Indian Overseas Bank in Facilitating Foreign Trade (1)

Role of Foreign Exchange Department of Indian Overseas Bank in Facilitating Foreign Trade - A Case Study of Indian Overseas Bank, Puducherry Foreign Exchange Branch

CHAPTER-A:

Introduction of the Study

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1) Introduction

Trade is an integral part of the total developmental effort and national growth of all

economies including India. It particularly plays a central role in the development plan

of India where underdeveloped technology and a low capital base constitute a critical

bottleneck. Export trade can largely meet ‘foreign exchange gap’, and export growth would

increase the import capacity of the country that, in turn, would increase industrialization, as

well as overall economic activities. India’s import needs are substantial; hence the

need to rapidly increase exports is immediate. In order to finance the international traders

and to ease the process of import and export and also to reduce the country’s dependence

on foreign aid, the commercial banks of India play a vital role to enhance foreign

exchange earnings of the country through their improved services and superior ways of

facilitating international trade.

Studying the role of foreign exchange department of Indian Overseas Bank encompasses

the whole idea about how a authorized dealer branch of a commercial bank smoothes the

progress of international trade by offering a wide array of services in the field of import and

export. This study will give insight into the operation, current situation, success, problems

and prospects of foreign exchange business of Indian Overseas Bank. Foreign exchange

business is becoming more complex and intensely competitive now because of free

economy. However, in the backdrop of phenomenal growth of India’s external sector,

foreign exchange business provides a challenge as well as an excellent opportunity to

accelerate the growth of bank’s own business. This is the Institution that facilitates

international trade payment, as banking channel is the way of settlements.


3) Objective of the Study

There are mainly two objectives behind the preparation of this report such as primary

objectives and secondary objectives. These are discussed as under:

The Primary Objective

The primary objective of preparing this report is to fulfill the partial requirements of the MBA

program and to represent the ‘Role of Foreign Exchange Department of Indian Overseas

Bank in Facilitating Foreign Trade - A case study of Indian Overseas Bank, Puducherry

Secondary Objective

The secondary objectives of this report are as below:

1) To exhibit the operations of Indian Overseas Bank, Puducherry (Foreign Exchange)

Branch in Facilitating import business of India.

2) To demonstrate the involvement of Indian Overseas Bank, Puducherry (Foreign

Exchange) Branch in export business of India and how they assist our local exporters.

3) To reveal the contribution of Indian Overseas Bank, Puducherry (Foreign Exchange)

Branch to total amount of import and export of India.

4) To review the chronological performance of the export and import business of Indian

Overseas Bank, Puducherry (Foreign Exchange) Branch from the year 2008 to 2011.

5) To provide some relevant recommendations.

4) Sources of data collection

The officials and management body of IOB primarily provided necessary information in

preparing this report. Therefore, other necessary information and data of the report are

collected through various documents of IOB, library work, and web site of IOB.

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Sources of Data

Primary Sources Secondary sources

Face to face interview Annual report &

Official records & appraisal manual of

documents of IOB IOB

Communication with Official website

other respective Journals and relevant

personnel of IOB. books.

Expert opinion. Performance sheets

provided by IOB

5) Methodology of the report

Correct and smooth completion of report work requires adherence to some rules and

methodologies. Rules were followed to ease the date collection procedure. Accuracy of

study depends on the information and data analysis.

Study area

The area of my study has been encompassed the operation area of “Indian Overseas Bank,

Puducherry branch”.

Target group

To accumulate the required data I have contacted with each departmental head along with

other concerned executive of Indian Overseas Bank. In case foreign exchange operation I

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have got in close with the responsible personnel of foreign exchange Department of IOB,

Puducherry Branch to collect the information.

Types of research

In this particular study, descriptive and statistical types of research have undertaken to gain

insights and understanding about the assigned topic.

Use of Microsoft Excel

MS-Excel is used to determine the overall chronological performances of import and export

business of Indian Overseas Bank during the year 2008 to 2011.

Job Description

Section Duration

General Banking June-July 2012

Foreign Exchange June July 2012

6) Limitations

Shortage of time period

I had to complete this report writing within a shorter period of time since many days have

passed during the training session. So the time constraint of the study hindering the course

of vast area and time for preparing a report within the mentioned period is really difficult.

Busy working environment

The officials had some times been unable to provide information because of their huge

routine work. That’s why I do not gather vast knowledge about the critical issues.

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Lack of sufficient well informed officials

Many officials of the branch are not well informed about foreign exchange problems of IOB. I

had to face many difficulties to collect this information.

Insufficient Data

The data required for sufficient analysis for writing report couldn’t be collected due to

excessive workload. I had to rely entirely on the data received from the books of statistics,

Manifesto, and the Annual Reports of Indian Overseas Bank, and I had no opportunity to

verify the satisfaction level of clients and receive their suggestions in implementing foreign

exchange banking activities.

Secrecy of Management

There some information which are confidential. I am unable to collect these data. Some

data could not been collected for confidentiality or secrecy of management.

Other limitation

As we are newcomer, there is a lack of previous experience in this concern. And many

practical matters have been written from our own observation that may vary from person to

person.

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CHAPTER-B:

Indian Overseas Bank & its Puducherry

Foreign Exchange Branch

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7) Brief Overview of Indian Overseas Bank

Indian Overseas Bank has its prosperous past, glorious present, prospective future

and

under processing projects and activities. Established as the first private sector Bank fully

owned by Indiai entrepreneurs, IOB has been flourishing as the largest private sector

bank with the passage of time after facing many stress and strain. The member of the board

of directors is creative businessman and international economic activities and for rendering

all modern services, IOB, as a financial institution automated all its branches with computer

network in accordance with the competitive commercial demand of time. Moreover,

considering it’s forth- coming future the infrastructure of the Bank has been much more to

IOB. Keeping the target in mind IOB has taken preparation branches by the wear 2000-

2001.

The emergence of Indian Overseas Bank In the private sector is an important event in the

banking area of India. When the national was in the grip of severe recession, Govt. took the

farsighted decision to allow in the private sector to revive the economy of the country.

Several dynamic entrepreneurs came forward for establishing a bank with a motto to revitalize

the economy of the country.

From the very inception it is the firm determination of Indian Overseas Bank to play a vital

role in the national economy. IOB has determined to bring back the long forgotten taste of

banking services and flavors. We want to serve each one promptly and with a sense of

dedication and dignity.

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A representative office was established in Yangon, Myanmar in October, 1996 by our bank and

obtained permission from the government of India to handle border trade with Mayanmar.

Opportunities are being explored for further business avenues there.

Now IOB is on line to establish trade and communication with the prime interIndian

Overseas Banking companies of the world. As a result IOB will be able to build a strong

root in interIndian Overseas Banking horizon. Bank has been drawing arrangement with well

conversant money transfer service agency “Western union”. It has full time arrangement

for speedy transfer of money all over the world.

Banking is not only a profit - oriented commercial institution but it has a public bas and

social commitment admitting this true IOB is going on with its diversified banking activities IOB

introduced monthly Savings Scheme, special Deposit Scheme of Consumers.

Credit Scheme and savings Insurance scheme etc. A team of highly qualified and experiment

professional headed by the managing Director of the bank who has vast banking experience

operates bank and at the top three is an efficient Board of Directors for making policies.

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8) Brief Overview of the Puducherry Branch, Indian Overseas Bank

Puducherry Branch of IOB is an authorized dealer Branch. Not all branches of a IOB provides

foreign exchange department. The branches which has foreign exchange department are

known as authorized dealer. These authorized dealers have permission from India bank for

their services. Further these authorized dealer branches are under strict supervision

of India Bank. Authorized dealer can handle all kinds of foreign transactions as per FER

Act 1947 under the instructions of India Bank. Followings are the main functions of an

authorized dealer:

Exchange of foreign currencies.

To make arrangement with foreign correspondent.

Buying & selling of foreign currencies.

Handling inward & outward remittance.

Opening of L/C & Settlements of Payments.

Investment in foreign trade.

Opening and maintenance of Accounts with foreign banks under intimation of

India Bank.

Export document handling.

Indian Overseas Bank, Puducherry Foreign Exchange Branch

Name of the Department

Application & Approval department

L/C Issue Department

Dispatch Department

Payment Department

Total Number of Personnel

06

08

05

06

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CHAPTER-C:

Facilitating Foreign Trade

through

Foreign Exchange

Operation

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9) Necessity of Foreign Exchange Branch

Banks play a vital role by minimizing the risk of two parties, namely buyer and seller. In fact

without the help of Banks we cannot think about a congenial international trade

environment. Now the question comes how Banks help international trade. We know that in

a local trade there is a chance to know about each other. But in international trade the

involved parties stay two distant places. For a buyer the following risks are involved-

Risk of non-delivery of goods.

Risk of receiving sub standard goods.

Risk of fraud in goods.

For the seller the following risk is involved-

Risk of non-payment.

To reduce the aforesaid risks an independent system is introduced which will safeguard the

buyer as well as seller in an international trade. Actually Banks play due role by getting into two

parties and bind them.

10) General Drift of Foreign exchange branch/ authorized dealer

Foreign Exchange is the means and methods by which rights to wealth in a country’s

currency. In banks when we talk of Foreign Exchange, we refer to the general mechanism by

which a bank converts currency of one country into that of another. Foreign Exchange

Department (FED) is the international department India Bank issues license to scheduled

banks to deal with Foreign Exchange. These banks are known as Authorized Dealers. If the

branches are Authorized dealer in foreign exchange market, it can remit foreign exchange

from local country to foreign countries. Therefore, IOB, Puducherry branch is an authorized

dealer.

Foreign Exchage

Import Section Export Section Remittance Section

Facilitate Foreign Trade

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11) Activities of foreign exchange branch favoring import

To import, a person should be competent to be an importer. According to Import and Export

control Act, 1950, the office of chief Controller of Import and Export provides the

registration (IRC) to the importer. In an international business environment, buyers and

sellers are generally unknown to each other. So seller of goods always seeks security for the

payment of his exported goods. Bank gives export guarantee that it will pay for the goods on

behalf for the buyer if the buyer does not pay. This guarantee is called Letter of Credit, Thus,

the contract between importer and exporter is given a legal shape by the banker by Letter

of Credit.

The main facilities provided by the import section are:

Opening of Letter of Credit;

Facilitating Payments to the Exporter on behalf of the Importer;

Providing Funded and Non-funded Credit Facility;

Issuing Bank Guarantee in foreign currency on behalf of Foreign Companies.

The aforementioned facilities given by the foreign exchange branch to importers can be

divided into two major faction and they are:

Activities of foreign exchange branch favoring import

1) Trade settlement activities 2) Financing facilities

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11.1) Description of Trade settlement activities

11.1.1) Prerequisite for having authorized dealer’s help

Imports are foreign goods and services purchased by consumers, firms & Governments in

India. According to Import and Export Control Act, 1950, the Office of Chief Controller of Import

and Export (CCI & E) provides the registration (IRC) to the importer. Import of goods in India

is regulated by the

Ministry of Commerce in terms of the Import and Export Control Act, 1950;

Import Policy Order and the Public Notice issued by the Office of the Chief Controller

of Imports and Exports (CCI&E);

At present it is regulated by the Import Policy Order (2009-2008), which was come

into effect on March 14, 2009. And Import Policy directs certain Import Procedure,

which administers the whole activity.

11.1.2) Different forms of Trade Settlement

Importer settles the means of payment with the seller after making the purchase contract.

Import procedure differs with relation to different means of payment. The possible means are

shown here:

In our country in most cases, the Documentary/Letter of Credit makes import payment.

Purchase Contract contains which payment procedure has to be applied.

a) Cash in Advance: Importer pays full, partial or progressive payment by a foreign DD,

MT or TT. After receiving payment, exporter will send the goods and the transport receipt to the

importer. Importer will take delivery of the goods from the transport company.

b) Open Account: Exporter ships the goods and sends transport receipt to the importer.

Importer will take delivery of the goods and makes payment by foreign DD, MT, or TT at

some specified date.

c) Collection Method: Collection methods are either clean collection or

documentary

collection. Again, Documentary Collection may be Document against Payment (D/P) or

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Document against Acceptance (D/A). The collection procedure is that the exporter ships the

goods and draws a draft/ bill on the buyer. The exporter submits the draft/bill (only or with

documents) to the remitting bank for collection and the bank acknowledges this. Then the

remitting bank sends the draft/bill (with or without documents) and a collection instruction

letter to the collecting bank. Acting as an agent of the remitting bank, the collecting bank

notifies the importer upon receipt of the draft. The title of goods is released to the importer

upon full payment or acceptance of the draft/bill.

d) Letter of Credit: Letter of credit is the well-accepted and most commonly used means

of payment. It is an undertaking for payment by the issuing bank to the beneficiary, upon

submission of some stipulated documents and fulfilling the terms and conditions mentioned in

the letter of credit.

11.1.3) Letter of credit: widely used & well-accepted

forms of trade settlement

A letter of credit is a letter issued by (know as the opening or the issuing bank) at the

instance of its customer (know as the opener) addressed to a person (beneficiary)

undertaking that the bills drawn by the beneficiary will be duly honored by it (opening Bank)

provided certain conditions mentioned in the letter gave been complied with.

As distance is involved in international trade, buyers and sellers do not know each other. It is

difficult for both the buyers and seller to appreciate each others’ integrity and credit

worthiness. Letter of Credit is a guarantee or undertaking to the exporter who is also called

beneficiary, for making payment issued by the issuing bank on behalf of the importer upon

fulfillment of some conditions.

In the Import Policy Order 2009-2008 Letter of Credit denoted as - ‘“Letter of Credit” means a

letter of credit opened for the purpose of import under this Order’

The expression “Documentary Credit(s)” and “Standby Letter(s)” means any arrangements,

however named or described, whereby a bank (“the issuing bank”) acting at the request and on

the instruction of a customer (the “Applicant”) or on its own behalf,

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Is to make a payment to or the order of a third party (“the Beneficiary”), or is to

accept and pay bills of exchange (Draft’s) drawn by the Beneficiary, Or

authorizes another bank to effect such payment, or to accept and pay such bills of

exchange (Draft(s)),Or

authorizes another bank to negotiate,

Against stipulated document(s), provided that the terms and conditions of the Credit

are complied with.

On the other hand, Letter of credit can be defined as a “Credit Contract” whereby the

buyer’s bank is committed on behalf of the buyers to pay an agreed amount of money at the

seller’s disposal under some agreed conditions. Since the agreed conditions include amongst

other things, the presentation of some specified documents, the letter of credit is called

Documentary letter of credit. The uniform customs and practices for documentary Credit

(UCPDC) published by International Chamber of Commerce (2009) revision, publication no.

600 define Documentary Credit:

Any arrangement however named or described whereby a bank (the issuing bank)

acting at the request and on the instructions of a customs (the Applicant) or on it’s

own behalf,

Is to make a payment to or to the order of a third party (the beneficiary) or is to

accept and pay bills of exchange (Drafts) drawn by the beneficiary or

Authorize another bank to effect such payment or to accept and pay such bills of

exchange (Drafts)

Authorize another bank to negotiate against stipulated documents provide that

terms and conditions are complied with.

11.1.4) Parties of a Letter of Credit

Importer Who applies for L\C

Issuing Bank It is the bank, which opens\issues a L\C on behalf

of the importer

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Confirming Bank It is the bank, which adds its confirmation to the

credit and it, is done at the request of issuing

bank. Confirming bank may or may not be

advising bank.

Advising or Notifying Bank It is the bank, through which the L/C is advised to

the exporters. This bank is actually situated in

exporter’s country. It may also assume the role

of confirming and/ or negotiating bank

depending upon the condition of the credit.

Negotiating Bank It is the bank which negotiates the bill and pays

the amount of the beneficiary. The advising bank

and the negotiating bank may or may not be the

same. Sometimes it can also be confirming bank.

Accepting Bank It is the bank on which the bill will be drawn (as

per condition of the credit). Usually it is the

issuing bank.

Reimbursing Bank It is the bank, which would reimburse the

negotiating bank after getting

paymentinstructions from issuing bank.

Paying Bank The bank that effects payment to the beneficiary

(as named in the Letter of Credit) is known as

paying bank/drawee bank.

11.1.5) Types of Letter of Credit

There are many types of Letter of Credits that are used in different countries of the world. But

International Chamber of Commerce (ICC) vides their UCPDC- 600, which denotes only two

types of LETTER OF Credits; mentioned:

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Revocable Letter of Credit

A revocable credit may be amended or cancelled by the issuing bank at any moment and

without prior notice to the beneficiary. This type of letter of credit can be revoked or

cancelled at any time without consent of, or notice to the beneficiary.

In case of seller (beneficiary), revocable credit involves risk, as the credit may be amended

or cancelled while the goods are in transit and before the documents are presented, or

although presented before payments has been made. The seller would then face the

problem of obtaining payment on the other hand revocable credit gives the buyer maximum

flexibility, as it can be amended or cancelled without prior notice to the seller up to the

moment of payment but the issuing bank at which the issuing bank has made the credit

available.

In the modern banking the use of revocable credit is not widespread.

In this case the issuing banks must perform the following two roles:

i) Reimburse another bank with which a revocable credit has been made available for

sight payment, acceptance or negotiation - for any payment, acceptance or

negotiation made by such bank - prior to receipt by it of notice of amendment or

cancellation, against documents which appear on their face to be in compliance with

the terms and conditions of the Credit;

ii) Reimburse another bank with which a revocable credit has been made available for

deferred payment, if such a bank has, prior to receipt by it of notice of amendment

or cancellation, take up documents which appear on their face to be in compliance

with the terms and conditions of the Credit.

Irrevocable Letter of Credit

An irrevocable credit is a documentary credit, which cannot be revoked, varied or

changed/amended or cancelled without the consent of all parties- buyer (Applicant), seller

(Beneficiary), Issuing Bank, and Confirming Bank (in case of confirmed Letter of Credit).

Irrevocable Credit gives the seller greater assurance of payments, but he/she remains

dependent on an undertaking of a foreign bank. In the issuance of Irrevocable Letter of

Credit both the Issuing and Conforming Bank have some liability, mentioned bellow, as per

UCPDC -600:

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The following types of Letter of Credits are used in the Indian Overseas Bank, Puducherry Branch:

Cash Letter of Credit

Payment made form cash foreign exchange not from export proceeds. This type of Letter of

Credit Payment term is at sight.

Deferred Letter of Credit

The only difference between cash Letter of Credit and deferred Letter of Credit lied in the

terms of payment. Payment under deferred Letter of Credit is made after certain days of

presentation of the export bill. Deferred Letter of Credit may be opened for the following

cases:

Items Period

Industrial Raw Materials (For own use) Maximum 180 days

Back to Back Imports Maximum 180 days

Agricultural Implements & Chemical Maximum 180 days

Fertilizer

Capital Machinery Maximum 360 days

Coastal Vessel Maximum 360 days

Life Saving Drugs Maximum 90 Days

Back to Back Letter of Credit

It is simply issued to the client s against an import L/C. Back -to-Back mechanism involve 2

separate L/Cs. One is master Export L/C and another is Back-to -Back L/C. On the strength o

faster Export L/C bank issues bank to back L/C id commonly known as Buying L/C. On the

country, Master export L/C is known selling L/C.

L/C under EDF

Exporter Development Fund is created by India Bank to give encourages to the exporter in

India.

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Generally, Back-to-Back L/C is Issuance L/C That is here bill of exchange is payable after

some maturity date say 90 or 120 days after t6he date of acceptance/ negotiation, But some

foreign seller may require sight payment. Here import L/C matures first. In that case

India Bank gives the fund to the bank to pay the price of imported goods in favor of

the local purchaser of raw materials. When export proceeds come, first India Bank

loan to the importer is adjusted and remaining part goes to the importer of raw materials.

11.1.6) Instructions Issued by India Bank for Opening and

Operation of L/C for Import of Goods

a) All Letter of Credits and similar undertakings covering imports into India must

be documentary Letter of Credits and should provide for payment to be made

against full sets of onboard (shipped) transport documents (BL, AIB, TR etc.) showing

dispatch of goods covered by Credit to a destination in India;

b) They must ensure that they deal only with known customers having a place of

business in India and can be traced easily if any occasion arise for this

purpose;

c) They should establish Letter of Credit against specific authorization on behalf of their

own customers who maintain accounts with them with and know to be participated

in the trade;

d) It is not permissible to open to clean or revolving credits;

e) They are allowed to open divisible, transferable Letter of Credits for import into

India under cash LCAF (Letter of Authorization Form);

f) It is not permissible to open Letter of Credits in favor of beneficiaries in countries

from which import into are banned by the component authority;

g) Confidential report of the exporter to be obtained by the bank, where the amount of

Letter of Credit exceeds TK. 2,00,000 in case of import against Performa invoices

issued direct by foreign supplier and TK. 5,00,000 against indent issued by local

agents of the suppliers;

h) Payments against discrepant documents may be made after the goods have been

cleared from the customs on the basis of the locative LCAF;

i) Advanced remittance against import may be made after getting prior permission

from India Bank where the goods are of specialized or capital nature.

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11.1.7) Account Procedure in case of L/C Opening

When the officer thinks fit the applicatio9n to open a L/C, giving the following entries-creates the

following charges-

Particulars Debit/Credit

Customers A/C Debit

L/C Margin A/C Credit

Commission A/C on L/C Credit

VAT Credit

SWIFT Charge Credit

Data max Credit

Stamp Credit

Postage Credit

DHL / Courier Credit

11.1.8) Foreign exchange branch involvement in import procedure

Preparation of Proposal and Submitting TO THE Authority for Obtaining

Permission of Opening L/C

Before opening Letter of Credit, the applicant must take permission from the competent

authority. Whether the authority has to be taken from the Branch or from the Head Office

depends on the amount of Letter of Credit and the percentage of margin. A proposal for

obtaining permission for opening Letter of Credit generally contains the following points:

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Name and address of the importer;

Name and address of the Guarantor if any;

Particular of Merchandise to be imported along with name of the item, Harmonized

System (H.S.) Code, country of origin, quantity, unit price and purpose of import;

Particulars/ Terms of L/C along with name and address of the beneficiary, tenor of

payment, port of loading and discharge, shipment validity and expiry date etc.;

Landed cost of the goods;

Market price of the goods at Dhaka and Chittagong (if applicable);

Name of the previous banker with outstanding liability (if any);

Number of CD accounts and transaction performance through this account;

Facilities that are presently enjoying by the party;

Present liability position with the bank;

Present liability position of allied/sister concerns with the bank

Letter of Credit performance of the party during the year/previous year;

Proposed mode of retirement.

Depositing of L/C Margin and Other Charges

Before issuing Letter of Credit, bank asks the applicant to deposit Letter of Credit margin

according to the terms of sanction and other necessary charges which includes commission,

handling charges, foreign correspondence charge, telex/SWIFT charge etc. as per terms and

conditions of sanction.

Before issuing Letter of Credit Bank asks the applicant to deposit the following, as per the

terms of the sanction:

Letter of Credit Margin As per Government Circular

Commission As per internal policy (Letter of Credit value

.005 for first quarter, Subsequent Quarter .003

Document Handling Charge 1500

SWIFT Charge 3500

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Courier Charge (Except India) 1500

Courier (India) 300

VAT 15% Fixed on Commission

Tab1: Charges of Deposit of L/C Margin

Margin charged against any particular Letter of Credit depends upon the Item or Goods of the

import. Margin varies between nil to 80%. Generally the higher value of margin, the higher

it means that India Bank discourages to import that goods or items.

Issuing the Letter of Credit

In this stage, the issuing bank fills the bank-specified-form for issuing Letter of Credit.

Generally a Letter of Credit contains the following information and terms and conditions:

Charges;

Country of origin of goods;

Currency and amount ;

Date and place of the expiry of the Documentary Credits ;

Description of goods and quantity ;

Documents required for negotiation;

Instruction for negotiating bank;

Last date of shipment;

Letter of Credit Authorization Form (LCAF) number, IRC (Import Registration Certificate)

number and Harmonized System (HS) code;

Period of Negotiation ;

Period of presentation ;

Port of Loading and port of Discharge;

Reimbursing Bank and payment mode;

Terms and conditions regarding Transshipment and Partial Shipment;

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Depending on the specific provision in the underlying sales-contract (mentioned below), it

may be necessary to incorporate one or more of the following additional terms in the Letter of

Credit-

Whether the pay of the bank charges is on account of the opener or seller

Whether, in case of bulk import, charter-party Bill of Lading (B/L) is acceptable or not.

Diagram Foreign exchange branch involvement in import procedure

IMPORTER: Application, IRC, TIN, Indent/Pro-forma Invoice, Insurance cover note

BANKER: LCA form, Application agreement for confirmed L/C, Check sanctioning approval, Credibility of importer &Supplier, IPO, HS Code, Ascertain duty etc

Opening L/C - Creating contra liability by taking margin

Dispatch / Transmit the L/C to the beneficiary through issuing bank’s correspondent in the beneficiary’s country

Receipt of import documents from negotiating / collecting bank

Scrutiny of import documents

Inform Opener, Reimbursing Bank, Negotiating Bank,

Are the documents discrepant? about discrepancies

If discrepancies agreed

Lodgement of import bills

Inform the opener to take delivery of import documents for release of goods.

Importer / opener pay the further margin to the bank

Retirement of import bill

Collect customs Bill Of Entry for matching with IMP form 24


Receipt of Documents

After opening the Letter of Credit the next step would be to await shipment followed by

negotiation of documents by a bank abroad. The beneficiary of the Letter of Credit

(supplier), after effecting shipment of the goods as per Letter of Credit terms, prepare or

collect necessary documents as required under the terms of Letter of Credit and presents

the drafts to the negotiating bank along with the supporting documents for negotiation.

The negotiating bank negotiates the draft if the documents are found in order as per terms of

the Letter of Credit, pays the beneficiary. The negotiating bank will reimburse itself either by

debiting Indian Overseas Bank’s Account, if any, maintained with them (the NOSTRO Account)

or will seek reimbursing bank mentioned in Letter of Credit, if there is no account.

Simultaneously, the bank will send the documents to Indian Overseas Bank. The nature

of documents has to be sent by the negotiating bank will depend primarily on the terms of the

Letter of Credit and secondly the sales contact between the buyer and seller. However,

generally the following documents are asked to send:

Bill of lading or Airway Bill or other evidence of shipment (e.g. Railway Receipt, Truck

Receipt, Barge Receipt)

Certificate of Origin;

Commercial Invoice;

Draft or Bill of Exchange;

Inspection of Survey Certificate;

Marine Insurance Policy;

Packing List;

Quality Control Certificate.

Scrutiny of Documents

On receipt of the documents, the branch shall immediately set itself to the task of

scrutinizing the documents. What they would ensure is that the documents received from the

negotiating bank are drawn strictly in conformity with the terms of the Letter of Credit and

respond to the requirement of the underlying Letter of Credit in every respect.

Examination of the documents generally includes the following points:

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Completeness of the documents;

Consistency of the documents with each other;

Compliance with the Uniform Customs and Practices for Documentary Credits (UCPDC)

issued by the International Chamber of Commerce, Paris.

One of the basic principles of documentary credit is that all parties deal with document and not

with goods (Articles 6 of UCPDC-600). That is why the documents should be scrutinized

properly. If any discrepancy in the documents is found, that is to be informed to the party. A

checklist may be followed for examining the documents.

In the UCPDC the Standard for Examining of Documents is mentioned as follows:

a) Banks must examine all documents stipulated in the Credit with reasonable care, to

ascertain whether of not they appear, on their face, to be in compliance with the terms and

conditions of the Credit. Compliance of the stipulated documents on their face with the

same terms and conditions on the Credit shall be determined by international standard

banking practice as reflected in these Articles. Documents which appear in their face to be

inconsistent with one another will be considered as not appearing on their face to be in

compliance with the terms and conditions of the credit. Documents not stipulated in the

credit will not be examined by banks. If they receive such documents, they shall return them

to the presenter.

b) The Issuing Bank, the Conforming Bank, if any or a Nominated bank acting on their behalf,

shall each have a responsible time, not to exceed five banking days following the day of

receipt of the documents, to examine the documents and determine whether to take up

documents and to inform the party from which it received the documents accordingly.

c) If a credit contains conditions without stating the document(s) to be presented in

compliance there with, bank will deem such conditions as not stated and will disregard

them.

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Some Key Check Points for the documents

1.Letter Of Credit

Whether the documents have been negotiated or presented before expiry of the credit

Whether the amount drawn exceeded the amount available under the credit

2. The Commercial Invoice

Is the invoice made out in the name currency as the credit indicates?

Is the invoice made out in the name of the buyer with the same address specified in the

credit?

Does the invoice agree exactly with the credit as regards description of goods, value of

goods, unit prices & delivery terms?

Any special notation, confirmation & attestation were specified in the credit and those

have been complied with on the invoice and if required duly signed.

Does the invoice evidence the following; shipping marks/terms of delivery/weight data

&import license number etc.

3. Bill Of Exchange

Is the Bill of Exchange drawn in the language of the credit?

Is the bill of exchange properly prepared according to the credit conditions (on a sight or time

basis) and drawn on the specified Bank?

Is it properly dated and signed?

Is the amount in figures corresponded exactly with the amount in word?

Does it contain all the prescribed notations and clauses?

As a rule, the amount of bill of Exchange must agree with the invoice amount (drawn to

cover only 90% or 80% of the invoice value.

4. Bill Of Lading

First of all it has to be cleared that the Bill of Lading is showing “Shipped on Board” and it has

to be properly endorsed to the Bank.

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The B/L should include the description of the merchandise according to invoice.

The port of shipment and destination, date of shipment and the name of the consignee are

in agreement with those mentioned in the L/C.

The shipping company or their authorized agents properly sign the B/L.

The date on the B/L is not ‘stale’ which means it is not dated in unreasonably long time

prior to negotiation.

5. The Insurance Cover Note

Is the insurance documents specified in the credit submitted?

Does the insurance cover the risks mentioned in the credit in the currency of the credit and

for the prescribed amount but not less than CIF value?

Is the insurance documents dated not later than the shipping documents?

Does the insurance policy/Certificate agree with other document as regards description,

weight & marks of the goods, mode of transport & the route?

Does the insurance company attached and so far as necessary, endorsed issue all the

copies?

6. Certificate Of Origin

Is the certificate of origin of goods is given as stipulated?

Discrepant Documents and Notice

a) When the Issuing Bank authorizes another bank to pay, incur a deferred payment

undertaking, accept Draft(s), or negotiate against documents which appear on their face to be

incompliance with the terms and conditions of the Credit, the Issuing Bank and the

Conforming Bank, if any are bound:

i. To reimburse the Nominated Bank which has paid, incurred a differed payment

undertaking accepted Draft(s) or negotiated,

ii. To take up the documents.

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b) Upon receipt of the documents the Issuing Bank, and/or Conforming Bank, if any, or

Nominated Bank, acting on their behalf, must determine on the basis of the documents

alone whether or not they appear on their face to be in compliance with the terms and

conditions of the Credit. If the documents appear on their face not be in compliance with

the terms and conditions of the Credit, such banks may refuse to take up the documents.

c) The Issuing Bank determines that the documents appear on their face not to be in

compliance with the terms and conditions of the Credit, it may in its sole judgment

approach the Applicant for a waiver for the discrepancy. This does not, however, extend the

period mentioned in sub-Article 13(b)

i. If the issuing Bank and/or Conforming Bank, if any, or a Nominated bank acting on their

behalf, decides to refuse the documents, it must give notice to that effect by

telecommunication or, if that is not possible, by other expeditious means, without delay but

not later that the close of the fifth banking day following the day of receipt of the

documents. Such notice shall be given the bank form which it received the documents, or to

the Beneficiary, if it received the documents directly from him.

ii. Such notice must state that all discrepancies in respect of which the bank refuses the

documents and must also state whether it is holding the documents at the disposal of, or is

returning them to, the presenter.

iii. The issuing Bank and/or Conforming Bank, if any shall then be entitled to claim from the

emitting bank, with interest, of any reimbursement which has been made to that bank.

e) If the issuing Bank and/or Conforming Bank, if any, fails to act in accordance with the

provisions of this Article and/or hold the documents at the disposal of, or return them to the

presenter, the issuing Bank and/or Conforming Bank, if any, shall be precluded form

claiming that the documents are not in compliance with the terms and conditions of the

Credit.

f) If the reimbursing bank draws the attention of the issuing Bank and/or Conforming Bank,

if any, to any discrepancy in the documents or advises such banks that it has paid, incurred a

deferred payment undertaking, accepted Drafts or negotiated under reserve or against an

indemnity in respect of such discrepancy, the Issuing Bank, if any, shall not be thereby

relieved from any of their obligations under any provisions of this Article. Such reserves or

29


indemnity concerns only the relations between the remitting bank and the party towards

whom the reserve was made, or from whom, or on whose behalf the indemnity was

obtained.

Disclaim on Effectiveness of Documents

Banks assume no liability or responsibility for the form sufficiency, accuracy, genuineness,

falsification or legal effect of any document, or for the general and/or particular conditions

stipulated in the document or superimposed thereon; nor do they assume any liability or

responsibility, quantity, weight, quality, condition, packing, delivery, value of existence of

the goods represented by any document, or for the goods faith or acts and/or commissions,

solvency, performance or standing of the consignors, the carrier, the forwards , the

consignees or the insurance of the goods or any other person whomsoever.

Then the following things can happen. These are indicated in the following:

1. Discrepancy found but the importer accepts - then the bank will lodge the documents

2. Discrepancy found and importer not agreed to accept - issuing bank would intimate

negotiating bank for revised document or return the documents to the negotiating bank for

necessary action. Here issuing bank is not bound to pay because the documents send by

exporter is not in accordance with the terms of Letter of Credit.

3. Documents are OK but importer is not willing to retire the documents - In this case bank is

obligated to pay the price of exported goods. Since importer did not pay for bill of exchange,

this payment by bank is one kind of credit to the importer and this credit in banking is

known as Forced Payment against Documents (PAD).

4. Everything is alright, but importer fails to clear goods from the port and request bank to

clear - in this case banks clear the goods and takes delivery of the same by paying customs

duty and sales tax etc. So, this expenditure is debited to the importer’s account and in

banking it is called LIM.

The above mentioned description could be pointed out as under:

a. The seller being satisfied with the terms and the conditions of the credit makes shipment of

the goods as per Letter of Credit terms.

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b. After making the shipment of the goods in favor of the importer the exporter submits the

documents to the negotiating bank.

c. After receiving all the documents, the negotiating bank then checks the documents

against the credit. If the documents are found in order, the bank will pay, accept or

negotiate to Indian Overseas Bank

d. Branch & Bank received seal to be affixed on the forwarding schedule

e. The Bill of Exchange & transport documents must immediately be crossed to protect loss or

fraudulent.

Lodgment

After the scrutiny the following steps are taken step-by-step to process for lodgment of

import documents received form the negotiation bank. Lodgment means retirement of

funds. Usually payment is made within five days after the documents have been received. If

the payment is become deferred, the negotiating bank may claim interest (LIBOR) for

making delay. However, after receiving the documents Puducherry branch authority contacts

with an importer, in which procedure they want to collect the documents. If requested PAD is

facilitated for twenty one days only.

Lodgment Constitutes the Followings:

Conversion of foreign currency amount of the bill and the foreign bank charges

separately into INR by applying Bills Collection (B.C.) selling rate ruling on the date of

lodgment is done. If forward exchange was, the booked rate is applied.T24 Payment

against Documents (PAD) is created by Debiting PAD Account and Crediting Head Office

Account. Full particulars of the documents are entered in the prescribed PAD Register

allotting a consecutive serial number in the register. If the forward exchange rate is

booked then the booked rate is applied. Payment against Documents (PAD) is created by

Debiting PAD Account and Crediting Head Office Account. Full particulars of the

documents are entered in the prescribed PAD Register allotting a consecutive serial

number in the register.

Head Office (International Division) in receipt of the IBCA and the statement will respond

the entry by debit to branch account (through Indian Overseas Bank General Account)

31


and contra credit to NOSTRO Account of the negotiating bank abroad. To arrange

necessary fund for payment, a requisition is sent to the International Department.

As the T.T & O.D rate is paid to the ID, the difference between these two rates remains as

exchange gain for the Branch.

As soon as above formalities are completed the importers are served with PAD bill

intimations for retirement of concerned import document. A letter of intimation (P.A.D.

intimation) regarding receipt of the documents should be sent to the applicant with a

request to take delivery of the documents on settlement of all dues against it and

mentioning the maturity date of P.A.D.

Amendment of L/C

After opening of L/C some times alteration to the original terms and conditions become

necessary. These amendments involve changes in

Unit price

Extension of validity the L/C

Documentary requirements etc.

Such amendments can be affected only if all the concerned parties agree i.e. writing duly

supported buy revised indent/ Pro-forma invoice. The issuing bank then advises the

required amendment to the advising bank. L/C amendment commission including postage is

charged to the clients A/C.

Endorsement by the Bank

The bank endorses the documents in following manner:

Document

Bill of Exchange

Commercial Invoices

Endorsement

Receive/Payment for The Indian Overseas Bank

Limited

Invoice value certifies & remitted for The

Indian Overseas Bank

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Bill of Lading, Airway Bill, Truck Challan Deliver / Pay to the order of M/S ---, for

The Indian Overseas Bank

LCA For The Indian Overseas Bank

Then importer releases the importers goods from the port authority with the help of the

Clearing and Forwarding (C&F) agent, who, clears the goods from the port and hands over the

goods to the importers.

After completion of all official requirements C&F agent submits the bill of entry of the

banks. The Bill of Entry is wanted from the party for maintaining the evidence as the goods

has been arrived.

Delivery of Shipping Documents

If the bill is to be realized by debit to the importer’s account, the documents are handed

over to the importer to his duly authorized clearing and forwarding agent for clearance of the

goods form customs at his own account.

Payment Procedure of Import Documents

This is the most sensitive task of the Import Department. The officials have to be very much

careful while making payment. This task constitutes the following:

Date of Payment:

Usually payment is made within seven days after the documents have been received. If the

payment is become deferred, the negotiating bank may claim interest for making delay.

Preparing Sale Memo:

Sale memo is made at B.C. rate to the customer. As the T.T &O.D rate is paid to the ID,

difference between these two rates is exchange trading. Finally, an Inter Branch Exchange

riding Credit Advice is sent to ID.

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Requisition for the Foreign Currency:

For arranging necessary fund for payment, a requisition is sent to the International

Department.

Transmission of Message:

Message is transmitted to the correspondent bank ensuring that payment is being made.

Retirement

The importer receives the intimation and gives necessary instruction to the bank for

retirement of the import bills or for the disposal of the shipping document to clear the

imported goods from the customs authority. The importer may instruct the bank to retire

the documents by debiting his account with the bank or may ask for LTR (Loan against Trust

Receipt.)

11.1.9) Reporting to India Bank

At the end of every month, the reporting to India Bank regarding the following

information is mandatory -

i) Filling of E-2/P-2 Schedule of S-1 category that covers the entire month’s

amount of import, category of goods, currency, county etc.

ii) Filling of E-3/P-3 Schedule of for all charges, commission with T/M Form.

iii) Disposal of IMP Form that includes:

a) Original IMP is forwarded to India Bank with invoice and indent;

b) Duplicate IMP is kept with the branch along with the Bill of Entry/

Certified Invoice;

c) Triplicate IMP is kept with the branch for office record;

d) Quadruplicate is kept for submission to India Bank in case of

imports where documents are retired.

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11.2) Descriptions of Financing Facilities

11.2.1) Kinds of Credits Occurred in L/C Operation

During Letter of Credit operation some Credit facilities evolved to the importer and

exporter. This credit facilitates are mentioned below

Payment Against a. This loan is related to cash Letter of Credit.

Document (PAD)b. After opening Letter of Credit, foreign exporter sends goods to

the importer and a bill of exchange along with shipping documents to

the Letter of Credit opening bank. Upon receiving bill of

exchange and other documents, bank immediately make payment to

the exporter if no discrepancies are found on the shipping

documents. Bank hands over the shipping documents to the

importer only after his recovery of the payment from the importer.

Since bank pay to exporter on the basis of shipping documents, this is

called Payment against Documents.

Loan Against a. LIM is occurred from PAD.

Importedb. After payment to the exporter on the basis of shipping

Merchandisedocuments, bank recovers the amount from the importer.

(LIM) Sometimes for financial crisis, importer fails to pay the amount

stipulated in bill of exchange to the Opening Bank. In this case, he

request to the bank to treat PAD as credit and handover the

shipping documents to him so that he can clear the imported goods

from the port. Then banks convert the PAD to regular credit and

hand over the documents to the importer, and take the imported

goods as security for the loan. Since this loan is given on the

imported goods, this is called Loan against Imported Merchandise.

Duration of this loan is one month only. If the loan is no repaid

after one month, it is treated as forced LIM.

35


IP Loan a. When Letter of Credit opener has no sufficient fund to purchase

Foreign Exchange to open Letter of Credit, then bank provides him

credit to purchase necessary foreign exchange under the WES/SEM.

This loan is called Import Loan under WES/SEM or IP loan.

11.2.2) different sources of Financing for Importers

Loan Against Trust Receipts (LTR)

Advances against a Trust Receipt obtained from the Customer are allowed to only first class

tested parties when documents covering an import shipment of other goods pledged to the

Bank as scrutiny are given without payment. However, for such advances prior

permission/sanction form Head Office must be obtained.

The customer holds the goods or their sale proceeds in trust for the Bank, till such time, the

Loan allowed against the Trust Receipts is fully paid off. The Trust Receipt is a document

which crated the Banker’s lien on the goods as practically amount hypothecation of the

proceeds of sale in discharge of the lien.

Period Of Trust Receipt

The Advance allowed against Trust Receipt must be adjusted within the stipulated period. It

should be noted that the sale proceeds of goods held in trust must be deposited in the Bank by

the borrower initially irrespective of the period of Trust Receipt.

Fortnightly statement of sale of LTR goods to be obtained forms the customer and be

reviewed to ensure that the sale proceeds have been properly deposited towards

adjustment of the loan.

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12) Activities of foreign exchange branch supporting export

The goods and Services sold by India to foreign households, businessmen and

Government are called export. The export trade of the country is regulated by the Imports

and Exports (control) Act, 1950. There are a number of formalities, which an exporter has to

fulfill before and after shipment of goods. The exports from India are subject to

export trade control exercised by the Ministry Of Commerce through Chief Controller of

Imports and Exports (CCI & E). No exporter is allowed to India exports about 40% of

its readymade garments products to USA Most of the exports who export through IOB

readymade garment exports they open exports L/Cs here to exports their goods ,which they

open against the import L/Cs opened by their foreign importers. Export L/C operation is just

reverse of the import L/C operation .For exporting goods by the local exporter ,bank may act

as advising banks and collecting bank ( negotiable bank) for the exporter.

12.1) Export Policies to be complied

The Ministry of Commerce, GOB formulates the Export policies that provide overall

guideline and incentives for promotion of export in India. These policies are

formulated to cover a five year period. Exports from India are regulated by some Acts,

Guidelines and authorities. India Bank issues Guidelines and Circulars in compliance

with Foreign Exchange Regulation Act of 1947. It controls physical and payment aspects of

the exports. Export Policy Order is issued by Ministry of Commerce under the authority

given to it by Export Import Act of 1950. The current Export Policy outlines the

Government’s export development strategies and lays down the package of incentives to

promote exports. Apart from this, it provide list of items which are either banned for export or

whose export is subject to fulfillment of certain conditions.

12.2) Mode of Assistance to Export

As an advising bank

It receives documents from the foreign importer and hands it over to the exporter .Some

times it’s add confirmation on the L/C on request from the opening bank. By adding

confirmation it assumes the responsibility to make payment to the exporter.

37


As a Negotiating Bank

It negotiates the bill and other snipping documents in favor of the exporter .that is, it

collects the proceeds of the export -bill from the drawer and credits the exporter accounts

for the same .Collection proceeded from the export bill is deposited in the bank NOSTRO

account of the importer country. Some times the bank purchases the bill at discount and

waits till maturity of the bill matures; banks present it to the drawer to encase it. in our

country ,export and import operation of bank is very much related with one another

because of use of Back -to-Back L/C is set in such that it can be paid out of export proceeds

12.3) Kinds of Export L/C

Foreign Exchange Regulation Act, 1947 nobody can export by post and otherwise than by

post any goods either directly or indirectly to any place outside India, unless a

declaration is furnished by the exporter to the collector of customs or to such other person as

the India Bank (BB) may specify in this behalf that foreign exchange representing the full

export value of the goods has been or will be disposed of in a manner and within a period

specified by BB.

Exports section deals with two types of L/C that are as follows-

E x p o r t S e c t i o n

B a c k t o B a c k L / C E x p o r t L / C

12.3.1) Back to Back L/C

In Indian Overseas Bank., Puducherry branch, Back to Back (BTB) Letter of Credit is an

important part of Export procedure. To export goods, the exporter needs raw materials,

accessories or other inputs to produce those goods, which might be required to import

from other countries. This is done through BTB L/C.

BTB L/C mechanism involves two separate L/C, one is the Master L/C or the Export L/C and

another is the BTB letter of credit. The BTB L/C is issued against the Master Export L/C. it can

be up to 75% of the value of the original master L/C. BTB letter of credit is used to import

38


the inputs generally on credit terms up to 180 days on the strength of the foreign letter of

credit received from the buyers.

Features of BTB L/C

It is a kind of Import L/C to procure goods or raw materials for further processing.

The L/C is issued against the Export L/C.

It is a kind of Export finance.

Usually no margin is required to open BTB L/C.

The application is registered with CCI & E.

The L/C value should not exceed the admissible percentage of net FOB value of

relative Master L/C.

Usance period will be up to 180 days.

The arrangement of BTB L/C is such that the Export L/C matures first to that out of

this export profit, the BTB L/C is paid out. [

Formalities and Procedure

Besides the general instruction, for opening BTB L/C, IOB uses the following guidelines:

The industry applying for opening the BTB L/C should be recognized by the

competent authority as an export oriented industry and process a valid Bonded

Warehouse license.

The Master Export L/C against which the opening of back to back L/C is requested

should have validity period adequate to cover the time needed for import of inputs,

manufacture of merchandise and shipment to the consignee.

The BTB L/C should conform to the Uniform Customs and Practices for Documentary

Credit (UCPDC), ICC Publication-500.

Inland BTB L/C denominated in foreign currency may be opened in favor of local

manufacturers or suppliers of inputs against Master Export L/C received by export

oriented manufacturing units under the bonded warehouse system up to value limit

applicable as per prescribed value addition requirements.

The Export section of Indian Overseas Bank., Puducherry Branch is not doing that well

compared to their target budget. The performance of the branch is not satisfactory. This branch

usually exports RMG, fabric, sweater, etc.

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Flow Diagram of Back-to-Back L/C:

Buyer, USA instructs his Bank toissue an Import L/C in favor of Lenny Fashions Ltd, India.

Indian Overseas Bank issues a Back to Back L/C and forwards the same to 'Y' Textile Ltd. through another Exporter Bank.

USA Bank issues a L/C and forwardsthe same to Lenny Fashions Ltd.through a Indian Bank (e.g. NationalBank, Puducherry Branch)

Lenny Fashions Ltd. submits his Export L/C with a request to Indian Overseas Bank, Puducherry Br. to create lien against L/C and issue Back to Back L/C in favour of 'X' Textile Ltd.

Documents Required for Opening a Back-to-back L/C

In INDIAN OVERSEAS BANK Puducherry Branch, following papers/ documents are required

for opening a back-to-back L/C-

Master L/C

Valid Import Registration Certificate (IRC) and Export Registration Certificate

(ERC)

L/C Application and LCAF duly filled in and signed

Proforma Invoice or Indent

Insurance Cover Note with money receipt

IMP Form duly signed

In addition to the above documents, the followings are also required to export oriented

garment industries while requesting for opening a back-to-back L/C -

Textile Permission

Valid Bonded Warehouse License

Quota Allocation Letter issued by the Export Promotion Bureau (EPB) in favor of

the applicant for quota items

In case the factory premises is a rented one, Letter of Disclaimer duly executed by the

owner of the house/premises to be submitted. A checklist to open back-to-back L/C is as

follows -

40


i) Applicant is registered with CCI&E and has bonded warehouse license;

ii) The master L/C has adequate validity period and has no defective clause;

iii) L/C value shall not exceed the admissible percentage of net FOB value of

relative Master L/C;

iv) Usage Period will be up to 180 days.

Check Points Noted in Master L/C

Following defective points are usually found in the Master L/C. So, these points are so much

carefully checked by the Bank officials. They are-

i) Issuing Bank is not reputed;

ii) Advising credit by the advising Bank without authentication;

iii) Port of destination absent;

iv) Inspection clause;

v) Nomination of specific shipping/Air line or nomination of specified vessel by

subsequent amendment;

vi) Bill of lading endorses blank, endorses to 3rd Bank, endorses to buyer or 3rd

party;

vii) No specific reimbursing clause;

viii) UCP clause not mentioned;

ix) Shipment/ presentation period is not sufficient;

x) Original documents to be sent to buyer or nominated agent;

xi) FCR or HAWB consigned to applicant or buyer;

xii) “Shipper’s load and count is not acceptable” clause;

xiii) L/C shall expire in the country of the issuing Bank;

xiv) Negotiation is restricted.

Payment of Back-to-Back L/C

On 30/ 60/ 90/ 120/ 180 days of maturity period, deferred payment is made. Payment is

given after realizing export proceeds from the L/C Issuing Bank. For Garments Sector, the

duration can be maximum 180 days. In case of export failure or non realization/ short

41


realization of export proceeds, forced loan i.e. OAP has to be created in order to settle the

Back to Back L/C payment.

Accounting Treatment of Back to Back L/C

At the time of arrival document, the following vouchers are passed-

Customer’s A/C...........................................Debit

Commission on acceptance..................................Credit.

At the time of payment made,

When fund is at hand, the following accounting entries are given-

Sundry Deposit Margin on acceptance........Debit

Customer’s A/C....................................................Credit.

If the party is paid in foreign currency, B.C. rate is applied in this regard. International

Department takes the T.T. & O.D. rate. If the payment is made to ID in local currency in

notional rate, ID follows T.T Clean Rate. When the party is be paid, OD Sight rate is followed.

When fund is not available, the following vouchers are to be passed-

OAP (Own acceptance Purchase).................Debit

Customer’s A/C....................................................Credit.

12.3.2) Export Letter of Credit

The other type of L/C facility offered by Puducherry Foreign Exchange Branch is Export L/C.

India exports a large quantity of goods and services to foreign households.

Readymade textile garments (both knitted and wove), jute, jute-made products, frozen

shrimps, tea are the main goods that Indiai exporters exports to foreign countries.

Garments Sector is the largest sector that exports the lion share of the country’s export.

India exports most of its readymade garments products to USA and European

42


Community (EC) countries. India exports about 40 % of its readymade garments

products to USA. Most of the exporters who export through Puducherry Foreign Exchange

Branch are readymade garment exporters. They open L/Cs in this branch to export their

goods, which they open against the import L/Cs opened by their foreign importers.

12.4) Foreign Exchange Branch Involvement in Total Export Procedure

The export trade of the country is regulated by the Imports & Exports (Control) Act, 1950.

There are a number of formalities that an exporter has to fulfill before and after shipment of

goods. These formalities or procedures are enumerated as follows -

Exporter: Obtaining Export Registration Certificate (ERC) from CCI&E

Exporter: Securing export order from buyer or through agent, Receiving

Bank: Certification of Exp form by authorized dealer

Shipment of goods

Preparation of export documents by negotiating bank

Scrutinizing export documents by Negotiating Bank

Are the doc’s in Ask exporter to removeorder? discrepancies

Negotiate documents

Dispatch documents for collection with Reimbursement Bank

Retire FDBP

43


Procedure for Export Registration Certificate (ERC)

To export goods from India, an exporter has to be registered to get the permission of

exporting. Under the export policy of India, the exporter has to get valid Export

Registration Certificate (ERC) from Chief Controller of Import and Export (CCI & E). Yearly

renewal of ERC is required. Following documents are required to apply for the ERC:

Nationality and Asset Certificates of Proprietor/Partners

Memorandum & Articles of Association and Incorporation Certificate in case of

Limited Company

Bank Certificate

Income Tax Certificate

Copy of valid Trade License Certificate

Confirming the Export Order

After getting the ERC, the exporter may proceed to confirm the export order by contacting the

buyers directly or through agents. The exporter can also take the help from the liaison officer

of foreign companies, buying house, Export promoting organization, India Mission Abroad,

Chamber of Commerce, trade fairs, websites, etc.

Obtaining Exp Form

When the registration is done properly, the exporter contacts its bank, in this case, Indian

Overseas Bank. with the trade license, ERC and other related papers to get the Exp form.

IOB checks all the papers and if satisfied, issues Exp form to the exporter.

Receiving the Letter of Credit

After the contract is signed, exporter asks the buyer/importer for Letter of Credit (L/C),

clearly stating the terms and conditions of export and payment details. On receipt of the

L/C, the advising bank checks it thoroughly using a checklist.

To avoid any kind of future disagreement, the following things should be kept into

consideration:

The terms and condition of L/C are definite, clear and explicit and also are in

conformity with those of contract

The L/C is an irrevocable one, preferably confirmed by the advising bank

44


The L/C allows sufficient time for shipment and presentation.

Advising of the L/C to the Exporter

When Indian Overseas Bank. is confirmed about the authentication of the L/C, it takes the

following steps as the advising bank:

The bank communicates with the beneficiary and advises him the L/C receipt

favoring the beneficiary.

IOB maintains an L/C advising register to enter all the particulars of L/C with serial

number of each L/C. If there is any amendment, that record is also kept in the

register. Only request of the issuing bank for any amendment is accepted. IOB

charges a certain amount of money for L/C advising and amendment.

A suitable clause is incorporated at the bottom of the L/C stating that the L/C is

subject to the provision of UCPDC-ICC Publication Number 500.

Procuring the Materials

When the deal is final and the L/C is opened by the importer, the exporter starts the task for

procuring or manufacturing the contracted merchandise.

Endorsement on Exp Form

Before shipment of goods, it is necessary to get all the copies of Exp forms endorsed by

Indian Overseas Bank. the exporter submits export form with commercial invoice and officers of

IOB check it properly. If they are satisfied, they certify the Exp form, without which

exporters cannot make shipment.

Shipment of Goods

The next step for the exporter is to make the necessary arrangement for shipment of goods as

per L/C terms and condition. The exporter needs to prepare and submit shipping

documents for Payment/Acceptance/Negotiation in due time.

Examination of Documents

In case of Foreign Trade, there is an important thing to understand, that is, Banks deal only

with documents, not with goods or commodities. For this reason, it is strongly advisable to

scrutinize and examine each and every document with great care and caution. The officers

45


of IOB give much emphasis on scrutinizing that the documents are as per the terms of L/C

before negotiation of the export bills.

Export Documents Checking

General verification: -

a) L/C restricted or not.

b) Exporter submitted documents before expiry date of the credit.

c) Shortage of documents etc.

Particular verification:

a) Each and every document should be verified with the L/C.

Cross verification:

a) Verified one documents to another

Negotiation of Export Document

Negotiation of export documents stands for payment of value to the exporter against the

documents stipulated in the L/C. In Indian Overseas Bank., there are two ways of negotiation of

export documents. These are:

FDBP: If documents are in order, IOB purchases or negotiates those on the basis of

banker-customer relationship. This is known as Foreign Documentary Bill Purchase (FDBP).

Later, IOB sends the documents to the L/C issuing bank for payment with a forwarding

letter. An FDBP register is maintained to record all the details of FDBP.

FDBC: If IOB is not satisfied with the documents submitted or if the bank has any doubt

regarding the documents, it gives exporters reasonable time to deal with the discrepancies

or to send the documents to the L/C issuing bank for collection. It is called Foreign

Documentary Bill for Collection (FDBC). In this case, the exporter will receive payment only

when the issuing bank gives payment. So it is necessary to have a regular follow-up with the

L/C opening bank if there is any delay in getting payments, which IOB does efficiently.

46


Following these procedure, Indian Overseas Bank. is operating its Export section. With the

negotiation of export documents, this procedure ends. If there is any discrepancy, IOB

cannot negotiate the documents. So either the bank asks exporters to correct those

documents or on request of the exporter, IOB sends the documents to the issuing bank

without negotiating them.

Payment Procedure for FDBP

1) After purchasing the documents, IOB gives the following entries:

FDPB A/C Dr. (at OD sight rate)

Customer A/C Cr.(Before realization of

proceeds)

Bank would realize only postage charges from the exporter.

Foreign documentary bills for collection (FDBC)

IOB forwards the documents for collection due to the following reasons:-

If the document have discrepancies.

If the exporter is a new client.

FDBC signifies that the exporter will receive payment only when the issuing bank gives

payment. IOB make regular follow-up with the L/C opening Bank in case of any delay in

getting payment.

Settlement of Local Bills

1. The settlement of local bills is done in the following ways:-

2. The customer submits the L/C to IOB along with the documents to negotiate

3. IOB official scrutinizes the documents to ensure the conformity with the terms and

conditions.

47


4. The documents are then forwarded to the L/C opening bank.

5. The L/C issuing bank gives the acceptance and forwards an acceptance letter.

6. Payment is given to the customer on either by collection basis or by purchasing the

document.

Mode of payment of export bill under L/C

As per UCPDC 500, 1993 revision there are four types of credit. These are as follows:

1) Sight Payment Credit

In a sight payment Credit, the bank pays the stipulated sum immediately against the

exporter’s presentation of the documents.

2) Deferred payment Credit

In deferred payment, the bank agrees to pay on a specified future date or event, after

presentation of the export documents No bill of exchange is involved. Payment is given to

the party at the rate of D.A60-90-120-180 as the case may be. But the Head office is paid at

T.T clean rate. The difference between the two rates us the exchange trading for the branch.

3) Acceptance Credit

In acceptance credit, the exporter presents a bill of exchange Payable to himself and drawn at

the agreed tenor (that is, on a specified future date or event) on the bank that is to accept it.

The bank signs its acceptance on the bill and returns it to the exporter. The exporter can then

represent it for payment on maturity. Alternatively, he can discount it in Order to obtain

immediate payment.

4) Negotiation Credit

In Negotiation credit, the exporter has to present a bill of exchange payable to him in

addition to other documents that the bank negotiates.

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12.5) Export Financing

Financing exports constitutes an important part of a bank’s activities. Exporters require

financial services at four different stages of their export operation. During each of these

phases exporters need different types of financial assistance depending on the nature of the

export contract.

Pre-shipment credit

Post-shipment credit

12.5.1) Pre-shipment credit

Pre-shipment credit, as the name suggests, is given to finance the activities of an exporter

prior to the actual shipment of the goods for export. The purpose of such credit is to meet

working capital needs starting from the point of purchasing of raw materials to final

shipment of goods for export to foreign country. Before allowing such credit to the

exporters the bank takes into consideration about the credit worthiness, export

performance of the exporters, together with all other necessary information required for

sanctioning the credit in accordance with the existing rules and regulations. Pre-shipment

credit is given for the following purposes:

Cash for local procurement and meeting related expenses.

Procuring and processing of goods for export.

Packing and transporting of goods for export.

Payment of insurance premium.

Inspection fees.

Freight charges etc.

An exporter can obtain credit facilities against lien on the irrevocable, confirmed and

unrestricted export letter of credit in form of the followings:

a) Export cash credit (Hypothecation)

b) Export cash credit (Pledge)

c) Export cash credit against trust receipt.

d) Packing credit.

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e) Credit against Red-clause letter of credit.

(a) Export cash credit (Hypothecation):

Under this arrangement, a credit is sanctioned against hypothecation of the raw materials or

finished goods intended for export. Such facility is allowed to the first class exporters. As the

bank has got no security in this case, except charge documents and lien on exports L/C or

contract, bank normally insists on the exporter in furnishing collateral security. The letter

of hypothecation creates a charge against merchandise in favor of the bank. But neither r

the ownership nor the possession is passed to it.

(b) Export cash Credit (Pledge):

Such Credit facility is allowed against pledge of exportable goods or raw materials. In this

case cash credit facility is extended against pledge of goods to be stored in the go-down

under bank’s control by signing letter of pledge and other pledge documents. The exporter

surrenders the physical possession of the goods under banks effective control as security for

payment of bank dues. In the event of failure of the exporter to honor his commitment, the

bank can sell the pledged merchandise for recovery the advance.

(c) Export Cash Credit against Trust Receipt:

In this case, credit limit is sanctioned against trust receipt (TR). Here also unlike pledge, the

exportable goods remain in the custody of the exporter. He is required to execute a

stamped export trust receipt in favor of the bank, he holds wherein a declaration is made

that goods purchased with financial assistance of bank in trust for the bank. This type of

credit is granted when the exporter wants to utilize the credit for processing, packing and

rendering the goods in exportable condition and when it seems that exportable goods

cannot be taken into bank’s custody. This facility is allowed only to the first class party and

collateral security is generally obtained in this case.

(d) Packing Credit:

Packing Credit is essentially a short-term advance granted by a Bank to an exporter for

assisting him to buy, process, manufacture, and pack and ships the goods. Generally for

50


movement of goods from the hinterland areas to the ports of shipment the Banks provide

interim facilities by way of Packing Credit. This type of credit is sanctioned for the

transitional period starting from dispatch of goods till the negotiation of the export

documents. Practically except for single transaction, most of the pre-shipment credits are

allowed in the form of limits duly sanctioned by Bank in favor of regular exporters for a

particular period. The drawings are required to be adjusted fully once within a period of 3 to

6 months. Suiting to the breed and nature of export, sometimes an exporter may also

be allowed to avail a combined Cash Credit and Packing Credit limit with fixed ceiling on

revolving basis. But in no case the borrower would be allowed to exceed individual credit

limit fixed for the purpose. The drawings under Export Cash Credit limits are generally

adjusted by the drawing in packing credit limit, which is, in turn liquidated by the

negotiation of export documents.

(e) Advance against Red-clause Letter of Credit:

Under Red clause letter of credit, the opening bank authorizes the Advising

Bank/Negotiating Bank to make advance to the beneficiary prior to shipment to enable

him to procure and store the exportable goods in anticipation of his effecting the shipment

and submitting a bill under the L/C. as the clause containing such authority is printed in red

ink, the L/C is called Red clause and Green clause respectively. Though it has not

prohibited, yet it is very rare in India.

12.5.2) Post Shipment Credit

This type of credit refers to the credit facilities extended to the exporters by the banks

after shipment of the goods against export documents. Necessity for such credit arises as

the exporter cannot afford to wait for a long time for without paying

manufacturers/suppliers. Before extending such credit, it is necessary on the part of banks

to look into carefully the financial soundness of exporters and buyers as well as other

relevant documents connected with the export in accordance with the rules and

regulations in force. Banks in our country extend post shipment credit to the exporters

through:

51


a) Negotiation of documents under L/C;

b) Advances against Export Bills surrendered for collection;

(a) Negotiation of documents under L/C

The exporter presents the relative documents to the negotiating bank after the shipment of

the goods. A slight deviation of the documents from those specified in the L/C may raise an

excuse to the issuing bank to refuse the reimbursement of the payment already made by the

negotiating bank. So the negotiating bank must be careful, prompt, systematic and

indifferent while scrutinizing the documents relating to the export.

(b) Advances against Export Bills surrendered for collection

Banks generally accept bills for collection of proceeds when they are not drawn under an L/C

or when the documents, even though drawn against an L/C contain some

discrepancies. Bills drawn under L/C, without any discrepancy in the documents, are

generally negotiated by the bank and the exporter gets the money from the bank

immediately. However, if the bill is not eligible for negotiation, the exporter may obtain

advance from the bank against the security of export bill.

52


CHAPTER-D:

Success in Facilitating Foreign Trade

during: 2008-2011

53


13) Performance of import section Performance of import section of IOB Puducherry Branch can be measured by using three

parameters such as: growth of import business of IOB Puducherry Branch, Contribution of

the Branch to total import of the country and comparison with other bank’s import

performance.

13.1) Detail information about L/C opened during 2008-2011

Information about L/C is the prime source of information while demonstrating the analysis of

performance of a foreign exchange branch of any bank. IOB Puducherry Branch has four basic

type of import L/C: Cash, B2B Local, B2B Foreign and EDF. Before proceeding with the analysis

part, detail information about import is given below:

I. Number of L/C opened

Nature of L/C Years

2008 2009 2010 2011

Cash 238 401 611 661

Back-to-Back (Foreign) 449 747 1083 827

Back-to-Back (local) 1411 1863 2744 2483

Export Development Fund 34 31 96 81

Total 2132 3042 4535 4052

II. Amount of L/C Opened (US Dollar)

Nature of L/C Years

2008 2009 2010 2011

(USD) (USD) (USD) (USD)

Cash 23141917 62000086 70524422 60524000



Export Development Fund 3528826 2874052 6637950 5517000

54


Total 64003916 123752959 166872630 133838000

III. Amount of L/C Opened (INR)

Nature of L/C Years

2008 2009 2010 2011

(INR) (INR) (INR) (INR)

Cash 1504224600 4278352483 4901009000 4204260500



Export Development 229373700 199674000 460255500 383194000

Fund

Total 4160254500 8566700483 11576671500 9298586500

13.2) Growth of Import Business Of IOB, Puducherry

Growth of import business of IOB, Puducherry Branch can be presented in two ways such as:

growth on the basis of total number of L/C opened and growth on the basis of total amount

of L/C opened. Here, growth is calculated by comparing current year’s performance with the

previous year’s performance like growth of 2009 is based on the information of 2008.

Growth of import Business of IOB, Puducherry Branch can be illustrated graphically:

55


Growth on the basis of the number of L/C opened 210%

Total No of

160%

110%

60%

10%

-40%

-90%

2009 2010

Years

L/C Opened

EDF

Back-to-BckL/C (Local)

Back-to-BackL/C (Foreign)

2011cash

Growth on the basis of the amount of L/C opened (INR)

Cash 175.00%

Back-to-Back

125.00%

75.00%

25.00%

-25.00% 2009 2010

Years

(Foreign)

Back-to-Back(Local)

EDF

Total Growth

2011

From the above graphical presentation, it is clear that in the year 2009 and 2010 IOB,

Puducherry Branch had achieved a substantial growth but in the year 2011 it lost its

momentum to some extent. From the viewpoint of total number of L/C, Cash L/C

maintained a positive growth during 2008-2011 though from the amount of L/C view point, it

failed to maintain a positive growth during that period of time.

Both back-to-back L/C had a positive growth in the year 2009 and 2010 but in the year 2011

both of them suffered a loss in percentage due an increased competition and world-wide

financial distress. There was an abnormal trend of growth of EDF L/C. IOB, Puducherry

56


Branch had a great performance on issuing EDF L/C in the year 2010 but in 2009 and 2011 its

performance was very poor.

13.3) Contribution to Total Import of India (Million INR)

Year Total Import in Total Import in % of Indian Overseas Bank’s import

India Indian Overseas Bank in total import in India

LTD

2008 958750.00 42,458.50 4.43%

2009 1184135.92 62,759.00 5.30%

2010 1415588.39 78,226.32 5.53%

2011 1489315.73 70,968.20 4.77%

IOB's contribution in total import of India

6.00%

5.00%

4.00%

3.00%

2.00%

1.00%

0.00%2008 2009

IOB's contribution in totalimport of India

2010 2011

From the above table and graphical illustration it can be said that apart from the last year’s

performance, IOB’s contribution in total import of our country had been boosting over time

and in the year 2010 it was highest (5.53%). From the bank’s sole perspective, its

performance was great until the year 2010 but in the year 2011 it was deteriorated in the light

of fierce competition and global economic downturn.

57


Year Total Import in Total Import in % of Puducherry Br

Indian Overseas Bank Puducherry Branch import in total

import of IOB

2008 42,458.50 4,160.25 9.80%

2009 62,759.00 8,566.70 13.65%

2010 78,226.32 11,576.67 14.80%

2011 70,968.20 9,298.59 13.10%

Year Total Import in Total Import in % of Puducherry Br

India Puducherry Branch, import in total

Indian Overseas Bank import of

India

2008 958750.00 4,160.25 0.43%

2009 1184135.92 8,566.70 0.72%

2010 1415588.39 11,576.67 0.82%

2011 1489315.73 9,298.59 0.62%

Though IOB, Puducherry Branch provided a trifling percentage of total import of India, its

contribution has been increasing over the year apart from the 2011’s performance. Its

highest contribution was 0.82% of total import of India in 2010 and the lowest

contribution to total import of our country was 0.43% in the year 2008.

58


59


14) Performance of Export Section

Like the performance of import section, the export section of IOB Puducherry Branch can

also be measured by using three parameters such as: growth of Export business of IOB

Puducherry Branch, Contribution of the Branch to total Export of the country and comparison

with other bank’s Export performance.

14.1) Detail information about L/C handled during 2008-2011

There are two parameters to judge the performance of export section of IOB, Puducherry

Branch and they are: Local Documentary Bills for Collection and Foreign Documentary Bills for

Collection. Detail information about those parameters is presented below:

I. Number of L/C Handled

Nature Years

2008 2009 2010 2011

LDBC 1433 1982 2231 2684

FDBC 1207 1758 2516 2699

Total 2640 3740 4747 5383

II. Amount of L/C Handled (US Dollar)

Nature of L/C Years

2008 2009 2010 2011

(USD) (USD) (USD) (USD)

LDBC 24325871 32200355.98 43446067.11 43576138.08

FDBC 54405198 81910537.78 128107509.90 122397512.57

Total 78731069 114110893.8 171553577 165973650.7

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III. Amount of L/C Handled (INR)

Nature of L/C

2008

(INR)

LDBC 1679843000

FDBC 3752292000

Total

Years

2009 2010 2011

(INR) (INR) (INR)

2200063000 2968463000 2985184000

5550410000 8486226000 8383456000

5432135000 7750473000 11454689000 11368640000

14.2) Growth of Export Business of IOB

Here is the graphical illustration of the growth of export business of IOB, Puducherry Branch.

Two graphical presentations are laid for better understanding of the export growth of IOB,

Puducherry Branch.

Growth on the Basis of the Amount of Export DocumentsHandled

78.00%

58.00%

38.00%

18.00%

-2.00%2009 2010

Years

LDBC (LocalDocumentaryBills forCollection)FDBC (ForeignDocumentaryBills forCollection)Total Growth

2011

61


Growth on the Basis of the Number of Documents Handled55.00%50.00%45.00%40.00%35.00%30.00%25.00%20.00%15.00%10.00%

5.00%2009 2010 Years

LDBC (LocalDocumentaryBills forCollection)FDBC (ForeignDocumentaryBills forCollection)Total Growth

2011

From the above two graphics it can be stated that Puducherry Branch’s export business has

not been growing as it might be expected. The growth lines on the chart revealed that the

growth of export business has been declining since 2009 and the percentage of growth was

lowest in the year 2011.

14.3) Contribution to Total Export of India (Million INR)

Year Total Export in Total Export in % of Indian Overseas Bank

India Indian Overseas Bank ltd’s Export in total

Export in

India

2008 684450.00 28,019.20 4.09%

2009 840488.08 31,824.00 3.79%

2010 980557.30 36,284.44 3.70%

2011 1081559.98 38,053.32 3.52%

62


IOB's contribution in total Export of India

4.20%

4.00%

3.80% IOB's contribution in total

3.60% export of India

3.40%

3.20% 2008 2009 2010 2011

From the above table and graphical illustration it can be said that IOB’s contribution in total

export of our country had been declining over time and in the year 2011 it was lowest

(3.52%). From the bank’s sole perspective, its performance was great in the year 2008 and

then in the following years it had been deteriorated in the light of fierce competition and

global economic downturn.

Year Total Export in Total Export in % of Puducherry Br

Indian Overseas Bank Puducherry Branch, Export in total

IOB Export of IOB

2008 28,019.20 5432.14 19.39%

2009 31,824.00 7750.47 24.35%

2010 36,284.44 11,454.69 31.57%

2011 38,053.32 11,368.64 29.88%

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Year Total Export in Total Export in % of Puducherry Br

India Puducherry Branch, Export in total

IOB Export of

India

2008 684450.00 5432.14 0.79%

2009 840488.08 7750.47 0.92%

2010 980557.30 11,454.69 1.17%

2011 1081559.98 11,368.64 1.05%

Though IOB, Puducherry Branch provided an insignificant percentage of total export of

India, its contribution has been increasing over the year apart from the 2011’s

performance. Its highest contribution was 1.17% of total export of India in 2010 and the

lowest contribution to total export of our country was 0.79% in the year 2008.

64


65


CHAPTER- E:

Findings

66


15) Problems of Foreign Exchange Branch, IOB

1. Some profitable goods are prohibited.

2. Some rules and regulations of government work as barrier for the free flow of

remittance, export and import of profitable goods.

3. Unholy intervention of the superior members of various sectors.

4. Some foreign buyers ask for discount showing the reason that quality of goods has

not been maintained.

5. Rate is very competitive.

6. Untimely shipment due to lack of backward linkage.

7. Labor problem causes huge problem for the bank.

8. Uneasiness exists due to handling new IT system.

9. Discontinuity of same type of transaction which occurs in infrequency of work

resulting in slow dynamics of work.

10. Delay payment in export.

16) Prospects of Foreign Exchange Branch, IOB

To increase income from Foreign Exchange Business the following

measures has been taken-

1. To ensure internal consumption of inflow of foreign currency to the maximum amount to

gain more exchange income.

2. To increase import Export business in terms of volume & No. of transactions.

3. To ensure rendering all types of Foreign Exchange business services in all AD branches.

4. To allow competitive rate in different areas of business to encourage more volume of

business.

5. To increase Bank Guarantee business against counter guarantee of foreign banks.

6. To ensure automated internal Audit to prevent leakage / laps of Income.

7. To route business through correspondents to optimize rebate income.

8. To conduct in-depth study on ancillary income to get insight as to which business area we

should put more emphasis on.

9. To revise update and incorporate charge/Commission from time to time to optimize income

67


10. To reduce cost of transactions/ business through system development optimization of

Manpower, Automation etc (simplification of F. Ex. Accounting, Centralization of Foreign

Trade).

1) To increase export business of IOB has adopt the following measures-

1. To increase market share in export items where we have lower market share.

2. To select exporters from the market with good repatriation record and allow them facilities

for execution of export.

3. To encourage the existing clients to route entire export business through IOB.

4. To allow competitive rates to encourage export business.

5. To induct new exporter clients who do not require project finance.

6. To ensure close monitoring of the export oriented industries especially in the RMG units.

7. To ensure compliance of the factories.

8. To encourage the SME enterprises to go for export.

2) To increase import business of IOB has adopt the following measures-

1. To identify good performing importers from the market and allow them facilities.

2. For the 1st half of year 2011, they should increase Import business in diversified items.

3. To give Investment facilities against import items which are likely to be recovered within

3 to 6 months

4. Facilities to be given to the clients having good repayment behavior.

5. To induct client who require Working Capital without any Project Finance.

6. To encourage Import Business through Cash retirement and relax charges in this regard.

7. New facilities /Investment may be allowed to selective clients where new gap will be

created after recovering of Investment given in 2010.

8. To strengthen marketing activities through formation of teams at Branch and Head

Office level to improve business volume in the areas mentioned above.

9. To induct new importer clients from the SME sector clients.

10. To create new importers from SME sector among our existing potential clients.

11. To initiate specific drive especially for import of other items to increase import business.

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17) Conclusion

No matter whatever the challenges are in the area of Foreign Trade, Indian Overseas Bank is

fully equipped to face any obstacle. Even if IOB had a slightly poor performance regarding

the percentage of contribution to total import of the country in the last year, still it has

the expertise to be on the top of foreign exchange business in the coming years.

As the economy of India is swelling and import and export are one of the major

sectors that play important role in the economy, Indian Overseas Bank always have played

its role in making sure that things go smoothly. However, since sky is the limit, the bank is

still evolving every day striving to provide the importers and exporters with the best

possible service. Import and exports are showing positive trends within all of the foreign

trades even after the global challenges that we are facing today. That is why there is no

chance that Indian Overseas Bank could possibly fail in facilitating foreign trade in the future.

69

Indian Overseas Bank in Facilitating Foreign Trade (1)

Documents

facilitating

global economic

foreign exchange

indian overseas

banks sole

foreign exchange

foreign documentary

readymade