products, such as IRS, FRA, Cross-currency Options, and Currency Swaps with Cross-currency Interest Rate Swap etc. With this UCO will also offer structured products suitable for Corporate’s who have large receivables or payment obligation in foreign currencies. Derivative Desk will deal in
hedging products to hedge the market risks i.e. interest rate risk and foreign exchange risk in Bank's balance sheet. 7. RESIDENT FOREIGN CURRENCY (DOMESTIC) A/Cs UCO also offers Resident individuals in India, the facility to open noninterest bearing current account in foreign currency at the selected Indian branches as permitted by RBI. A joint account with a resident eligible to open RFC (D) account is permissible. Nomination facility is also permitted. Thus UCO will provide an option to resident individuals to retain their receipts from abroad in foreign currency as permitted by RBI. 8. CORRESPONDENT BANKING SERVICES The extensive network of branches in India and presence in two important international centre’s enables UCO to offer correspondent banking services to the banks. The International Banking Branches and Authorized Forex Branches in India as well as our overseas branches are capable of providing the services that an international correspondent Bank can offer. UCO can provide the following main services:i) Collection of bills both Documentary and Clean. ii) Advising/confirming of L/Cs opened by banks iii) Discounting of Bills drawn under L/Cs 35
iv) Maintenance of foreign currency accounts in S$ and HK$ v) Maintenance of Rupee accounts in India vi) Making foreign currency payments/remittance on behalf of customers of banks. UCO's excellent service with competitive charges provides a good Correspondent Banking solution. UCO's overseas branches are active in discounting of usance international trade bills. With foreign currency resources of overseas branches, UCO offers the most competitive rates for discounting of these bills. The bills under the L/Cs of the most of the Indian Banks as well as International Banks are also discounted at competitive rates. These transactions are undertaken by them within the Bank/Country Exposure ceilings prescribed by UCO.
EXTERNAL COMMERCIAL BORROWING (ECB) The foreign currency loans to the Indian corporate are granted by UCO's overseas branches. The borrowings raised by the Indian corporate from specified banking sources outside India are termed "External Commercial Borrowings" (ECBs). These ECBs can be raised within the Policy guidelines of Govt. of India/Reserve Bank of India, as applicable from time to time. ECB includes the following:i) Commercial Loans ii) Syndicated Loans iii) Floating/Fixed rate notes and bonds iii) Lines of Credit from foreign banks and financial institutions iv) Import loans, loans from the export credit agencies of other countries. UCO is very active in granting and arranging various forms of ECB facilities for the Indian Corporate. UCO can offer following services to the Indian corporate’s in respect of cross border financing:i) Arranging/granting External Commercial Borrowings by way of Foreign Currency Loans, FRNs, and Bonds for the Indian corporate’s. ii) Arranging/underwriting International Syndicated Loans for the Indian corporate’s. iii) Participating in the International Loan Syndications. 37
iv) Granting loans backed by Export Credit Agencies. v) Providing import finance for Indian Corporate’s. vi) Issue of Guarantees such as Bids, Bonds, Performance, Advance Payment etc. for the overseas projects bagged by the Indian Corporate’s.
TELE- BANKING The Bank has planned to provide tele-banking facility to its valued clients in some select branches to start with, which will be gradually extended to more number of branches. Besides facilitating balance enquiry, customers will be able to requisition Statement of Account by fax as well as place requests for issuance of cheque books. Enquiries on latest Interest Rates on deposits as also last five transactions in the account can also be made. Instructions to stop payment too can be given by the customer through this facility of tele-banking.
STATE BANK OF INDIA (CASE STUDY) International Banking services of State Bank of India are delivered for the benefit of its Indian customers, non-resident Indians, foreign entities and banks through a network of 67 offices/branches in 29 countries, spread over all time zones. The network is augmented by a cluster of Overseas and NRI branches within India and correspondent links with over 522 banks, the world over. Bank's Joint Ventures and Subsidiaries abroad further underline the Bank's international presence. The Bank has carved a niche for itself in the Euro land with branches located in Antwerp, Paris and Frankfurt. Indian banks and corporate’s are able to avail single-window Euro services from the Bank's Frankfurt branch. These services include:39
A. TRADE FINANCE Trade finance includes gamut of services which include credit for both pre shipment and post shipment activities. These primarily include: Export Avenue
PRE-SHIPMENT EXPORT CREDIT:Pre- Shipment credit (Packing Credit) is extended to the exporters for financing purchase, processing, manufacturing or packing of goods prior to shipment. This would mean any loan or advance can be extended by SBI on the basis of: a) Letter of Credit opened in the favor of the customer or in favor of some other person, by an overseas buyer b) A confirmed and irrevocable order for the export of goods from India c) Any other evidence of an order or export from India having been placed on the exporter or some other person, unless lodgment of export order or Letter of Credit with the bank has been waived. 40
Packing Credit is granted for a period depending upon the circumstances of the individual case, such as the time required for procuring, manufacturing or processing (where necessary) and shipping the relative goods. Packing credit is released in one lump sum or in stages, as per the requirement for executing the orders/LC. The pre-shipment / packing credit granted has to be liquidated out of the proceeds of the bill dawn for the exported commodities, once the bill is purchased/discounted etc., thereby converting pre-shipment credit into post-shipment credit.
POST-SHIPMENT EXPORT CREDIT:SBI extend Post-shipment Credit that is any loan / advance granted or any other credit provided by SBI for purposes such as export of goods from India. It runs from the date of extending credit, after shipment of goods to the date of realization of export proceeds and includes any loan / advance granted on the security of any duty drawback allowed by the Govt. from time to time. Post-shipment credit has to be liquidated by the proceeds of export bills received from abroad in respect of goods exported. The exporter has the following options at post-shipment stage: i. To get export bills purchased /discounted / negotiated; ii. To get advances against bills for collection;
iii. To receive advances against duty drawback receivable from Govt. The exporter has the option to avail of pre-shipment and post-shipment credit either in rupee or in foreign currency. However, if the pre-shipment credit has been availed in foreign currency, the post-shipment credit has necessarily to be under EBR Scheme since foreign currency pre-shipment credit has to be liquidated in foreign currency.
Pre Shipment Credit in Foreign Currency (PCFC) SBI‘s Pre-shipment Credit in Foreign Currency (PCFC) facilitates funds in foreign currency. SBI’s PCFC gives the choice of four different currencies in which to operate the scheme - the US Dollar, Pound Sterling, Euro and the Japanese Yen. SBI has 64 branches across the country handling the PCFC facility for the customers’ exclusive convenience. The Bank’s Foreign Department, based at Calcutta, is the nodal centre for raising and deploying offshore and onshore funds for lending under PCFC.
How do the schemes operate? PCFC & EBR schemes go hand in hand. The operation of these schemes is in three stages, viz. i) Disbursement of PCFC 42
ii) Disbursement of EBR and simultaneous repayment of PCFC and iii) Repayment of EBR. When the exporter has sufficient drawing power available within his overall limit to accommodate the proposed PCFC advance, PCFC is made available to him either in foreign currency for payment of his import bills or in Indian rupees for purchase of domestic raw material by converting the foreign currency of PCFC at T.T. Buying rate. PCFC is operated like cash credit account with balances in foreign currency. The liability of the exporter to the Bank on account of PCFC is in foreign currency. The rupee equivalent will be shown in the account only at notional rates which really doesn't concern the exporter. Interest on PCFC will be arrived in foreign currency and the rupee equivalent thereof will be recovered at quarterly intervals from the exporter's CC or Current account.
Export Bill Rediscounting The EBR advance which is a foreign currency loan will be eventually closed when the overseas buyer pays the bill and the export proceeds are realized.
LETTER OF CREDIT
SBI offers Letters of Credit to facilitate purchase of goods in international trading operations. The bank's vast network of branches and correspondent banks enables one’s enterprise to sustain a seamless flow of business on a wide platform. Further, the bank's informed trade finance crew can provide 43
with sophisticated credit and trade information, and market knowledge, helping to extract more value from business. Since the Bank establishing the Letter of Credit undertakes the responsibility of honoring the drafts drawn there under, the ability of the importer to meet its obligation, the integrity of the exporter, the nature of goods, besides observance of Exchange Control regulations etc. are considered.
IMPORT AVENUE Foreign Currency import credit This facility is ideal for both Indian importers and their foreign suppliers. SBI offers credit to foreign suppliers of Indian importers by purchasing the import bill for its full value through one of the bank's overseas offices. The tenor of this form of supplier's credit does not exceed 180 days. The supplier gets 100 per cent of the invoice value immediately, making his deal practically a cash sale. Importers get credit for a maximum period of 180 days, enabling them to manage their liquidity better. Further, their interest payables could be lower since international interest rates are currently lower than domestic rates. These facilities are useful for import by sellers in the domestic market as well as export-related import.
Supplier's credit 44
Suppliers' Credit essentially represents credit sales affected by the supplier on the basis of accepted bills or promissory notes with or without a collateral security. Any credit facility arranged with recourse to the supplier for financing upto 180 days import into India which is not backed up in the form of any letter/document/guarantee/agreement, etc. issued by the LC opening banks or in any other manner except normal routine commercial transactions like an LC, can be treated as a suppliers' credit. The underlying commercial contract between the exporter and the Indian importer should provide for drawing of usance drafts with an upper cap of 180 days on the usance period. When documents under such usance LCs are discounted by our foreign offices and other banks, it is not based on any mandate/letter of comfort/guarantee given by the LC opening bank in India either on their own behalf or at the instance of the importer, i.e.. the buyer of goods. Indian importers are free to enjoy a credit period of 180 days on their imports from the date of shipment provided interest for the period does not exceed the prime rate for the currency in which the goods are invoiced. Prior approval of RBI/GOI was required for exceeding this time limit, till September 2002. With a view to simplifying the procedure for imports into India, RBI, in September 2002, decided that the Authorized dealers may approve proposals received in form ECB for short term credit for financing, by way of Suppliers' Credit, of import of goods into India, provided.
The credit is being extended for a period of less than 3 years. The amount of credit does not exceed USD 20 million (approx. Rs. 94 crores now) per import transaction. The 'all-in-cost' per annum, payable for the credit does not exceed LIBOR + 50 basis points for credit up to one year and LIBOR + 125 basis points for credit for periods beyond one year but less than three years.
B. CORRESPONDENT BANKING The Correspondent Banking Division develops and maintains relationship with
network Correspondent Banks forms the foundation for all international operations of SBI. SBI has correspondent banking relations with around 522 leading banks worldwide. The Rupee Vostro accounts of International Banks and Institutions are maintained and serviced at SBI’s International Services branch (ISBM) at Mumbai and at Overseas Branches at Kolkata (Calcutta), Chennai, Cochin, Bangalore and New Delhi. ACU accounts are also serviced at the overseas branches. C. MERCHANT BANKING SBI’s Merchant Banking Group is strongly positioned to offer perfect financial solutions to the respective business. It provides the resources, convenience and services to meet the needs of the customer by arranging Foreign Currency credits through: 46
• Commercial loans • Syndicated loans •
Lines of Credit from Foreign Banks and Financial Institutions
• FCNR loans • Loans from Export Credit Agencies • Financing of Imports.
Products and services include:1) Arranging External Commercial Borrowings (ECB) 2) Arranging and participating in international loan syndication 3) Loans backed by Export Credit Agencies 4) Foreign currency loans under the FCNR (B) scheme 5) Import Finance for Indian corporate D. PROJECT EXPORT FINANCE State Bank of India is an active participant in the area of finance of Project export activities. These activities will mainly involve financing the fund based and non fund based requirements of the project exporters. Project export contracts are generally of high value and exporters undertaking them are required to offer competitive terms to be able to secure orders from foreign buyers in the face of stiff international competition. SBI’s vast network of branches spread all over the country which are authorized to handle trade related transactions, substantial presence overseas with branches/offices in all major commercial centers of the world 47
covering all time zones and strong network of correspondent relationship with top ranking banks in several countries adds to the competitive strengths to facilitate and meet various requirements of project exporters.
Credit facilities offered:- Various types of credit facilities, both non fund and fund based that project exporters may need at the time of bidding and / or for execution of the project is extended by the Bank.
Non Fund Based Facilities Letter of Credit facility on behalf of our customer enabling him to import raw material required for manufacturing goods for project export is provided by the Bank and also all other following types of guarantees required for project export contract are issued by SBI: Bid Bond Guarantee Advance Payment Guarantee Retention Money Guarantee Maintenance Guarantee Overseas Borrowing Guarantee
Fund based facilities include:i) Pre-shipment credit both in Indian rupees and in foreign currency to extend financial assistance for procuring/ manufacturing/ processing/ packing/ shipping goods meant for export.
ii) Rupee/ Foreign currency supplier's credit: - When a project export is on deferred credit terms, we meet the financial requirement of our exporter in Indian rupees or foreign currency. iv)
Buyer’s credit: Bank also participates in grant of credit to foreign buyers under the Buyer’s Credit Scheme’ of Exim Bank.
E. EXPORTER GOLD CARD State Bank of India has launched "SBI EXPORTERS GOLD CARD SCHEME" to meet the working capital needs of exporters with good track record and credit worthiness, subject to their fulfilling the specified eligibility norms. The salient features of the scheme are as under: Assessment norms have been simplified and for units with export turnover up to Rs. 100 crore. Standby limit of 20% will be sanctioned to all the SBI Exporters Gold Card holders over and above the sanctioned limit to meet credit demands arising out of receipt of sudden orders. Limits sanctioned will be valid for a period of three years. Interest will be charged at concessional rate from the Gold Card holders. The present rate for Packing Credit up to 180 days and Post-shipment credit up to 365 days would be 3.75% below the Bank's benchmark Prime Lending Rate. Also, SBI Gold Card holders will be given preference for grant of packing credit in foreign currency. 49
International Credit/Debit cards and Internet Banking facilities shall be extended to the SBI Exporters Gold Card holders on priority basis.
F. OBU (OFFSHORE BANKING UNIT) State Bank of India has opened the first Offshore Banking Unit (OBU) in India at the Special Economic Zone, New Bank Building, Andheri (East) Mumbai 400,096 on 17th July 2003 - another landmark in the history of India's Financial Sector.
G.USA PATRIOT ACT CERTIFICATION Following the USA PATRIOT Act and the final rules issued by the U.S. Department of Treasury, Banks ("Foreign banks") are required to issue Certification to U.S. banks or broker-dealers in securities ("Covered Financial Institutions") with which they maintain Correspondent accounts. For this purpose and as permitted by the final rules, State bank of India has prepared a Certification for use by any financial institution that needs a USA PATRIOT Act Certification from State Bank of India or one of its branches. UCO Bank all set to slug it out news 18 June 2002 •
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MERCHANT RATES AND FEES WITH REGARDS TO INTERNATIONAL BANKING:A Merchant Account has a variety of fees, some periodic, others charged on a per-item or percentage basis. Some fees are set by the merchant account provider, but the majority of the per-item and percentage fees are passed through the merchant account provider to the credit card issuing bank according to a schedule of rates called interchange fees, which are set by Visa and MasterCard. Interchange fees vary depending on card type and the circumstances of the transaction. For example, if a transaction is made by swiping a card through a credit card terminal it will be in a different category than if it were keyed in manually.
DISCOUNT RATES The discount rate comprises a number of dues, fees, assessments, network charges and mark-ups merchants are required to pay for accepting credit and debit cards, the largest of which by far is the Interchange fee. Each bank or ISO/MLS has real costs in addition to the wholesale interchange fees, and creates profit by adding a mark-up to all the fees mentioned above. There are a number of price models banks and 51
ISOs/MLSs use to bill merchants for the services rendered. Here are the more popular price models:
3-TIER PRICING The 3-Tier Pricing is the most popular pricing method and the simplest system for most merchants, although the new 6-Tier Pricing is gaining in popularity. In 3-Tier Pricing, the merchant account provider groups the transactions into 3 groups (tiers) and assigns a rate to each tier based on a criterion established for each tier.
QUALIFIED RATES A qualified rate is the percentage rate a merchant will be charged whenever they accept a regular consumer credit card and process it in a manner defined as "standard" by their merchant account provider using an approved credit card processing solution. This is usually the lowest rate a merchant will incur when accepting a credit card. The qualified rate is also the rate commonly quoted to a merchant when they inquire about pricing. The qualified rate is created based on the way a merchant will be accepting a majority of their credit cards. For example, for an internet merchant, the internet interchange categories will be defined as Qualified, while for a physical retailer only transactions swiped through or read by their terminal in an ordinary manner will be defined as Qualified.
MID- QUALIFIED RATES Also known as a partially qualified rate, the mid-qualified rate is the percentage rate a merchant will be charged whenever they accept a credit 52
card that does not qualify for the lowest rate (the qualified rate). This may happen for several reasons such as: •
A consumer credit card is keyed into a credit card terminal instead of being swiped
A special kind of credit card is used like a rewards card or business card
A mid-qualified rate is higher than a qualified rate. Some of the transactions that are usually grouped into the Mid-Qualified Tier can cost the provider more in interchange costs, so the merchant account providers do make a markup on these rates. The use of "rewards cards" can be as high as 40% of transactions. So it is important that the financial impact of this fee be understood.
NON- QUALIFIED RATES The non-qualified rate is usually the highest percentage rate a merchant will be charged whenever they accept a credit card. In most cases all transactions that are not qualified or mid-qualified will fall to this rate. This may happen for several reasons such as: •
A consumer credit card is keyed into a credit card terminal instead of being swiped and address verification is not performed
A special kind of credit card is used like a business card and all required fields are not entered
A merchant does not settle their daily batch within the allotted time frame, usually past 48 hours from time of authorization. 53
A non-qualified rate can be significantly higher than a qualified rate and can cost the provider much more in interchange costs, so the merchant account providers do make a markup on these rates.
INTERNATIONAL BANKING- A SURVEY TWO DISTINCTS sets of issues are involved in the analysis of international banking; one set, the industrial organization issues, centers on the patterns of expansion of foreign branches and subsidiaries of banks headquartered in the United States, Great Britain, Japan and few other industrial countries and on the nature of the advantage that these branches and subsidiaries have in relation to their host country competitors. The second set, the international finance issues, involves the role of banks in cross-border and cross-currency financial flows, both from their head offices and from their foreign branches and subsidiaries. Despite the attention to international banking, there are few uniquely international institutions; rather international banks are a subset of domestic banks with significant numbers of foreign branches and subsidiaries. Moreover there are few uniquely international banking activities; although foreign exchange trading may seem to be one; in many countries most or all foreign exchange trading involves domestic banks with few if any foreign branches.
CONCLUSION Banks have influenced economies and politics for centuries. Historically, the primary purpose of a bank was to provide loans to trading companies. Banks provided funds to allow businesses to purchase inventory, and collected those funds back with interest when the goods were sold. For centuries, the banking industry only dealt with businesses, not consumers. Banking services have expanded to include services directed at individuals, and risk in these much smaller transactions is pooled. International banking has become an important aspect of world economy. It deals with various aspects of financial services. Banks offer many different channels to access their banking and other services. Though international banking concept is quite old, it has acquired certain new characteristics and dimensions. Now international banking has become a very important for international trading and financial transaction. Its importance is increasing through the globalization of world economy and we will see its benefits in the near future very soon.
1. BOOKSa) International Banking Finance - By ICFAI b) Merchant Banking - By K.C. Gupta
2. WEB SITESa) www.icfai.org b) www.google.co.in c) www.wikipedia.com
• Executive Summary
• Introduction to International Banking
International Banking with case study of UCO bank • Types of Facilities For Export
• Forex Services For Corporates
• TELE- BANKING •
International Banking with a case study of State Bank Of India • Pre-Shipment Export Credit