Vous êtes sur la page 1sur 69

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

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

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. Indias 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 countrys 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 Indias external sector, foreign exchange business provides a challenge as well as an excellent opportunity to accelerate the growth of banks own business. This is the Institution that facilitates international trade payment, as banking channel is the way of settlements.

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

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 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. (Foreign

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.

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

Sources of Data

Primary Sources

Secondary sources

Face to face interview Official records & documents of IOB Communication with other respective personnel of IOB. Expert opinion.

Annual report & appraisal manual of IOB Official website Journals and relevant books. 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

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

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 General Banking Foreign Exchange

Duration June-July 2012 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. Thats why I do not gather vast knowledge about the critical issues.

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

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 couldnt 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.

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-B: Indian Overseas Bank & its Puducherry Foreign Exchange Branch

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

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 its 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 20002001. 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.

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

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.

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

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

10

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-C: Facilitating Foreign Trade through Foreign Exchange Operation

11

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

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 involvedRisk of non-delivery of goods. Risk of receiving sub standard goods. Risk of fraud in goods. For the seller the following risk is involvedRisk 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 countrys 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


12

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

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

13

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

11.1) Description of Trade settlement activities


11.1.1) Prerequisite for having authorized dealers 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

14

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

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,

15

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

Is to make a payment to or the order of a third party (the Beneficiary), or is to accept and pay bills of exchange (Drafts) 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 buyers bank is committed on behalf of the buyers to pay an agreed amount of money at the sellers 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 its 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 Issuing Bank

Who applies for L\C It is the bank, which opens\issues a L\C on behalf of the importer

16

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

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 exporters 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:

17

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

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:

18

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

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 Industrial Raw Materials (For own use) Back to Back Imports Agricultural Fertilizer Capital Machinery Coastal Vessel Life Saving Drugs Implements & Chemical

Period Maximum 180 days Maximum 180 days Maximum 180 days

Maximum 360 days Maximum 360 days 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.

19

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

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.

20

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

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 Customers A/C L/C Margin A/C Commission A/C on L/C VAT SWIFT Charge Data max Stamp Postage DHL / Courier

Debit/Credit Debit Credit Credit Credit Credit Credit Credit Credit 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:

21

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

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


Commission

As per Government Circular


As per internal policy (Letter of Credit value .005 for first quarter, Subsequent Quarter .003

Document Handling Charge SWIFT Charge

1500 3500

22

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

Courier Charge (Except India) Courier (India) VAT

1500 300 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;

23

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

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 CreditWhether 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 banks correspondent in the beneficiarys 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

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

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 Banks 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:

25

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

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.

26

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

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.

27

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

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.

28

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

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

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

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 importers 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.

30

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

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

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

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 Endorsement Receive/Payment for The Indian Overseas Bank Limited Commercial Invoices Invoice value certifies & remitted for The Indian Overseas Bank

32

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

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 importers 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.

33

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

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) ii) iii) Filling of E-2/P-2 Schedule of S-1 category that covers the entire months amount of import, category of goods, currency, county etc. Filling of E-3/P-3 Schedule of for all charges, commission with T/M Form. 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.

34

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

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 Document (PAD) a. This loan is related to cash Letter of Credit. 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 Imported Merchandise (LIM) Against a. LIM is occurred from PAD. b. After payment to the exporter on the basis of shipping documents, bank recovers the amount from the importer. 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

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

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 Bankers 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.

36

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

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 Governments 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 its 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

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

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-

Export Section Back to Back 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

Export L/C

38

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

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.

39

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

Flow Diagram of Back-to-Back L/C: Buyer, USA instructs his Bank to issue an Import L/C in favor of Lenny Fashions Ltd, India. USA Bank issues a L/C and forwards the same to Lenny Fashions Ltd. through a Indian Bank (e.g. National Bank, Puducherry Branch)

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

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/CMaster 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

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

i) ii) iii) iv)

Applicant is registered with CCI&E and has bonded warehouse license; The master L/C has adequate validity period and has no defective clause; L/C value shall not exceed the admissible percentage of net FOB value of relative Master L/C; 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 arei) ii) iii) iv) v) vi) Issuing Bank is not reputed; Advising credit by the advising Bank without authentication; Port of destination absent; Inspection clause; Nomination of specific shipping/Air line or nomination of specified vessel by subsequent amendment; 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) x) xi) Shipment/ presentation period is not sufficient; Original documents to be sent to buyer or nominated agent; FCR or HAWB consigned to applicant or buyer;

xii) Shippers 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

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

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 passedCustomers A/C... ......................................... .Debit Commission on acceptance................................... .Credit. At the time of payment made, When fund is at hand, the following accounting entries are givenSundry Deposit Margin on acceptance... .... .Debit Customers 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 passedOAP (Own acceptance Purchase)... ...............Debit Customers 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 countrys export. India exports most of its readymade garments products to USA and European

42

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

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 docs in order?

Ask exporter to remove discrepancies

Negotiate documents

Dispatch documents for collection with Reimbursement Bank

Retire FDBP

43

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

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

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

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

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

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

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

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) FDPB A/C After purchasing the documents, IOB gives the following entries: Dr. (at OD sight rate)

Customer A/C proceeds) Bank would realize only postage charges from the exporter.

Cr.(Before realization of

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

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

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 exporters 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.

48

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

12.5) Export Financing


Financing exports constitutes an important part of a banks 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.

49

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

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 banks 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 banks 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

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

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

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

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

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-D: Success in Facilitating Foreign Trade during: 2008-2011

53

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

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 banks 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 2008 Cash Back-to-Back (Foreign) Back-to-Back (local) Export Development Fund Total II. 238 449 1411 34 2132 2009 401 747 1863 31 3042 Years 2010 611 1083 2744 96 4535 2011 661 827 2483 81 4052

Amount of L/C Opened (US Dollar) Nature of L/C 2008 (USD) Cash Back-to-Back (Foreign) Back-to-Back (local) Export Development Fund 23141917 21392065 15941108 3528826 2009 (USD) 62000086 35291957 23586864 2874052 Years 2010 (USD) 70524422 48965947 40744311 6637950 2011 (USD) 60524000 32298000 35499000 5517000

54

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

Total

64003916

123752959

166872630

133838000

III.

Amount of L/C Opened (INR)

Nature of L/C 2008 (INR) Cash Back-to-Back (Foreign) Back-to-Back (local) Export Development Fund Total 4160254500 1504224600 1390484200 1036172000 229373700 2009

Years 2010 (INR) 4901009000 3393914000 2821493000 460255500 11576671500 2011 (INR) 4204260500 2244166500 2466965500 383194000 9298586500

(INR) 4278352483 2454841000 1633833000 199674000 8566700483

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 years performance with the previous years 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

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

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


210% 160% 110% 60% 10% -40% -90% Years 2009 2010 2011 Back-to-Bck L/C (Local) Back-to-Back L/C (Foreign) cash Total No of L/C Opened EDF

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


Cash 175.00% 125.00% 75.00% 25.00% Total Growth -25.00% 2009 2010 Years 2011 Back-to-Back (Foreign) Back-to-Back (Local) EDF

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

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

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 India 2008 2009 2010 2011 958750.00 1184135.92 1415588.39 1489315.73 Total Import in LTD 42,458.50 62,759.00 78,226.32 70,968.20 4.43% 5.30% 5.53% 4.77% % of Indian Overseas Banks import in total import in India

Indian Overseas Bank

IOB's contribution in total import of India


6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2008 2009 2010 2011 IOB's contribution in total import of India

From the above table and graphical illustration it can be said that apart from the last years performance, IOBs contribution in total import of our country had been boosting over time and in the year 2010 it was highest (5.53%). From the banks 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

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

Year

Total Import in

Total Import in

% of Puducherry Br import in total import of IOB 9.80% 13.65% 14.80% 13.10%

Indian Overseas Bank Puducherry Branch 2008 2009 2010 2011 42,458.50 62,759.00 78,226.32 70,968.20 4,160.25 8,566.70 11,576.67 9,298.59

Year

Total Import in India

Total Import in Puducherry Branch,

% of Puducherry Br import in total India

Indian Overseas Bank import of 2008 2009 2010 2011 958750.00 1184135.92 1415588.39 1489315.73 4,160.25 8,566.70 11,576.67 9,298.59 0.43% 0.72% 0.82% 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 2011s 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

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

59

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

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 banks 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 2008 LDBC FDBC Total II. 1433 1207 2640 2009

Years 2010 1982 1758 3740 2231 2516 4747 2011 2684 2699 5383

Amount of L/C Handled (US Dollar) Nature of L/C 2008 (USD) LDBC FDBC Total 24325871 54405198 78731069 2009 (USD) 32200355.98 81910537.78 114110893.8 Years 2010 (USD) 43446067.11 128107509.90 171553577 2011 (USD) 43576138.08 122397512.57 165973650.7

60

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

III.

Amount of L/C Handled (INR) Nature of L/C 2008 (INR) LDBC FDBC Total 1679843000 3752292000 5432135000 2009 (INR) 2200063000 5550410000 7750473000 Years 2010 (INR) 2968463000 8486226000 11454689000 2011 (INR) 2985184000 8383456000 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 Documents Handled


78.00% 58.00% 38.00% 18.00% -2.00%

LDBC (Local Documentary Bills for Collection) FDBC (Foreign Documentary Bills for Collection) Total Growth

2009

2010

Years

2011

61

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

Growth on the Basis of the Number of Documents Handled


55.00% 50.00% 45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 2009 2010 Years 2011 LDBC (Local Documentary Bills for Collection) FDBC (Foreign Documentary Bills for Collection) Total Growth

From the above two graphics it can be stated that Puducherry Branchs 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 India

Total Export in

% of Indian Overseas Bank Export in India

Indian Overseas Bank ltds Export in total

2008 2009 2010 2011

684450.00 840488.08 980557.30 1081559.98

28,019.20 31,824.00 36,284.44 38,053.32

4.09% 3.79% 3.70% 3.52%

62

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

IOB's contribution in total Export of India


4.20% 4.00% 3.80% 3.60% 3.40% 3.20% 2008 2009 2010 2011 IOB's contribution in total export of India

From the above table and graphical illustration it can be said that IOBs contribution in total export of our country had been declining over time and in the year 2011 it was lowest (3.52%). From the banks 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 IOB

% of Puducherry Br Export in total Export of IOB 19.39% 24.35% 31.57% 29.88%

Indian Overseas Bank Puducherry Branch,

2008 2009 2010 2011

28,019.20 31,824.00 36,284.44 38,053.32

5432.14 7750.47 11,454.69 11,368.64

63

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

Year

Total Export in India

Total Export in Puducherry Branch, IOB

% of Puducherry Br Export in total Export of India 0.79% 0.92% 1.17% 1.05%

2008 2009 2010 2011

684450.00 840488.08 980557.30 1081559.98

5432.14 7750.47 11,454.69 11,368.64

Though IOB, Puducherry Branch provided an insignificant percentage of total export of India, its contribution has been increasing over the year apart from the lowest contribution to total export of our country was 0.79% in the year 2008. 2011s performance. Its highest contribution was 1.17% of total export of India in 2010 and the

64

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

65

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- E: Findings

66

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

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 taken1. 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

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

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 measures1. 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 measures1. 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.

68

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

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