Beruflich Dokumente
Kultur Dokumente
PROJECT REPORT
ON
BENEFITS OF FOREIGN OPERATIONS OF
INDIAN
BANKS
SUB TOPIC
STRATEGIES AND METHODOLOGIES FOR LEVERAGING AND
EXPANDING FOREIGN EXCHANGE BUSINESS IN NEW DELHI
Submitted by
MUDIT VARSHNEY
ROLLNO.-FIB1527
JAGAN INSTITUTE OF MANAGEMENT STUDIES
SECTOR 5, ROHINI
NEW DELHI
DECALARATION
I here by declare that this project titled BENEFITS OF FOREIGN
OPERATIONS OF INDIAN BANKS submitted by the undersigned to
JIMS has been carried out by me. Further I declare that this is my original
work carried out under the guidance of Dr. Ritu Bajaj (DEAN) in partial
fulfillment of PGDM Course for the award of diploma.
All the contents of this project report are true and to my best of knowledge
has not been submitted earlier to any other university or institution for
award of Degree / Diploma / Certificate or published any time earlier.
Signature
Name:
Roll no:
PREFACE
In every field of education imparted to the student, working on project plays an immense role
in bringing out and exhibiting the qualities which are helpful in implementing students
knowledge in the practical life.
When it comes to the practical knowledge in Financial field, there are number of areas to be
specialized in. one can go for core finance like working capital management, Investment
decisions, capital structure decisions, credit policies etc, and one can look forward to equity
and forex markets as well. Both are important part of the Finance. But amongst all these
fields tremendous opportunities are residing in the Foreign Exchange field. As in India, the
FOREX system is main fundamental thing for any kind of International business.
What is the lure of the foreign exchange market? How did it grow to be the most powerful
and important market in the world? And how can you benefit from it?
The foreign exchange market directly impacts every bond, equity, private property,
manufacturing asset and any investments accessible to foreign investors. Foreign exchange
rates play a major role in financing government deficits, equity ownership in companies and
real-estate holdings. Foreign exchange trading helps determine who hires and fires
employees, and who owns the banks at which you maintain your corporate and personal
accounts. The currency in your pocket is literally stock in your country, and like a share, its
value fluctuates on the international market providing knowledgeable traders with substantial
opportunities for profit or loss.
Getting the deep and practical knowledge of this field can be of great help to the students
who are interested in finance. This kind of training and projects can help the students to use
their theoretical knowledge on the practical aspects of the field.
-2-
ACKNOWLEDGEMENT
Study of management is all about gaining knowledge from the experience one gets from the
corporate world. When students get into the corporate world to gain the knowledge, they are
novice. They need and opportunity and of-course help of their seniors to explore the aspects
of business management.
We were given this opportunity by one of the best bank in the banking industries, especially
in forex business. We are obliged to AXIS BANK for providing us an opportunity to undergo
training in their esteemed organization.
We wish to express our heartfelt gratitude to
Mrs. Manjot Kaur
Asst Vice president
FOREX-AXIS BANK
GREEN PARK BRANCH,
For their immense help in making our training and project fruitful. We would also like to thank
all the employees of Green park Branch for their needed help.
I also thank Dr. Ritu Bajaj for his kind help in the subject and we are thankful to all other
faculty members at JAGAN INSTITUTE OF MANAGEMENT STUDIES for their kind support.
Finally, not to miss anyone, we thank all the people who have directly or indirectly helped us
a lot throughout the training period and in completion of our project successfully.
MUDIT VARSHNEY
EXECUTIVE SUMMARY
The important aspects of our project were to study various Forex
operations of Indian Banks and to suggest various strategies and
methodologies for leveraging and expanding forex business in New Delhi.
Chapter 1 contains basic history of the Foreign Exchange. I.e. the emergence of foreign
exchange market.
Chapter 2 contains some basic information on the Foreign Exchange. i.e. what exactly Foreign
Exchange and what does it include as well as provide.
Chapter 3 gives a broad idea the FOREX Market rates. Initiated with the top 6 most traded
currencies and factors affecting currency trading, and the later part of the chapter contains
various types of exchange rates and factors affecting exchange rates.
Chapter 4 contains the information about foreign exchange market and its size and scope both
from the perspective of the Indian and global economy. It also gives the broad idea about
various instruments of forex.
FOREX market is not a market where anyone who has money can come and participate; it has
its own guidelines. In chapter 5 these guidelines which are necessary for FOREX market and
which has been given by RBI are covered. Also the guidelines given by FEDAI are included.
Chapter 6 defines the role of different players of forex market. The major participants are
corporate customers, central banks, banks, investment firms, brokers etc.
Chapter 7 focuses on banks which was our focus of study continued with brief introduction and
overview of AXIS BANK.
Chapter 8 gives the idea about various foreign operations of AXIS BANK, like Export Finance,
Import Finance, LCs, ECBs, RTGS, EEFC accounts, Correspondent banking and the benefits
of these operations to AXIS BANK.
-5-
Chapter 9 highlights the various benefits of foreign operations of Indian Banks particularly of
AXIS BANK.
After studying the various operations and benefits of these operations
Chapter 10 deals with the strategies and methodologies arising out of our study for AXIS BANK
in general.
Chapter 11 focuses on strategies and methodologies that is essential for expanding and
leveraging forex business specially in New Delhi at some level.
Chapter 12 At the end depicts the action points that we have encountered during our summer
study at AXIS BANK, which can be useful for enhancing forex business of the bank.
-6-
RESEARCH METHODOLOGY
Main objective
Sub objectives
Scope
The project looks into the actual workings of AXIS BANK. In its Forex System study
we tried to cover every objective of the project, mentioned above and various aspects
of the Forex business. Scope of our project study is restricted only to foreign
exchange branch of AXIS BANK.
Limitations
-7-
Time constraints
Resource constraints
TABLE OF CONTENTS
1.
2.
3.
HISTORY
10
1.1
11
FOREIGN EXCHANGE
13
2.1
2.2
2.3
14
15
15
16
3.1
3.2
17
18
18
19
19
EXCHANGE RATES
21
3.3.1 DEFINITION
3.3.2 DIRECT QUOTE
3.3.3. INDIRECT QUOTE
21
21
21
23
3.4
28
4.1
4.2
4.3
30
31
32
4.3.1 SPOTS
4.3.2. FORWARDS
4.3.3 FUTURES
4.3.4 OPTIONS
4.3.5 SWAPS
32
32
32
32
33
36
4.4
5.
-8-
3.3
4.
GUIDELINES
37
5.1
5.2
38
40
RBI
FEDAI
6.
7.
MARKET PARTICIPANTS
41
6.1
6.2
6.3
6.4
6.5
6.6
6.7
43
43
44
44
44
45
45
BANKS
46
7.1
7.2
7.3
47
48
51
52
53
53
7.4
8.
CORPORATE CUSTOMERS
CENTRAL BANKS
INVESTMENT MANAGEMENT FIRMS
RETAIL EXCHANGE BROKERS
OVERSEAS FOREX MARKETS
SPACULATORS
BANKS
FOREX OPERATIONS
55
8.1
8.2
8.3
8.4
8.5
8.6
8.7
8.8
8.9
57
58
62
64
70
75
77
79
80
FCNR
EXPORT FINANCE
IMPORT FINANCE
LCs
ECBs
EEFC
RTGS
CORRESPONDENT BANKING
INTERNATIONAL TREASURY
9.
81
10.
84
89
11.
12.ACTION POINTS
93
BIBLIOGRAPHY
96
-9-
Initially, the value of goods was expressed in terms of other goods, i.e. an economy
based on barter between individual market participants. The obvious limitations of such a
system encouraged establishing more generally accepted means of exchange at a fairly
early stage in history, to set a common benchmark of value. In different economies,
everything from teeth to feathers to pretty stones has served this purpose, but soon metals,
in particular gold and silver, established themselves as an accepted means of payment as
well as a reliable storage of value.
Originally, coins were simply minted from the preferred metal, but in stable political
regimes the introduction of a paper form of governmental IOUs (I owe you) gained
acceptance during the middle Ages. Such IOUs, often introduced more successfully through
force than persuasion were the basis of modern currencies.
Before the First World War, most central banks supported their currencies with
convertibility to gold. Although paper money could always be exchanged for gold, in reality
this did not occur often, fostering the sometimes disastrous notion that there was not
necessarily a need for full cover in the central reserves of the government.
At times, the ballooning supply of paper money without gold cover led to devastating
inflation and resulting political instability. To protect local national interests, foreign exchange
controls were increasingly introduced to prevent market forces from punishing monetary
irresponsibility.
In the latter stages of the Second World War, the Bretton Woods agreement was
reached on the initiative of the USA in July 1944. The Bretton Woods Conference rejected
John Maynard Keynes suggestion for a new world reserve currency in favor of a system built
on the US dollar. Other international institutions such as the IMF, the World Bank and GATT
(General Agreement on Tariffs and Trade) were created in the same period as the emerging
victors of WW2 searched for a way to avoid the destabilizing monetary crises which led to the
war. The Bretton Woods agreement resulted in a system of fixed exchange rates that partly
reinstated the gold standard, fixing the US dollar at USD35/oz and fixing the other main
currencies to the dollar - and was intended to be permanent.
- 11 -
The Bretton Woods system came under increasing pressure as national economies
moved in different directions during the sixties. A number of realignments kept the system
alive for a long time, but eventually Bretton Woods collapsed in the early seventies following
president Nixon's suspension of the gold convertibility in August 1971. The dollar was no
longer suitable as the sole international currency at a time when it was under severe
pressure from increasing US budget and trade deficits.
The following decades have seen foreign exchange trading develop into the largest
global market by far. Restrictions on capital flows have been removed in most countries,
leaving the market forces free to adjust foreign exchange rates according to their perceived
values.
But the idea of fixed exchange rates has by no means died. The EEC (European
Economic Community) introduced a new system of fixed exchange rates in 1979, the
European Monetary System. This attempt to fix exchange rates met with near extinction in
1992-93, when pent-up economic pressures forced devaluations of a number of weak
European currencies. Nevertheless, the quest for currency stability has continued in Europe
with the renewed attempt to not only fix currencies but actually replace many of them with the
Euro in 2001.
The lack of sustainability in fixed foreign exchange rates gained new relevance with
the events in South East Asia in the latter part of 1997, where currency after currency was
devalued against the US dollar, leaving other fixed exchange rates, in particular in South
America, looking very vulnerable.
But while commercial companies have had to face a much more volatile currency
environment in recent years, investors and financial institutions have found a new
playground. The size of foreign exchange markets now dwarfs any other investment market
by a large factor. It is estimated that more than USD1,200 billion is traded every day, far more
than the world's stock and bond markets combined
Today, the values of the major world currencies are independent of each other, with
intervention available to the states only through the central banking system.
- 12 -
Countries of the world have been exchanging goods & services amongst themselves
from time immemorial. The world has come a long way from the days of barter trade. With
the inventions of money, the rigors & problems of barter trade have disappeared. Barter trade
has made way to exchange of goods & services for money instead of exchange for other
goods & services.
As every sovereign nation has a distinct national currency, international trade has
involved exchange of currencies. It is said that although the business of changing money is
as old as money itself, the foreign exchange markets where currencies of different countries
are exchanged, started taking shape only in late nineteenth century. The exchange of
currencies has brought about the concept of exchange rates.
Like any other commodity, the price of one unit of foreign currency can be stated in
terms of domestic currency; in fact a unit of one currency can be stated in terms of any other
currency. Rate of exchange means the price of one currency in terms of other currency. To
state differently, the exchange rate is said to be the rate at which a number of units of one
currency can be exchanged for a number of units of another currency. Simply defined,
exchange rate is nothing but value of one currency expressed in terms of another currency.
For example, the price of US Dollar (USD) of Japanese Yen (JPY) or Pound Sterling (GBP)
can be expressed in terms of Indian Rupees (INR). Thus, if we say USD 1 = INR 47.00. It
means the exchange of US Dollar & Indian Rupees is 1:47.00. Similarly, GBP 1= INR 77
meaning that the exchange rate of Sterling Pounds & Indian Rupee is 1:77.
Different countries have adopted different exchange rate system at different times.
- 14 -
Confidence that the terms of the trade will be adhered to i.e. limits
The means to obtain / provide technology, expertise and the sharing of information
The means to minimize the risks of currency fluctuations primarily through the
use of various tools and financial instruments, and
- 15 -
Currency
ISO 4217
Code
Symbol
USD
Eurozone euro
EUR
Japanese yen
JPY
GBP
5-6
Swiss franc
CHF
5-6
Australian dollar
AUD
- 17 -
Economic factors
These include economic policy, disseminated by government agencies and central
banks, economic conditions, generally revealed through economic reports, and other
economic indicators.
- 18 -
Inflation levels and trends: Typically, a currency will lose value if there is a high level of
inflation in the country or if inflation levels are perceived to be rising. This is because inflation
erodes purchasing power, thus demand, for that particular currency.
Economic growth and health: Reports such as gross domestic product (GDP), employment
levels, retail sales, capacity utilization and others, detail the levels of a country's economic
growth and health. Generally, the more healthy and robust a country's economy, the better its
currency will perform, and the more demand for it there will be.
Political conditions
Internal, regional, and international
profound effect on currency markets.
For instance, political upheaval and instability can have a negative impact on a
nation's economy. The rise of a political faction that is perceived to be fiscally responsible can
have the opposite effect. Also, events in one country in a region may spur positive or
negative interest in a neighboring country and, in the process, affect its currency.
Market psychology
Market psychology and trader perceptions influence the foreign exchange market in a
variety of ways:
Flights to quality:
Unsettling international events can lead to a "flight to quality" -with investors seeking
a "safe haven". There will be a greater demand, thus a higher price, for currencies perceived
as stronger over their relatively weaker counterparts.
- 19 -
Long-term trends:
Very often, currency markets move in long, pronounced trends. Although currencies
do not have an annual growing season like physical commodities, business cycles do make
themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic
or political trends.
"Buy the rumor, sell the fact:" This market truism can apply to many currency
situations. It is the tendency for the price of a currency to reflect the impact of a particular
action before it occurs and, when the anticipated event comes to pass, react in exactly the
opposite direction. This may also be referred to as a market being "oversold" or "overbought".
[5]
To buy the rumor or sell the fact can also be an example of the cognitive bias known as
anchoring, when investors focus too much on the relevance of outside events to currency
prices.
Economic numbers:
While economic numbers can certainly reflect economic policy, some reports and
numbers take on a talisman-like effect - the number itself becomes important to market
psychology and may have an immediate impact on short-term market moves. "What to
watch" can change over time. In recent years, for example, money supply, employment,
trade balance figures and inflation numbers have all taken turns in the spotlight.
- 20 -
[6]
Exchange rates
Although exchange rates are affected by many factors, in the end, currency prices are a
result of supply and demand forces. The world's currency markets can be viewed as a huge
melting pot: in a large and ever-changing mix of current events, supply and demand factors
are constantly shifting, and the price of one currency in relation to another shifts accordingly.
No other market encompasses (and distills) as much of what is going on in the world at any
given time as foreign exchange.
Definition
Rate of Exchange
A rate of exchange is the price of a unit of one Currency expressed in terms of another
currency. Such rates may be quoted as Direct rates or as Indirect rates. Reserve Bank of
India does not deal directly with the customers i.e. importers, exporters, remitters,
beneficiaries of remittances etc. Popularly called "Merchants" and therefore, has authorised
some of the banks for this purpose. Reserve Bank of India, under Foreign Exchange
Management Act, 1999, Section 10) has granted Authorised Dealer's licence to various
banks to deal in Foreign Exchange. FEDAI frames rules for the same. The exchange rates
quoted to these "Merchants" are known as "Merchant Rates".
Direct quotations
Under a system of Direct Quotations, the exchange rates are quoted where the unit(s) of
foreign currency remains constant, whereas the home currency units fluctuate:
I.e.
US $ 1 = Rs. 44.60
US $ 1 = Rs. 44.80 etc.
Indirect Quotations
Under a system of Indirect Quotations, the exchange rates are quoted where the unit(s) of
home currency remains constant against variable units of foreign currency.
I.e. Rs. 100/- = US $ 2.2421
Rs. 100/ = US $ 2. 2415
- 21 -
In India we follow the direct method of quoting exchange rates. In this system of rate
quotation, the principle applied is "Buy Low, Sell High". We quote so many Rupees and Paise
for 1 unit of foreign currency or 100 units of foreign currency. All exchange rates in Indian
Rupees are quoted for 1 unit of foreign currency, except the following currencies for which
the exchange rates are quoted against 100 units of foreign currencies:
- 22 -
Indonesian Rupiah
Japanese Yen
Kenyan Shillings
Bangladesh Taka
Myanmar Kyat
Iranian Rial
Pakistani Rupees
- 23 -
- 24 -
- 25 -
(IX) Speculation
In FOREX markets, a dealer taking speculative positions is common. If a few big
speculative operators are buying/selling a particular currency in a big way, others may follow
suit and that currency may strengthen/weaken in the short run. This is popularly known as
the bandwagon effect and this can affect exchange rates significantly, particularly in the
near term.
- 26 -
- 27 -
For any currency the main foreign exchange market is the country's financial centre viz. for genuine, trade related corporate business. This is the centre where the country's
central bankers and monetary authorities determine and implement their monetary policies,
its investment strategies and above all its intervention polices to ensure stability in its
currency markets. This is the centre where the country's business leaders transact their trade
related financial deals and where the rest of the world comes to as a last resort to cover its
requirements.
However, for major world currencies, the world is a 24 hour market that stretches from
Wellington to Los Angeles. In this global marketplace there are certain major trading centers
called "money centers" and these are Tokyo, Hong Kong, Singapore, Bahrain, London,
Frankfurt, Zurich, New York and Los Angeles.
- 29 -
Spot transactions and forward outright FX trading takes place in the inter-bank market.
51% of the market is in spot FX transactions, followed by 32% in currency swap transactions.
Forward outright FX transactions represent another 5% of this daily turnover. Options on
inter-bank FX transactions making up another 8%. Therefore the inter-bank market accounts
for 96% of the global foreign exchange market, with the remaining 4% being divided among
all the global futures exchanges.
The foreign exchange (currency or forex or FX) market exists wherever one
currency is traded for another. It is by far the largest financial market in the world, and
includes trading between large banks, central banks, currency speculators, multinational
corporations, governments, and other financial markets and institutions. The average daily
trade in the global forex markets currently exceeds
(individuals) are a small fraction of this market and may only participate indirectly through
brokers or banks.
the large number of, and variety of, traders in the market,
- 30 -
The market has its own momentum, follows its own imperatives, and arrives at its own
conclusions. These conclusions impact the value of all assets -it is crucial for every individual
or institutional investor to have an understanding of the foreign exchange markets and the
forces behind this ultimate free-market system.
Inter-bank currency contracts and options, unlike futures contracts, are not traded on
exchanges and are not standardized. Banks and dealers act as principles in these markets,
negotiating each transaction on an individual basis. Forward "cash" or "spot" trading in
currencies is substantially unregulated - there are no limitations on daily price movements or
speculative positions
- 31 -
Spots
A spot transaction is a two-day delivery transaction, as opposed to the
futures
contracts, which are usually three months. This trade represents a direct exchange
between two currencies, has the shortest time frame, involves cash rather than a contract;
and interest is not included in the agreed-upon transaction. The data for this study come from
the
instruments.
Forwards
One way to deal with the Forex risk is to engage in a forward transaction. In this
transaction, money does not actually change hands until some agreed upon future date. A
buyer and seller agree on an exchange rate for any date in the future, and the transaction
occurs on that date, regardless of what the market rates are then. The duration of the trade
can be a few days, months or years.
Futures
Foreign currency futures are forward transactions with standard contract sizes and
maturity dates for example, 500,000 British pounds for next November at an agreed rate.
Futures are standardized and are usually traded on an exchange created for this purpose.
The average contract length is roughly 3 months. Futures contracts are usually inclusive of
any interest amounts.
Options
A foreign exchange option (commonly shortened to just FX option) is a derivative
where the owner has the right but not the obligation to exchange money denominated in one
currency into another currency at a pre-agreed exchange rate on a specified date. The FX
options market is the deepest, largest and most liquid market for options of any kind in the
world.
- 32 -
Swap
The most common type of forward transaction is the currency swap. In a swap, two
parties exchange currencies for a certain length of time and agree to reverse the transaction
at a later date. These are not contracts and are not traded through an exchange.
Forex swap
Forex swap is an over the counter short term interest rate derivative instrument. A
Forex swap consists of a spot foreign exchange transaction entered into at exactly the same
time and for the same quantity as a forward foreign exchange transaction. The forward
portion is the reverse of the spot transaction, where the spot purchase is offset by a forward
selling. In this reason, surplus funds in one currency are for a while swapped into another
currency for better use of liquidity. Protects against adverse movements in the forex rate, but
favourable moves are renounced.
The fixed rate in this transaction is the forward rate that is locked in by the forward
contract. The floating rate will be the overnight rate that is realized on a daily basis by the
spot transaction. Typically, the floating side of these trades are indexed to the Overnight
Index Swap (OIS) rate. This rate is an average of the rates that are paid based on a survey.
It should not be confused with a currency swap, which is a much rarer, long term
transaction, governed by a slightly different set of rules.
In emerging money markets, Forex swaps are usually the first derivative instrument to be
traded, ahead of Forward rate agreements.
- 33 -
Currency swap
A currency swap is a foreign exchange agreement between two parties to exchange a
given amount of one currency for another and, after a specified period of time, to give back
the original amounts swapped.
Currency swaps can be negotiated for a variety of maturities up to at least 10 years. Unlike a
back-to-back loan, a currency swap is not considered to be a loan by
accounting laws and thus it is not reflected on a company's
United States
considered to be a foreign exchange transaction (short leg) plus an obligation to close the
swap (far leg) being a forward contract.
Currency swaps are often combined with interest rate swaps. For example, one company
would seek to swap a cash flow for their fixed rate debt denominated in US dollars for a
floating-rate debt denominated in
Europe where
companies "shop" for the cheapest debt regardless of its denomination and then seek to
exchange it for the debt in desired currency.
- 34 -
Interest rate swaps are often used by companies to alter their exposure to interest-rate
fluctuations, by swapping fixed-rate obligations for floating rate obligations, or vice versa. By
swapping interest rates, a company is able to alter their interest rate exposures and bring
them in line with management's appetite for interest rate risk.
Example
Consider the following illustration in which Party A agrees to pay Party B periodic
interest rate payments of LIBOR + 50 bps (0.50 %) in exchange for periodic interest rate
payments of 3.00 %. Note that there is no exchange of the principal amounts and that the
interest rates are on a "notional" (i.e. imaginary) principal amount. Also note that the interest
payments are settled in net (e.g. if LIBOR + 50 bps is 1.20 % then Party A receives 1.80 %
and Party B pays 1.80 %). The fixed rate (3.00 % in this example) is referred to as the swap
rate.
Trading An interest-rate swap is one of the more common forms of over-the-counter
derivatives. It is the most widely used derivative in terms of its outstanding notional amount,
but it's not standardized enough and doesn't have the properties to easily change hands in a
way that will let it be traded through a futures exchange like an option or a futures contract.
- 35 -
Banks: One authorized dealer dealing with another to generate profit or cover its
open exposure.
Overseas Traders: Banks in India are permitted to buy and sell currencies abroad
in cover of customer requirements. They have very recently been permitted to
initiate positions abroad too. Overseas banks call banks in India to cover their
Indian Rupee requirements.
Authorized Dealers v/s RBI: This occurs only when the RBI intervenes in the
market and not in the normal course.
The Indian FX Market has seen a remarkable growth in the last few years. The reasons for
are:
Relaxation of controls by RBI and permitting banks to deal freely in the Inter-bank
market - this essentially is the process of economic reforms.
A virtual explosion in volumes in global FX market and Indian markets follows suit.
36 -
RBI
(RESERVE BANK of INDIA)
Guidelines
1. Category
Exporter
Importer
2. Currency Blanket Permission. The currency which has no blanket permission has to
go through RBI reference or say RBI reference is necessary for those currencies for
doing any kind of trading. The currencies with blanket permission are USD, EUR,
GBP, CHF, JPY, AUD and CAD. These currencies are used for payment of Imports;
accept of Exports and for borrowing.
3. Trade Amount (expect for borrower)
4. Duration
On the date or above the starting period and before the end date.
5. Speculation
6. Trading
38 -
RBI permits importers and exporters to hedge their exposures (partial or full)
at any time from the commencement to the termination of the FX risk
- 39 -
FEDAI
FOREIGN EXCHANGE DEALERS ASSOCIATION OF INDIA
Foreign Exchange business in India was confined to few foreign banks only till the
period 1959. The said group banks were known as Exchange Banks. They had formed an
Association, which was known as the "Exchange Banks' Association". It was mainly
covering the areas of activities within Bombay (now Mumbai), Calcutta (now Kolkata),
Madras (now Chennai), Delhi and Amristsar. On introduction of the exchange control in
India during 1939, the said Association was functioning within rules framed by RBI. The
rules and regulations - introduced and practiced were also covered by RBI approval. On
account of expansion in the foreign trade, and business, RBI allowed schedule commercial
banks also to undertake foreign exchange transactions. Those banks which were allowed
and permitted by RBI to deal in foreign exchange transactions were known as AD Authorized Dealers. The FEDAI - Foreign Exchange Dealers' Association of India was
formed with approval of RBI during August 1958. It was under ECM-RBI directives under
reference ECS/198/86-58-Gen dated 16th August, 1958, authorized the banks to handle
foreign exchange business.
All Public sector banks, foreign banks, private sector and co-operative banks and
certain Financial institutions are the members of FEDAI. FEDAI is a non-profit making
Association and relative expenses are shared by all its member banks. FEDAI acts as a
facilitating body and in consultation with Reserve Bank of India, frames rules / regulations
for AD in India for conduct of the foreign exchange business related transactions.
FEDAI is the Association of the member Banks. Naturally, the guidelines and rules
prepared were of interest of the member Banks. However, on account of liberalization and
reforms introduced during 1991 to boost the foreign trade to and fro India, it becomes
imperative by FEDAI to review Rules and Guidelines. FEDAI has also taken due care of the
interest of both Importers and Exporters while revising rules and guidelines
- 40 -
Unlike a stock market, where all participants have access to the same prices, the
Forex market is divided into levels of access. At the top is the inter-bank market, which is
made up of the largest investment banking firms. Within the inter-bank market, spreads,
which are the difference between the bid and ask prices, are razor sharp and usually
unavailable, and not known to players outside the inner circle. As you descend the levels of
access, the difference between the bid and ask prices widens. This is due to volume. If a
trader can guarantee large numbers of transactions for large amounts, they can demand a
smaller difference between the bid and ask price, which is referred to as a better spread. The
levels of access that make up the forex market are determined by the size of the line (the
amount of money with which they are trading). The top-tier inter-bank market accounts for
53% of all transactions. After that there are usually smaller investment banks, followed by
large multi-national corporations (which need to hedge risk and pay employees in different
countries), large hedge funds, and even some of the retail forex market makers. According to
Galati and Melvin, Pension funds, insurance companies, mutual funds, and other
institutional investors have played an increasingly important role in financial markets in
general, and in FX markets in particular, since the early 2000s. (2004) In addition, he notes,
Hedge funds have grown markedly over the 2001-2004 period in terms of both number and
overall size Central banks also participate in the forex market to align currencies to their
economic needs.
- 42 -
Corporate Customers
Institutional and Individual Customers, Exporters, Importers, Foreign Currency
Borrowers and Lenders, Investors and Fund Managers all form corporate customers. These
players can be major participants in markets where there are exchange controls and
restricted currency trading. An important part of this market comes from the financial activities
of companies seeking foreign exchange to pay for goods or services. Commercial companies
often trade fairly small amounts compared to those of banks or speculators, and their trades
often have little short term impact on market rates. Nevertheless, trade flows are an
important factor in the long-term direction of a currency's exchange rate. Some multinational
companies can have an unpredictable impact when very large positions are covered due to
exposures that are not widely known by other market participants.
Central Banks
National central banks play an important role in the foreign exchange markets. They
try to control the money supply, inflation, and/or interest rates and often have official or
unofficial target rates for their currencies. They can use their often substantial foreign
exchange reserves to stabilize the market. Milton Friedman argued that the best stabilization
strategy would be for central banks to buy when the exchange rate is too low, and to sell
when the rate is too high that is, to trade for a profit based on their more precise
information. Nevertheless, the effectiveness of central bank "stabilizing speculation" is
doubtful because central banks do not go bankrupt if they make large losses, like other
traders would, and there is no convincing evidence that they do make a profit trading.
The mere expectation or rumor of central bank intervention might be enough to stabilize a
currency, but aggressive intervention might be used several times each year in countries with
a dirty float currency regime. Central banks do not always achieve their objectives, however.
The combined resources of the market can easily overwhelm any central bank. Several
scenarios of this nature were seen in the 1992-93 ERM collapse, and in more recent times in
Southeast Asia.
- 43 -
They
with
banks. In India, they are not allowed to deal on their own account.
Overseas FX Markets
FX markets world-wide have an astronomical turnover which is estimated to run into
hundreds of billions of dollars. Of the total volume of FX trade, genuine corporate demand is
estimated to constitute only around 5% of the total volume. The FX market is largely
supported by a very advanced communication network which not only provides uninterrupted
information on world currencies, economies, politics and the like, it also is characterized by a
very large number of participants. This is what gives the market the depth and the clout it
has. Some of the most popular communication systems available in the market today are
Reuters Information Service, Telerate, Reuters Technical Analysis, Reuters TV, Knight Ridder,
Reuters Dealing System etc.
- 44 -
Speculators
Speculators are in the market mainly to generate trading income. The growth in
volumes, better communications, pressures to constantly generate profits and a general
improvement in competence have all contributed to see the emergence of the speculators as
a force to reckon with. Banks and corporate, at different times, can be speculators as well.
Banks
Banks are the most active market participants. They essentially perform the task of
market makers. With their ability to take on foreign exchange positions, they can quote
prices for their own account. They have the communication network, branches, support
from exchange brokers, access to overseas markets and limits with overseas banks which
enable them to be market makers. In India, RBI license to engage in FX transactions is
required and those that are granted this license are called Authorized Dealers. The
authorized dealers collectively constitute the Interbank Foreign Exchange (FOREX) market
in India.
The interbank market caters for both the majority of commercial turnover and large
amounts of speculative trading every day. A large bank may trade billions of dollars daily.
Some of this trading is undertaken on behalf of customers, but much is conducted by
proprietary desks, trading for the bank's own account.
- 45 -
For India to become an economic powerhouse, it would not suffice if one sector
alone performs. The engine of growth has to fire on all cylinders to have broad based
shift in income levels. Though the predominance on agriculture has come down, still
it provides the biggest pool of jobs. Manufacturing has its own pride of place though
its share has been taken partly by the service sectors envious growth levels. Banks
are in a position to contribute for the growth of all the three sectors. This would help
in rising income levels, generate savings, augment capital formation and thus be a
catalyst for all round growth.
- 47 -
AXIS BANK
BIRTH
AXIS BANK was founded by Maharaja Sayajirao Gaekwad of Baroda on July 20, 1908
with a paid up capital of Rs 10 lakhs. Since then the bank has traversed an eventful and
successful journey of almost 100 years. Today, AXIS BANK has a network of 2737 branches
including 42 overseas branches spread over 21 countries.
In mid-eighties, the AXIS BANK diversified into areas of merchant banking, housing
finance, credit cards and mutual funds. In 1995 Bank raised Rs 300 crores through a Bond
issue. In 1996 the Bank tapped the capital market with an IPO of Rs850 crores. AXIS BANK
took the lead in shifting from manual operating systems to a computerized work environment.
Today, the Bank has 1918 computerized branches, covering 70% of its network and 91.64%
of its business.
AXIS BANK gives high priority to quality service. In its quest for quality, the Bank has
secured the ISO 9001:2000 certifications for 15 branches.
- 48 -
- 49 -
Mission Statement
To be a top ranking National Bank of International
Standards committed to augmenting stake holders' value
through concern, care and competence.
LOGO
AXIS BANKs new logo is a unique representation of a universal symbol. It comprises
dual B letterforms that hold the rays of the rising sun. They call this the Baroda Sun.
The sun is an excellent representation of what the bank stands for. It is the single
most powerful source of light and energy its far reaching rays dispel darkness to illuminate
everything they touch. At AXIS BANK, they seek to be the source that will help all their
stakeholders realize their goals.
To AXIS BANKs customers, they seek to be a one-stop, reliable partner who will help
them address different financial needs. To their employees, they offer rewarding careers and
to their investors and business partners, maximum return on their investment. The singlecolour, compelling vermillion palette has been carefully chosen, for its distinctiveness as it
stands for hope and energy. They also recognize that their bank is characterized by diversity.
Their network of branches spans geographical and cultural boundaries and rural-urban
divides.
Their customers come from a wide spectrum of industries and backgrounds. The
Baroda Sun is a fitting face for their brand because it is a universal symbol of dynamism and
optimism it is meaningful for their many audiences and easily decoded by all. Their new
corporate brand identity is much more than a cosmetic change. It is a signal that they
recognize and are prepared for new business paradigms in a globalized world. At the same
time, they will always stay in touch with their heritage and enduring relationships on which
their bank is founded. By adopting a symbol as simple and powerful as the Baroda Sun, they
hope to communicate both.
- 50 -
- 51 -
Correspondent Links
AXIS BANKs International Banking network is further augmented by correspondent
links with more than 500 leading Banks in every country around the world over.
- 52 -
Indian Network
The international network is supported by a large Indian network through
International Business Branches, Non Resident Indian Branches, 115 Authorized Forex
Branches and more than 2600 other branches.
Being the one of largest banks of the country with the maximum number of branches
overseas, AXIS BANK is well positioned to offer a variety of services, products and financial
solutions to a cross section of clients. Our products suit our clients' banking requirements by
virtue of being one of the best banking relationship networks both in terms of strength and
spread among the Indian financial entities.
The cross border foreign currency lending to Indian corporate, trade finance and treasury
services are provided at the money center branches as well as the subsidiary in Hong Kong.
General banking services are provided at all the branches/ subsidiaries/ joint ventures.
- 54 -
AXIS BANK, one of the major public sector banks in India having a strong global
presence with a wide network of 61 overseas offices, including those of subsidiaries, spread
over 16 countries, is considered as a market leader in foreign exchange operations in India.
At present the Bank is having branches / offices in countries like USA, UK, Belgium, South
Africa, Hong Kong, UAE, Oman, Fiji Islands, Mauritius, Seychelles, Bahamas, Guyana,
Kenya, Uganda and Zambia.
The Bank has completed fifty years of operations in overseas territories and is poised
to expand its reach to countries like Tanzania and China, apart from consolidating its
overseas operations in those countries where the bank has already made its presence felt.
The modern state-of-the-art dealing room at its Specialized Integrated Treasury
Branch (SITB) at Mumbai provides the necessary wherewithal to its 115 designated branches
across the length and breadth of the country authorized to handle foreign exchange business
of its clientele. The bank has retained its primacy as a leading market maker both in spot and
forward markets, along with foreign exchange swap markets.
The forex dealing desk at the SITB is provided with all modern communication
facilities and is in the process of linking all its authorized branches via Reuters Automated
Dealing System, to provide on-line quotes for foreign exchange transactions.
Through its large network of authorized branches, the bank caters to the foreign
exchange needs of its clientele engaged in export and import trade and the SITB provides
rates for conversion of all major world currencies like U S Dollar, Sterling Pounds, Euro,
Swiss Francs, Japanese Yen and other exotic currencies. The services to the customers of
the Bank include hedging of foreign currency risks by providing forward covers and various
derivatives product
- 56 -
FCNR
FCNR Loans
Corporates can loans from the Banks who are authorised dealers. AXIS BANK grants
FCNR (B) Loans through its Position Maintaining Offices at Mumbai, Ahemdabad, Kolkata,
Chennai and New Delhi.
The Indian corporates/ firms are allowed to raise the funds through foreign currency
loans at the selected Indian branches within the prevailing policy guidelines of the Bank/ RBI.
Key Benefits
FCNR loans are beneficial to the corporates on account of following:
1.
2.
3.
4.
5.
6.
7.
- 57 -
EXPORT FINANCE
PACKING CREDIT
By way of pre-shipment advance for purchase, processing, manufacture, and packing
goods meant for export, against lodgement of firm export orders and /or irrevocable letter of
credit. The facility is normally secured by hypothecation/pledge of goods wherever possible
and against ECGC whole turn over packing credit guarantee.
The advance which is available at a concession rate of interest must be liquidated only
out of submission of export bills for negotiation/purchase etc. The period for which advances
are given is to be determined according to the nature of the business/process involved
subject to such maximum period as laid down by reserve bank of India.
- 58 -
GUARANTEES
Bank issues guarantees for waiver of excise duty, due performance of contract, bid
bonds, in lieu of cash security deposit, advance payment etc. Such a facility can be covered
under the guarantee cover of ECGC.
Financing of Exports
The following are main tasks performed by the export section of a foreign exchange dept.
a.
b.
c.
d.
e.
f.
g.
- 59 -
In case of cash exports ,the full proceeds of the bill should be received in India,
in an approved manner on the due date of payment or within six months from
the date of shipment whichever is earlier.
Any extension in this time limit requires the prior approval of the reserve bank
of India.
Post-shipment Finance
The bank finance disbursed to an exporter after the date of shipment is termed as post
shipment finance. The post shipment finance may be in the form of
1. Negotiation of export documents under the letters of credit, opened by the
overseas bank of repute(negotiating bank)
2. Purchase /discount of the export bills under the export contracts
3. Advance against receivables from government of India
4. Advance against consignment exports / undrawn / balances / Retention money.
5. Advance against export bills sent for collection.
- 60 -
Generally, the following documents are required to be submitted to the bank for
negotiation/purchase. The documents should be complete, correct, in full set and as
required in terms of the LC contract. The bank is expected to scrutinise them properly
to ensure the settlement of its claim by the reimburse/ issuing/ importer abroad:
1.
2.
3.
4.
5.
6.
7.
8.
- 61 -
IMPORT FINANCE
AXIS BANK provides various types of funding/ services to the importers for facilitating the
imports in the country. All the facilities are subject to the prevalent rules of the Bank/ RBI
guidelines. The various facilities provided are:
LETTER OF CREDIT
AXIS BANK offers L/C facility for the purchase of goods in the international market. Being a
well-known international Bank of repute, the L/Cs of the AXIS BANK are well accepted in the
International market. With the Letter of Credit of AXIS BANK, importers can build up better
trust/ confidence in their suppliers and develop other business relationship at a much faster
pace. The vast network of Bank's overseas branches/ subsidiaries and Correspondent Banks
world-wide facilitate prompt & efficient services to the importers. The L/C facility can be
granted to the importers after assessing their requirement/ credit worthiness/ financial
strength and other parameters being to the satisfaction of the Bank.
- 62 -
BANK GUARANTEES
- 63 -
LETTER OF CREDIT
Sales of goods are contracted privately between buyer and seller and a contract of
sale comes into being, which, among other things indicates the description, quantity, price of
the goods, terms of delivery and the method of payment desired. The buyer will ask his bank
to open for his account a commercial documentary letter of credit in favour of the seller if this
is a requirement of the contract. Therefore, while a contract of sale is between a buyer and a
seller, a letter of credit is an arrangement between the buyer and his bank i.e. an
arrangement of payment. The bank in issuing a letter of credit will in turn be entering into
another form of contract, because the letter of credit is itself a contractual obligation of the
bank to the beneficiary, who is the seller.
LETTERS OF CREDIT ARE SEPARATE TRANSACTIONS FROM THE SALES AND
OTHER CONTRACTS ON WHICH THEY MAY BE BASED AND BANKS ARE IN NO WAY
CONCERNED WITH OR BOUND BY SUCH CONTRACTS.
- 64 -
Article 2 of Uniform Customs and Practice for Documentary Credits (1993 Revision)
states that the expressions "Documentary Credit(s)", mean any arrangement, however
named or described, whereby a bank (the "Issuing Bank") acting at the request and on the
instructions of a customer (the "Applicant") or on its own behalf,
(i) is to make a payment to or to the order of a third party (the "Beneficiary") or is to accept
and pay bills of exchange. (Draft/s) drawn by the beneficiary
OR
(ii) Authorizes another bank to effect such payment or to accept and pay such bills of exchange
(Draft/s)
(iii) Authorizes another bank to negotiate
Therefore, essentially, a letter of credit is a written but a conditional undertaking given
by the issuing bank on behalf of its customer, to the beneficiary that it will pay him the
amount stated in the credit PROVIDED documents specified in the letter of credit are drawn
and presented in STRICT CONFORMITY with the terms and conditions of the credit. The
advantages of such an arrangement are obvious. The beneficiary gets payment as soon as
he presents the documents immediately after shipment of goods. The opener is able to
ensure that payment will be made by bank to the beneficiary only if the documents which he
has stipulated are correctly made out, and presented in time. In documentary credit
operations, all parties concerned deal with documents and not with goods, services and/or
other performances to which the documents may relate.
- 65 -
IMPORTANT CONDITIONS
The bank issuing a letter of credit (issuing bank) is making credit available to the opener.
Therefore, his credit- worthiness must be ascertained.
When the amount of the letter of credit is expressed in the beneficiary's currency, the opener
and his bank run an exchange risk and vice-versa.
Though banks deal with documents and not with goods in letter of credit operations, the
bank's security for its advance is the documents of title to the goods. If the opener fails to
honour the bill, the bank's advance will be in danger if the goods supplied are defective or
sub-standard. Therefore, the business integrity and financial standing of the beneficiary
should also be ascertained. It is the responsibility of the issuing bank to ensure that trade and
exchange regulations (EXIM Policy guidelines and FEMA 1999 Regulations) are not violated.
- 66 -
- 67 -
4. Transferable credit
When the beneficiary of credit is not the actual supplier or manufacturer, he requires such
credits to be opened, giving him the right to instruct the advising bank to make the Credit
available to third parties. The extent of transferability is now governed by Article 48 of
Uniform Customs (1993 Revision), which interalia provides that :
(a) it can be transferred only once unless otherwise stated in the Credit.
(b) only on the terms and conditions specified in the original Credit except for amount/ unit price/
and validity which may be reduced/ curtailed.
5. Revolving credit
Such Credits, generally used in local trade. The Credit is opened for a stated amount which
becomes available again after the previous drawing has been honored by the buyer. The
Credits indicate the total permitted drawings thereunder during the period of validity. The final
validity and total drawing clauses are very important clauses in such credits. Opening of
import revolving LCs should as far as possible be avoided. However, in exceptional cases
they may be opened with adequate safeguards/ conditions (subject to strict compliance of all
Import Trade and Exchange provisions and guidelines) particularly with reference to
aggregate drawings under such LC and shipment dates etc., after seeking approval from
Regional/ Zonal Authorities.
68 -
b. With effect from 1st April 2002, International Chamber of Commerce, Paris has issued
the eUCP as the supplement to UCP 500 (Verson 1.0). For details, reference may be
made to eUCP publication.
b. ICC Banking Commission appointed a task force to compile ISBP for examination of
documents drawn under a letter of credit. The task force came out with a report which
was approved by ICC Banking Commission in October 2002 and came out with the
publication
titled
as
International
Standard
Banking
Practice
for
the
c. It should be noted that this publication (ISBP) is not an amendment to UCP ICC 500. It
discreetly addresses the issues that commonly arise but not expressly treated in UCP.
- 69 -
ECB
1. The commercial borrowings raised from the International Market outside India by any
Indian legal entity registered under Companies Act, Co-operative Societies Act,
including Proprietorship/ Partnership concerns, are called external Commercial
Borrowings (ECBs.). The legal entities do not include the individuals, non-profit
organizations and Trusts.
2. It is clarified that only those cooperative societies which are commercial in nature and
whose accounts are up to date and have complied with the statutory guidelines
without any qualification would be eligible to raise ECBs.
3. No financial intermediary viz. Bank, NBFC will be allowed access to ECBs under any
route.
4. ECB availed by financial intermediaries need to be distinguished from those availed by
corporates. Further more, banks have the facility.
A. to borrow from its head office or branch or correspondents outside India up to
25 per cent of its unimpaired Tier-I Capital or US$ 10 million, whichever is
higher,
B. to borrow from its head office or branch or correspondents outside India
without limit for the purpose of replenishing Rupee resources (not for
investment in call money or other markets) and
C. to avail lines of credit from a bank / financial institution outside India without
any limit for the purpose of granting pre-shipment / post-shipment credit to its
constituents.
ECB can be accessed under two routes
(i) Automatic Route and
(ii) Approval Route
AUTOMATIC ROUTE
ECB for investment in real sector -industrial sector, especially infrastructure sector in
India, will be under Automatic Route, i.e. will not require RBI/Government approval.
Eligible borrowers
Corporates registered under the Companies Act except financial intermediaries (such
as banks, financial institutions (FIs), housing finance companies and NBFCs) are eligible.
- 70 -
End-use
ECB can be raised only for investment (such as import of capital goods, new projects,
modernization/ expansion of existing production units) in real sector - industrial sector
including small and medium enterprises (SME) and infrastructure sector - in India.
Infrastructure sector is defined as
1.
2.
3.
4.
5.
6.
7.
Power,
Telecommunication,
Railways,
Road including bridges,
Ports,
Industrial parks and
Urban infrastructure
Utilization of ECB proceeds is permitted in the first stage acquisition of shares in the
disinvestment process and also in the mandatory second stage offer to the public
under the Governments disinvestment programme of PSU shares.
Utilization of ECB proceeds is not permitted in real estate. The term real estate
excludes development of integrated township as defined by Ministry of Commerce and
Industry.
Prepayment
Prepayment of ECB up to USD 100 million is permitted without prior approval of RBI,
subject to compliance with the stipulated minimum average maturity period as applicable for
the loan.
Debt Servicing
The designated Authorized Dealer (AD) has the general permission to make remittances of
installments of principal, interest and other charges in conformity with ECB guidelines issued
by Government / RBI from time to time.
- 71 -
APPROVAL ROUTE
Eligible borrowers
RBI based on prudential norms as approved by the Government will also permit Banks
and financial institutions, which had participated in the textile or steel sectorrestructuring package, to the extent of their investment in the package and
assessment. Any ECB availed for this purpose so far will be deducted from their
entitlement.
Cases falling outside the purview of the automatic route limits and maturity period.
An offer letter from the lender giving detailed terms and conditions.
The copies of relevant documents (wherever applicable) like approvals from Foreign
Investment Promotion Board / Cabinet Committee on Economic Affairs (CCEA) /
Clearance Environmental Clearance/Techno Economic Clearance from Central
Electricity Authority.
Approvals are valid for initial period of 6- months, for telecom project9- months and
for Power projects 1- year. The approvals granted by the Govt. of India/ RBI can be
extended for a further period of -3-month. At the expiry of the validity of the approval,
fresh applications are required to be made.
The executed copies of the Loan Agreement are to be submitted to ECB Division of RBI
for clearance, before the loan can be allowed to be withdrawn.
- 72 -
Benefits of ECBs
ECBs from international market will be an additional source for the Indian economy
like development of infrastructure sector etc.
The cost of funds from the international market is expected to be cheaper than the
domestic market and therefore will make available the funds to the Indian Corporates
at International rates so as to make them competitive.
The raising of resources on long-term basis also adds to the forex reserves of the
country.
Sources of ECB
The ECBs can be raised only from internationally acceptable and/or recognized lender
such as:
Bilateral Loans
Club Deal Loans
Syndicated Loans
Bilateral Loans
The single bank to the borrowers i.e. there is only two parties involved bank and
borrower, hence the name bilateral given to these loans. These type of loans are normally
granted to banks existing customers and are for a smaller amounts to the extend that
bank is comfortable to take exposure singly on that borrower. The amount of the loan
depends on the individual corporate, their size, standing, performance, and financial
position, etc.
- 73 -
Syndicated Loans
A syndicated loan is one in which minimum four to five banks Participants, each
funding a certain portion of the loan. A syndicate of banks may be formed either before or
after the loan agreement is signed and identities of the participants may changed during
the life time of the loan subject to transfer assignment and participation provisions in the
loan agreement.
- 74 -
EEFC ACCOUNTS
Indian exports have surged over the last decade owing to an unprecedented boom in
sectors like software, biotechnology, gems, jewellery, textiles etc. As a result of this, the
volume of inward remittances has also increased significantly. To shield the firms engaged in
regular export and import from the exchange rate fluctuations RBI has allowed parking of
foreign currency by exporters in an account designated as Exchange Earners Foreign
Currency Account (EEFC). EEFC accounts are Current Accounts held in foreign currency
with authorized dealers of foreign exchange in the country.
Yes, one can credit 100 percent of his foreign exchange earnings into this account subject to
permissible credits and debits.
Permissible Credits
i) Inward remittance through normal banking channel, other than remittances received on
account of foreign currency loan or investment received from abroad or received for meeting
specific obligations by the account holder.
ii )Payments received in foreign exchange by a 100 per cent Export Oriented Unit or a unit in
(a) Export Processing Zone or (b) Software Technology Park or (c) Electronic Hardware
Technology Park for supply of goods to similar such unit or to a unit in Domestic Tariff Area.
iii) Payments received in foreign exchange by a unit in Domestic tariff Area for supply of
goods to a unit in Special Economic Zone (SEZ);
- 75 -
iv) Payment received by an exporter from an account maintained with an authorised dealer for
the purpose of counter trade. (Counter trade is an arrangement involving adjustment of value
of goods imported into India against value of goods exported from India in terms of Reserve
Bank guidelines);
v) Advance remittance received by an exporter towards export of goods or services;
vi) Payment received for export of goods and services from India, out of funds representing
repayment of State Credit in U.S. dollar held in the account of Bank for Foreign Economic
Affairs, Moscow, with an authorized dealer in India,
vii) Professional earnings including directors fees, consultancy fees, lecture fees, honorarium
and similar other earnings received by a professional by rendering services in his individual
capacity.
viii)
ix) Re-credit of unutilised foreign currency earlier withdrawn from the account
- 76 -
Real Time Gross Settlement (RTGS) is an online system for settling transactions of
financial institutions, especially banks. RTGS systems are "push payment" systems with transactions
initiated by the paying bank.
The implementation of RTGS systems by Central Banks throughout the world is driven
by the goal to minimize risk in high-value electronic payment settlement systems. In an
RTGS system, transactions are settled across accounts held at a Central Bank on a
continuous gross basis. Settlement is immediate, final and irrevocable. Credit risks due to
settlement lags are eliminated.
RTGS requires Core Banking to be implemented across participating banks. Any
RTGS would employ two sets of queues: one for testing funds availability, and the other for
processing debit/credit requests received from the Integrated Accounting System. All
transactions would be queued and submitted for funds availability testing on a FIFO+Priority
basis.
In India, this is initiated by RBI (Central Bank of India) and is available on weekdays
only from 10:00am to 13:30pm. Fees for RTGS vary from bank to bank, but as mentioned
earlier, both participating banks must have Core Banking in place to enter into such
transactions. Core Banking enabled banks and branches have assigned RTGS 11-character
alphanumeric codes, which are required for transactions along with recipient's account
number.
Benefits of RTGS
a. Processing / settlement of fund transfer request / TT reimbursement on the same day will
result in avoidance of interest claims by other Banks.
b. Transfer of surplus funds from current accounts with other banks through RTGS system will
lead to better management of funds by our Bank and will result in more profitability for our
bank.
c. Use of RTGS by RTGS enabled branch will reduce reconciliation entries under HOTT / IBTA.
Reconciliation of entries under Baroda RTGS is transactions based without origination /
movement of any transaction advices and are reconciled by IBO on T+1 basis.
- 78 -
CORRESPONDENT
BANKING
The extensive worldwide network of branches of AXIS BANK offers Correspondent
Banking services to the Indian Banks as well as banks from other countries.
AXIS BANKs branches are capable of providing the services that an international
correspondent Bank can offer. All the branches of the Bank are well equipped to handle the
business of Correspondent Banking.
The New York, Brussels and London Branches of the Bank are equipped with latest
technology and are having trained and experienced staff for handling the maintenance of
Nostro accounts in US$, Euro and GBP respectively.
The overseas presence of the Bank is further supported by a large number of
correspondent Banks (more than 500) which gives AXIS BANK access to every corner of the
Globe.
- 79 -
INTERNATIONAL
TREASURY
AXIS BANK has a strong presence in the Treasury Market in India as well as abroad. The
overseas Money Centre Branches undertake the Forex treasury operations on behalf of the
customers. All the Forex treasuries at the overseas money center branches are equipped
with state of art technology, highly experienced and motivated staff with professional skills.
These branches deal in all the major international currencies i.e. US$, GBP, Euro, Yen as
well as other currencies. These branches undertake the following treasury related activities:
- 80 -
GLOBAL BUSINESS
31.3.2007
(RS)/cr
31.3.2006
(RS)/cr
ABSOLUTE
CHANGE
(RS)/cr
% change
DEPOSITS
1,24,915
93,662
31,253
33.37%
ADVANCES
83,621
59,912
23,709
39.57%
TOTAL
BUSINESS
2,08,536
1,53,574
54,962
35.79%
GROSS
NPA
2.47%
3.90%
NET NPA
0.60%
0.87%
NET
PROFIT
1026
827
199
24.12%
- 82 -
OVERSEAS BUSINESS
31-3-2007
(RS)/cr
31-3-2006
(RS)/cr
ABSOLUTE
CHANGE
(RS)/cr
%
CHANGE
DEPOSITS
25,190
14,613
10,577
72.38%
ADVANCES
16,358
9540
6818
71.46%
TOTAL
BUSINESS
41,548
24,153
17,935
72.02%
GROSS
NPA
0.73%
1.31%
-----
-----
NET NPA
ZERO
ZERO
-----
-----
4. Many nationalised banks do not provide the facility of RTGS, AXIS BANK is one of
the few banks which provides the facility of RTGS.
5. Through facilities like EEFC accounts exporters and importers can take the benefit
of fluctuations in the exchange rates and exchange rate risks.
7. ECBs from international market will be an additional source for the Indian economy
like development of infrastructure sector etc.
8. The cost of funds from the international market is expected to be cheaper than the
domestic market and therefore will make available the funds to the Indian
Corporates at International rates so as to make them competitive.
9. Long term presence in market skilled and experienced staff is a key for the rapid
growth of AXIS BANKs Forex operations.
10. Huge network of overseas branches and vast network of correspondent banks has
given the AXIS BANK a strong grass root fundamental strengths.
83 -
- 85 -
How to exploit technology for deriving economies of scale and how to create cost
efficiencies, and
Technology solutions would make flow of information much faster, more accurate and
enable quicker analysis of data received. This would make the decision making process
faster and more efficient. For the Bank, this would also enable development of appraisal and
monitoring tools which would make credit management much more effective. The result
would be a definite reduction in transaction costs, the benefits of which would be shared
between banks and customers.
Payment and Settlement system is the backbone of banking.
The present Payment and Settlement systems such as,
a) Structured Financial Messaging System (SFMS)
b) Centralized Funds Management System (CFMS)
c) Centralized Funds Transfer System (CFTS) and
d) Real Time Gross Settlement System (RTGS)
Will undergo further fine-tuning to meet
international standards. Needless to add, necessary security checks and controls will have to
be in place.
RISK MANAGEMENT AS A KEY FACTOR FOR AXIS BANK
Risk is inherent this rule. Rising global competition, increasing deregulation,
introduction of innovative products and delivery channels have pushed risk management to
the forefront of todays financial landscape. Ability to gauge the risks and take appropriate
position will be the key to success. It can be said that risk takers will survive, effective risk
managers will prosper and risk averse are likely to perish. In the regulated banking
environment, banks had to primarily deal with credit or default risk. As we move into a perfect
market economy, we have to deal with a whole range of market related risks like exchange
risks, interest rate risk, etc.
- 86 -
Operational risk, which had always existed in the system, would become more
pronounced in the coming days as we have technology as a new factor in todays banking
even AXIS BANK is not an exception in that. Traditional risk management techniques
become obsolete with the growth of derivatives and off-balance sheet operations, coupled
with diversifications.
Building up a proper risk management structure would be crucial for the AXIS BANK in
the future. Bank would find the need to develop technology based risk management tools.
The complex mathematical models programmed into risk engines would provide the
foundation of limit management, risk analysis, computation of risk-adjusted return on capital
and active management of banks risk portfolio. Measurement of risk exposure is essential
for implementing hedging strategies.
Risk management is an area the bank can gain by cooperation and sharing of
experience among themselves. Common facilities could be considered for development of
risk measurement and mitigation tools and also for training of staff at various levels.
Needless to add, with the establishment of best risk management systems and
implementation of prudential norms of accounting and asset classification, the quality of
assets in commercial bank will improve on the one hand and at the same time, there will be
adequate cover through provisioning for impaired loans. As a result, the NPA level of AXIS
BANK is expected to come down significantly.
- 87 -
Strategies
- 88 -
Multi-country expansion
Importing customers
Following your customers
Service unbundling
Beating the clock
Market penetration: On the basis of long term relationship
Branch network to support clients at any location
Use integrated solution for international and domestic operations.
- 90 -
7. Loans to EOUs
There are many Export Oriented Units such as Textiles, Pharmaceuticals, Chemicals,
Engineering goods, Metal Industries, Consumer goods and Agro based industries
operating in New Delhi region as well as in NCR.
So AXIS BANK can target these EOUs by providing all integrated financial services,
understanding their financial needs and requirements.
- 91 -
12. AXIS BANK should also provide services like Factoring and Forfeiting
to its customers doing imports and exports, to enhance its forex
operations in New Delhi region.
13. Utilization of large overseas network for tie ups with international
payment gateways like VISA, MASTERCARD for payments to foreign
nationals.
- 92 -
1. Bank will have to adopt global standards in capital adequacy, income recognition
and provisioning norms.
6. Bank may have to evaluate on an ongoing basis, internally, the need to effect
structural changes in the organization. This will include capital restructuring through
mergers / acquisitions and other measures in the best business interests. IBA and
NABARD may have to play a suitable role in this regard.
8. The skills of bank staff should be upgraded continuously through training. In this
regard, the banks may have to relook at the existing training modules and effect
necessary changes, wherever required. Seminars and conferences on all relevant
and emerging issues should be encouraged.
94 -
9. Bank will have to set up Research and Market Intelligence units within the
organization, so as to remain innovative, to ensure customer satisfaction and to
keep abreast of market developments. Bank will have to interact constantly with the
industry bodies, trade associations, farming community, academic / research
institutions and initiate studies, pilot projects, etc. for evolving better financial
models.
- 95 -
BIBLIOGRAPHY
Books
VOLUME-1O OF AXIS BANK, 2003
SHAKUN EXIM CORPRATION
FEDAI GUIDELINES
FEMA 2000
Websites
www.rbi.org.in
www.fedai.com
www.forexstreet.com
Error! Hyperlink
reference not valid.m
www.fema.com
- 96 -
- 97 -