Corporate Banking 1

8/9/2019 Corporate Banking 1

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UNIT IVUNIT IV-- INTERNATIONALINTERNATIONAL

BANKINGBANKING DefinitionDefinition --

A bank may be said to be international if it usesA bank may be said to be international if it uses branches or subsidiariesbranches or subsidiaries in foreignin foreigncountries to conduct business. For example, the sales of U.S dollar denominatedcountries to conduct business. For example, the sales of U.S dollar denominateddeposits in Toronto by American banks with Canadian subsidiaries would constitutedeposits in Toronto by American banks with Canadian subsidiaries would constituteinternational banking; the sale of the same deposits by Canadian banks would beinternational banking; the sale of the same deposits by Canadian banks would beclassified as domestic banking.classified as domestic banking.

A second definition of international banking relates to theA second definition of international banking relates to the location of the bank location of the bank .. AnyAny

sterling transaction undertaken by a bank headquartered in the UK would be part of sterling transaction undertaken by a bank headquartered in the UK would be part of British domestic banking, irrespective of whether this transaction is carried out in aBritish domestic banking, irrespective of whether this transaction is carried out in aBritish Branch or a subsidiary located outside the U.K. but transactions in currenciesBritish Branch or a subsidiary located outside the U.K. but transactions in currenciesother than sterling will be part of international banking independent of the actualother than sterling will be part of international banking independent of the actuallocation of the British branch.location of the British branch.

A third way of defining international banking is by theA third way of defining international banking is by the nationality of the customer andnationality of the customer andthe bank the bank If, the headquarters of the bank and customer have the same national identity,If, the headquarters of the bank and customer have the same national identity,then any banking operation done for this customer is a domestic activity, independent of then any banking operation done for this customer is a domestic activity, independent of the location of the branch or the currency denomination of the transaction. For example,the location of the branch or the currency denomination of the transaction. For example,

all Japanese banking carried out on behalf all Japanese banking carried out on behalf--of Japanese corporate customers would beof Japanese corporate customers would be part of the domestic banking system in Japan, even if both the branch and the firm are part of the domestic banking system in Japan, even if both the branch and the firm aresubsidiaries located in Wales.subsidiaries located in Wales.



FEATURESFEATURES

They deal in euroThey deal in euro--deposits which are currency depositsdeposits which are currency depositsmade in a bank outside the jurisdiction of the Centralmade in a bank outside the jurisdiction of the CentralBank which issued the currency.Bank which issued the currency.

Their assets are euroTheir assets are euro--loans which are large loans soughtloans which are large loans sought

by big borrowers like government like government and by big borrowers like government like government andmultinational firms.multinational firms.

Their liabilities include euro deposits and certificate of Their liabilities include euro deposits and certificate of deposits.deposits.

During their business, they face exchange rate risks,During their business, they face exchange rate risks,Interest rate risks, and default risks.Interest rate risks, and default risks.

To diversify risk, they use loan syndication andTo diversify risk, they use loan syndication andconsortiums.consortiums.



FunctionsFunctions

They serve customers having foreign operations like handling of They serve customers having foreign operations like handling of collections and payments for domestic clients, engaged in foreigncollections and payments for domestic clients, engaged in foreigntrade. This fee has become an important component of their trade. This fee has become an important component of their earnings.earnings.

They receive deposits in various currencies called euro deposits inThey receive deposits in various currencies called euro deposits inthe form of euro dollar CDs, Eurothe form of euro dollar CDs, Euro--notes, Floating rate notes,notes, Floating rate notes,

floating rate CDs etc.floating rate CDs etc. IBs make loans in different currencies.IBs make loans in different currencies.

They convert euro deposits into euro loans as loans can be givenThey convert euro deposits into euro loans as loans can be givenagainst euro deposits.against euro deposits.

They collect market information which affects the profitability of They collect market information which affects the profitability of corporates to whom banks have lent.corporates to whom banks have lent.

They collect information on borrowers (also by streetThey collect information on borrowers (also by street--talk).talk).

They also provide custodial services by possessing securities,They also provide custodial services by possessing securities,collecting dividend on offer coupons, handling stock splits, rightscollecting dividend on offer coupons, handling stock splits, rightsissue, taxissue, tax--reclamation etc.reclamation etc.



FORMS OF ORGANIZATIONALFORMS OF ORGANIZATIONAL

STRUCTURES OFSTRUCTURES OF

INTERNATIONAL BANKSINTERNATIONAL BANKS CorrespondentCorrespondent BankingBanking--banks in different countries in which other banks in different countries in which other

banks have correspondent accounts. banks have correspondent accounts.

Overseas OfficesOverseas Offices-- not authorized to perform banking transactions, theynot authorized to perform banking transactions, they

evaluate credit worthiness of local customers and bank¶s clients for loansevaluate credit worthiness of local customers and bank¶s clients for loans..

Bank AgencyBank Agency--arrange loans, clear drafts & cheques, channelizes foreignarrange loans, clear drafts & cheques, channelizes foreignfunds into financial markets.funds into financial markets.

Foreign BranchesForeign Branches--branches set up by domestic banks branches set up by domestic banks

Foreign subsidiaries and affiliatesForeign subsidiaries and affiliates--locally incorporated bankslocally incorporated banks

owned wholly or partly by parent bank.owned wholly or partly by parent bank.

Consortium banksConsortium banks --set up by different banks to arrange large loans andset up by different banks to arrange large loans andunderwrite stocks and bonds, for lending to corpns & govts.underwrite stocks and bonds, for lending to corpns & govts.



LIABILITIES OF LIABILITIES OF

INTER NATIONAL BANK SINTER NATIONAL BANK S Term DepositsTerm Deposits

Certificate of DepositsCertificate of Deposits

Floating R ate NotesFloating R ate Notes (LINKED TO libor)(LINKED TO libor)



OPERATIONS OF INT. BANK SOPERATIONS OF INT. BANK S

The international banking services in India is provided for the benefit of The international banking services in India is provided for the benefit of Indian customers, corporates, NRIs, Overseas Corporate Bodies, ForeignIndian customers, corporates, NRIs, Overseas Corporate Bodies, ForeignCompanies/ Individuals as well as Foreign Banks etc.Companies/ Individuals as well as Foreign Banks etc.

ProductsProducts 1.1. NRI Banking NRI Banking

2.2. Foreign Currency LoansForeign Currency Loans 3.3. Finance/Services to ExportersFinance/Services to Exporters

4.4. Finance/Services to ImportersFinance/Services to Importers

5.5. RemittancesRemittances

6.6. Forex & Treasury ServicesForex & Treasury Services

7.7. Resident Foreign Currency (Domestic) DepositsResident Foreign Currency (Domestic) Deposits

8.8. Correspondent Banking ServicesCorrespondent Banking Services 9. All General Banking Services9. All General Banking Services



INTER INTER --BANKINGBANKING

It enables banks to manage their assets and liabilities, at the margin to meetIt enables banks to manage their assets and liabilities, at the margin to meetdaily fluctuations in liquidity requirements, thereby enhancing liquiditydaily fluctuations in liquidity requirements, thereby enhancing liquiditysmoothing.smoothing.

Global liquidity distribution also takes place, because the market can beGlobal liquidity distribution also takes place, because the market can beused to redistribute funds from excess liquidity regions to areas of liquidityused to redistribute funds from excess liquidity regions to areas of liquidity

shortage.shortage. The market also means deposits initially placed with certain banks can beThe market also means deposits initially placed with certain banks can be

on lent to different banks, thereby facilitating the international distributionon lent to different banks, thereby facilitating the international distributionof capital.of capital.

The hedging of risks by banks is made easier, because they can use theThe hedging of risks by banks is made easier, because they can use theinter inter--bank markets to hedge their exposure in foreign currencies and bank markets to hedge their exposure in foreign currencies andforeign interest rates,foreign interest rates,

Regulatory avoidance is the fifth function of the inter Regulatory avoidance is the fifth function of the inter--bank market bank market--bank bank costs are reduced if they can escape domestic regulation and taxation.costs are reduced if they can escape domestic regulation and taxation.



LEGAL ANDLEGAL AND

REGULATATORY ASPECTS REGULATATORY ASPECTS

OF INT. BANK SOF INT. BANK S International Banking Act, 1978 allows foreign banks to :International Banking Act, 1978 allows foreign banks to :

open accounts and accept deposits directly related to international transactions.open accounts and accept deposits directly related to international transactions.

establish subsidiaries for doing business abroad.establish subsidiaries for doing business abroad.

hold stock in subsidiaries overseas, borrow and lend funds.hold stock in subsidiaries overseas, borrow and lend funds.

accept deposits, loans, exchange currencies, sell govt. and corporate securities, invest in stock etc.accept deposits, loans, exchange currencies, sell govt. and corporate securities, invest in stock etc.

Under subsection (2) of Section 11, Banking Companies incorporated outside IndiaUnder subsection (2) of Section 11, Banking Companies incorporated outside India

(Foreign banks operating in India) have to deposit and keep deposited with the Reserve(Foreign banks operating in India) have to deposit and keep deposited with the ReserveBank, an amount of 15 lakh of rupees, and if it has a place of business in Mumbai or Bank, an amount of 15 lakh of rupees, and if it has a place of business in Mumbai or Kolkata or both, 20 lakh of rupees in cash/unencumbered securities.Kolkata or both, 20 lakh of rupees in cash/unencumbered securities.

20% of the profit for each year in respect of the Business transacted through the branches in India as20% of the profit for each year in respect of the Business transacted through the branches in India asdisclosed in the profit and loss account has to be deposited with the Reserve Bank.disclosed in the profit and loss account has to be deposited with the Reserve Bank.

On the ceasing of business by any foreign bank for any reason, these deposits shall form the assets of On the ceasing of business by any foreign bank for any reason, these deposits shall form the assets of the company on which the creditors in India shall have a first chargethe company on which the creditors in India shall have a first charge



CONTR OL ON BANK S IN INDIA CONTR OL ON BANK S IN INDIA

REGAR

DING

FOREX

TRANSACTIONSREGAR

DING

FOREX

TRANSACTIONS

Banks are not permitted to deal in arbitrage activity in forex exchange.Banks are not permitted to deal in arbitrage activity in forex exchange.

Forward sale contract against export of services (eg. technical knowForward sale contract against export of services (eg. technical know--how, computer how, computer software) may be booked provided the amt does not exceed the contracted value of software) may be booked provided the amt does not exceed the contracted value of the services and the period is not over 7 days.the services and the period is not over 7 days.

A forward sale contract against import of merchandise can be booked if the goodsA forward sale contract against import of merchandise can be booked if the goodsare under OGL or the importer has a valid import license.are under OGL or the importer has a valid import license.

For releasing forex for foreign travel, the release should not be earlier than aFor releasing forex for foreign travel, the release should not be earlier than afortnight before the date of commencement of the journey.fortnight before the date of commencement of the journey.

Sale of forex notes and coins should be only against RBI permit.Sale of forex notes and coins should be only against RBI permit.

Banks can give guarantee to exporter on behalf of the importer.Banks can give guarantee to exporter on behalf of the importer.

A guarantee for the import or export of high priced machinery, heavy electricalA guarantee for the import or export of high priced machinery, heavy electrical plant, ships, etc. on deferred payment terms may be furnished only with prior plant, ships, etc. on deferred payment terms may be furnished only with prior approval of RBI and the total guarantees should not exceed 15% of its totalapproval of RBI and the total guarantees should not exceed 15% of its totaloutstanding loan and advance.outstanding loan and advance.



Genesis of Basel AccordsGenesis of Basel Accords



BASEL II BASEL II

Non Non--binding agreement binding agreement

Developed since 1999Developed since 1999

Sets the standard for prudential regulation among theSets the standard for prudential regulation among the

GG--10 countries,10 countries, Regulatory bodies committed to change anyRegulatory bodies committed to change any

necessary banking laws and regulatory practices innecessary banking laws and regulatory practices inorder to abide by the standards and guidelines andorder to abide by the standards and guidelines and

statements of best practice.statements of best practice.



BASEL IIBASEL II



BASEL IIBASEL II

Basel II comprises three mutually reBasel II comprises three mutually re--enforcingenforcing pillars: pillars:

o Pillar 1o Pillar 1 capital adequacycapital adequacy

o Pillar 2o Pillar 2 supervisory disclosuresupervisory disclosure

o Pillar 3o Pillar 3 market disciplinemarket discipline

Foreign Bank Supervision Enhancement actForeign Bank Supervision Enhancement act

(FPSEB) 1991(FPSEB) 1991 Bank of international SettlementBank of international Settlement



Basel CommitteeBasel Committee

It is a group of central bank heads from 11It is a group of central bank heads from 11

industrialized countries.industrialized countries.

It enhances regulatory cooperation in the internationalIt enhances regulatory cooperation in the international

area.area.

Its 1975 Concordat allocated national responsibility for Its 1975 Concordat allocated national responsibility for

monitoring banking institutions and provided for monitoring banking institutions and provided for

information exchange.information exchange.

R egulating International R egulating International

BankingBanking



Overseas Operations of IndianOverseas Operations of Indian

Banks having branches abroadBanks having branches abroad BBanks provide support to and service India's foreign trade,anks provide support to and service India's foreign trade,

apart from lending to Indian ethnic community.apart from lending to Indian ethnic community.

The branches of Indian banks abroad have been doingThe branches of Indian banks abroad have been doing predominantly traditional business such as trade financing, predominantly traditional business such as trade financing,

negotiations/collection of bills, remittances, etc. emanatingnegotiations/collection of bills, remittances, etc. emanatingmainly from the ethnic clientele overseas.mainly from the ethnic clientele overseas.

New activities such as project financing, real estate finance, New activities such as project financing, real estate finance,industrial loans, participation in syndicated exposures,industrial loans, participation in syndicated exposures,sovereign loans, etc, were later taken up.sovereign loans, etc, were later taken up.




Banks having branches abroadBanks having branches abroad Until 1994, different departments in Reserve Bank of IndiaUntil 1994, different departments in Reserve Bank of India

were exercising supervision over banks, nonwere exercising supervision over banks, non--banking financial banking financialcompanies and financial institutions.companies and financial institutions.

To keep a close watch on financial markets and avoidTo keep a close watch on financial markets and avoid

recurrence of crisis in the financial system, the Board for recurrence of crisis in the financial system, the Board for Financial Supervision was set up under the aegis ReserveFinancial Supervision was set up under the aegis ReserveBank under Reserve Bank of India (Board for FinancialBank under Reserve Bank of India (Board for FinancialSupervision) Regulations, 1994 with the objective of payingSupervision) Regulations, 1994 with the objective of payingundivided attention to the supervision of the institutions in theundivided attention to the supervision of the institutions in the

financial sector.financial sector.




Banks having branches abroadBanks having branches abroad The Indian banks conducting overseas operations report theThe Indian banks conducting overseas operations report the

assets and liabilities, problem credits, maturity mismatches,assets and liabilities, problem credits, maturity mismatches,large exposures, currency position on quarterly basis andlarge exposures, currency position on quarterly basis andcountry exposure, operating results etc. on an annual basis.country exposure, operating results etc. on an annual basis.The reporting system has been reviewed and rationalised inThe reporting system has been reviewed and rationalised in1999 in consultation with the banks and the revised system put1999 in consultation with the banks and the revised system putin place in June 2000. The revised off in place in June 2000. The revised off--site returns focus onsite returns focus oninformation relating to quality and performance of overseasinformation relating to quality and performance of overseasinvestment and credit portfolio, implementation of risk investment and credit portfolio, implementation of risk management processes, earning trends, and viability of themanagement processes, earning trends, and viability of the branches. branches.



A.Funded AssetsA.Funded Assets



FUNDED R ISK ASSETSFUNDED R ISK ASSETS

Items of asset or liabilityItems of asset or liability Risk weight%Risk weight% Cash balances with RBiCash balances with RBi 00

Balances in c/a with other banksBalances in c/a with other banks 2020

Claims on banksClaims on banks 2020

InvestmentsInvestments

Investments in govt. securitiesInvestments in govt. securities 2.52.5

Investments in other securities guaranteed by central/state govtInvestments in other securities guaranteed by central/state govt 2.52.5

Invt in pther securities where pymt of int and repayment of principal are guaranteed by central/state govtInvt in pther securities where pymt of int and repayment of principal are guaranteed by central/state govt

22.522.5

Invt. In govt guaranteed securities of govt. undertakings which do not form part of the approved marketInvt. In govt guaranteed securities of govt. undertakings which do not form part of the approved market

borowing program borowing program 22.522.5

Claims on commercial banksClaims on commercial banks 22.522.5

Investment. In bonds issued by other banksInvestment. In bonds issued by other banks 22.522.5

Investment. In securities guaranteed by banksInvestment. In securities guaranteed by banks 22.522.5

Investment. In subordinated debt instruments and bonds issued by other banks or public FIs for their tier 2Investment. In subordinated debt instruments and bonds issued by other banks or public FIs for their tier 2capitalcapital 102.50102.50

Deposits placed with SIDBI/NABARD in lieu of shortfall in lending to priority sector Deposits placed with SIDBI/NABARD in lieu of shortfall in lending to priority sector

102.50102.50

Investment in mortgagfe backed securities of residential assets of HFCsInvestment in mortgagfe backed securities of residential assets of HFCs 77.577.5



FUNDED R ISK ASSETSFUNDED R ISK ASSETS Items of asset or liabilityItems of asset or liability Risk weight%Risk weight%

Securities issued by PFIsSecurities issued by PFIs 102.50102.50 Equity invts in subsidiaries,intagible assetsEquity invts in subsidiaries,intagible assets 00

Loans and advancesLoans and advances

Loans guaranteed by govt/ of India/State govtLoans guaranteed by govt/ of India/State govt 00

Loans granted to PSUsLoans granted to PSUs 100100

Bills purchased/discounted/negotiated under LCs or otherwise:Bills purchased/discounted/negotiated under LCs or otherwise:

GovernmentGovernment 00

BanksBanks 2020

Firms,individuals,corportaesFirms,individuals,corportaes 100100

Other granted to PFIsOther granted to PFIs 100100

Leased assetsLeased assets 100100

Advances covered by DICGC/ECGCAdvances covered by DICGC/ECGC 5050

Loans (guaranteed ) to SSIsLoans (guaranteed ) to SSIs 00

Advances against FDs,life policies,NSCs,IVPs and KVPsAdvances against FDs,life policies,NSCs,IVPs and KVPs 00

Loans & advances to staff of banksLoans & advances to staff of banks 2020

Housing loans to individuals agianst mortgageHousing loans to individuals agianst mortgage 7575

Personal loans, credit cardsPersonal loans, credit cards 125125

Premises,furniture and fixturesPremises,furniture and fixtures 100100

Advance tax paidAdvance tax paid 00

Int due on govt. securitiesInt due on govt. securities 00

Accrues interets on CRR balances and claims on the RBIAccrues interets on CRR balances and claims on the RBI 00

on account of governmental tttransactionson account of governmental tttransactions



OFFOFF--BALANCE SHEET ITEMSBALANCE SHEET ITEMS

Items of asset or liabilityItems of asset or liability Creidt conversion factor Creidt conversion factor

Guarantees, L/Cs, acceptancesGuarantees, L/Cs, acceptances 100100

Performance bonds,bid bonds,warranties,stand by LCsPerformance bonds,bid bonds,warranties,stand by LCs 5050

Documentary creditsDocumentary credits 2020

Sale and repurchase agreements and asset sales with recourse 100Sale and repurchase agreements and asset sales with recourse 100

Forward asset purchases,forward purchases,partly paid shares/deb 100Forward asset purchases,forward purchases,partly paid shares/deb 100

Note issuance facilities & revolving underwriting facilities Note issuance facilities & revolving underwriting facilities 5050

Other commitments(maturity over 1 yr)Other commitments(maturity over 1 yr) 5050

Aggregate o/s forex contracts of original maturityAggregate o/s forex contracts of original maturity Less than 1 year Less than 1 year 22

Dor each additional year Dor each additional year 33

Risk Risk--weights for forex open positionweights for forex open position 100100

Risk Risk--weights for open position in goldweights for open position in gold 100100



PerformancePerformance BondsBonds GuaranteesGuarantees aa serviceservice provider provider willwill abideabide by by thethe termsterms of of aa

contractcontract.. TheyThey generallygenerally involveinvolve aa payment payment bond bond for for materialsmaterials andand labor labor andand

maintenancemaintenance..

BidBid bonds bonds--GuaranteesGuarantees aa contractor contractor willwill executeexecute aa proposal proposal for for thethe amountamount bid bid andand

withwith appropriateappropriate performance performance bonds bonds

StandbyStandby Letter Letter of of CreditCredit -- AA letterletter of of creditcredit thatthat isis payablepayable toto thethe beneficiarybeneficiary

againstagainst stipulatedstipulated documentsdocuments thatthat usuallyusually referrefer toto aa def aultdef ault oror

nonperformancenonperformance byby thethe accountaccount partyparty..

AA syndicatesyndicate of of commercialcommercial banksbanks thatthat havehave agreedagreed toto purchasepurchase anyany shortshort toto

mediummedium--termterm notesnotes thatthat aa borrowerborrower isis unableunable toto sellsell inin thethe eurocurrencyeurocurrency

marketmarket..

TheThe NIFNIF actsacts asas anan underwriterunderwriter.. ShouldShould thethe borrowerborrower bebe unableunable toto sellsell allall

notes,notes, thethe syndicatesyndicate isis obligatedobligated toto purchasepurchase allall thethe remainingremaining notesnotes f romf rom thethe

borrower,borrower, essentiallyessentially providingproviding creditcredit.. NoteNote issuanceissuance f acilitiesf acilities areare usefuluseful inin

reducingreducing risk risk andand costscosts forfor bothboth thethe borrowerborrower andand thethe lenderlender..



NIF NIF--An agreement by which aAn agreement by which a syndicatesyndicate of banksof banks indicatesindicates a willingness to accepta willingness to accept

shortshort--termterm notesnotes fromfrom borrowers borrowers and resell theseand resell these notesnotes in thein the EurocurrencyEurocurrency markets.markets.

A form of revolving creditA form of revolving credit in which a group of underwriters agrees to provide loansin which a group of underwriters agrees to provide loans

in the event that a borrower is unable to sell in the Eurocurrency market. Thesein the event that a borrower is unable to sell in the Eurocurrency market. These

loans are generally provided through the purchase of shortloans are generally provided through the purchase of short--term Euronotes.term Euronotes.

A revolving underwriting facility differs from a note issuance facility (NIF) in thatA revolving underwriting facility differs from a note issuance facility (NIF) in that

the underwriters provide loans instead of purchasing the outstanding notes thatthe underwriters provide loans instead of purchasing the outstanding notes that

failed to sell. In either case, both RUF and NIF provide shortfailed to sell. In either case, both RUF and NIF provide short-- to mediumto medium--termterm

credit in the Eurocurrency market.credit in the Eurocurrency market.

Forward asset purchases.Forward asset purchases. This refers to a commitment to purchase a loan, securityThis refers to a commitment to purchase a loan, securityor other asset at a specified future date, usually on prearranged terms.or other asset at a specified future date, usually on prearranged terms.



Other regulations:Other regulations:

Maintenance of CRAR Maintenance of CRAR

After assessing the capital funds and the risk weighted assets, the bank willAfter assessing the capital funds and the risk weighted assets, the bank willhave to compute the ratio of the capital to risk weighted assets. The minimumhave to compute the ratio of the capital to risk weighted assets. The minimumCRAR was initially set at 8 percent. However, to meet the internationalCRAR was initially set at 8 percent. However, to meet the internationalstandards, this is being raised to 9 percent with effect from March 31, 2000.standards, this is being raised to 9 percent with effect from March 31, 2000.

Reporting Banks should furnish an annual return commencing form the year Reporting Banks should furnish an annual return commencing form the year ended March 30, 1992, indicating:ended March 30, 1992, indicating:

a. Capital fundsa. Capital funds

b. Conversion of off b. Conversion of off--balance sheet/non balance sheet/non--funded exposuresfunded exposures

c. Calculation of risk weighted assets andc. Calculation of risk weighted assets and

d. Calculation of capital funds ratio.d. Calculation of capital funds ratio.

The format for the returns is given as a break The format for the returns is given as a break--up and aggregate in respect of up and aggregate in respect of domestic and overseas operation will have to be furnished. The returns shoulddomestic and overseas operation will have to be furnished. The returns should

be signed by two official who are authorized to sign the statutory returns be signed by two official who are authorized to sign the statutory returnssubmitted to the RBI.submitted to the RBI.



INTER NATIONAL COR PORATE INTER NATIONAL COR PORATE

FINANCEFINANCE

Corporates deal in the foreign Exchange Market in the following ways:Corporates deal in the foreign Exchange Market in the following ways:

Product Markets (ExportsProduct Markets (Exports--imports)imports)

SubsidiariesSubsidiaries (Dividend remittance & fin)(Dividend remittance & fin)

International Financial MarketsInternational Financial Markets (Investing & financing)(Investing & financing)

Corporate firms deal in international corporate finance in the following ways:Corporate firms deal in international corporate finance in the following ways:

1.International Trade_ Firms import and export goods and services and the1.International Trade_ Firms import and export goods and services and the payments have to be effected internationally. payments have to be effected internationally.

2. Licensing2. Licensing-- A firm can provide its technology (copyrights, patents,A firm can provide its technology (copyrights, patents,trademarks or trade names) in exchange for fees or some other specifiedtrademarks or trade names) in exchange for fees or some other specified

benefits. benefits.

3. Franchising3. Franchising-- A firm can provide a specified sales or service strategy,A firm can provide a specified sales or service strategy,

support assistance and possibly, an initial investment in the franchise insupport assistance and possibly, an initial investment in the franchise inexchange for periodic fees.exchange for periodic fees.

4.Joint Venture4.Joint Venture-- This is a venture jointly owned and operated by two or This is a venture jointly owned and operated by two or more firms.more firms.

5. Acquisition of other firms5. Acquisition of other firms-- allows firms to have full control over other allows firms to have full control over other firms.firms.

6. Establishing New Foreign Subsidiaries6. Establishing New Foreign Subsidiaries..



UNIT VUNIT V--BANKING SER VICESBANKING SER VICES

TREASURY MANAGEMENTTREASURY MANAGEMENTFunctionsFunctions

Cash management services.Cash management services.

Investment advice and assistance to customers and other banks.Investment advice and assistance to customers and other banks.

Protecting/hedging bank¶s capital against bank¶s capital exposure to aProtecting/hedging bank¶s capital against bank¶s capital exposure to a particular currency or interest rates or commodity prices. particular currency or interest rates or commodity prices.

Buying and selling securities/options.Buying and selling securities/options.

Speculate on short term interest rate movements. When the treasurySpeculate on short term interest rate movements. When the treasuryexpects interest rates to rise(bond prices fall), it goes µshort¶ (sellsexpects interest rates to rise(bond prices fall), it goes µshort¶ (sellssecurities) and when it expects interest to fall it goes µlong¶(Buyssecurities) and when it expects interest to fall it goes µlong¶(Buys

securitiessecurities).).



Global Best Practices in Risk and Treasury Management

A comprehensive framework ± 9 part framework



Global Best Practices in Risk and Treasury Management

Integrated, not Fragmented Approach(Asset, Liability, Off-Balance Sheet Items)



Global Treasury ServicesGlobal Treasury Services

R eceivablesR eceivables

ManagementManagement

Payment SolutionsPayment Solutions

Trade SolutionsTrade Solutions

LiquidityLiquidity

ManagementManagement

SolutionsSolutions

ElectronicElectronic

Interf aces &Interf aces &

IntegrationIntegration

All India collection, coverage over 4500 locations

Direct debit, tracking, MIS and lock-box arrangement

Electronic payments (ECS (Dr)/ NEFT/ RTGS) and Auto-Recon through ERP integration

Outsourcing of bulk payments processing

Secure environment for processing payments

Zero balance Accounts and transmission of adhoc payment instructions

Corporate - Inventory Finance (pre-shipment) and Receivables Finance (post-shipment)

Structured - Buyer¶s Credit / Supplier¶s Credit Buyer Supported Vendor Financing

Electronic Interface ± Trade Direct ( download advices, establish LCs, authorize payments

online)

Bank Fixed Deposits

Government Securities / Treasury Bills, Corporate Commercial Paper / Bonds

Inter Company Loans and Short term (liquid) Mutual Funds

Electronic File Delivery (EFD) facilitates Bulk Payments ± Corporate Checks, NEFT and

RTGS

BA Direct, Strategic Global Information Reporting (SGIR) facilitates online account

information, enquiry and reporting



Cash Management ServiceCash Management Service

An innovative service specifically tailored to meet theAn innovative service specifically tailored to meet therequirements of Corporates/Businessrequirements of Corporates/Businesshouses/Partnership firmshouses/Partnership firms

Speedy collection of outstation cheques and other Speedy collection of outstation cheques and other instrumentsinstruments

Pooling of funds at designated centresPooling of funds at designated centres

More importantly, providing funds to the CorporatesMore importantly, providing funds to the Corporates

as per their needas per their need Customised MIS reportsCustomised MIS reports



Benefits to the CorporatesBenefits to the Corporates

Funds available as per need on day zero, day one, dayFunds available as per need on day zero, day one, day

two, day three etc.two, day three etc.

Corporates can plan their cash flowsCorporates can plan their cash flows

Bank interest saved as instruments are collected faster Bank interest saved as instruments are collected faster

Affordable and competitive ratesAffordable and competitive rates

MIS reports customised to meet individualMIS reports customised to meet individual

Corporate's requirementCorporate's requirement Single point enquiry for all queriesSingle point enquiry for all queries

Pooling of funds at desired locationsPooling of funds at desired locations



Benefits of Cash Management ServicesBenefits of Cash Management Services::

Financial BenefitsFinancial Benefits

Operational BenefitsOperational Benefits

Control BenefitsControl Benefits

Collection ServicesCollection Services

Local Cheque Collections.Local Cheque Collections.Upcountry Cheque Collections.Upcountry Cheque Collections.Cash Collections.Cash Collections.Collections through ECS/RTGS/NEFT.Collections through ECS/RTGS/NEFT.

Payment ServicesPayment Services

Anywhere Banking.Anywhere Banking. Issue of bulk DD/POs. Issue of bulk DD/POs.Cheque Writing.Cheque Writing. Interest and Dividend Warrants. Interest and Dividend Warrants.

Payments through ECS/RTGS/NEFTPayments through ECS/RTGS/NEFT



RISK MANAGEMENTRISK MANAGEMENT

Banks advise and conclude transactions on Exchange andBanks advise and conclude transactions on Exchange andInterest Rate Derivatives for their clients by using derivativesInterest Rate Derivatives for their clients by using derivativeseg. Single currency interest rate swaps.eg. Single currency interest rate swaps.

Portfolio Risk ManagementPortfolio Risk Management

Portfolio MonitoringPortfolio MonitoringRisk Modeling (Interest Rate Risk and Credit Risk Risk Modeling (Interest Rate Risk and Credit Risk

Modeling)Modeling)ActualActual--toto--Expected AnalysesExpected AnalysesMining of Risk DriversMining of Risk Drivers

Underwriting Effectiveness StudyUnderwriting Effectiveness Study



WEALTH MANAGEMENTWEALTH MANAGEMENT

SERVICESSERVICES Banks these days provide Optimal asset allocation among a wide rangeBanks these days provide Optimal asset allocation among a wide range

of investment products to create a portfolio best suited to theof investment products to create a portfolio best suited to thecustomer¶s requirements and preferences, while maintaining the bestcustomer¶s requirements and preferences, while maintaining the best

balance between risk and return. balance between risk and return.

The provide investment advisory service as well as investment on theThe provide investment advisory service as well as investment on the

customer¶s behalf in Fixed income products, real estate and insurancecustomer¶s behalf in Fixed income products, real estate and insurance products, mutual funds, equity and IPOs. products, mutual funds, equity and IPOs.

Banks have bancassurance partnerships with insurance companies soBanks have bancassurance partnerships with insurance companies sothat customers can avail of the services of trained & certifiedthat customers can avail of the services of trained & certified

professional consultants. professional consultants.

Under this service, customers can receive real time information on theUnder this service, customers can receive real time information on themarket movements, which includes commentary, commencing frommarket movements, which includes commentary, commencing from

the opening of the markets till the close of the day. The periodicthe opening of the markets till the close of the day. The periodiccommentary on the market would be at the time of opening, forenooncommentary on the market would be at the time of opening, forenoonand closing.and closing.

Documents

Corporate Banking 1