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1.1 Introduction to the Study Globalization of economy has resulted in interlinking of financial markets in different countries into a common worldwide pool of funds to be accessed by borrowers and lenders alike. No sector of the economy seems to be more global in its orientation and operations than finance. To succeed in an increasingly competitive environment, companies have widened their operations to produce and sell goods across a wider spectrum of markets. This resulted in active trade and economic activity. After the globalization, cross-border controls on movement of capital, technology, goods etc., were lifted. Consequently, reforms in trade, industry, and financial and other sectors were initiated. Foreign technology, goods and capital started flowing into the country posing a serious challenge to the high cost domestic industry in terms of technology, quality of resources, productivity, and price-competitiveness. It has become imperative for the domestic companies that they should achieve technological and scale of operations parity with global competitors for sheer survival. The grossly underdeveloped state of our infrastructure facilities like power, transport, communications etc. could not obviously support this mammoth effort. Companies need finance importing capital goods, raw materials, technology and services. They also require finance at the pre-shipment and post shipment stage of export. These credits should be available to the companies at very competitive rates of interest to compete in international markets. The domestic financial market is beset with number of problems. First of all the money is not enough to support large capital-intensive projects. The capital market is rather shallow. Secondly the cost of capital is very high with real interest (inflation adjusted nominal interest rate) ruling far above the global levels. Thirdly, the domestic banks have meager capital
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Page 1: Foreign Currency Funding

1.1 Introduction to the Study

Globalization of economy has resulted in interlinking of financial markets in

different countries into a common worldwide pool of funds to be accessed by borrowers and

lenders alike. No sector of the economy seems to be more global in its orientation and

operations than finance. To succeed in an increasingly competitive environment, companies

have widened their operations to produce and sell goods across a wider spectrum of markets.

This resulted in active trade and economic activity.

After the globalization, cross-border controls on movement of capital, technology,

goods etc., were lifted. Consequently, reforms in trade, industry, and financial and other sectors

were initiated. Foreign technology, goods and capital started flowing into the country posing a

serious challenge to the high cost domestic industry in terms of technology, quality of resources,

productivity, and price-competitiveness.

It has become imperative for the domestic companies that they should achieve

technological and scale of operations parity with global competitors for sheer survival. The

grossly underdeveloped state of our infrastructure facilities like power, transport,

communications etc. could not obviously support this mammoth effort.

Companies need finance importing capital goods, raw materials, technology and

services. They also require finance at the pre-shipment and post shipment stage of export. These

credits should be available to the companies at very competitive rates of interest to compete in

international markets.

The domestic financial market is beset with number of problems. First of all the

money is not enough to support large capital-intensive projects. The capital market is rather

shallow. Secondly the cost of capital is very high with real interest (inflation adjusted nominal

interest rate) ruling far above the global levels. Thirdly, the domestic banks have meager capital

Page 2: Foreign Currency Funding

base and are plagued by high NPA levels. Domestic banks suffer from structural deficiencies,

poor asset/ liability management etc.

Therefore, the cost of their intermediation is very high which they are able to

meet by keeping large spreads on loans. The domestic market has a limited product range. With

a view to give level playing field to the companies, Government of India came up with the

necessary regulatory measures to help the Indian companies to have easy access to foreign

capital at a much cheaper rate of interest.

Indian companies are lining up to raise cheaper funds overseas, encouraged by the

rupee’s resurgence that has reduced currency risk and raised the prospect of huge savings in

costs. Domestic rates, despite a fall in recent times are still more than the interest prevailing in

overseas financial markets. The rupee’s gain has been underpinned by a rise in exports, foreign

direct investment/foreign institutional investments and remittances by overseas Indians. This has

resulted in huge arbitrage opportunities available for the Indian corporate to avail foreign

currency loan at much cheaper rate then the domestic interest rate.

Page 3: Foreign Currency Funding

1.2 Background of the Study

How was foreign currency funding option introduced?

Source of foreign currency funds for the Bank.

1. FCNR (b): Non-resident Indians are permitted to open FCNR (b) deposit i.e. Foreign

Currency Non-Resident (Bank scheme) deposit account. Under this scheme, the deposits

are accepted in foreign currency, (USD, GBP, and EURO AND YEN); interest is also

paid in foreign currency. Hence, there is no conversion of foreign currency and no

exchange loss. Deposits are accepted for a period of 1 to 3 years.

2. EEFC a/c: Export Earners Foreign Currency Account. RBI has permitted beneficiaries of

inward remittance and exports of goods and services to retain a portion of the

remittance/export realization in foreign currency deposit in any permitted currency (USD,

GBP & EURO)

3. RFC: Earlier, NRI returning to India for permanent settlement were required to surrender

all the foreign currency assets held abroad as well as balances held in their NRE/FCNR

(b) accounts to RBI within a period of 90 days and in turn were given- RIFEES

(Returning Indian Foreign Exchange Entitlement Scheme) to be utilized for certain

specific purposes. As a part of liberalization process, the Resident Foreign Currency

account scheme (RFC) was introduced in April 1992 in substitution to the RIFEES.

Interest on all the above foreign currency deposits are paid on the basis of prevailing

international interest rates for the currency of the deposit. All the above deposits are

maintained in foreign currency and are repatriable in any permitted currencies. If

repatriation is in the same country then there is no exchange loss.

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Deployment of foreign currency funds by the banks.

1. By converting the foreign currency into rupees, utilize the rupee funds in domestic

market, but there is a risk of exchange fluctuation, i.e. conversion of rupees into foreign

currency at a later date, since the funds may be required to be utilized / repatriated in

foreign currency.

2. Make deposits placements with banks abroad. The yield may be sub-LIBOR, that is less

than LIBOR, and the avenue abroad may be also limited due to exposure limits etc.

Deployment abroad is not a good proposition since banks abroad may accept deposits for

short periods, but foreign currency deposits in India are accepted till 3 years maturities.

In view of the above shortcomings, RBI has come out with the following schemes:

1. FCLR – Foreign Currency Loans to Resident Constituents. FCLRs are permitted to

a) Extending loans to residents constituents for meeting their Foreign Exchange

requirements or for the rupee working capital / Capital expenditure needs subject

to the prudential / inherent rate norms, credit discipline and credit monitoring

guidelines in force.

b) Extending credit facilities to Indian wholly owned subsidiaries / joint ventures in

which at least 51% equity is held by a resident company, subject to the guidelines

issued by RBI.

As per the scheme: Borrower’s principal liability to the bank to be denominated in

terms of foreign currency, at all times, during the tenure of the loan and similarly,

interest liability is also to be denominated in terms of foreign currency. Thus the

borrower assumes the foreign currency risk exposure. In other words, depending

Page 5: Foreign Currency Funding

upon the movements in the exchange rate of the currency in rupee terms his rupee

cost towards repaying of the loan or interest on the loan varies.

Bank disburses the foreign currency to the borrowers by granting the foreign

currency loan. If the borrower intends to generate rupee resources for working

capital / capital expenditure, as soon as the loan is disbursed, it has to be

converted into rupees by applying banks Spot TT buying rate, unless the loan

disbursements which is at the disposal of the borrower, is required to be used in

foreign currency towards retirement of his import bill.

Rate applicable is LIBOR plus margin. When compared to rupee advance where

the minimum rate is bank’s Prime Lending Rate (PLR) the interest rate for FCLR

works out cheaper. Therefore taking into account the forward premiums of say

around 1 rupee for 12 months, if Forward Contract covers the FCLR repayment,

works out cheaper.

2. PCFC: Exporters are granted pre-shipment credit known as Packing Credit (PC). This

advance is made to exporters to purchase the raw materials, processing, packing etc i.e.

before the goods are shipped. This is granted in Indian rupees and at a concessional rate

for a period of 180 days. The foreign currency amount advanced is converted into rupee

at the spot TT buying rate; no forward premium is passed on to the exporter, as he is

enjoying the benefit of lower interest.

3. EBR: Export Bills Rediscounted. This is post shipment finance for exports in foreign

currency. When pre-shipment finance is in rupees, then the PC is converted in Bills

Purchased (BP) in Indian rupees i.e. export bills are discounted / negotiated / purchased

and the proceeds in rupees is debited to BP and credited to PC. Similarly, if the pre-

shipment finance is in PCFC, then the advance is converted into EBR a/c at the banks.

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ROI is charged based on LIBOR plus margin, i.e. LIBOR applicable to the usage f the

bill. The advance is adjusted out of the proceeds of the export bill realized on due date.

Advantages of Foreign Currency Funding

• External funding is cheaper because of lower intermediation costs of an

international lender and the competition pressures.

• Under the new dispensation, domestic companies can borrow from

international financial markets up-to USD 100 million under the

automatic External Commercial Borrowing route of RBI without any

hassles at a much cheaper rate of interest.

• Where the project outlay is large and the domestic market conditions

come in the way of mobilizing the needed resources, foreign currency

debt/loans can help in meeting huge funding requirements.

• Foreign currency funding options permit the companies to keep

domestic borrowing options as a buffer for meeting local rupee needs.

• They pave the way for creating global name recognition for the

borrower for meeting future needs at competitive pricing and help in

forging strategic future global alliances.

Foreign Currency Funding can come in variety of ways. The borrower will have many

alternative routes and various options to choose from. Some of easily accessible options are

as under:

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1. EQUITY ROUTE

• Global Depository Receipts (GDR)

• American Depository Receipts (ADR)

• International Depository Receipts (IDR)

2. DEBT MARKET

• External Commercial Borrowings under automatic route of RBI

○ Floating Rate Notes

○ Loans

○ Short term Suppliers Credit

○ Buyers’ Credit for imports.

• Foreign Currency Option for Exports

○ Pre-shipment Credit in Foreign Currency

○ Export Bill Rediscounting Scheme

• FCNR (b) Loans

3. FORFEITING

Page 8: Foreign Currency Funding

EQUITY ROUTE

Companies raise funds by selling ownership right through equity or

A convertible bond (known as debentures in India and exchangeable into equity on a specific

date in future) issues. Under equity route, companies can opt for a direct NRI issue as part of

the domestic public offering or access international capital markets through depositary route.

Straight equity issues in the international markets are made in the form of depositary receipts.

Depositary Receipts are negotiable US security that generally represents a company’s

publicly traded equity or debt. Depositary Receipts are created when a broker purchases the

non- US Company’s shares on the home stock market and delivers those to the depositary’s

local custodian bank, which then instructs the depositary bank to issue depositary receipts. In

addition, depositary receipts may also be purchased in the US, secondary trading market.

Depositary receipts may trade freely, just like any other security, either on an exchange or in

the over-the-counter market and can be used to raise capital.

Three types of depositary receipts commonly used are:

1. American Depositary Receipts (ADR) Certificates issued by a U.S. depository bank,

representing foreign shares held by the bank, usually by a branch or correspondent in the

country of issue, ADR is meant to facilitate public issues and trading in the US. One

ADR may represent a portion of a foreign share, one share or a bundle of shares of a

foreign corporation. ADR issues are therefore subject to stringent accounting, regulatory

and disclosure requirements of the US Securities Exchange Commission (SEC).

2. International Depositary receipts are meant to facilitate issues and trading in Europe.

3. Global Depositary receipts (GDR) are used in the case of issues in the offshore market

combined with private placement in the US (to professional investors under Rule 144A of

the SEC). Being offshore issues, and only eligible for private placement with professional

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investors in the US, there are few regulatory requirements for GDR issues. The primary

and secondary market is mainly in London; while issues are formally required to be listed

in London/Luxembourg; most of the trading is on an over-the-counter basis.

The depositary receipts are issued, not by the company, but an international bank acting as a

depositary. Each depositary receipts represents a given number of the company’s shares

which are physically held by a custodian appointed by the depositary bank in the country of

the company which is the ultimate issuer of the shares: in the company’s books, the

depositary bank’s name appears as the holder of the shares.

The depositary gets the dividends from the company (in local currency) and distributes them

to the holders of the DRs after converting into dollars at the on going rate of exchange. Like

offshore bonds, GDRs too are bearer securities and trading / settlements are done by book

entries through CEDEL or Euro clear. The DRs are exchangeable with the underlying shares

either at any time, or after the lapse of a particular period of time. The exchanged shares

could then be traded on the local stock market. The issue price of DRs depends on the

market price of the underlying share at the time of issue. The underlying fees and

commissions typically work out to around 3.75% with the other expenses being similar to

those in case of bond issues.

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DEBT MARKET

Under Debt market the commonly used options are:

A. EXTERNAL COMMERCIAL BORROWING ROUTE

As far as external debt is concerned, all fresh loans are subject to approval of

the Ministry of Finance. Some powers for approving loans have also been delegated to RBI.

In general, if rupee interest rates are low, the attractiveness of ECB to corporate diminishes.

It is noted that, where the funding requirements are large, as in the case of some

infrastructure projects, these just cannot be financed in the rupee market, irrespective of the

rate of interest. In such cases therefore, recourse to ECB becomes unavoidable.

Under the ECB guidelines, external commercial borrowing refers to:

a) Debt bonds – bonds including Foreign Currency Convertible Bonds (FCCBs),

Floating Rate Note (FRNs)

b) Loans

c) Supplier Credit

d) Buyers Credit

The government of India as a source of finance permits ECBs for Indian corporate for

funding expansion of capacity as well as fresh ventures. Corporate can raise Foreign

Currency from international lenders under the automatic route up-to 50 million USD. ECBs

may be raised from any internationally recognized source such as banks, export credits,

agencies, suppliers of equipment, foreign collaborators, foreign equity holders, international

capital markets etc. under the automatic route. The loan raised is to be for a minimum of 3

years. For post facto approval, ECB form in duplicate with loan agreement has to be

submitted to RBI through the authorized dealer.

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The attractiveness of the ECB route to the borrowers lies in the lower cost.

Since interest rates prevailing abroad are lower than the domestic rates, the cost differential is

significant. The interest rates on these loans are pegged at a premium over LIBOR or

SIBOR. ECBs are to be repaid in foreign currency over a period of time, and in order to

hedge the currency exchange rate risk on the repayments; most of the corporate will be

covering a portion of the repayment by means of forward booking. Some big corporate hedge

payment of installments and interest by way of long term currency and interest swaps.

Floating Rate Notes: It is a type of bond where the interest is indexed to a base rate,

which may be LIBOR and therefore varies with the movements in the base rate. The floating

interest rate has two components – the base rate and a spread, which represents the risk

premium. These are the bonds without a fixed rate of interest, the coupon being set

periodically according to a predetermined formula typically tied to a short-term interest rate

in an appropriate market. Referred to as FRNs.

Loans: General Purpose Loans can be raised in the Euro-markets by top rated

companies by way of syndicated loans, where the size of the loan is large. The loan is

pegged to certain spread over Fixed or Floating LIBOR. Since the loan is for a longer

duration companies normally use the currency swap and interest swap to hedge they’re

underlying foreign currency exposure for repayment. With the present LIBOR at an all time

low and the hedging cost is around 2%, availing syndicated foreign currency loan is very

attractive when compared to the domestic interest rate, which is around 11%.

Supplier’s Credit: This represents credit sales affected by the supplier on the basis of

accepted bills or promissory notes with or without a collateral security. Under current

regulations Indian importers are free to enjoy a credit period of 180 days from the date of

shipment from foreign suppliers on their imports provided the interest rate does not exceed

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50 basis points over 6 months LIBOR on the date of negotiation. Prior approval from

Authorized Dealers is required if the credit period exceeds 180 days from the date of

shipment. Many foreign offices of Indian Bank negotiate documents presented by the

foreign supplier as per RBI guidelines for the benefit of the Indian importer.

Buyer’s Credit: A buyer’s credit is one where the importer (buyer) also acts as direct

borrower of funds to cover his foreign purchases. BC may be raised as a short-term trade

financing facility or financing projected capital goods imports. BC can be arranged for any

period and normally up to 3 years. The rate of interest is pegged to LIBOR. It should not be

more than 50 basis points for credit up to 1 year and 125 basis points for credits more than 1

year. BC is normally arranged from foreign offices of Indian banks / financial institutions. If

credit is arranged from any other than non-Indian financial institutions, it attracts withholding

tax of 15% over the interest rate payable. That is the interest has to be paid net of

withholding tax. BC can be availed for any usance period. BC is extended on the strength of

Usance Letters of Credit established by Indian Banks in favor of the foreign beneficiary. The

letter of credit will be normally restricted to the bank, which extends credit. On the strength

of the LC / Letter of Comfort the lending bank abroad negotiates the documents presented as

per LC terms and pays the beneficiary at sight and claim reimbursement from the importers

bank on the due date at the agreed rate of interest. The rate of interest is pegged to certain

spread over 6 months LIBOR prevailing on the date of negotiation. For availing BC the

importer has to take a quote from the foreign lender before establishing Letter of Credit and

submit ECB application form in triplicate to the Authorized Dealer for approval.

B. FOREIGN CURRENCY OPTION FOR EXPORTS

Page 13: Foreign Currency Funding

In order to make available to the Indian exporter, export credit at international rate of

interest. RBI introduced two schemes of export credit in foreign currency, like Pre-shipment

Credit in Foreign Currency (PCFC) and Export Bill Rediscounting Scheme (EBR). These

schemes are very attractive now for the exporters as the LIBOR and spread has come down

substantially. There is arbitrage opportunity available in the USD/Indian Rupee Market.

Pre-shipment Credit In Foreign Currency (PCFC)

It is a pre-shipment advance given to the exporter in foreign currency. The

loan is converted into rupees at spot TT buying/forward rate. PCFC can be availed in USD,

GBP, YEN and EURO. Interest chargeable is 0.75% over 6 months LIBOR. PCFC is carved

out of EPC limit with inter-flexibility. Exporters availing PCFC should invariably avail EBR

(Export Bill Rediscounting Facility for discounting export bills. Running account facility is

permitted. PCFC can be utilized for payment of import bills. PCFC is operated like cash

credit account with balances in foreign currency. Interest on PCFC will be arrived in foreign

currency and the rupee equivalent thereof will be recovered at monthly intervals.

Transaction cost of USD 25 in rupee equivalent is recovered for each PCFC withdrawal.

Forward Contract can be booked for PCFC withdrawal. When PCFC is outstanding, the

relative export bills cannot be sent on collection basis but should be discounted under EBR to

liquidate the PCFC. PCFC can not be liquidated with the proceeds of the bills in respect of

which neither PCFC nor EPC was availed in case of running account facility. Only

designated branches handle PCFC business. The exporters pay no withholding tax, as the

line of credit is arranged through our foreign offices.

Export Bill Rediscounted (EBR) Scheme

Page 14: Foreign Currency Funding

EBR is export bill rediscounting scheme under which the exporters bills are

discounted at the post shipment stage and simultaneously rediscounted abroad by the bank

for raising foreign currency funds to liquidate PCFC loan. Rate of interest for 6months is

LIBOR plus 0.75%. EBR facility is normally for a maximum period of 180 days. PCFC will

be liquidated with the discounting of bills under EBR scheme. EBR advance will be

eventually closed when the overseas buyer pays the bill. Both sight and usance bills are

discounted under EBR scheme. Transaction cost of USD 25 in rupee equivalent is charged

for every EBR. EBR finance can be availed without availing PCFC. However the usance

bill will be converted at the spot TT buying rate only without taking the forward premium. If

any export bill discounted under EBR is returned unpaid, a sale entry is to be passed at spot

TT selling rate. Crystallization under EBR is same as rupee export bills. At the times of

crystallization, interest is 3% over 6 months LIBOR from due date of the bill.

Page 15: Foreign Currency Funding

C. FOREIGN CURRENCY NON-RESIDENT (BANK SCHEME) LOANS

Introduced by RBI for financing Working Capital and Term Loan requirement

of resident companies out of FCNR (B) deposits of the banks. Banks have freedom to fix

interest rates, tenor and purpose of the loan. These loans are not used for personal loans.

RBI/GOI approval not required for availing loan. Loans are given to manufacturing and

trading units depending upon their credit ratings. Loans are disbursed to companies in

substitution of their Working Capital / Term loan rupee outstanding. Loan is availed in

foreign currency and repaid in foreign currency. Loans can be in USD, GBP, EURO and

YEN. Facility in designated branches only. FCNR (b) demand loans will be for 1 to 12

months. FCNR (b) term loans can be availed for 1-5 years in substitution of outstanding in

rupee term loan. Minimum amount: USD 100,000 or equivalent. Interest pegged to certain

spread over relative LIBOR depending on the tenor of the loan. Transaction cost is 2000/-

per availment of loan. Repayment will be on due dates from export receivables, balances in

EEFC accounts or rupee equivalent at the currency TT selling rate. Prepayment of the loan

permitted with a penalty of 1.5% on the amount of loan prepaid, computed from the

unexpired period of loan. Banks may insist on booking forward contracts for repayment of

principal and interest.

Benefits

• Low interest cost

• Sanction and disbursement is very fast

• Simple documentation

• Forward contracts can be booked easily.

• Existing WC/TL can be converted to FCNR (b) DL/TL

Page 16: Foreign Currency Funding

• There is an excellent opportunity available to the corporate for availing FCNR (b)

loans because of arbitrage opportunity.

FORFEITING

Forfeiting is another source of external finance for at least some of the

developing countries. Forfeiting is the purchase, at a fixed rate, of medium term claims of an

exporter on the foreign buyer, without recourse to the former. The claims are generally

represented by promissory notes or bill of exchange payable by the importer on maturity.

Depending on the standing of the importer and the country risk, a guaranteed of the

importer’s bank may be needed, usually on the face of the promissory note or the bill of

exchange itself. Forfeiting is a commercial source of finance and no credit insurance or other

costs are involved as in export credits. The advantage of forfeiting to the exporter is that the

forfeiting bank purchases his claims on the buyer without recourse to him. Therefore, as far

as he is concerned, a transaction that was a credit sale has now become a cash sale. He has

no further credit risks; he, of course, remains liable for any deficiencies in the goods

supplied.

Design of the study

Statement of the problemDifferent banks have got their different volumes of business in fc.The study lays stress on two of the banks and the reason of their different volumes in trade.

Scope of the study;

Need of the study:

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Objective of the study:

1. To examine the features of the various foreign currency options

available in India with reference to a few banks in Bangalore.

2. To ascertain the normal rate of interest charged by various banks for

providing foreign currency loans.

3. To examine the changing trend of LIBOR rate from past 3years of

study period.

4. To examine the reasons why a company has gone for foreign currency

funding options instead of rupee currency loans.

5. To analyze how advantageous is foreign currency loans compared to

rupee currency loans.

Research design:

Sample design-Source of data- based on the secondary data

Operational definition of the study

• LIBOR: London Inter-bank Offered Rate or the rate at which banks are offering

funds. Rates exist for overnight, one month, three months, six months, etc., up to five

years, and for euro currencies.

• SIBOR: Singapore Inter-bank Offered Rate

• FCLR: Foreign Currency Loans to Resident Constituents

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• PCFC: Pre shipment Credit in Foreign Currency

• GDR: Global Depositary Receipts

• ADR: American Depositary Receipts

• EBR: Export Bills Rediscounted.

• FCNR(b): Foreign Currency Non-Resident (bank scheme)

• SEC: Securities Exchange Commission

• ECB: External Commercial Borrowings

• Arbitrage: It is the simultaneous buying and selling of foreign currency in the same

market or different markets to make profit.

• Basis Points (BPS): One basis point is the last decimal in the quotation of an

exchange rate, and 0.01% when referring to interest rates or yields.

• Hedge: A transaction that reduces the price risk of an underlying security or

commodity position by making the appropriate offsetting derivative transaction.

• Hedging tools: The following are some of the tools commonly used-

• Forward Contracts: An agreement between two parties two that obligates one party

to buy and other party to sell a financial instrument, a currency, equity or a

commodity at a future date at the price now agreed.

• Currency Option: The option to buy or sell a specified amount of a given currency

at a stated rate at or by a specified date in the future.

• Foreign currency option: An option that conveys the right (but not the obligation) to

buy or sell a specified amount of foreign currency at a specified price within a

specified time period.

• Interest Options: Option to pay, or receive, a specified rate of interest on or from a

predetermined date.

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• Swaps: A contractual agreement to exchange a stream of periodic payments with a

counter party. These may be fixed for floating interest rate commitments (plain

vanilla swap), one currency for another (currency swap), or both of these together.

• Option premium: The price, which the buyer of an option pays to the writer or seller

of the option.

Limitation of the study:

Profile of the sample units

VIJAYA BANK

The late Sri A.B.Shetty and other enterprising farmers founded Vijaya Bank on 23rd

October 1931 in Mangalore, Karnataka. The objective of the founder fathers was essentially to

promote banking habit, thrift and entrepreneurship among the farming community of Dakshin

Kannada district in Karnataka state. The bank became a Scheduled Bank in 1958. Vijaya Bank

steadily grew into a larger All India Bank, with nine smaller banks merging with it during 1963-

1968. The credit of the successful execution of the merger plan should go to late Sri M.Sunder

Ram Shetty, who was then Chief Executive of the Bank. Initially, the banks operation was then

Chief Executive of the Bank. Initially, the banks operation was confined to Dakshin Kannada

district and later on extended to other centers in Karnataka followed by expansion in other states.

The Bank was nationalized on 15th April 1980. At the time of nationalization, the Bank had 571

branches with a deposit base of Rs. 390.44 crores. By the end of March 2000, the branches

network had grown to 837 with a deposit base of Rs. 11592.88 crores.

Growth Profile of the bank

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Vijaya Bank has many pioneering achievements. It was the first Public Sector Banks to

offer ‘ATM-cum-Credit Card’. It was also the first bank to open a fully computerized Capital

Market Services branch and Funds Transfer Services branch. The Bank is one of the first Banks

to pioneer the credit cards business in the country. The Bank has introduced several customer

friendly deposit schemes viz.

• Vijaya Shree Units Scheme

• Vijaya Cash Certificate Scheme

• V-Star Savings Bank Scheme

The Bank also launched several retail lending schemes, viz.

• Trade Finance Scheme

• Housing Finance Scheme

• Planter’s Card

• V-Cash

• V-Equip

• V-Rent

• Loans Against Motor Vehicles

• Liquidity Finance to SSI

Page 21: Foreign Currency Funding

ICICI

ICICI Bank is India's second-largest bank with total assets of about Rs. 1 trillion and

a network of about 540 branches and offices and over 1,000 ATMs. ICICI Bank offers a wide

range of banking products and financial services to corporate and retail customers through a

variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of

investment banking, life and non-life insurance, venture capital, asset management and

information technology. ICICI Bank's equity shares are listed in India on stock exchanges at

Chennai, Delhi, Kolkata and Vadodara, the Stock Exchange, Mumbai and the National Stock

Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New

York Stock Exchange (NYSE).

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial

institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was

reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in

the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of

Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by

ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the

initiative of the World Bank, the Government of India and representatives of Indian industry.

The principal objective was to create a development financial institution for providing medium-

term and long-term project financing to Indian businesses. In the 1990s, ICICI transformed its

business from a development financial institution offering only project finance to a diversified

financial services group offering a wide variety of products and services, both directly and

Page 22: Foreign Currency Funding

through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first

Indian company and the first bank or financial institution from non-Japan Asia to be listed on the

NYSE.

After consideration of various corporate structuring alternatives in the context of the

emerging competitive scenario in the Indian banking industry, and the move towards universal

banking, the managements of ICICI and ICICI Bank formed the view that the merger of ICICI

with ICICI Bank would be the optimal strategic alternative for both entities, and would create the

optimal legal structure for the ICICI group's universal banking strategy. The merger would

enhance value for ICICI shareholders through the merged entity's access to low-cost deposits,

greater opportunities for earning fee-based income and the ability to participate in the payments

system and provide transaction-banking services. The merger would enhance value for ICICI

Bank shareholders through a large capital base and scale of operations, seamless access to

ICICI's strong corporate relationships built up over five decades, entry into new business

segments, higher market share in various business segments, particularly fee-based services, and

access to the vast talent pool of ICICI and its subsidiaries. In October 2001, the Boards of

Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its wholly-owned

retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services

Limited, with ICICI Bank.

ANALYSIS AND INTERPRTATION: