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Summer Internship Report

Overview

Of

Banks Working

Submitted by: Sheriff Seth

SMBA09063

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Institute of Management Technology, DubaiTABLE OF CONTENTS

ACKNOWLEDGEMENT………………………………………………………………………...3

EXECUTIVE SUMMARY………………………………………………….................................4

EVALUATION OF BANKING………….……………………………………………………….5

CENTRAL BANK OF UAE…………………………………………………...............................6

BANK OF BARODA – INTRODUCTION.............................................................................…...7

-BOARD OF DIRECTORS………….………………………...................8

DEPARTMENTS AT BANK OF BARODA………………………………………………..…....9

-CUSTOMER SERVICE…........................................................................9

-TYPES OF ACCOUNT..........................................................................10

NRI SERVICE ………………………………………..................................................................13

REMITTANCES

….......................................................................................................................18

TRADE FINANCE DIVISION….................................................................................................22

-LETTER OF CREDIT…………………….…………………………...23

CLEARANCE DIVISION……………………………………………………………………....30

TREASURY DIVISION................................................................................................................35

RISK

MANAGEMENT ................................................................................................................38

-ORGANISATION CHART…………………………………………..40

BIBLIOGRAPHY

SNAPSHOT OF FINACLE

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ANNEXURE

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ACKNOWLEDGEMENT

By the Grace of Almighty, I'm here by submitting my internship report, at the end of my first

practical experience and I'm glad to have it with Bank of Baroda- “India’s International bank”. I

would like to acknowledge extremely valuable assistance provided by all the Officers,

Supervisors and other staff members for their great cooperation. The office working environment

is very good at BOB. I had a new, challenging and a perfect environment to learn. My parents'

prayers and their teachings were always with me and hereby I would like to take this opportunity

to show my gratitude to all those who made my internship an adventurous journey.

I extend my deepest gratitude to my project guides Mr. P.K Raut- HR Manager, Mr. Murli

Krishna- Chief Manager- Operations, Mr. Sunil Tutoo- Sr. Manager India Desk for their

help, support and guidance throughout the tenure of the project. I take the opportunity to thank

the entire Branch and Back office team at BOB, specifically to Shri. Ashok K Gupta- Chief

Executive (GCC Operations) without the support of all of them the project would not have

been successfully completed.

I am grateful to the institute and our internship coordinator Dr. K Abdul Waheed, Associate

Dean for permitting me to undergo internship at BOB, Dubai.

I owe my special regards to my college and my college mentor Dr. Sujit for providing me time

to time guidance for making my internship assignment a great success.

This acknowledgement would be incomplete without mentioning about the Managers of all the

departments, the Human Resources department and each and every staff member at Bank of

Baroda for soliciting their valuable support provided me during the entire eight week period.

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EXECUTIVE SUMMARY

As a part of my MBA curriculum I have done my internship training at Bank of Baroda, Dubai.

In this report I am going to share my experience in the Bank for the period of 45 days. The

objective of the study was to have a general view of how things work in banking sector. This

report is based on the data collected over the short period which includes primary as well as

secondary data.

Banking is one of the most sensitive businesses all over the world. Banks play very important

role in the economy of a country. Banks are custodian to the assets of the general masses. The

banking sector plays a significant role in a contemporary world of money and economy. It

influences and facilitates many different but integrated economic activities like resources

mobilization, poverty elimination, production and distribution of public finance. Banks are

always there to serve its customer better.

Bank of Baroda is the 3rd largest bank in India, after State Bank of India and Punjab National

Bank and ahead of ICICI Bank. Bank of Baroda offers a wide range of banking products and

financial services to corporate and retail customers through a variety of delivery channels and

through its specialized subsidiaries and affiliates in the areas of investment banking, credit cards

and asset management etc. Bank of Baroda started its operations in 1974 in Dubai and Abu

Dhabi and till now it is the only Indian bank in Dubai providing full fledged Banking facilities to

its customers.

Transparency and accountability are central to Bank of Baroda’s business, ensuring that the

controls necessary for effective risk management, regulatory compliance, and accurate disclosure

of information to the market are in place. Bank of Baroda is committed to operating according to

international best practices.

Bank of Baroda abides by all international banking regulations, UAE Central Bank rules and its

rigorous risk and capital management fully complies with Basel II requirements. All of the

bank's operations comply with international Anti Money Laundering laws following KYC

guidelines.

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EVALUATION OF BANKING

Definitions of Bank:

(1) “Banks do business of money. Rather banks do business of lending and Borrowing of loans.”

(2) “Banks are guardian distributor of cash money”.

(3) “Banker or a bank or a person or company carrying on the business receiving moneys and

collecting drafts for customers subject to the obligation of honoring cheques drawn upon them

from time to time by the customer to the extent of the amount available on their current

accounts”.

General banking:

Financial institution that stands between ultimate borrowers and lenders is known as banking

financial institution. Banks perform this function in 2 ways taking deposits in different forms and

lending that money to other potential investors in different forms. The starting point of all the

banks is general banking which offers taking deposits and simultaneously providing the

customers with various services. Bank receives deposits from its customers on daily basis and

meets their demand for cash by honoring cheques. It opens new accounts issue pay orders remit

funds etc. This general/ everyday banking is also called as retail banking. This section is not only

confined to these services only besides they offer a whole range of services viz. Customer

service, Opening/Closing of an account, Remittance (Inward and Outward), Deposit Service,

Accounts department.

Commercial Banks

Commercial bank is an institution which accepts deposits, make business loans and offer various

services. Commercial banks mostly deal with deposits and loans from corporation or large

businesses. These banks receive deposits from general public, which are repayable on demand

upon written orders of the depositors.

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Central Banks

Central banks occupy the unique position in banking structure of a country because they have

been interested with the responsibility of controlling the money supply, interest rate, and

financial market of a country for the purpose of economic development.

Central Bank of UAE

The main responsibility of the Central Bank of UAE is formulation and implementation of

banking, credit and monetary policies, to ensure the growth of the national economy of the UAE

in a balanced manner. Central bank is also to maintain a fixed exchange rate of Dirham against

the U.S. dollar and to ensure the free convertibility of the national currency into foreign

currencies. It has come up with various laws and regulations governing the work of Banks and

other financial institutions to provide banking services with consumer protection.

Central bank of UAE provides various services to the bank

ICCS ( Image clearing cheque system )

WPS ( Wages protection system )

ICCS

ICCS (Image Cheque Clearing System) was introduced in July 2008 by the Central Bank of

UAE. Every bank including Bank of Baroda follows T+0 settlement i.e. settlement taking place

on the same day the cheque is deposited.

WPS

The Central Bank introduced WPS (Wages Protection System) in September 2009 in order to

meet the objectives of the Ministry of Labor. WPS provides a safe, efficient and robust

mechanism to allow the timely payment of employees' wages. All Banks and Money Exchanges

registered with Central Bank can act as agents to this system.

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Mission

"To be a top ranking National Bank of International Standards committed to augmenting stake

holders' value through concern, care and competence"

Introduction and History of Bank of Baroda

Bank of Baroda was setup by Sir Sayajirao Gaekwad ׀׀׀ (Maharaja of Baroda), on July 20,

1908 in state of Baroda in Gujarat. The bank was nationalized in 1969 along with 13 other major

commercial banks of India. It has significant international presence with a network of 78 offices

in 25 countries, six subsidiaries, and four representative offices. Among Bank of Baroda's

overseas branches are ones in the world’s major financial centers i.e. New York, London, Dubai,

Hong Kong, Brussels and Singapore, as well as a number in other countries. Bank of Baroda

maintains representative offices in Malaysia, China, Thailand, and Australia.

Overview of Bank of Baroda

India’s International Bank, Bank of Baroda, one

of the earliest Indian banks to venture into

international banking arena, set up its first

foreign branch in Mombassa, Kenya in 1953,

followed by London in 1957 this expansion

continued what originated as India’s

International Bank having 78 branches in 25

countries in 5 continents and having 3101

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domestic branches.

It is the 3rd largest bank in India after State

Bank of India and Punjab National Bank and

recently ahead of ICICI Bank with its total

Business crossing 400000 Crores. It is the only

Indian Bank operating in UAE since 1974,

carrying out full fledged banking operations,

with 6 branches - Dubai , Deira, Abu Dhabi,

Sharjah, Ras-Al-Khaimah and Al Ain. In Oman

they have 3 branches – Muttrah (2 branches)

and Salalah. They are in a process of spreading

their branches in other parts of GCC countries

i.e. Qatar, Kuwait and Saudi Arabia and

recently they have opened 2 new EBSU units in

UAE.

BOARD OF DIRECTORS

Shri. M.D. Mallya Chairman & Managing Director

Shri Rajeev Kumar Bakshi Executive Director

Shri N S Srinath Executive Director

Shri Alok Nigam Director

Shri A. Somasundaram Director

Shri Ajay Mathur Director

Shri Ranjeet Kumar Chatterjee Director

Dr. Masarrat Shahid Director

Dr. Atul Agarwal Director

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Dr. Dharmendra Bhandari Director

Dr. Deepak B Phatak Director

Shri. Maulin Vaishnav Director

Departments at Bank of Baroda

NRI Services

Customer Services

Cash Division

Fund Transfer/ Fixed Deposit division

Treasury Division

Trade Finance Division

Clearance Division

Advances/ Credit Division

Risk Management Division

CUSTOMER SERVICES [DEPOSIT

DIVISION]

Customer services in Bank of Baroda complies of

4 basic things :

Opening/ Closing of an Account

Issuing Cheque books

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Issuing Debit Card

Providing Statement of respective

accounts

Account opening procedure

First of all customer is required to fill an

application form as prescribed by the

bank which is available in any of the

branches of Bank of Baroda where the

customer wishes to open his account.

Then he needs to attach his passport

photocopies both of front and back page

and copy of his visa. He also needs to

bring his original passport with him for

verification purpose else it can be verified

by the company itself where he is

presently working. Labor card photocopy

is also to be attached with the form. All

these documents are taken keeping in

mind the KYC ( Know Your Customer)

guidelines prescribed by the Central Bank

of UAE

After all this formality he needs to fill the

deposit slip and deposits minimum

required amount on the cash counter.

Now, the bank will enter all the details of

the customer in their database and entry

will be done in Finacle (Core Banking

Solution implemented by the bank) and

new account number will be generated for

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the respective customer.

Various types of accounts offered by Bank to

its customers are :

Savings Deposits

Current deposits

Special Current Account

Term Deposits

Recurring Deposit

Salary Account

Savings Accounts { SB 101 }

This type of account is the most common

operating account for any individual for his day

to day transactions other than commercial

transactions. Savings account helps individual

earns some return on their savings kept with the

bank. This account is opened for persons who

wants to make small savings and can be opened

with a minimum balance of AED 1000/- failing

which will attract a Charge of AED 50/- . In

this type of account bank takes maintenance

charges i.e. AED 25/- twice a year in March

and September.

Persons eligible to open this kid of account

Any person can open this account in his/

her name

Any Individual, Minor and Illiterate can

open this account

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Two or more persons in their joint names

but in this case it is to be specified in the

form that who will handle the mode of

operation both or any individual

Bank of Baroda opens this account in 3 major

currencies other than AED viz. USD, GBP,

EUR. Customers having this type of account

will enjoy interest @ 0.40% p.a. As prescribed

by Central bank of UAE cheque facility is not

provided on savings account so the customer

will not be issued a cheque book for his savings

account.

Current Account

Current accounts are mainly cheque operated

accounts maintained for business purpose by

various corporate bodies. These are Non

Interest bearing accounts and a customer has

choice in this he can opt for any out of these 2

Accounts :

Regular Current Account

Special Current Account

Regular Current Account { CA 101 }

Generally Banks insists to maintain higher

minimum balance in these types of accounts

than savings account, so this requires minimum

balance of AED 5000/- failing to maintain this

balance will attract a Charge of AED 100/-.

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This account can also be opened in any of 3

major currencies other than AED viz. USD,

GBP, EUR. Customer will be provided with

facility of writing cheques and will be issued a

cheque book of minimum 50 or 100 leaves as

per the requirement of particular organization.

The cheques can be used for unlimited times in

a month.

Special Current Account { CA 102 }

This Account is for individuals who want to

opt for cheque book facility. For enjoying this

facility he needs to maintain the minimum

balance of AED 2500/-. Customer will be

issued a cheque book of 25 leaves but only 4

cheques can be issued in a month that can

either be through clearing or cash counter.

Salary/ Payroll Accounts { SB106 }

Bank of Baroda offers an excellent service for

the companies and its employees called

Salary/ Payroll Account. It enables the

employer of the company to credit his

employees’ salary directly to that account.

This account comes with a feature of:

Free ATM card

First cheque book will be Free for of

50 leaves

Statement of account will be send

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for free in email

No restrictions on number of

Withdrawals

Zero minimum balance (After

transfer of 1st salary)

Account maintenance charge of

AED 10/- per month

Requirements to open a Salary/Payroll

account:

To enjoy the benefits of this account

one must have a minimum salary of

AED 4000/- and they must be

working in UAE for the past 6

months.

Minimum initial deposit of AED

100/-

Zero balance is allowed after

transfer of 1st Salary

Charges:

Cheque Book Charges

AED 1/- per leaf after issue if first 50 leaves

Account balance certificate

Free once in the financial year AED 50/- for extra certificate

Closure of Account If within a year AED 100/-

Account maintenance AED 25/- half yearly will be deducted in March and September

For funds transfer to India

AED 10/- if the Account is with Bank of Baroda in India else AED 15/-

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NRI SERVICES

NRIs are very important segment of customers

for any Bank. Bank of Baroda is fulfilling

various banking requirements of NRIs in UAE.

They have specialized NRI desk which takes care

for all the needs of the NRIs. For Indian

customers they have taken special care so that

they don’t have to go there and every

requirement is being fulfilled here only. They

have come up with a very nice tag line for the

Indian customers “You do not have to go to India

for banking, we bring India to you”.

Definition of an NRI as defined under

Foreign Exchange Regulation Act (FERA) : :

An Indian citizen who stays abroad for

employment/carrying on business or vocation

outside India or stays abroad under

circumstances indicating an intention for an

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uncertain duration of stay abroad is a Non-

Resident. (Persons posted in UN organizations

and officials deputed abroad by Central/State

Governments and Public Sector undertakings

on temporary assignments are also treated as

Non-Residents). Non-Resident foreign citizens

of Indian origin are treated on par with Non-

Resident Indian citizens (NRI's).

Indian Students studying abroad are also

treated as NRIs provided their stay abroad is

for more than 182 days in the preceding

financial year and their intention to stay

outside India for an uncertain period when

they go abroad for studies.

NRI division provides with various services

as:

Opening of an NRI Account

On the spot renewal of Rupee FDRs

Providing Loans against NRE/FCNR

deposits

Issuing of cheque books for selected

Indian branches

Assistance in obtaining PAN card

Online Remittance Service

View based Internet banking

Various products and services being offered:

Deposit Products

Loan products

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Other Services

Deposits products

NRE A/c (Non Resident External)

NRO A/c (Non Resident Ordinary)

FCNR A/c (Foreign currency Non

Resident)

NRE Account

Income tax benefits

Interest earned in NRE / FCNR A/c is

exempt for Individuals who are NRI

under FERA.

Can be maintained by NRI's with Bank’s

branches in India

Can be opened jointly with other NRI

Requirements for opening an Account;

Any person who wants to open an NRI account

with BOB needs to fill the specified form

Documents required for opening an account :

Original Passport and Visa (for

verification).

2 Passport size color photographs of the

applicant.

Procedure:

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First of all, the applicant/ customer is

required to fill the specified form

(Account opening form for Individuals)

which is available with any of the branch

as well as on Bank of Baroda’s UAE site.

The branch officers will check the form

and original Passport as well as Visa and

verify it.

After verification the person is to deposit

minimum required amount to be

maintained for opening an account (AED

200 or equivalent INR).

Once the amount is being deposited by

the customer his part is over and now the

cash department will send the draft of that

amount to the account opening section

after sometime.

The Draft is then attached with the

application form and the same is sent to

the respective Indian BOB branch where

the applicant wants to open his account,

through Air Mail.

On receiving the documents by the

respective Indian branch they open the

account in their system and will respond

to UAE branch within 15-20 days.

If cheque book or pass book is being

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applied by the applicant in the form then

the same is being delivered within 15-20

days of receiving the application form by

the Indian branch.

If applicant has applied for Internet

Banking- Baroda Connect then the

desired User ID will come with the

cheque book and passbook and its

Password will be available after 1 week

of receiving the cheque book, the

applicant has to come to the branch to

collect the password for Baroda Connect.

With all these formalities being done the

account is operational and applicant can

remit the funds to India now.

NRO Account

Interest is taxable @ 12.5% p.a

Besides Inward remittance, Indian rupees

can be deposited and the account can

jointly be opened with resident Indian

Funds can be deposited from India also

A/c is opened following KYC norms

FCNR Account

A/c can be opened in 6 major

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currencies viz. Australian dollar

(AUD), US dollar (USD), Canadian

dollar (CAD), Pound sterling (GBP),

Japanese yen (JPY), EURO (EUR)

A/c is opened following KYC norms

If the customer is having FCNR A/c

he is eligible for Loans in India (In

INR or Foreign currency) as well as in

Abroad.

For Remittance to India

Bank offers fastest and cheapest mode of

remittances to India through 6 branches in UAE,

3 in Oman and one in Bahrain. Remitter can be

any Individual having an NRI account with BOB

or Corporate for remitting salary payments to

their employees in India. Bank of Baroda is also

open on Friday’s for remittance purposes. Some

of its features are :

Easy and hassle free money transfer to

India from any Bank of Baroda branches

in UAE

Fast remittance facility and credit will be

provided within 24 hours to the

beneficiary’s account

Free remittance on Friday’s

Process: Funds can be remitted to India through

2 ways :

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Rapids funds2India

RTGS/ NEFT

RTGS :

Real time gross settlement systems are funds

transfer systems where transfer of money takes

place from one bank to another on a "real time"

and on "gross" basis. Settlement in "real time"

means payment transaction is not subjected to

any waiting period. This is the interbank money

transfer i.e. from BOB Dubai to BOB India.

In RTGS, Settlement will take place

continuously between 9.00 A.M and 2.00 P.M

and the return time allowed is up to two hours

from the time of the receipt of the payment. But

in RTGS the amount should be above Rs 1.00

Lakh. This is generally being used by the

corporates who have huge money transfers.

NEFT :

For NEFT (National Electronics Fund Transfers)

Money can be transferred from Bank to

Bank but both the branches should have

their IFS Code (IFSC).

One can transfer any amount through

NEFT there is no upper or lower limit for

it.

In NEFT, clearing are done on the basis

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of settlement batches every hour a batch

is being passed and the return time

allowed is 24 hours. The messages

received by RBI within each settlement

batch time will be consolidated and

distributed to payee's banks after

settlement. Normally, payment message

reaches receiving (payee's) bank within

15 to 30 minutes from the batch time. For

e.g. message sent to RBI for the 12.00

clock settlement batch, will reach

receiving bank by 12.30 P.M.

NEFT is the most suitable mode of

payment for small value payments and

settlements are faster when compared

with other modes of payment like

Demand Draft or Telegraphic Transfer.

The NEFT and RTGS are message based mode

of funds transfer means for transfer of funds,

message is being sent by originating bank

branch (where customer account will be

debited) to the receiving branch (In India)

where the beneficiary or intended customer will

be having account through RBI intervention. In

Bank of Baroda instructions received till 2 p.m

will be processed on the same day else on the

next day.

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REMITTANCES

This division in Bank of Baroda deals with Clean

Remittances i.e. no documents are involved like

in case of LC. If any person wants to send his

money to any foreign country (except India) from

UAE then this department will do so. A customer

can pick any one funding mode for remitting its

money:

Demand draft

Telegraphic Transfer

The following modes of payments are provided

by Bank of Baroda:

Local Remittance: For payments made to

another bank in UAE local remittance is being

done. The transfer can be either by Managers

cheque (MC) or telex transfer (TT). Every

transaction will through Central bank.

International Remittance: For payments made

to another bank outside UAE this is done through

the correspondent banks. The transfer can be

made either by Demand Draft (DD) or Telex

Transfer (TT). In this case money is sent through

the correspondent banks of Bank of Baroda in

other countries.

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Types of remittances:

There can be two types of remittances for a Bank

viz. Inward Remittance and Outward remittance

which are explained in detail as below:

Inward remittance:

Inward remittance means transferring (receiving)

funds from foreign country to UAE through the

Correspondent bank of Bank of Baroda.

Example

‘A’ wants to send the money from USA to ‘B’ in

UAE and ‘A’ is having his A/c with HSBC, US

and ‘B’ is having his A/c with Bank of Baroda,

Dubai. Now how the remittance is being done at

BOB is discussed:

Steps

Now in this case HSBC will send BOB,

Dubai a SWIFT message [FIN 199] to

confirm their correspondent bank in US

(if not given by the customer).

After getting confirmed from BOB,

HSBC will send the money to BOB,

Dubai’s correspondent bank in US with

whom BOB is maintaing their Nostro

A/c.

Let’s assume that BOB is having his

Nostro A/c with Standard Chartered Bank

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Limited (SCBL). Now HSBC will Dr. his

customers A/c and will Cr. the proceeds

to Central bank after deducting its

charges. After passing the transaction

HSBC will send SWIFT message [FIN

202] to SCBL as well as to BOB, Dubai

[FIN 103] confirming the same.

SCBL after receiving the SWIFT message

will pass the necessary entry in its system

and will Dr. their Central Bank A/c and

Cr. will be given to BOB Nostro A/c thus

confirming this to BOB by sending

SWIFT message [FIN 103].

Now as soon as the SWIFT message is

being received by BOB they will Dr. their

Nostro A/c with SCBL and will Cr. the

account of ultimate Beneficiary by

deducting their own charges.

Charges:

As every transaction is being routed through

various banks each bank takes their own

charges. For this purpose SWIFT message will

be providing the details of the charges. There

can be three types of charges:

All the Charges being borne by the

remitter/sender.

All the Charges being borne by the

ultimate Beneficiary/receiver.

Charges are being Shared by the

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remitter and the beneficiary both.

Outward Remittance:

Outward Remittance means transferring

(sending) funds to foreign country from Bank

of Baroda, UAE. The procedure of Outward

remittance will be same as that of Inward

remittance, but in this case Bank of Baroda will

send the money to the correspondent bank

which will Cr. the money to the ultimate

Beneficiary. In this case BOB will Cr. the

Vostro A/c of that bank if the a/c is being

maintained with BOB and will send the SWIFT

message to that bank. The SWIFT message will

contain the following details :

Beneficiary name, address and his

account no. where the money is to be

Credited

Ordering institution i.e. who is sending

the money

Payment details so as to why the money

is being sent, for what purpose

Nostro/Vostro A/c:

An account that a bank holds with a foreign

bank. For routing purpose every banks have

their Nostro/Vostro accounts with other foreign

banks in almost every country. Bank of Baroda

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is also having their Nostro A/c with various

banks viz. J.P Morgan Chase, Standard

Chartered Bank Limited, Bank of Baroda in

New York (US). In Europe they are

maintaining their Nostro Accounts with Bank

of Baroda, Brussels and Deutsche Bank. In UK

they are having the A/c with Bank of Baroda,

London and so on. The customer has to

mention the SWIFT ID, CHIPS UID, IBAN so

that the money is transferred to that particular

branch only. The SWIFT ID for Bank of

Baroda, Dubai is BARBAEADDUB.

The account which other banks is maintaining

with Bank of Baroda is Vostro for Bank of

Baroda and Nostro for them.

Standing Instructions:

Standing Instructions is a service provided to

the customers whereby they can set up a

payment instruction to make regular payments

of a specific amount to a named beneficiary

holding account with Bank of Baroda or any

bank inside or outside the territory of UAE.

Correspondent Bank:

The inter-bank market is a network of

correspondent banking relationships. All banks

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maintain ‘nostro’ accounts with other banks

which are called as correspondent bank like

Bank of Baroda is having their Nostro A/c with

J.P Morgan Chase New York hence the

correspondent bank for Bank of Baroda is J.P

Morgan. Correspondent relationships facilitate

Forex operations, export and import

transactions. Correspondents provide advisory,

confirmation and collection services (LC). All

the communication between the banks is done

through SWIFT messages.

SWIFT (Society for Worldwide Interbank

Financial Telecommunication) :

SWIFT is a telecommunications industry which

provides a worldwide Financial messaging

network which exchanges messages between

banks and other Financial institutions. Almost

every international interbank message is

communicated through SWIFT. Sending a

SWIFT message will not facilitate funds

transfer, rather, it sends an authenticated

message for the payment orders to the other

institution which will be settled via

correspondent accounts.

Hence SWIFT is a secure network for

transmitting messages between financial

institutions. It is having a set of standards for

financial messages [Like templates from FIN

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101 to FIN 999 message].

TRADE FINANCE DIVISION

Trade finance is mostly related to international trade. Where the seller and buyer both enters in a contract for the Import and Export of the goods. For this Bank of Baroda provides various forms of support to its customers besides opening of LC viz. :

Overdraft Facility by opening O/D account {OD 104}Trust Receipt by opening T/R account {TR 105}

Bills Finance (L/C)

Foreign Bills Collection (FBC)

Discounting of Usance bills

In short, trade finance covers money lent to exporters or importers by dealing with the Bills.

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Inland Bills :

Bills drawn by the party in UAE on the other

person in UAE itself.

Foreign Bills :

Bills drawn outside UAE and payable to the

person residing outside UAE or, bills drawn

outside UAE and payable to the person residing

in UAE.

Demand/Sight Bills :

This bill is payable on demand and no time is

given by the exporter to the importer for making

payment

Usance bills :

Classification of bills

PERIOD NATURE1. Inland Bills

2. Foreign Bills 3. Demand/Sight Bills

4. Usance Bills

5. Clean bills

6. Documentary Bills

PLACE

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This type of bill provides the importer with some

time to make the payment which will be

specified. The date specified is called as

“Maturity/ due date”.

Clean Bills :

In this kind of bill there will be only bill of

exchange no documents of title to goods will be

there. This type of bill is generally drawn when

both the parties have faith in them and only

payment is to be made through the banks as

described in 2nd example (FBC).

Documentary Bills:

This bill will come with the documents relating

to the title to the goods. Documentary bills are of

2 types i.e. D.P (documents against payable)

Bills and D.A (documents against acceptance)

Bills.

LETTER OF CREDIT(L/C)

INTRODUCTION

In international trade the buyer and seller are

miles apart having different legal systems and

both unaware of each other’s financial position.

So in these cases it is preferable that both the

parties deal through their banks. The documents

45

covering the goods are being routed through

their banks and both the parties are being

assured that the terms of trade would be

complied. So for this case Letter of Credit is

being issued by the Importers Bank called

Issuing Bank and his client is called as

Applicant to the Exporters Bank called the

Advising Bank and his client is called as

Beneficiary who will receive the money by

redeeming the Letter of Credit.

DEFINITION

LC is an arrangement whereby a bank acting at

the request of a customer undertakes to pay a

third party(beneficiary) by a given date

according to agreed stipulations and against

presentation of documents the counter-value of

goods and services supplied for this banks deal

only in documents and not in goods.

There are 2 types of Documentary Bills (LC)

Import L/C: When we issue any L/C on

behalf of our customer (applicant) i.e.

Importer on other customer (beneficiary)

i.e. exporter to Import the goods and

make the payments.

Export L/C: When any L/C is being

opened on our customer by any other

bank. In this case our customer is the

exporter (beneficiary) of the goods and

45

other party is the Importer (applicant).

Documents under L/C

Bill of Exchange

Proforma Invoice

Inspection Certificate

Certificate of Origin

Certificate of Analysis

Packing List

Weight Certificate

Parties to a Letter of Credit

Applicant/Buyer/Importer: He is the

person who comes to the bank to open an

LC. He has to make payments for

importing his goods by availing the banks

facilities.

Issuing Bank: The bank which opens the

LC on request of the Applicant.

Beneficiary/Seller/Exporter: He is the

person who is to receive the money under

LC.

Advising Bank: The bank with whom the

beneficiary is having his account. The

advising bank will forward the LC to the

beneficiary and in return will give the

documents to the Issuing Bank.

ADVANTAGES

To the Buyer:

45

Buyer does have to make the payment in

advance to the seller.

In most cases the bills are payable over a

period of time (called Usance bills) hence

additional credit is given to the buyer.

The quality of goods is assured by

opening an L/C. The buyer can insist for

the Inspection certificate certified by an

Inspector which is to be sent along with

the bill of exchange and bill of

negotiation. In case the document is not

provided by the exporter the bank will not

make the payment on bills.

To the Seller:

The seller will be assured that he will

receive payment on time for his exports.

The need not to bother about the

fluctuations in currency as this will be the

responsibility of the buyer.

How it works

Let’s take an example of a business called

“XYZ” Ltd. Now XYZ is a regular importer of

goods from ABC ltd. whose bank is Standard

Chartered Bank Ltd. (SCBL) UK and XYZ is

having his account with Bank of Baroda Dubai.

XYZ places an order of $100,000 with ABC ltd

who agreed to sell the goods and gave him 60

days to pay for them. Now XYZ will approach to

45

Bank of Baroda to open an L/C and these steps

will be followed:

XYZ comes to Bank of Baroda and

requests to open an L/C worth $100,000

favoring ABC ltd.

Bank of Baroda issues a Letter of Credit

by checking the applicant’s capacity i.e.

the bank will open an L/C if they know

that buyer will pay and they can rely on

reimbursement by the applicant. So in this

case XYZ have to deposit enough money

to cover the letter of credit and Lien will

be marked on his account.

BOB will send the L/C to SCBL favoring

ABC ltd. assuring that full payment will

be done on time and they can ship the

merchandise with the necessary

documents. SCBL will scrutinize the

documents and will send the original or

2nd copy of the shipping documents to

BOB.

ABC ltd. will give the merchandise and

Proforma Invoice along with Bill of

Lading (in case goods are sent through

Ship) to SCBL and SCBL will send these

documents to BOB.

As soon as documents are received

Supervisor of BOB will scrutinize the

documents and will check that there

should not be any discrepancy, these

45

documents must conform to terms and

conditions set out in the letter of credit if

any such thing arises then BOB will

inform SCBL through SWIFT message to

look into the matter.

Now as soon as the documents are

received BOB will inform XYZ ltd. to

collect these documents within specified

time limit and after the collection of the

documents BOB will debit his account by

taking the charges.

To pay on a letter of credit,

banks simply review documents proving that a

seller performed his required actions. They do

not worry about the quality of goods or other

items that may be important to the buyer and

seller. Hence Bank only deals in documents

and not in goods.

All the communication between the banks is

through SWIFT message which is an

authenticate message and all the rules and

regulations are subject to UCP 600.

Seller(EXPORTER)(Beneficiary)

Buyer(IMPORTER)

(Applicant)Ships Goods

45

Credit Report: Sometimes the applicant just to

make sure that whether the exporter is capable of

supplying the goods asks the advising bank about

the credit worthiness of the exporter. So in this

case the advising bank will give the credit report

to the issuing bank confirming the exports of the

Seller’sBank

(Advising Bank)

Buyer’sBank

(Issuing Bank)

Documents(Bill of Lading, Bill of exchange etc)

Payment

Docum

ents

Paym

ent

SWIFT messages

App

lies f

or L

C

Adv

ises

LC

Opens LC and sends for Advising

Doc

umen

ts(B

ill o

f Lad

ing,

B

ill o

f exc

hang

e et

c)

Paym

ent b

y de

duct

ing

the

char

ges

L/C

45

goods.

Buyers Credit: Bank of Baroda also offers

Buyers Credit to its customers. It is the credit

given to the Importer (Applicant) so that he

makes his payment on due date. This credit is

generally being given at the request of buyers.

BankBankPayment

Paym

ent

Payment

SELLER BUYERGoods with Documents

Foreign bill Collection: (FBC)

In this case both the parties have faith in them and by their mutual consent FBCs are drawn. In this case goods are directly being sent to the Importer with the documents by the exporter and payment is made through the banks.

FBC

45

Steps for

Bills Collection

Export LC Import LC

Lodge in FINACLE under FBC menu

We receive the documents

Again send these documents to the issuing bank after scrutinizing

them

We send the LC to advising bank

Lodge/Open LC in FINACLE under FIBC menu

Again we will receive the documents with bill of lading and

bill of exchange etc.

45

CLEARANCE DIVISION

Clearing of cheques in UAE is done through

ICCS (Image cheque clearing system) and the

cheque is cleared on the same day in UAE. The

same day image cheque clearing system or ICCS

benefits customers by reducing their time to

one/single day it takes for a cheque to clear. The

process is shown in diag. under :

Receive the Payment and Credit it to the customers A/c

After confirmation we will make the payment to advising bank by debiting

our customer A/c

45

In ICCS scanned images are received/ sent

through Central Bank of UAE. In case of Outward

clearing BOB will send the scanned images of the

cheques through ICCS to Central Bank before

10:30 a.m because after that Central Bank does

not accepts the cheques for same day clearing and

in case of Inward clearing BOB will receive the

scanned images from Central Bank throughout the

day. So there are 2 types of clearing :

Inward cheque clearing

Outward cheque clearing

45

Inward Cheque Clearing:

Inward clearing means the cheques received by

Bank of Baroda from other banks. Here Bank of

Baroda is the Issuing bank and other bank is the

Presenting bank. These cheques are the cheques

drawn by the bank/branch customers on their

account in favour of other parties. On receipt of

the inward clearing cheques the account of the

cheque issuer or drawer with Bank of Baroda is

debited and the payment is made to the bank

presenting the cheque (whom with favouring

party is having his A/c). The debit will be

indicated in the statement of A/c of the customer

(Bank of Baroda’s) confirming that the cheque

has been paid.

Inward Cheque return:

Cheque return can be from following reasons

If the balance is insufficient to pay the

inward cheque, the bank will return the

same to the presenting bank and will debit

his customer account with cheque return

charges i.e. AED 200/-.

If the cheque is

Stale dated i.e. the date written on

the cheque is before 180 days

from the settlement date.

Post dated (PDC) i.e. the date

written on the cheque any future

date from the settlement date. For

45

example A comes with a cheque

dated 18/06/2010 and settlement

is taking place on 16/06/2010 then

it is a PDC and it will not be

cleared on 16th.

If MICR (Magnetic Ink Character

Recognition) number written on the

bottom of the cheques is not visible

because of improper scanning by the

Presenting bank.

Other Reasons i.e. signature missing,

signature not matching with one in

FINACLE, payee name missing etc.

Cheque Clearing- Inward

Bank of Baroda will scrutinize the cheque by checking the beneficiary name, A/c no.

and signature from FINACLE

Central Bank will send that images to Bank of Baroda

Approved

After scrutiny, cheques are being approved by the supervisor of Bank of

Baroda and the same are then tallied with the Central bank settlement report

(ICE/OCE)

Presenting bank sends scanned images of cheque and deposit slips to Central Bank

before 10:30

If Insufficient

balance

Wait for O/D approval or

check if there is any Standing instruction

Original cheque is received after 5 days from C.B which is scanned in ICCS RECON by Bank of Baroda for reconciliation purpose

45

Outward Cheque Clearing:

Outward Cheque Clearing:

When “A” deposits a cheque to his account with

Bank of Baroda for local collection then it is sent

through clearing for claiming money from the

concerned bank on which the cheque is drawn.

After clearance of the cheque i.e. after getting

money from other bank, Bank of Baroda will

credit the amount to A’s account. In this case

Bank of Baroda is Presenting bank and other

bank is Issuing bank. For same day clearance “A”

has to deposit his cheque to BOB before 9:30 a.m

and all the cheques which are received after 9:30

a.m will be cleared on the next day. The cheques

received are of 2 types :

Individual cheques : In individual cheque

every cheque is attached with a deposit

The report received is then uploaded in FINACLE which is called as “Floppy

upload process”

Approved

Not

Dr. is made in customers A/c and Cr. is given to the clearing house

Cheque is returned

After uploading the zone in FINACLE it is being authorized by the supervisor

In the evening BOB will Dr. clearing house and will Cr. the proceeds to the

Central Bank

45

slip i.e. there is only one cheque with one

deposit slip

Bulk cheques : In case of bulk cheques,

one deposit slip will have more than one

cheque attached with it.

Outward Cheque Clearing Procedure is

explained below through the flow chart

Cheque Clearing- Outward

Bank of Baroda scan images of cheques and deposit slips specifying it as Individual or Bulk

cheque

Accordingly batches will be made in ICCS

45

Benefits of same day clearance

Through same-day cheque clearance customers

will have access to the proceeds of deposited

cheques on the same day, if deposited before cut-

off time i.e. 9:30 a.m. This system has huge

benefits to entities; big and small, as before it,

money was locked-in for even three to four days

thereby working capital was stuck with banks.

With this new system, customers will realize that

money received by a cheque dated today is equal

to cash received today.

After scrutinizing the images with original deposit slips and the officer will authorize and

send it to Central bank before 10:30 a.m

Central bank will send the settlement report (ICE/OCE)

Report is being uploaded in FINACLE under PTW menu

Cheque returns will come

Modification is being done in FINACLE under OCLODGE menu

Every batch will be approved by the supervisor by scrutinizing every cheque with original

deposit slip

BOB will Dr. Central bank A/c and gives Cr. to its customers A/c(SAME DAY)

Cheque is being returned to the customer

45

TREASURY DIVISION

Countries of the world have been exchanging

goods and services amongst themselves. This has

been going from times and the World has come a

long way now as economy is becoming more

globalized. As every nation has a distinct national

currency, international trade and financial

transactions have been necessitated exchange of

currencies which further necessitated to exchange

rates. Like any other commodity the price of one

unit of foreign currency can be stated in terms of

domestic currency (AED). Treasury division in

banks generally deals in Forex- all the claims

payable abroad whether consisting of funds held

in foreign currency with banks abroad or bill

cheque payable abroad. Forex Market has many

participants whom with bank deal viz. Central

Bank, Commercial Banks, Investment Banks,

Forex brokers, Corporations.

Forex market is a global market with no barriers,

supporting large capital and trade flows hence it

is highly liquid market. There are very high

fluctuations in currency rates and settlements are

affected by time zone factor. Keeping time zone

in mind Forex market has different types of

transactions i.e. :

45

Cash/ Today -: In this settlement of funds

takes place within the same day in

between the banks.

Tom -: In settlement of funds take

place on next working day

Spot -: The settlement of funds is

done on the second working day.

Forward -: Delivery of funds on any

day after Spot date

Value Date - : Value Date is the day on

which the exchange of currencies actually

takes place

In all of these transactions contract terms (Price)

are set now but delivery and payment occurs at a

future date. The current price of any currency

trading in the market is Spot Price and BOB

dealers have to accordingly calculate the rate for

Cash, Tom, Forward transaction.

Treasury Division in BOB

Bank of Baroda, Dubai has a specialized cell of

treasury who takes care of all the Forex

transaction for all its 6 branches in UAE. Its

treasury office comprises of three divisions:

Front Office (Dealing Room)

Mid Office (Risk management)

Back Office (Accounts and reconciliation)

45

Front Office

The Front office of Bank of Baroda acts as in

intermediary between the branch offices of BOB

in UAE. They maintain orders, receives reports

as they come in, responds to branch queries,

advises rates obtained from the dealing desk

(Treasury) to branches, passes on information and

transactions meant for the branches, tracks

balances.

The Front office is also required to make sure that

the branches put through transactions only at the

permitted rates (as set out in the Card Rate) by the

Dealers. Provisional rates are finalized to the

merchant desk (Front Office). Competitive rates

are offered to customers at the branches by the

NRI Desk Managers through the merchant desk,

which carries out this task in consultation with the

dealing room.

Front office of Bank of Baroda deals with various

types of transactions in Forex markets that are:

Merchant Transactions :

The majority of transactions taking place

in branch are on account of their clients,

these transactions are related to the

buy/sell foreign exchange from/to

exporters/importers and other customers.

All these transactions at Bank of Baroda

45

are being reported by various departments

(Trade Finance, IR/OR etc.) to the

treasury front office through ADS

(Automated Dealing System) as

implemented by Bank of Baroda. These

transactions are undertaken only for

customers and speculation under this is

prohibited.

All the communication between the banks

is done through SWIFT, "REUTERS"

system etc which are available to the

dealers in the front office.

Interbank transactions:

This includes Interbank transactions i.e.

when one bank deals with another bank

buys/sells foreign exchange. If a bank

can't meet its liquidity requirements, it

will need to borrow money in the

interbank market to cover the shortfall.

Some banks, on the other hand, have

excess liquid assets above and beyond the

liquidity requirements. These banks will

lend money in the interbank market,

receiving interest on the assets. These

interest rates are being changing in the

market on daily basis and there are 2

types of interest rate Bank of Baroda can

charge :

LIBOR Rate (London Interbank

45

Offered Rate): For transactions

taking place outside UAE i.e.

Bank of Baroda lending to a bank

outside UAE.

EIBOR Rate (Interbank Offered

Rate): For dealings with bank in

UAE this rate is applicable. These

rates are set on daily basis.

Forex Transactions:

Forex transactions refer to buy and sell of

foreign currencies to gain from the

currency movement. This is carried out by

the dealer on the behalf of the bank with

sole aim of maximizing the profit for the

bank. The rate in Forex Transactions

trading is the Spot Rate which the most

traders use when trading with other online

retail Forex broker.

The major currencies being traded in Bank of

Baroda includes Indian Rupees (INR), Euro

(EUR), Swiss Franc (CHF), Japanese Yen (JPY),

US Dollar (USD), Pound Sterling (GBP), Qatar

Riyal (QAR), Kuwaiti Dinar (KWD), and Saudi

Riyal (SAR).

Dealers at BOB deals in Bonds, Foreign

currencies and financial derivatives complying

with various Risk management guidelines.

45

Treasury of BOB generally buys/sells:

Foreign currencies

CLNs Bond (Credit Linked Notes)

FRBs (Floating rate bond)

Fixed Income bonds

Mid Office (Risk management)

The primary function of Mid office (risk

management) office is Asset/Liability

management. Risk managers asses what all risks

are there associated, define them and try to

minimize them. For all this Bank of Baroda is

following certain guidelines one of which is

BASEL ІІ. These are the recommendations on

banking laws and regulations issued by Basel

Committee.

The purpose of Basel II is to create an

international standard that banking regulators can

use when creating regulations about how much

capital banks need to put aside to guard against

the types of financial and operational risks banks

face. Generally speaking, these rules mean that

the greater risk to which the bank is exposed, the

greater the amount of capital the bank needs to

hold to safeguard its solvency and overall

economic stability. BASEL ІІ uses Three Pillar

Concept which is as follows:-

First pillar :

45

The 1st pillar deals with maintenance/calculations of minimum regulatory capital required. This can be calculated for three major components of risk that a bank faces by various approaches as:

Credit risk : Credit Risk can be calculated by using one of three approaches:

1. Standardised Approach

2. Foundation IRB (Internal Ratings Based) Approach

3. Advanced IRB Approach

Operational risk : For operational risk, there are three different approaches - basic indicator approach or BIA, standardized approach or TSA, and advanced measurement approach or AMA.

Market risk : For market risk IRB (Internal rating based) approach, Duration method and VaR (value at risk) approach are there.

Second Pillar :

The second pillar deals with banks own risk

management. It also provides a framework for

dealing with all the other risks a bank may face,

such as Concentration risk, Strategic risk,

Reputation risk, Liquidity risk and Legal risk. It

gives banks a power to review their risk

management system. For this the method used is

IRR (Interest Rate risk) method. Under 2nd pillar

banks has to ensure that they have a rigorous

process for assessing its overall capital adequacy in

45

relation to its risk profile by internal capital

adequacy assessment process – ICAAP policy.

Third pillar :

Third pillar deals with the market discipline and

transparency through public disclosures. This

recommends all the Banks to disclose all the risks

covered under 1st and 2nd pillar and how will they

minimize them to its customers through regular

circulars. Bank should assure its customers that

they are maintaining enough capital adequacy

ratio as needed.

Capital Adequacy Ratio (CAR):

This ratio is used to protect depositors and

promote the stability and efficiency of financial

systems around the world. (CAR) is a ratio that

regulators in the banking system use to watch

bank's health, specifically bank's capital to its risk.

To ensure that bank can absorb a reasonable

amount of loss CAR is maintained. The Central

Bank of the U.A.E. has determined banks

operating in the U.A.E. must maintain a capital

adequacy ratio at a minimum of 12% at all times

which will be applicable from June 30, 2010.

LEARNINGS AND RECOMMENDATIONS

45

From this 45 days experience in Bank of Baroda, I got good exposure about what really the

corporate life is about. I fell honored that I have worked with such experienced professionals. All

these 45 days were full of events, full of learning, and most importantly full of professional

working. Each department I worked with was a different experience in itself. I worked in each

and every department starting from NRI service division to the Treasury back office. I started

with NRI service department and here I got to know about what all services are being provided

by the bank to its NRI customers and learned how the entries are being made in their system

through FINACLE. Then after 1 week, I moved to Customer services department where I

interacted with lots of customers, provided them their A/c Statement, Cheque books and ATM

cards and also printed out their Statement of A/c through FINACLE. All the enquiries raised by

the customers were replied to their entire satisfaction. It was the liveliest experience of my

Internship as it helped me to interact with different kinds of customer. After learning all this, I

moved to operations (back office) Division where I learned how to pass various types of entries

in FINACLE in different divisions (Trade Finance, Clearance, Remittances). The most

interesting department which I found was Treasury where I learned how the Dealers place order

(buy/sell) of FOREX in interbank market through their trading platform “REUTERS” which they

are using. During all this period I observed a lot of things. Some of the

observations/recommendations are as under:

1) Attendance:

I noticed that all the employees mark their attendance themselves in the register. I used to

observe that whether all the employees are coming on time or not and there isn’t any proper

check on them. So they should use online attendance system which will help the managers to

keep an eye on every employee.

2) Responsibility level of employees:

The best thing I found here in BOB was that all employees are fully responsible and

dedicated towards their work. No matter how long they have to stay at bank, they are

performing their work honestly and with full dedication.

3) Overall impression of the customers:

45

Majority of the customers were very satisfied, but some of them were not. There are many

reasons for their dissatisfaction:

a) Customers had a very chronic behavior due to the parking problem, as they are not

available with enough space to park their cars.

b) Customers complained that they are not receiving their monthly statements through

mail which should be taken care of.

4) Customer dealing:

Customer dealing is really good when it comes to patience. Sometimes customers misbehave

a lot, but the staff here tries their level best to deal with them patiently and politely, and this

is something that should be appreciated.

5) Customer satisfaction survey:

I noticed that a customer satisfaction survey to get their feedback is conducted. This is really

good. In this way bank can have an idea about the needs and requirements of the consumers

and if they are satisfied with your services or not.

6) Proper training (Job rotation):

There is proper training provided to each and every employee of Bank of Baroda. Job rotation

is done after every 6 months to polish their potentials and for more improvement.

7) Token machine system:

Token system should be implemented in the branch so that hassle free services are provided

to BOB customers. This system will help the customers as customers will only have to

collect the token and wait for their turn instead of standing in a Que. This system is already

being implemented by various banks in UAE.

BIBLIOGRAPHY

45

GENERAL:

Bank of Baroda, UAE official website www.bankofbarodauae.ae

Referred to Investopedia : http://www.investopedia.com/

http://www.uaeinteract.com/docs/UAE_sticking_to_dollar_peg_CB/41223.htm

FOR REMITTANCES:

http://www.rbi.org.in/scripts/FAQView.aspx?Id=60

Bank of Baroda, India official website www.bankofbaroda.com

http://www.bankofbarodauae.ae/ezremit.htm

RISK MANAGEMENT:

http://www.uaeinteract.com/docs/

Central_Bank_sets_new_capital_adequacy_ratio/37479.htm

http://www.centralbank.ae/pdf/baselII/Draft-UAE-Basel-II-guidelines.pdf

http://www.occ.gov/ftp/release/2008-81a.pdf

FOR CHEQUE CLEARANCE:

http://www.raqmiyat.com/banking/banking-operations/iccs-connect.aspx

SNAPSHOT OF FINACLE

45

Logging Into the system:

The main Menu:

On successful login to the system, the main menu is displayed to the user

Logging Out of the system:

45

Type “exit” in the menu option (at the bottom) and press enter as shown

APPENDICES

45

Index:

Annexure 1 A/c Opening Form

Annexure 2 Form for Change of Address

Annexure 3 Closure of A/c

Annexure 4 SWIFT messages format

Annexure 5 SWIFT message FIN 103

Annexure 6 SWIFT msg. FIN 103 (Inward remittance)

Annexure 7 SWIFT msg. FIN 999 (Free format msg.)

Annexure 8 Cheque Security Features

Annexure 9 Rate Card (Treasury)