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Corporate Banking represents the wide range of banking and

financial services provided to domestic and international
operations of large local corporates and local operations of
multinationals corporations.
Services include access to commercial banking products,
including working capital facilities such as domestic and
international trade operations and funding, channel financing, and
overdrafts, as well as domestic and international payments, INR
term loans (including external commercial borrowings in foreign
currency), letters of guarantee etc.
Banks normally provide credit in the form of overdrafts, loans,
bills discounted, or import and export finance. The process of
extending any of the said forms to corporate borrowers passes
through two distinctive phases; the credit decision making
process (account relationship management) and the banks'
internal operations.
Corporate Banking services are an integral part of the Corporate
Investment Banking and Markets (CIBM) structure, which focuses
on offering a full range of services to multinationals, large
domestic corporates and institutional clients.
The Investment Banking and Markets division brings together the
advisory and financing, equity securities, asset management,
treasury and capital markets, and private equity activities of the
Group to complete the CIBM structure and provide a complete
range of financial products to our clients. Increasingly, ECA
financing is being considered by customers and we work closely
with our project export finance teams, both onshore and offshore,
to provide structured solutions.
Clients are serviced by sector based client service teams that
combine relationship managers, product specialists and industry
specialists to develop customized financial solutions. These form
the relationship team along with the Investment Banking &
Advisory division. Each team supports the client's worldwide
operations, ensuring a full understanding of the company's
business and financial needs. Based on our client's requirement,
HSBC also assigns Global Relationship Management teams to
provide structured solutions.
In today’s global Banking arena, Corporate Bankers are facing a
string of unprecedented and sweeping challenges in the areas like
Treasury Management, Trade Finance, Risk Management,
Compliance Management, Electronic Trading and Derivatives
Markets. Compounding this are the mounting complexities from
ongoing regulatory changes, decreasing margins and fierce
Global Relationship Management teams are tasked with
understanding in depth the sectors in which our clients operate
with the aim of adding value through detailed industry knowledge
and structured financial solutions.

The bank mostly lend against appropriate tangible securities

such as deposits, shares, debentures, property, guarantees
supported by tangible securities, life policies, goods, gold or other
precious metal.
The bank may also lend against intangible securities such as
unsupported guarantees or assignment of sums due to the
borrower by third parties.
It is essential that the bank follows the proper procedures in
order to obtain good title when taking a security.
There is a difference between possession and ownership.
The various forms of documents used for obtaining different
types of security are also important. Inadequate documentation
may well cause losses to the is particularly true for the Trade
Financing documentation and the Securities Agreement relating to
The bank must also follow proper procedures to realise securities
otherwise losses may be incurred.
The corporate operations divisions are normally responsible for
maintaining securities documentation and updating the
customers' mandates with fresh account documentation, account
statements, financial statements and relationship reviews.
Handling and treatment of delinquent accounts is also an
important area of operations.
Grading of bad and doubtful debts for an effective recovery
process is important.
An effective delinquency policy is essential to avoid unnecessary
financial losses.


Q. Why should the banks be so excited about the subject?

Deregulation and¬ new technology have eroded banks’

comparative advantages and made it easier for non-bank
competitors to enter into hitherto exclusive banks’ domains. In
response, banks have shifted their sales mix toward non-interest
income by selling ‘non-bank’ fee-based financial services by
charging explicit fees for services.

According to another study titled ‘Fee-Based Financial¬ Services

Markets: New Opportunities and Threats In the Internet Age’ by
Killen Associates again, the market for retail and commercial fee-
based financial services will exceed that for interest-based
services by 2005, reaching nearly a staggering $500 billion by
2004 globally.

Banks want such services to¬ be their primary profit source for
certain reasons. This revenue is more stable over time, assures a
steady income and more importantly, leads to a strong
relationship with the corporate client.

As a result of the advent of the Internet, banks and other

Financial Institutions are rethinking their corporate banking
strategy. The Internet opens a new channel for delivering services
to corporate clients and helps these institutions remove
cumbersome and expensive paper processes. It is significantly
cheaper and much more flexible.
With the Internet, large multinational companies that always
used EDI can save more money by eliminating the old system’s
expensive private networks and expand reach to include more
businesses on the supply chain. Small-to-medium size companies,
too, can conduct business-to-business transactions. The Internet
simply provides a two-way electronic linkage that never existed
So, banks can now offer a trusted solution to their corporate
customers via the low-cost delivery channel i.e., the Internet. And
corporations will enjoy the ability to manage cash held by their
strategic banking partners in real time via a secure, efficient,
Web-enabled communication system.
The expected shift in volume from paper-based transactions to
electronic ones would determine the path of future technology
investments in banks and orient it towards electronic payment
delivery systems.
This shift is also driven by banks’ perception that electronic
transactions contribute higher margins than paper-based



The account relationship managers are those who negotiate with

the targeted corporate customers with the terms acceptable to
the banks and “Account Relationship Management Acceptance
Criteria" or the so called "Credit Guidelines."
It should be internally placed and distributed to every credit
These guidelines set the minimum acceptance standards, in
simple words, the guidelines are aimed to let the account
relationship managers/officers know exactly what they should be
selling, to whom, at what price and under which conditions
(securities and other terms).


Making a sound decision to extend credit to a corporate customer

is a complex process.
This is because corporate customers are normally engaged in a
wide range of activities and are affected by a host of external and
internal factors that have direct impact on their ability to meet
financial obligations.
The credit decision making should, therefore, be directed by an
internal lending policy that takes into account such factors and
aims to protect the bank's assets, preserve its reputation and
optimize the
relationship profitability.
Based on the credit guidelines, the account relationship
executive will have to submit a credit proposal evaluating the
whole relationship.
The Credit Evaluation process must be done systematically and
within acceptable standards to maintain a high quality credit
The preparation of the credit proposal must be guided by
common sense and sensible judgement.
The amount of details the proposal should contain naturally
depends on several elements, namely the size and strength of the
customer, the size of the bank's current and proposed exposure,
the socio political environment, the economy, the industry and
the bank's position in relation to other creditors.


The bank must place a system of credit evaluation which is based

on assessment of historical, current and projected elements
stated hereunder:


Sales, Profitability, Performance, Funds Flow, working Capital

Management, liquidity, balance sheet conditions...etc.


Owners, Management, Company, Industry, Markets.

In summary, the credit proposal (review) must highlight the

Financial Risks and Operating Risks. It should state the magnitude
and likelihood of such risks i.e. "What if" scenarios, and how will
they be managed? Most global banks maintain their credit
evaluating standards in an internal "Instruction Manual"
containing the bank's management instructions regarding each
and every aspect of the credit extension or review process. It sets
the management standard of credit evaluation to eliminate risks
and prevent the decline in profit margins on credit facilities.




Corporations, the world over are jettisoning antiquated cash

management practices and opting to put in place sophisticated
cash management structures to garner the associated economic
benefits and due to reasons of expediency.
Conversely, banks have taken note of the enormous revenue
potential in the fee-based services segment to prop up their
sagging bottom lines. While appreciating the initiatives taken by
the Administrative Staff College of India in organizing the
The some of the relevant issues, which the banks need to
address are as follows.


The fundamental objective of cash management is ‘optimization

of liquidity through an improved flow of funds.’
In today’s highly competitive environment, where time is
considered as money, deployment of staff to render basic routine
tasks does not make economic sense.
As a sequel, cash management today is not what it used to be.
Electronic banking, which began as a passive desktop access to
bank balances, is emerging into complex processes of liquidity
management through numerous techniques.
Almost all of the corporations in advanced countries are now
planning to use the services of banks to help them collect
payments on monthly bills they issue to consumers and other
types of cash management services.


Q. Why there is need to put in place a specialized cash

management system by corporate?

Good cash management is a conscious¬ process of knowing

when, where, and how a company’s cash needs will occur;
knowing what the best sources for meeting additional cash needs;
and being prepared to meet these needs when they occur by
keeping good relationships with bankers and other creditors.
Scientific cash management results in¬ significant savings in
time, decrease in interest costs, less paper work and greater
accounting accuracy.
Proper cash management creates more control¬ over time and
funds; provides timely access to information; enables easy
employee related payments; supports electronic payments;
produces faster electronic reconciliation; allows for detection of
bookkeeping errors; reduces the number of cheques issued and
earns interest income or reduces interest expense.
Corporations with subsidiaries worldwide, can pool everything¬
internationally so that the company can offset the debts with the
surplus monies from various subsidiaries.
The end result will transform treasury function¬ as a profit-centre
by optimizing cash and put it to good use.
Creative and¬ pro-active cash management solutions can
contribute dramatically to a company’s profitability and to its
competitive edge.
The ultimate purpose of proper¬ management of liquidity,
needless to emphasize, is to improve the overall productivity of


The menu of cash management services offered by banks abroad

is indeed diverse and tempting.
The services broadly fall under collection services, Disbursement
services, Information and control services, services related to
Electronic data interchange (EDI), Commercial web banking
services, Sweep services, Fraud detection solutions, Global trade
solutions and Investment solutions.
Collection Services accelerate receipt of payments from sales
and quickly turn them into usable cash in accounts.
Disbursement Services make efficient payments by reducing or
eliminating idle balances in company’s accounts.
Information and Control Services receive the data and provide
the management capability needed to monitor company cash
picture, control costs, reconcile and audit bank accounts, and
reduce exposure to fraud.
Financial Electronic Data Interchange (EDI) is a computerized
exchange of payments between a company’s business and its
customers and vendors.
Commercial Web Banking Services give a wide range of services
from any Internet connection, which can help streamline banking
process quickly and efficiently.
Sweep Services maintain liquidity and increase earnings without
having to actively monitor accounts and move money in and out
of them.
Information reporting solutions assist companies, which need to
receive account data that is timely, precise, and easy to access
and interested in initiating online transactions.
Investment solutions help to minimize excess balances and
maximize return on available funds.

It is apposite to review the Indian scenario in this regard. As we

are well aware, banks’ desire for funds has lost under the
onslaught of the current slowdown.
Despite the offer of very soft terms corporates are refusing to
borrow, while bank deposits have been ballooning.
Compelled to service the burgeoning liabilities, but unable to
lend hastily and allow their non-performing assets (NPAs) to grow,
bankers are forced to compete for the handful of safe bets among
their borrowers.
Banks chose to use the opportunity to refocus their activities,
seeking clearly defined identities in terms of services and
customer segments.
Most of them concentrated on cleaning up their books by peeling
down their NPAs.
All of them attempted freezing of costs, improving operational
efficiencies, and boosting productivity.
The strategy of the banks, which performed well, is to use fee-
based services to maintain earnings growth.
With interest rates falling, non-interest income was,
unsurprisingly, the fastest-growing component of the banks’ total
income. Fee-based activities will complement though not
substitute the core business of lending.
It is gratifying to note that a number of banks in India are offering
wide-ranging cash management services to their corporate
All the three categories of banks viz., nationalized banks, private
banks, and foreign banks operating in India are active in the cash
management segment.
SBI, PNB, ICICI Bank, GTB, HDFC Bank, Centurion Bank and Vysya
Bank, are some of the active Indian banks in this segment.
Citi Bank, Standard Chartered Bank, ABN Amro Bank, BNP, ANZ
Grindlays and HSBC are the foreign banks operating in India,
which are prominent among the cash management services
Currently, the turnover of cash management services in Indian
market is estimated over Rs.25,000 crore per month.
State Bank of India alone is estimated to handle over Rs.12,000
crore per month through its product called SBI-FAST.
Indian banks are offering services like Electronic funds transfer
services, provision of cash related MIS reports, cash pooling
services, collection services, debit transfer services, guaranteed
credit arrangements, sweep products, tax payment services,
receivables and payables management.
Foreign banks operating in India are offering regional and global
treasury management services, liquidity management services,
card services, electronic banking services, e-commerce solutions,
account management services, collection management services,
cash delivery management services and investment solutions.
The cash management services offered to Indian corporates are
comparable to what their counterparts are getting in advanced
Banks realised that if they do not offer the services required by
corporate customers it would result in a net loss of clientele,
returns and goodwill.
Banks in India need to continuously monitor international trends
in innovations taking place in providing cash management
services and swiftly offer similar services to their corporate


The Reserve Bank of India has been taking a number of

initiatives, which will facilitate the active involvement of
commercial banks in the sophisticated cash management
One of the pre-requisites to ensure faster and reliable mobility of
funds in a country is to have an efficient payment system.
Considering the importance of a robust payment system to the
economy, the RBI has taken numerous measures since mid
Eighties to strengthen the payments mechanism in the country.
Introduction of computerized settlement of clearing transactions,
use of Magnetic Ink Character Recognition (MICR) technology,
provision of inter-city clearing facilities and high value clearing
facilities, Electronic Clearing Service Scheme (ECSS), Electronic
Funds Transfer (EFT) scheme, Delivery vs. Payment (DvP) for
Government securities transactions, setting up of INdian FInancial
NETwork (INFINET) are some of the significant initiatives which
highlight the seriousness with which the Reserve Bank has taken
up the reforms in Payment systems.
Introduction of a Centralized Funds Management System (CFMS),
Securities Services System (SSS), Real Time Gross Settlement
System (RTGS) and Structured Financial Messaging System
(SFMS) are the top priority items on the agenda to transform the
existing systems into a state-of-the-art payment infrastructure in
India by the Reserve Bank.
The current vision envisaged for the payment systems reforms is
one, which contemplates linking up of at least all important bank
branches with the domestic payment systems network thereby
facilitates cross boarder connectivity.
With the help of the systems already put in place in India and
which are coming into being, both banks and corporates can
exercise effective control over the cash management.



It is normally the client-bank relationship,¬ which is a main

consideration in choosing a bank for cash management.
¬ Pricing, obviously, is a very dominant factor.
Making a choice between the¬ local banks and the more highly
priced foreign banks usually depends on how cost savings are
presented by the banks.
Multinational corporates with complex¬ treasury operations
admire their respective banks’ expertise and ability to offer
creative solutions.
Flexibility, reliability, security and stability¬ have been cited as
vital parameters for any electronic banking system.
The¬ systems should be tailored to provide pertinent reports and
the ability to upgrade easily in future.
The technology should allow real-time cash¬ management with
strategic banking partners.
It should integrate easily¬ with legal framework in place.
It should lower operating costs and resolve¬ disputes quickly by
providing secure and legally enforceable audit trails.
¬ It should be capable of reducing risk of fraud in electronic funds
transfers and other treasury activities.
It should also be able to use a low-cost public¬ network
infrastructure like Internet, which eliminates the need for
dedicated leased lines.



The enlightened participants in this Workshop are aware that the

cash management techniques have been undergoing a
metamorphosis as a result of the extensive technological
advancements. Positioning finance as a valuable part of a
business organization means re-engineering of business
Electronic Bill Presentment and Payment (EBPP) is now widely
accepted in Western countries. It replaces the slow and costly
process of preparing and mailing paper bills and receiving
cheques as payment.
Corporations look to electronic bill presentment and payment as
an opportunity to expand marketing and sales efforts, enhance
customer care and increase efficiency, while reducing costs.
As technologies evolve with amazing speed, the IT choices facing
treasurers are becoming more intricate simultaneously increasing
their expectations too.
Today, a multinational company has tall demands from its banker.

When the treasurer sits at his desk, he expects that his computer
has to automatically update his files with real-time information on
the company’s account balances.
Without moving, he wants to manoeuvre funds between accounts
to capture more interest from pooled accounts, he demands to lag
his payments to make his cash work to the fullest and he desires
to get an up-to-date report on the progress of his collections.
If relieved of numerous manual errands, his treasury can
effectively plan for the future.
As the Internet explodes into life, companies want to be among
the first to use the Internet to market their products, receive
orders, deal with suppliers and settle transactions.
Corporates visualize technology as a tool to cut their costs and
improve efficiency.



The new electronic payment products and services offer the

corporate clients an improved bottom line by helping manage
cash requirements.
It helps corporate to make the best use of their funds and
provides an effective means of managing their financial
Several of the trends in cash flow forecasting favor the use of
electronic payment products like RTGS, Electronic Funds Transfer
(EFT) and card payments.
Improved technology and systems integration makes it more
attractive to use electronic payment products because these
methods of payment can be incorporated into firm-wide
computing systems.
The new forecasting techniques also suggest use of electronic
payments, because they offer disaggregated revenue and
spending data that can easily be categorized and studied.
Electronic payments and cards provide control over incoming
funds, and allow companies to limit access to these funds to
authorized parties. In addition, limiting corporate purchases to
electronic payments makes it easier for firms to monitor cash
outflows and prevent unauthorized expenditures, because these
payments are easier to document and provide an audit trail.
From the perspective of a Corporate, the electronic payment
systems ensure speed and security of the transaction processing
chain, from verification and authorization to clearing and
settlement. Also it gives a great deal of freedom from more costly
labor, materials, and accounting services that are required in
paper-based processing, better management of cash flow,
inventory, and financial planning due to swift bank payments.


a. Electronic Communication with a Bank:
The first challenge facing a treasury is how to communicate
electronically with a bank, although this is often dictated by cost
limitations, security concerns and the infrastructure peculiarities
of different countries. It is likely that the company itself may be
lacking the necessary expertise to choose an appropriate form of
communication where the company needs banker’s advice.

b. Economic Considerations:
Costs associated with the new services do pose a challenge to
small and medium companies. A host-to-host connection is a
sophisticated, direct, two-way link between the bank’s and the
customer’s computers, which is expensive to set-up and maintain.
However, it is highly automated and allows the corporate to use
more of the banks’ services. Small companies, unfortunately, may
not be able to afford host-to-host connection. Concerns
associated with high costs may be effectively addressed once the
Internet’s security apprehensions have been resolved.

c. Decisions Regarding Sourcing of Software:

The three sources of software applications for on-line banking
and on-line cash management in particular are…
1) Built in-house:
Large banks prefer to build applications in-house owing to their
belief that it provides them with competitive advantage
2) Bought from independent software vendors:
Building Web-enabled cash management solutions requires a
thorough understanding of both technology as well as business
3) Outsourced to a trusted third party:
Smaller banks who do not wish to make significant investment in
back-office systems prefer to outsource on-line banking services.


All said and done, the Internet as it operates today has its
limitations as a medium for banking and finance.
For this reason, the conventional means of delivering electronic
banking services will be maintained in parallel with on-line
systems at least in the medium term.
We all agree that the technology is only as good as its underlying
services. There is no such thing as one-size-fits-all when it comes
to electronic banking products.
No one product can provide an absolute solution to all the
An electronic banking product is a means of delivering banking
services to the customer and is only as good as all the operations
and processes that underpin those services.

1. Provision of CMS by Banks - Challenges and Issues:

The conventional formal line between treasury and control and

between cash and accounting strategies is fading. Now, bankers
and controllers are working together closely in seeking solutions
in the complex cash management function.
In today’s world, the key differentiator between a successful bank
and other bank is the stress each lays on technology.
As such, let me turn your attention to the numerous challenges
bankers need to address squarely, while gearing up to provide
cash management services in a technology dominated

2. Provision of Customized Services:

One important ingredient of a treasury system is ‘customization’.

Bank’s ability to customize a treasury system is critical.
The ‘user interface’ is very personal and users want to be
comfortable with the look and feel of the system.
Deployment, configuration and database options need to be
New system should be capable of easily getting synchronized
with enterprise resource planning (ERP) and other corporate

3. Need to Comprehend the Client’s Line of Activity:

Bankers need to really understand the accounting and control
side of its client business.
The bankers should see themselves as strategic partners in
company’s growth and need to spend a lot of time learning about
the concerned industry.
They have to use that knowledge to propose solutions that never
would have occurred to the client.
Banks can’t go out and propose good ways to re-engineer a
company’s business processes until they have developed a really
sophisticated understanding of the cash and accounting practices.

4. Provision of Other Advisory Services to Clients:

Companies would like to see banks solve certain other related

For instance, a company may like someone to tell it exactly what
is wrong with their MIS department.
Changing systems is a major initiative with far-reaching
implications to the companies so banker cannot afford to make a
As the technology changes almost monthly, companies do expect
bankers to tell them what to do and where to spend their money.
Bankers cannot build a standard solution always, because the
customers do not pose standard problems.
Bankers have to customise the solution that will resemble what
the customer is wishing for.

5. Shift to Web-enabled Services:

Web-enablement may be fashionable, but what treasurers really

want is the functionality in products that help them perform
optimally. After all, the web is only a delivery channel.
Most corporate electronic banking systems currently used are
based on old technology architecture.
Banks, now, have to gradually turn to open systems architecture,
wherein a Web-server accesses the bank’s back-end systems with
adequate security features in place.

6. Special Consideration to Small and Medium Companies:

When the corporate scene in India is dominated by a multitude of

small and medium companies, a legitimate question that arises is,
are the high-tech banking cash management services just for the
large companies or do they have any immediate practical value
for smaller companies also?
Although technology and size may not go together banks have to
cost-justify the cash management services companies use.
No doubt, banks did invest a lot in the technology-based services.
But with the advent of the Internet and other tools, banks should
strive to make accessible cash management services to middle
and small companies without totally phasing out their existing

7. Need to Work as a Team:

When banks develop cash management solutions, they have to

necessarily work directly with corporate financial controllers and
their staff.
When outsourcing is involved, with something as complex as
payables or receivables the corporate teams get bigger and more
Besides financial controllers, banks have to work with systems
people and sometimes marketing people.

8. Need to Work with Technology Vendors:

A growing number of non-bank vendors also offer payment-

related services to corporate clients in Western countries.
Banks bring the strong relationships with customers that they
have built over time.
No single player can do it alone in the future because there are
so many dimensions to technology and different industries need
different solutions.
Alliances will have to be forged, so that vendors with different
technological pieces will work together to provide integrated



Promotion of export by extending various facilities to exporters

having good track record, on better terms.


a. All exporters including those in small and medium sectors and

conforming to the borrower gradation category of CB1 and CB2.
b. Exporter clients, with good track record for minimum 3 years.
c. Accounts classified as `standard' during the last 3 financial
d. Exporter clients earning profits continuously for the last 3
years, having positive tangible net worth and positive net working
capital as at the end of the last financial year.


‘In-principle' limits will be sanctioned for a period of 3 years with

a provision for automatic renewal subject to fulfillment of the
terms and conditions of sanction and satisfactory conduct of the
account subject to annual review.
The performance of the exporters vis-a-vis projections will be
reviewed annually with a view to decide whether the benefits of
better terms and conditions under the Gold Card Scheme are to
be continued/ amended/ withdrawn.

Concession by approx 25 bps on Rupee Export Credit


The Gold Card will be issued initially for a period of approximately

3 years, which shall be automatically renewed for a further period
of three years unless there are adverse features/ irregularities in
the account.


Upto approximately 50% of sanctioned limit made available to

facilitate urgent credit needs for executing sudden orders.


a. Preference for sanction of Packing Credit in Foreign Currency

b. Preference for granting loans under FCNR[B] funds etc. over
non-export borrowers AND granting term loans in foreign currency
in deserving cases out of FCNR[B], RFC Funds etc.
c. Proposals to be submitted in the simplified Application Form
d. The time-frame for disposal of application received for sanction
of credit under the Scheme shall be as under:
For disposal of fresh applications : 21 working days
Renewal of limits : 14 working days
Sanction of ad hoc limits : 7 working days


Approx 20% concession in fees/charges.


ATM, Internet Banking, International Debit Card, etc.


Gold Card sanctioned will be liable to be cancelled in the event

the borrower fails to comply with any of the eligibility norms and
other conditions of the Bank


Working Capital facility is provided to the industry to finance day-

to-day production & sales.
For production, funds are generally required for purchase of raw
materials, stores, fuel, for payment of labor, power charges, for
storing finished goods till they are sold out & for financing the
sales by way of sundry debtors / receivables.
Cash Credit facility is granted to the customers to bridge working
capital gap.
The Bank also provides short term loan facility for a period of up
to 1 year for the purpose of bridging temporary cash flow
mismatches arising due to various reasons like non-realization of
receivables in time, routine capex etc.
The finance extended under this category would be for meeting
the funds requirements for day to day operations of the units i.e.,
to meet recurring expenses such as acquisition of raw material,
the various expenses connected with products, conversion of raw
materials into finished products, marketing and administrative
expenses, etc..
The working capital limits would be considered only after the
project nearing completion and after ensuring full tie-up of the
term loan requirements of the borrower. These limits would be
either in the form of fixed loans or running accounts and / or bill
financing facility.


The credit facilities shall be secured by inventories and debtors

as may be required quantum and duration of the credit and risk

Funded facilities, i.e. the bank provides funding and assistance to

actually purchase business assets or to meet business expenses.
Non-Funded facilities, i.e. the bank can issue letters of credit or
can give a guarantee on behalf of the customer to the suppliers,
Government Departments for the procurement of goods and
services on credit.
It is Available in both Indian as well as Foreign currency.


In tune with the Reserve Bank of India guidelines on Loan System

for delivery of bank Credit for working capital purposes to larger
borrowers, the same would be extended in the form of fixed loan
(working capital Demand loan) and cash credit (running account)
in the ratio of 60:40 in respect of borrowers enjoying aggregate
working capital limits of Rs.10 crore and above from the Banking
The working capital demand loan facility shall be for a minimum
fixed term of 7 days subject to roll over at the option of the
borrower concerned.


The working capital limits would require such security and

personal/ third party guarantees as applicable to general lending
norms of the bank and risk perception in respect of individual
borrowal account.
Eligible Working Capital Limits would be assessed by adopting
various methods such as Projected Turnover Method, Permissible
Bank Finance Method, Cash Budget Method and Net Owned Funds
Method, depending upon the type of borrower, the aggregate
working capital facility enjoyed from the banking system, the
scale of operation, nature of activity/enterprise and the duration/
length of the production cycle, etc.


Project finance is the financing of long-term infrastructure and

industrial projects based upon a complex financial structure
where project debt and equity are used to finance the project.
Usually, a project financing scheme involves a number of equity
investors, known as sponsors, as well as a syndicate of banks
which provide loans to the operation.
The loans are most commonly non-recourse loans, which are
secured by the project itself and paid entirely from its cash flow,
rather than from the general assets or creditworthiness of the
project sponsors, a decision in part supported by financial
The financing is typically secured by all of the project assets,
including the revenue-producing contracts.
Project lenders are given a lien on all of these assets, and are
able to assume control of a project if the project company has
difficulties complying with the loan terms.


The proposals for project finance would be considered by the

bank on a selective basis in view of the larger outlay of funds an
longer duration of credit which may have an adverse impact on
bank's Asset-Liability Management system and strain on its
Usually such projects would be operationalised through
consortium arrangement along with the Term Lending Financial
Institutions and other public/ private sector Banks.
The project would be appraised by the Lead Bank of the
consortium and all other banks would accept the appraisal made
by the lead bank.
If required, the assistance of the professionals in the line/ project
appraisal groups of FIS/ Commercial Banks would be obtained for
the appraisal.
Before extending finance for Projects, the economic feasibility
and financial viability of the project in relation to the macro
economic conditions prevailing at the time of conceptualization of
the project and also the likely scenario that may prevail during
the normal life span of the project should be established.
The project should be able to withstand reasonable levels of
variation in crucial parameters which should be established by
sensitivity analysis of the cash flows.
The means of finance for the project along with provisions to
meet contingencies such as cost/ time overrun should be
The entire source of funds for the project from sources other than
that by the promoters shall be fully tied-up before sanction/
disbursement of the limits.
Wherever the project is one of unusually longer duration such as
infrastructure development, the involvement of agencies such as
Financial Institutions and ways of reducing the blockage of bank's
fund that are sourced mainly out of short term lending
institutions, take-out financing, securitization, Inter-Bank
participation Certificates, etc. would be resorted to.
The disbursements under project Finance would be made strictly
in tune with the sanction terms, only after ensuring the end use of
funds already disbursed by the consortium, meeting the required
margin at each stage of project implementation and certification
by the competent consultants/ specialists as per the procedure in
vogue from time to time and as decided by the consortium.


The rate of interest on such credit facilities would be determined

based on the borrower gradation and the interest rate policy of
the bank from time to time.


The credit facilities shall be secured by tangible assets and

collaterals as may be required based on the nature of project,
quantum and duration of the credit, anticipated return on
investment and risk perception.

In addition to the above, Bank's usual normal lending norms and

policy guidelines in force from time to time would be equally
applicable to project finance cases also
Efficient service to our importer/exporter clients.
Connectivity with the Customs Department to facilitate payment
of custom duty and receipt of duty draw back by the
importer/exporter clients through the electronic media.
Under this system of Electronic Data Interchange (EDI), Custom
Authorities process the shipping bills and also effect on line
payment of duty draw back for exporters.
Further, they undertake processing of Bill of Entry and deposit of
custom duty for imports.
The Exchange Earners Foreign Currency (EEFC) Deposits Scheme
was started by RBI in the year 1992 with the introduction of
Liberalized Exchange Rate Management System.
Under this scheme, the recipient of inward remittances, exporters
and other eligible bodies are allowed to keep a portion of their
inward remittances / export proceeds in foreign currency with the
banks in India which can later be utilized for permissible


Pre-shipment finance in foreign currency and Indian rupees.

Post-shipment finance in foreign currency and Indian rupees.
Handling export bills on collection basis.
Outward remittances for purposes as permitted under Exchange
Control guidelines.
Inward remittances including advance payments.
Quoting of competitive rates for transactions.
Maintenance of Exchange Earners Foreign Currency (EEFC)
Assistance in obtaining credit reports on overseas parties.
Forfeiting for medium term export receivables.


Establishment of Import Letters of Credit covering import into

India and handling of bills under Letter of Credit.
Handling of import bills on collection basis.
Remittance of advance payment against imports.
Offering utilization of PCFC ( pre-shipment credit in foreign
currency) for imports.
Credit reports on overseas suppliers



Like many other activities of the banks, method and quantum

ofshort-term finance that can be granted to a corporate was
mandated by the Reserve Bank of India till 1994.
This control was exercised on the lines suggested by the
recommendations of a study group headed by Shri Prakash
The study group headed by Shri Prakash Tandon, the then
Chairman of Punjab National Bank, was constituted by the RBI in
July 1974 with eminent personalities drawn from leading banks,
financial institutions and a wide cross-section of the Industry with
a view to study the entire gamut of Bank's finance for working
capital and suggest ways for optimum utilization of Bank credit.
This was the first elaborate attempt by the central bank to
organize the Bank credit.
The report of this group is widely known as Tandon Committee
Most banks in India even today continue to look at the needs of
the corporates in the light of methodology recommended by the
As per the recommendations of Tandon Committee, the
corporates should be discouraged from accumulating too much of
stocks of current assets and should move towards very lean
inventories and receivable levels.
The committee even suggested the maximum levels of Raw
Material, Stock-in-process and Finished Goods which a corporate
operating in an industry should be allowed to accumulate.
These levels were termed as inventory and receivable norms.
Depending on the size of credit required, the funding of these
current assets (working capital needs) of the corporates could be
met by one of the following methods:


Banks can work out the working capital gap, i.e. total current
assets less current liabilities other than bank borrowings (called
Maximum Permissible Bank Finance or MPBF) and finance a
maximum of 75 per cent of the gap; the balance to come out of
long-term funds, i.e., owned funds and term borrowings.
This approach was considered suitable only for very small
borrowers i.e. where the requirements of credit were less than
Rs.10 lacs


Under this method, it was thought that the borrower should

provide for a minimum of 25% of total current assets out of long-
term funds i.e., owned funds plus term borrowings.
A certain level of credit for purchases and other current liabilities
will be available to fund the build up of current assets and the
bank will provide the balance (MPBF).
Consequently, total current liabilities inclusive of bank borrowings
could not exceed 75% of current assets.
RBI stipulated that the working capital needs of all borrowers
enjoying fund based credit facilities of more than Rs.10 lacs
should be appraised (calculated) under this method.


Under this method, the borrower's contribution from long term

funds will be to the extent of the entire CORE CURRENT ASSETS,
which has been defined by the Study Group as representing the
absolute minimum level of raw materials, process stock, finished
goods and stores which are in the pipeline to ensure continuity of
production and a minimum of 25% of the balance current assets
should be financed out of the long term funds plus term
(This method was not accepted for implementation and hence is
of only academic interest)




State Bank of India (SBI) (LSE: SBID) is the largest bank in India.
It is also, measured by the number of branch offices and
employees, the largest bank in the world.
Established in 1806 as Bank of Bengal, it remains the oldest
commercial bank in the Indian Subcontinent.
It provides a range of banking products through its vast network
in India and overseas, including products aimed at NRIs.
With an asset base of $126 billion and its reach, it is a regional
banking behemoth.
The Government of India nationalized SBI in 1955 with the
Reserve Bank of India having a 60% stake.
SBI has laid emphasis on reducing the huge manpower through
Golden handshake schemes and computerizing its operations.


The SBI’s powerful corporate banking formation deploys multiple

channels to deliver integrated solutions for all financial challenges
faced by the corporate universe. The Corporate Banking Group
and the National Banking Group are the primary delivery channels
for corporate banking products.

The Corporate Banking Group consists of dedicated Strategic

Business Units that cater exclusively to specific client groups or
specialize in particular product clusters. Foremost among these
specialized groups is the Corporate Accounts Group (CAG),
focusing on the prime corporate and institutional clients of the
country’s biggest business centers. The others are the Project
Finance unit and the Leasing unit.
The National Banking Group also delivers the entire spectrum of
corporate banking products to other corporate clients, on a
nationwide platform.


1. PARTICULARS AS ON AS ON GROWTH 31.03.2006 30.03.2007 %

(Amount in Rs. crore)
Deposits 15,406 16,882 9.58
Advances(including food) 84,823 1,06,581 25.65
Advances(excludingfood) 78,721 98,273 24.84


CAG’s loan portfolio constituted about 24% of the Bank’s

Commercial and Institutional non-food credit and 11.75% of the
total domestic credit portfolio as on 31.03.2007.


During the year 2006-07, Corporate Accounts Group ( CAG) has

focused on increasing its fee based income, which registered an
impressive growth of approx. 44% Y-O-Y.
To this end, it has put in place different technology based
products offering wholesale banking services to our corporate
customers to enable them to fully outsource their Accounts
Payable and Accounts Receivable function.
A new Group - Institutional Accounts Group has been formed for
focusing on Banks and Financial Institutions, providing them with
various Banking Products/ Services, and for forming strategic
alliances in the areas of mutual interest.
SBI FAST, the CMP Product offered by CAG, had a turnover of Rs.
5,06,752 crore as on 31.03.2007.
CMP is now comprehensive cash management solution, offering
payments in addition to collections.
CMP also empowers the corporates in their liquidity management
by offering auto sweep facility, customized MIS and reconciliation
Introduction of Direct Debit facility, handling Bulk RTGS
transactions, Bulk Drafts printing, Dispersed Direct Credits are
some of the new initiatives.
CAG is now well poised to recapture the interest and dividend
warrants business of the large corporates.
All the CAG branches have migrated to Core Banking Platform.
Vendor financing package, which provides easy finance against
the receivables of various vendors of our corporates across the
country has been successfully implemented in 6 branches in 3
Circles, and is now ready for a full scale rollout.
Six Sigma has enabled CAG to continue on the growth trajectory
in the forex business registering Y-O-Y growth of nearly 44%.
The forex turnover reached Rs. 2,04,273 crore, as on 31.03.2007.

CAG is a major contributor to the forex kitty with around 40%

share in the total domestic forex turnover of SBI.
With the active co-operation of Treasury Marketing Units, CAG
has marketed for derivative business to the tune of Rs. 8,651


In view of unfavourable climate and availability of alternative

funding options at cheaper cost, the Bank decided not to write
leases during the current year also.
As at the end of March 2007, the disbursements and
capitalization were “NIL” and profit amounted to Rs.16.42 crore.

The Project finance-SBU focuses on funding core projects like

power, telecom, roads, ports, airports, SEZ and others. It also
handles non-infrastructure projects with certain ceilings on
minimum project costs. During the year, the focus was on
syndication and underwriting of project loans.



In order to maintain our premier position in the financial services

arena the Bank has institutionalized innovation and change.
Against this backdrop, and in order to quickly identify and respond
to emerging opportunities the Bank created the position of Dy
Managing Director (Corporate Strategy & New Businesses) in the
year 2006.
During the last one and a half year, various new business
initiatives have been undertaken by the Bank, as under:


State Bank of India has been appointed as a sponsor of Pension

Fund Manager (PFM) by PFRDA to manage the pension funds of
Central and State Govt.
Employees under New Pension System (NPS) of Govt. of India.
SBI Pension Funds Pvt. Ltd. has been incorporated as a wholly
owned subsidiary of State Bank of India to manage the pension
funds under NPS.
The Company has been allocated the largest share (55%) in the
pension fund corpus.


Financial Planning and Advisory Services initiative is focused on
deepening the existing relationship of the Bank with mass affluent
and high-end customers and help them in managing their assets
through a mix of products/strategies.
Our relationship managers will advise the customers to meet
their needs of protection, invest in various classes of assets
through investment planning, tax planning, retirement and real
estate plans.
Going forward, we plan to commence wealth management
services by March 2009 and further introduce private banking by
March 2012.


The proliferation of mobiles has led to the emergence of a new

channel for the delivery of basic banking services and small value
e-commerce services.
Considering the immense potential and the cost effectiveness of
delivery, the Bank has decided to introduce mobile telephone
based banking services which we plan to commence before the
end of the first quarter of 2008-09.


The Bank has identified private equity in different areas as a key

new business.
The rapid expansion of Indian economy, especially in growth
sectors like Technology, Pharma, Health Care, Realty and
Infrastructure, has opened up large opportunities of equity
funding which have continuously shown superior returns.
The Bank is at an advanced stage of preparedness for setting up
various equity funds.
Regulatory approval processes and JV formation are under
implementation and a few funds are expected to be floated by the
end of first half of the financial year.


With increasing securities transactions originating from domestic

and foreign investors, there is an excellent demand for providing
full range of custodial services.
Accordingly, the bank has decided to expand its present
capabilities in the domestic custody and offer these services as a
new business in collaboration with a leading global custodian.
The process of forming the Joint Venture is at an advanced stage.

In addition to Custody (local and foreign institutional) &

Depository services the JV would provide other value added
services like Fund administration and securities lending and
borrowing services on a full fledged Straight Through Processes
(STP) and web enabled environment.

While SBI Life is meeting a part of the requirements under

Protection Services, the insurance offering bouquet will be
complete with the inclusion of General Insurance products, greatly
enhancing the customer value proposition at our vast branch
network and enhancing the brand value of the Bank.
With this end in view the Bank has decided to enter General
Insurance Business through the joint venture route.
The Bank aspires to be amongst the top 3 players in the General
Insurance space within a period of 10 years.
It is expected that the JV partner will be identified shortly and
MOU/ Definitive Agreement(s) will be signed during the quarter
ending June ‘08.
After this process, Insurance Regulators (IRDA) and RBI will be
approached for seeking regulatory clearances.
We anticipate the start of the business by the year end.


The increase in usage of cards of various kinds provides huge

We are in the process of entering merchant acquisition services
through a
Joint Venture subsidiary in order to bring in the best practices and
services at par with international benchmarks.
We expect this business to grow substantially over the next few
years and achieve market leadership position.


During the year, the first Mass Internal Communication

Programme named "Parivartan" was rolled out across the Bank.
Over 3300 inclusive Two Day workshops were conducted by over
360 specially trained Trainers in a span of 100 days covering
1,30,000 employees.
Never in the history of the bank had so many been trained in so
short a time.
The workshops caught the imagination of all employees and
unleashed a new positive energy.
A professional Study conducted by Xavier Institute of
Management, Bhubaneswar, found that Parivartan had brought
about a perceptible positive change in each of the 25 identified
Customer Service parameters.
As a part of the Transformation process, special brain storming
Conclaves were held for the Top 55 CAG branches, all Heads of
OAD at OLROs/RBOs/ ZOs/LHOs and Assistant General Manager
(RTI) at Corporate Centre have been designated as Assistant
Public Information Officers (ACPIOs).
General Managers of Networks at Local Head Offices, Deputy
General Managers & Branch Heads of Corporate Account Group,
General Manager of Mid Corporate- Region, General Manager of
Stressed Assets Management Group (SAMG) and General Manager
(OL & CS) at Corporate Centres have been designated as Central
Public Information Officers (CPIOs).
The Chief General Managers of LHOs, Corporate Account Group,
Mid Corporate Group, Stressed Assets Management Group have
been designated as Appellate Authority under the Act in their
respective area of control and Chief General Manager (Banking
Operations) for Corporate Centres and its establishments.
An exclusive ‘RTI Department’, has been created at Corporate
Centre to handle and coordinate various issues under the Act.

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