CAIIB – Super-Notes © M S Ahluwalia Sirf Business Corporate Banking Module A: Corporate Banking and Finance
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Corporate Banking
Module A: Corporate Banking and Finance
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
CAIIB – SUPER NOTES
Corporate Banking: Corporate Banking
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Contents
Coverage:
1. Introduction
2. Corporate Banking – Meaning
and Importance
3. Salary Payment
4. Debtors Management
5. Factoring and Forfaiting
6. Forfaiting
7. Trusteeship Services
8. Debenture Trusteeship
9. Security Trusteeship
10. Attorneyship
11. Custodial Services
12. Business Advisory
13. Offshore Banking Services
14. Forex Services
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
INTRODUCTION
1.
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Products
Asset Side Asset Side
• Deposit Accounts
• Cash Management Services
Liability Side Liability Side
• Working Capital Finance
• Bill Discounting
• Export Credit
• Short Term Finance
• Structured Finance
• Term Loans
Off Balance Sheet Services
Off Balance Sheet Services
• Letters of Credit
• Bank Guarantees
• Collection of Documents
Value Added Services
Value Added Services
• Loan Syndication
• RTGS
• Channel Financing
• Corporate Salary Accounts
• Bankers to rights/public issues
• Corporate Internet Banking
• Forex Desk
• Money Market Desk
• Derivatives Desk
• Employees’ Trust
• Tax Collection
• Payment Gateway Services
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
MEANING AND IMPORTANCE
2.
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Services Provided
1. Cash Management
2. Local and Upcountry Cheque Collections
3. Electronic Collections
1. RTGS
2. NEFT
3. ECS
4. “Payable at Par” Customer Cheques
5. Banker’s Cheques and Demand Drafts
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Difference b/w RTGS and NEFT/EFT
• RTGS is Real Time Settlement whereas in EFT/NEFT the
settlement is deferred
• RTGS is gross settlement system – transactions are settled on
one to one basis. In NEFT/EFT transactions are settled in
batches under Deferred Net Settlement System
• RTGS - min limit is Rs. 2 Lacs. No minimum limit in EFT/NEFT.
(RTGS – Real Time Gross Settlement)
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
ECS
• Electronic Clearing System
• Funds transfer from one bank to another using services of a
Clearing House
• Normally used for bulk transfers
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ECS Debit System
1. Single Credit – Multiple Debit
2. Requirements:
1. ECS Mandate
2. Mandate from beneficiary
3. Advantages:
1. To Banks:
1. Free of Paper Handling/Processing
2. To Clients:
1. Trouble Free: No need for physical visit to deposit instruments.
2. No loss of instrument or fraudulent encashment
3. Better cash management
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
ECS Credit System
1. Single Debit – Multiple Credit
2. Participants
1. ECS User
2. Sponsor Bank(User’s Bank)
3. Beneficiary/Destination Account Holder
4. Destination Bank(Beneficiary’s Bank)
3. Advantages:
1. To Banks:
1. Free of Paper Handling/Processing
2. To Clients:
1. Trouble Free: No need for physical visit to deposit instruments.
2. No loss of instrument or fraudulent encashment
3. No delay in realisation of proceeds
4. Saves on administrative machinery
5. Ability to make payment and ensure the beneficiary’s account gets credited on a designated date
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
“Payable at Par” Customer Cheques
• Facility of cheques payable at par for customers with bulk
cheque writing requirements
• Payment data taken directly from client’s accounting system in
a single file download and transmitted to the bank for
processing
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Banker’s Cheques and Demand Drafts
• Instructions can be given through bank’s internet banking
platform
• Payments can be made at bank’s branch locations and
through the correspondent bank network
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SALARY PAYMENT
3.
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Salary Payment
• Services to offer payroll solutions in a 24 x 7 environment
Benefits to Corporates Benefits to Corporates
•Efficient Salary Disbursal
•Web Upload
Benefits to Employees Benefits to Employees
•No minimum balance requirement
•Unparalleled Access
•At par cheque books
• International debit cum ATM cards
•Online Banking
•Depository Services
•Employee Reimbursement accounts
•Preferential pricing on loan products and credit cards and other products and services
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
DEBTORS MANAGEMENT
4.
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Services
• Receivables Management
– Collection Services
• Paper Collection: Local and outstation cheques
• Local/Outstation Clearing Solutions: Lodgment for clearing
• Updating of account receivables
– Invoice Management
– Accounts Receivable matching solutions
– Electronic Collections: Collection of receivables through funds
transfers and other electronic modes such as RTGS, NEFT etc
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Benefits to Clients
Reduced Collection cycle
Reduced Collection cycle
Quicker availability of clear funds
Quicker availability of clear funds
Zero Settlement Risk
Zero Settlement Risk
Elimination of float
Elimination of float
Certainty in funds receipt Certainty in
funds receipt Enhanced turnover Enhanced turnover
Paperless transactions
Paperless transactions
Reduced operational risk
Reduced operational risk
Faster realisation of receivables
Faster realisation of receivables
Savings in Interest costs
and bank charges
Savings in Interest costs
and bank charges
Online querying on receivables
Online querying on receivables
Automated bank reconciliation
Automated bank reconciliation
Outsourcing of debtor’s
reconciliation
Outsourcing of debtor’s
reconciliation
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
FACTORING AND FORFAITING
5.
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Factoring
• An arrangement in which receivables arising out of sale of
goods/services are sold by the firm (client) to a factor as a
result of which the title to the goods/services represented by
the receivables passes to the factor
• Factor becomes responsible for all credit control, sales
accounting and debt collection
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Mechanism
Sale of Goods - Agreements
•Buyer Negotiates terms of purchase with seller
•Seller sells goods to Buyer according to the Memorandum of Understanding or contract with the buyer
•At the same time, but independently, the factor enters into an agreement with the seller for rendering factoring service
Sale of Goods - Agreements
•Buyer Negotiates terms of purchase with seller
•Seller sells goods to Buyer according to the Memorandum of Understanding or contract with the buyer
•At the same time, but independently, the factor enters into an agreement with the seller for rendering factoring service
Physical Transfer
•Buyer Receives delivery of goods with copies of invoice, delivery challan, MoU/contract and instructions by the seller to make payment to the factor on due date
Physical Transfer
•Buyer Receives delivery of goods with copies of invoice, delivery challan, MoU/contract and instructions by the seller to make payment to the factor on due date
Payments
•By Factor: 75-80% of price of the debt to the seller on receipt of the sale documents
•By Buyer: Payment on due date
•Factor remits balance 20-25% on receipt of payment to seller
Payments
•By Factor: 75-80% of price of the debt to the seller on receipt of the sale documents
•By Buyer: Payment on due date
•Factor remits balance 20-25% on receipt of payment to seller
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Functions of a Factor
• Maintenance of Sales Ledger
• Collection of accounts receivable (Considered to be the most important
function of the factor)
• Financing facility of trade debts
• Assumption of credit risk and credit protection
• Provision of advisory services
– Buyer’s perception of client’s deliverables, marketing strategies etc
– Audit of the procedures followed by the client for invoicing, delivery and dealing with
sales returns
– Introduction to Banks and FIs dealing with leasing, hire purchase, investment banking,
and so on
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Types of Factoring
Based on Recourse
available to Factor
Based on Recourse
available to Factor
Recourse
Non-Recourse
•Full Factoring/Old Line Factoring
Based on time of Payment
Based on time of Payment
Advance/Bank Participation
Maturity/Collection
Based on secrecy clause
Based on secrecy clause
Disclosed
Undisclosed
Based on nature of transaction
Based on nature of transaction
Domestic
Export/Two Factor System
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Factoring vs. Bills Discounting
Factoring Bills Discounting
May be with/without recourse Always with recourse
Factor takes on the responsibility if collection
Seller collects receivables and pays to the financing entity
Factor maintains the sales ledger and also provides advisory services
Envisages only provision of finance
Factored debts can only be refinanced Bills discounted can be rediscounted several times
Represents assignment of debts Not the case
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Kalyansundaram Committee Report
• Late 1980s
• RBI constituted the committee to recommend the future
direction of factoring business in India
• Recommended
– Encouragement of factoring for SME units
– Undertaking of factoring business departmentally by banks
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
FORFAITING
6.
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Process
Exporter sells goods on deferred payment basis Exporter sells goods on deferred payment basis
Importer draws promissory notes in favour of exporter/Exporter draws series of bills on the importer Importer draws promissory notes in favour of exporter/Exporter draws series of bills on the importer
Bills or notes sent to exporter after being guaranteed by a bank(aval) Bills or notes sent to exporter after being guaranteed by a bank(aval)
Exporter enters into forfaiting arrangement with a bank – Avalised notes/bills are sold to the forfaiter, without recourse, at a discount Exporter enters into forfaiting arrangement with a bank – Avalised notes/bills are sold to the forfaiter, without recourse, at a discount
Forfaiter may hold the notes/bills till maturity or securitise and sell them in secondary market Forfaiter may hold the notes/bills till maturity or securitise and sell them in secondary market
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Forfaiting vs. Export Factoring
Forfaiting Export Factoring
Discounting of entire value of note/bill Advances to the extent of 75-80%. Rest is treated as factor reserve
Protected by Avalling Bank Credit risk on the factor
Pure finance arrangement Includes ledger maintenance, collection, etc.
Long Term Credit Short Term Finance
Forfaiters take on exchange rate risk and charge premium for the service
Factors do not cover exchange rate risk
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
TRUSTEESHIP SERVICES
7.
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Services
• Act as trustees for
– Public, charitable, religious and other trusts
– Trustees of a Settlement
– Trustees of a minor’s legacy
– Custodian trustee of properties – pension, provident and gratuity fund
• Counseling and drafting of trust deeds
• Safe keeping of trust property and payment of income to beneficiaries on due
dates as per the instructions of the settlers
• Making payments and undertaking other activities as per the mandate
• Undertake private settlements related to formation of focused, specific period
trusts for benevolent purposes
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
DEBENTURE TRUSTEESHIP
8.
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Services
• Accept debenture trusteeship of debentures/bonds issued under
private placement
• Advisory on the following activities related to the issue:
– Obtaining a rating from CRISIL, ICRA etc
– Appointment of arrangers – a SEBI registered investment bank
– Guidance on structured payment mechanism
– Clarification on legal/statutory matters in issue of debentures/bonds
– Documentation process – preparation of all kinds of related documents
– Creation of charge, registration and compliance of legal and statutory
requirements in this respect
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
SECURITY TRUSTEESHIP
9.
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Services
• Entire procedure of security creation
• Ensures execution of documents for creation of security
• Enforcement of security in case of default
Appointed with the consent of all the lenders at the cost of the
borrower.
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Value addition by Banks
• Availability of standard format of documents
• Expertise, experience and specialization in handling security related
transactions
• Backup of specialized software
• Guidance of in-house and assistance of external, legal and other
professionals
• Nationwide network of branches that facilitates lender/borrower to
execute documents at the place of their convenience and choice
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
ATTORNEYSHIP
10.
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Services
• Power of Attorney service
• To execute the client’s instructions regarding their
investments promptly and meticulously
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CUSTODIAL SERVICES
11.
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Custodian Services
Securities Lending and Other Value Added Services
Global Custody Services
Core Custody Services
• Securities Lending
• Performance Measurement
• Risk Measurement
• Compliance Monitoring
• Core Custody Services
• Executing ForEx transactions
• Processing Tax Reclaims
• Usually has sub-custodians in each market
• Settlement of Trades
• Investment of Cash Balances
• Collection of Income
• Processing Corporate Actions
• Pricing Security Positions
• Record keeping and reporting services
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Risks associated with Custody Services
•Current and prospective risk to earnings or capital from fraud, error and the inability to deliver products or services, maintain a competitive position, and manage information
•Encompasses product development and delivery, transaction processing, systems development, computing systems, complexity of products and services and the internal control environment
Transaction Risk Transaction Risk
•Current and prospective risk to earnings or capital arising from violations of, or non-conformance with laws, rules, regulations, prescribed practices, internal policies and procedures, or ethical standards.
•Exposes the institution to fines, civil money penalties, payment of damages, voiding of contracts, diminished reputation, reduced franchise value, limited business opportunities, reduced expansion potential, and inability to enforce contracts
Compliance Risk Compliance Risk
•Current and prospective risk to earnings or capital arising from an obligor’s failure to meet the terms of any contract with the bank or otherwise to perform as agreed
Credit Risk Credit Risk
•Current and prospective risk to earnings or capital arising from adverse business decisions, improper implementation of decisions, or lack of responsiveness to industry changes
Strategic Risk Strategic Risk
•Current and prospective risk to earnings or capital arising from negative public opinion
Reputation Risk Reputation Risk
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
BUSINESS ADVISORY
12.
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Services
• To assist clients in:
– Strategizing for growth and consolidation
– Introducing new operational practices and business approaches
– Market diversification and planning, strategies for restructuring and
revival, product planning, financial management and business process
restructuring
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
OFFSHORE BANKING SERVICES
13.
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Offshore Banking
• International banking business involving foreign currency
denominated assets and liabilities
• Offshore banking units(OBU) are virtually foreign branches of
Indian banks but located in India
• Usually set up in Special Economic Zones
• Special features of OB products:
– Security, liquidity and convertibility
– Dealing in major currencies – USD, GBP, Euro, JPY
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Products
Interest bearing Foreign Currency
Call Deposit Account
Interest bearing Foreign Currency
Call Deposit Account
Foreign Currency Fixed Deposit
Account
Foreign Currency Fixed Deposit
Account
Foreign Currency Rolling Deposit
Account
Foreign Currency Rolling Deposit
Account
Foreign Currency Switch Deposit
Account
Foreign Currency Switch Deposit
Account
Foreign Currency Trading Deposit
Account
Foreign Currency Trading Deposit
Account
International Money Transfer
International Money Transfer
Foreign Exchange and Derivative Transactions
Foreign Exchange and Derivative Transactions
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Other Products
International Trade Finance Instruments
International Trade Finance Instruments
• Collection of clean or trade bills
• Issuance of LC, various guarantees
• Bill discounting or negotiation of documentary collections
Credit Facilities Credit Facilities
• Finance in all major currencies
• Short Term/Medium Term working capital or assets finance
• Long Term Finance
• ECB
• Syndication of loans or lines of credit
• Structured Finance
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
FOREX SERVICES
14.
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
ForEx Services Offered
Foreign Currency Travellers
Cheques (FCTCs)
Foreign Currency Travellers
Cheques (FCTCs)
Foreign Currency Cash
Foreign Currency Cash
Foreign Currency Demand Drafts
Foreign Currency Demand Drafts
Deposit of FC Cheques
Deposit of FC Cheques
Remittances Remittances Cash to Master Cash to Master Advance
Remittance Advance
Remittance Direct
Remittance Direct
Remittance
Import Collection Import Collection Letters of Credit Letters of Credit Export Collection Export Collection Export Advance
Payment Export Advance
Payment
Miscellaneous Outward
Remittances
Miscellaneous Outward
Remittances
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Foreign Currency Travellers Cheques (FCTCs)
• Can be encashed when needed against holder’s signature
• Loss can be reported easily
• Amounts are refundable to the holder/buyer
• Offered in major currencies – USD, GBP, Euro, CAD, AUD and
JPY.
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Foreign Currency Cash
• Foreign currency notes
• Major currencies – USD, GBP, Euro, AUD and CAD
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Foreign Currency Demand Drafts
• For various expenses such as:
– Payment of university fees abroad
– Making gift remittance
– Payment of application fees for exams like TOEFL, GMAT etc
– Payment for medical treatment abroad
– All other permitted purposes as per RBI guidelines
• Normally issued in 7 currencies: USD, GBP, JPY, AUD, CAD, NZD
and Euro
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Deposit of FC Cheques
• Can be done directly into the current or saving accounts
• Once funds are honoured the account is credited in Indian
rupees
• Normally cheques are accepted for USD, GBP, Euro, JPY, AUD,
CAD, AED, Honk Kong Dollars and Swiss Francs
• Collection period may vary from 2-15 days depending upon
currency
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Remittances
- Send and receive money to and from relatives and friends
abroad
- Executed through SWIFT
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Cash to Master
• For foreign ships travelling through the country
• Cash provided to captain of the ship for covering wages of the
crew or other expenses on board the ship
• Master of the ship has to approach the designated branch of
an authorised with his passport and application form
• Only in USD, GBP and Euros
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Advance Remittance
• Overseas exporter seeking advance payment
• Banks make foreign currency remittance on behalf of the
importer
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Direct Remittance
• Documents are sent directly to the client who then
approaches the bank for effecting the payment
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Import Collection
Overseas exporter/exporter’s bank sends documents to client’s bank on collection
Overseas exporter/exporter’s bank sends documents to client’s bank on collection
Bank intimates the importer about receipt of documents Bank intimates the importer about receipt of documents
Importer authorizes the bank to debit his account and remit to exporter’s bank
Importer authorizes the bank to debit his account and remit to exporter’s bank
- In case of sight bill documents and debit authority collected from importer, amount remitted to Exporter’s bank and documents released to importer
- In case of usance bill acceptance letter taken from importer and documents released. On due date amount is remitted to exporter’s bank by debiting the importer’s account
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Letters of Credit
• Facilitates purchase of goods in international and domestic
trading operations
• LCs issued by major Indian Banks are accepted worldwide
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Export Collection
• Payment for goods exported by the bank’s client
• Through a network of correspondent banks Indian banks
ensure a faster collection process for all export bills
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Export Advance Payment
• Indian exporter might seek advance payment
• Importer requested to send payment to the exporter’s bank
through the correspondent bank network
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Miscellaneous Outward Remittances
• Can be effected to any part of the world using SWIFT through
a network of correspondent banks
• All transactions are subject to FEMA regulations
CAIIB – Super-Notes © M S Ahluwalia Sirf Business
Do you have any questions or queries or some feedback to give?
Just mark an email to [email protected]
CAIIB – Super-Notes © M S Ahluwalia Sirf Business For more Super-Notes: Click Here
M S Ahluwalia, amongst other things, is a visual artist, blogger,
blog designer and of course an MBA and Banker from New
Delhi, India.
To know more about him you may visit his blog-site: Estudiante De La Vida