depository

A FINAL PROJECT STUDY UNDERTAKEN

IN

“PUNJAB NATIONAL BANK”

ON

FOREIGH EXCHANGE OPERATIONS

A training report submitted in partial fulfillment of the requirement for the degree of

MASTERS OF BUSINESS ADMINISTRATION

(2011-2013)

Submitted to: - Submitted by:-

Dr. B.B Singla Dheeraj Kumar

Assistant Professor MBA – 2nd year SEC A

Roll No- 1 2 0 4 2 6 2 2 8

SCHOOL OF MANAGEMENT STUDIES

P U N J A B I U N I V E R S I T Y , P A T I A L A

ACKNOWLEGEMENT

Doing a project involves concerned efforts of different persons at different stages. It has been

rightly remarked “Success is the satisfactory achievement of the chosen and desired

objectives. It is attained of major object. Your earnest desired work and burning great

enthusiasm and dedication.” The project encourages the generosity of my teachers,

colleagues and friends, although I shall not be able to thank them, however, I can try.

The deep sense of gratitude that I owe to our learned guide and supervisor Sr. Amarjit Singh,

Chief Manager, “International Banking Division”, Bhikhaji Cama Place, New Delhi is

fathomless for words to be expressed for his insurmountable help, constant encouragement,

invaluable guidance, generous nature which helped me to learn and gather the knowledge in

all most important areas of Foreign Exchange.

I express our feelings of reverence for Mrs. Suman Aggarwal and Mr. , Senior Managers,

Centralized Banking of Foreign Trade, Mr. Alok Bhargava, Senior Manager, International

Branch Banking, Mr. C.M. Talwar Manager at Retail Branch and Ms. Romi Hemrajani, Mrs.

Sushila, Mr. Girish Sikka, Mr. Deepak Kumar and Mr. Joshi Senior Managers in Foreign

Exchange Office for his moral support, guidance and encouragement and for helping me by

suggesting relevant sources of information throughout the course of this project.

It is my privilege to express special thanks to my Project In charge Dr. Bharat Bhushan Singla

for their constant encouragement and guidance during the project. They have been constant

source of inspiration and helped me in each step.

TABLE OF CONTENTS

S.NO Chapter Name Page No.

Executive Summary 5-6

1. Introduction ----------------------------------------------------- - - - Industry 7-10

- - - Organization 11-64 - - - Scope of Study 65

2. Objectives -------------------------------------------------------- 66

3. Research Methodology and Objective of Study --------- 67-68

Methods of Data Collection ------------------------------------ 69-70

Limitations --------------------------------------------------------- 71

4. Analysis & Interpretation ------------------------------------ 72-78

5. Recommandations & Suggestions -------------------------- 79

6. Conclusion ------------------------------------------------------- 80

Bibliography ---------------------------------------------------- 81

Annexure ---------------------------------------------------------Questionnaire 82Bill of Lading 83Invoice 84 Specimen Letter of Credit 85-87

LIST OF TABLES   / FIGURES / ABBREVATIONS

Tables:-1. Table, Banks in India failed between 1913 and 1918 – Page No.22. Performance of the banks in terms of business and profit – Page No. 63. Net Foreign Exchange earned - Page No.224. Types of Invoices - Page No.27, 285. List of Accepted Currencies in India – Page No. – 38

Figures:-A. Structure of Indian Banking Industry, Page No. 4B. Organization Structure, Page No. – 7C. Advance payment, Page No. – 13D. Documents against Payment, Page No. – 14E. Documents against Acceptance, Page No. – 15F. Work on LC, Page No. – 16G. Type of LC Accounts, Page No. – 19H. Free On Board, Page No. - 20I. Cost & Freight, Page No. - 20J. Cost Insurance & Freight, Page No. - 21K. Transshipment Bill, Page No. – 36

Abbreviations:-AD’s – Authorized DealersATM - Automatic Teller MachinesBOE – Bill of ExchangeBOL – Bill of LadingBOP – Balance of PaymentCBS - Core Banking SolutionC & F – Cost & freightCIF – Cost Insurance & FreightCSR - Corporate Social Responsibility DGFT – Director General of Foreign TradeECGC – Export Credit & Guarantee CorporationFCNR – Foreign Currency Non-resident (External)FEDAI – Foreign Exchange Dealers' Association of IndiaFEMA – Foreign Exchange Management ActFERA – Foreign Exchange Regulation ActFSA - Financial Services AuthorityFTA – Foreign Trade AgreementsIEC – Importer – Exporter CodeIBD - International Banking DivisionKYC – Know Your CustomerLC – Letter Of CreditMNC – Multi National Corporation MTSS – Money Transfer Service SchemeNRE – Non- Resident ExternalNRI - Non- Resident of IndiaNRO – Non- Resident OrdinaryPC – Packing CreditPCFC - Pre-shipment Credit in Foreign CurrencyPNB – Punjab National BankPO – Purchase OrderRBI - Reserve Bank of IndiaRDA – Rupee Drawing ArrangementRFC - Resident Foreign Currency

Executive Summary

Today, business have become very much complex as compare to previous days. In area of

business management like many organizations providing products and many other

companies providing services to their users/consumers. In this connection many companies

further deals with product exchange i.e. import & export of the products, services and

exchange of technology, in commerce these are known as “FOREIGN EXCHANGE

OPERATIONS”. All the transactions in the foreign exchange process majorly doing by the

all Indian banks.

The exchange process is a key financial variable that affects decisions made by

foreign exchange investors, exporters, importers, bankers, businesses, financial institutions,

policymakers and tourists in the developed as well as developing world. Fluctuations affect

the value of international investment portfolios, competitiveness of exports and imports,

value of international reserves, currency value of debt payments, and the cost to tourists in

terms of the value of their currency. Movements in Forex markets thus have important

implications for the economy’s business cycle, trade and capital flows and are therefore

crucial for understanding financial developments and changes in economic policy.

Accordingly, the study analyses the structure of India’s foreign exchange market

and terms of participants, instruments and trading platform as also turnover in the Indian

foreign exchange market and forward premia. The Indian foreign exchange market has

evolved over time as a deep, liquid and efficient market as against a highly regulated market

prior to the 1990s. The market participants have become sophisticated, the range of

instruments available for trading has increased, the turnover has also increased, while the

bid–ask spreads have declined

Foreign Exchange Policy of Reserve Bank of India: - A Review

Foreign Exchange Market in India operates under the Central Government of India and

executes wide powers to control transactions in foreign exchange. The Foreign Exchange

Management Act, 1999 or FEMA regulates the whole Foreign Exchange Market in India.

Before the introduction of this act, the foreign exchange market in India was regulated by the

Reserve Bank of India through the Exchange Control Department, by the Foreign Exchange

Regulation Act or FERA, 1947. After independence, FERA was introduced as a temporary

measure to regulate the inflow of the foreign capital. But with the Economic and Industrial

development, the need for conservation of foreign currency was urgently felt and on the

recommendation of the Public Accounts Committee, the Indian government passed the

Foreign Exchange Regulation Act, 1973 and gradually, this act became famous as FEMA.

Early Years of Foreign Exchange Market Until 1992, all Foreign Investments in India and

the repatriation of Foreign Capital required previous approval of the government. The

Foreign Exchange Regulation Act rarely allowed foreign majority holdings for Foreign

Exchange in India. However, a new Foreign Investment Policy announced in July 1991,

declared automatic approval for Foreign Exchange in India for thirty-four industries. These

industries were designated with high priority, up to an equivalent limit of 51 percent. The

foreign exchange market in India is regulated by the Reserve Bank of India through the

Exchange Control Department. Initially, the Government required that a company’s routine

approval must rely on identical exports and dividend repatriation, but in May 1992, this

requirement of Foreign Exchange in India was lifted, with an exception to low-priority

sectors. In 1994, foreign nationals and non-resident Indian investors were permitted to

repatriate not only their profits but also their capital for Foreign Exchange in India. Indian

exporters enjoyed the freedom to use their export earnings as they found it suitable.

However, transfer of capital abroad by Indian nationals is only allowed in particular

circumstances, such as emigration. Foreign Exchange in India is automatically made

accessible for imports for which import licenses are widely issued.

INDIAN BANKING INDUSTRY

INTRODUCTION:-

Banking in India originated in the last decades of the 18th century. The first banks

were The General Bank of India, which started in 1786, and Bank of Hindustan, which

started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank

of India, which originated in the Bank of Calcutta in June 1806, which almost immediately

became the Bank of Bengal. This was one of the three presidency banks, the other two being

the Bank of Bombay and the Bank of Madras, all three of which were established under

charters from the British East India Company. For many years the Presidency banks acted as

quasi-central banks, as did their successors. The three banks merged in 1921 to form the

Imperial Bank of India, which, upon India's independence, became the State Bank of India in

1955.

History

Merchants in [Calcutta] established the Union Bank in 1839, but it failed in 1848 as a

consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865

and still functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A

company that issues stock and requires shareholders to be held liable for the company's debt)

It was not the first though. That honor belongs to the Bank of Upper India, which was

established in 1863, and which survived until 1913, when it failed, with some of its assets

and liabilities being transferred to the Alliance Bank of Simla. Foreign banks too started to

app, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a

branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and

Pondicherry, then a French colony, followed. HSBC established itself in Bengal in 1869.

Calcutta was the most active trading port in India, mainly due to the trade of the British

Empire, and so became a banking center. The first entirely Indian joint stock bank was the

Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the

Punjab National Bank, established in Lahore in 1895, which has survived to the present and

is now one of the largest banks in India.

Around the turn of the 20th Century, the Indian economy was passing through a relative

period of stability. Around five decades had elapsed since the Indian Mutiny, and the social,

industrial and other infrastructure had improved. Indians had established small banks, most

of which served particular ethnic and religious communities. The presidency banks

dominated banking in India but there were also some exchange banks and a number of

Indian joint stock banks. All these banks operated in different segments of the economy. The

exchange banks, mostly owned by Europeans, concentrated on financing foreign trade.

Indian joint stock banks were generally under capitalized and lacked the experience and

maturity to compete with the presidency and exchange banks. This segmentation let Lord

Curzon to observe, "In respect of banking it seems we are behind the times. We are like some

old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome

compartments." The period between 1906 and 1911, saw the establishment of banks inspired

by the Swadeshi movement. The Swadeshi movement inspired local businessmen and

political figures to found banks of and for the Indian community. A number of banks

established then have survived to the present such as Bank of India, Corporation Bank,

Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India.

The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina

Kannada and Udupi district which were unified earlier and known by the name South Canara

( South Kanara ) district. Four nationalised banks started in this district and also a leading

private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of

Indian Banking".

During the First World War (1914–1918) through the end of the Second World War (1939–

1945), and two years thereafter until the independence of India were challenging for Indian

banking. The years of the First World War were turbulent, and it took its toll with banks

simply collapsing despite the Indian economy gaining indirect boost due to war-related

economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in

the following table 1:

YearsNumber of

banksthat failed

Authorised capital

(Rs. Lakhs)

Paid-up Capital (Rs. Lakhs)

1913 12 274 351914 42 710 1091915 11 56 51916 13 231 41917 9 76 251918 7 209 1

Nationalisation

Despite the provisions, control and regulations of Reserve Bank of India, banks in

India except the State Bank of India or SBI, continued to be owned and operated by private

persons. By the 1960s, the Indian banking industry had become an important tool to facilitate

the development of the Indian economy. At the same time, it had emerged as a large

employer, and a debate had ensued about the nationalization of the banking industry. Indira

Gandhi, then Prime Minister of India, expressed the intention of the Government of India in

the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts

on Bank Nationalisation." The meeting received the paper with enthusiasm. Thereafter, her

move was swift and sudden. The Government of India issued an ordinance ('Banking

Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969')) and nationalised

the 14 largest commercial banks with effect from the midnight of July 19, 1969. These banks

contained 85 percent of bank deposits in the country. Jayaprakash Narayan, a national leader

of India, described the step as a "masterstroke of political sagacity." Within two weeks of the

issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and

Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969. A

second dose of nationalization of 6 more commercial banks followed in 1980. The stated

reason for the nationalization was to give the government more control of credit delivery.

With the second dose of nationalization, the Government of India controlled around 91% of

the banking business of India. Later on, in the year 1993, the government merged New Bank

of India with Punjab National Bank. It was the only merger between nationalized banks and

resulted in the reduction of the number of nationalised banks from 20 to 19. After this, until

the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth

rate of the Indian economy.

STRUCTURE OF INDIAN BANKING INDUSTRY

Banking Industry in India functions under the sunshade of Reserve Bank of India -

the regulatory, central bank. Banking Industry mainly consists of:

• Commercial Banks

• Co-operative Banks

The commercial banking structure in India consists of: Scheduled Commercial Banks

Unscheduled Bank. Scheduled commercial Banks constitute those banks which have been

included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn

includes only those banks in this schedule which satisfy the criteria laid down vide section

42 (60) of the Act. Some co-operative banks are scheduled commercial banks although not

all co-operative banks are. Being a part of the second schedule confers some benefits to the

bank in terms of access to accommodation by RBI during the times of liquidity constraints.

At the same time, however, this status also subjects the bank certain conditions and

obligation towards the reserve regulations of RBI. For the purpose of assessment of

performance of banks, the Reserve Bank of India categorise them as public sector banks, old

private sector banks, new private sector banks and foreign banks.

PUNJAB NATIONAL BANK

PROFILE

A SAGA OF EXCELLENCE

VISION

"To be a Leading Global Bank with Pan India footprints and become a household brand in

the Indo-Gangetic Plains providing entire range of financial products and services under one

roof".

MISSION

"Banking for the Unbanked".

With over 60 million satisfied customers and more than 5100 offices including 5 overseas

branches, PNB has continued to retain its leadership position amongst the nationalized

banks. The bank enjoys strong fundamentals, large franchise value and good brand image.

Besides being ranked as one of India's top service brands, PNB has remained fully

committed to its guiding principles of sound and prudent banking. Apart from offering

banking products, the bank has also entered the credit card, debit card; bullion business; life

and non-life insurance; Gold coins & asset management business, etc. PNB has earned many

awards and accolades during the year in appreciation of excellence in services, Corporate

Social Responsibility (CSR) practices, transparent governance structure, best use of

technology and good human resource management. Since its humble beginning in 1895 with

the distinction of being the first Swadeshi Bank to have been started with Indian capital,

PNB has achieved significant growth in business which at the end of March 2012 amounted

to Rs 6, 73, 363 crore. PNB is ranked as the 2nd largest bank in the country after SBI in

terms of branch network, business and many other parameters. During the FY 2011-12, with

36.2 % share of CASA to domestic deposits, the Bank achieved a net profit of Rs 4, 884

crore. Bank has a strong capital base with capital adequacy ratio of 12.63% as on Mar’12 as

per Basel II with Tier I and Tier II capital ratio at 8.44% and 3.98% respectively. As on

March’11, the Bank has the Gross and Net NPA ratio of 2.93% and 1.52% respectively.

During the FY 2011-12, its ratio of Priority Sector Credit to Adjusted Net Bank Credit at

40.7% & Agriculture Credit to Adjusted Net Bank Credit at 29.48 % was also higher than

the stipulated requirement of 40% & 18% respectively. The Bank has been able to maintain

its stakeholders’ interest by posting an improved NIM of 3.96% in Mar’11 (3.57% Mar’10).

The Earning per Share improved to Rs 140.60 (Rs 123.86 Mar’10) while the Book value per

share improved to Rs 661.20 (Rs 514.77 Mar’10). Punjab National Bank continues to

maintain its frontline position in the Indian banking industry. In particular, the bank has

retained its NUMBER ONE position among the nationalized banks in terms of number of

branches, Deposit, Advances, total Business, Assets, Operating and Net profit in the year

2010-11. The impressive operational and financial performance has been brought about by

Bank’s focus on customer based business with thrust on CASA deposits, Retail, SME &

Agri Advances and with more inclusive approach to banking; better asset liability

management; improved margin management, thrust on recovery and increased efficiency in

core operations of the Bank. The performance highlights of the bank in terms of business and

profit are shown below:

Rs. In Crore

Parameters Mar'09 Mar'10 Mar'11 Mar 12

Operating Profit 5690 7326 9056 2936

Net Profit 3091 3905 4433 4884

Deposit 209760 249330 312899 379588

Advance 154703 186601 242107 293775

Total Business 364463 435931 555005 673363

 Bank always looked at technology as a key facilitator to provide better customer service and

ensured that its ‘IT strategy’ follows the ‘Business strategy’ so as to arrive at “Best Fit”. The

Bank has made rapid strides in this direction. All branches of the Bank are under Core

Banking Solution (CBS) since Dec’08, thus covering 100% of its business and providing

‘Anytime Anywhere’ banking facility to all customers including customers of more than

3515 rural & semi urban branches. The Bank has also been offering Internet banking

services to its customers which also enables on line booking of rail tickets, payment of

utilities bills, purchase of airline tickets, etc. Towards developing a cost effective alternative

channels of delivery, the Bank with 6009 ATMs has the largest ATM network amongst

Nationalized Banks.

With the help of advanced technology, the Bank has been a frontrunner in the industry so far

as the initiatives for Financial Inclusion is concerned. With its policy of inclusive growth, the

Bank’s mission is “Banking for Unbanked”. The Bank has launched a drive for biometric

smart card based technology enabled Financial Inclusion with the help of Business

Correspondents/Business Facilitators (BC/BF) so as to reach out to the last mile customer.

The Bank has started several innovative initiatives for marginal groups like rickshaw pullers,

vegetable vendors, dairy farmers, construction workers, etc. Bank has launched a welfare

scheme of adoption of village viz., “PNB VIKAS”. Under the scheme, Bank has selected

117 villages (60 in lead districts and 57 in non lead district) in different circles for all-round

improvement in the living standards of the villagers. Besides, Bank has formed “PNB

PRERNA”, an association of the wives of the Bank’s senior management. The association

through its voluntary initiatives has undertaken activities like distribution of food to the poor

and needy, provision of computers, books, stationary items to poor girl students at various

orphanages and schools etc. Backed by strong domestic performance, the Bank is planning to

realize its global aspirations. Bank has opened one branch each at Kabul and Dubai, two

branches at Hong Kong and an Off Shore Banking Unit at Mumbai. In addition to the above,

Bank has Representative offices at Almaty, Dubai, Shanghai and Oslo, a wholly owned

subsidiary in UK with 7 branches and a subsidiary each in Kazakhstan & Bhutan, and  joint

venture with Everest Bank Ltd. Nepal.  During the year, Bank acquired majority equity stake

of 63.64% in Dana Bank of Kazakhstan.

Subsidiaries and Joint Ventures in Overseas

PNBIL

Punjab National Bank (International) Limited (PNBIL) is a wholly owned UK subsidiary of

Punjab National Bank, India. PNBIL was incorporated in UK on 13th April 2006 and

registered with the Companies House in England & Wales under No. 5781326. PNBIL was

authorised by the Financial Services Authority (FSA) on 13th April 2007 to conduct Banking

Business in UK under Registration No. 459701. PNBIL started banking operations in UK on

10th of May 2007 from two locations. The corporate office of PNBIL is at 87, Gresham

Street, London EC2V 7NQ (UK). Presently PNBIL has 7 Branches as under:

1. At 87, Gresham Street, London EC2V 7NQ (UK)

2. At 90, South Road, Southall, Middlesex UB1 1RD (UK)

3. At 160 Belgrave Road, Leicester LE4 5AU (UK)

4. At 290 Soho Road, Birmingham B21 9LZ (UK)

5. At 47, Crane book Road, Ilford, Essex, London (UK)

6. At 188 Ealing Road, Wembley HA0 4QD (UK)

7. At 502-504 Dudley Road, Wolver Hampton, WV2 3AA

DRUK PNB Bank Ltd

Druk PNB Bank Ltd. (DPNBL) is our Joint Venture Subsidiary in Bhutan with our Equity

participation to the extent of 51%. It started operations on 27 th January, 2010 and has three

branches- one each at Thimphu, Phentsholing and Wangduephodrang

Sh N.K. Arora, DGM is the CEO.

Contact details of Sh. N.K. Arora are:

Phone No. 00975- 17116440

E Mail id: [email protected]

JSC (SB) PNB Kazakhstan

Our bank has acquired 80.95% stake in JSC (SB) PNB, Kazakhstan. The bank has its head

quarters in Almaty. It has five branches at Almaty, Pavlador, Karganda, Astana & Taraz.

Everest Bank Ltd, Kathmandu, Nepal

Everest Bank Limited (EBL) is our joint venture in Nepal with equity participation to the

extent of 20%. Under a Technical Services Agreement, our Bank is providing Top

Management Support. The operations of EBL with Management Support from our Bank

started in January, 1997. EBL presently has a network of 44 branches in Nepal. EBL has

started ‘Financial Inclusion’ concept in Nepal.

Domestic Subsidiaries :-

1. PNB GILTS LTD.

PNB Gilts Ltd., a subsidiary of the Bank, is engaged in the business of trading in Govt.

securities, treasury bills and Non SLR Investments. It is also engaged in dealing in Money

Market Instruments (Call/Notice/Term Money, Repo /Reverse Repo, Inter-corporate

Deposits, Commercial Paper, Certificate of Deposit) and Mutual Funds Distribution. The

company is listed at NSE and BSE.

 2. PNB HOUSING FINANCE LTD

PNB Housing Finance Ltd. is engaged in providing housing loans for purchase, construction

and upgradation of a dwelling unit. The company offers Loans for construction or for

purchase of house/flat from development authorities and also from private builders/ group

housing societies as well as for renovation/ repairs. Company also provides finance for

construction of residential projects. Loans to NRIs are also provided for purchase/

construction of house/ flat along with a resident/ non-resident co-borrower.

3. PNB INVESTMENT SERVICES LTD

PNB Investment Services Ltd, a wholly owned subsidiary, has been set up by the Bank for

carrying out Merchant Banking Business. It provides services for Project Appraisal, Loan

Syndication, and Debt Placement and to execute IPOs/FPO/QIPs. PNBISL is registered with

SEBI as a Category- I Merchant Banker.

4. PNB INSURANCE BROKING Pvt. Ltd.

5. PNB LIFE INSURANCE Co. Ltd.

The Bank is holding majority stake in above two companies, jointly with Vijaya Bank, minor

shareholder.

Domestic Joint Ventures

The Bank has the following Joint Ventures:

1.     Principal PNB Asset Management Company Pvt. Ltd

2.     Principal Trustee Company Pvt. Ltd

3.     Assets Care Enterprises Ltd.

4.     India Factoring & Finance Solutions Pvt. Ltd.

PNB now brings to you Centralized Banking Solution (CBS). An inter-branch networking

and data sharing platform which makes 'Anytime Anywhere ' banking a reality. With over

5874 CBS Outlets of Bank, the status of customers is changing from 'Customer of the

branch' to "Customer of the bank"

CBS - 'Benefits' to Customers

Instant fund transfers

Cheques collection / deposit across cities

Cheque can be deposited at the centre where it is drawn

Interconnected ATMs

Access of Accounts through any CBS connected branch

SWIFT remittance facility

Instant generation of statement of accounts

At present CBS facility is available in over 5874 Service Outlets at the 2922 Cities/Centres

as on 30.04.2012.

ORIGIN

Punjab under the British especially after annexation in 1849 witnessed a period of rapid

development giving rise to a new educated class fired with a desire for freedom from the

yoke of slavery. Amongst the cherished desires of this new class was also an overriding

ambition to start a Swadeshi Bank with Indian Capital and management representing all

sections of the Indian community. Firstly the idea mooted by, Rai Mool Raj of Arya Samaj

who, as reported by Lal Lajpat Rai, had long cherished the idea that Indians should have a

national bank of their own. He felt keenly "the fact that the Indian capital was being used to

run English banks and companies, the profits accruing from which went entirely to the

Britishers whilst Indians had to contend themselves with a small interest on their own

capital". On May 23, 1894, the efforts materialized. The founding board was drawn from

different parts of India professing different faiths and a varied back-ground with, however,

the common objective of providing country with a truly national bank which would further

the economic interest of the country. The Bank opened for business on 12 April, 1895. Sh.

Dayal Singh Majithia was the first Chairman, Lala Harkishan Lal, the first secretary to the

Board and Shri Bulaki Ram Shastri Barrister at Lahore, was appointed Manager. Lala Lajpat

Rai was the first to open an account with the bank which was housed in the building opposite

the Arya Samaj Mandir in Anarkali in Lahore. His younger brother joined the Bank as a

Manager. Authorised total capital of the Bank was Rs. 2 lakhs, the working capital was Rs.

20000. It had total staff strength of nine and the total monthly salary amounted to Rs. 320.

The first branch outside Lahore was opened in Rawalpindi in 1900. The Bank made slow,

but steady progress in the first decade of its existence. Lala Lajpat Rai joined the Board of

Directors soon after in 1913, the banking industry in India was hit by a severe crisis

following the failure of the Peoples Bank of India founded by Lala Harkishan Lal. The years

1926 to 1936 were turbulent and loss ridden ones for the banking industry the world over.

The 1929 Wall Street crash plunged the world into a severe economic crisis. The five years

from 1941 to 1946 were ones of unprecedented growth. From a modest base of 71, the

number of branches increased to 278. Deposits grew from Rs. 10 crores to Rs. 62 crores. On

March 31, 1947, the Bank officials decided to leave Lahore and transfer the registered office

of the Bank to Delhi and permission for transfer was obtained from the Lahore High Court

on June 20, 1947. PNB was then housed in the precincts of Sreeniwas in the salubrious Civil

Lines, Delhi. Many a staff member fell victim to the widespread riots in the discharge of

their duties. The conditions deteriorated further. The Bank was forced to close 92 offices in

West Pakistan constituting 33 percent of the total number and having 40% of the total

deposits. The Bank, however, continued to maintain a few caretaker branches. The Bank

then embarked on its task of rehabilitating the displaced account holders. The migrants from

Pakistan were repaid their deposits based upon whatever evidence they could produce. Such

gestures cemented their trusts in the bank and PNB became a symbol of Trust and a name

you can bank upon. Surplus staff posed a big problem. Fast expansion became a priority. The

policy paid rich dividends by opening up an era of phenomenal growth. In 1951, the Bank

took over the assets and liabilities of Bharat Bank Ltd. and became the second largest bank

in the private sector. In 1962, it amalgamated the Indo-Commercial Bank with it. From its

dwindled deposits of Rs. 43 crores in 1949 it rose to cross the Rs. 355 crores mark by the

July 1969. Its number of offices had increased to 569 and advances from Rs. 19 crores in

1949 to Rs. 243 crores by July 1969 when it was nationalized. Since inception in 1895, PNB

has always been a "People's bank" serving millions of people throughout the country.

PRODUCTS/SERVICES

Punjab National Bank is extensively catering to banking needs of Non-resident Indians,

Importers & Exporters particularly relating to foreign exchange business including Imports

& Exports of Goods & Services as also Remittances etc.

PNB OFFERS VARIOUS SCHEMES / PRODUCTS /SERVICES RELATING TO

INTERNATIONAL BANKING. THE BROAD DETAILS THRREOF ARE AS UNDER

Foreign Currency Non-resident Deposit A/c Scheme (FD)

Non-resident External Deposit A/c Scheme (SB/CA/FD)

Non-resident Ordinary Deposit A/c Scheme (SB/CA/FD/RD)

Foreign Inward Remittances – Rupee Drawing Arrangements / Speed Remittances

with Exchange Houses

Money Transfer Schemes

PNB-NRI REMIT Scheme

Exchange of Foreign Currency Travellers Cheques/Notes

World Travel Card

Buyers’ / Suppliers’ Credit against Imports into India

Letter of Guarantee (issued on behalf of foreign bank)

Precious Metal Business (on consignment basis)

Gold (Metal) Loan Scheme for Domestic Jewellery Manufacturers.

ECGC – Bank assurance - Selling of policies to exporters

INTRODUCTION International Trade In simple terms, International Trade means export and import of merchandise

goods between countries and from one place to other place. In earlier days, the barter system

existed and goods were exchanged for goods or gold. When the domestic markets began to

saturate, countries tried to expand beyond international boundaries and sought foreign

markets. Trading between two countries has many difficulties like language barriers, time

zones, country laws, market practices, etc. Over a period of time the trades of goods between

countries have been standardized and the purchase and sell of goods have more or less fixed

patterns regarding rules, regulations, terms and conditions. We give below some of the most

commonly used ways of exporting merchandise goods.

Advance Payment

Documents against Payment

Documents against Acceptance

Letter of Credit

Open Account

Advance Payment These terms mean that the seller is paid before he ships the goods.

India USA

Seller BuyerSuch type of transaction occurs when seller is strong or when it is seller’s market.

Seller’s view Buyer’s viewMost secure form of trading Least secure form of tradingReceives money in advance for shipment, thus covered from risk of non- payment by the buyer.

Pays money in advance and hence carries risk in case the seller fails to honour the sale contract and ship goods. He must have complete confidence in the seller.

Has good cash flow Drains his cash flowCan use the money for manufacturing the goods.

Agrees to this method if the goods are not available from any other source.

Documents against Payment (DP)

In this type of transaction, the buyer pays before he takes possession of the goods. India USA

Seller Buyer

1. Places order and makes payment

2. Ships goods after receipt of payment

1. Places Order

2. Ships the goods

Seller’s Bank Buyer’s Bank

Such type of transaction occurs when seller is strong or when it is seller’s market. Greater degree of risk for buyer as he has to pay before getting delivery of goods.

Seller’s view Buyer’s viewMore Secure form of trading Less Secure form of tradingPayment is secure since buyer makes payment before receipt of goods

Has to make payment before receipt of goods.

The buyer may refuse to pay after the goods have reached. Goods will lie at foreign port and will be difficult to dispose off. Seller will have to search for a new buyer or sell at a discount. If the goods do not sell, he will have to bring it back, thus incurring more costs.

On risk since he cannot check goods (for quality, quantity) before making payment. Thus is depends on seller meeting the contract terms.

Has good cash flow Cash flow is drained

Documents against Acceptance (DA)

This type of transaction involves a Bill of Exchange (BOE). The documents for collection of goods are

handed over to the buyer only after he signs the BOE.

India USA

3. submits Shipping documents to bank

4. Forwards the shipping

5. Ask importer to make payment

7. Releases shipping Documents

6. Makes Payment

8. Remits the payments

9. Makes the

Payment

1. Places Order

Seller Buyer

Seller’s Bank Buyer’s Bank

Such type of transaction occurs when seller is not so strong. For the buyer it is vis-à-vis DP. However seller carries risk for payment on buyer.

Seller’s view Buyer’s viewLess Secure form of trading More Secure form of tradingPayment is secure since buyer accepts BOE. There is a certainty as to when the payment will be made.

He can check the goods before making payment.

On risk in case when buyer goes bankrupt.

In case he fails to make payment, legal proceedings can be undertaken.

Export proceeds are realized only on due date hence cash flow is drained.

Gets a credit period for making payment.

The buyer may refuse to sign the BOE. Goods will lie at foreign port and will be difficult to dispose off. Seller will have to search for a new buyer or sell at a discount. If the goods do not sell, he will have to bring it back, thus incurring more costs.

Letter of CreditA Letter of Credit (LC) is a document issued by the importer’s bank in favour of the exporter

giving him the authority to draw bills up to a particular amount (as per the contract price)

covering a specified shipment of goods and assuring him of payment against the delivery of

shipping documents as mentioned in LC.

2. Ships the goods

3. Submits shipping documents and Bill of Exchange to bank

4. Forwards the shipping documents and

5. Ask importer to sign BOE

7. Releases shipping Documents

8. On due date ask to make payment

6. Signs BOE.

9. Makes Payment on due date

10. Remits the payments

11. Makes the payment

Parties involved in LC

Seller

Buyer

LC Opening Bank/ LC Issuing Bank: (The bank which issues letter of credit at the request

of the importer.)

LC Advising Bank

LC Negotiating Bank

LC Confirming Bank

How an LC Works:

Buyer is weak or there is no past track record of the buyer or country risk is high. Greater degree of risk for buyer, whilst it is a secured mode of payment for seller.

Seller’s view Buyer’s viewVery secure as an LC is a guarantee of payment by a bank.

Not Applicable

Seller need not worry about delays in payment and financial problems of the buyer as the payment is made by a bank.

Administratively cumbersome.

Not costly. High cost since he has to deposit cash margin for opening LC

On risk if there is political crisis in buyers country, unless the LC is confirmed by another bank in another country.

LC process is time consuming and there is a delay in possession of goods

Types of Letter of Credit

Following are the types of LC’s:

Documentary Letter of Credit:

A Documentary Letter of Credit is simply a means of opening a credit in favour of someone,

under which a payment will be made by a bank, provided certain conditions are fulfilled. The

word “Documentary” means that the payment obligations by the bank will be only after

production of correctly completed documents as specified in the LC. There are three types of

Documentary Letter of Credits.

Revocable LC:

This type of letter of credit can be amended, withdrawn or changed at any time without the

consent of the exporter. It gives the buyer maximum security, but little or no security to the

seller. This form of LC is seldom used in practice. A revocable letter of credit is never

confirmed.

Irrevocable LC:

In this type of letter of credit, none of the parties involved has a right to amend, change or

withdraw the letter of credit except with the permission of ALL the parties involved. i.e.

importer, exporter, importer’s bank and exporter’s bank. However, the bank can refuse its

payment obligation in the event of non-compliance by the exporter with the terms of credit

or in case of fraud on the part of exporter.

Confirmed Irrevocable

If the seller does not have a confidence in the LC opening bank or the country of the buyer, it

may ask the LC advising bank to confirm the LC. In case the LC Opening bank does not

meet its obligations to pay, the LC advising bank makes good the payment.

Clean Letter of Credit:

In this type of letter of credit, bank does not put any conditions for acceptance and payment of bill of exchange.

Back-to-Back LC:

In a back to back LC, the exporter opens an LC in favour of his supplier on the back of LC opened in his favour by importer.

Confirmed LC

When the LC issuing/ opening bank is a weak bank or the concerned country has political

problems, another bank in another country (which is either a strong bank or it is in a country

which does not have political problem) guarantees payment. The bank, which gives such

guarantee, is called LC Confirming bank and LC is called as Confirmed LC. In case the LC

opening bank does not pay, the LC confirming bank makes good the payment.

With Recourse LC

The term ‘Recourse’ means that the BANK may direct the EXPORTER at any time, to pay

to the BANK an amount equal to the amount remaining unpaid by the IMPORTER. Thus, in

recourse LC exporter is required to make payment to his bank in case importer fails to make

payment.

Red Clause LC

Such LC is opened to provide exporter with advance payment to enable him manufacture

and purchase goods from the local suppliers. In this LC risk of non-submission of

documents or non-execution of order by exporter is on LC opening bank. Since this letter of

credit is printed in Red for the sake of differentiation, it is called Red Clause LC.

Green Clause LC

This type of letter of credit envisages grant of storage facilities at port over and above the

pre-shipment payment to the exporter. In India opening of Green Clause LC covering import

of goods in our country requires prior permission.

The operations of letters of credit have been regulated and are governed by UCPDC 500 of

International Chamber Commerce, Paris.

Open Account

Open account terms means that the seller has agreed to give the buyer a certain credit period

to pay (usually 30 to 90 days after the date of shipment) and the buyer has agreed to pay as

per the agreed terms.

India USA

Seller BuyerSuch type of transaction occurs when buyer is strong or when it is buyer’s market. Here risk is 100% on the seller.

Seller’s view Buyer’s viewLeast Secure form of trading. He should have complete confidence that the buyer will pay.

Most Secure form of trading

On risk since buyer may not pay on due date

Can collect and use the goods before making payment

Should have sufficient liquidity to allow a credit period to the buyer.

Gets free credit. Their own lines from the banks are not used to fund the credit period.

1. Places Order

2. Ships the goods

3. Pays on Due date

Should have confidence in the government of the buyer’s country that they won’t impose any restrictions for transfer of money

It is administratively cheaper.

Should have sound knowledge of the trade practices in the buyer’s country, their language for follow-up, time zone adjustment and the laws of the country

Terms of Trade (INCOTERMS)INCOTERMS means – International commercial terms. These are set of rules applicable

uniformly to all international trade. They set out the rights and obligations of the exporter

and the importer in international trade transactions. They came in to force w.e.f from 1st July

1990.

The most common ways of exporting goods are:

FOB C & F CIF

FOBFOB means “Free On Board”. Here the exporter pays for all the costs till the goods are

placed “On Board” the ship. Once the goods are on board, all the costs are paid by the buyer.

Seller Port on Board On Board Port Buyer

Seller Pays Transportation Warehousing

Buyer pays Freight Insurance Transportation

C & FC & F means “Cost & Freight” Here the exporter pays for all the costs till the goods are

placed downloaded at the buyer’s port. The transportation from the port to the final

destination and insurance is borne by the buyer.

Seller Port On Board On Board Port Buyer

Seller Pays Transportation Warehousing Freight

Buyer pays Insurance Transportation

C I F

C I F means “Cost Insurance & Freight” Here the exporter pays for all the costs till the goods

are downloaded at the buyer’s port including Insurance. The transportation is borne by the

buyer.

Seller Port On Board On Board Port Buyer

Seller Pays Transportation Warehousing Freight Insurance

Buyer pays Transportation

TADE DOCUMENATION

Definition of an Exporter

“Exporter” means a person who exports or intends to export and holds an Importer-Exporter

Code Number. IEC code is unique for exporter and is registered with Director General of

Foreign Trade (DGFT).

Following are the categories of exporters:

- “Manufacturer Exporter” means a person who exports goods manufactured by him or

intends to export such goods.

- “Merchant Exporter” means a person engaged in trade activity and exporting or

intending to export. He can also export goods manufactured by him.

Export Zones

To build marketing infrastructure and expertise required for exports, government has categorized

following:

- “EOU” means Export Oriented Unit

- “EPZ” means Export Processing Zone.

- “SEZ” means Special Economic Zone.

These zones are set up as enclaves and have different tariff structures compared to domestic

business. This provides an internationally competitive duty free environment for export

production at low cost. Thus enabling the products, to be competitive, both quality-wise and

price-wise in the international markets.

Exports of Service

- “Service Provider” means a person providing:

(i) Supply of a service from India to any other country

(ii) Supply of a service from India to the service consumer of any other country,

and

(iii) Supply of a service from India through commercial or physical presence in the

territory of any other country.

(iv) Supply of a ‘service’ in India relating to exports paid in free foreign exchange.

Types of Exporters

When exporters, service providers achieve a specified level of exports over a period of time,

they can get recognition or registration as

- Export House (EH)

- Trading House (TH)

- Star Trading House (STH)

- Super Star Trading House (SSTH)

This status is to facilitate the development of business houses specializing in export trade. The

eligibility is on basis of:

- average F.O.B. (F.O.B. Value is explained later in this section) value of goods or

services in the preceding three years, or preceding year

OR

- The Average net foreign exchange earning in FCY and INR in the preceding three

years or Net Foreign Exchange earned in the preceding year.

(INR)

CATEGORY AVG FOB

(3 preceding

years)

FOB

(Preceding

year)

AVG NFE

(3 preceding

years)

NFE

(Preceding

year)

EH 15 CR 22 CR 12 CR 18 CR

TH 75 CR 112 CR 62 CR 90 CR

STH 375 CR 560 CR 312 CR 450 CR

SSTH 1112 CR 1680 CR 937 CR 1350 CR

NFE = Net foreign exchange earned on exports

FOB = Actual invoice value after deducting all freight, Commission & Insurance payable.

EXPORT FINANCE

An exporter may require financial assistance from his bank at both pre-shipment and post-

shipment stages. Export finance is broadly classified into following two categories,

depending upon what stage of export activity the finance is extended:

1. Pre-shipment Finance

This type of finance is available to produce goods before it is shipped / exported. The

types of pre-shipment finance are:

i) Packing Credit

ii) Pre-shipment Credit in Foreign Currency (PCFC)

2. Post-shipment Finance

This type of finance is available after the goods are shipped / exported till the money is

realized from the overseas buyer. The types of post-shipment finance are:

i) Negotiations of export documents under Letter of Credit.

ii) Purchase/Discount of Export Documents

iii) Advances against Documents / Bills sent on Collection Basis

iv) Advances against Exports on Consignment Basis

v) Advances against Cash Incentives / Duty Drawback Entitlements

vi) Financing Exports under Deferred Payment Arrangements, Turnkey Projects, and

Construction Contracts etc.

Some of the common and the most frequently used finance are highlighted below:

Pre-Shipment Finance:

Packing Credit:

Packing Credit advance is available for the purpose of:

Purchasing raw materials for the goods meant for exports,

Manufacturing them,

Processing them,

Warehousing them,

Transporting to the seaport / airport for export, and

Packing and shipping.

The maximum period for which the credit can be granted is 180 days from the date of

disbursement. The period can be extended by another 90 days at the discretion of the

Commercial Bank, subject to the payment of additional interest by the exporter for extended

period.

Pre-shipment Credit in Foreign Currency (PCFC)

This scheme enables Indian exporters to avail pre-shipment credit in foreign currencies to

finance cost of imported inputs for manufacture of export products. The maximum credit

period for an advance under PCFC is 180 days. The facility for pre-shipment credit limit in

foreign currency is available only to the following categories of the exporters:-

- Export Houses, Trading Houses with annual export turnover exceeding Rs.10 crores.

- Manufacturing units with minimum export orientation of 25% of production or export

turnover of Rs.5 crores, whichever is lower? For this purpose, only physical exports

of commodities will be taken into account and not services. Such exports could be

made either directly by the manufacturer or he can sell to a Trading House, who can

then export.

Advances against Cash Incentives

Advances against Duty Drawback Entitlements

These are not very common and can be ignored for the purpose of this training.

Post Shipment Credit

Post Shipment Credit can be both, short-term (180 days) or medium to long-term (more than

180 days). Banks give Post-shipment credit (short-term) after the shipment of goods and

submission of shipping documents to banks. Following are the types of post-shipment credits

given by banks.

Negotiation of Documents:

Where the export is under a Letter of Credit, the banks accept the documents, check them,

and if they are as per the LC terms, pay the exporter the total amount of the LC, less the bank

interest and charges. This process is called negotiation of documents.

Purchase/Discount of Bills

Where bills are not covered under Letters of Credit, the exporter may ship on a Bill of

Exchange Basis. i.e. DA or DP terms. In such cases also, the banks check the documents,

wait for the acceptance of the BOE by the buyer, and on acceptance, pay the exporter the

value of the BOE. This process is called purchase / Discount of Bills.

Documents on Collection Basis

The term ‘Collection Basis’ means that the banks send the documents to the buyer through

the buyer’s bank and the exporters will receive export proceeds only after they are paid by

the buyer. No payment is made to the exporter when he submits the documents. Banks may

also sometimes grant advances against invoices / bills sent on collection basis. This may be

resorted to when the limit available under the Bills purchased scheme is exhausted or when,

some export bills drawn under L/C have discrepancies. Such payments are usually avoided

and not favored by banks. The period of credit will be from the date of negotiation or

collection of export documents to the due date (not more than 180 days in any case)

mentioned on the relative export bill or the date of realization of export proceeds from the

overseas bank.

Advances against Goods sent on Consignment Basis

Need for this type of finance arises where goods are exported on consignment basis at the

risk of the exporter for sale and eventual remittance of sale proceeds by the agent/consignee.

This type of finance is also not favoured by banks.

Advances against Cash Incentives/Duty Drawback

Where the domestic cost of production of certain goods is high in relation to international

price, government may grant some incentives to the exporter so that he may compete

effectively in the overseas market. The banks may at times give advances to the exporter

against these incentives. Government of India have formulated a Duty Drawback Credit

Scheme under which banks are able to grant advances to exporters against their entitlements

of duty drawback on export of goods, free of interest charges. The period of advances will

be up to a maximum 90 days beyond which the bank may not allow the advances or may

charge normal interest applicable to export credit.

Financing Exports under Deferred Payment Arrangements, Turnkey Projects,

Construction Contracts etc.

Post-shipment credit (medium or long term) is given for exports on deferred payment terms

for the period of over one year. Also special RBI approval or EXIM approval is required

for credit period more than 180 days.

While sanctioning the post-shipment credit, the bank will first liquidate the packing credit

from the bill proceeds and then convert the entire amount of the bill into post-shipment

credit.

TRADE DOCUMENTATION

EXPORT DOCUMENTS

Given below are the various documents involved in the export of goods.

Purchase Order

A Purchase Order (PO) is the very first document executed. The Exporter and the Importer

negotiate with each other to sell and purchase goods. The Exporter commits to sell the

Importer:-

- certain goods

- at a certain price and

- At a certain date.

In the Purchase Order all this is put in writing and signed by both the parties. On signing the

PO, there is a commitment on both sides and is legally binding on both sides. PO is not only

important to the exporter and importer, but it is also of concern to their respective countries,

since it affects the balance of payment position of both the countries. It is, therefore, not just

a matter of product, manufacturing, packing, shipment and payment but also one of the

concerns to licensing authorities, exchange control authorities and banks dealing in export

trade. The exporter is required to produce copies of export order to various Government

departments/Financial institutions for many things like - obtaining export licenses for

products covered under restricted items for exports, availing pre-shipment & post-shipment

finance, other incentives, dealing with inspection authorities, insurance underwriters,

customs offices, exchange control authorities, etc. for various purposes.

Order Acceptance

The Order Acceptance is another important commercial document prepared by the exporter

confirming the acceptance of order placed by the importer. Under this document, he

commits the shipment of goods covered at the agreed price during a specified time.

Sometimes, the exporter needs a copy of his order acceptance signed by the importer.

The order acceptance normally covers:

Name and address of the importer

Name and address of the consignee

Port of shipment

Country of final destination

Description of goods

Quantity

Price each and total amount of the order

Terms of delivery

Details of freight and insurance

Mode of transport

Packing and marking details

Terms of payment.

Invoice

It is a prima facie evidence of the contract of sale and purchase. The invoice should be

strictly in accordance with the contract of sale (PO). It contains following details:

Name and Address of Seller

Name and Address of Buyer

Name and address of the consignee

Description of Goods i.e. Technical features, Physical features

Quantity of Goods

Gross Weight / Net Weight

Price of Goods – unit price and total price

Country of Origin

Port of Loading & Port of Discharge

Payment Terms

After sale service and warranty details

Validity of Invoice

Delivery Schedules

There are five types of invoices:

Proforma Invoice

Commercial Invoice

Consular Invoice

Legalised Invoice

Custom Invoice

1. It is an indicative quote from the exporter to the importer

It is a firm contract of sale for the shipments made. It is a receivable in the books of accounts of the exporter.

Consular Invoice is a document required mainly by countries like Philippines and South Africa.

It is required by the Middle East countries. It is also called as visaed invoice.

It is required by countries like USA and Canada.

2. It gives a clear idea to the importer in respect of terms and conditions of sale and price of goods.

It is fundamental and basic document used for commercial transactions.

It is useful at the time of payment of Import duty. Thus facilitates fast clearance of goods at customs of importers’ country.

This invoice is legalized by the consular of importing country by stamping and attesting.

Specific form is to be supplied by the consular office of the importing country.

3. Acceptance of a Proforma Invoice by the buyer is equivalent to a Purchase order duly accepted.

It gives description of the goods as per the L/C, if transaction is drawn under letter of Credit

Consular invoice is certified by Embassy or Trade Consulate of the Importer’s country stationed in exporter’s country

It is same as consular invoice except that it is not on the prescribed form.

This facilitates entry of merchandise into importing country under preferential traffic.

4. In addition to The exporter

basic terms mentioned above, it includes: Order and Contract No

Marks and Vessel No

Packing specifications

Terms of Sale (FOB,CIF, C&F)

Details of shipment i.e name of vessel, route, sailing date, GRI No, IE Code, Marine Insurance Reference.

has to pay to the Embassy concerned some fees for the certification of this invoice.

Packing List/NoteA Packing List/Note gives description of goods exported in detail including every part, component, specifications, etc. It includes following details

1. Date of packing 2. Connecting invoice number 3. Order number 4. Port of Loading5. Port of Discharge6. Country of Destination7. Quantity of goods8. Description of goods item wise9. Gross weight and Net Weight10. Item-wise details

Transport DocumentsThe following documents are used in export business as transport documents:

Ways of Transport Document Issued

Transport by Sea Bill of Lading Freight Forwarder’s Receipt

Air Freight Airway Bill/Air consignment noteRail/Road Railway Receipt/Consignment notePost Post Parcel ReceiptCourier Courier Receipt/Way BillBill of LadingIt is a document of title and it is evidence of shipment.

The Bill of Lading is a document issued by the shipping company or its agent:

- acknowledging the receipt of goods mentioned in the bill for shipment on board the vessel

- undertaking to deliver the goods in the same order and condition as received, - to the consignee mentioned on the Bill of Lading.

Consignor is one who ships the goods.Consignee is one who can collect goods from shipping company. The Bill of Lading contains details such as the: Name of the consignor Name and destination of the vessel Destination of the goods Description of goods Quantity of goods Marks and numbers Invoice number GR number Gross and Net weight Number of packages Amount of freight etc. Date and place of shipmentFrom the legal point of view, a Bill of Lading is:i) A formal receipt by the ship-owner or the master of the ship acknowledging that the

goods of the stated specifications, quantity and condition has been received in the custody of the ship-owner for the purpose of shipment or is on board a certain ship;

ii) A memorandum of the contract of carriage, repeating in detail, the terms of the contract which was in fact concluded prior to the signing of the bill; and

iii) A document of title of the goods enabling the consignee to dispose of the goods by endorsement.

Bills of Lading are usually made out in sets of three.The exporter should submit ALL the sets of Bill of Lading together with the mate receipt to the shipping company, which would calculate the freight amount on the basis of measurement or weight as certified by the recognized Chamber of Commerce. On payment of the freight, the shipping company returns the Bill of Lading duly signed and stamped. If required, the exporter may prepare additional copies of the Bill of Lading.In some cases, the exporter may have the Bill made out to his own order or in the name of the Bank. The consignee or the consignor, as the case may be, may transfer the bill either by:

- an endorsement, which names the transferee to whom the delivery is to be made or- By an endorsement in blank (i.e. without naming an endorsee).

Airway Bill/Air Consignment NoteAirway Bill or Air Consignment Note is the receipt issued by the airline company for the carriage of goods under certain terms and conditions. Airway Bill or Air Consignment Note is NOT treated as a document of title and is not issued in negotiable form. Airway Bill is generally issued in three copies. One copy each is for the carrier, consignee and the consignor.

Post Parcel ReceiptPost parcel receipt evidences the receipt of goods for exports by the post office and it is also NOT treated as a document of title.

Mate’s ReceiptMate’s Receipt is issued by the Chief of Vessel after the cargo is loaded.

It contains

Name of shipping line Vessel Name Port of loading Port of discharge Place of delivery Marks and numbers Number and kind of containers Description of goods Container status/seal number Gross weight Condition of cargo at the time of its receipt on board the vessel Shipping bill number and date.

The mate receipt is of a transferable nature and must be presented immediately at the shipping company’s office to be exchanged into Bill of Lading.

Marine InsuranceIn the International trade, when the goods are in transit, they are exposed to marine perils. Marine Insurance is intended to protect the exporter/importer against the risk of loss or damage to goods in transit due to marine perils.

In India Marine insurance is governed by the following laws:1. The Indian Contract Act 1872

2. The Marine Insurance Act 1963

3. The Insurance Act 1938

4. The Insurance Rule 1939

5. The Indian Stamp Act 1899

6. Exchange Control Regulation relating to General Insurance

7. Common Laws

8. Marine Insurance Practice

Marine Insurance includes following types:1. Insurance of goods in transit by various modes of transport (e.g. Sea, Land, Air, Rail

etc.)2. Insurance of Ships (e.g. merchant vessels, passenger vessels etc.)3. Insurance of ship during construction4. Insurance of ship during breakage5. Freight InsuranceIn India and in majority of countries of the world the clauses drafted by institute of London underwriters (ILU) are in vogue. There are about 225 clauses in this set. There are other clauses also in world market like American Clauses or Deutsch Clauses.

For general cargo there are two types of clauses based on mode of transport.Transit by Sea Transit by Airi) Institute Cargo Clauses(C) –

ICC (C) Institute Cargo Clauses(A) – ICC (A)

ii) Institute Cargo Clauses(B) – ICC (B)

(Excluding carriage by post)

iii) Institute Cargo Clauses(A) – ICC (A)

The scope of cover under ICC(C), ICC (B) & ICC (A)ICC(C)Loss or damage subject to

(i) Fire or explosion(ii) Vessel or craft being stranded, grounded, sunk or capsized(iii) Overturning or derailment of land conveyance(iv) Collision/contract of vessel, craft or conveyance with external object other than

water.(v) Discharge of cargo at port of distress(vi) General average sacrifice(vii) Jettison

ICC (B) above (I) to (vii) points plus the following:(viii) Earthquake, volcanic eruption(ix) Washing Overboard(x) Entry of sea, lake or river water into vessel, craft, hold, conveyance, container,

lift van or place of storage(xi) Total loss of any package lost overhead or dropped whilst loading onto, or

unloading from, vessel or craft.ICC (A) above (I) to (xi) points plus the following:

(i) Rainwater damage(ii) Piracy(iii) Malicious damage(iv) Rough handling(v) Breakage, leakage, denting, scratching etc(vi) Heating, sweating(vii) Just by external factors(viii) Country damage

(ix) Theft, pilferage and non delivery(x) Hook and sling damage(xi) Contamination(xii) Oil damage(xiii) All other accidental loses/ damage to cargo

ICC (Air) is similar to ICC (A) but it does not cover General Average or Salvage Charges which are peculiar to sea transit.Exclusions applicable to all ICC (C), (B) & (A)

1. Willful misconduct of insured2. Ordinary leakage, ordinary loss in weight or volume, ordinary wear and tear of cargo.3. Insufficiency or unsuitability of packing or preparation of cargo4. Inherent vice or nature of cargo5. Insolvency or financial default of owners, managers, characters or operators of the

vessels. Un-seaworthiness of the vessel or craft and unfitness of vessel, craft, conveyance, containers or lift vans.

6. Deliberate damage7. Nuclear losses8. War Risk9. Strike, Riots, Civil commotion and terrorism

Insurance is mandatory when goods are shipped on CIF basis.

As soon as the goods are ready for shipment, the exporter has to buy Insurance.

Total Amount to be Insured = Invoice Value + 10%of the Invoice value

Bill of exchangeBill of exchange is also known as ‘Draft’. A bill of exchange is an instrument in writing

containing an unconditional order, signed by the maker, directing a certain person to pay a

certain sum of money only to or to the order of a person or to the bearer of the instrument.

A bill of exchange contains an order from the creditor to the debtor to pay a specified

amount to a person mentioned therein.

- ‘Drawer’ is the person who draws the bill.

- ‘Drawee’ is the person who accepts the bill and agrees to pay.

- ‘Payee’ is the person who receives payment.

‘Sight draft’ or ‘Draft drawn at first sight’ or ‘On demand’ or ‘On presentation’

The exporter expects the importer to make immediate payment upon the presentation of the

draft.

‘ Usance Draft’ or ‘Usance Bill’ or ‘Demand Draft’

Draft is drawn for payment at a date later than presentation. The bill of exchange or Draft is drawn in a set of two. Each one bears a reference to the other. When any of the drafts is paid, the second draft becomes null and void.

NTR (Notification and Transfer of ReceivablesThis form is used only for factoring. All the documents are enclosed along with this form.

The form is to legally notify the Export Factor of the invoices submitted for factoring.

Export Declaration FormsAs per the Exchange Control Regulations, exporters are required to submit declaration in one

of the following prescribed forms to the prescribed authority before any export of goods

from India is made. The prescribed forms are given below:

Form GR Exports to all countries made other than by Post. This is prepared

manually.

Form SDF This is similar to GR Form except that it is issued by certain offices of

customs where electronic systems are in place.

Form PP Exports to all countries by Parcel Post, except when made on “Value

Payable” or “Cash on Delivery” basis.

Form SOFTEX To be used for declaring software exports through data communication

links and receipt of royalty on the software packages/products exported.

1) The GR form is the most important document as far as the regulators are concerned. The GR Form gives the following:- the exact amount of Foreign Exchange coming into India at a specific date.

- Control and regulation of exports from India

- To estimate the balance of Payments situation of the country

The details of the GR form are to be reported to RBI on a fortnightly basis. The GR form is

to be released to RBI after the foreign currency is received into India. Authorized dealers

India are not supposed to accept any documents unless the GR form accompanies the export

documents.

Shipping Bill

Shipping Bill is an important document required by the Customs Authorities for allowing

shipment. It is prepared by the exporter and it contains:

Name of the vessel,

Master or agents, flag

Port at which goods are to be discharged

Country of final destination

Exporter’s name and address

Details about packages

Number and description of goods

Marks and numbers

Quantity

FOB price, real value as defined in the Sea Customs Act

Whether Indian or Foreign merchandise to be re-exported

Total number of packages with total weight

Value and the name and address of the Importer.

The Shipping Bills are of following types.

i) Duty-free shipping Bill: This type of Shipping Bill is printed on white paper and used for the goods for which

neither duty nor cess is applicable. It is also used for the goods manufactured out of

materials imported under the duty-free import.

ii) Dutiable Shipping Bill: This type of shipping bill is used for the goods subject to export duty/cess, which is either

entitled or not entitled for drawback. This shipping bill is used separately in respect of

which export duty is levied on the basis of (a) market price and (b) tariff assessed value,

and printed on yellow paper for all goods except mica and jute.

iii)Drawback Shipping Bill: If the export of goods is simultaneously by duty free and/or subject to export duty/cess,

this type of shipping bill is compulsorily to be used whether alone or along with any other

shipping bill. This type of shipping bill is printed on the Green paper.

iv) Shipping Bill for Shipment Ex-bond: In case of goods imported for re-export and kept in-bond, this type of shipping bill is used

which is printed on yellow paper.

Certificate of Origin It is issued by a recognized Chamber of Commerce, Export Promotion Council or

Government Department.

It certifies that the goods are of Indian origin and are manufactured in India. It is also

required by exporter to categories its product under get concession/ exemptions on duties

from the government.

Manufacturers CertificateIn addition to the certificate of origin, some countries require Manufacturers Certificate

stating that:

- the goods exported by him are manufactured in India

- the goods does not contain any raw material or components imported into India from

other country

G.S.P. CertificateThe EEC countries comprising France, Germany, Belgium, Netherlands, Italy, UK, Ireland,

Denmark and Greece have adopted the Generalized System of Preferences (GSP). Under his

system, manufacturers and semi-manufacturers from developing countries including India

will be entitled to a concessional rate of import duty in these countries.

The Government of India has authorized the Export Inspection Council of India and its

various agencies to issue the GSP Certificate.

2) Certificate of Inspection:- Certificate of Inspection is issued by the Inspection Agency concerned, certifying that

the consignment has been inspected as required under the Export (Quality Control &

Inspection) Act, 1963 and satisfies the conditions relating to quality control and

inspection as applicable to it and is certified export worthy. In addition to this certificate,

some countries need ‘Clean Report-of-findings’ under a certificate of SGS. (SGS is a

company who inspects the goods and gives a certificate to that effect).

Transshipment Bill

India Singapore USA

Port of Intermediate Final Port of Loading Port Destination

In the word Transshipment - ‘Trans’ stands for transfer and ‘Shipment’ means cargo i.e. when

cargo is transferred from one ship to another it is called as Transshipment. Sometimes

shipping companies do not have direct ship service to the port of discharge. In such cases,

goods are taken by one vessel (ship) to a port from where they are transferred to another

vessel for delivery to port of discharge.

Transshipment PermitThe transshipment permit is the permission for transshipment of goods from the vessel on

which the same are booked originally to another for export.

FOREIGN EXCHANGE MARKETS

THE EXCHANGE RATE SYSTEM IN INDIA

BALANCE OF TRADE AND BALANCE OF PAYMENT

It is customary to classify a country’s foreign currency receipts and foreign currency payments under two broad headings

1. Current account transactions2. Capital Account transactions

Current Account Transactions

Current account transactions relate to export and import of trade goods taking place in the

country. It also includes invisible transactions like services rendered by companies, purchase

of books, subscription to foreign courses, foreign travel related expenses, etc.

The difference between all the inflows minus all the outflows on the current account is called

BALANCE OF TRADE.

It is customary to report all imports on CIF basis and all exports on FOB basis for calculating

balance of trade. Invisibles comprises of items other than that of merchandise trade. Some of

the more important items under this head are travel, transportation, books and periodicals,

dividend payments, etc.

Capital Account Transactions

Capital Account comprises of short-term and long-term international borrowings and

lending. Examples are acquisition of assets in a foreign country, external borrowings,

repayment of external borrowings, investment or disinvestments in shares of overseas

companies, payment of interest on foreign borrowings, etc.

The difference between all the inflows minus all the outflows on the current account plus

capital account is called the BALANCE OF PAYMENT.

A negative on the Bop means tells you whether a country is a debtor (owes money) or a

creditor (has to receive money) vis-à-vis the rest of the world. India always had a negative

BoP position since independence. India also had a negative Balance of Trade position till

date. This means that the Indian Imports has always been more than its Exports.

Counter Trade

Countries facing balance of payments difficulties (negative BoP i.e. deficit and growing over

a period of time) encourage counter trade as a means of financing exports. Under counter

Trade, imports are paid for, not in convertible currencies but in the form of goods. We have

been invoicing all our exports to the communist countries in Non-Convertible Indian Rupees

and these are used to finance our imports from those countries. In other words, counter trade

can be termed to the barter system of trade. Counter Trade is said to be cost effective and

loaded against the countries having balance of payment difficulties. It was widely believed

that the goods imported by the erstwhile communist countries against Rupee payment terms

were sold to other countries against payment in hard currencies, thus depriving India of

valuable foreign exchange. Countries requesting for country trade, who may have to import

essential goods from abroad, may have to export more of their goods at cheap rates, so as to

meet counter trade obligation. In reality, they may be paying much more for the same goods

imported under Barter than they would have paid in free foreign exchange.

Convertibility of Indian RupeeA currency is said to be convertible if its holder can convert it, at any time, into any other

generally acceptable foreign currency without any restriction from the monetary authorities.

Following are most commonly used, accepted currencies in India.

GBP Great Britain Pounds

USD U S Dollars

EUR Euro

JPY Japanese Yen

AUD Australian Dollars

SGD Singapore Dollars

CAD Canadian Dollars

Convertible on the current accountWhen you say that rupee is fully convertible on the current account, it means that for all the

current account transactions, you can convert FCY into INR and vice versa freely without

any restrictions / approval from the monetary authorities (RBI / Ministry of Finance).

Example: If you want to make import payments in USD, you can convert equivalent Rupees

into USD and remit the amount. You need not take RBI approval for the same.

Example: Similarly, if you receive export payments in USD, you can convert the amount in

USD into equivalent Rupees without any RBI approval.

In India, Rupee is fully convertible on the current account, but partially convertible on the

capital account. i.e. you require prior RBI approval to remit money for capital account

transactions. The restrictions are put on convertibility of rupee to ensure that it does not

become a channel for flight of capital from country.

Rupee can be

Fully Convertible Partially Convertible Non-ConvertibleRupee is Fully convertible for following transactions:

Travel Business travel Travel for Medical

purpose For Education For Pilgrimage Transportation Freight on imports Freight on exports Shipping remittance

by foreign/ India companies

Insurance Premium, commission & payments

Services like Bank charges, commission, Soft/Hardware consultancy services, Computer services, Technical fees

Transfers like gifts, donation etc.

Income on NRI deposits, loans, dividends etc.

Rupee is partially convertible for Capital

account transactions e.g. Investments In Shares abroad by

residents In debt securities

abroad by residents In real estate’s abroad

by residents Repatriation Of foreign

investments in shares, debt markets

Of foreign investments in subsidiaries/ branches, in real estates

Repayment Long term/ Medium

term loans, NR deposits, short term loans etc.

Not Applicable

Foreign Exchange Market

To convert Rupee into foreign currency or vise-versa, exchange rate is involved. The

market, which deals with exchange rate mechanism for conversion of currencies, is called

Foreign Exchange Market (FOREX).

There is no physical Forex market like the Stock Exchange, but its participants and

players determine it.

Participants’ purchase and sell foreign currency for the various transactions, which

affect the demand/supply of FCY and Rupee. This demand and supply determines to

some extent the exchange rate.

Factors determining the Exchange Rate of a currency

Following factors determine the exchange rate of a currency vis-à-vis another currency.

Balance of Payments Local Interest Rates Monetary Policy Exchange Control Regulations Inflation Central Bank Intervention Speculation Demand / Supply of a currency

Players in FOREX Market

Following are the players in a FOREX market. Participants’ purchasing and selling foreign currency for the various purposes Commercial banks, Merchant banks, Investment Banks, Co-op Banks, Merchants, Moneychangers, tourist, etc. RBI purchase and sell foreign currency to control demand/supply of FCY/ Rupee, to

control rupee value compared to other currencies and for foreign currency reserves.

The Exchange rate in a Forex market is quoted for the following four types of transactions:- For Purchase of foreign currency cash the rate quoted is called as TT Buying rate- For Sale of foreign currency cash the rate quoted is called TT Selling Rate- Rate quoted for Negotiation of an Export Bill is called Bill Buying Rate- Rate quoted for Negotiation of an Import Bill is called Bill Selling Rate

* cash does not mean only hard currency, but also amount to be remitted out / received by way of a Telegraphic Transfer.

TT Buying rate Bill Buying rate TT Selling rate Bill Selling rateQuoted when a bank pays rupee equivalent to a customer after getting FCY from him

Quoted when a bank negotiates an export bill and there is no cash transaction taking place immediately, but cash will be received at a later date.

Quoted when a bank pays FCY to a customer after getting equivalent rupees from him

This is opposite of Bill Buying where payment is made for import bills.

Types of transactions Clean inward

remittance Conversion of

proceeds of export bill realized.

Cancellation of outward TT, DD, MT, PO

Types of transactions Purchase/discount

of bills and other instruments

Types of transactions Outward

remittance in foreign currency (TT/MT/ PO, DD)

Cancellation of forward contracts

Bill purchased returned unpaid

Bill purchased transferred to collection account

Types of transactions Transactions

involving transfer of proceeds of import bills.

Types of Exchange RatesFollowing are the different types of Exchange Rates

Cash Rate

A Cash transaction is the one in which delivery of foreign exchange takes place immediately.

I.e. if you have USD with you and go to a bank for conversion into INR, the bank will

convert FCY at a rate and give you INR immediately. The transaction as well as settlement is

complete immediately on the same day. Such types of transactions are called as cash

transaction and the rate quoted is called as cash rate.

TOM Rate

A TOM transaction is the one in which delivery of foreign exchange takes place the next

day. i.e. If you expect to get USD tomorrow, you may book a rate today and give USD to

bank tomorrow. The Bank will give you INR tomorrow. This means that you have done the

transaction today, but the settlement is done the next day. Such types of transactions are

called as TOM transactions and the rate quoted is called as TOM rate.

Spot Rate

A Spot transaction is the one in which delivery of foreign exchange takes place the third

working day. i.e. If today is 11th June and you expect to get USD on 14th June, you may

book a rate today and give USD to bank on the 14th. The Bank will give you INR on the

14th. This means that you have done the transaction today, but the settlement is done the

third working day. Such types of transactions are called as spot transactions and the rate

quoted is called as the spot rate.

Forward Rate

A Forward transaction is the one in which delivery of foreign exchange takes place at a

future date, which is greater than the third working day.

Deal Date Value DateCash Rate Today TodayTom Rate Today TomorrowSpot Rate Today Third working day

Forward Rate Today Any day after the third working day

How are Forward rates calculated?

Forward Rates are calculated based on the following formula:

Forward Rate = Spot Rate +/- Margin

If Forward rate is more than Spot rate, then the local currency is quoting at a premium If Forward rate is less than Spot rate, then the local currency is quoting at a discount

Eg: If today is 15 June and the spot rate of today is 49. You want a forward rate as of 15 July. The bank gives you 49.50. As the forward is more than the spot, rupee is quoting at a premium. The premium is 49.50 – 49.00 = 0.50. Thus the premium is 50 paise.

Eg: If today is 15 June and the spot rate of today is 49. You want a forward rate as of 15 July. The bank gives you 48.75. As the forward is less than the spot, rupee is quoting at a discount. The discount is 48.75 – 49.00 = -0.25. Thus the discount is 25 paisa.

How are Premium / Discount quoted?

Whether there is a premium or a discount depends upon the Interest rate difference between two countries to which the currency relates.

Eg India USA

Interest Rate 10% p.a. 5% p.a.

Difference 5%p.a.

Since USA interest rate is lower than that of the India INR is quoted at premium of 5% p.a. i.e. 42paise (0.05/12).

Lower the interest rate higher is the premium quoted.

Premium means that the FCY quoted will be more expensive and so a seller will have to

pay more of his own currency. The quoted margin should be added to the spot rate to get

the forward rate.

Discount means that the FCY quoted will be cheaper and so a seller will get less of his

own currency. The quoted margin should be deducted to the spot rate.

Par, which means there will be no change.

Forward Contract

Suppose you export today – on 15 June. Your buyer is expected to pay USD on 15 July. The forward rate as

on 15 July is 49.50. However, you do not book a forward rate and the spot rate becomes 40

on 15 July. Your buyer pays you and your bank converts at 49 because you did not book a

forward rate on 15 June. You lose 50 paise. If you had booked a forward rate, you would

have got 49.50 and could have hedged the exchange rate risk. This booking of a forward rate

is legalized under “The Indian Contracts Act” and the underlying contract is called as a

Forward Contract.

Forward Contract is thus a hedging tool available to Indian corporate to safeguard against

adverse movement in exchange rates. The rate at which a currency can be bought or sold at

a future date can be fixed today thus effectively fixing the costs of imports or export

receivables due at a future date. It thus renders debtors and creditors free from the risk

arising out of exchange rate fluctuations. Authorised Dealers have been delegated powers to

book forward contracts subject to the following conditions:

1. Forward facility can be extended to resident customers only.

2. Forward cover can be for genuine transactions only and not for speculative

transactions.

3. AD should satisfy himself that the party for whom the forward cover is being

booked is in fact exposed to exchange risk.

4. While booking a forward contract, ADs should verify the necessary documents to

ensure authenticity of the transaction.

5. The underlying transaction should be firm and not anticipated or speculative in

nature.

6. A customer transaction can be covered in whole or in part. The period and extent to

which cover can be obtained may be left to the customer though the cover should

ordinarily match the maturity of the original transaction.

Option Forward

In a forward contract, the settlement of currencies is at a fixed date in future. In our above

example, if a forward contract is booked as on 15 July, the money should be delivered to the

bank on the 15th. In case the money is not delivered, the contact is cancelled with some

penalties. In an option forward contract a further period, of say 30 days, is given to make the

settlement. I.e. you can deliver the money any time between 15 July to 15 Aug and you will

get the same rate booked by you. This further period is called as an option period and the

contract is called as an option forward contract.

How does GTF book Forward Contracts?

GTF books forward contracts through Standard Chartered bank. Forward Contracts are

applicable usually for prepayments in INR only. In case it is required to book a forward

contract, following will be done:

- The forward rate as on the due date of the invoice will be booked and the invoice

value will be converted at that rate.

- The forward contract will be booked with an option forward of 30 more days. This

is done to avoid cancellation of the contract in case the money is not received on

due date.

- If the money is received in our account by the option forward date, the forward rate

will be used to convert the received amount.

- If the money is not received in our account by the option forward date, (i.e. by the

30th day after the due date), the forward contract is crystallized and the money will

then be converted at the days spot rate. In such case, all exchange rate gains / losses

/ cancellation charges will have to be borne by the seller.

- In case the money is received before the due date, corresponding premium (excess

premium from the date of receipt of funds till the due date) will be deducted.

Invoice Shipping Due Option ForwardDate Date Date Date

30 Days

All incidental charges including stamp duty, if any, for booking and cancellation of forward

contracts will have to be borne by the seller.

Examples of Forward RateThere can be three situations:

Money comes on the due date

Money comes after the expiry of the contract period

Money comes before the due date

Money comes on the due date:Suppose you have an invoice of USD 100 with you today on 5 July. The due date of the

invoice is 5 Aug. You take a forward rate as on 5 Aug with an option forward till 5 Sep. You

get the following rates:

30 Days

Invoice Due Option ForwardDate Date Date

5 July 5 Aug 5 Sep

Spot Rate Fwd Rate49 49.50

If the money comes to you on the due date i.e. 5 Aug or any time between 5 Aug to 5 Sep, the bank will give you 49.50.Money comes after the option forward period:Suppose you have an invoice of USD 100 with you today on 5 July. The due date of the invoice is 5 Aug. You take a forward rate as on 5 Aug with an option forward till 5 Sep. You get the following rates:

30 Days

Invoice Due Option Fwd MoneyDate Date Date Recd

5 July 5 Aug 5 Sep 15 Sep

Spot Rate Fwd Rate Spot Rate49 49.50 49.80

If the money comes to you on, say, 15 Sep. The bank will cancel the forward contract on 5

Sep and will levy penal charges as follows:

Penal Charges = (Spot Rate as on 5 Sep – Fwd Rate taken as on 5 Sep)

= 0.30 on the full invoice value.

The penal charges are levied because the money has not been received on option forward the

due date and the bank has to borrow money from the market to crystallize its commitment.

Money comes before the due date:

Suppose you have an invoice of USD 100 with you today on 5 July. The due date of the

invoice is 5 Aug. You take a forward rate as on 5 Aug with an option forward till 5 Sep. You

get the following rates:

30 Days

Invoice Due Option FwdDate Date Date5 July 1 Aug 5 Aug 5 Sep

Spot Rate Fwd Rate Fwd Rate49 49.25 49.50

If the money comes to you on, say, 1 Aug. The bank will now charge the actual premium

from 5 July to 1 August and will convert at 49.25. The customer will not get 49.50. In other

words, the bank will calculate the fwd premium from 1 Aug to 5 Aug, which is , say, 0.25.

This is the excess premium and will be deducted from the actual forward rate booked. i.e.

49.50 – 0.25 = 49.25 will be charged.

Nostro / Vostro AccountsNostro Account

When you deal in foreign currency, the currency is required to be held in the country to

which it belongs. This means that you cannot keep USD in a bank in India. USD is a local

currency of United States of America and hence the USD should be kept in USA. Therefore

if any bank in India wants to deal with, say, USD, the Indian bank will have to open a

current account with a bank in USA, and deposit USD there. The Indian bank then can use

the USD deposited in the current account of the US Bank and make transactions. This

current account opened by an Indian Bank is called as a Nostro Account.

Definition

A foreign currency account maintained by a bank in India with a foreign bank in a foreign

country in its currency is called as a Nostro Account. (Our Account with You, in your

currency in your country.)

Eg State Bank of India, Mumbai branch opening a USD current account with Chase

Manhattan Bank, New York branch is called a USD Nostro Account.

Eg Punjab National Bank, Mumbai branch opening a GBP current account with Barclays

Bank, London branch is called a GBP Nostro Account.

As you may understand that a USD account cannot be opened in London as USD is not the

local currency of UK.

Vostro Account

An INR Account opened by a foreign bank with an Indian bank in India is called as a Vostro

Account. (Your Account with Us in our currency in our country).

Eg Chase Manhattan Bank, New York branch opening a INR current account with State

Bank of India, Mumbai branch is called a INR Vostro Account.

LIBOR

LIBR stands for “London Interbank Offered Rate”. It is a benchmark giving an indication of

the average rate at which a leading bank can obtain unsecured funding in the London

interbank market for a given period, in a given currency. It therefore represents the lowest

real-world cost of unsecured funding in the London market. It is produced for ten currencies

with 15 maturities quoted for each - ranging from overnight to 12 months - thus producing

150 rates each business day.

E.g.: - If you want to borrow, say, USD 1M from Standard Chartered London, they will

quote you LIBOR + 2% (say).

[Nostro – Account opened by Indian bank at foreign center in foreign currency

Vostro – Account opened by foreign bank in India in Indian Rupee.]

Foreign Exchange Management in India

Foreign exchange management comes under the jurisdiction of Ministry of Finance (MOF)

M.O.F. operates in the market through the following three institutions:

1. RBI

2. Customs

3. Enforcement Directorate

Until 31st May 2002, all foreign exchange management in India was governed by Foreign

Exchange Regulation Act 1973 (FERA). On 1st June 2002, FERA was replaced by Foreign

Exchange Management Act 1999 (FEMA).

Following are 4 points of difference between FERA and FEMA

FERA FEMA

Objective was to conserve foreign exchange

Objective is to manage foreign exchange

Under FERA offense was punishable Under FEMA offense is compoundable

Under FEMA burden of proof was on accused

Under FEMA burden of proof is on Enforcement department

NRI was not acceptable as per IT act NRI is acceptable as per IT act as well as defined by FEMA

[According to IT act – NRI is a person who is outside India for more than 182 days out of 365 days of

previous financial year for any employment or financial gain]

Under FERA/FEMA M.O.F. has instructed RBI to do foreign exchange management? RBI

has delegated powers to Authorised Persons i.e. Authorised Dealers and Authorized

Moneychangers.

Authorised Dealers

Authorised Dealers (AD’s) are those entities which are authorized by The Reserve Bank of

India to deal in Foreign Currency. They are usually Banks, but can be companies like

Thomas Cook, or even us.

Authorised Moneychangers

In order to provide facilities for encashment of foreign currency to visitors from abroad i.e.

foreign tourist, RBI has granted license to certain established firms, hotels and other

organizations permitting them to deal in foreign currency notes, coins & travelers cheques.

These are of two types:

1. Fully Fledged Moneychangers –They are authorized to undertake both purchase and

sell transaction with public.

2. Restricted Moneychangers – They are authorized only to purchase foreign currency

i.e. notes coins and travelers cheque. These purchases/ collections has to be

surrendered to an Authorized dealer/ Full Fledged Moneychangers.

Following three institutes plays important role in Foreign Exchange Management

2I. FEDAI – Foreign Exchange Dealers Association in India

It is a banker’s association licensed by RBI to deal in foreign exchange

It is an advisory body to RBI.

All rules governing Import- Export foreign exchange management is decided by

FEDAI. i.e RBI gives guidelines while FEDAI decides rules.

All the operational issues are discussed during association meet and put up to

RBI.

It conducts educational training programs for bank officers.

2II. ICC – International Chamber of Commerce

ICC was established in 1999 and its office is based in Paris

It aims at standardizing rules governing operations of Documentary Credits know

as UCPDC.

It works towards trade liberalization based on free and fair competition.

It maintains laison with United Nations.

Enjoys the status of first category consultant with UNO.

ICC has brought all countries at a common platform of understanding on documents.

The UCP 600 has come into effect from July 1, 2007 onwards and UCP 600 has a number of substantial changes that affect not only how banks will determine compliance, but also how contracts for sales utilizing Letter of Credits should be written. Some of the new articles in UCP 600 have adopted practices in International Standard Banking Practices (ISBP) and followed principles of International Standby Practices (ISP 98), besides providing new articles in examination, documentation and other aspects for issuing the letters of credits for banks involved in foreign exchange. 

"UCP" is the common reference for the Uniform Customs and Practice for Documentary Credits. The objective of the UCP is to create a set of contractual rules that would establish uniformity to conflicting national regulations. 

The Uniform Customs and Practices (UCP) for Documentary Credits were first issued in 1933 by the International Chamber of Commerce. The purpose was to overcome conflicting national laws on letters of credit as well as to bring about uniformity in banking practices. The rules have been revised a number of times. The recent revision, UCP 600, took more than three years of consultation and the Consulting Group, which comprised more than 40 representatives from 26 countries proposed changes to the various drafts. During its 24-25

October 2006 meeting, the ICC Commission on Banking Technique and Practice approved new UCP 600 rules for documentary credits. 

UCP 600 vs. UCP 500

UCP 600, which came into effect on July 1, 2007, incorporates a number of changes from the UCP 500 that was followed by banks for more than a decade till June 2006. These changes include:

A reduction in the number of articles from 49 to 39

New articles on "Definitions" and "Interpretations" providing more clarity and precision in the rules

A definitive description of negotiation as "purchase" of drafts of documents

The replacement of the phrase "reasonable time" for acceptance or refusal of documents by a maximum period of five banking days

New provisions allow for the discounting of deferred payment credits

Banks can now accept an insurance document that contains reference to any exclusion clause

Some of the important changes in UCP 600 and their implication for banks in handling letter of credit transactions are highlighted below:

UCP 600 does not apply by default to letters of credit issued after July 1st 2007. A statement needs to be incorporated into the credit (LC), and preferably also into the sales contract that expressly states it is subject to these rules. Article 1 of UCP 600 also leaves open the possibility for either party to exclude the application of any part of UCP 600 as long as the exclusion is stipulated in the credit.Following 3 documents of ICC are statutory requirement in India

(a) UCPDC 500 – Uniform customs and practice for documentary credit. Effective

from 01-01-1994. All L/Cs are opened as per UCPDC recommendations.

(b) URC 522 – Uniform rules for Collection. Effective from 01-01-1996. e.g

Bills sent on collection basis.

(c) URR 525 – [Bank to Bank transactions]. Uniform rules of reimbursement.

Effective from 01-07-1996.

Obligations of an Authorised DealerRBI has stipulated various obligations as far as handling and reporting of export documents

as well as dealing in foreign currency is concerned. Some of the important obligations are

highlighted below:

The export documents are to be accompanied by a GR Form. The AD’s should number

these forms in running sequence on a calendar year basis. These numbers should be 7

digit number prefixed by the type of finance granted. Eg If Export documents are

negotiated, the serial should no. will be N0000001, etc. If Export documents are

purchased, the serial should no. will be P0000001, etc.

The export documents should be submitted to the AD within 21 days from the shipment

date. If not, then the exporter should give valid reason for the delay and the AD should be

satisfied with the reason.

If the exporter could not ship the goods declared on the GR, then a short shipment

certificate is to be attached with the GR.

The GR should mention the name of the AD through which the FCY will be received.

The GR form details are to be reported by the AD to RBI on a fortnightly basis. i.e. All

documents handled by the AD in a fortnight (1st to 15th of the month and 16th to last day

of the month) should be reported to the RBI within 7 days from the close of the fortnight.

The AD will release the original GR to RBI only when the full amount declared on the

GR is realized. If not part payment will be reported to RBI. (Full payment means 90% of

the invoice value should be realized. 10% deduction is allowable)

If the buyer pays less due to discount given to the buyer, the same should be declared on

the GR before shipment. Or else the deduction becomes unauthorized.

If any commission is payable to the buyer’s agent, the same should be declared on the GR

before shipment.

The full FCY value declared on the GR should be realized within 180 days from the

shipment date. If not, then approval for extension in time limit is to be taken from RBI.

Retail Banking Operations

The creation of an institutional structure, usually called the foreign exchange market. This is

a market where one country’s currency can be exchanged for other countries. Contrary to

what the term might suggest, the foreign exchange market actually is not a geographic

location. It is an informal network of telephone, telex, satellite, facsimile, and computer

communications between banks, foreign exchange dealers, arbitrageurs, and speculators. The

market operates simultaneously on three tiers:

1. Individuals and corporations buy and sell foreign exchange through their commercial

banks.

2. Commercial banks trade in foreign exchange with other commercial banks in the same

financial center.

3. Commercial banks trade in foreign exchange with commercial banks in other financial

centers.

The first type of foreign exchange market is called the retail market, and the last two are

known as the interbank market.

We must first understand the organization and dynamics of the foreign exchange market in

order to understand the complex functions of global finance. This chapter explains the roles

of the major participants in the exchange market, describes the spot and forward markets,

discusses theories of exchange rate determination (parity conditions), and examines the roles

of arbitrageurs.

PARTICIPANTS IN THE EXCHANGE MARKET

The foreign exchange market consists of a spot market and a forward market. In the spot

market, foreign currencies are sold and bought for delivery within two business days after

the day of a trade. In the forward market, foreign currencies are sold and bought for future

delivery. There are many types of participants in the foreign exchange market: exporters,

governments, importers, multinational companies (MNC), tourists, commercial banks, and

central banks. But large commercial banks and central banks are the two major participants

in the foreign exchange market. Most foreign exchange transactions take place in the

commercial banking sector.

Commercial BanksCommercial banks participate in the foreign exchange market as intermediaries for

customers such as MNCs and exporters. These commercial banks also maintain an interbank

market. In other words, they accept deposits of foreign banks and maintain deposits in banks

abroad. Commercial banks play three key roles in international transactions:

1. They operate the payment mechanism.

2. They extend credit.

3. They help to reduce risk.

Operating the payment mechanismThe commercial banking system provides the mechanism by which international payments

can be efficiently made. This mechanism is a collection system through which transfers of

money by drafts, notes, and other means are made internationally. In order to operate an

international payments mechanism, banks maintain deposits in banks abroad and accept

deposits of foreign banks. These accounts are debited and credited when payments are made.

Banks can make international money transfers very quickly and efficiently by using

telegraph, telephone, and computer services.

Extending creditCommercial banks also provide credit for international transactions and for business activity

within foreign countries. They make loans to those engaged in international trade and foreign

investments on either an unsecured or a secured basis.

Reducing riskThe letter of credit is used as a major means of reducing risk in international transactions. It

is a document issued by a bank at the request of an importer. In the document, the bank

agrees to honor a draft drawn on the importer if the draft accompanies specified documents.

The letter of credit is advantageous for exporters. Exporters sell their goods abroad against

the promise of a bank rather than a commercial firm. Banks are usually larger, better known,

and better credit risks than most business firms. Thus, exporters are almost completely

assured of payment if they meet specific conditions under letters of credit.

RESIDENT FOREIGN CURRENCY (DOMESTIC) ACCOUNT

Resident individuals can open, hold and maintain a foreign currency account i.e. Resident

Foreign Currency (RFC) (Domestic) Account with authorized branches.

OPENING OF ACCOUNTS

Branches authorized to handle foreign exchange business can maintain RFCD Accounts. In

case, request for opening of RFCD Account is received by other branches, the same may be

opened at the nearest authorized branch or at the designated link branch. The Account

Opening Form for opening of Current Account of individuals in rupees is to be used for

opening these Accounts by affixing a stamp “RFCD Account”.

TYPES OF ACCOUNTSThe Account can be opened in form of Current Account and no interest will be payable on

this account. RFCD accounts at present can be opened in three currencies i.e. Pounds

Sterling, US Dollars and Euro.

JOINT ACCOUNTS

The account can be opened in the name of Residents individuals singly or in joint names

with eligible persons:-

PERMISSIBLE CREDITS

Foreign exchange acquired in the form of currency notes, bank notes and travellers’

cheques from the sources specified hereunder:

a. was acquired by him while on a visit to any place outside India by way of payment for

services not arising from any business in or anything done in India; or

b. was acquired by him, from any person not resident in India and who is

on a visit to India, as honorarium or gift or for services rendered or in settlement of

any lawful obligation;

c. Was acquired by him by way of honorarium or gift while on a visit to

any place outside India.

d. Represents the unspent amount of foreign exchange acquired by him

from an authorised person for travel abroad.

e. As gift from a close relation, as defined in section 6 of the Companies Act, 1957.

f. By way of earning through export of goods/services or as royalty, honorarium or by

any other lawful means.

g. Representing the disinvestment proceeds received by the resident

account holder on conversion of shares held by him to ADRs/GDRs under the

sponsored ADR/GDR Scheme approved by the Foreign Investment Promotion Boards

of Government of India.

h. By way of earnings received as the proceeds of life insurance policy

claims/maturity/surrender values settled in foreign currency from an insurance

company in India permitted to undertake life insurance business by the Insurance

Regulatory and Development Authority.

PERMISSIBLE DEBITS

Debits to the account shall be for the payment towards current/capital account transactions in

accordance with existing regulations under FEMA applicable to resident Individuals.

MINIMUM BALANCE

The RFCD Account may be opened subject to maintenance of minimum balance of

USD1000 or its equivalent, presently. There will be no upper ceiling on balances held in

these accounts.

CHEQUE BOOK FACILITY

Branches shall issue cheque book to RFCD Account holders for making payments for

permitted purposes in terms of existing provisions of Foreign Exchange Management Act

1999. Cheque book facility may be permitted subject to maintenance of minimum balance

of USD 1000 or its equivalent, presently in these accounts. Branches shall issue rupee

cheque book to RFCD account holder by affixing a stamp on top of the cheques “RFCD

Account”.

LOANS/OVERDRAFTS

No loan/overdraft shall be permissible against balances held in RFCD Accounts.

ACCOUNTING PROCEDURES

The accounting procedure for maintenance of RFCD account shall be the same, which is

applicable to FCNR (B) accounts.

PROCEDURAL GUIDELINES

Funds held in RFCD Accounts can be freely converted into Indian Rupees at the prevailing

TT buying rate. However, these funds are not allowed to be sold

or transferred to accounts of other residents in India. The branches shall report purchase of

currency to the Position Maintaining Offices.

Branches shall make all eligible payments in foreign currency by issuing drafts, traveller

cheques or TT etc. by debiting the RFCD Account with the notional amount.

In case of remittances received in currencies other than the designated currency, the

authorised branches may convert foreign currency into the designated currency for placing

deposit in RFCD account scheme at the risk and cost of the depositor. Branches are advised

to obtain cross rates from the concerned PMO in case of such transactions.

In case, a customer surrenders foreign currency notes for opening of RFCD Account,

charges for issuing drafts in foreign currency by surrendering the currency notes to Full

Fledged Money Changers will be borne by the customer.

Notional rates of foreign currencies advised by International Banking Division through

foreign exchange circulars are to be used for maintaining these accounts.

In case of remittances made in foreign currency where Bank does not earn any exchange

income, charges as applicable in case of EEFC accounts may be recovered from the

customer.

CHANGE OF STATUSBalances in these accounts may be allowed to be credited to NRE/FCNR (B) account, at the

option /request of the account holders consequent upon change of their residential status

from resident to non-resident.

REPORTING IN WEEKLY STATEMENT OF AFFAIRS

The funds held in these accounts should be shown along with figures of RFC deposits in the

Annexure to the Weekly Statement of Affairs. The deposit figures should not be clubbed

with NRE/FCNR (B) deposits.

RECONCILIATION OF BALANCES

At the end of each quarter, PMOs shall send a statement of RFCD Accounts as per their

records to the concerned branches for reconciliation purposes. The branches upon receiving

the statement shall tally the same as per their records and in case of any

difference/discrepancy, the matter shall be taken up with the concerned PMO.

Whenever there is a change in notional rate of the foreign currency, the balance of RFCD

funds shall immediately be revalued in terms of revised notional rate and the rupee balance

be reconciled with respective PMOs.

Foreign Exchange Derivative Instruments in India

Foreign Exchange ForwardsAuthorised Dealers (ADs) (Category-I) are permitted to issue forward contracts to persons

resident in India with crystallized foreign currency/foreign interest rate exposure and based

on past performance/actual import-export turnover, as permitted by the Reserve Bank and to

persons resident outside India with genuine currency exposure to the rupee, as permitted by

the Reserve Bank. The residents in India generally hedge crystallized foreign

currency/foreign interest rate exposure or transform exposure from one currency to another

permitted currency. Residents outside India enter into such contracts to hedge or transform

permitted foreign currency exposure to the rupee, as permitted by the Reserve Bank.

Foreign Currency Rupee SwapA person resident in India who has a long-term foreign currency or rupee liability is

permitted to enter into such a swap transaction with ADs (Category-I) to hedge or transform

exposure in foreign currency/foreign interest rate to rupee/rupee interest rate.

Foreign Currency Rupee OptionsADs (Category-I) approved by the Reserve Bank and Ads (Category-I) who are not market

makers are allowed to sell foreign currency rupee options to their customers on a back-to-

back basis, provided they have a capital to risk weighted assets ratio (CRAR) of 9 per cent or

above. These options are used by customers who have genuine foreign currency exposures,

as permitted by the Reserve Bank and by ADs (Category-I) for the purpose of hedging

trading books and balance sheet exposures.

Cross-Currency OptionsADs (Category-I) are permitted to issue cross-currency options to a person resident in India

with crystallized foreign currency exposure, as permitted by the Reserve Bank. The clients

use this instrument to hedge or transform foreign currency exposure arising out of current

account transactions. ADs use this instrument to cover the risks arising out of market-making

in foreign currency rupee options as well as cross currency options, as permitted by the

Reserve Bank.

Cross-Currency SwapsEntities with borrowings in foreign currency under external commercial borrowing (ECB)

are permitted to use cross currency swaps for transformation of and/or hedging foreign

currency and interest rate risks. Use of this product in a structured product not conforming to

the specific purposes is not permitted. Currency derivatives with the rupee as one leg were

introduced with some restrictions in April 1997. Rupee-foreign exchange options were

allowed in July 2003. The foreign exchange derivative products that are now available in

Indian financial markets can be grouped into three broad segments, viz., forwards, options

(foreign currency rupee options and cross currency options) and currency swaps (foreign

currency rupee swaps and cross currency swaps).

ABOUT SWIFT ALLIANCE MESSENGERCompany information

SWIFT is a member-owned cooperative through which the financial world conducts its

business operations with speed, certainty and confidence. More than 10,000 financial

institutions and corporations in 212 countries trust us every day to exchange millions of

standardised financial messages. This activity involves the secure exchange of proprietary

data while ensuring its confidentiality and integrity.

Our role is two-fold. We provide the proprietary communications platform, products and

services that allow our customers to connect and exchange financial information securely

and reliably. We also act as the catalyst that brings the financial community together to work

collaboratively to shape market practice, define standards and consider solutions to issues of

mutual interest.

SWIFT enables its customers to automate and standardise financial transactions, thereby

lowering costs, reducing operational risk and eliminating inefficiencies from their

operations. By using SWIFT customers can also create new business opportunities and

revenue streams.

SWIFT has its headquarters in Belgium and has offices in the world's major financial centres

and developing markets. SWIFT provides additional products and associated services

through Arkelis N.V., a wholly owned subsidiary of SWIFT, the assets of which were

acquired from SunGard in 2010. SWIFT does not hold funds nor does it manage accounts on

behalf of customers, nor does it store financial information on an on-going basis.

Governance at SWIFT

SWIFT is a cooperative society under Belgian law and is owned and controlled by its

shareholders. The shareholders elect a Board of 25 independent Directors, which governs the

Company and oversees the management of the Company. The Executive Committee is a

group of full-time employees headed by the Chief Executive Officer.

Board committees

The Board has six committees:

The Audit and Finance Committee (AFC) is the oversight body for the audit process

of SWIFT's operations and related internal controls. It commits to applying best

practice for Audit Committees to ensure best governance and oversight in the

following areas:

o Accounting;

o Financial reporting and control;

o Legal and Regulatory oversight;

o Security;

o Budget, finance and financial long-term planning;

o Responsibility and liability/Code of conduct; and

o Audit oversight.

The AFC meets at least four times per year with CEO, CIO, CFO, General Counsel and

Chief Auditor, or their pre-approved delegates.

The Committee may request presence of any member of SWIFT staff at its discretion.

External auditors are present when their annual statements/opinions are discussed and when

the Committee deems appropriate.

SWIFT History

212 countries YTD |

1,139 billion messages

YTD

2012 — SWIFT embraces change

SWIFT appointed as supplier for Target2 Securities. Sanctions Screening

launched. Milestone of 20 million messages is reached on 31 May. SWIFT

welcomes its first ever board member from China. Gottfried Leibbrandt, Head of

Marketing succeeds Lázaro Campos as CEO of SWIFT on 1 July. Sibos is held in

Osaka.

10,118 live users | 210

countries | 4,431 billion

messages

2011 — A stronger and more innovative SWIFT

Launch of SWIFTRemit, the first truly global platform for person-to-person

payments solution providing cost-efficient framework and consistent service

quality. SWIFT launches SWIFTRef, a family of products that aims to eliminate

costly payment errors arising from bad data, and increase straight-through-

processing. Launch of SWIFT Index, a new global economic barometer that can

act as an advance indicator of Gross Domestic Product (GDP). Five new market

infrastructures in Latin America join SWIFT. Innotribe Mumbai, 200 delegates

explored the specific issue of the future of mobile banking for the ‘unbanked’.

Construction of OPC CH started. The FIN Renewal programme is progressing to

schedule with the communications infrastructure completed in 2011. SWIFT is

awarded the Solidaritest Award for Business in recognition of SWIFT’s social

initiatives. India and Korea, 20 years on SWIFT. SWIFT increases impetus behind

Go Local initiatives. Sibos is held in Toronto.

9,705 live users | 209

countries | 4,032 billion

FIN messages

2010 — First acquisition in SWIFT history

SWIFT acquires Sungard’s AMH business named Arkelis, which extends

SWIFT’s portfolio in high-end messaging and services. 30,000 laptops deployed to

date in collaboration with One Laptop Per Child (OLPC). Kick off of SWIFT2015

strategy. 3SKey is introduced to help corporate treasurers manage all their banking

relationships with a single, multi-network personal digital identity. SWIFT

publishes ‘ISO 20022 for Dummies’, more than 15,000 copies are distributed by

the end of 2010. ISO 15022 message standards are certified as Sharia-compliant

for Islamic Finance. 30 years anniversary of SWIFT in Hong Kong, Japan and

Singapore. Acquired: Biggest ever Sibos: 8,900 attendees in Amsterdam.

9,281 live users | 209

countries | 3,76 billion

FIN messages

2009 — Efficiency is paramount

SWIFT opens Seoul office. Launch of Innotribe to enable collaborative innovation

in financial services. 400 organisations order Alliance Lite. SWIFT works directly

with customers and partners such as Bloomberg to develop new products and

services. Launch of Standards Developer Kit, which makes it cheaper and more

efficient to build and maintain standards implementation for both ISO 20022 and

MT messages. Sibos is held in Hong Kong.

8,830 live users | 209

countries | 3,855 billion

FIN messages

2008 — A smarter and simpler SWIFT

Distributed Architecture programme completes Phase One successfully. Launch of

Alliance Lite, a complete solution giving rapid access to the SWIFT network.

Launch of Alliance Integrator, a new product that reduces the effort for customers

moving additional business flows onto SWIFT and reduces the work involved in

implementing the yearly standards release. SWIFT records two peaks in the same

week in the message traffic 16,327,668 messages on Wednesday 23 January and

16,550,075 messages on Friday 25 January: a first in SWIFT history. First live

SEPA (Single Euro Payments Area) Credit Transfers is sent from major European

banks over SWIFTNet on 28 January 2008. SWIFT celebrates its 35th

anniversary. Sibos is held in Vienna.

SWIFT offices

SCOPE OF STUDY:-

The Principle of an autonomous monetary policy, a control over the exchange rate and

free capital movements cannot be achieved simultaneously.

Today, majorly transactions of Foreign Exchange have wider area than previous days

by which trade between countries takes place.

The study will assist to understand the foreign exchange operations easy and

effectively to reader.

This shows the Indian system of Forex transactions by exporters and importers

Foreign exchange day-trading has good liquidity. The Forex currency exchange

market is the biggest financial market around the globe today.

Traders can choose their most feasible time to do trading business with Forex day-

trading, as it is a 24/7 market. The high liquidity of Forex is combined with a real 24-

hour market.

In the Forex market, there are no limitations to sell currencies short, not like in stocks,

which have to be sold, at short currencies, on an upscale.

IT is evidently to the interest of mankind that made the trade between different

countries easily, presently universally banks are using software named as “SWIFT

ALLIANCE MESSENGER” helping to send and receive the foreign trade

transactions.

To raise the value of the national exchange for the sake

of improving the terms of trade.

Objective(s) of the study:-

To know about the how Indian government role in growing trade exchange and

in money transfer schemes.

What are the roles of banks in managing the business of foreign exchange?

What are the factors affecting the country’s exports and imports?

Why Indian government is closely concerned with the foreign exchange and

trade transactions?

What are the laws relating to regulate the foreign trade business?

What are the risks in trade and in exchange of payments/amount remitted by

N.R.I in favour of person living in India?

What are reasons to make “KNOW YOUR CUSTOMERS” norms important in

trading?

RESEARCH METHODOLOGY

This study is an explanatory research into the foreign exchange operations with respect to the

various kinds of services provided by the different financial institutions under the

guidance/instructions of the RESERVE BANK OF INDIA. The behavior of different users

of Forex services is viewed in the Indian context. The Indian foreign exchange market is

developing very fast along with the modern management lines and the importance of the

investment and satisfaction of his desires as the ultimate move of trade transactions is being

realized by more and more business firms engaged in import and export, merchant trade,

currency transactions services, treasury services along with the foreign institutional

investment opportunities. Globally, the importers and exporters in turn, are becoming more

and more aware of the exchange market in which he undertakes the purchasing and selling of

goods. To stop the speculation, black-money flow and corrupt practices are on the target of

RESERVE BANK OF INDIA by implementing the checks of FOREIGN EXCHANGE

MANAGEMENT ACT, 1999 are increasing significant concern as with business institutions

knowledge for good trade practices and improvement in countries economy, are becoming

more and shrewder. The present study is to study the FORIGN EXCHANGE OPERATIONS

with special reference to the Importer’s, Exporter’s, dealings in treasury operations, money

remittances under the jurisdiction/ operations of PUNJAB NATIONAL BANK. (A number

of dimensions namely the basis of educational background, age, occupation, marital status,

income etc.)

HYPOTHESIS

The truth in any field can be established by scientific research which involves the number

of steps and the time devoted by researcher to do justice with their own practices.

Formulation of hypothesis is one of the important steps in scientific research

methodology.

“A hypothesis can be defined as a proposition which can be put to test to determine validity.”

The study is concerned with the factors that influence the operations involves in the

foreign exchange. It is widely believed that in foreign exchange operations number of

factors depends upon the geographical differentiation, demographical behaviour of

importing and exporting nations and demand in the different nations and also the foreign

exchange policy of that country plays an important role in exchange dealings/processes.

The proposed study is aimed at verifying these impressions. To operationally the study

the following hypothesis were formulated to be tested through the questionnaire and

personal interviews:-

1) There is a difference in the nature and demand of Foreign Trade Market Business:-

There is a geographical difference between the countries and in the trends and their

culture i.e. views it is differently.

2) Difference exists in the investment and product selection by both Importers and

Exporter’s country.

3) There exists difference w.r.t. Choice of different trade tariffs applied by Indian

Government in the different parts of country:

Factors like income and suitability while making investment.

Impact on income Tax. (As some only purchase to avert tax.)

Influence of portfolio services providers.

4) There exist economic status differences in the behavior of natives of country.

Methodology

Methods of Data Collection:-

Every Project’s successfulness and significance is based on the material gather by the

researcher from the different reliable resources and by proper using of the data gathering

tools and techniques.

DATA:-

Data is the basic unit in statistical studies. Statistical information like census, population

variables, health statistics, and road accidents records are all developed from data. Data is a

collection of facts, figures such as values or measurements. It can be numbers, words,

measurements, observations or even just descriptions of things.

Data can be defined as the quantitative or qualitative values of a variable. Data is thought to

be the lowest unit of information from which other measurements and analysis can be done.

Data in itself cannot be understood and to get information from the data one must interpret it

into meaningful information. There are various methods of interpreting data.  Data sources

are broadly classified into primary and secondary data. Data is one of the most important and

vital aspect of any research studies. Researches conducted in different fields of study can be

different in methodology but every research is based on data which is analyzed and

interpreted to get information.

Types of data:-

Primary Data:-

Data that has been collected from first-hand-experience is known as primary data. Primary

data has not been published yet and is more reliable, authentic and objective. Primary data

has not been changed or altered by human beings; therefore its validity is greater than

secondary data. In the words of WESSEL,” Data originally collected in the process of

investigation are known as primary data”. The concerned investigator is the first person who

collects the information. The primary therefore, first hand information.

Secondary Data:-

Secondary data are those which are already in existence, and which have been collected for

some other purpose than the answering of the question in hand. The review of literature in

nay research is based on secondary data, mostly from books, journals and periodicals.

According to WESSEL,” Data collected by other persons are called secondary data “. These

data are therefore, called second –hand data. Obviously since these data are already been

collected by somebody else, these are available in the form of published or unpublished

reports.

The data gather in this project is based on both Primary sources and Secondary Sources of

Information the data analysis is based on the primary or firsthand information gathers from

various Banks, Private Money Transfers and Importer and Exporter. All the other is collected

from the books, websites and brochures given by the bank on the services they are providing

to their customers.

Limitations

In this report an attempt has been made to understand the concept of Forex operations in

dealing room and scrutinize about the various complexity of procedures they followed for

the flow of work between handling the transactions made by PNB bank on the behalf of their

potential customers. The problem rises then, when gap occurs in the paper work done by

both importers and exporters i.e. Letter of credit Bill of Lading, Invoice, Packing list, G.R.E

Certificate, and other information provided by the customer or authorised branch to

“CENETRELISED BANK OF TRADE & FINANCE” is not matching and sometimes also

at the time of the realization of the payment by both in the favour of importer and exporter or

vice-versa whether bank is debiting or crediting the amount made by the parties.

The government’s foreign trade policy is also plays crucial role in incumbent for

exports and the deposits made by N.R.I’s and N.R.E’s in whether in NOSTRO-VOSTRO

account. Today all of banking operations based on the technology, but there is also very huge

risk of data and information loss or theft, they should have is properly contained or not,

because many times it is seen that hackers hacked the data and sites of the institutions. Due

to which organizations fails to meet with their clients need. It is general quote that risk is

everywhere but with the time some discrepancies can be removing. “RISK” is the entire factor

for “PROFIT”. If organization is able to overcome the problems no, there is success at every

step.

Analysis & Interpretation

Every research project always basis a strong cause of problem which give out the excellent

results from the existing research by implementing the proper techniques and tools of data

interpretation always the need of good research work. The above research projects data is

based on the secondary data which given by the Organization (Punjab National Bank), the

brochures and the also the some of the copies of system originated documents as a specimen

copies.

The data resulted that the Punjab National Bank is one the leading industry in foreign

exchange services they are providing the customer satisfying services. Operationally work of

Punjab National Bank is very strong as according to the other banks. Their exchange

procedure is so simple. Globally, banking following the “SWIFT” software as a whole in

which they send and receives the message of receipt and payments of import and export. The

internal operations are very strongly applicable to “K.Y.C” norms as well as for the source of

funds. The bank maintained the standardised format according to their software “FINCALE”

which is characterized by the complete solutions for banking industry. Banks also have

flexibility to their regular and potential customers who have strong businesses and deposit

with the bank.

All the banks follow the R.B.I guidelines in foreign exchange and also in foreign

trade. The import and exports of goods takes places under the FEMA guidelines which are

mandatory to importers and exporters.

Que: - 1 Are you aware about the Commercial banks/ Indian Govt. undertaking banks?

Interpretation: - As In India Banking Industry are on very strong position, Undoubtly people of the country are very much aware about the banking operations by which they are fulfilling their personal as well as business.

Que: - 2. Are you Exporter / Importer of the goods?

Interpretation: - All we know in India Exports are more than Imports, Business Houses has been successful in creating their image on international front. In context this exporters engages more in export services. On other hand, importers imports that material which easily and cheaply available from international market. Left, respondent deals in domestic market.

Que: -3 In which country you deal for Products/ Services and Technology Transfer?

Interpretation: - Today India is one of the strongest economy in world and trade practices of India are more

with the Europe then with Singapore, U.A.E, China and with other continenst.

Que: -4 You have any Letter of Credit with Your Bank for Foreign Trade Services?

Interpretation: - Letter of credit is more crucial tool in Foreign Trade for fund exchange. 56% business

persons deals with foreign Importer and Exporter with the Letter of Credit.

Que: - 5 Which Indian banks you prefer for your business transactions?

Interpretation: - Indian Banks are very much involved in the foreign exchange operations, especially the

participation of government banks. Also the foreign banks are very active participants in

the foreign exchange business. In above graph PNB bank is leader among other banks i.e.

are Bank of Baroda, Bank of India and the Hdfc bank.

Que: -6 What is mode of the transport you use for Import/ Export?

Interpretation: - Transportation of goods in foreign trade and % of transshipment by waterways is more than airways slightly. Both are very much crucial transport modes in trade.

Que: - 7 Which company’s software you use for Money Transfer?

Interpretation: - For the Foreign Exchange transactions above companies are the key player in the currency

exchange or conversion. U.A.E exchange is less like in among dealers; Money gram is less

preference than Western Union Money transfer which is leading player in this area.

Que: - 8 Which Company Charges more commission on Money Transfer?

Interpretation: - In the money transfer business commission charged by companies Westren Union Money

Transfer is ahead in highly commission charges from their customers, as compares to

other two companies.

Que: - 9 From which areas people deals most in Money Transfer?

Interpretation: - Transactions in Semi-urban area are more than urban and rural areas.

Que: - 10 Are you satisfied with the services of private money transferees?

Interpretation: - Most of the people are satisfied with the services in their areas provided by the private money transferees. Only small proportions of people are not satisfied with their services. People say that private service providers charge more than the banks.

Que: - 11 From which area your received the most order regarding Import /Export?

Interpretation: - In Export and Import business most of the orders from the urban areas because of full

awareness and the lots business opportunities. Rural is least in both Import & Export.

Que: - 12 Are the Importer / Exporter uses the Letter of Credit?

Interpretation: - Letter of Credit is most reliable Source of fund transfer between the Importers and Exporters. So, that most of the Exporters and Importers prefer the Letter of credit.

Recommendations / Suggestions

1. Indian Government should take special recommendations to boost the exports as in Indian

context to increase their foreign currencies reserves.

2. To enter in the international trade both importer and exporter should be known to the

foreign trade market in which they are dealing.

3. Indian Ministry of trade and commerce should be more concerned for own exporters to

promote their business in foreign countries.

4. There should me more flexibility of operations to take deposits from N.R.I’s and N.R.E’s.

5. Under the Guidelines of RESERVE BANK OF INDIA Risk Management Committees in

every financial institution to review the different types of risk in their organization.

6. Free Trade Agreements (FTAs) are an important element of trade strategy sought to

enhance our presence in new and emerging markets to increase our market share.

7. Encourage domestic manufacturing for inputs to export industry and reduce the

dependence on imports.

8. Promote technological Up-gradation of exports to retain a competitive edge in global

markets.

9. Persist with a Strong market diversification strategy to hedge the risks against global

uncertainty.

10. Provide incentives for manufacturing of green goods recognizing the imperative of

building capacities for environmental sustainability

Conclusion

Every operation of banking industry regulates by bankers of bank i.e. is R.B.I applied

liberalized approach for issuing the licences to banks and other institutions to act as

Authorised Dealers in the foreign exchange market to provide services to the business

houses, various money transfer companies working at international level. In keeping with the

move towards liberalisation, the Reserve Bank has undertaken substantial elimination of

licensing, quantitative restrictions and other regulatory and discretionary controls by

implementing the FEMA, 1999 checks and the checking of the documents on the port by

Custom departmrnts. Reserve Bank has also provided the exchange facility for liberalised

travel abroad for purposes, such as, conducting business, attending international conferences,

undertaking technical study tours, setting up joint ventures abroad, negotiating foreign

collaboration, pursuing higher studies and training, and also for medical treatment. From the

above research it concludes that “OPERATIVE FUNCTIONS” of Punjab National Bank is very

efficiently working as compare to other Indian banks.

References / Bibliography:-

Books:-

A. VARSHNEY, P.N, 2007, BANKING LAW AND PRACTICE, SULTAN CHAND & SONS, NEW

DELHI. CHAPTER-19 Letter Of Credit.B. PAIN, PARDIP K, 2010, INTERNATIONAL BANKING, MACMILLAN PUB. INDIA LTD, NEW

DELHI.

Journals:-

http://cscjournals.org/csc/manuscript/Journals/IJBRM/volume3/Issue1/IJBRM-64.pdf

Websites:-

http://www.rbi.org.in/scripts/PublicationsView.aspx?id=12252#CON

http://www.worldscibooks.com/economics/8052.html

http://dgft.gov.in/exim/2000/policy/ftpplcontentE1213.pdf

http://dgft.gov.in/exim/2000/Mspeech1213E.pdf

ANNXEURE

Specimen: - Letter of credit_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Swift InputSender Bank: - PUNJAB NATIONAL BANK Lajpat Nagar, New Delhi

Receiver Bank: - Bank Of America New York._ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 27: Sequence of total 1/140 A: Form of Document Credit Irrevocable20: Documentary Credit number 1496FLC00037/1231C: Date of issue 12051540E: Applicable rules UCP LATEST VERSION31D: Date & Place of Expiry 120617 CHINA50: Applicant Force Polymers Pvt. Ltd. 10th km stone, Hardwar-Delhi road, Bahadrabad, Hardwar, Inida59: Beneficiary – name & address XFLP CHEMICAL CO. LTD. ROOM B701-705, HUAQIAO YINZUO BUILDING, 1 NORTH DAQIAO ROAD PUKOU DISTRICT, NANJING CHINA32B: Currency code, Amount Currency : USD (US Dollor) Amount #33, 040. #41A: Available with …BY…-FI BIC ABOCCNBJ100 AGRICULTURE BANK OF CHINA, THE (JIANGSU BRANCH) NANJING CN BY NEGOTIATION42C: DRAFTS AT… AT DAYS FROM BILL OF LADING DATE BEING 100 PCT DRAWN 42D: DRAWEE – NAME & ADDRESS PUNJAB NATIONAL BANK BRANCH AHMEDPUR HARDWAR, INDIA. 43P: Partial ShipmentNOT ALLOWED43T: Transshipment ALLOWED44E: Port of Loading/airport of dep. Any port of china44F: Port of discharge / airport of dep. NIHAVA SHEVA PORT, INDIA.44C: Latest date of Shipment 12/05/2745A: Description of goods &/or Services

covering shipment of CRUDE OIL 30000 Lt. (300 DRUMS OF 100 LT. EACH) AND AS PER PERFORMA ONVOICE NO. FGHLJN20120510P DATED 10.05.2012. Terms CIF NHAVA SHEVA, INDIA.46A: DOCUMENTS REQUIRED

1. FULL SET 3/3 ORIGINAL SHIPPED ON BOARD OCEAN SHIPPING COMPANY’S BILL OF LADING TO ORDER BANK ENDORSE OR MADE OUT TO ORDER OF PUNJAB NATIONAL BANK, BRANCH AHMEDPUR HARDWAR, INDIA. MARKED FREIGHT PREPAID AND NOTIFY THE APPLICANT.2. SIGNED COMMERCIAL INVOICE(s) IN THREE COPIES QUOTING THE GOODS SUPPLIED ARE OF CHINA ORIGIN AS PER PURCHASE ORDER OF THE APPLICANT BEARING NO. FPL/PUR/0145/12-13 DTAED 08.05.2012. MATERIALS ARE FREELY IMPORTABLE ASPER INDIA’S FOREIGN TRADE POLICY 2009-2014.

3. PACKING LIST IN 06 COPIES.4.ONE COMPLETE SET OF NON NEGOTIABLE DOCUMENTS TO BE SENT TO APPLICANT WITH INVOICE,PACKING LIST, BL/AIRWAY BILL,CERTIFICATE OF ORIGIN VIA FAX OR COURIER WITHIN 07 WORKING DAYS FROM THE DATE OF SHIPMENT. BENEFICIARY CERTIFICATE TO THIS EFFECT MUST ACCOMPANY THE ORIGINAL DOCUMENTS.5. INSURANCE IS COVERED BY THE APPLICANT IN INDIA PARTICULARS OF SHIPMENT FOR INSURANCE PURPOSE TO BE SENT TO APPLICANT QUOTING THEIR COVER NOTE/POLICY NO.0830000748 OF TATA AIG GENERAL INSURANCE COMPNAY LTD.THROUGH FAX/EMAIL. PROOF OF COPY OF FAX/MAIL IS TO ACCOMPANY THE DOCUMENTS.6.IN CASE SHIPMENT BY SEA - CERTIFICATE FROM SHIPPING COMPANY OR THEIR AGENT TO THE EFFECT THAT THE CARRYING VESSEL IS REGULAR LINEER, SEA WORTHY AND NOT MORE THAN 20 YEARS OLD.7. IN CASE SHIPMENT BY SEA - HEALTH CERTIFICATE ISSUED BYGOVERNMENT OF HONGKONG AND CERTIFIED BY VETERINARY DOCTOR.F47A: Additional Conditions1.ORIGINAL DOCUMENTS TO BE SENT TO US IN ONE SETS BY DHL, BY REGISTERED AIRMAIL AT PUNJAB NATIONAL BANK INTERNATIONAL BANKING BRANCH, 8TH FLOOR, DCM BUILDING, 16, BARAKHAMBA ROAD, NEW DELHI- 110001,INDIA.2.ALL DOCUMENTS SHOULD BE IN ENGLISH OR ACCOMPANIED BY ENGLISH TRANSLATION.3.DOCUMENTS OF FOLLOWING NATURE ARE NOT ACCEPTABLE:IN CASE OF AIR SHIPMENT -A.AIR CONSIGNMENT NOTE ISSUED BY FREIGHT FORWARDER.B.AIR WAY BILL ISSUED PRIOR TO DATE OF CREDIT.C.THIRD PARTY AIRWAY BILL.D.HOUSE AIRWAY BILL.IN CASE OF SEA SHIPMENT -A.SHORT FORM BILL OF LADING/BLANK BACK BILL OF LADING.B.BILL OF LADING ISSUED PRIOR TO DATE OF CREDIT.C.THIRD PARTY BILL OF LADING.D.CONTAINING A PROVISION THAT GOODS CAN BE CARRIED ON DECK.E.CHARTER PARTY BILL OF LADING.F.CONTAINING THE INDICATION INTENDED OR SIMILAR QUALIFICATION. IN RELATION TO THE VESSEL OR OTHER MEANS OF TRANSPORT OR PORT OF LOADING OR PORT OF DISCHARGE.4.ITEMS SHOULD BE SUITABLY PACKED IN AIRWORTHY/SEAWORTHY PACKINGTO WITHSTAND SHOCKS WHATSOEVER DURING LOADING,UNLOADING AND TRANSIT.5.DOCUMENTS PRESENTED WITH DISCREPANCY(IES) WHETHER INDICATED OR FOUND IS SUBJECT TO A HANDLING FEE FOR USD50.00 WHICH IS PAYABLE BY THE BENEFICIARY AND WILL BE DEDUCTED FROM PROCEEDS UPON PAYMENT.6.ALL APPARENT SPELLING MISTAKES IN LC TEXT ARE ACCEPTABLE

EXCEPT IN DESCRIPTION OF GOODS AND AMOUNT OF GOODS.7.FOR DISCREPANT DOCUMENTS, NOTWITHSTANDING ANY PRIOR NOTICE OF REJECTION BY US, WE MAY IN OUR SOLE JUDGEMENT REFER THE DISCREPANCIES TO THE APPLICANT FOR ACCEPTANCE AND WE RESERVE THE RIGHT TO RELEASE THE DOCUMENTS TO APPLICANT AGAINST THEIR ACCEPTANCE/PAYMENT WITHOUT PRIOR NOTICE TO THE PRESENTER UNLESS WE RECEIVE DIFFERENT DOCUMENT DISPOSAL INSTRUCTIONS FROM THE PRESENTER BEFORE SUCH RELEASE.F71B: ChargesALL BANK CHARGES OUTSIDE INDIA ARE ON ACCOUNT OF BENEFICIARY.F48: Period for PresentationWITHIN 21 DAYS FROM THE DATE OF SHIPMENT BUT WITHIN THE VALIDITY OF LC.F49: Confirmation Instructions WITHOUTF78: Instr to Payg/Accptg/Negotg BankWE SHALL REMIT THE PROCEEDS TO YOU UPON RECEIPT OF CREDIT COMPLIED DOCUMENTS AS PER UCPDC600. WE HEREBY ENGAGE WITH DRAWERS AND/OR BONAFIDE HOLDERS THAT DRAFT UNDER AND NEGOTIATED WITH CREDIT TERMS WILL BE DULY HONOURED.THE AMOUNT OF EACH DRAFT MUST BE ENDORSED ON REVERSE OF THE CREDIT BY THR NEGOTIATING BANK.F57A: 'Advise Through' Bank - FI BICBSCHHKHHBANCO SANTANDER, S.A. HONG KONG BRANCH(HEAD OFFICE IN HONG KONG)HONG KONG HKF72: Sender to Receiver Information/TELEBEN/PL ADVISE THE LC TO THE//BENEFICIARY AND ACKNOWLEDGE//RECEIPTReport FooterNumber of Entities: 1

End of report

Questionnaire

Name of Respondent__________________________________, Address___________________________

______________________________, City____________________, Contact No_____________________.

1. Are you aware about the Commercial banks/ Indian Govt. undertaking banks? Yes No

2. Are you Exporter / Importer of the goods?Exporter Importer NILL

3. In which country you deal for Products/ Services and Technology Transfer?United State of America China SingaporeUnited Kingdom Russia EuropeUnited Arab Emirates

4. You have any Letter of Credit with Your Bank for Foreign Trade Services?Yes No

5. Which Indian bank you prefer for your business transactions?Bank of Baroda Union Bank of IndiaBank of India Punjab National BankHDFC

6. What is mode of the transport you use for Import/ Export?Airway Waterway

7. Which company’s software you use for Money Transfer?Western Union money Transfer Money GramUAE Exchange

8. Which Company Charges more commission on Money Transfer?UAE Exchange Western Union money TransferMoney Gram

9. From which areas people deals most in Money Transfer?Rural UrbanSemi-Urban

10. Are you happy with the services of private money transferees?Yes No

11. From which area your received the most order regarding Import /Export? Urban Semi-Urban Rural

12. Are the Importer / Exporter uses the Letter of Credit? Yes No