(HOUSING DEVLOPMENT FINANCIAL CORPORATION LIMITED) SUBMITTED BY: DARSHNA MAHESHWARI DHARMSINH DESAI UNIVERSITY 2008-2009

I am highly indebted to Dharmsinh Desai University for giving me an insight into the field of education and providing me with a platform to put my theoretical knowledge into practice. I am highly indebted to Mr. Jitendra Sharma, Solution Manager of Trade Finance, HDFC without his help it would not be possible to undergo the project of BANKING SERVICES IN TRADE FINANCE.

I would also like to express my gratitude towards Mr. Jimit Acharya and Mr. Siddharth Malik for their immense guidance and support and the constant source of motivation and inspiration for completion of the project.

I also very thankful to MR. Ajay Jaysingh, Mr. Margin Mehta and all the staff of the Trade finance for their guidance and encouragement and for bringing out the best in us.

My special thanks to my course co-coordinator Mr. Hitesh bhatt for providing me such a nice guidance during my training.

NO.

PARTICULARS EXECUTIVE SUMMARRY

PAGE NO.

1.

INTODUCTION TO HDFC BANK BRANCH NETWORK MISSION STATEMENT OBJECIVE

2. 3.

OVERVIEW OF TRADE FINANCE AND EXCHANGE RATE FACILITIES PROVIDED BY HDFC BANK IN TRADE FINANCE IMPORT FINANCE FACILITES EXOORT FINANCE FACILITIES WORKING CAPITAL FACILLITIES

4. 5. 6.

SWIFT MESSAGES FEMA Role of Reserve Bank of India BIBLIOGRAPHY/WEBOGRAPHY

Executive Summary

This is a report of a project named BANKING SERVICES IN TRADE FINANCE. This contains the Introduction of HDFC Bank, Mechanism of buying and selling transactions and Overview of Trade Finance. Project defines the basics of SWIFT MESSAGE, its benefits and about its categories. The project describes that how FEMA (FOREIGN EXCHANGE MANAGEMENT ACT) regulates the Trade Finance, what is the role of Reserve Bank of India in Trade Finance.

The project contains the facilities which HDFC Bank provides to the exporter and as well as importer, how to get the exchange rate. Project defines the important abbreviations which are related to Trade Finance and these are used in regular transactions. Project describes the types of the export facilities and as well as import facilities, it also contains the regulations relating to the export finance.

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995. BRANCH NETWORK Currently HDFC Bank has 758 branches, 1,716 ATMs, in 325 cities in India, and all branches of the bank are linked on an online real-time basis. The bank offers many innovative products & services to individuals, corporate, trusts, governments, partnerships, financial institutions, mutual funds, insurance companies. It is a path breaker in the Indian banking sector. In 2007 HDFC Bank acquired Centurion Bank of Punjab taking its total branches to more than 1,000. Though, the official license was given to Centurion Bank of Punjab branches, to continue working as HDFC Bank branches, on May 23, 2008.

MISSION STATEMENT To a World Class Indian Bank, benchmarking , against international standards and best practices in terms of product offerings, technology, service levels, risk management and audit & compliance. To play a leading role in the expanding and diversifying financial services sector while continuing emphasis on its development banking role. OBJECTIVE To build sound customer franchises across distinct businesses so as to be a preferred provider of banking services for target retail and wholesale customer segments, and to achieve a healthy growth in profitability, consistent with the Banks risk appetite. We are committed to do this while ensuring the highest levels of ethical standards, professional integrity, corporate governance and regulatory compliance. HDFC Bank has been recognized as 'Best Bank in India' in the magazine rankings as well as surveys year on year. HDFC Bank is the most preferred employer in Banking industry in India.

A country rarely, if ever, produces everything it needs. This means that

countries are dependent upon one another for those products that they need but which they themselves do not produce. The various steps covering the movements of goods between countries the payment for such goods and the relationship between the parties involved from the basis of International Trade. Trade Finance is the complete "Cash out to Cash in" solution. It enables businesses to increase their working capital by funding the complete operating cycle. . We understand how frustrating it can be when your working capital is locked away in your business. You can find yourself in a catch-22 situation. You have a big order, but the funds you need to fulfill it are tied up. You can't access those funds until the order is delivered, so you are forced to watch crucial deals disappear. It's a situation you need never experience again with Trade Finance service. Local purchasing and import trade finance provides cash payment or letters of credit to local and foreign suppliers, releasing your trading capital and banking facilities that are tied up in purchasing agreements. Trade Finance is usually provided to companies which are profitable and ready to expand but have no additional funds available. Subject to pre-arranged terms Regent would make payment to your supplier by way of either a letter of credit or direct payment and, in most cases collect your money from your customers. Any cash discounts obtained from suppliers would be for your account.

TYPES OF INTERNATIONAL TRADE SETTLEMENT

 Advance Payment: When the buyers credit is doubtful or the political or economic environment in the buyers country is unstable seller may demand advance payment, which will be to his advantage. Without any assurance for buyer will be at a disadvantageous position. Time of payment: Before shipment Goods available to buyers: After payment Risk to exporter: None Risk to importer: Relies completely on Exporter to ship goods as ordered Open Account: By an arrangement between the buyer and the seller manufactured goods will be delivered to the buyer directly or to his order and the buyer will pay at the end of the agreed period. This type of trading requires a high degree of trust between buyer and seller and it will be more advantageous to the buyer.
Time of payment : As agreed upon Goods available to buyers : Before payment Risk to exporter : Relies completely on buyer pay account as agreed

upon

 Bill on Collection Basis: It is an arrangement by which the seller after shipping the goods submits the documents to his bank as agent collection. Documents are presented to the buyer through the corresponding bank of the sellers bank, which will be released upon buyers payment of the amount specified.

Documentary Credit (Letter of Credit): It is one of the most convenient methods of setting payments in International Trade. It provides complete financial security to the seller of goods. The Seller may not know credit worthiness of the Buyer and the prevailing Regulations in the country of the buyer. But once a Letter of Credit (LC) is established by the buyers bank on behalf of the buyer in favour of the seller and the seller submits the set of required documents to the opening bank or to the nominated bank, seller is assured of payments. Buyer also gets the advantage of his bankers assistance in closely scrutinizing the documents and only after receiving the relevant documentary evidence from the seller by the banker nominated in the credit the nominated banker releases payments.

TRADE FINANCE TREDNS IN ASIA

The recent economic slowdown is making the need for sound trade finance policies and strong financial systems more acute. This is partly the result of a regional trend toward unsecured, open-account type transactions. Large Western buyers are asking that their Asian suppliers sell goods on open-accounts terms, instead of using guarantees like letters of credit (LCs). These buyers simply do not want to bear the extra cost of payment guarantees and will source their goods from somewhere else if they are not given open-accounts. With the internationalization of supply chains, a Hong-Kong, China based transformer manufacturer may sell its products to Chinese buyers subcontracted by Dell or IBM to manufacture PCs. The Chinese sub-contractor may ask to buy from the manufacturer on open-account terms on the basis that payment from Dell or IBM is a sure thing. This kind of arrangement increases the financial risk exposure of the transformer manufacturer, and typically results in payment delays measured in weeks and sometime months. Because LCs or factoring in China and many other countries in Asia are not yet commonly used or available, Asian suppliers can often do very little to protect themselves in regional cross-border transaction, increasing the cost of regional trade transactions relative to that of direct transactions with Western companies. EXCHANGE RATE

Each country has its own currency. The primary function of the currency is to act as a medium of exchange for goods and services within the country. In India, if a farmer producing grain has to buy a shirt, he sells the grain against rupees, which he uses to buy the shirt. This is facilitated by quoting prices of all commodities in number of units of rupee. In simple terms, exchange rate is the rate at which one currency is converted in to another. The price of unit of commodity, in number of units of local currency is what we call the exchange rate for the currency. The need for such conversion arises because business transactions involve cross border payments, but currencies themselves are legal tender only in the country of issue. An Indian exporting to USA will most likely receive his payment in US dollars, which he will convert to rupees for making his raw material and salary payments. If the same person imports the raw material from Japan, payment may have to be made in YEN, which he has to procure in exchange of his rupee resources. In fact, occasions for such conversion arise in every deal between persons or business resident in different countries.

IMPORT FINNANCE FACILITIES

The facilities offered by HDFC bank to importers are:

Advance Remittance Direct Remittance Import Collection Letter of credit

 ADVANCE REMITTANCE Your overseas exporter may require you to make full payment in advance for the goods to be exported to you. The exporter would dispatch the goods to you after he receives full payment from you. For this purpose, HDFC Bank will make your remittance in foreign currency to the exporter at a very competitive rate.

DIRECT REMITTANCE You may require the exporter overseas to dispatch the goods first and then remit the payment for the goods. The exporter would then dispatch the goods to you. The overseas exporter will then send the documents directly to you. When you approach us along with the documents for sending remittance to the exporter, we will ensure that the remittance is done promptly.

IMPORT COLLECTION The exporter from overseas exports the goods to you. The overseas exporter / exporter's bank sends the documents to HDFC Bank on collection. We will then intimate you about the receipt of the documents. All you need to do is to authorize us to debit your a/c and send the remittance to the exporters bank.

If it is a sight bill (Documents against Payment), then the necessary documents and debit authority is collected from you and remittance is paid to the exporters bank and the documents are released to you. If it is a usance bill (Documents against Acceptance), then the acceptance letter is taken from you and the documents are released. On the due date remittance is made to the exporters bank by debiting your account.

LETTER OF CREDIT In a business cycle, as a buyer you need to pay for your purchases in international and domestic markets. Letters of credit helps you to facilitate purchase of goods in international and domestic trading operations. All letters of credit issued by HDFC bank are valued and accepted worldwide.

Time of payment

When shipment is made After payment Very little or none

Goods available to buyers : Risk to exporter Risk to importer : :

Relies on exporter to ship Goods as described in documents

All letters of credit must be issued:

 In favor of a specific beneficiary, For a specific amount of money, In a form clearly stating how payment to the beneficiary is to be made and under what conditions, and With a specific expiration date

PARTIES TO LETTER OF CREDIT

Applicant/Buyer

At his instance LC is opened.

Beneficiary/Seller

In his favour the LC is opened.

Opening Bank/ Issuing Bank : It issues LC at the request of applicant.

Advising Bank

Which advices the LC.

Conforming bank

It adds confirmation to the credit at the Specific request of the opening bank.

Negotiating Bank

Normally beneficiarys bank, in case of transferable credit.

Reimbursing Bank/ Paying Bank : It negotiate the bill drawn under LC and pays the amount to the exporter. There after the negotiating bank claims reimbursement from the opening bank

APPLICATION FOR LETTER OF CREDIT

1. Revocable/Irrevocable 2. Amount(State Currency) 3. Beneficiarys full Name and Address 4. Shipment by steamer/Pose-Parcel/Airfreight 5. Country Code 6. Usance of LC 7. Insurance by Beneficiaries/covered here
8.

Shipment from

Shipment To

9. Latest date of shipment 10. Latest date of presentation of documents

11. Documents must

be presented for negotiation within specific days

from shipment date 12. License No.

13. We

confirm described merchandise can be imported against above

mentioned License Foreign Trade Policy 2004-09 14. Special Instruction, if any:

STEPS INVOLVED IN OPENING LETTR OF CREDIT

Buyer and Seller agree terms, including means of transport, period of credit offered (if any), latest date of shipment.

Buyer applies to bank for issue of letter of credit. Bank will evaluate buyers credit standing, and may require cash cover and reduction of other lending limits.

Issuing Bank issues LC, sending to the Advising Bank by airmail or more commonly electronic means such as telex or SWIFT.

Advising Bank establishes authenticity of LC using signature books or test codes, then informs seller. Advising Bank may confirm LC.

Seller should now check that LC matches commercial agreements, and that all its terms and conditions can be satisfied, (i.e. all documents can be received in good time). If there is anything that may causes a problem, an amendment must be required.

Seller ships the goods, and then assembles the documents called for LC (invoice, transport documents). Before presenting the documents to the bank,

the seller should check them for discrepancies with the LC, and correct the documents when necessary.

The documents are presented to a bank, often the Advising bank. The Advising bank check the LC, if the documents are complete, the bank pays the seller and forwards the documents to the issuing bank.

The issuing bank now checks the documents itself. If they are in order (and it is a sight LC), it reimburses the sellers bank immediately.

The issuing bank debits the buyer and releases the documents (including transport documents), so that the buyer can claim the goods from carrier.

 Seller Make sure that a local bank has authenticated the letter of credit. Examine the letter of credit carefully and make sure it keeps to the terms of the sales contract. Make sure that you can present all the documents named.

Be extremely careful when you prepare your documents.

Buyer Check with your bank in good time and make sure that you have enough credit with your bank. Be careful filling in your application and make sure your guarantee is issued according to the contract terms. Use the opportunity to negotiate extended credit terms if possible. Make sure that you call for all the necessary documents so the goods pass to you smoothly. Insist on terms that you think are important to protect your interest such as latest shipment dates or other such terms.

VARIOUS TYPES OF LETTER OF CREDIT

Revocable Credit

The opening bank can cancel or withdraw at any time tried its expiry the revocable credits at the instant of the opener unilaterally without notice to the beneficiary. The consent of the beneficiary or the other parties is no necessary. This type of LC is risky from the view point of the exporter. .
Irrevocable Credit

In such cases, the issuing bank gives absolute under taking to honour the bill of exchange in strict conformity with terms and conditions of the credits.

Confirmed Credit

When a bank in the exporters country has added its confirmation by way of an additional undertaking to make payment at the specific request of the Issuing Bank. It becomes a confirmed credit. The bank before accepting to add confirmation will consider the various risks involved including the ability of the Issuing Bank to honour its obligation and will take its own decision. A confirmed LC can neither be amended nor cancelled

without the prior concept of all the concerned parties. Banks add confirmation to irrevocable credits.

Unconfirmed Credit

A LC which does not carry it the confirmation of the advising bank is called unconfirmed credit.

Transferable Credit

In such cases, the beneficiary has a right to transfer the credit in full or in parts in favour of one or more second beneficiaries if partial shipment is permitted. While in transferring a credit, there will be a reduction in unit price, value of the credit.

Red Clause Credit

Under such an LC the advising bank grants an advance to the beneficiary /seller prior to meet his shipment to meet his shipment credit requirements. That LC clause is generally printed /typed in red.

 Green Clause Credit

This LC is provided for the expenses which are related to storage charges before shipment.

Back-to-Back Credit

In case of exporter is not the actual manufacturer and gets his work done by the sub-suppliers and if the sub-suppliers demand letter of credit in their favour, the exporter who has received a letter of credit for export, approaches his banker to establish second set of letters of credit on the basis of the export letter of credit received by him. The second set of credit opened by a bank at the request of the exporter is known as back-toback credit. The beneficiary of the original letter of credit will become the applicant for the second set of credit.

Revolving Credit

A revolving LC is one in which the opening bank specifies not the total amount up to which the bills may be drawn, but the total amount up to which the bills drawn may remain outstanding at time.

 Deferred Payment Credit

Under deferred payment credit the amount is payable in installments for a stipulated longer period. Usually a part is paid in advance and the balance is payable in agreed installments in terms of conditions of the LC.

STANDBY LETTERS OF CREDIT

Standby letters of credit are also a common instrument in trade finance. Like other letters of credit, standby letters of credit involve a customer, a beneficiary, and a bank. A standby letter of credit guarantees payment to the beneficiary by the issuing bank in the event of default or nonperformance by the account party (the banks customer). Stand by letter of credit first issued by banks in US as alternate of bonds guarantee because banks were legally restricted to give the bonds guarantee. In stand by letter of credit the beneficiary is eligible for payment from the issuing bank when the applicant fails to perform his obligation. Payment will be usually made to the beneficiary when he presents the sight draft and a written statement that the applicant has failed to perform the promise.

DIFFERENCE BETWEEN LC & SLC

Commercial documentary letters of credit are generally short-term payment instruments for trade finance, while standby letters of credit are written for any purpose or maturity.

Under all letters of credit, the banker expects the customer to be financially able to meet its commitments. A bankers payment under a commercial credit for the customers account is usually reimbursed immediately by the customer and does not become a loan. However, the bank makes payment on a standby letter of credit only when the customer has defaulted on its primary obligation and will probably be unable to reimburse the institution immediately.

A standby letter of credit transaction holds more potential risk for the issuing bank than does a commercial documentary letter of credit. Unless the transaction is fully secured, the issuer of a standby letter of credit retains nothing of value to protect it against loss, whereas a commercial documentary letter of credit provides the bank with title to the goods being shipped.

For reporting purposes, standby letters of credit are shown as contingent liabilities on the issuers balance sheet. Once a standby letter of credit is drawn upon, the amount drawn becomes a direct liability of the issuing bank.

COMMON ERRORS IN DOCUMENTATION OF LETTERS OF CREDIT

Bills of Lading 1. Unclean (when there are conditions which are not properly noted or reflected). 2. Not signed by shipping company or authorized dealer 3. Does not indicate whether freight is prepaid or not. 4. A later date of shipment than that allowed by terms of the letter of credit. 5. Description of goods is not as per the LC and invoice.

Invoices 1. Invoice name and address do not agree with letter of credit. 2. Quantity does not agree with other supporting documents. 3. Unit price or extensions of unit price are incorrect. 4. Excess shipment, short shipment, or partial shipment, which may be prohibited by letters terms. 5. Adjustments on previous shipments or charges that are not allowed under the letters terms are shown.

Insurance Documents 1. Coverage differs from that required by letter of credit terms. 2. Claims are payable in currency other than stipulated in letter of credit. 3. Policy does not cover transfer between shippers, although bills of lading show the transfer will take place. 4. Insurance certificate is presented instead of policy, when policy is required. 5. It doesnt covers 110% of the CIF Value of the goods.

Drafts and Other Documents 1. Draft is drawn to purchaser instead of issuing bank. 2. Drawers name does not correspond to name on invoice. 3. Tenor of draft differs from that of the letter of credit. 4. Credit amount is disproportionate to quantity invoiced.

EXPORT FINANCE FACILITIES

Export finance is a short term, working capital finance allowed to an exporter. An exporter may avail financial assistance from any bank provided following two conditions are satisfied:
i.

Funds should be available to the exporter at the required time: To ensure availability of funds to eligible borrowers, Reserve Bank has prescribed time schedule to Commercial Banks for speedy sanctioning of export credit limits. Further, banks are advised that 12% of their total credit should be under export finance.

ii.

Cost of the funds should be affordable: In order to compete in the International market our exporter may require credit facility at the cheapest interest rate. Since Interest subsidy has been withdrawn from 1991, new products (export finance schemes) are made available to the exporters at the cheapest interest rates.

The facilities that are offered for the exporters are:

Export Collection Export Advance Payment Outward Remittance

Export packing credit (EPC)

EXPORT COLLECTION

1.

When you export the goods overseas, you need to receive payment for the goods that has been exported. Therefore, through our vast network of correspondent banks we ensure faster collection process for all your export bills provided all the necessary documents are in place, which will be sent to overseas bank for collection.

EXPORT ADVANCE PAYMENT

You might require that the importer overseas to make advance payment for the goods that he is importing. You can ask your importer to send the payment to any of our vast network of branches. The payment will be credited to your account promptly and we will provide you the best competitive rates for your remittances. OUTWARD REMITTANCE

Outward Remittances (Miscellaneous) for other purposes can be remitted with ease. Remittances by way of DD / TT / Swift can be affected

through the strong network of correspondent banks to any part of the world. All transactions are subjected to FEMA regulations. EXPORT PACKING CREDIT (EPC)

EPC

. PRE-SHIPMENT POST-SHIPMENT

1.

PRE-SHIPMENT FINANCE: An exporter may need financial assistance for execution of an export order from the date of receipt of an export order till the date of realisation of the export proceeds at any stage. Financial assistance extended to the exporter from the date of receipt of export order till the date of shipment is known as Pre-shipment credit. This is financing for the period prior to the shipment of goods, to support pre-export activities like wages and overhead costs. It is especially needed when inputs for production must be imported. Pre-shipment finance is extended to an exporter for the purpose of procuring raw materials, processing, packing, transporting, warehousing of goods meant for exports. It also provides additional working capital for the exporter. Pre-shipment financing is especially important to smaller

enterprises because the international sales cycle is usually longer than the domestic sales cycle. Pre-shipment financing can take in the form of shortterm loans, overdrafts and cash credits. TYPES OF PRE-SHIPMENT

a) Pre-shipment Credit in foreign currency (PCFC): This facility will be additional window available to the exporter along with the existing rupee packing credit. The facility will be available in all convertible currencies and the scheme will cover cash exports only. The facility will generally be available for a period of 180 days on the basis of firm export order or irrevocable LC. This facility can be extended for another 90 days.

b) Packing Credit facilities for Consultancy Services: In case of Consultancy Services, Export will not involve in physical movement of goods out of Indian customs territory. In such cases, pre-shipment finance at concessional rate of interest can be extended to the exporter to enable them to undertake preliminary arrangements such as mobilizing technical personnel and other staff and training them.

c) Advance against Cheques/Drafts received as advance payments:

If an exporter receives either a cheque or draft representing advance payment towards future exports and in case if a bank advances funds against the security of such instruments, this advanced will be treated as export finance and only concessional rate of interests should be charged like normal pre-shipment advance.

2. POST-SHIPMENT FINANCE:

Credit facility extended to an exporter from the date of shipment of goods till the realization of the export proceeds is known as Post-shipment. Financing for the period following shipment. The ability to be competitive often depends on the traders credit term offered to buyers. Post-shipment financing ensures adequate liquidity until the purchaser receives the products and the exporter receives payment. Post-shipment financing is usually shortterm.

TYPES OF POST-SHIPMENT

a) Export Bills Purchase/Discounted (Other than LC bill): The export bills, representing genuine international trade transactions, strictly drawn in terms of the sale contract/live firm contract/order may be discounted or purchased by the banks. Proper limit should be sanctioned to the exporter for purchase of exports bills facility. Since the export is not covered under LC, risk of non-payment may arise. The risk is more pronounced in case of documents under acceptance. In order to safeguard the interest of the bank and also the exporter, ECGC offers coverage of credit risks through their guarantees/ policies at the post shipment stage. The bank will be normally covering the advance under whole turnover post shipment guarantee scheme. In addition to this guarantee, exporter should be advised to go for a separate buyer wise policy also. By having this additional policy, wider coverage will be available to the exporter in case of any risk.

b) Export Bill Negotiated (Bill drawn under LC):

When export documents, drawn under LC, are presented to the bank for negotiation, they should be scrutinized carefully with the terms and conditions of the LC. The operation of LC is governed by UCPDC of the International Chamber of Commerce (ICC). All the documents tended should be strictly in accordance with the LC terms. It is to be noted that the LC issuing bank undertakes to honour its commitment only if the noted that the beneficiary submits the stipulated documents confirming to LC terms. Even the slightest deviation from those terms and conditions specified in the LC can give an excuse to the issuing bank for refusing the payment to the negotiating bank which might have already been made to the beneficiary i.e., the exporter by the negotiating bank.

c) Advance against export bills sent on collection basis: At times, the exporter might have fully utilized his bills limit and in certain cases the bills drawn under LC may have some discrepancies. In such cases the bills will be sent on collection basis. In some cases, the exporter himself may request for sending the bills on collection basis anticipating the strengthening of the foreign currency. Banks may allow advance against these collection bills to an exporter. Concessive rate of interest can be charged for this advance into the transit period. Beyond this

period, the interest rate will be subject to the various rates prescribed by RBI depending upon the usance of the bill.

d) Advance against Undrawn balances: In certain line of export trade, it is the practice of the exporter to leave a part of the amount as undrawn balance. Adjustment will be made by the buyer for difference in weight, quality etc. ascertained after arrival and inspection or analysis of the goods. Authorised dealers can handle such bills provided the undrawn balances is in conformity with the normal level of balance left undrawn in the particular line of export trade subject to maximum of 10% of the full export value. The exporter should give an undertaking that he would surrender or account for the balance of the proceeds within the period prescribed for realisation. A proper follow-up should be made for the realisation for the undrawn balance.

e)

Advance against receivables from Government such as Duty

Drawback:

Where the domestic cost of production of certain goods is higher in relation to international price, the exporter may get support from the Government so that he may compete effectively in the overseas market. The government of India and other agencies provides export incentives under the export promotion scheme. This can only be in the form of refund of excise and customs duty known as DUTY Drawback. Banks will grant advances to exporters against their entitlement under above category at lower rate of interest for a maximum period of 90 days. These advances being in the nature of unsecured advances can not be granted in isolation and could be granted only if all other types of the export finance are extended to the exporter by the same bank. After the shipment, the exporter will lodge their claim supported with relevant paper and documents to the Custom Authorities. The custom will process the claim and disburse the eligible amount. This advance would be liquidated out of the settlement of claims lodge by the exporters. It should be ensured that the bank is authorized to receive the claim amount directly from the concerned government authorities.

REGULATIONS RELATING TO EXPORT FINANCE

When a commercial bank deals in export finance it is bound by the following guidelines/regulations:

a) Reserve banks guidelines

-

Exchange Control Regulation FEMA 1999

b) Trade Control Regulations. (Foreign Trade Policy 2004-09)

c) International Chamber of Commerce (ICC) guidelines - UCPDC ICC 500

d) Export Credit Guarantee Corporation guidelines

e) FEDAI guidelines.

WORKING CAPITAL FACILITIES

Cash Credit (CC) Term Loan (TL)

CASH CREDIT Cash credit is a short-term cash loan to a company. A bank provides this type of funding, but only after the required security is given to secure the loan. Once a security for repayment has been given, the business that receives the loan can continuously draw from the bank up to a certain specified amount. This type of financing is similar to a line of credit. This is the primary method in which Banks lend money against the security of commodities and debt. It runs like a current account except that the money that can be withdrawn from this account is not restricted to the

amount deposited in the account. Instead, the account holder is permitted to withdraw a certain sum called "limit" or "credit facility" in excess of the amount deposited in the account. Cash Credits are, in theory, payable on demand. These are, therefore, counter part of demand deposits of the Bank

TERM LOAN A term loan is a contract between a borrower and a lender, that is the Bank whereby the lender provides the borrower with a certain amount of currency, be it domestic or foreign, for a period in excess of one year and up to 5 years, although this may vary subject to local market conditions and underwriting standards. Term Loans are a structured form of borrowing intended to finance specific transactions, usually specific assets and the funding requirements that this generates. They are intended for the financing of longer term borrowing requirements as opposed to overdrafts that are for the financing of short-term working capital requirements. Term Loans are the counter parts of Fixed Deposits in the Bank. Banks lend money in this mode when the repayment is sought to be made in fixed, pre-determined installments. This type of loan is normally given to the borrowers for acquiring long term assets i.e. assets which will benefit the borrower over a long period (exceeding at least one year). Purchases of plant and machinery, constructing building for factory, setting up new projects fall in this

category. Financing for purchase of automobiles, consumer durables, real estate and creation of infrastructure also falls in this category.

ELIGIBILITY CRITERIA Satisfactory credit rating for the last three years Latest Balance Sheet etc. should be available. Satisfactory financial performance in terms of Sales/turnover and profits. Negative variance, if any, should not be more than 10%.

Debt-equity ratio should not be higher than 2.5:1. Satisfactory dealings with the Bank for at least Three years.

The acronyms SWIFT stands for SOCIETY FOR WORLDWIDE INTERBANK TELECOMMUNICATION. SEIFT allows member financial institutions worldwide to electronically exchange information amongst each other. Services offered by the SWIFT are cost-effective, reliable and secure. Messages are transmitted globally through his speed communication channels on standardized messages formats for many international banking operations. EVOLUTION In May 1973,239 major international banks from 15 countries formed SWIFT as a cooperative society with its headquarters at 1977. SWIFT provides connections commenced with effect from 9th May over 84 countries all over the globe. The user base has been enlarged and its services are also available to non banking financial institution like dealers in securities, brokers, clearing and depository institution, trust or fiduciary services companies, etc.

SWIFT BEBEFITS

SWIFT provides a quick, reliable, and cheap, medium for communication of financial messages which has a direct impact on customer service.

Standardized messages formats eliminate ambiguity and facilitate automated handing at the source and the destination.
Message authenticated is automatic. Message security is better compared to other means of message

transmission.

SWIFT NETWORK
SWIFT computers are linked by a high speed global communication network. All computers within the network have atleast one stand by processor which provides insurance against computer failure. Likewise, all data transaction paths within the network ate duplicated to ensure continued services in the event of single path failures. SWIFT has a Regional Processor (RP) in each host country through which all the messages meant for the country are routed. Each user in that country is required to

install a computer based terminal (CBT) in his own premises. The CBT is a device for interfacing with the SWIFT RP through the telephone lines.

Security features incorporated in SWIFT network ensure that no fraudulent messages can enter the system nor can any messages be modified during processing. As an additional security measure all information traveling through this system is encrypted on their global network. The network is available 24 hours a day and seven days a week with all messages delivered within normal business hours irrespective of geographical destination. SWIFT ensures against loss or mutilation of messages during transmission.

MESSAGE CATOGARIES
Message text formats are standardized in SWIFT which has eliminated interpretation problems and enabled into the system in specified formats as per message type. Currently nine message categories covering more than 113 message types, each designed are available to users.

SWIFT RESPONSIBILITIY
SWIFT assumes responsibility for the functioning of the network and maintenance and security of the system. SWIFT also bear financial liabilities arising from loss or delayed delivery of messages provided it is due to SWIFT. The responsibility undertaken by SWIFT for delivery of financial messages of its members is only up to the Regional Processor (RP) in the destination country. SWIFT takes no responsibility for security of any communication facility and transmission lines between RP and users CBT or for the security relating to the users premises or terminal facilities of the user. It is the users responsibility to maintain their communication lines (between RP& CBT) and terminals as per SWIFT requirements.

With a view to facilitating external trade and promoting orderly development of foreign exchange market in India, a new act called Foreign Exchange Management Act, 1999 (FEMA) came into force from June 1, 2000. With FEMA coming into force, the Foreign Exchange Regulation Act, 1973 stands now repealed. It was felt that some measures in the existing FERA were too restrictive, therefore, a new legislation titled FEMA should enacted. A task force was accordingly constituted to suggest a new legislation which recommended many changes in the existing act.

FERA 1973

FEMA 1999

For the conservation of the foreign Facilitating external trade and payments exchange resource. and promoting the orderly maintenance of the foreign exchange market in India.

The Reserve Bank of India has notified comprehensive, simple and transparent rules under the new FEMA 1999. The new rules clearly indicate the types of permissible transactions, leave very few individual transactions to be dealt with by the Reserve Bank, simplify procedures, reduce the number of application forms to a bare minimum and grant more powers to authorised dealers, that is, the banks.

WHAT IS NEW IN FEMA?

Under FEMA, foreign exchange transactions have been divided into two broad categories, Current account transactions and Capital account transactions. Transactions that alter the assets and liabilities of a person resident in India or a person resident outside India have been classified as capital account transactions. All other transactions would be current account transactions.

Under FEMA, only the Government of India in consultation with the Reserve Bank would be empowered to impose reasonable restrictions on current account transactions. As per Government of India notification dated May 4, 2000, remittance of only seven types of current account transaction are prohibited. These include remittances such as those made out of winning of lotteries, subscription to proscribed magazines, football, pulls, etc.

There are only few current account transactions that would need prior permission from appropriate government authorities under FEMA: whereas a few transactions would require permission of the Reserve Bank in case the amount of remittances exceeds prescribed limit.

SOME HIGHLIGHTS

The FEMA and rules give full freedom to a person resident in India who was earlier resident outside India to hold or own or transfer any foreign security or immovable property situated outside India and acquired when he was resident there. Similar freedom is given to a resident who inherits such security or immovable properties from a person resident outside India. Further a person outside India is permitted to hold shares, securities and properties acquired by him while he was resident in India. The person resident outside India is also permitted to hold such properties inherited from a person resident in India. The exchange drawn can also be used for purpose other than for which it is drawn provided it is permissible under the act. The Exchange Earners Foreign Currency (EEFC) account holders are permitted to freely use the funds held in EEFC accounts for payment of all permissible current account transactions.

ROLE OF RESERVE BANK OF INDIA The RBI has the authority to enter in to foreign transactions both on its own account and on behalf of the government. However, it does not deal in foreign exchange directly with the public; it does so through the authorized dealers. It determines the foreign exchange regime, and it supervises, monitors and control the foreign exchange market with a view to creating an active exchange market at important trading centers, with wide participation by the authorized dealers, exporters, and importers so that the various currencies are actively traded, facilitating customers to obtain fine quotations, and with rate variation being kept to the minimum during a day. The RBI has taken a number of steps over the years to develop an orderly, competitive and achieve Interbank market in foreign currencies so that they are enabled to quote as fine rates as possible for the public. The RBI has also been trying to bring about decentralization of foreign exchange business and dealing, without which not much can be achieved in a vast country like India, in respect of better customers services to exporters and importers in different regions. The foreign exchange market in Mumbai, Calcutta, Chennai and New Delhi are very active. The objective of RBI in respect of the forward market has been that it should become a useful tool for covering all exchange risks by the importers and exporters in respect of their firm commitments in the foreign exchange. The RBI regulations are meant to ensure that forward market facilities are not used for speculative purposes. The existence of the exchange control

system has enabled the Bank to implement its policies with necessary powers.

AD BL BPS BRC CAM CC CIF CPC DAN DCP DD DEPB DGFT DP EBRD ECB ECGC EEFC EPC EXIM FAS FBD FBP FCNR

authorised delear Bill Of Lading Basis Points Bank Realisation Certificate Credit Approval Memo Cash Credit Cost Insurance Freight Counter Party Code Document Approval Notice Debtors Conversion Period Demand Draft Duty Entitlement Passbook Director General Of Foreign Trade Documents Of Payment Export Bill Re-Discounting External Commercial Borrowing Export Credit Guarantee Corporation Export Earning Foreign Currency Export Packing Credit Export Import Free Alongside Ship FOREIGN BILL DISCOUNTING FOREIGN Bill Purchase Foreign Currency Non Resident Account

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