Corporate banking latest

Corporate Corporate BankingBanking

KAMAL K JINDALKAMAL K JINDAL

Corporate bankingCorporate banking

Financial services provided by Banks Financial services provided by Banks to the Corporate for meeting their to the Corporate for meeting their banking and financial needs forbanking and financial needs for

Setting up new projectsSetting up new projects ExpansionExpansion DiversificationDiversification ModernizationModernization Financial restructuringFinancial restructuring Commercial Banking facilities Commercial Banking facilities

Features of Corporate BankingFeatures of Corporate Banking

Dealings with legal entitiesDealings with legal entities Prudential Exposure normsPrudential Exposure norms Prompt decisionPrompt decision Competitive pricing-sub BPLR/Base rateCompetitive pricing-sub BPLR/Base rate Branch/Bank Infrastructure Branch/Bank Infrastructure Sanctioning PowersSanctioning Powers Supervision and follow up IssuesSupervision and follow up Issues Consortium approachConsortium approach Syndication approachSyndication approach Transaction approachTransaction approach

CORPORATE FINANCE

TRADITIONAL FINANCE

IMPORT TRADE CREDIT

EXTERNAL COMMERCIAL BORROWINMG

Traditional FinanceTraditional Finance

Term loan for creation of fixed Term loan for creation of fixed assetsassets

Working capital for day to day Working capital for day to day operationsoperations

Letter of Credit for Letter of Credit for imports/purchasesimports/purchases

Bank Guarantee for Bank Guarantee for Imports/purchasesImports/purchases

Funding Options nowFunding Options now

Commercial paper for meeting short Commercial paper for meeting short term funding term funding

Buyer and Supplier Credit Buyer and Supplier Credit Import Trade credit [up to 3 years]Import Trade credit [up to 3 years] External Commercial Borrowings External Commercial Borrowings

[more than 3 years][more than 3 years] Syndication LoanSyndication Loan Structured Project FinanceStructured Project Finance

COMMERCIAL PAPER Short term unsecured promissory

note, freely negotiable by endorsement and delivery

Issued at a discount – discount rate freely determined by the market

Prior approval of RBI is not required – but the largest lender / consortium leader to take the proposal on record on the prescribed format

Each CP issue (including roll-over) to be treated as a fresh issue.

COMMERCIAL PAPER

No Grace period for repayment of CP. If maturity date happens to be a holiday, payment will be made on the immediate preceding working day.

360 days:

15 days: Minimum tenor

Delinked from working capital limit (fund based)

: Maximum amount of CP issue

Rs. 25 lacks(+multiples of Rs.5 lacs)

: Denomination of CP note

Maximum tenor

WHO CAN ISSUE ?

Tangible net worth of at least Rs. 4 crores

Working capital (fund based) limit sanctioned by a bank

Issuing company’s shares must be listed on at least one stock exchange

Issuer should obtain a minimum credit rating of P1/P2 (CRISIL) or equivalents

Credit rating should not be more than 2 months old at the time applying to RBI for approval

Minimum current ratio of 1.33 (not mandatory but required by investors)

Why CP issue ?

Low interest expenses

Access to short term funding

Flexibility (matching the exact amount and maturity with working capital requirement)

Ease and low cost of establishment

Investor recognition

Benefits to the Investor Higher yields

Portfolio diversification

Flexibility and liquidity

Types of Corporate ServicesTypes of Corporate Services

Funded ServicesFunded Services

Non Funded ServicesNon Funded Services

Value Added ServicesValue Added Services


Working Capital FinanceWorking Capital Finance The amount required to finance day to day operations The amount required to finance day to day operations

is called working capitalis called working capital All enterprises require finance to perform day to day All enterprises require finance to perform day to day

operations and to complete their operating cyclesoperations and to complete their operating cycles

MethodsMethods

Operating Cycle MethodOperating Cycle Method Turnover MethodTurnover Method Cash Budget MethodCash Budget Method


Short Term FinanceShort Term Finance This service essentially to provide funds for short term This service essentially to provide funds for short term

period of a year or lessperiod of a year or less

Example of short term financeExample of short term finance

FactoringFactoring : Raising funds on security of the company’s : Raising funds on security of the company’s debtdebt

OverdraftOverdraft: Bank issues overdrafts with right to call them : Bank issues overdrafts with right to call them in short notice. The borrower is required to use OD to in short notice. The borrower is required to use OD to supplement working capital shortfall supplement working capital shortfall


Bill DiscountingBill Discounting

Short tenure financing instrument for companies willing to Short tenure financing instrument for companies willing to discount their purchase/ sales to get funds for short rundiscount their purchase/ sales to get funds for short run

TypesTypes Purchase bill discounting: Bank discounts the purchase bill of Purchase bill discounting: Bank discounts the purchase bill of

the company and pays the company who in turn pay the the company and pays the company who in turn pay the suppliersupplier

Sales bill discounting : Bank discounts the sales bill of the Sales bill discounting : Bank discounts the sales bill of the company and pays directly to the company. The investor gets company and pays directly to the company. The investor gets his return from the company at the end of the discounting his return from the company at the end of the discounting period.period.


Structured Finance Structured Finance Services offered to the firms having unique finance needsServices offered to the firms having unique finance needs

Consortium LendingConsortium Lending

Syndicated LoanSyndicated Loan

Syndicated loans: is a large loan in which a group of banks work Syndicated loans: is a large loan in which a group of banks work together to provide funds for a borrower.together to provide funds for a borrower.

Export CreditExport Credit

A credit opened by an importer with a bank in an exporter's country to A credit opened by an importer with a bank in an exporter's country to finance an export operation. finance an export operation.

Consortium lendingConsortium lending

Group of banks providing credit to a Group of banks providing credit to a CorporateCorporate

Big ticket financeBig ticket finance Usually for working capital requirementsUsually for working capital requirements Largest lender is consortium leader which Largest lender is consortium leader which

also handles credit appraisal work and also handles credit appraisal work and convener of consortium meetingsconvener of consortium meetings

Earlier, RBI guidelines stipulated formation of Earlier, RBI guidelines stipulated formation of consortium when credit facilities exceed Rs consortium when credit facilities exceed Rs 200 crores and also member bank share to 200 crores and also member bank share to be minimum 10% but not mandatory nowbe minimum 10% but not mandatory now

PSB

JKBOBC

CORPORATE

BOMCITI BANK

CONSORTIUM LENDING

Consortium LendingConsortium Lending

COMMON

APPRAISAL

SECURITIES

DOCUMENTATION

INSPECTION

Syndicated LoanSyndicated Loan

The corporate gives mandate to a The corporate gives mandate to a Bank based upon the evaluation Bank based upon the evaluation of various ‘Expression of Interest’ of various ‘Expression of Interest’ submitted by various bankssubmitted by various banks

The lead Arranger/Manager is the The lead Arranger/Manager is the entity which wins the mandateentity which wins the mandate

The lead manager prepares The lead manager prepares Information Memorandum [ IM ]Information Memorandum [ IM ]

Syndication loanSyndication loan

The IM is circulated by the Lead Manager The IM is circulated by the Lead Manager for seeking commitments of different for seeking commitments of different banksbanks

Based upon the response, Syndicate is Based upon the response, Syndicate is formed of Banks/ FIs interested in lending formed of Banks/ FIs interested in lending to the Corporateto the Corporate

Syndicate agrees for common secuirities, Syndicate agrees for common secuirities, rate of interest, margin, common rate of interest, margin, common documentation common date for funding documentation common date for funding generally after a specific period from the generally after a specific period from the signing ceremonysigning ceremony

Syndicated loanSyndicated loan

Signing ceremony is attended by the Signing ceremony is attended by the corporate borrower, and all the corporate borrower, and all the members of the Syndicate. All the members of the Syndicate. All the documents are signed in this meetingdocuments are signed in this meeting

Funding of the Loan account by the Funding of the Loan account by the syndicate members.syndicate members.

Sharing of Syndicate commissionSharing of Syndicate commission Release of Tomb stone’ Release of Tomb stone’

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CORPORTE BORROWER

BEAUTY PARADEInvites bids

Syndicate Manager

INFORMATION MEMORANDUM

SYNDICATE FORMATION

SIGNING CEREMONY

TOMB STONE ADVERTISEMENT

SYNDICATE LOAN PROCEDURE

Non Funded ServicesNon Funded Services Letter of CreditLetter of Credit Letter from a bank guaranteeing that a buyer's payment to Letter from a bank guaranteeing that a buyer's payment to

a seller will be received on time and for the correct amount. a seller will be received on time and for the correct amount.

Bank guaranteeBank guarantee A bank guarantee is a one-way contract between a bank as A bank guarantee is a one-way contract between a bank as

the guarantor and a beneficiary as the party to whom a the guarantor and a beneficiary as the party to whom a guarantee is made guarantee is made

Non Funded ServicesNon Funded Services Collection of documentsCollection of documents Full-fledged trade finance set-up catering to all trade Full-fledged trade finance set-up catering to all trade

related requirements which offers the following related requirements which offers the following advantagesadvantages

Better turn around time through timely processing of Better turn around time through timely processing of documents documents

Faster payments: constant follow-ups with correspondent Faster payments: constant follow-ups with correspondent banks ensure timely recovery of funds from buyers as banks ensure timely recovery of funds from buyers as well as timely payments to suppliers well as timely payments to suppliers

Lower cost Access to vast correspondent banking network Lower cost Access to vast correspondent banking network for better reachfor better reach

Excellent trade support Arrangement of credit reports of Excellent trade support Arrangement of credit reports of overseas parties overseas parties

Specialized advice on international trade related issues as Specialized advice on international trade related issues as well as technical issues such as ECM requirements, well as technical issues such as ECM requirements, RBI reporting, latest circulars and latest international RBI reporting, latest circulars and latest international developmentsdevelopments

Value Added Services Value Added Services Loan SyndicationLoan Syndication Real time Gross SettlementReal time Gross Settlement For settling transactions of financial For settling transactions of financial

institutions, especially banks. institutions, especially banks.

Cash Management ServiceCash Management Service The management of the cash balances of an The management of the cash balances of an

enterprise in such a fashion as to maximize the enterprise in such a fashion as to maximize the availability of cash not invested in fixed assets or availability of cash not invested in fixed assets or inventories and also so as to avoid the risk of inventories and also so as to avoid the risk of insolvencyinsolvency

Channel FinancingChannel Financing Channel Finance is to provide integrated commercial and Channel Finance is to provide integrated commercial and

financial solutions to the supply and distribution channels financial solutions to the supply and distribution channels of a given industry. Channel Finance gives support to the of a given industry. Channel Finance gives support to the commercial relationship between clients and their commercial relationship between clients and their suppliers and customers suppliers and customers

Import Trade CreditImport Trade Credit

● Credit extended for imports Credit extended for imports directly bydirectly by

● Banks/FIs abroadBanks/FIs abroad

● overseas suppliersoverseas suppliers

● For original maturity of less For original maturity of less than three yearsthan three years

IMPORT TRADE CREDITIMPORT TRADE CREDIT

● ADs permitted to approve trade credits ADs permitted to approve trade credits for imports in to India up to USD 20 m for imports in to India up to USD 20 m per Import transaction with maturity per Import transaction with maturity period up to one year[from the date of period up to one year[from the date of shipment],for all permissible itemsshipment],for all permissible items

● Ads can approve trade credits up to Ads can approve trade credits up to USD20m for import of capital goods with USD20m for import of capital goods with maturity of more than one year and less maturity of more than one year and less than 3 yearsthan 3 years

ALL IN COSTSALL IN COSTS

● Up to one Up to one year maturityyear maturity

● More than More than one year and one year and less than less than three yearsthree years

● LIBOR+200bpLIBOR+200bp

● LIBOR+200bpLIBOR+200bp

ADs GUARANTEESADs GUARANTEES

Ads may issue any guarantee,Ads may issue any guarantee,

letter of undertakingletter of undertaking

or letter of comfort or letter of comfort

in favour of overseas lenders in favour of overseas lenders

without RBI approvalwithout RBI approval

External Commercial BorrowingsBorrowings by Business Community from Foreign Sources

ECBs are defined to include

commercial banks loans.

Buyer’s credit, supplier’s credit

securitised instruments such as floating rate notes, fixed rate bonds etc.

from eligible lenders with minimum average maturity of 3 years

ECB policy for fiscal year as a part of prudent debt management has ceiling of USD 15 bn announced for the year 2006-07 [USD12 bn in2005-06] with a sub limit of USD 250m of corporate debt buying by FIIs

Purpose

ECB can be raised for investment [import of capital goods] in new projects or expansion ,modernisation of existing production capacity in real sector-industrial sector including SMEs and infrastructure sector in India

prepayments of previous high costs ECBs up to USD200m

Housing Finance companies can issue FCCBs with approval from RBI

for investments in the Disinvestment programme of the Govt

Automatic Route

All in cost ceilings for ECB 3-5 years maturity ----------300bp over LIBOR

>5 years maturity ----------500bp over LIBOR

All in cost includes Rate of interest, Other fees, Expenses in FC

All in cost excludes Commitment fees ,prepayment fees and fee payable in Indian Rupees

Amount and Maturity Amount and Maturity of ECBof ECB

< $20m< $20m

>$20m < >$20m < $500m$500m

$ 500m$ 500m

$ 5m$ 5m

Minimum average Minimum average maturity of 3 yearsmaturity of 3 years

5 years5 years

Corporate limit to Corporate limit to raise ECB in a raise ECB in a financial yearfinancial year

NGOs engaged in NGOs engaged in MicrofinanceMicrofinance

FOREIGN CURRENCY : FOREIGN CURRENCY : CAPITALCAPITAL

GDRsADRsFCCBsJV PartnersPrivate Equity InvestorsF.D. I.FIIs

Thank YouThank You