FOREX OPERATIONS

3.2 BANK OF MAHARASHTRA PROFILE The Birth Registered on 16th Sept 1935 with an authorized capital of Rs 10.00 lakh and commenced business on th !eb 1936. The Childhood "nown as a common man#s bank since inception$ its initial help to small units has gi%en birth to man& of toda&#s industrial houses. 'fter nationalization in 1969$ the bank e(panded rapidl&. )t now has 13*5 branches +as of 31st ,arch -00 . all o%er )ndia. /he 0ank has the largest network of branches b& an& 1ublic sector bank in the state of ,aharashtra. The Adult /he bank has fine tuned its ser%ices to cater to the needs of the common man and incorporated the latest technolog& in banking offering a %ariet& of ser%ices. Philosoph /echnolog& with personal touch. E!"le! The #eep!$l 2ith its man& lights rising to greater heights. The Pill$r 3ur institution4 S&mbolising strength. The #i $s 3ur 0ranches4 S&mbolising ser%ice. The 3 M%s S&mbolising

,obilisation of ,one& ,odernisation of ,ethods and ,oti%ation of Staff.

FOREX OPERATIONS
Ai!s /he bank wishes to cater to all t&pes of needs of the entire famil&$ in the whole countr&. )ts dream is &O'e F$!il ( O'e B$')( B$') o* M$h$r$shtr$ 5.

The Auto'o! /he 0ank attained autonomous status in 199 . )t helps in gi%ing more and more ser%ices with simplified procedures without inter%ention of 6o%ernment.

Our So+i$l Aspe+t /he bank e(cels in Social 0anking$ o%erlooking the profit aspect7 it has a good share of 1riorit& sector lending ha%ing 3 8 of its branches in rural areas.

Other Attri"utes 0ank is the con%ener of State le%el 0ankers committee. 0ank offers 9epositor& ser%ices and 9emat facilities at 131 branches. 0ank has a tie up with :); of )ndia and <nited )ndia )nsurance ;ompan& for sale of )nsurance policies. 'll the branches of the 0ank are full& computerised.

FOREX OPERATIONS

3.3 B,SINESS FI-,RES OF FE. CENTRE/ T$"le/ 3.0 3EAR 1. -0034-00= -. -00=4-005 3. -005 4-006 =. -006 4-00* 5. -00*4-00 A+tu$l Busi'ess -1*.50 -5-.50 -6=.50 3*6 .69 3=5.31Rs. I' +rores2 T$r4et =00.0 300.0 315.0 3*5.0 500.00

Business Figures of FEX centre 500 Rs. i' Crores 400 300 200 100 0

2553657

2557658

2558659 255965: 255:65; 3e$rs T$r4et

A+tu$l Busi'ess

FOREX OPERATIONS
CHAPTER 7 INTRO#,CTION TO FOREI-N E.CHAN-E !oreign trade takes place between different so%ereign countries ha%ing different monetar& units$ different rules and regulations go%erning foreign trade$ different legal s&stem .>ence e(porters and importers participating in trade ha%e their own compulsions. /hus$ the e(porters want mone& for the goods e(ported or ser%ices pro%ided in the currenc& of the countr& he resides$ the importer on the other hand can pa& for the goods imported in the currenc& of the countr& ./his is where *orei4' e<+h$'4e comes into pla& and helps con%ert one currenc& into another and smoothen the flow of international trade and monetar& resources. !oreign e(change is a mechanism b& which the currenc& of one countr& is con%erted into currenc& of another countr&. !ore( operation can be critical and risk& so go%ernment tried to de%elop a s&stematic process and regulated it. /he !?,' @!oreign ?(change ,anagement 'ctA is the law which regulates the fore( market ./he regulator& authorit& for the )ndian fore( market is the R0). /he R0) issues 6uidelinesBregulationsBinstructions from time to time which go%ern the functioning of the market .3nl& '.9Cs @'uthorised 9ealersA licensed b& the R0) can participate directl& in the fore( market. /hese are usuall& schedule commercial banks. !oreign e(change operations can be regulated and controlled b& following guidelinesD 0. Tr$de M$'$4e!e't6 4,anaged b& ministr& of !inance E through 96!/ )mport F ?(port 4 !oreign /rade 1olic& +-00=409. 2. E<+h$'4e !$'$4e!e't = 6,anaged b& ministr& of !inance E through Reser%e 0ank of )ndia +R0). 6 'uthorised dealers 3. ,CP#C 6,anaged b& )nternational ;hambers of ;ommerce +);;. 6 defines set of rules go%erning :B; 7. EC-C 6,anaged b& ministr& of ;ommerce4 through board of directors representing 6o%t$ 0anking$ trade F industr& 8. B$') Poli+ies 4Ser%ices charged 4)nternal documentation 4!inance 4Securit&

FOREX OPERATIONS
7.0 ROLE OF BANKS IN FOREI-N TRA#E 0anks pla& a %ital role ./he& perform man& functions but the most important one is that the& are the intermediaries through whom documents are e(changed for mone& between e(porters and importers ./he& are also the e(tended arms of R0) in the administration of !?,'. ?%er& commercial bank deals in foreign e(change since it is an acti%it& with good potential for profits. 0ut broadl& we could classif& the *u'+tio's into/ 1. !inance of e(ports -. !inance of import$ letters of credits 3. Remittances and other miscellaneous ser%ices like tra%ellerCs cheGue$ currenc& encashment$ credit card transactions$ etc. =. 9ealings$ rates of e(change. 5. ,)S$ returns and statistics. Fi'$'+e o* e<ports/ /his is di%ided into financing acti%ities and other e(port related acti%ities. /he financing acti%ities are further subdi%ided into +a. 1re4shipment finance$ +b. 1ost4shipment finance. 1re4shipment finance is also known as packing credit and it is the ad%ance gi%en to an e(porter for procuring raw material$ processing and preparing it for e(ports after packing the same. 1ost shipment finance on the other hand is pro%iding finance after the goods are shipped and the documents are submitted to the bank ./he other e(port related acti%it& consists of ad%ising$ conforming the letter of credit$ issuance of related certificates$ e(port guarantees.

?H13R/S

1re shipment !inance

1ost shipment finance 1. 0ill purchase -. Iegotiation

3ther e(port related ser%ices

FOREX OPERATIONS
Fi'$'+e o* i!ports/ /he import department does all the banking acti%ities pertaining to the import of goods to )ndia ./his includes opening of import letter of credit$ retirement of bills under letter of credit and collection bills. )ssuance of guarantee pertaining to imports$ import loans$ etc.

),13R/S

:etter of ;redit

)nward collection bill

3ther import related ser%icesD 1. 6uarantees -. )mport loans 3. ?;6;$ 1remium$ etc

Re!itt$'+es/ Remittances department would deal with the issuance and pa&ment of demand draft$ telegraphic transfers$ mail transfers$ issue and encashment of tra%ellersC cheGue$ sale and encashment of foreign currenc& notes$ maintaining non4resident accounts$ etc. #e$li'4s/ 0anks bu& and sell foreign currencies from and to the public. /o carr& out these functions the& need to keep stock of currencies with the team and also maintain bank account abroad. /his department does rate computation$ that is$ it gi%es the e(change rate for all currencies. )t maintains foreign currenc& accounts with bank abroad .)t books forward contracts +both sale and purchase. on behalf of its customers and undertakes co%er operations and e(change dealings . MIS( Retur's( $'d St$tisti+s/ /his department is responsible for submission of returns and statistics to R0) and also to the bankCs head office$ collecting and pro%iding of credit information for and behalf of their constituents.

FOREX OPERATIONS
7.2 CORRESPON#ENT RELATIONSHIP/ /o facilitate dealings in foreign e(change$ a bank in )ndia maintains accounts with banks abroad. Similarl& some foreign banks ma& maintain accounts with bank of )ndia. )n banking terminolog& these are known as Iostro account$ Jostro account$ and :oro account. $2 Nostro A++ou't/ Iostro means our account with u. e.g.D 0ank of ,aharashtra maintains an account with Iat west bank$ :ondon. "2 >ostro A++ou't/ /he account opened b& a foreign bank in )ndian rupee with an )ndian bank would be referred b& all correspondence b& )ndian banks as %ostro account$ meaning &our account with us. +2 Loro A++ou't/ :oro account means their account with &ou. e.g.7 0ank of ,aharashtra has an account in <S dollars with ;hase ,anhattan 0ank in Iew Kork. 2hen 0ank of 0aroda wishes to refer the account of 0ank of ,aharashtra with ;hase ,anhattan bank it would refer to it as :oro account.

FOREX OPERATIONS
CHAPTER 8 FEMA -,I#ELINES TO E.PORT AN# IMPORT 8.0 IMPORTS/ $2 P$ !e't o* i!ports/ 1a&ments are reGuired for the following purposeD 1. 1a&ment towards receipt of bill drawn under :B;4 9'B91. -. 'd%ance remittances for future imports. 3. !oreign inward bills for collection 9'B91 without :B;. "2 O"li4$tio' *or pur+h$se o* Forei4' E<+h$'4eD 1. Section 10@6A of !?,' pro%ides that the person acGuiring e(change is permitted to use it either for the declared purpose or for an& other purpose for which acGuisition of e(change is permissible under !?,'. -. )f fore( is utilised for import of goods$ the '9 should ensure that the importer furnishes proper e%idence for import. +2 IEC Nu!"er/ )?; number is the )mport4?(port ;ode Iumber and is compulsor& to be obtained from the 96!/ +9irector 6eneral of !oreign /rade.$ 63) for import of goods into )ndia. ?(emptionsD 1. ,inistr&Bdepartments of central or state go%ernment. -. 1erson importingBe(porting goods for their personal use. d2 I!port $"ilit o* 4oods/ 1. '.9Cs ma& freel& open :;s and allow remittances for import of goods onl& if the goods to be imported are freel& importable or the importer holds the ?(change ;ontrol cop& of %alid )mport license issued b& 96!/$ if the commodit& falls under restricted categor&. -. ?(change control cop& of license when full& utilised$ to be retained b& '.9Cs and preser%ed for scrutin& b& the internal audit for one &ear after inspection. e2 Pres+ri"ed $ppli+$tio' *or!s/ 1. 'pplication for making pa&ment e(ceeding <S9 500 towards imports must be made on appropriate !3R, '41. -. Remittances in foreign currenc&. 3. /ransfer of rupee to non4resident bank account.

FOREX OPERATIONS
*2 M$''er o* rupee p$ !e't " I!porter/ 1. 1a&ment for importer bills irrespecti%e of the amount should be recei%ed necessaril& b& wa& of debit to importers amount. -. ;rossed cheGue drawn b& importer on his bank. 3. <nder no circumstances should the '9 accept cash pa&ment. 42 I!port o* 4oods/ '.9Cs should endorse on e(change control cop& the details of :;s openedBforward contracts booked or remittance made in foreign currenc& and also insurance and freight paid. h2 E?ide'+e o* i!port/ 1. 2here remittances for import e(ceed <S9 1$00$000B4 or its eGui%alent '.9Cs to insist on 4 ?; cop& of bill of entr& for home consumption. 4 )n case of 1008 ?3<s the ?; cop& of bill of entr& for warehousing. 4 1ostal appraisal certificate in case of imports b& post. 4 )n case of imports through non4ph&sical form data$ designs through e4mailBfa( a certificate from chartered account of receipt of import to be obtained. -. ' certificate from ;?3 or auditor of the compan& that the goods for which remittances was made ha%e actuall& been imported into )ndia pro%ided D /he importer is a compan& listed on a stock e(change in )ndia. 2hose net worth is not less than Rs.100 crores on date of last audited balance sheet /he importer is a public sector compan& or an undertaking of go%ernment of )ndia or its departments. 'lso e(tended to autonomous bodies including scientific bodiesBacademic institution such as )ndian institute of scienceBtechnolog&. i2 Follo@ =up " A.#./ 1. )f documentar& e%idence is not furnished within 3 months from date of remittance where amount is abo%e <S9 100000B4.'9 should rigorousl& follow up for ne(t 3 months including issue of regd. of letter to the importer. -. '.9Cs to forward 0?! statement to R0) within 15 da&s at end Lune and 9ecember.

FOREX OPERATIONS

A2 -uideli'es *or h$'dli'4 I!port Bills6Oper$ti'4 pro+edure/ 1. ;are should be taken to ensure that the importers are genuine. -. )f the bank is not full& satisfied with the financial status of the importer the& should obtain a bankers report or credit report on o%erseas supplier. 3. )nstructions on disposalBpa&ment of import bill should be gi%en after taking account. =. /he customer is banking with the bank for a long period. 5. >e has a%ailed of the credit facilities from the bank 6. /he balance sheet of the customer has been e(amined. *. '.9Cs should maintain a separate import bill registers to record particulars in chronological order of import bills recei%ed directl& from the sellers. . 0rief comment about the customer as mentioned earlier must be recorded in this import bill register so that can be suitabl& cross checked at a later date. 9. '9 should note to endorse on the ?(change ;ontrol ;op& of import license the details of :;s opened or forward contract booked or remittances made in foreign currenc& as also the amount of insurance and freight paid b& the importer in local rupees under the stamp and signature. 8.2 E.PORTS/ $2 #e+l$r$tio' o* e<ports/ 1. 9eclaration in form 6RBS9!D 4 /he declaration in the form 6RBS9! shall be submitted in duplicate to the ;ommissioner of ;ustoms. 4 'fter dul& %erif&ing and authenticating the declaration form$ the commissioner of ;ustoms shall forward the original declaration form Bdata to the nearest office of the reser%e bank and hand o%er the duplicate form to the e(porter for being submitted to the authorised dealer. -. 9eclaration in form 11D 4/he declaration in the form 11 shall be submitted in duplicate to the authorised dealer named in the form. 4 /he authorised dealer shall$ after counter signing the declaration form$ hand o%er the original form to the e(porter who shall submit it to the postal authorities through which the goods are being despatched the postal authorities after dispatch of goods shall forward the declaration form to the nearest office of the reser%e bank. 3. 9eclaration in form softe(D 4/he declaration in the form S3!/?H in respect of e(port of computer software and audioB%ideoBtele%ision software shall be submitted in triplicate to the designated official of department of electronics of go%ernment of )ndia at the Software /echnolog& 1arks of )ndia +S/1)s. 10

FOREX OPERATIONS

"2 E<e!ptio' *or de+l$r$tio' o* e<port *or!/ 1. -. 3. =. 5. 6. *. ?(port of good Bsoftware of %alue not e(ceeding <S9 -5000B4. 6ifts of goods of %alue not e(ceeding Rs.5$ 00$000. 'ir craft engines and air craft o%erhauling and re4import to )ndia within 6 months. 6oods imported free of cost on re4e(port basis. )mport goods found defecti%e for replacement. 6oods imported on loan basis. 6oods sent abroad for testing purpose.

+2 Mode o* re+ei?i'4 p$ !e't/ 1. -. 3. =. /hrough an '9. !rom IR?B!;IR account. 0& a 99B;>?M<?B!/;B);;B!; notes. 6ems and Neweller& units in S?O 'I9 ?3<s can recei%e pa&ment in precious metals. 5. 63:9BS):J?RB1:'/)I<,. d2 Pres+ri"ed ti!e li!it *or re$lis$tio' o* "ills/ 1. 6enerall& 6 months -. :arge %alue e(porter of certain selected products which are internall& competiti%e and ha%e high %alue addition. 2ith contracts of Rs.100 crores and abo%e in one &ear. 3. Status holder 1- months =. S?O unitsD no time limit 5. ?(port to )ndian owned warehouse abroad set up with permission of R0)D 15 months ?(tension of time limitD 6. /he e(porter should appl& in form ?/H to R0) through '9 *. '9 can permit e(tension be&ond 6 months irrespecti%e of in%oice %alue +earlier 1 <S9 million. initiall& for 6 months subNected to reporting to R0) in H3S statement. e2 O?erdue Bills/ 1. ;hange in bu&er is permitted without the appro%al of R0). -. 2rite off b& the e(porter is permitted if amount is not for realized for one &ear or more if each writes off does not e(ceed 108 of the total e(port proceed of the e(porter during the pre%ious &ear. 3. )n case of status holder 58 of their a%erage annual realization during the preceding 3 financial &ears or 108 of e(ports proceeds due during the financial &ear whiche%er higher can be written off ;'s certificate reGuired. =. 'll such write off to be reported to R0) in ?02 form 5. /he incenti%e to be funded against such e(ports. 11

FOREX OPERATIONS
6. /he default should be genuine. I3 pending ci%il or criminal suit. CHAPTER 9 INTERNATIONAL FINANCE Settle!e't o* I'ter'$tio'$l #e"ts/ 0u&ers and sellers get together to negotiate and subseGuentl& enter into a contract. 9epending upon the relati%e bargaining power of the importer and e(porter the method of pa&ment would be decided. 6enerall& an e(port Eimport contract could be settlement in an& one of the following methodsD 'd%ance remittances 3pen account ;onsignment sale 0ills for collection :etters of credit 9.0 Ad?$'+e Re!itt$'+e/ )n this case the e(porter reGuires the importer to make full pa&ment in ad%ance for the goods to be e(ported. !eatures of this t&pe of transactions are7 +a. /his is possible onl& in sellers market. +b. /he importer has to rel& on the integrit& of the e(porter and his capacit& to e(ecute the contract in time. +c. /he transaction is financed b& the importer which entails higher cost$ and also risk is entirel& shouldered b& him. +d. ?(change control regulations of certain countries ma& prohibit ad%ance pa&ment b& the importer. +e.)ndian e(change control permit pa&ment in ad%ance for import of merchandise B consumers goods as also capital goods. 9.2 Ope' $++ou't/ <nder this method goods are dispatched directl& to the bu&er who takes the deli%er& without making pa&ment and makes pa&ment at a future date. !eaturesD /his is re%erse of ad%ance pa&ment /he goods are taken possession of b& the bu&er without pa&ment and the pa&ment is made at a pre determined future date. /his is possible onl& in bu&er market. 9.3 Co'si4'!e't s$le/ )n this case the goods are consigned to the agents of the e(porter abroad and after the sale the proceeds are reemitted to the e(porter. !eaturesD 1roceeds of the consignment are remitted onl& after the sale has been made b& o%erseas agent.

1-

FOREX OPERATIONS

9.7 Bills o* Colle+tio'/ )n this case goods are dispatched to the importers countr& and the relati%e documents are forwarded through the bank$ which acts as an agent for collection of the proceeds of the transaction. !eaturesD /his method is not biased in fa%our of either part&4importerBe(porter. /he e(porter draws a bill of e(change on the importer$ and the documents of title to goods are released onl& after the pa&ment is recei%ed. /he e(porter faces the risk of non4pa&ment and in case of the importer refusing to take up the documents against pa&ment$ he incurs additional cost. 9.8 Letter o* Credit/ /he letter of credit +:B;. is a document which is issued b& the importers bank who guarantees pa&ment to the seller pro%ided the terms and conditions mentioned in the :B; id fulfilled. LETTER OF CRE#IT AN# ,NIFORM C,STOMS B PRACTICES FOR #OC,MENTR3 CRE#IT 1,CP#C2/ )n a purchase and sale transaction$ the essence of the agreement is the confidence and trust that seller must ha%e %is4P4%is the bu&er .' business deal is usuall& completed in following steps 0u&er places he order for the goods with the seller after negotiating the price and terms. Seller e(ecutes the order and supplies the goods ordered. /he bu&er effects the pa&ment to the seller after being satisfied that the goods that he has recei%ed are the ones that he had ordered. /his c&cle is complete once the seller recei%es his pa&ment from the bu&er. )n a sale and purchase transaction in international business$ geographical distances separate the seller and the bu&er$ and it is reall& difficult for the bu&er to be full& satisfied about the bonafides of the seller. /o a%oid these uncertainties the bank steps into the picture b& pro%iding a guarantee for this trade. /his is done b& opening of a :B;. )n an :B;$ the bank of the bu&er guarantees pa&ment to he seller on the production of certain specified documents. Letter o* Credit/ ' letter of credit +:B;. can be defined as an arrangement where in a bank guarantees$ on behalf of its customers$ to make pa&ment to the beneficiar& upon presentation of documents specified in the credit. )n other words it is an undertaking b& a bank to pa& or accept bills pro%ided the beneficiar& of the credit fulfils the terms and conditions set forth in the :B; document.

13

FOREX OPERATIONS

$2 Appli+$tio' *or ope'i'4 LCC/ 't first$ an importer will reGuest banker to open :B; along with the following documents. 1. 'n application -. )ndent or 1erforma )n%oice 3. )mport Registration ;ertificate +)R;. =. /a(pa&er )dentification Iumber +/)I. 5. ' bank account. 6. ,embership of chamber of commerce "2 I'de't or Per*or!$ I'?oi+e/ )ndent or 1erforma in%oice is the sale contract between seller and bu&er in import4e(port business. /here is slight difference between indent and 1erforma in%oice. /he sales contract$ which is direct correspondence between importer and e(porter$ is called 1erforma in%oice. /here is no intermediar& between them. 3n the other hand$ there ma& be an agent of e(porter in importerCs countr&. )n this regard$ if the sale contract is occurred between the agent of e(porter and importer then it is called indent. P$rties to letter o* +redit/ 0. Bu er COpe'erCI!porter 2. Ope'i'4 "$')/ /he bank issuing :B; at the bu&ers reGuest .)t is usuall& the bu&erCs bank. 3. Ad?isi'4 "$')/ /he bank through whom the :B; is ad%ised. /he :B; is sent to the beneficiar& through the agents or correspondents of the opening bank in the countr& where the seller resides. /his ser%es the purpose of authenticating the :B; document to the seller. 7. Be'e*i+i$r CSellerCE<porterD in whose fa%our the :B; is opened. 8. Ne4oti$ti'4 B$')/ /he bank in the sellerCs countr& which is authorised to purchase the bills drawn b& the seller. 9. Rei!"ursi'4 B$')/ /he bank which is designated b& the :B; 3pening bank to effect reimbursement to the negotiating bank. :. Co'*ir!i'4 B$')/ /his part& ma& not alwa&s be present in e%er& :B; transaction. /he role of the confirming bank$ which is situated in the countr& of the seller$ pro%ides additional guarantee to the seller. ;onfirming of :B; is not mandator&.

1=

FOREX OPERATIONS

9.9 ,'i*or! Custo!s $'d Pr$+ti+es *or #o+u!e't$r Credit 1,CP#C2/ /he <niform ;ustoms and 1ractices for 9ocumentar& ;redit +<;19;. were e%ol%ed b& the )nternational ;hamber of ;ommerce to define a set of rules go%erning letters of credit which can be uni%ersall& accepted b& all the participating countries. /he <;19; first appeared in 1933$ but did not get uni%ersal acceptance. )t was re%ised in 196-$ 19*=$ 19 3 and 1993 and almost all the countries ha%e adopted it. /his ha%e pa%ed the wa& for a common understanding of the terms b& all parties in%ol%ed$ namel& $banks$ insurance companies$ shipping companies$ traders$ etc. )n short a Q9ocumentar& ;redit is an undertaking issued b& a bank$ on behalf of the bu&ers +importers. $to seller+e(porter.$ to pa& goods and Bor ser%ices $pro%ided that the seller presents documents which compl& full& with the terms and conditions of the credit.R /hese are ad%antages to both the bu&er and seller when settlement is arranged b& documentar& letter of credit. !irstl&$ the bu&er knows that pa&ment will onl& be made if the documents recei%ed compl& strictl& with the terms and conditions of the credit as stipulated b& the bu&er. Secondl&$ the seller knows that pa&ment will be recei%ed pro%ided the terms and conditions of the credit are strictl& complied with. /he )nternational chamber of ;ommerce$ 1aris$ has recentl& finalised the transaction of <;19; from <;1 500 to <;1 600.>ence$ effecti%e 01 st Lul& -00*7 all 9ocumentar& ;redit will be go%erned as per article of <;1 500 ./he main aims of the );; in re%ising the pro%isions were toD Reduce misinterpretations Reduce the number of articles b& clubbing them and deleting the repetiti%e ones. 9efine the articles in much clearer and simplified language /ake ad%antage of technolog&. $2 T pes o* #o+u!e't$r Credit/ 0. Re?o+$"le letter o* +redit/ ' re%ocable credit is one$ which can be amended or cancelled at an& time without prior notice or warning to the seller .)t in%ol%es risks to the beneficiar&$ as the credit ma& be amended or cancelled while the goods are in transit and before correct documents are presented. /he seller of goods would face the problem of obtaining pa&ment directl& from the bu&er. ' re%ocable credit gi%es the bu&er ma(imum fle(ibilit& $as it can be amended or cancelled without prior notice to the seller up to the moment of presentation of documents to the bank at which the issuing bank has made the credit a%ailable for pa&ment. 2. Irre?o+$"le letter o* +redit/

15

FOREX OPERATIONS
'n irre%ocable credit cannot be amended or cancelled without the agreement of the issuing bank$ the confirming bank +if the credit is confirmed. and the seller +beneficiar&..'n irre%ocable credit gi%es the seller great comfort of pa&ment but is reall& onl& dependent upon undertaking of bank abroad . /he bu&er can reGuest the ad%isor& bank to add its confirmation to an irre%ocable credit if he is not satisfied with the assurance of the credit issuing bank. )f the ad%isor& bank agrees$ the irre%ocable credit becomes a confirmed irre%ocable credit .!or adding confirmation7 the bank will charge commission$ which ma& ha%e to be paid b& seller. ' confirmed irre%ocable credit gi%es the seller a double assurance of pa&ment $since a bank in the sellers countr& has now added its own undertaking in addition to that of the issuing bank to pa& for the documents drawn under the letter of credit $pro%ided of course$ the documents are drawn strictl& in compliance with the terms of credit. 3. ,'+o'*ir!ed letter o* +redit/ 'd%ising 0ank has no engagement or responsibilit& as regard pa&ment$ e%en conforming document are presented. /he 'd%ising 0ank will make a decision on abilit& to effect pa&ment at the time of presentation of documents. /he beneficiar& will need to assess the countr& risk concerned before continuing with handling of the credit .)t should alwa&s be remembered that whilst a bank has issue credit .)t might not be able to secure the foreign e(change in order to meet its obligation 7. Co'*ir!ed letter o* +redit/ /he confirmation constitutes the undertaking of that bank in addition to that of the issuing bank$ to effect pa&ment upon presentation at its counter of conforming documents. /herefore in the e%ent the issuing bank to effect pa&ment upon presentation at its counter of conforming documents. /herefore in the e%ents of the issuing bank not being in a position to honour its obligation$ the confirming bank will effect pa&ment to beneficiar& as prescribed in the credit terms. 8. Red Cl$use $'d -ree' +l$use Credit/ ' red clause :B; contains a clause printed in red$ authorising the negotiating bank to grant ad%ances to the e(porter for purchase$ processing and packing of goods. /his ad%ance from bill is reco%erable with interest from bill tendered under the credit. ' green clause :B; is an e(tension of the red clause credit and co%ers storage of the goods in name of the bank. 0oth red and green clause credits ha%e been e(tensi%el& used in 'ustralian wool trade. 9. Si4ht Credit/ ' credit a%ailable b& sight pa&ment usuall& allows the nominated bank to debit account of the issuing bank on the presentation of the conforming document. ' draft pa&able sight ma& be called for$ drawn on the nominated bank. )n the case of a confirmed credit the nominated bank is nearl& alwa&s the confirming bank.

16

FOREX OPERATIONS

9.: THE #OC,MENTAR3 CRE#IT LIFE C3CLE/

1*

FOREX OPERATIONS

Prese't$tio' o* #o+u!e'ts $'d P$ !e't/ 1. 'greement between bu&er and seller -. 0u&ers applies for issue of a documentar& credit 3. 0u&ers bank issues documentar& credit =. )ssuing bank communicates issue of documentar& credit 5. 'd%ising bank communicates issue of :; to beneficiar& 6. 'd%ising bank adds its own confirmation *. 0eneficiar& recei%es :B; . ReGuest for amendment of :B; to the applicant 9. 'pplicant reGuests issuing bank for amendment 10. 'mendment communication to ad%ising bank. 11. 'd%ising bank communication amendment. 1-. ;onfirming bank communication amendment 13. 0eneficiar& confirms acceptance of amendment. 1=. 1resentation of documents to bank. 15. Scrutin& of documents. 16. 9iscrepancies in documents. 1*. Iegotiation$ acceptance$ pa&ment 1 . Reimbursement to negotiating bank. 19. ?(amination b& issuing bank -0. 9eli%er& of documents to the bu&er -1. :B; utilised$ liabilit& reduced. 1

FOREX OPERATIONS
--. ;harges paid. CHAPTER : #OC,MENTS )n foreign e(change transaction %arious documents used are as followsD :.0 Bill o* E<+h$'4e/ ' bill of e(change is a negotiable instrument and can be defined as a document in writing drawn b& the seller on the bu&er for a stated sum of mone& .' bill of e(change ma& be drawn on the issuing bank or another drawee bank$ but not the importer. 'rticle 9 of the <;19; makes it clear that where a credit call for bill of e(change on the importer +applicant.$ banks will consider these as additional documents. )n foreign trade a bill of e(change is also referred to as a draft. 9B' means document against acceptance $which means the collecting bank will deli%er all the documents to the drawee on the acceptance of the bill of e(change. /he pa&ment will be made on the due date b& the drawee. 9B1 means documents against pa&ment7 hence in this case unless the pa&ment is made the collecting bank will not release the document to the drawee of bill. :.2 Co!!er+i$l i'?oi+e/ ' commercial in%oice is the most comprehensi%e commercial document among the entire set of e(port document or bills .)t is the onl& document in the whole set that carries complete information about the specific commercial transaction between the bu&er and seller. ' commercial in%oice although not a negotiable instrument is also a claim for pa&ment of goods under the term of the commercial contract. )t is addressed to bu&er b& the seller and signed b& the seller. )n addition a detailed description of the goods together with unit prices total amount pa&able showing discount or ad%ance pa&ment made if an&$ terms of pa&ment $weight and packing details $shipping details and marks .)t ser%es as a checklist to all concerned and help to identif& a particular consignment. )t is also used as main e%idence in an& assessment of custom dut&. :.3 P$+)i'4 list/ ' packing list is usuall& accompanies an in%oice if there are se%eral packages in one consignment. ' packing list identifies the content of each package and also its weight marking and measurement .'s the name suggests the list for the con%enience of inspection agenc& at the point of import or cartoon open a selected package$ if needed. 1ackaging list are often reGuired b& the importing countr& for custom inspection ./he details of the goods contained in the packing list must agree in general terms with those in other document. )t must also be signed where e%er necessar&. :.7 Certi*i+$te o* i'spe+tio'D ' certificate of inspection lends a considerable degree of comfort to the importer with regard to the specification of the goods being purchased .)mporter can thus safeguard their interest b& arranging for the goods to be inspected b& a reputed$ independent 19

FOREX OPERATIONS
organisation prior to shipment. /he inspection certificate forms a part of the document presented b& the e(porter to the negotiating bank ./he certificate of inspection usuall& contains details such as weighs measurement $composition $Gualit& $packaging and bear the signature and seal of the inspecting organisation. :.8 Bill o* l$di'4/ )n international trade shipping occupies an important place as a mode of transport. /he document e%idencing the carriage of goods b& sea is called the bill of lading .' bill of lading is a document issued b& the shipping compan& or its agent acknowledging the receipt of goods for carriage $which are deli%erable to the consignee or assignee in the same condition as the& were recei%ed. ' bill of lading is all of the followingD 1. ?%idence of contract of carriage. -. Receipt of goods recei%ed b& the carrier. 3. ' document of title to goods$ that is$ a right to recei%e the goods therein mentioned. :.9 Certi*i+$te o* Ori4i'/ /his is a declaration that specifies the countr& of origin of goods. /he& are called b& the countries wishing to identif& the origin of all imported goods for their own reason$ i.e. statistical anal&sis$ polic& decisions or where there are Guotas or other importer restrictions in force or to Gualif& for special rate of custom dut&. )t contents normall& includeD 1. /he name and address of the consignor and occasionall& the name and address of the manufacture if different. -. /he name and address of the consignee usuall& the bu&er or issuing bank. )f the bill of lading is issued to order it ma& also contain the actual bu&er name and details. 3. /he countr& of origin of the goods which ma& not necessaril& be the countr& from which itCs being shipped. =. /he mode of transport ma& be optional but if completed must show the details of the transport document. 5. /he number of package$ gross or net weight$ rele%ant shipping marks and description of goods which should confirm to other documents. :.: Bill o* E'tr / 0ill of entr& is the documents which are issued b& custom department for import of goods and when goods can enter in the importer countr& ./hese documents speciall& detailed includes shipper name$ importer and e(porter name and details$ goods declaration and custom dut& e(planation and authorit& sign of clearness of goods. :.; -R *or!CS#F *or!CSOFTE. *or!D 6R form means 6eneral form$ S9! means Statutor& 9eclaration form$ and these documents are issued for declaration of e(ports. ?%er& transaction can be properl& declared b& custom or go%ernment so that the& can issue those form that declared all document e(port goods permission b& go%ernment or department. 2hen we e(port certain t&pe of software that time we can use softe( form so that proper %aluation of

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FOREX OPERATIONS
software and all declaration related that goods can be specified$ for the e(port process this documents are essential.

CHAPTER ; FOREI-N C,RRENC3 LOANS IN IN#IA /he bank grants foreign currenc& denominated loans against the foreign currenc& funds especiall& on account of !;IR +0. deposits. /hese loans are commonl& called as !;IR +0. loans. 0ank with a wide global presence has a large base of IR) customerCs depositors. /herefore7 the& ha%e a large resource base of !;IR +0. schemes at %er& competiti%e rates. !;IR +0. loans are beneficial to the corporate on account of followingD 't times$ it ma& entail lesser interest cost Jis4a Jis rupee borrowing. /he borrower is not reGuired to go to the international market for raising funds$ as foreign currenc& funds are made a%ailable in )ndia ./his reduces cost of raising such funds. ;.0 Fe$tures/ ;orporate can raise !;IR +0. loans from the bank who are authorised dealers. /he )ndian corporate are allowed to raise the funds through foreign currenc& loans at selected )ndian branches within pre%ailing polic& guidelines of the bankBR0).

;.2 Purpose/ ;orporate is allowed to obtain foreign currenc& denominated loans in )ndia under the abo%e scheme for the following purpose7 A2 For !eeti'4 @or)i'4 +$pit$l reDuire!e'ts i' I'di$' rupeesD /he loans can be granted after proper assessment and sanction of working capital reGuirementsB,a(imum 1ermissible 0ank !inance +,10!../he borrowers should ha%e natural hedge to co%er themsel%es for e(change risk$ which are reGuired to be borne b& them. /he borrowers who do not ha%e natural hedge ma& also be considered. /he loan can be disbursed up to 908 of the ,10! limit. 2here%er borrowers are co%ered under the loans s&stem for deli%er& of bank credit$ bifurcation of ,10! limit into foreign currenc& loans. :oans component pro%ided minimum period of loan is 6 months. /he foreign currenc& loan amount is it be taken as per part of loan component pro%ided minimum period of loan is 6 months.

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FOREX OPERATIONS
!oreign currenc& loan can be disbursed in = currenc& %iz.<S9$ Sterling$ ?uro and Lapanese Ken. :oan to the e(porter b& wa& of pre4shipment in foreign currenc& +1;!;.Bpost shipment credit in foreign currenc& +1S!;..

B2 I!port o* r$@ !$teri$l. /he importer can take benefit of foreign currenc& loan for import of raw material in lieu of rupee ,10! sanctioned to them. /he rupee eGui%alent of the foreign currenc& loan amount is to be earmarked in the o%erall sanctioned ,1!0 limit. /his loan can also be repaid in foreign currenc&. C2 I!port o* +$pit$l 4oods/ /he importer of the capital goods can a%ail the foreign currenc& loan for a period not e(ceeding 3 &ears including touring period. Iormall&$ the import of capital goods shall be arranged on 1 0 da&s usance. #2 Pur+h$se o* i'di4e'ous !$+hi'er / /he corporate can raise foreign currenc& loan for their capital e(penditure BproNect e(pansion plans etc for the purchase of indigenous machiner& E2 Rep$ !e't o* e<isti'4 rupees ter! lo$'/ /he foreign currenc& loans can be utilised for the repa&ment of e(isting rupee term loan pro%ided the duration of the foreign currenc& loan does not e(ceed the une(pired portion of the e(isting rupee loan or 3 &ears whiche%er is less.

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FOREX OPERATIONS

CHAPTER E REMITTANCES 'll foreign e(change transactions in%ol%e the transfer of foreign e(change either into the countr& +inward remittances. or out of the countr& +outward remittances../hese transactions would either be trade or a non4trade transaction. )n case of trade transaction$ namel&$ imports or e(ports :B; are used to settle the transaction. )n case of non4trade transaction remittances are made b& using bank instruments. /he bank instruments freGuentl& used are //$ ,/$ and 99. E.0 Re!itt$'+es $re o* t@o t pes/ )nward remittances. 3utward remittances. A2 I'@$rd re!itt$'+es/ )nward remittances ma& arise out ofD ?(port from )ndia. Remittances into )ndia b& non residents for in%estment. !oreign tra%ellersBtourists spending their e(change in )ndia. B2 Out@$rd re!itt$'+es/ 3utward remittances ma& arise out ofD )mports. /ra%el of residents outside )ndia. Remittances b& foreigners emplo&edBsettled in )ndia. 3ther remittances like gift$ medical e(penses$ subscription to magazines$ e(amination fees etc. TT/ // or cable transfer is the Guickest mode of transfer of funds. )n this case instructions are issued b& cable to pa& a certain amount of mone& to a specified person. ' branch of the bank in a countr& could issue the instructions to another branch of the bank in another countr& or on a correspondent bank in another countr& .Since these are the instructions sent through cable$ no signature of the authorised personnel appear and hence for the purpose of authentication the message is tested +which means it is coded. and sent to the concerned bank with whom the test ke& code arrangements e(ists. /he recipient bank decodes the message and an act as per instructions gi%en in the cable ./hus the authenticit& of the cable is ensured. -3

FOREX OPERATIONS
MT/ ,/ is similar to // with onl& one difference. /he instructions are sent b& means of a written order instructing the pa&ing bank to pa& a specified sum to a specified person. Since it is a written order it is signed b& the authorised personnel of the bank. 3n the receipt of the mail transfer the pa&ing bank will %erif& the signature appearing on the instrument with that appearing on the book of the authorised signatures of the banks personnel and then the bank will carr& on the instructions gi%en b& mail transfer instrument. ##/ 99 is an order to pa& a certain sum of mone& to a certain person or to his order. )n the case of foreign remittance the 99 is drawn b& a branch of the bank in the countr& on its branch in another countr& or on its correspondent bank. E.2 Forei4' I'@$rd Re!itt$'+e P$ !e't s ste! 1FIRPS2/ !)R1S is an instrument$ which is similar to a bank draft ./his s&stem of pa&ment was e%ol%ed b& !?9)' to ob%iate the dela& and incon%enience e(perienced b& the beneficiar& of an inward remittance. /he !)R1S instrument bears the facsimile signature of the chairman of !?9)'. /he details of !)R1S are as underD )t ma& be issued in pa&ment of inward remittance in fa%our of residents in )ndia and non4residents. /he& cannot be issued in fa%our of firms$ associates and companies. /he inward remittance recei%ed is immediatel& con%erted into )ndian rupees. /he !)R1S is prepared in triplicate$ all three copies bearing the same serial number. /he original is the actual instrument$ the duplicate ser%es as an inward remittance certificate to the beneficiar& and triplicate is the office cop& of !)R1S issuing bank. /he original and duplicate is both bearing the signature of the issuing bank is send to the beneficiar& b& courier. /he beneficiar& can present the instrument to his bank or na& nearb& bank and obtain the pa&ment. /he inward remittance cop& +the duplicate. when signed b& the pa&ing bank becomes a %alid inward remittances certificate.

E.3 SFIFT/ /he S2)!/ s&stem of transmitting messages is widel& used through out the world. /he So+iet Forld Fide *or I'ter "$') Fi'$'+i$l Tele+o!!u'i+$tio' is a co4operati%e societ& registered in 0russels. /he S2)!/ s&stem enables the member banks to transact between themsel%es Guickl& 1. )nternational pa&ment7 -. messages connected with international banking ./he transmission of messages takes place in seconds therefore this method is economical and time sa%ing ./he messages that are send b& // are usuall& sent as urgent S2)!/ messages and those sent b& ,/ are sent as ordinar& S2)!/ messages. /he greatest ad%antage is that S2)!/ message has is that the communication are sent -=

FOREX OPERATIONS
using pre4defined structure format$ hence there are no ambiguit& of an& sort since these formats are used all o%er the world on a standardised basis for conducting all t&pes of banking transactions.

E.7 For!$t *or I'@$rd Re!itt$'+es throu4h SFIFTD /he procedure for funds transferBinward remittance is simple. 'll &ou ha%e to do is instruct &our bankers +in the countr& of remittance 4 e.g. <S'. as underD Remit <S9444 to >S0; 0'I" <S'$ I?2 K3R" for credit to 'Bc Io.00003 -=5 of 0'I" 3! ,'>'R'S>//R'$ ,umbai for further credit to IR? 'Bc Io. 444 3f 4444 with 4444 0ranch$ 4444 )ndia. Swift ;ode of 0ank of ,aharashtra is 5,'>0)I005. /o facilitate Guick and safe transfer of funds$ 0ank of ,aharashtra maintains our accounts with 1 banks all o%er the world. /he list of these correspondent banks with their addresses and our account details are included in the remittance messageD 1. Iame and address of correspondent bank abroad and corresponding S2)!/ ;ode. -. 'mount reGuired. 3. 3ur account number as mentioned in the enclosed list. =. 3ur name and account details. 5. Iame of branch where we ha%e the account. !or opening an account all we ha%e to do is download and fill the 'ccount 3pening !orm and submit the same at an& of branches. "indl& get the form and the passport copies attested b& an official from )I9)'I ?,0'SSKB>)6> ;3,,)SS)3IB;3IS<:'/? I3/'RKB;<RR?I/ 0'I"?RS. E.8 !?,' has split out 1. ;apital account transactions. -. ;urrent account transactions 0. C$pit$l A++ou't Tr$'s$+tio's/ 'n& transaction$ which alters the position of assets or liabilities including contingent liabilities outside )ndia of a person resident in )ndia or outside )ndia$ such transactions are called as capital account transactions. /he e(amples are )n%estment made abroad. 1urchase of immo%able propert& outside )ndia$ gi%ing guarantee on behalf of non resident person.

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FOREX OPERATIONS
)n%estment b& a person resident outside )ndia for the purchase of propert& in )ndia etc will be treated as capital account transaction. 3pening of %arious t&pes of non resident bank aBc are also treated as capital aBc transactions.

2. Curre't A++ou't Tr$'s$+tio's/ ;urrent account transactions includeD 1a&ments$ due in connection with foreign trade$ other current business$ ser%ices$ and short term banking and credit facilities in the ordinar& course of business. 1a&ment due as interest on loans and as net income from in%estments. Remittances for li%ing e(penses of parents$ spouse and children residing abroad. ?(penses in connection with foreign tra%el$ education and medical care of parents$ spouse$ and children. FEMA Re4ul$tio's *or Curre't A++ou't Tr$'s$+tio's/ #r$@$l o* Forei4' E<+h$'4e " $' perso' *or the *ollo@i'4 purpose h$s "ee' prohi"ited/ /ransactions specified in schedule 1 or /ra%el to Iepal or 0hutan or /ransaction with a person resident in Iepal or 0hutan should not be done. Prior Appro?$l o* -.O.I/ ?(change should not be released without permission of 6.3.) for transaction mentioned in schedule )). /his will not appl& to the transaction for pa&ment made out of R!; aBc of the remitter. Prior $ppro?$l o* RBI/ /ransaction will reGuire prior appro%al of R0) mentioned in schedule ))). /his rule will not appl& to transaction where pa&ment is made from R!; aBc.

E.9 #i**ere't t pes o* r$tes used i' *orei4' e<+h$'4e/ 9ifferent rates are used for different merchant transactions .0u&ing rates are Guoted for purchase transaction and selling rates are Guoted for sale transaction. 0u&ing rates are further subdi%ided into a. /elegraphic transfer +//. bu&ing rate +b. bill bu&ing rate. Similarl& the principal t&pes of selling rates +a. // selling rates -6

FOREX OPERATIONS
+b. 0ill selling rates.

-r$phi+$l represe't$tio'. R$tes o* e<+h$'4es

0u&ing rates

Selling rates

// bu&ing rates

0ill bu&ing rates

// selling rates

0ills selling rates

A "rie* e<pl$'$tio'/ 0. TT "u i'4 r$tes/ /his rate is applied for all purchase transactions where the Iostro account of the bank is credited ./his rate is calculated b& deducting the e(change margin from the interbank bu&ing rate of the currenc&. /he e(change margin prescribed b& !?9)' is 0.0-5 to 0.0 8 for // bu&ing rates 2. Bill "u i'4 r$tes. /his rate is applied for foreign bills purchased .0ill transactions as &ou all will appreciate in%ol%e a time lag in that the bill has to be sent to the o%erseas centre b& the banker for pa&ment .'nd this period would increase if it is a usance bill +usance bills are those which are pa&able after a period of time sa& 30 da&s from sight$ 90 da&s from acceptance etc..)t therefore follows that this rate would be costlier than the earlier // bu&ing rates. 3. TT selli'4 r$tes/ /his rate is applied for all transactions$ which do not in%ol%e handling of documents b& the bank. /he // selling rates is calculated b& adding e(change margin to the interbank selling rate.!?9)' prescribes the e(change margin that can be loaded an&where between 0.1-5 to 0.1508. 7. Bills selli'4 r$tes/ /his rate is applied to all transactions$ which in%ol%e the handling of documents b& the bank$ such as pa&ment of import bills ./he bill selling rates is arri%ed at b& adding -*

FOREX OPERATIONS
e(change margin to // selling rate ./his means that e(change margin enters twice in bills selling rate. /he rate of e(change margin allowed b& !?9)' on bills selling rate is 0.1*5 to 0.-00 8.

CHAPTER 05 EMER-IN- TREN#S IN TRA#E FINANCE/ 05.0 B,3ERS CRE#IT/ <nder the 0u&erCs credit the e(porterCs bank directl& finances the importer or the importers bank. /he e(porter gets the pa&ment immediatel&. 't the preshipment stage the bu&ers credit ma& take the form of the importer opening a red clause :B; authorising the e(porterCs bank to e(tend pre4shipment credit to the e(porter. 't the post shipment stage the e(porterCs bank would make immediate pa&ment to the e(porter b& e(tending a loan to the importer or to the importers bank ./he seller recei%es the amount due under the bill immediatel& and is not responsible for non Epa&ment b& the importer. >ence the credit risk is borne b& the bank .)f the loan is gi%en in foreign currenc& and hence would be bearing the e(change fluctuations. A2 Be'e*its/ '%ailable in all con%ertible currencies@usuall& in <S9B?<RB601BLJKA /he supplier is independent of this process of raising the finance$ the& do not lea%e to sign an& documentation and recei%e pa&ment as per original contract term. Since the rate of interest is linked on :)03R$ the financing cost can be significantl& lower then the cost of local borrowings. Since the bu&er is able to reimburse the supplier on sight the basis$ this facilit& affords greater bargaining power to the bu&er. )mporters can make use of multi currenc& option b& a%ailing of the bu&erCs credit in a currenc& other than one in which goods are in%oiced to take ad%antage of diffentials interest rate and forward premium. 0u&ers credit can be arranged irrespecti%e of the mode of import i.e. collection or direct import. B2 B$') ReDuire!e'ts/ 1.For o"t$i'i'4 $ Duote Dfrom the off shire point$ the importer needs to pro%ide details of %alue of the contract number of shipment$ port of shipment$ suppliers countr& $a%erage %alue of each shipment $e(pected date of shipment and period of suppliers credit if applicable . -

FOREX OPERATIONS
2. For 4r$'ti'4 the $ppro?$l/ ?;0 application dul& filled b& the importer. ;op& of the contract between supplier and bu&er or cop& of :B; confirmed purchase order. ' cop& of in%oice transports documents and a bill of entr& whene%er applicable. 3. Post $ppro?$l/ <ndertaking to pa& principal plus interest on due date. <ndertaking to submit e%idence of pa&ment of withholding ta( as applicable. !orm '4- and other documents. 7. Re4ul$tor 4uideli'es/ 0u&ers credit can be a%ailed onl& for the import of raw material or capital goods . 'uthorised dealers ma& appro%e proposal in form ?;0 for the bu&ers credit pro%idedD o /he credit is being e(tended for period less than 3 &ears. o /he amount of credit does not e(ceed <S9 -0 million per transaction. !or the amount to e(ceed of <S9 -0 million an application form from ?;0 to be forwarded to R0) for the appro%al through authorised dealers. /he appro%al is %alid onl& for 3 months from the date of its issue. 05.2 SELLERS CRE#IT/ SellerCs credit or supplierCs credit is the normal procedure where the e(porter a%ails of the credit himself from the bank or uses his own funds and allow the importer to pa& at a later date. /he transaction is financed b& the seller or the e(porter$ hence it is known as sellerCs credit. /he e(porter ma& a%ail of the preshipment finance from the the bank and procure raw material reGuired$ process themBmanufacture the goods or the finished products and ship them to the importer. 't the post shipment stage he can a%ail of the credit facilit& from the bank and ma& permit the importer to pa& in instalments. /herefore$ the seller bears the risk of non pa&ment b& the importer +known as credit risk. further this borrowing would be in rupees from his bank while the contract ma& be in foreign currenc&. /he e(porter$ therefore$ also faces the risk of fluctuation of rates of e(change$ when the pa&ment is actuall& made b& the importer +known as e(change risk.. A2 Be'e*its to the +usto!er/ /he program allows the customer to pla& a large part in the arrangement of cheaper finance from the suppliers. ?nabling the customers to program as marketing to de%elop stronger relationship and promote lo&alt& amongst their suppliers. )t allows re Enegotiation of the contract terms with their supplier based on the cheaper funding arrangement made for them.

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FOREX OPERATIONS
<ses the program to complete more effecti%el& b& running as well managed suppl& chain. 1otential to ascertain greater efficiencies in cash management and recei%e managements process 'bilit& to introduce pa&ment discipline within their channel partners.

05.3 BANK -,ARANTEE/ A bank guarantee consists of a legal contract where the bank is taken as a legal suret&$ 3n behalf of their customers$ to pa& a defined amount of mone& to the beneficiar& within the e(pir& period of the guarantee in case of default of the customer. A2 The t pes o* 4u$r$'tee $re/ 0id 0ond guaranteeD 1erformance guarantee 'd%ance pa&ment guarantee Retention mone& guarantee B2 Be'e*its/ ' bank guarantee pro%ides substantial comfort to the beneficiar& for establishing contracts with the supplier and contractors. 0id 0onds enable e(porters to compete in international market for contracts. 'd%ance pa&ment guarantee enable e(porters to recei%e ad%ance pa&ment in the preparation of the goods for e(ports. C2 B$') reDuire!e'ts/ ' sanctioned credit limit for issuance of guarantees. 'pplication for the bank guarantee to be submitted in the banks tendered format. ' centre indemnit& dul& stamped supplied b& the banks e(ecuted b& the authorised signatories of the compan&. /he te(t of the guarantee should clearl& specif& the amount %alidit&. /he guarantee should also bear the bank standard limitation clause.

#2 Re4ul$tor reDuire!e'ts/ ;ertain t&pes of guarantees cannot be issued such asD 6uarantee for unlimited period and amount$ e(cept for certain e(ceptions. )ssuance of guarantee in%ol%ing foreign e(change is subNected to prior R0) appro%al unless specific pro%ision is made under !?,'. 6uarantee fa%ouring o%erseas beneficiaries and through banks abroad can be issued onl& for commodit& e(ports and ha%e to be performed b& nature.

30

FOREX OPERATIONS

CHAPTER 00 >ARIO,S #EPOSIT SCHEMES A>AIABLE TO NON6RESI#ENT IN#IANS 1NRIs2 T$"le/ 00.0 P$rti+ul$rs Forei4' +urre'+ 1'o'6Reside't2 $++ou't 1"$')s2 s+he!e HFCNR1B2$++ou'tI 122 IR)s +indi%idualsB ?ntities 3f 0angladesh B1akistan Iationalit&B 3wnership ReGuire prior appro%al of R0). No' =Reside't 1E<ter'$l2rupee $++ou't s+he!e 1NRE A++ou't. 132 IR)s +indi%idualsB ?ntities 3f 0angladesh B1akistan Iationalit&B 3wnership ReGuire prior appro%al of R0). $s o' Gu'e 0st 255; No'6reside't ordi'$r rupee $++ou't s+he!e 1NRO2 A++ou't 172 'n& person resident outside )ndia +other than ' person resident in Iepal and 0hutan.. +)ndi%idualsB?ntities 3f 0angladesh B 1akistan Iationalit& B3wnership as well as erstwhile 3;0s ReGuire prior appro%al of R0). ,a& be held Nointl& with residents. 1ermitted )ndian rupees

102 2ho can open an account

Loint account Iomination ;urrenc& in which account is denominate

)n the names of two or more non4resident indi%iduals 1ermitted 1ound sterling$ <S 9ollar$ Lapanese &en $?uro$ ;anadian dollar and 'ustralian dollar

)n the names of two or more non4resident indi%iduals 1ermitted )ndian rupees

31

FOREX OPERATIONS
/&pe of account 1eriod for fi(ed deposits Rate of interest /erm deposits onl& !or terms not less than 1 Kear and not more than 5 &ears SubNect to capD :)03RBS2'1 rates minus *5 basis points for the respecti%e currenc& B ;orresponding maturities. Sa%ing$ current$ recurring $ fi(ed deposit 't the discretion of the 0ank. SubNect to capD !i(ed deposits D :)03RBS2'1 rates$ as on the last working da& of pre%ious month$ for <S 9ollar of corresponding maturities. Sa%ing$ current$ recurring$ fi(ed deposit 's applicable to resident accounts 0anks are free to 9etermine interest rates of term deposits.

:oans a. )n )ndia i.to the account holder ii. to /hird 1arties b. 'broad i.to the 'ccount holder ii. to /hird 1arties c. !oreign ;urrenc& :oans in )ndia i. to the 'ccount holder ii. to /hird 1arties

1ermitted up to Rs.-0lakhs 1ermitted up to Rs.-0lakhs

1ermitted up to Rs.-0lakhs 1ermitted up to Rs.-0lakhs

1ermitted 1ermitted

1ermitted S 1ermitted S

1ermitted S 1ermitted S

Iot 1ermitted Iot 1ermitted

1ermitted up to Rs.-0 lakh Iot 1ermitted

Iot 1ermitted Iot 1ermitted

Iot 1ermitted Iot 1ermitted

3-

FOREX OPERATIONS
1urpose of :oan a. )n )ndia to the 'ccount holder i. 1ersonal purposes or for carr&ing on business acti%ities. ii. 9irect in%estment in )ndia on non4repatriation basis b& wa& of contribution to the capital of )ndian firms B companies iii. 'cGuisition of flat B house in )ndia for his own residential use. +1lease refer to 1ara 9 of Sch. - to !?,' 5. i. 1ersonal purposes or for carr&ing on business acti%ities. ii. 9irect in%estment in )ndia on non4repatriation basis b& wa& of contribution to the capital of )ndian firms B companies iii. 'cGuisition of flat B house in )ndia for his own residential use. +1lease refer to 1ara 6+a. of Sch.1 to !?,' 5. 1ersonal reGuirement and B or business purpose

00.0 I'terest r$tes o* B$') o* M$h$r$shtr$/ T$"le 00.2 NRE #eposits 1@.e.*. 50C5: C5;2 ,aturit& 1 &ear - &ears 3 &ears )nterest rate p.a 3.30 3.60 3.95

/he re%ised interest rates will be applicable for all fresh IR? term deposits accepted or renewed on and after 01.0*.0 . IR? Sa%ing 9eposits /he )nterest rate for IR? Sa%ing 9eposits will be 3.508 will be continued for the period Lul& -00 . Rates of interest for !;IR +0. deposits for the month of Lul& -00 shall be as underD T$"le 00.3 Period 1-41541 4-1 months R$te *or ,S# -.56 R$te * or -BP 5.*0 R$tes *or E,RO =.6= R$te *or A,# *.** R$te *or CA# 3.-9

33

FOREX OPERATIONS
-=4-*430433 months 364394=-4=5 months = 45145=45* months 60 months 1lease Iote that an& Single !;IR +0. deposit in ?<R$ '<9 and ;'9 will be for a minimum amount of 5000B4 in the respecti%e currencies and in 601 for a minimum of 601-000B4 0ranches should seek prior appro%al from /reasur& F )nternational 0anking 9i%ision$ ,umbai before accepting !;IR +0. deposits denominated in 601$ ?<R$ '<9 and ;'9 for a period of - &ears and abo%e. 9eposits are to be accepted for a minimum period of 1- months and thereafter in multiples of Guarters onl& 00.2 E<+h$'4e E$r'ers% Forei4' Curre'+ 1EEFC2 A++ou't 0. Fh$t is $' EEFC A++ou'tJ ?(change ?arners# !oreign ;urrenc& 'ccount +??!;. is an account maintained in foreign currenc& with an 'uthorised 9ealer$ i.e. a bank dealing in foreign e(change. 2. C$' the $++ou't "e i' ter! deposit *or!J Io$ the account is a non4interest bearing current account. 3. Fho +$' ope' $' EEFC $++ou'tJ ' person resident in )ndia ma& open the account. 7. C$' o'e +redit the e'tire *orei4' e<+h$'4e e$r'i'4s i' this $++ou'tJ Kes$ one can credit 100 percent of his foreign e(change earnings into this account subNect to permissible credits and debits. 8. Fh$t $re the per!issi"le +redits i'to this $++ou'tJ i. )nward remittance through normal banking channel$ other than remittances recei%ed on account of foreign currenc& loan or in%estment recei%ed from abroad or recei%ed for meeting specific obligations b& the account holder. ii .1a&ments recei%ed in foreign e(change b& a 100 per cent ?(port 3riented <nit or a unit in +a. ?(port 1rocessing Oone or +b. Software /echnolog& 1ark or +c. ?lectronic >ardware /echnolog& 1ark for suppl& of goods to similar such unit or to a unit in 9omestic /ariff 'rea. iii. 1a&ments recei%ed in foreign e(change b& a unit in 9omestic tariff 'rea for suppl& of goods to a unit in Special ?conomic Oone +S?O.. 3= -. 5 3.-0 3.=3.56 5.50 5.=* 5.=1 5.3=.61 =.55 =.=* =.=0 *.-1 *.1*.13 *.0-. 6 3.01 3.11 3.19

FOREX OPERATIONS
i%. 1a&ment recei%ed b& an e(porter from an account maintained with an authorised dealer for the purpose of counter trade. +;ounter trade is an arrangement in%ol%ing adNustment of %alue of goods imported into )ndia against %alue of goods e(ported from )ndia in terms of Reser%e 0ank guidelines.7 %. 'd%ance remittance recei%ed b& an e(porter towards e(port of goods or ser%ices7 %i. 1a&ment recei%ed for e(port of goods and ser%ices from )ndia$ out of funds representing repa&ment of State ;redit in <.S. dollar held in the account of 0ank for !oreign ?conomic 'ffairs$ ,oscow$ with an authorised dealer in )ndia$ %ii. 1rofessional earnings including directors fees$ consultanc& fees$ lecture fees$ honorarium and similar other earnings recei%ed b& a professional b& rendering ser%ices in his indi%idual capacit&. %iii. )nterest earned$ if an&$ on the funds held in the account7 i(. Re4credit of unutilised foreign currenc& earlier withdrawn from the account7 (. 'mount representing repa&ment b& the account holder#s importer customer$ of loanBad%ances granted$ b& the e(porter holding such account. 9. C$' *orei4' e<+h$'4e e$r'i'4s re+ei?ed throu4h $' i'ter'$tio'$l +redit +$rd "e +redited to the EEFC $++ou'tJ Kes$ foreign e(change earnings recei%ed through an international credit card for which reimbursement are pro%ided in foreign e(change ma& be regarded as a remittance through normal banking channels and can be credited to the ??!; account. :. Fh$t $re the per!issi"le de"its i'to this $++ou'tJ i. 1a&ment outside )ndia towards a permissible current account transaction @in accordance to the pro%isions of the !oreign ?(change ,anagement +;urrent 'ccount /ransactions. Rules$ -000A and permissible capital account transaction @in accordance to the !oreign ?(change ,anagement +1ermissible ;apital 'ccount /ransactions. Regulations$ -000A. ii. 1a&ment in foreign e(change towards cost of goods purchased from a 100 percent ?(port 3riented <nit or a <nit in +a. ?(port 1rocessing Oone or +b. Software /echnolog& 1ark or +c. ?lectronic >ardware /echnolog& 1ark and pa&ment of customs dut& in accordance with the pro%isions of the !oreign /rade 1olic& of ;entral 6o%ernment for the time being in force. iii. /rade related loansBad%ances$ b& an e(porter holding such account to his importer customer outside )ndia$ subNect to compliance with the !oreign ?(change ,anagement +0orrowing and :ending in !oreign ?(change. Regulations$ -000.

35

FOREX OPERATIONS
i%. 1a&ment in foreign e(change to a person resident in )ndia for suppl& of goodsBser%ices including pa&ments for airfare and hotel e(penditure. ;. Is there $' restri+tio' o' @ithdr$@$l i' rupees o* *u'ds held i' $' EEFC $++ou'tJ Io$ there is no restriction on withdrawal in rupees of funds held in an ??!; account. >owe%er$ the amount withdrawn in rupees shall not be eligible for con%ersion into foreign currenc& and for re4credit to the account.

00.3 Reside't Forei4' +urre'+ $++ou't HRFC ACCI/ /his is a scheme permitting persons of )ndian nationalit& or origin who ha%e returned to )ndia for permanent settlement +Returning )ndians. after being resident outside )ndia for a continuous period of not less than one &ear to open foreign currenc& accounts against the proceeds held in IR?B!;IR accounts or funds remitted from abroad. Kou can open ;urrent$ Sa%ings and /erm 9eposit 'ccounts under the R!; Scheme. >owe%er$ &ou will not be gi%en a cheGue book facilit& on the R!; Sa%ingsB;urrent 'ccount. /he account can be maintained in an& currenc& such as <S9$ 601$ 9?,$ L1K$ ?<R3 etc.

A2 Per!issi"le Credits 'mounts of !oreign ?(change 'ssets including deposits with banks outside )ndia$ in%estments in foreign currenc& such as shares and securities and immo%able propert& outside )ndia acGuired or held while &ou were resident outside )ndia. 0alances standing to the credit of IR?B!;IR accounts together with interest due thereon. 'mount of !oreign ;urrenc& Iotes and /ra%ellers cheGues brought at the time of returning to )ndia. ;urrenc& 9eclaration !orm +;9!. is reGuired if the foreign currenc& notes e(ceed <S9 5000 or %alue of tra%ellers cheGues and notes e(ceeds <S9 1000. 36

FOREX OPERATIONS
9i%idend B)ncome or sale precedes of o%erseas foreign currenc& assets. 1ension from abroad.

B2 Per!issi"le #e"its ?(penses for education abroad$ !amil& tra%el$ ,edical e(penses$ 3ther bonafide purpose permissible under the e(change control regulations$ 0ank charges /ransfer to other !oreign ;urrenc& 'ccount of the depositor himself and 'll local pa&ments. Iomination facilit& is a%ailable for R!; deposit accounts.

CHAPTER 02 FORFAR# E.CHAN-E CONTRACTS /he e(change rate is not stable .0& the time the e(porters e(ecute his contract and his bill is realise$ the rate of e(change might ha%e turned ad%erseBfa%ourable for him and ma& bring une(pected lossBprofit. 0ut the fact what an e(porter would recei%e on e(ecution remains uncertain. /he importer too faces e(change risk when the transaction is designated in a foreign currenc&. /he risk is that the foreign currenc& ma& appreciate in %alue and he ma& be compelled to pa& in local currenc& an amount higher than that was originall& contemplated. /his uncertaint& about the rate that would pre%ail on future date is known as the e<+h$'4e ris). 02.0 For@$rd +o'tr$+t/ !orward contract is a mechanism through which the rate is fi(ed in ad%ance for purchase or sale of foreign currenc& at a future date. )n such an arrangement$ the risk of loss which might accrue on account of ad%erse mo%ement in the rate of e(change is sought to be remo%ed. !orward contract can therefore defined as a firm and binding contract entered into b& two parties normall& a banker and his customer$ for purchase or sale of specified amount of foreign currenc& at an agreed rate of e(change for deli%er& and pa&ment at a future date or during the period agreed upon at the time of entering into the forward deal. 3*

FOREX OPERATIONS
/he rate specified in forward contract is also called forward rate. 3n 1st Lune the bank makes a spot purchase and forward sale of the same currenc& and same %alue ./his is a s@$p de$l ./he difference between the rates at which the currenc& is purchased and sold in a swap deal is a s@$p di**ere'+e. /he swap difference ma& be a swap loss or a swap gain .)f the bank bu&s high and sells low it is a swap loss and is reco%erable from the customer .)f the bank bu&s low and sells high it is a swap gain and is pa&able to the customer. $2 This is ho@ it @or)s/ 3n 1st ,a& 0ank of ,aharashtra entered into an agreement with its customer ;rompton 6rea%es for a forward purchase of ?uro 10000 deli%er& 1 st Lul& at the rate of Rs.=3.3- per ?uro co%ering itself b& a forward sale at Rs.=3.3* .3n 1 st Lune the customer reGuests the bank to purchase euro 10000 under the said forward contract .So amount that would be paid to the customer assuming the following rates in the interbank markets on 1st Lune Spot ?uro 1T Rs.=3.- *5B3 *5 9eli%er& Lul& TRs.=3.=5-5B55-5 )nterest on outla& of funds ma& be assumed U 1- percent per annum. )n such a case the bank would purchase ?uro 10000 from customer at the agreed rate of Rs.=3.3- per euro. ;harges to get earl& deli%er& would be debited to the customer. 0ank of ,aharashtra sells to the market euro 10000 it has purchased at the rate of Rs.=3.- *5.)t bu&s from the market deli%er& Lul& euro at Rs.55-5 to meet its commitment. '. Swap differenceD 0ank sells atD Rs.=3.- *5 )t bu&s atD Rs.=3.55-5 Swap loss per ?uroD Rs.00.-650 Swap loss on ?uro 10000 is Rs.-650 0. )nterest on outla& of fundsD 0ank sells to the marketD RsD =3.- *5 )t bu&s from the customerD RsD =3.3-00 3utla& of fund per euroD Rs.0.03-5 3utla& of funds on 10000 is Rs.3-5 )nterest on outla& of funds on Rs.3-5 for 30da&s U 1-8 +1st Lune to 1st Lul&. is Rs.3 ;. ;harges for earl& deli%er&D Swap lossD )nterest on outla& of funds ;harges as per !?9)' Rs.-650 Rs.3 Rs.100 3

FOREX OPERATIONS
/otal Rs. -*53 ;rompton grea%es account will be credited towards the proceeds of the bill of euro 1000 at Rs.=3.3-$ that is Rs.=3$ --00 and its account will be debited with Rs.-*53. 02.2 Fi<ed For@$rd Co'tr$+t $'d Optio' For@$rd Co'tr$+t/ !orward contract would either be a fi(ed forward contract or option forward contract .)n a fi(ed forward contract$ the transaction will ha%e to be completed on the specified forward date. )n option forward contract$ the option period of deli%er& should be specified and should not e(ceed a period of one calendar month. Ho@ to "oo) $ *or@$rd +o'tr$+t/ 's a customer first we should find out the forward rate of the currenc& concerned b& gi%ing the particulars to bank asD 1. /he currenc& for which forward is booked. -. /he period of forward co%er. +- months$ 3 months$ etc. 3. 9eli%er& period u reGuire. =. Iature and tenor of instrument.

)f the forward rate of e(change Guoted is acceptable$ &ou need to submit an application for booking of forward contract b& submitting documentar& e%idence such as sale contract or letter of credit. /he original and duplicate forward contract would be issued to us$ we need to check whether the& are in conformit& with the reGuirements that &ou ha%e sought .)f the& are correct$ sign the duplicate cop& and hand it o%er to the authorised dealer while retaining the original .Iow howe%er &ou want to put up the transaction it is at our option and the transaction would be done at an agreed rate. 02.3 C$'+ell$tio' o* *or@$rd +o'tr$+t/ '.2hen a forward purchase contract is cancelled on the due date it is taken that the bank purchase at the rate originall& agreed and sells the same back to the customer at the read& // rate./he difference between these two rates is fromBpaid to the customer. )f the purchase rate under the original forward contract is higher than the read& // selling rate the difference is re%ocable to the customer. )f it is lower the difference is re%ocable from the customer. /he amount in%ol%ed in purchase and sale of foreign currenc& are not passed through the customers account .3nl& the difference is reco%eredBpaid b& the wa& of debitBcredit to the customers account. 0. )n the same wa& when a forward sale contract is cancelled it is treated as if the bank sells at the rate originall& agreed and bu&s back at read& // bu&ing rate$ the difference between the two is reco%ered from Bpaid to the customers.

39

FOREX OPERATIONS
02.7 E$rl +$'+ell$tio'/ )f a forward purchase is reGuired to the customer earlier than due date it would be cancelled at the forward selling rate pre%ailing on the date of cancellation ./he due date of this sale contract to s&nchronise with date of the original forward purchase contract.

CHAPTER 03 03.0 .OS STATEMENT 'n authorised dealer should submit the details of o%erdue e(port bills to reser%e bank of )ndia in statement form H3S as per guidelines gi%en belowD )t includes e(port on cash basis and deferred pa&ment basis. 1.'ll e(port bills outstanding be&ond si( months from the date of shipmentBdue date of realization or instalment of deferred pa&ment e(port+including interest. should be reported in this statement including the following case whereD a. /he e(porter has sought permission from R0) for dela&ed realisation of bill or b. /he R0) has granted general permission to realise bills late due the status of the e(porter or in an& other wa&. -. /he statement should be submitted on half &earl& basis gi%ing position of o%erdue bills as on 30th Lune and 31st 9ecember and submitted on R0) within 15 da&s from the close of the half &ear. 3. /he statement should be submitted in triplicate. =. 2here the part of the e(port bills has been realised$ onl& the amount of bill remained unpaid should be reported in the statement.

=0

FOREX OPERATIONS
5./he e(port bill should be treated as o%erdue if it has not been paid on due date ./he sight bill should be paid on or before I./.1. +Iormal /ransit 1eriod. and usance bill should be paid on due date as per the usance period. 6. 3nl& those bills$ which are not paid within 6 months from the date of shipment$ should onl& be reported in H3S statement. a. )t includes e(port bills purchased$ negotiated$ discounted and sent on collection basis. b. /he bills which are not realised or written off$ should continue to be reported where as those$ which ha%e been realised during the half &ear$ should be deleted. c. 0ranches should make %igorous follow up with the e(porter and keep copies of follow up on round.

03.2 BEF STATEMENT 'll importers$ who are importing goods in )ndia$ are reGuired to submit documentar& e%idence in support of the ph&sical import of goods made in )ndia. /he '.9. through whom the remittance of import was made should follow up with the importers for submission of e%idence of import. /he importer should furnish e%idence within three months from the date of remittance. )t will be the e(change control cop& of customs bill of entr& wrapper or postal wrapper. )f the importer are companies with net worth not less than Rs.100 crores and listed on stock e(change$ a certificate of ;?3 or auditor of the compan& ma& be accepted in lieu of e%idence of import ./he certificate ma& be accepted onl& for import up to <SS 1 million. )f the import is non4 ph&sical +import of software.$ a certificate from ;hartered 'ccount ma& be obtained stating the import of software etc has taken place. )n case $the documentar& e%idence as mentioned abo%e not submitted$ then the '.9. should follow up with the importer for another three months b& sending reminder b& ordinar& post and finall& b& registered post and finall& importer does not compl& then the '.9 should report the matter to R0) in 0?! statement. 0?! is a half &earl& statement to be submitted b& the '.9. as at the close of Lune and 9ecember e%er& &ear ./his statement should be submitted to R0) within 15 da&s from =1

FOREX OPERATIONS
the close of the relati%es half &earl& and in duplicate to regional office of R0) under whose Nurisdiction the branch is functioning. 9ocumentar& e%idence so recei%ed should be properl& recorded and preser%ed b& the branch and internal auditors ha%e to make 1008 %erification of documents obtained b& the import remittances. 0ill of entr& form should be normall& preser%ed onl& for one &ear from the date of %erification .0ut in case an in%estigation is going in respect of the import transaction7 such a bill of entr& form should be preser%ed and should be destro&ed till clearance from the agenc& taken. 0ill of entr& ma& be sent to the relati%e customs authorities to %erif& their authenticit&. 1art4) of the statement relates to entries for the current half &ear while 1art E)) relates to the receipt of 0?! earlier reported.

03.3 R6RET,RN /he information about the inflow and outflow of foreign e(change is of great importance to go%t. of )ndia and Reser%e 0ank of )ndia for making polic& decisions. 's a member of international monetar& fund$ the ;entral 6o%ernment has an obligation to present the Guarterl& balance of pa&ment +031. statistics to ),!./he 031 data should be published within three months from the close of Guarter as per Special 9ata 9issemination Standards +S99S. prescribed b& ),! and accepted b& 6o%ernment of )ndia. Returns and statements prescribed are used b& Reser%e 0ank of )ndia for compiling %aluable data relating to the countr&Cs financial transactions with the e(ternal world as well as for e(ercising super%ision of the operations of the authorised dealer through data reported b& the R4Returns. /he R4return also ser%es as a means of post factor scrutin& b& Reser%e 0ank of )ndia to ensure that '.9s ha%e correctl& e(ercised the power delegated to them under general or specific authorit&. 3fficeB branches of authorised dealers$ which are authorised to transact foreign business$ are classified into three categories$ which are as follows7 ;'/?63RK E'D /hese are the office and branches maintaining in their own name independent foreign currenc& account with o%erseas correspondentsBbranches.

=-

FOREX OPERATIONS
;'/?63RK E0D 3ffices Bbranches not maintaining independent foreign currenc& account but ha%ing powers of operating on the accounts maintained b& their headBprincipal office or an& other link office. ;'/?63RK4;D 'll other offices and branches handling foreign e(change business through other branches in categor& ' and 0 but ha%ing powers to operate on the accounts maintained abroad b& their head offices. ,aintenance of RecordsD 'ccurac& and strict obser%ance of the periodicit& is of the importance in the s&stem of R4 Returns reporting. /he authorised dealers should maintain proper records of all purchase and sales of foreign currencies made b& them in s&stematic manner on dail& basis. <niform ;ode Iumber allotted to '.9. branchesD 1art ) +* digits. of uniform code number allotted to the reporting office branch of authorised dealer should be indicated on the top of R4Returns reporting .'n& e(isting branch ha%ing code number but which his not transacting foreign e(change business ma& use the number allotted to it as and when it starts transacting such business at a future date . Ti!e li!it *or su"!issio' o* R6RET,RN/ R4Return should submit twice in a month on 15th and last da& of the month. )f 15th or last month on calendar date is a holida& then the return should be submitted on the preceding working da&. /he R4return must reach R0) within * calendar da&s from the close of period to which the& ma& relate .'uthorised dealing branches should$ howe%er make all efforts to submit the R4Return as Guickl& as possible$ without waiting for the last and a%oid dela& in submission of return to R0). )f in an& forth night$ there are no transactions to report$ a nil return should be submitted in the prescribed time period. 'uthorised dealers should ensure that the R4Returns are submitted to R0) reflecting the correct and complete position of the transaction. 'll the rele%ant transaction should be reported in the statements with all the supporting documents and forms. 'n& contra%ention to reser%e bank of )ndia direction or failure to file returns as specified ma& attract fine from R0). Reser%e 0ank of )ndia ma& take a serious %iew of the failure of an& branch of authorised dealers to furnish return statement and if not submitted regularl& or promptl&$ the& will find irregularities during complication and where it deems fit it ma& impose financial penalt& or e%en direct the authorised concerned from transacting foreign e(change business at the business concerned. R4Return should be submitted to the regional office of the e(change control department of R0) under whose Nurisdiction the branches Boffices concerned of the '.9 is situated.

=3

FOREX OPERATIONS

Ch$pter 07 FORE. FACILITIES IN BANK OF MAHARASHTRA Credit *$+ilities $?$il$"le " the "$') is $s *ollo@s/ /he 0ank finances the corporate sector for its business acti%it& and for setting up units$ modernisation$ and di%ersification and up gradation. Such finance is e(tended in the form of !unded facilities Ion !unded facilities Fu'ded F$+ilities /erm loans ;ash credit 0ill discounting 0. Ter! lo$'s/ Repa&ment in instalments o%er a fi(ed time. Purpose/ !or acGuisition of fi(ed assets B machiner& or for financing proNects. A!ou't o* lo$'/ !or acGuisition of fi(ed assets B machiner& or for financing proNects. Se+urit / ==

FOREX OPERATIONS
;harged on assets. 2. C$sh +redit/ Running account facilit&. Purpose/ /o meet working capital reGuirements. A!ou't o* *$+ilit / 0ased upon the 0ank#s assessment of the working capital reGuirement. Se+urit / ;harge on current assets$ collaterals if reGuired. 3. Bill dis+ou'ti'4/ )n the nature of post sales limit. A!ou't o* *$+ilit / 6enerall& up to a specified percentage of the %alue of the bill. #is+ou'ti'4 u'der/ :B; or firm order. Se+urit / ;harge on the 0ill$ ;ollateral if reGuired. No'6*u'ded *$+ilities/ :etter of ;redit facilit& to facilitate purchase of material B goods. :etter of 6uarantor facilit& for the issuance of 6uarantee in the nature of bid bonds$ performance bonds$ etc. !or finance of )nternational trade$ the 0ank pro%ides 2orking ;apital facilit& to ?(porters )mporters !or E<porters/ 2orking ;apital finance can be a%ailed at 1re4shipment stage 1ost shipment stage 't the pre6ship!e't st$4e *i'$'+e is pro%ided in the form of 1acking ;redit Purpose/ !or procuring B manufacturing of goods meant for e(port. A!ou't o* P$+)i'4 Credit/ <p to 908 of !30 %alue of goods. Se+urit / ;harge on assets created out of finance. Rep$ !e't/ !rom ?(port proceeds$ 1roceeds of negotiation B 9iscounting of ?(port 0ills. =5

FOREX OPERATIONS
't the post ship!e't st$4e e(port finance is pro%ided b& wa& of Iegotiation B 9iscounting of ?(port 0ills$ Rupee ad%ances against collection bills$ 'd%ance against ?(port incenti%e. /he ad%ances are repa&able from ?(port proceeds or recei%able and carr& interest rate in conformit& with R0) guidelines. ?(port finance is also pro%ided in foreign currenc& at internationall& competiti%e interest rates. )nterest Rates are linked to :)03R and are subNect to ma(imum :)03R V 1.58. !inance in foreign currenc& is e(tended b& wa& of 1re shipment ;redit in foreign currenc& at the preshipment stage and 9iscounting of ?(port 0ill in foreign currenc& at the post shipment stage. For I!porters !unded 2orking ;apital finance b& wa& of cash credit facilit& and non funded 2orking ;apital finance b& wa& of )mport :etter of ;redit facilit& is pro%ided to corporate who are importers.

FOREI-N C,RRENC3 LEN#IN-/ /he 0ank also e(tends short term foreign currenc& loans to importers B Resident ;onstituents. /his enables accessing of finance at internationall& competiti%e interest rate linked to :)03R. BPLR 1Be'+h!$r) pri!e le'di'4 r$te2/ 03.8K @.e.* 07C:C5;

M$h$"$') -OL# CAR# SCHEME FOR E.PORTERS/ O"Ae+ti?e o* the S+he!e/ /o pro%ide better terms of credit including rates of interest to all eligible e(porters$ including those under small and medium sector$ compared to those e(tended to other e(porters b& the 0ank. Eli4i"ilit / 'll e(porters$ including those under small and medium sectors$ would be co%ered under the scheme pro%idedD 1. /heir accounts are classified as 5S/'I9'R95 continuousl& for 3 immediatel& preceding &ears. -. /heir names do not figure in R0)#s defaulter list B caution list and the& ha%e not been blacklisted b& ?;6;. 3. /here are no o%erdue in pre4shipment e(port credit. =. /he& ha%e not run up losses continuousl& for 3 immediatel& preceding &ears. 5. /he& do not ha%e o%erdue e(port bills in e(cess of 108 of the current &ear#s turno%er. =6

FOREX OPERATIONS
Be'e*its to E<porters/ 1. :imits will be sanctioned in4principle for 3 &ears$ with a pro%ision for renewal$ subNect to satisfactor& compliance with the terms and conditions of sanction stipulated b& the 0ank. -. ' standb& limit to the e(tent of -08 of the assessed limit will be made a%ailable to the 6old ;ard holders for meeting urgent credit needs for e(ecuting sudden orders. 3. ReGuests for 1acking ;redit in !oreign ;urrenc& +1;!;. from 6old ;ard holders will be gi%en priorit&. =. Rate of interest will be 0.-58 lower than the rate applicable for normal e(porters. +/he e(tant interest rate of the 0ank for pre4shipment credit up to 1 0 da&s and post4shipment credit up to 90 da&s is 8. 6old ;ard holders shall be charged an interest rate of *.*5 8 for these credit facilities for a like tenor.. 5. Rate of interest applicable for up to 90 da&s on post4shipment e(port credit$ +in the e(tant case 8$ *.*5 8 for 6old ;ard holders.$ will be e(tended for a ma(imum period of 365 da&s. 6. )n case of unanticipated e(port orders$ norms for in%entor& will be rela(ed taking into account the size and nature of e(port order. *. Ser%ice charges stipulated for 6old ;ard holders will be -58 lower than the charges reco%ered from other e(porters. Te'ure/ /he 6old ;ard will be issued for a period of 3 &ears and will be automaticall& renewed for a further period of 3 &ears pro%ided no ad%erse features$ irregularities are noticed in the account. Reporting for the !?H 0<S)I?SSD T$"le/ 07.0 +Rs.in lakhs. #uri'4 +urre't Cu!ul$ti?e "usi'ess !o'th Fro! 50.57.5: to 30.53.5; *39.31 65 -.=1 -*0.15 = =5.99 1009.=6 11=- .=0 -93. 9 96.3 1559.03 1655.=1 =6.6* =* =001.01 930. 6 15 31.-= 16*6-.10 1 *6.-*

IMPORTS !'01 !)0; /otal )mports 3utward Remittances E.PORTS !30I !30; /otal ?(ports )nward Remittances

FOREX OPERATIONS
!;9: 9isbursed !orward ;ontract ;ancelled 1;!; 9isbursed /otal Fhere/ !'01D !oreign 'ccepted 0ill of 1urchase. !)0;D !oreign )nward 0ill of ;ollection. !30ID !oreign 3utward 0ill Iegotiation. !30;D !oreign 3utward 0ill ;ollection. !;9:D !oreign ;urrenc& 9enominated :oan. 444 444 444 3005.=3 150.00 31=.0= 3=531. -

CASES C$se No/ 0 Fhe' $d?$'+e p$ !e't !$de " the i!porter/ I!porters N$!eD "irloskar 3il ?ngine :td '411B1 :? plant ,.).9.; 'mbad$ Iasik E<porters N$!e/ 6?0R S/?),?: 6,0> F;o.$ 6erman&. Co'tr$+t #et$ilsD )mporter purchases machiner& worth ?uro =36.0 and b& considering their long term relation$ the )mporter decides to pa& full pa&ment in ad%ance before the goods are recei%ed. #o+u!e'ts su"!itted " i!porter to the "$')/ 1urchase 3rder. '41 form. 9eclaration !orm.

FOREX OPERATIONS
B$') Pro+edure/ /he bank procedure is %er& simple for ad%ance pa&ment b& the importer$ as mentioned earlier there is a long relation between importer and e(porter so the importer decides to make full pa&ment in ad%ance to the e(porter. 0ank recei%es all documents and intimation from the "irloskar 3il ?ngine :td$ who is the importers in this case7 as "irloskar are old customers of ,aharashtra bank$ Nust the purchase order is necessar& document needed b& the bank here. ?speciall& in this case b& chance there is a long relations between e(porter and importer also bank and importer$ which is %er& good thing for the importer. 0ank recei%es mone& from the importer before hand and on due date the& remit the mone& to the e(porter and the transaction takes place.

C$se No.2 Tr$'s$+tio' u'der Letter o* Credit/ I!porters N$!e/ ;rompton 6rea%es :td '43 ,.).9.;.$ 'mbad$ Iasik E<porters N$!e/ "orea ?lectro technolog& Research )nstitute$ ;hangwan$ South "orea. Co'tr$+t #et$ils )mporter purchases a good from e(porter worth <S9 90 0 .0oth of these companies are entering in transaction for the first time so the& decided to firstl& gi%e a bank guarantee for pa&ment$ so importer makes a application to the bank for issue of letter of credit +documentar& credit. and after recei%ing the :.;. e(porter can deli%er goods as per :.;. termsF date. 6oods recei%ing date to importer 15.06.0 and e(porter allowed credit period till15.09.0 i.e. the maturit& date. #o+u!e'ts su"!itted to the "$')D 1urchase order. '41 form. 9eclaration form. =9

FOREX OPERATIONS
)n%oice bill ;ertificate of origin 0ill of entr&.

Ad?isi'4 B$')/ 233R) 0ank$ "orea. Mode o* P$ !e'tD irre%ocable :.;. at sight. B$') pro+edure/ )n this case$ firstl& bank issues :.;. as per bank rules and regulations. 0asicall& for new customer bank ad%ices to deposit his account minimum 115 8 amount of transaction and for old customerCs bank gi%es some facilit& to the customer as per their rules. 'fter issue :.;. bank intimates to the e(porters bank and e(porter bank gi%es ad%ice to the e(porter to recei%e a :.;. from importers bank after assuring of pa&ment$ e(porter makes goods as per importers terms or as per :.;. terms and on due date bank remits mone& to e(porter bank and the transaction takes place .

C$se 'o.3 E<port *i'$'+e N$!e o* the $++ou't D Sri Scaffolding 1%t. :imited. Br$'+h Cre4io'C+ir+le D Iasik cit&BIasikB1une Busi'ess $+ti?it )tems D ,anufacturing and e(port of scaffolding ;ategor& D 1riorit& SS) ReGuest for ;redit facilities as underD T$"le/ 07.2 N$ture o* *$+ilit ;ash ;redit 1acking credit 1ost4shipment 0ill49iscounting /erm :oan :oan 0ank 6uarantee /otal E<isti'4 -0.00 30.00 =0.00 50.00 10.00 -.*0 =0.00 19-.*0 Proposed *0.00 30.00 =0.00 44444 10.0 -.*0 =0.00 19-.*0 Rs.in lakh I'+re$seCde+re$se V50 450 4444 4444

-roupCE<posure li!its st$tus/ T$"le/ 07.3 50 Rs.in lakh

FOREX OPERATIONS
E<posure o' 'pplicant compan&Bborrower 3ther group concern /otal to group #$te o* l$st s$'+tio'D -=.03.-006 Se+urit D 1rimar& D >&pothecation of Stock and 0ook 9ebts Rs. ;ollateralD ?Guitable mort. 3f factor& :and building and h&po. 3f machiner& Rs.63.11 lakh latest %aluation for the abo%e propert& is called for. Coll$ter$l +o?er K Credit ris) r$ti'4 R$te o* i'terest D 3-.*58 D 000 +31.03.0*. D -8 abo%e 01:R minimum 15.-58 Fu'd 19-.*0 6666 19-.*0 No' *u'd 666 666 666 Tot$l 19-.*0 444 19-.*0 Prude'ti$l Li!it (((

Borro@ers pro*ile/ 1roduct dealt with D ,anufacturing of <4frame Scaffolding$ shattering plates$ and ladders. 9ate of incorporation D 1995

Address/ Registered office !actor& Co'stitutio' N$!e o* 4u$r$'tors

D 045 Iellai 'partment$ Swastik 1ark$ and ;hembur ,umbai. D ?41$ ,.).9.;$ 'mbad$ Iasik 4=--010. D 1ri%ate :imited ;ompan&. D 'll directors and guarantors.

Positio' @ith re*ere'+e to RBI de*$ulters list i' respe+t o* the "orro@erC #ire+torC 4u$r$'tors/ Iame of the borrower Bdirector does not appear in R0) defaulters list. Ch$'4e i' !$'$4e!e't i* $' *ro! d$te o* l$st re?ie@Cs$'+tio'D Iot 'pplicable. Fi'$'+i$l $'$l sis B$l$'+e sheet Spre$d/ T$"le/ 07.7 Rs.in lakh

51

FOREX OPERATIONS
P$rti+ul$rs :ocal Sales ?(port Sales /otal Sales 8)ncreaseB9ecrease 3.1.0.).9./ Iet 1rofit 8 to Iet Sales /a( pro%ision Iet profit after ta( ;ash 'ccruals /angible net 2orth Muasi ?Guit& /otal 3wn funds 3utside :iabilities 3wn funds ;urrent 'ssets ;urrent :iabilities Iet 2orking ;apital ;urrent Ratio 30.53.57 Audited =6.1* 33 .13 =.-9 3. -8 33. * 16.96 =.=1 444 16.96 --.=5 5 . 0 3=.9= 93.*= 1= .30 1.5 1= .33 135.0 13.-5 1.10 30.53.58 Audited 1-9.=1 =-0. 6 550.-* =3.198 3=.33 11.16 -.00.60 10.56 1*.-3 66.*0 -*.50 9=.-0 1 0.31 1.91 1 6.16=.15 --.13 1.13 30.53.59 Audited *1.=* 13-.1 -03.65 4%e -3. 9 5.9= =.0 3.-.66 1-.1= 69.36 - .00 103.30 -5*.*0 -.=9 -* .9= -=5.09 33. 5 1.1= 30.53.5: Audited -*6.95 1 0.33 =5*.1-=.5= 3*.13 13.-* -.90 6.5 6.69 19.0= *3.56 -1. 5 95.=1 -0 .15 -.1 ---.16 19-. 5 -9.51 1.15 30.53.5; Esti!$ted =00.00 300.00 *00.00 53.0* 55. 5 --.*9 3.-5 *.515.-* - .16 . 1 -*.00 115. 1 33*.51 -.91 356.16 301.16 55.0 1.1

Assess!e't o* +redit reDuire!e'ts/ 1. /erm :oanD Io additional term loan has been sought b& the compan&. -. 2orking capitalD !und based Method $ppliedD 1roNected 2orking ;apital 6ap ,ethod. Summarised working based on the accepted le%elsD T$"le/ 07.8 Sr P$rti+ul$rs . 'o 1. /otal current assets -. ;ore ;urrent liabilities 3. 2orking ;apital 6aps =. ,in.I2;4-58 of 2.;. gap 5. 'ctual I2; le%el 6. 34= *. 345 . ,10! +,in 6B*. 30.53.58 Audited 1 6.*3. 6 11-.=- .10 --.13 =.390.-9 =.3530.53.59 Audited -* .9= 105.09 1*3. 5 =3.=6 33. 5 130.39 1=0.00 130.39 30.53.5: Audited ---.16 9.95 13-.-1 33.05 -9.51 99.16 10-.*0 99.16 Rs.in lakh 30.53.5; Esti!$ted 356.16 161.16 195.00 = .*5 55.00 1=6.-5 1=0.00 1=0.00

FOREX OPERATIONS
9. 10 . 'ctual bank borrowings ?(cess bank borrowings 90.-9 5.9* 1=0.00 9.61 1=0.00 =0. = 1=0.00 444

)t ma& be noted that abo%e e(cess borrowings are appearing after -58 as minimum stipulated margin. )n fact for all the e(port finance limits bank is appl&ing margin of 108 of the order and allowing the finance acoordingl&./he e(cess borrowings are due to the reason co. was facing labour problems in the &ear -006 and during the &ear -00* co. settled down . )n the estimated co. estimating good results. 2e are not increasing our e(posure but onl& re4arranging the facilities within the sanctioned limits. /he proNected e(port sales Rs.300.00lacs /he cost of production as per the proNected figures submitted. 08 of the proNected sales Rs.-=0.00 lakh. )t takes = months time from production to realisation period +lead time.. ReGuired working capital Rs.-=0.00lacsB3 T 0.00 lacs :ess margin 108 T .00 lacs ,10! T*-.00 lacs :oan applied T*0.00 lacs 1;!30I T*0.00 lacs 3. No'6Fu'd li!itsD not applicable 0ank guaranteeD e(isting 06 limit of Rs.=0 lacs Wto be continued. :etter of creditD not applicable #ele4$tio'/ /he total e(posure to the group is Rs.19-.*0lacs.'ll other assets are standard assets. >ence the facilities of total Rs.19-.*0 lacs to be granted to Sri Scaffolding 1ri%ate :imited are within the delegated sanctioning powers of assistant general manager$ Iasik cit&. Re+o!!e'd$tio's/ )n %iew of the foregoing bank recommends for sanctioning the noted credit facilities to Sri Scaffolding 1ri%ate :imited on the terms and conditions details here underD $2 Fu'd "$sed/ C$sh Credit Li!it of Rs.*0.00 lakh for local sales. /he bill discounting of Rs.50.00 lakh are con%erted into ;; working capital limit. Purpose/ working capital for local sales. M$r4i' D -58 in banks fa%our. R$te o* i'terestD -8 o%er 01:R minimum 13.*58 at present. Se+urit / >&pothecation of stock and book debts +local sales. "2 Fu'd "$sed/ P$+)i'4 Credit +u! FOBNCFOBP li!it of Rs.*0 lakh for e(port sales. Purpose/ working capital for e(port sales. M$r4i'/ 108 in banks fa%our. R$te o* i'terestD 8 p.a. Se+urit / h&pothecation of stock and book debts +e(port sales. Ris) e?$lu$tio' $'d SFOT $'$l sis/ 53

FOREX OPERATIONS
Stre'4th/ 1. <nit is progressi%e unit ha%ing good e(port potential. -. /he compan& is ha%ing good e(port orders on hand as well as the local orders. /he customerCs base of the compan& is well di%ersified. 3. ?%en though there is some dela& in realisation of e(port bills$ all the 1.;.s are sGuared off through proceeds onl&. =. )n spite of labour problems in the factor&$ the compan& is e(pecting to earn the profits during the &ear. 5. 9irectors are well e(perienced and the sales net work is spread. 6. 'fter set back in the past the compan& has wiped out its losses and has started to build up free reser%es. Fe$)'ess/ 1. /he compan& had earlier suffered the setback in past. -. /he compan& has suffered due to labour problems and coming up. 3. /he net worth is in the form of re%aluation reser%e. =. ;ollateral securit& is not sufficient to co%er our fund based facilit&. Opportu'ities/ /he compan& has faced labour problems. /he period of packing credit has been e(tended. /he amount is e(pected to be reco%ered b& march406./he 0.9. limit asked b& the applicant will be against the bills drawn on ShapoorNi 1allonNi+/ata 6roup..)n %iew of this we ma& help the compan& to come out of the problem and to safeguard the banks interest. Thre$ts/ 0ank feels that this is proper time for supporting the compan& as the compan& is coming up in a sound manner.

CASE No.7 I!port Fi'$'+e /he compan& is enNo&ing ;; facilit& of Rs.160.00 lakh and letter of credit facilit& of Rs.1=0 lakh and has submitted proposal for renewing of e(isting facilities onl&. /he compan& approached for increasing the e(isting :; limit$ since there was sharp increase in the imported raw material i.e./0/$ /3/ which is the basic material for producing liGuid stabilizers. /herefore one of the maNor raw material suppl&ing companies at 6erman&$ informed about its temporar& shut down for s&stem F process updating and as such reGuest the compan& to book order$ in ad%ance$ so as to a%oid the dela& in suppl&. N$!e o* the $++ou't Br$'+h Cre4io'C+ir+le Busi'ess $+ti?it )tems ;ategor& ReGuest for T$"le/ 07.9 5= D S.J.1lastochem 1%t. :imited. D Iasik cit&BIasikB1une D ,anufacturing of 1J; stabilizers. D 1riorit& under SS) D ?nhancement of ;redit facilities as underD Rs.in lakh

FOREX OPERATIONS
N$ture o* *$+ilit ;ash ;redit :etter of credit 0ank guarantee /otal E<isti'4 160.00 1=0.00 9.00 309.00 Proposed -*5.00 =10.00 9.00 69=.00 I'+re$seCde+re$se 115.00 -*0.00 0.00 3 5.00 Rs.in lakh Prude'ti$l Li!it (((

-roupCE<posure li!its st$tus/ T$"le/ 07.9 E<posure o' 'pplicant compan&Bborrower 3ther group concern /otal to group

Fu'd 160.00 6666 160.00

No' *u'd 1=9.00 444 1=9.00

Tot$l 309.00 444 309.00

#$te o* l$st s$'+tio'D 1 .03.-005 Se+urit D 1rimar& D >&pothecation of Stock and 0ook 9ebts as per the stock statements as of 31.05.0 Stock Rs.361.91 lakh Recei%ables Rs.= 6.=- lakh ;reditors Rs.535.19 lakh ;ollateralD ?Guitable mort. 3f factor& :andBbuilding and h&po. 3f machiner& Rs.1*-.*- lakh latest %aluation for the abo%e propert& is called for. D 3*.*68 D ''' +31.03.0*. D 01:R 4 1.-58 i.e. 1-8p.a. at monthl& rests. D 15.09.199* D '41B- ShriramkunN ;omple($ /akli Road$ Iasik4=--011. D 6at Io.603$ Laulaka Road$ %ia 10th mile$ off I>43$ Lanori. D 1ri%ate :imited ;ompan&. D 'll directors and guarantors.

Coll$ter$l +o?er K Credit ris) r$ti'4 R$te o* i'terest Borro@ers pro*ile/ 9ate of incorporation Address/ Registered office !actor& Co'stitutio' N$!e o* 4u$r$'tors

Positio' @ith re*ere'+e to RBI de*$ulters list i'D Iame of the borrower Bdirector respe+t o* the "orro@erC#ire+torC4u$r$'tors does not appear in R0) defaulters list. Ch$'4e i' !$'$4e!e't i* $' *ro! d$te o* l$st re?ie@Cs$'+tio'D Iot 'pplicable. Co!!e't o' +o'du+t o* the $++ou't/ 3%erall conduct of the account is satisfactor&. Sales are reflected in the account and there is no incidences of return of cheGue in the account ./he :; commitments are met on time. >owe%er due to temporar& shutdown of the suppl&ing o%erseas compan& and he 55

FOREX OPERATIONS
increasing cost of raw material. ;ompan& was reGuired to open :; o%er and abo%e he sanctioned limit for import of raw material. !inancial anal&sis 0alance sheet Spread/ T$"le/ 07.: Rs. in lakh P$rti+ul$rs 30.53.5 30.53.5 30.53.5: 30.53.5: 30.53.5; 30.53.5E 8 9 ProAe+ted Audited Esti!$ted Audited Audited Audited Iet Sales 33.0* **=.19 1150.0 1156.-3 1*93.00 - 00 8increase B *.918 *.918 16.168 1 55.0*8 56.168 decrease =9.3=8 31)9/ 1-5.-* 11*.13 1=-.00 133.5* 301.5 ==0.5= 8 to net sales 15.03 15.13 1-.3= 11.55 16. 15.*3 Iet profit after *5.0* -.= 0.00 **. 1 -.06 -65.30 ta( 8to net sales 9.010.65 6.96 6.*= 10.15 9.= ;ash 'ccruals 5.59-.93 95.00 6.9* 190.-6 - -.30 /angible net - -.99 365.=6 ==3.00 == .3* 630.== 95.*= worth e(cluding re%aluation res. Muasi ?Guit& -1.36 -1.00 -1.00 -0.0= -0.00 -0.00 /otal own funds 30=.35 365.=* =6=.00 == .3 630.== 95.*= 3utside liabilit& 3-5.3 -=6.=3 39-.00 335.=* 530.61 9 1.5* 3wn funds 1.0* 0.6* 0. 5 0.*5 0. = 1.09 ;urrent assets 5*-.1=9 * *=1.00 69*.33 10 *.61 1*5-. * ;urrent -30.=3 13*.0-60.00 --*.53 =-=.0= *5.00 liabilities Iet working 3=1.69 361. 5 = 1.00 =69. 0 01.61 11=*. * capital ;urrent ratio -.= 3.6= -. 5 3.06 -.56 -.00 Assess!e't o* +redit reDuire!e'ts/ /erm loanD no such reGuest 2orking capitalD !und based Method $ppliedD proNected working capital gap method. Summarised working based on the accepted le%elsD T$"le/ 07.; Sr P$rti+ul$rs . 'o 1. /otal current assets -. ;ore ;urrent liabilities 3. 2orking ;apital 6aps =. ,in.I2;4-58 of current assets 5. 'ctual I2; le%el 56 30.53.5: 30.53.5; Audited Esti!$ted 69*.33 165.=1 531.91*=.33 ==5.00 10 *.61 - 6.00 01.61 -*1.90 6=*.65 Rs. in lakhs 30.53.5E ProAe+ted 1*5-. * 605.00 11=*. * =3 .-1 *1.95

FOREX OPERATIONS
6. 34= *. 345 . ,10! +,in 6B*. 35*.59 6.96.95-9.*1 153.96 153.96 *09.66 - 0.9- 0.9-

B$') -u$r$'tee/ /he compan& a%ails the bank guarantee limit of Rs.9.00lakh at present. /he balance in the account is Iil. 2e do not propose an& additional limit. 2e propose to continue with e(isting 06 limit of Rs.9lakh. I!port Letter o* Credit/ /he compan& is importing raw material like /0/$ /3/$ )3/6$ and ?>/6 to manufacture liGuid stabilizers. /he liGuid stabilizers are more profitable and hence the compan& has de%eloped and manufacturing liGuid product$ based on imported raw material. /he assessment of import :; limit is as underD +Rs. )n lakh. /otal annual sales accepted b& the bank for -00*40 3100.00 Sale of goods manufactured from imported R.,. 1 60.00 +;onstituting 608 of the sales. Raw material for abo%e mentioned goods + 08 of cost of goods. 1= .00 :ess import dut& U*.5 8 of raw material 11-.00 ;)! %alue of imported raw material 13*6.00 :ead period -0da&s ;redit period 90da&s ReGuirement of :.;. limit T13*6X110B360 =-0.== 1resent :imit Li!it $pplied 1=0.00 705.55

's the cost materials ha%e increased and sales are also increasing there for reGuirement import :; limit be considered to the e(tend of Rs.=10.00lakh. #ele4$tio' /he total e(posure to the group is Rs.69=.00 lakh. 'll other assets are standard assets$ >ence facilities of total Rs.63=.00 lakh granted to S.J.1lastochem 1ri%ate :imited are within the delegated sanctioning powers of 6eneral ,anager 1une circle$ 1une for enhancement of e(isting facilities of the account. RecommendationsD )n %iew of the foregoing$ we recommend for renewal of e(isting credit facilities to S.J.1lastochem 1ri%ate :imited on the terms and conditions details here underD $2 Fu'd B$sed/ 1. ;ash ;redit :imitD Rs.-*5.00 lakh +two crores se%ent& fi%e lakh..+?nhancement of e(isting limit. within abo%e limit. Sub limit of Rs.10lakh being a%ailed at our /.>."ataria ,arg 0ranch ,anager$ ,umbai. Purpose/ 2orking capital 5*

FOREX OPERATIONS
M$r4i'/ ,inimum -58 on stock and bad debts. R$te o* I'terest/ 01:R41.-58 i.e. 1-8 with monthl& rests. Se+urit / >&pothecation of full& paid stock and book debts not e(ceeding 1-0 da&s. "2 No' Fu'd B$sed/ I!port Letter o* CreditD Rs.=10.00 lakh on 9'B91 basis of 1-0 da&s PurposeD )mport of raw material. M$r4i'D 108 cash margin Se+urit D >&pothecation of goods under :; B$') -u$r$'tee Li!itD Rs.9.00 lakh +Renewal of e(isting limit. M$r4i'/ 108 b& wa& of /erm deposits Co!!issio'/ Regular commission charges to reco%er. Ris) E?$lu$tio'/ SFOT A'$l sis/ Stre'4th/ 1. /he profitabilit& is good and impro%ing smoothl&. -. /he compan& is solel& banking with bank since last 5 &ears and the e(perience about the utilisation of the limit as well as repa&ment of loan instalments is satisfactor&. /here are no forced loans or o%erdrafts in the pa&ment of :;s. 3. 0oth the directors are technicall& Gualified and e(perienced to manufacture Gualit& products. =. /he product manufactured is high %alue imported substitute items. 5. /he collateral securit& a%ailable is sufficient to co%er funds dues. 6. /he compan& is tr&ing to e(plore the e(port market also. *. Range of the products and also the customer base is di%ersified. . :iGuidit& position of the compan& is satisfactor&.

Fe$)'ess/ 1. '%ailabilit& of the collateral securit& is not sufficient to co%er funded Vnon fund base facilit&. -. ReGuired raw material is imported which is subNected to 6o%t.import polic&$ e(change fluctuation and international market force. Opportu'ities/ Since the product manufactured b& the compan& are import substitute items there is good demand for the products and the compan& has a bright future. Thre$ts/ )n the competiti%e market$ wide fluctuations in the cost of raw material.

FOREX OPERATIONS

Ch$pter 08 FIN#IN-S AN# OBSER>ATIONS 0anks foreign operations include import finance$ e(port finance$ foreign remittances and other financial ser%ices. 0ank totall& depends on S2)!/ s&stem and on new operating s&stem. )n case of failure of this s&stem$ bank does not ha%e an& other option but to stop working. 0anking s&stem is not user4friendl&. /o operate this s&stem$ an emplo&ee needs special training.

59

FOREX OPERATIONS
0ank has laid some policies in case of remittance for old and well known customer and also new customer in order to create long term relations with new customers. 0ank alwa&s tries to increase foreign currenc& deposits through IR) aBc$ !;IR +0. aBc$ IR3 aBc. 0ank of ,aharashtra charges are %er& minimum$ which attracts ma( customers and the old customers are retained. ;ustomers are highl& satisfied with the ser%ices rendered b& the bank. /he )nternational ;hamber of ;ommerce +);;. $ 1aris has recentl& finalised the transaction of <;19; 600 instead of <;19; 500 ./he main aim of the );; in re%ising the pro%isions was to D o Reduce misinterpretations. o Reduce the number of articles b& clubbing them and deleting the repetiti%e ones. o 9efine the articles in much clear and simplified language. o /ake ad%antage of the technolog&. /he procedure of import and e(port credit is fle(ible and %er& simple to understand to e(porters and importers.

Ch$pter 09 S,--ESTIONS ,an& e(porters are not aware of the %arious policies of ?;6; ./he bank should make the a%ailable the information regarding the %arious policies.

60

FOREX OPERATIONS
0ank should focus on and increase its operations in currenc& changing as there is a lot of space in this acti%it&$ as man& specialised pla&ers ha%e entered in this acti%it&. 0ank should promote and co4sponsor workshop seminar on import and e(port business credit facilities a%ailable for e(port and import of goods and ser%ices$ risk management while e(porting and importing$ %arious opportunities a%ailable for benefits of e(isting and potential e(porters. /oda& customers need fast ser%ices$ so bank must tr& to increase efficienc&$ Gualit& of ser%ices and minimum transaction time of settlement. /he bank should adopt other option to s&stem when it is down or not able to use. /his will sa%e the labour hours and transaction will not stop at that time. /he banks emplo&ees cannot adNust to high s&stem and technolog& so the& need training to get accustomed to it and perform efficientl&. 0ank should pro%ide the facilit& to open foreign deposit aBc at all branches. 0anks must tr& to know and satisf& its customer needs better. 0ank should tr& to attempt in good faith to resol%e an& disputes or differences with customers b& setting up complaint redressal cells within the organisation. /o pro%ide customers with accurate and timel& disclosure of terms$ costs$ rights and liabilities as regards loan transactions. /o spread general awareness about potential risks in contracting loans and encourage customers to take independent financial ad%ice and not act onl& on representation from the bank.

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