A FINAL PROJECT STUDY UNDERTAKEN

DISSERTATION REPORT

COMPARATIVE ANALYSIS OF DEPOSITORY SERVICE OF BANK ONSUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE MASTERS DEGREE IN BUSINESS ADMINISTRATION

OF

UTTARAKHAND TECHNICAL UNIVERSITY, DEHRADUN

SUBMITTED TO:

SUBMITTED BY:

(FACULTY GUIDE)

M.B.A.-4 Sem

UTTARANCHAL INSTITUTE OF TECHNOLOGYPREMNAGAR, DEHRADUN (U.K.)

BATCH (2012-2014)

CERTIFICATE

I have the pleasure in certifying that Mr. Anshul Bhatt is a bonafide student of IVth Semester of the Masters Degree in Business Administration (Batch 2012-2014), of Uttaranchal Institute of Technology, Dehradun under Uttarakhand Technical University.

He has completed his dissertation report entitled CUSTOMER RELATIONSHIP MANAGEMENT STRATEGIES AND ITS IMPLICATION- A STUDY OF SOME SELECTED INSURANCE ORGANISATION IN DEHRADUN under my guidance.

I certify that this is his/her original effort & has not been copied from any other source. This project has also not been submitted in any other Institute / University for the purpose of award of any Degree.

This project fulfils the requirement of the curriculum prescribed by this Institute for the said course. I recommend this project work for evaluation & consideration for the award of Degree to the student.

Signature

:

Name of the Guide: Mrs. Amita SharmaDesignation :

Date

:

ACKNOWLEDGEMENT

Every study requires a guidance of someone who is working in that field. Firstly I would like to thank Director Sir Dr. Pradeep Suri for providing an opportunity of preparing a Project Report and allowing to use the resources of the institution during this project.

I am extremely thankful to my Project Guide Mrs. Amita Sharma ,for her precious guidance regarding the preparation of the dissertation . Her guidance has proved to be useful and without him, the preparation of this report might not have been possible.

I am also thankful to the other faculty members of UIM for extending their valuable support for this project.

I also extend my sincere thanks to the Respondents, who helped me during the course of project and for their gracious attitude.

I would like to take this opportunity to extend my warm thoughts to those who helped me in making this project a wonderful experience.

Anshul BhattTABLE OF CONTENTS S.NO Chapter Name

Executive Summary

1. Introduction

- - - Industry

-

- - - Organization

-

- - - Scope of Study

2. Objectives 3. Research Methodology and Objective of Study Methods of Data Collection - Limitations 4. Analysis & Interpretation 5. Recommandations & Suggestions

6. Conclusion 7. Bibliography ---------------------------------------------------- 8.Questionnaire

Executive Summary

Today, business have become very much complex as compare to previous days. In area of business management like many organizations providing products and many other companies providing services to their users/consumers. In this connection many companies further deals with product exchange i.e. import & export of the products, services and exchange of technology, in commerce these are known as FOREIGN EXCHANGE OPERATIONS. All the transactions in the foreign exchange process majorly doing by the all Indian banks.

The exchange process is a key financial variable that affects decisions made by foreign exchange investors, exporters, importers, bankers, businesses, financial institutions, policymakers and tourists in the developed as well as developing world. Fluctuations affect the value of international investment portfolios, competitiveness of exports and imports, value of international reserves, currency value of debt payments, and the cost to tourists in terms of the value of their currency. Movements in Forex markets thus have important implications for the economys business cycle, trade and capital flows and are therefore crucial for understanding financial developments and changes in economic policy.

Accordingly, the study analyses the structure of Indias foreign exchange market and terms of participants, instruments and trading platform as also turnover in the Indian foreign exchange market and forward premia. The Indian foreign exchange market has evolved over time as a deep, liquid and efficient market as against a highly regulated market prior to the 1990s. The market participants have become sophisticated, the range of instruments available for trading has increased, the turnover has also increased, while the bidask spreads have declinedForeign Exchange Policy of Reserve Bank of India: - A Review

Foreign Exchange Market in India operates under the Central Government of India and executes wide powers to control transactions in foreign exchange. The Foreign Exchange Management Act, 1999 or FEMA regulates the whole Foreign Exchange Market in India. Before the introduction of this act, the foreign exchange market in India was regulated by the Reserve Bank of India through the Exchange Control Department, by the Foreign Exchange Regulation Act or FERA, 1947. After independence, FERA was introduced as a temporary measure to regulate the inflow of the foreign capital. But with the Economic and Industrial development, the need for conservation of foreign currency was urgently felt and on the recommendation of the Public Accounts Committee, the Indian government passed the Foreign Exchange Regulation Act, 1973 and gradually, this act became famous as FEMA.Early Years of Foreign Exchange Market Until 1992, all Foreign Investments in India and the repatriation of Foreign Capital required previous approval of the government. The Foreign Exchange Regulation Act rarely allowed foreign majority holdings for Foreign Exchange in India. However, a new Foreign Investment Policy announced in July 1991, declared automatic approval for Foreign Exchange in India for thirty-four industries. These industries were designated with high priority, up to an equivalent limit of 51 percent. The foreign exchange market in India is regulated by the Reserve Bank of India through the Exchange Control Department. Initially, the Government required that a companys routine approval must rely on identical exports and dividend repatriation, but in May 1992, this requirement of Foreign Exchange in India was lifted, with an exception to low-priority sectors. In 1994, foreign nationals and non-resident Indian investors were permitted to repatriate not only their profits but also their capital for Foreign Exchange in India. Indian exporters enjoyed the freedom to use their export earnings as they found it suitable. However, transfer of capital abroad by Indian nationals is only allowed in particular circumstances, such as emigration. Foreign Exchange in India is automatically made accessible for imports for which import licenses are widely issued.INDIAN BANKING INDUSTRYINTRODUCTION:- Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India in 1955.

History Merchants in [Calcutta] established the Union Bank in 1839, but it failed in 1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A company that issues stock and requires shareholders to be held liable for the company's debt) It was not the first though. That honor belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla. Foreign banks too started to app, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Pondicherry, then a French colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center. The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1895, which has survived to the present and is now one of the largest banks in India.

Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities. The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments." The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India.

The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the name South Canara ( South Kanara ) district. Four nationalised banks started in this district and also a leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking".

During the First World War (19141918) through the end of the Second World War (19391945), and two years thereafter until the independence of India were challenging for Indian banking. The years of the First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian economy gaining indirect boost due to war-related economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in the following table 1:YearsNumber of banksthat failedAuthorised capital(Rs. Lakhs)Paid-up Capital (Rs. Lakhs)

19131227435

191442710109

191511565

1916132314

191797625

191872091

Nationalization Despite the provisions, control and regulations of Reserve Bank of India, banks in India except the State Bank of India or SBI, continued to be owned and operated by private persons. By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry. Indira Gandhi, then Prime Minister of India, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The meeting received the paper with enthusiasm. Thereafter, her move was swift and sudden. The Government of India issued an ordinance ('Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969')) and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. These banks contained 85 percent of bank deposits in the country. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.STRUCTURE OF INDIAN BANKING INDUSTRY Banking Industry in India functions under the sunshade of Reserve Bank of India - the regulatory, central bank. Banking Industry mainly consists of:

Commercial Banks

Co-operative Banks

The commercial banking structure in India consists of: Scheduled Commercial Banks Unscheduled Bank. Scheduled commercial Banks constitute those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (60) of the Act. Some co-operative banks are scheduled commercial banks although not all co-operative banks are. Being a part of the second schedule confers some benefits to the bank in terms of access to accommodation by RBI during the times of liquidity constraints. At the same time, however, this status also subjects the bank certain conditions and obligation towards the reserve regulations of RBI. For the purpose of assessment of performance of banks, the Reserve Bank of India categorise them as public sector banks, old private sector banks, new private sector banks and foreign banks.

PUNJAB NATIONAL BANKPROFILE

A SAGA OF EXCELLENCE

VISION

"To be a Leading Global Bank with Pan India footprints and become a household brand in the Indo-Gangetic Plains providing entire range of financial products and services under one roof".

MISSION

"Banking for the Unbanked".With over 60 million satisfied customers and more than 5100 offices including 5 overseas branches, PNB has continued to retain its leadership position amongst the nationalized banks. The bank enjoys strong fundamentals, large franchise value and good brand image. Besides being ranked as one of India's top service brands, PNB has remained fully committed to its guiding principles of sound and prudent banking. Apart from offering banking products, the bank has also entered the credit card, debit card; bullion business; life and non-life insurance; Gold coins & asset management business, etc. PNB has earned many awards and accolades during the year in appreciation of excellence in services, Corporate Social Responsibility (CSR) practices, transparent governance structure, best use of technology and good human resource management. Since its humble beginning in 1895 with the distinction of being the first Swadeshi Bank to have been started with Indian capital, PNB has achieved significant growth in business which at the end of March 2012 amounted to Rs 6, 73, 363 crore. PNB is ranked as the 2nd largest bank in the country after SBI in terms of branch network, business and many other parameters. During the FY 2011-12, with 36.2 % share of CASA to domestic deposits, the Bank achieved a net profit of Rs 4, 884 crore. Bank has a strong capital base with capital adequacy ratio of 12.63% as on Mar12 as per Basel II with Tier I and Tier II capital ratio at 8.44% and 3.98% respectively. As on March11, the Bank has the Gross and Net NPA ratio of 2.93% and 1.52% respectively. During the FY 2011-12, its ratio of Priority Sector Credit to Adjusted Net Bank Credit at 40.7% & Agriculture Credit to Adjusted Net Bank Credit at 29.48 % was also higher than the stipulated requirement of 40% & 18% respectively. The Bank has been able to maintain its stakeholders interest by posting an improved NIM of 3.96% in Mar11 (3.57% Mar10). The Earning per Share improved to Rs 140.60 (Rs 123.86 Mar10) while the Book value per share improved to Rs 661.20 (Rs 514.77 Mar10). Punjab National Bank continues to maintain its frontline position in the Indian banking industry. In particular, the bank has retained its NUMBER ONE position among the nationalized banks in terms of number of branches, Deposit, Advances, total Business, Assets, Operating and Net profit in the year 2010-11. The impressive operational and financial performance has been brought about by Banks focus on customer based business with thrust on CASA deposits, Retail, SME & Agri Advances and with more inclusive approach to banking; better asset liability management; improved margin management, thrust on recovery and increased efficiency in core operations of the Bank. The performance highlights of the bank in terms of business and profit are shown below:

Rs. In Crore

ParametersMar'09Mar'10Mar'11Mar 12

Operating Profit5690732690562936

Net Profit3091390544334884

Deposit209760249330312899379588

Advance154703186601242107293775

Total Business364463435931555005673363

Bank always looked at technology as a key facilitator to provide better customer service and ensured that its IT strategy follows the Business strategy so as to arrive at Best Fit. The Bank has made rapid strides in this direction. All branches of the Bank are under Core Banking Solution (CBS) since Dec08, thus covering 100% of its business and providing Anytime Anywhere banking facility to all customers including customers of more than 3515 rural & semi urban branches. The Bank has also been offering Internet banking services to its customers which also enables on line booking of rail tickets, payment of utilities bills, purchase of airline tickets, etc. Towards developing a cost effective alternative channels of delivery, the Bank with 6009 ATMs has the largest ATM network amongst Nationalized Banks.With the help of advanced technology, the Bank has been a frontrunner in the industry so far as the initiatives for Financial Inclusion is concerned. With its policy of inclusive growth, the Banks mission is Banking for Unbanked. The Bank has launched a drive for biometric smart card based technology enabled Financial Inclusion with the help of Business Correspondents/Business Facilitators (BC/BF) so as to reach out to the last mile customer. The Bank has started several innovative initiatives for marginal groups like rickshaw pullers, vegetable vendors, dairy farmers, construction workers, etc. Bank has launched a welfare scheme of adoption of village viz., PNB VIKAS. Under the scheme, Bank has selected 117 villages (60 in lead districts and 57 in non lead district) in different circles for all-round improvement in the living standards of the villagers. Besides, Bank has formed PNB PRERNA, an association of the wives of the Banks senior management. The association through its voluntary initiatives has undertaken activities like distribution of food to the poor and needy, provision of computers, books, stationary items to poor girl students at various orphanages and schools etc. Backed by strong domestic performance, the Bank is planning to realize its global aspirations. Bank has opened one branch each at Kabul and Dubai, two branches at Hong Kong and an Off Shore Banking Unit at Mumbai. In addition to the above, Bank has Representative offices at Almaty, Dubai, Shanghai and Oslo, a wholly owned subsidiary in UK with 7 branches and a subsidiary each in Kazakhstan & Bhutan, and joint venture with Everest Bank Ltd. Nepal. During the year, Bank acquired majority equity stake of 63.64% in Dana Bank of Kazakhstan.Subsidiaries and Joint Ventures in OverseasPNBIL

Punjab National Bank (International) Limited (PNBIL) is a wholly owned UK subsidiary of Punjab National Bank, India. PNBIL was incorporated in UK on 13th April 2006 and registered with the Companies House in England& Wales under No. 5781326. PNBIL was authorised by the Financial Services Authority (FSA) on 13th April2007 to conduct Banking Business in UK under Registration No. 459701. PNBIL started banking operations in UK on 10th of May 2007 from two locations. The corporate office of PNBIL is at 87, Gresham Street, London EC2V 7NQ (UK). Presently PNBIL has7 Branches as under: 1. At 87, Gresham Street, London EC2V 7NQ (UK)

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

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

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

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

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

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

DRUK PNB Bank LtdDruk PNB Bank Ltd. (DPNBL) is our Joint Venture Subsidiary in Bhutan with our Equity participation to the extent of 51%. It started operations on 27th January, 2010 and has three branches- one each at Thimphu, Phentsholing and Wangduephodrang

Sh N.K. Arora, DGM is the CEO.Contact details of Sh. N.K. Arora are: Phone No. 00975- 17116440E Mail id: nk_arora@pnb.co.inJSC (SB) PNB KazakhstanOur bank has acquired 80.95% stake in JSC (SB) PNB, Kazakhstan. The bank has its head quarters in Almaty. It has five branches at Almaty, Pavlador, Karganda, Astana & Taraz.

Everest Bank Ltd, Kathmandu, NepalEverest Bank Limited (EBL) is our joint venture in Nepal with equity participation to the extent of 20%. Under a Technical Services Agreement, our Bank is providing Top Management Support. The operations of EBL with Management Support from our Bank started in January, 1997. EBL presently has a network of44 branches in Nepal. EBL has started Financial Inclusion concept in Nepal.Domestic Subsidiaries:-

1. PNB GILTS LTD.PNB Gilts Ltd., a subsidiary of the Bank, is engaged in the business of trading in Govt. securities, treasury bills and Non SLR Investments. It is also engaged in dealing in Money Market Instruments (Call/Notice/Term Money, Repo /Reverse Repo, Inter-corporate Deposits, Commercial Paper, Certificate of Deposit) andMutual Funds Distribution. The company is listed at NSE and BSE.

2. PNB HOUSING FINANCE LTDPNB Housing Finance Ltd. is engaged in providing housing loans for purchase, construction and upgradation of a dwelling unit. The company offers Loans for construction or for purchase of house/flat from development authorities and also from private builders/ group housing societies as well as for renovation/ repairs. Company also provides finance for construction of residential projects. Loans to NRIs are also provided for purchase/ construction of house/ flat along with a resident/ non-resident co-borrower.

3. PNB INVESTMENT SERVICES LTDPNB Investment Services Ltd, a wholly owned subsidiary, has been set up by the Bank for carrying out Merchant Banking Business. It provides services for Project Appraisal, Loan Syndication, and Debt Placement and to execute IPOs/FPO/QIPs. PNBISL is registered with SEBI as a Category- I Merchant Banker.

4. PNB INSURANCE BROKING Pvt. Ltd.5. PNB LIFE INSURANCE Co. Ltd.The Bank is holding majority stake in abovetwo companies, jointly with Vijaya Bank, minor shareholder.Domestic Joint VenturesThe Bank has the following Joint Ventures:

1. Principal PNB Asset Management Company Pvt. Ltd

2. Principal Trustee Company Pvt. Ltd3. Assets Care Enterprises Ltd.4. India Factoring & Finance Solutions Pvt. Ltd.

PNB now brings to you Centralized Banking Solution (CBS). An inter-branch networking and data sharing platform which makes 'Anytime Anywhere ' banking a reality. With over 5874 CBS Outlets of Bank, the status of customers is changing from 'Customer of the branch' to "Customer of the bank"

CBS - 'Benefits' to Customers

Instant fund transfers

Cheques collection / deposit across cities

Cheque can be deposited at the centre where it is drawn

Interconnected ATMs

Access of Accounts through any CBS connected branch

SWIFT remittance facility

Instant generation of statement of accounts

At present CBS facility is available in over 5874 Service Outlets at the 2922 Cities/Centres as on 30.04.2012.

ORIGIN

Punjab under the British especially after annexation in 1849 witnessed a period of rapid development giving rise to a new educated class fired with a desire for freedom from the yoke of slavery. Amongst the cherished desires of this new class was also an overriding ambition to start a Swadeshi Bank with Indian Capital and management representing all sections of the Indian community. Firstly the idea mooted by, Rai Mool Raj of Arya Samaj who, as reported by Lal Lajpat Rai, had long cherished the idea that Indians should have a national bank of their own. He felt keenly "the fact that the Indian capital was being used to run English banks and companies, the profits accruing from which went entirely to the Britishers whilst Indians had to contend themselves with a small interest on their own capital". On May 23, 1894, the efforts materialized. The founding board was drawn from different parts of India professing different faiths and a varied back-ground with, however, the common objective of providing country with a truly national bank which would further the economic interest of the country. The Bank opened for business on 12 April, 1895. Sh. Dayal Singh Majithia was the first Chairman, Lala Harkishan Lal, the first secretary to the Board and Shri Bulaki Ram Shastri Barrister at Lahore, was appointed Manager. Lala Lajpat Rai was the first to open an account with the bank which was housed in the building opposite the Arya Samaj Mandir in Anarkali in Lahore. His younger brother joined the Bank as a Manager. Authorised total capital of the Bank was Rs. 2 lakhs, the working capital was Rs. 20000. It had total staff strength of nine and the total monthly salary amounted to Rs. 320. The first branch outside Lahore was opened in Rawalpindi in 1900. The Bank made slow, but steady progress in the first decade of its existence. Lala Lajpat Rai joined the Board of Directors soon after in 1913, the banking industry in India was hit by a severe crisis following the failure of the Peoples Bank of India founded by Lala Harkishan Lal. The years 1926 to 1936 were turbulent and loss ridden ones for the banking industry the world over. The 1929 Wall Street crash plunged the world into a severe economic crisis. The five years from 1941 to 1946 were ones of unprecedented growth. From a modest base of 71, the number of branches increased to 278. Deposits grew from Rs. 10 crores to Rs. 62 crores. On March 31, 1947, the Bank officials decided to leave Lahore and transfer the registered office of the Bank to Delhi and permission for transfer was obtained from the Lahore High Court on June 20, 1947. PNB was then housed in the precincts of Sreeniwas in the salubrious Civil Lines, Delhi. Many a staff member fell victim to the widespread riots in the discharge of their duties. The conditions deteriorated further. The Bank was forced to close 92 offices in West Pakistan constituting 33 percent of the total number and having 40% of the total deposits. The Bank, however, continued to maintain a few caretaker branches. The Bank then embarked on its task of rehabilitating the displaced account holders. The migrants from Pakistan were repaid their deposits based upon whatever evidence they could produce. Such gestures cemented their trusts in the bank and PNB became a symbol of Trust and a name you can bank upon. Surplus staff posed a big problem. Fast expansion became a priority. The policy paid rich dividends by opening up an era of phenomenal growth. In 1951, the Bank took over the assets and liabilities of Bharat Bank Ltd. and became the second largest bank in the private sector. In 1962, it amalgamated the Indo-Commercial Bank with it. From its dwindled deposits of Rs. 43 crores in 1949 it rose to cross the Rs. 355 crores mark by the July 1969. Its number of offices had increased to 569 and advances from Rs. 19 crores in 1949 to Rs. 243 crores by July 1969 when it was nationalized. Since inception in 1895, PNB has always been a "People's bank" serving millions of people throughout the country.PRODUCTS/SERVICESPunjab National Bank is extensively catering to banking needs of Non-resident Indians, Importers & Exporters particularly relating to foreign exchange business including Imports & Exports of Goods & Services as also Remittances etc.

PNB OFFERS VARIOUS SCHEMES / PRODUCTS /SERVICES RELATING TO INTERNATIONAL BANKING. THE BROAD DETAILS THRREOF ARE AS UNDER Foreign Currency Non-resident Deposit A/c Scheme (FD)

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

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

Foreign Inward Remittances Rupee Drawing Arrangements / Speed Remittances with Exchange Houses

Money Transfer Schemes

PNB-NRI REMIT Scheme

Exchange of Foreign Currency Travellers Cheques/Notes

World Travel Card

Buyers / Suppliers Credit against Imports into India

Letter of Guarantee (issued on behalf of foreign bank)

Precious Metal Business (on consignment basis)

Gold (Metal) Loan Scheme for Domestic Jewellery Manufacturers.

ECGC Bank assurance - Selling of policies to exporters

INTRODUCTION

International Trade In simple terms, International Trade means export and import of merchandise goods between countries and from one place to other place. In earlier days, the barter system existed and goods were exchanged for goods or gold. When the domestic markets began to saturate, countries tried to expand beyond international boundaries and sought foreign markets. Trading between two countries has many difficulties like language barriers, time zones, country laws, market practices, etc. Over a period of time the trades of goods between countries have been standardized and the purchase and sell of goods have more or less fixed patterns regarding rules, regulations, terms and conditions. We give below some of the most commonly used ways of exporting merchandise goods.

Advance Payment

Documents against Payment

Documents against Acceptance

Letter of Credit

Open Account Advance Payment

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

India

USA

Seller

Buyer

Such type of transaction occurs when seller is strong or when it is sellers market.

Sellers viewBuyers view

Most secure form of tradingLeast secure form of trading

Receives money in advance for shipment, thus covered from risk of non- payment by the buyer.Pays money in advance and hence carries risk in case the seller fails to honour the sale contract and ship goods. He must have complete confidence in the seller.

Has good cash flowDrains his cash flow

Can use the money for manufacturing the goods.Agrees to this method if the goods are not available from any other source.

Documents against Payment (DP)

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

India

USA

Seller

Buyer

Sellers Bank

Buyers Bank

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

More Secure form of tradingLess Secure form of trading

Payment is secure since buyer makes payment before receipt of goodsHas to make payment before receipt of goods.

The buyer may refuse to pay after the goods have reached. Goods will lie at foreign port and will be difficult to dispose off. Seller will have to search for a new buyer or sell at a discount. If the goods do not sell, he will have to bring it back, thus incurring more costs.On risk since he cannot check goods (for quality, quantity) before making payment. Thus is depends on seller meeting the contract terms.

Has good cash flowCash flow is drained

Documents against Acceptance (DA)

This type of transaction involves a Bill of Exchange (BOE). The documents for collection of goods are handed over to the buyer only after he signs the BOE.

India

USA

Seller

Buyer

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

Less Secure form of tradingMore Secure form of trading

Payment is secure since buyer accepts BOE. There is a certainty as to when the payment will be made.He can check the goods before making payment.

On risk in case when buyer goes bankrupt.In case he fails to make payment, legal proceedings can be undertaken.

Export proceeds are realized only on due date hence cash flow is drained.Gets a credit period for making payment.

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

Letter of Credit

A Letter of Credit (LC) is a document issued by the importers bank in favour of the exporter giving him the authority to draw bills up to a particular amount (as per the contract price) covering a specified shipment of goods and assuring him of payment against the delivery of shipping documents as mentioned in LC.

Parties involved in LC

Seller

Buyer

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

LC Advising Bank

LC Negotiating Bank

LC Confirming Bank

How an LC Works:

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

Very secure as an LC is a guarantee of payment by a bank.Not Applicable

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

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

On risk if there is political crisis in buyers country, unless the LC is confirmed by another bank in another country.LC process is time consuming and there is a delay in possession of goods

Types of Letter of Credit

Following are the types of LCs:

Documentary Letter of Credit: A Documentary Letter of Credit is simply a means of opening a credit in favour of someone, under which a payment will be made by a bank, provided certain conditions are fulfilled. The word Documentary means that the payment obligations by the bank will be only after production of correctly completed documents as specified in the LC. There are three types of Documentary Letter of Credits.

Revocable LC:

This type of letter of credit can be amended, withdrawn or changed at any time without the consent of the exporter. It gives the buyer maximum security, but little or no security to the seller. This form of LC is seldom used in practice. A revocable letter of credit is never confirmed.

Irrevocable LC:

In this type of letter of credit, none of the parties involved has a right to amend, change or withdraw the letter of credit except with the permission of ALL the parties involved. i.e. importer, exporter, importers bank and exporters bank. However, the bank can refuse its payment obligation in the event of non-compliance by the exporter with the terms of credit or in case of fraud on the part of exporter.

Confirmed Irrevocable

If the seller does not have a confidence in the LC opening bank or the country of the buyer, it may ask the LC advising bank to confirm the LC. In case the LC Opening bank does not meet its obligations to pay, the LC advising bank makes good the payment.

Clean Letter of Credit: In this type of letter of credit, bank does not put any conditions for acceptance and payment of bill of exchange.Back-to-Back LC: In a back to back LC, the exporter opens an LC in favour of his supplier on the back of LC opened in his favour by importer.Confirmed LC

When the LC issuing/ opening bank is a weak bank or the concerned country has political problems, another bank in another country (which is either a strong bank or it is in a country which does not have political problem) guarantees payment. The bank, which gives such guarantee, is called LC Confirming bank and LC is called as Confirmed LC. In case the LC opening bank does not pay, the LC confirming bank makes good the payment.

With Recourse LC

The term Recourse means that the BANK may direct the EXPORTER at any time, to pay to the BANK an amount equal to the amount remaining unpaid by the IMPORTER. Thus, in recourse LC exporter is required to make payment to his bank in case importer fails to make payment.Red Clause LCSuch LC is opened to provide exporter with advance payment to enable him manufacture and purchase goods from the local suppliers. In this LC risk of non-submission of documents or non-execution of order by exporter is on LC opening bank. Since this letter of credit is printed in Red for the sake of differentiation, it is called Red Clause LC.

Green Clause LC

This type of letter of credit envisages grant of storage facilities at port over and above the pre-shipment payment to the exporter. In India opening of Green Clause LC covering import of goods in our country requires prior permission.

The operations of letters of credit have been regulated and are governed by UCPDC 500 of International Chamber Commerce, Paris.Open AccountOpen account terms means that the seller has agreed to give the buyer a certain credit period to pay (usually 30 to 90 days after the date of shipment) and the buyer has agreed to pay as per the agreed terms.

India

USA

Seller

Buyer

Such type of transaction occurs when buyer is strong or when it is buyers market. Here risk is 100% on the seller.Sellers viewBuyers view

Least Secure form of trading. He should have complete confidence that the buyer will pay.Most Secure form of trading

On risk since buyer may not pay on due dateCan collect and use the goods before making payment

Should have sufficient liquidity to allow a credit period to the buyer.Gets free credit. Their own lines from the banks are not used to fund the credit period.

Should have confidence in the government of the buyers country that they wont impose any restrictions for transfer of moneyIt is administratively cheaper.

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

Terms of Trade (INCOTERMS)

INCOTERMS means International commercial terms. These are set of rules applicable uniformly to all international trade. They set out the rights and obligations of the exporter and the importer in international trade transactions. They came in to force w.e.f from 1st July 1990.

The most common ways of exporting goods are:

FOB

C & F

CIFFOB

FOB means Free On Board. Here the exporter pays for all the costs till the goods are placed On Board the ship. Once the goods are on board, all the costs are paid by the buyer.

Seller

Port on Board On Board Port Buyer

Seller Pays

Transportation

Warehousing

Buyer pays

Freight

Insurance

Transportation

C & FC & F means Cost & Freight Here the exporter pays for all the costs till the goods are placed downloaded at the buyers port. The transportation from the port to the final destination and insurance is borne by the buyer.

Seller Port On Board On Board Port Buyer

Seller Pays

Transportation

Warehousing

Freight

Buyer pays

Insurance

TransportationC I FC I F means Cost Insurance & Freight Here the exporter pays for all the costs till the goods are downloaded at the buyers port including Insurance. The transportation is borne by the buyer.

Seller

Port On Board On Board Port Buyer

Seller Pays

Transportation

Warehousing

Freight

Insurance

Buyer pays

TransportationTADE DOCUMENATIONDefinition of an ExporterExporter means a person who exports or intends to export and holds an Importer-Exporter Code Number. IEC code is unique for exporter and is registered with Director General of Foreign Trade (DGFT).Following are the categories of exporters:

Manufacturer Exporter means a person who exports goods manufactured by him or intends to export such goods.

Merchant Exporter means a person engaged in trade activity and exporting or intending to export. He can also export goods manufactured by him.

Export ZonesTo build marketing infrastructure and expertise required for exports, government has categorized following:

EOU means Export Oriented Unit

EPZ means Export Processing Zone.

SEZ means Special Economic Zone.

These zones are set up as enclaves and have different tariff structures compared to domestic business. This provides an internationally competitive duty free environment for export production at low cost. Thus enabling the products, to be competitive, both quality-wise and price-wise in the international markets. Exports of Service Service Provider means a person providing:(i) Supply of a service from India to any other country

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

(iii) Supply of a service from India through commercial or physical presence in the territory of any other country.

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

Types of Exporters

When exporters, service providers achieve a specified level of exports over a period of time, they can get recognition or registration as

Export House (EH)

Trading House (TH)

Star Trading House (STH)

Super Star Trading House (SSTH)

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

average F.O.B. (F.O.B. Value is explained later in this section) value of goods or services in the preceding three years, or preceding year

OR

The Average net foreign exchange earning in FCY and INR in the preceding three years or Net Foreign Exchange earned in the preceding year.

(INR)

CATEGORYAVG FOB

(3 preceding years)FOB

(Preceding year)AVG NFE

(3 preceding years)NFE

(Preceding year)

EH15 CR22 CR12 CR18 CR

TH75 CR112 CR62 CR90 CR

STH375 CR560 CR312 CR450 CR

SSTH1112 CR1680 CR937 CR1350 CR

NFE = Net foreign exchange earned on exports

FOB = Actual invoice value after deducting all freight, Commission & Insurance payable. EXPORT FINANCEAn exporter may require financial assistance from his bank at both pre-shipment and post-shipment stages. Export finance is broadly classified into following two categories, depending upon what stage of export activity the finance is extended:

1. Pre-shipment Finance

This type of finance is available to produce goods before it is shipped / exported. The types of pre-shipment finance are:

i) Packing Credit

ii) Pre-shipment Credit in Foreign Currency (PCFC)2. Post-shipment Finance

This type of finance is available after the goods are shipped / exported till the money is realized from the overseas buyer. The types of post-shipment finance are:

i) Negotiations of export documents under Letter of Credit.

ii) Purchase/Discount of Export Documents

iii) Advances against Documents / Bills sent on Collection Basis

iv) Advances against Exports on Consignment Basis

v) Advances against Cash Incentives / Duty Drawback Entitlements

vi) Financing Exports under Deferred Payment Arrangements, Turnkey Projects, and Construction Contracts etc.

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

Pre-Shipment Finance:Packing Credit:Packing Credit advance is available for the purpose of:

Purchasing raw materials for the goods meant for exports,

Manufacturing them,

Processing them,

Warehousing them,

Transporting to the seaport / airport for export, and

Packing and shipping.

The maximum period for which the credit can be granted is 180 days from the date of disbursement. The period can be extended by another 90 days at the discretion of the Commercial Bank, subject to the payment of additional interest by the exporter for extended period.Pre-shipment Credit in Foreign Currency (PCFC)This scheme enables Indian exporters to avail pre-shipment credit in foreign currencies to finance cost of imported inputs for manufacture of export products. The maximum credit period for an advance under PCFC is 180 days. The facility for pre-shipment credit limit in foreign currency is available only to the following categories of the exporters:-

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

Manufacturing units with minimum export orientation of 25% of production or export turnover of Rs.5 crores, whichever is lower? For this purpose, only physical exports of commodities will be taken into account and not services. Such exports could be made either directly by the manufacturer or he can sell to a Trading House, who can then export.Advances against Cash Incentives

Advances against Duty Drawback Entitlements

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

Post Shipment CreditPost Shipment Credit can be both, short-term (180 days) or medium to long-term (more than 180 days). Banks give Post-shipment credit (short-term) after the shipment of goods and submission of shipping documents to banks. Following are the types of post-shipment credits given by banks.

Negotiation of Documents:

Where the export is under a Letter of Credit, the banks accept the documents, check them, and if they are as per the LC terms, pay the exporter the total amount of the LC, less the bank interest and charges. This process is called negotiation of documents.

Purchase/Discount of Bills

Where bills are not covered under Letters of Credit, the exporter may ship on a Bill of Exchange Basis. i.e. DA or DP terms. In such cases also, the banks check the documents, wait for the acceptance of the BOE by the buyer, and on acceptance, pay the exporter the value of the BOE. This process is called purchase / Discount of Bills.Documents on Collection Basis

The term Collection Basis means that the banks send the documents to the buyer through the buyers bank and the exporters will receive export proceeds only after they are paid by the buyer. No payment is made to the exporter when he submits the documents. Banks may also sometimes grant advances against invoices / bills sent on collection basis. This may be resorted to when the limit available under the Bills purchased scheme is exhausted or when, some export bills drawn under L/C have discrepancies. Such payments are usually avoided and not favored by banks. The period of credit will be from the date of negotiation or collection of export documents to the due date (not more than 180 days in any case) mentioned on the relative export bill or the date of realization of export proceeds from the overseas bank.

Advances against Goods sent on Consignment Basis

Need for this type of finance arises where goods are exported on consignment basis at the risk of the exporter for sale and eventual remittance of sale proceeds by the agent/consignee. This type of finance is also not favoured by banks.

Advances against Cash Incentives/Duty Drawback

Where the domestic cost of production of certain goods is high in relation to international price, government may grant some incentives to the exporter so that he may compete effectively in the overseas market. The banks may at times give advances to the exporter against these incentives. Government of India have formulated a Duty Drawback Credit Scheme under which banks are able to grant advances to exporters against their entitlements of duty drawback on export of goods, free of interest charges. The period of advances will be up to a maximum 90 days beyond which the bank may not allow the advances or may charge normal interest applicable to export credit.

Financing Exports under Deferred Payment Arrangements, Turnkey Projects, Construction Contracts etc.

Post-shipment credit (medium or long term) is given for exports on deferred payment terms for the period of over one year. Also special RBI approval or EXIM approval is required for credit period more than 180 days.

While sanctioning the post-shipment credit, the bank will first liquidate the packing credit from the bill proceeds and then convert the entire amount of the bill into post-shipment credit.TRADE DOCUMENTATIONEXPORT DOCUMENTS

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

Purchase OrderA Purchase Order (PO) is the very first document executed. The Exporter and the Importer negotiate with each other to sell and purchase goods. The Exporter commits to sell the Importer:-

certain goods

at a certain price and

At a certain date.

In the Purchase Order all this is put in writing and signed by both the parties. On signing the PO, there is a commitment on both sides and is legally binding on both sides. PO is not only important to the exporter and importer, but it is also of concern to their respective countries, since it affects the balance of payment position of both the countries. It is, therefore, not just a matter of product, manufacturing, packing, shipment and payment but also one of the concerns to licensing authorities, exchange control authorities and banks dealing in export trade. The exporter is required to produce copies of export order to various Government departments/Financial institutions for many things like - obtaining export licenses for products covered under restricted items for exports, availing pre-shipment & post-shipment finance, other incentives, dealing with inspection authorities, insurance underwriters, customs offices, exchange control authorities, etc. for various purposes.Order Acceptance

The Order Acceptance is another important commercial document prepared by the exporter confirming the acceptance of order placed by the importer. Under this document, he commits the shipment of goods covered at the agreed price during a specified time. Sometimes, the exporter needs a copy of his order acceptance signed by the importer.

The order acceptance normally covers:

Name and address of the importer

Name and address of the consignee

Port of shipment

Country of final destination

Description of goods

Quantity Price each and total amount of the order

Terms of delivery

Details of freight and insurance

Mode of transport

Packing and marking details

Terms of payment.InvoiceIt is a prima facie evidence of the contract of sale and purchase. The invoice should be strictly in accordance with the contract of sale (PO). It contains following details:

Name and Address of Seller

Name and Address of Buyer

Name and address of the consignee

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

Quantity of Goods

Gross Weight / Net Weight

Price of Goods unit price and total price

Country of Origin

Port of Loading & Port of Discharge

Payment Terms

After sale service and warranty details

Validity of Invoice

Delivery Schedules

There are five types of invoices:

Proforma InvoiceCommercial InvoiceConsular InvoiceLegalised InvoiceCustom Invoice

1.It is an indicative quote from the exporter to the importerIt is a firm contract of sale for the shipments made. It is a receivable in the books of accounts of the exporter.Consular Invoice is a document required mainly by countries like Philippines and South Africa.It is required by the Middle East countries. It is also called as visaed invoice. It is required by countries like USA and Canada.

2.It gives a clear idea to the importer in respect of terms and conditions of sale and price of goods.It is fundamental and basic document used for commercial transactions. It is useful at the time of payment of Import duty. Thus facilitates fast clearance of goods at customs of importers country.This invoice is legalized by the consular of importing country by stamping and attesting.Specific form is to be supplied by the consular office of the importing country.

3.Acceptance of a Proforma Invoice by the buyer is equivalent to a Purchase order duly accepted.It gives description of the goods as per the L/C, if transaction is drawn under letter of CreditConsular invoice is certified by Embassy or Trade Consulate of the Importers country stationed in exporters countryIt is same as consular invoice except that it is not on the prescribed form.This facilitates entry of merchandise into importing country under preferential traffic.

4.In addition to basic terms mentioned above, it includes:

Order and Contract No

Marks and Vessel No

Packing specifications

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

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

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

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

1. Date of packing

2. Connecting invoice number

3. Order number

4. Port of Loading

5. Port of Discharge

6. Country of Destination

7. Quantity of goods

8. Description of goods item wise

9. Gross weight and Net Weight

10. Item-wise detailsTransport DocumentsThe following documents are used in export business as transport documents:Ways of Transport

Document IssuedTransport by Sea

Bill of Lading

Freight Forwarders Receipt

Air Freight

Airway Bill/Air consignment note

Rail/Road

Railway Receipt/Consignment note

Post

Post Parcel Receipt

Courier

Courier Receipt/Way BillBill of LadingIt is a document of title and it is evidence of shipment.

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

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

undertaking to deliver the goods in the same order and condition as received,

to the consignee mentioned on the Bill of Lading.Consignor is one who ships the goods.

Consignee is one who can collect goods from shipping company.

The Bill of Lading contains details such as the:

Name of the consignor

Name and destination of the vessel

Destination of the goods

Description of goods

Quantity of goods

Marks and numbers

Invoice number

GR number

Gross and Net weight

Number of packages

Amount of freight etc.

Date and place of shipmentFrom the legal point of view, a Bill of Lading is:i) A formal receipt by the ship-owner or the master of the ship acknowledging that the goods of the stated specifications, quantity and condition has been received in the custody of the ship-owner for the purpose of shipment or is on board a certain ship;

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

iii) A document of title of the goods enabling the consignee to dispose of the goods by endorsement.Bills of Lading are usually made out in sets of three.The exporter should submit ALL the sets of Bill of Lading together with the mate receipt to the shipping company, which would calculate the freight amount on the basis of measurement or weight as certified by the recognized Chamber of Commerce. On payment of the freight, the shipping company returns the Bill of Lading duly signed and stamped. If required, the exporter may prepare additional copies of the Bill of Lading.

In some cases, the exporter may have the Bill made out to his own order or in the name of the Bank. The consignee or the consignor, as the case may be, may transfer the bill either by:

an endorsement, which names the transferee to whom the delivery is to be made or

By an endorsement in blank (i.e. without naming an endorsee).

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

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

Mates ReceiptMates Receipt is issued by the Chief of Vessel after the cargo is loaded.

It contains

Name of shipping line

Vessel Name

Port of loading

Port of discharge

Place of delivery

Marks and numbers

Number and kind of containers

Description of goods

Container status/seal number

Gross weight

Condition of cargo at the time of its receipt on board the vessel

Shipping bill number and date. The mate receipt is of a transferable nature and must be presented immediately at the shipping companys office to be exchanged into Bill of Lading.

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

In India Marine insurance is governed by the following laws:1. The Indian Contract Act 18722. The Marine Insurance Act 19633. The Insurance Act 19384. The Insurance Rule 19395. The Indian Stamp Act 18996. Exchange Control Regulation relating to General Insurance7. Common Laws8. Marine Insurance PracticeMarine Insurance includes following types:

1. Insurance of goods in transit by various modes of transport (e.g. Sea, Land, Air, Rail

etc.)

2. Insurance of Ships (e.g. merchant vessels, passenger vessels etc.)

3. Insurance of ship during construction

4. Insurance of ship during breakage

5. Freight Insurance

In India and in majority of countries of the world the clauses drafted by institute of London underwriters (ILU) are in vogue. There are about 225 clauses in this set. There are other clauses also in world market like American Clauses or Deutsch Clauses.

For general cargo there are two types of clauses based on mode of transport.Transit by SeaTransit by Air

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

ii) Institute Cargo Clauses(B) ICC (B)(Excluding carriage by post)

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

The scope of cover under ICC(C), ICC (B) & ICC (A)

ICC(C)Loss or damage subject to (i) Fire or explosion(ii) Vessel or craft being stranded, grounded, sunk or capsized(iii) Overturning or derailment of land conveyance(iv) Collision/contract of vessel, craft or conveyance with external object other than water.(v) Discharge of cargo at port of distress(vi) General average sacrifice(vii) JettisonICC (B) above (I) to (vii) points plus the following:

(viii) Earthquake, volcanic eruption(ix) Washing Overboard(x) Entry of sea, lake or river water into vessel, craft, hold, conveyance, container, lift van or place of storage(xi) Total loss of any package lost overhead or dropped whilst loading onto, or unloading from, vessel or craft.ICC (A) above (I) to (xi) points plus the following:

(i) Rainwater damage(ii) Piracy(iii) Malicious damage(iv) Rough handling(v) Breakage, leakage, denting, scratching etc(vi) Heating, sweating(vii) Just by external factors(viii) Country damage(ix) Theft, pilferage and non delivery(x) Hook and sling damage(xi) Contamination(xii) Oil damage(xiii) All other accidental loses/ damage to cargoICC (Air) is similar to ICC (A) but it does not cover General Average or Salvage Charges which are peculiar to sea transit.Exclusions applicable to all ICC (C), (B) & (A)1. Willful misconduct of insured2. Ordinary leakage, ordinary loss in weight or volume, ordinary wear and tear of cargo.3. Insufficiency or unsuitability of packing or preparation of cargo4. Inherent vice or nature of cargo5. Insolvency or financial default of owners, managers, characters or operators of the vessels. Un-seaworthiness of the vessel or craft and unfitness of vessel, craft, conveyance, containers or lift vans.6. Deliberate damage7. Nuclear losses8. War Risk9. Strike, Riots, Civil commotion and terrorismInsurance is mandatory when goods are shipped on CIF basis.

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

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

Bill of exchangeBill of exchange is also known as Draft. A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of a person or to the bearer of the instrument.

A bill of exchange contains an order from the creditor to the debtor to pay a specified amount to a person mentioned therein.

- Drawer is the person who draws the bill.

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

- Payee is the person who receives payment.

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

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

Usance Draft or Usance Bill or Demand Draft

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

This form is used only for factoring. All the documents are enclosed along with this form. The form is to legally notify the Export Factor of the invoices submitted for factoring.

Export Declaration FormsAs per the Exchange Control Regulations, exporters are required to submit declaration in one of the following prescribed forms to the prescribed authority before any export of goods from India is made. The prescribed forms are given below:

Form GR

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

Form SDF

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

customs where electronic systems are in place.

Form PPExports to all countries by Parcel Post, except when made on Value Payable or Cash on Delivery basis.

Form SOFTEX To be used for declaring software exports through data communication links and receipt of royalty on the software packages/products exported.

1) The GR form is the most important document as far as the regulators are concerned. The GR Form gives the following:

the exact amount of Foreign Exchange coming into India at a specific date.

Control and regulation of exports from India

To estimate the balance of Payments situation of the countryThe details of the GR form are to be reported to RBI on a fortnightly basis. The GR form is to be released to RBI after the foreign currency is received into India. Authorized dealers India are not supposed to accept any documents unless the GR form accompanies the export documents.

Shipping Bill

Shipping Bill is an important document required by the Customs Authorities for allowing shipment. It is prepared by the exporter and it contains:

Name of the vessel,

Master or agents, flag

Port at which goods are to be discharged

Country of final destination

Exporters name and address

Details about packages

Number and description of goods

Marks and numbers

Quantity

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

Whether Indian or Foreign merchandise to be re-exported

Total number of packages with total weight

Value and the name and address of the Importer.

The Shipping Bills are of following types.

i) Duty-free shipping Bill:

This type of Shipping Bill is printed on white paper and used for the goods for which

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

materials imported under the duty-free import.

ii) Dutiable Shipping Bill:

This type of shipping bill is used for the goods subject to export duty/cess, which is either entitled or not entitled for drawback. This shipping bill is used separately in respect of which export duty is levied on the basis of (a) market price and (b) tariff assessed value, and printed on yellow paper for all goods except mica and jute.

iii) Drawback Shipping Bill:

If the export of goods is simultaneously by duty free and/or subject to export duty/cess, this type of shipping bill is compulsorily to be used whether alone or along with any other shipping bill. This type of shipping bill is printed on the Green paper.

iv) Shipping Bill for Shipment Ex-bond:

In case of goods imported for re-export and kept in-bond, this type of shipping bill is used which is printed on yellow paper.

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

It certifies that the goods are of Indian origin and are manufactured in India. It is also required by exporter to categories its product under get concession/ exemptions on duties from the government.

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

the goods exported by him are manufactured in India

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

G.S.P. CertificateThe EEC countries comprising France, Germany, Belgium, Netherlands, Italy, UK, Ireland, Denmark and Greece have adopted the Generalized System of Preferences (GSP). Under his system, manufacturers and semi-manufacturers from developing countries including India will be entitled to a concessional rate of import duty in these countries.

The Government of India has authorized the Export Inspection Council of India and its various agencies to issue the GSP Certificate.

2) Certificate of Inspection:- Certificate of Inspection is issued by the Inspection Agency concerned, certifying that the consignment has been inspected as required under the Export (Quality Control & Inspection) Act, 1963 and satisfies the conditions relating to quality control and inspection as applicable to it and is certified export worthy. In addition to this certificate, some countries need Clean Report-of-findings under a certificate of SGS. (SGS is a company who inspects the goods and gives a certificate to that effect).Transshipment BillIndia

Singapore

USA

Port of

Intermediate

Final Port of

Loading

Port

Destination

In the word Transshipment - Trans stands for transfer and Shipment means cargo i.e. when cargo is transferred from one ship to another it is called as Transshipment. Sometimes shipping companies do not have direct ship service to the port of discharge. In such cases, goods are taken by one vessel (ship) to a port from where they are transferred to another vessel for delivery to port of discharge.

Transshipment Permit

The transshipment permit is the permission for transshipment of goods from the vessel on which the same are booked originally to another for export.FOREIGN EXCHANGE MARKETSTHE EXCHANGE RATE SYSTEM IN INDIA

BALANCE OF TRADE AND BALANCE OF PAYMENT

It is customary to classify a countrys foreign currency receipts and foreign currency payments under two broad headings

1. Current account transactions

2. Capital Account transactions

Current Account Transactions

Current account transactions relate to export and import of trade goods taking place in the country. It also includes invisible transactions like services rendered by companies, purchase of books, subscription to foreign courses, foreign travel related expenses, etc.

The difference between all the inflows minus all the outflows on the current account is calledBALANCE OF TRADE.It is customary to report all imports on CIF basis and all exports on FOB basis for calculating balance of trade. Invisibles comprises of items other than that of merchandise trade. Some of the more important items under this head are travel, transportation, books and periodicals, dividend payments, etc.Capital Account Transactions

Capital Account comprises of short-term and long-term international borrowings and lending. Examples are acquisition of assets in a foreign country, external borrowings, repayment of external borrowings, investment or disinvestments in shares of overseas companies, payment of interest on foreign borrowings, etc.

The difference between all the inflows minus all the outflows on the current account plus capital account is called the BALANCE OF PAYMENT.

A negative on the Bop means tells you whether a country is a debtor (owes money) or a creditor (has to receive money) vis--vis the rest of the world. India always had a negative BoP position since independence. India also had a negative Balance of Trade position till date. This means that the Indian Imports has always been more than its Exports.

Counter Trade

Countries facing balance of payments difficulties (negative BoP i.e. deficit and growing over a period of time) encourage counter trade as a means of financing exports. Under counter Trade, imports are paid for, not in convertible currencies but in the form of goods. We have been invoicing all our exports to the communist countries in Non-Convertible Indian Rupees and these are used to finance our imports from those countries. In other words, counter trade can be termed to the barter system of trade. Counter Trade is said to be cost effective and loaded against the countries having balance of payment difficulties. It was widely believed that the goods imported by the erstwhile communist countries against Rupee payment terms were sold to other countries against payment in hard currencies, thus depriving India of valuable foreign exchange. Countries requesting for country trade, who may have to import essential goods from abroad, may have to export more of their goods at cheap rates, so as to meet counter trade obligation. In reality, they may be paying much more for the same goods imported under Barter than they would have paid in free foreign exchange.

Convertibility of Indian Rupee

A currency is said to be convertible if its holder can convert it, at any time, into any other generally acceptable foreign currency without any restriction from the monetary authorities.

Following are most commonly used, accepted currencies in India.

GBPGreat Britain Pounds

USDU S Dollars

EUREuro

JPYJapanese Yen

AUDAustralian Dollars

SGDSingapore Dollars

CADCanadian Dollars

Convertible on the current accountWhen you say that rupee is fully convertible on the current account, it means that for all the current account transactions, you can convert FCY into INR and vice versa freely without any restrictions / approval from the monetary authorities (RBI / Ministry of Finance).Example: If you want to make import payments in USD, you can convert equivalent Rupees into USD and remit the amount. You need not take RBI approval for the same.

Example: Similarly, if you receive export payments in USD, you can convert the amount in USD into equivalent Rupees without any RBI approval. In India, Rupee is fully convertible on the current account, but partially convertible on the capital account. i.e. you require prior RBI approval to remit money for capital account transactions. The restrictions are put on convertibility of rupee to ensure that it does not become a channel for flight of capital from country.

Rupee can be

Fully ConvertiblePartially ConvertibleNon-Convertible

Rupee is Fully convertible for following transactions:

Travel

Business travel

Travel for Medical purpose

For Education

For Pilgrimage

Transportation

Freight on imports

Freight on exports

Shipping remittance by foreign/ India companies

Insurance Premium, commission & payments

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

Transfers like gifts, donation etc.

Income on NRI deposits, loans, dividends etc.

Rupee is partially convertible for Capital account transactions e.g.

Investments

In Shares abroad by residents

In debt securities abroad by residents

In real estates abroad by residents

Repatriation

Of foreign investments in shares, debt markets

Of foreign investments in subsidiaries/ branches, in real estates

Repayment

Long term/ Medium term loans, NR deposits, short term loans etc.

Not Applicable

Foreign Exchange MarketTo convert Rupee into foreign currency or vise-versa, exchange rate is involved. The market, which deals with exchange rate mechanism for conversion of currencies, is called Foreign Exchange Market (FOREX). There is no physical Forex market like the Stock Exchange, but its participants and players determine it. Participants purchase and sell foreign currency for the various transactions, which affect the demand/supply of FCY and Rupee. This demand and supply determines to some extent the exchange rate.

Factors determining the Exchange Rate of a currency

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

Balance of Payments

Local Interest Rates

Monetary Policy

Exchange Control Regulations

Inflation

Central Bank Intervention

Speculation

Demand / Supply of a currencyPlayers in FOREX MarketFollowing are the players in a FOREX market.

Participants purchasing and selling foreign currency for the various purposes

Commercial banks, Merchant banks, Investment Banks, Co-op Banks, Merchants,

Moneychangers, tourist, etc.

RBI purchase and sell foreign currency to control demand/supply of FCY/ Rupee, to control rupee value compared to other currencies and for foreign currency reserves.

The Exchange rate in a Forex market is quoted for the following four types of transactions: For Purchase of foreign currency cash the rate quoted is called as TT Buying rate

For Sale of foreign currency cash the rate quoted is called TT Selling Rate

Rate quoted for Negotiation of an Export Bill is called Bill Buying Rate

Rate quoted for Negotiation of an Import Bill is called Bill Selling Rate

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

Quoted when a bank pays rupee equivalent to a customer after getting FCY from himQuoted when a bank negotiates an export bill and there is no cash transaction taking place immediately, but cash will be received at a later date.

Quoted when a bank pays FCY to a customer after getting equivalent rupees from himThis is opposite of Bill Buying where payment is made for import bills.

Types of transactions

Clean inward remittance

Conversion of proceeds of export bill realized.

Cancellation of outward TT, DD, MT, POTypes of transactions

Purchase/discount of bills and other instruments

Types of transactions

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

Cancellation of forward contracts

Bill purchased returned unpaid

Bill purchased transferred to collection account

Types of transactions

Transactions involving transfer of proceeds of import bills.

Types of Exchange Rates

Following are the different types of Exchange Rates

Cash Rate

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

I.e. if you have USD with you and go to a bank for conversion into INR, the bank will convert FCY at a rate and give you INR immediately. The transaction as well as settlement is complete immediately on the same day. Such types of transactions are called as cash transaction and the rate quoted is called as cash rate.

TOM Rate

A TOM transaction is the one in which delivery of foreign exchange takes place the next day. i.e. If you expect to get USD tomorrow, you may book a rate today and give USD to bank tomorrow. The Bank will give you INR tomorrow. This means that you have done the transaction today, but the settlement is done the next day. Such types of transactions are called as TOM transactions and the rate quoted is called as TOM rate.Spot RateA Spot transaction is the one in which delivery of foreign exchange takes place the third working day. i.e. If today is 11th June and you expect to get USD on 14th June, you may book a rate today and give USD to bank on the 14th. The Bank will give you INR on the 14th. This means that you have done the transaction today, but the settlement is done the third working day. Such types of transactions are called as spot transactions and the rate quoted is called as the spot rate.Forward RateA Forward transaction is the one in which delivery of foreign exchange takes place at a future date, which is greater than the third working day.

Deal DateValue Date

Cash RateTodayToday

Tom RateTodayTomorrow

Spot RateTodayThird working day

Forward RateTodayAny day after the third working day

How are Forward rates calculated?

Forward Rates are calculated based on the following formula:

Forward Rate = Spot Rate +/- Margin If Forward rate is more than Spot rate, then the local currency is quoting at a premium

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

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

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

Eg

India

USA

Interest Rate

10% p.a.

5% p.a.

Difference

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

Premium means that the FCY quoted will be more expensive and so a seller will have to pay more of his own currency. The quoted margin should be added to the spot rate to get the forward rate.

Discount means that the FCY quoted will be cheaper and so a seller will get less of his own currency. The quoted margin should be deducted to the spot rate.

Par, which means there will be no change.Forward Contract

Suppose you export today on 15 June. Your buyer is expected to pay USD on 15 July. The forward rate as on 15 July is 49.50. However, you do not book a forward rate and the spot rate becomes 40 on 15 July. Your buyer pays you and your bank converts at 49 because you did not book a forward rate on 15 June. You lose 50 paise. If you had booked a forward rate, you would have got 49.50 and could have hedged the exchange rate risk. This booking of a forward rate is legalized under The Indian Contracts Act and the underlying contract is called as a Forward Contract.

Forward Contract is thus a hedging tool available to Indian corporate to safeguard against adverse movement in exchange rates. The rate at which a currency can be bought or sold at a future date can be fixed today thus effectively fixing the costs of imports or export receivables due at a future date. It thus renders debtors and creditors free from the risk arising out of exchange rate fluctuations. Authorised Dealers have been delegated powers to book forward contracts subject to the following conditions:

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

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

3. AD should satisfy himself that the party for whom the forward cover is being booked is in fact exposed to exchange risk.

4. While booking a forward contract, ADs should verify the necessary documents to ensure authenticity of the transaction.

5. The underlying transaction should be firm and not anticipated or speculative in nature.6. A customer transaction can be covered in whole or in part. The period and extent to which cover can be obtained may be left to the customer though the cover should ordinarily match the maturity of the original transaction.

Option ForwardIn a forward contract, the settlement of currencies is at a fixed date in future. In our above example, if a forward contract is booked as on 15 July, the money should be delivered to the bank on the 15th. In case the money is not delivered, the contact is cancelled with some penalties. In an option forward contract a further period, of say 30 days, is given to make the settlement. I.e. you can deliver the money any time between 15 July to 15 Aug and you will get the same rate booked by you. This further period is called as an option period and the contract is called as an option forward contract.

How does GTF book Forward Contracts?

GTF books forward contracts through Standard Chartered bank. Forward Contracts are applicable usually for prepayments in INR only. In case it is required to book a forward contract, following will be done:

The forward rate as on the due date of the invoice will be booked and the invoice value will be converted at that rate.

The forward contract will be booked with an option forward of 30 more days. This is done to avoid cancellation of the contract in case the money is not received on due date.

If the money is received in our account by the option forward date, the forward rate will be used to convert the received amount.

If the money is not received in our account by the option forward date, (i.e. by the 30th day after the due date), the forward contract is crystallized and the money will then be converted at the days spot rate. In such case, all exchange rate gains / losses / cancellation charges will have to be borne by the seller.

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

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

InvoiceShipping

Due

Option Forward

DateDate

Date

Date

30 Days

All incidental charges including stamp duty, if any, for booking and cancellation of forward contracts will have to be borne by the seller.Examples of Forward RateThere can be three situations:

Money comes on the due date

Money comes after the expiry of the contract period

Money comes before the due dateMoney comes on the due date:Suppose you have an invoice of USD 100 with you today on 5 July. The due date of the invoice is 5 Aug. You take a forward rate as on 5 Aug with an option forward till 5 Sep. You get the following rates:

30 Days

Invoice

Due

Option Forward

Date

Date

Date

5 July

5 Aug

5 Sep

Spot Rate

Fwd Rate

49

49.50

If the money comes to you on the due date i.e. 5 Aug or any time between 5 Aug to 5 Sep, the bank will give you 49.50.

Money comes after the option forward period:

Suppose you have an invoice of USD 100 with you today on 5 July. The due date of the invoice is 5 Aug. You take a forward rate as on 5 Aug with an option forward till 5 Sep. You get the following rates:

30 Days

Invoice

Due

Option FwdMoney

Date

Date

Date

Recd

5 July

5 Aug

5 Sep

15 Sep

Spot Rate

Fwd Rate

Spot Rate

49

49.50

49.80

If the money comes to you on, say, 15 Sep. The bank will cancel the forward contract on 5 Sep and will levy penal charges as follows:

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

= 0.30 on the full invoice value.

The penal charges are levied because the money has not been received on option forward the due date and the bank has to borrow money from the market to crystallize its commitment.

Money comes before the due date:

Suppose you have an invoice of USD 100 with you today on 5 July. The due date of the invoice is 5 Aug. You take a forward rate as on 5 Aug with an option forward till 5 Sep. You get the following rates:30 Days

Invoice

Due

Option Fwd

Date

Date

Date

5 July

1 Aug

5 Aug

5 Sep

Spot Rate

Fwd RateFwd Rate

49

49.25

49.50

If the money comes to you on, say, 1 Aug. The bank will now charge the actual premium from 5 July to 1 August and will convert at 49.25. The customer will not get 49.50. In other words, the bank will calculate the fwd premium from 1 Aug to 5 Aug, which is , say, 0.25. This is the excess premium and will be deducted from the actual forward rate booked. i.e. 49.50 0.25 = 49.25 will be charged.

Nostro / Vostro Accounts

Nostro Ac