QUE 5.

EXPLAIN THE GROWTH OF INTERNATIONAL BANKING

ANS INTRODUCTION
"International banking can be referred as a subset of commercial banking transactions and activity having a cross-border and /or cross currency element .To understand that concept one must have to clear idea about the BANK and its activities.

BANKING .
The business of banking has been defined under section 5(b) of the Banking Regulation Act, 1949 as Accepting, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdraw able by cheque, draft, and order or otherwise. The main functions of commercial banks are

I. II. III.

Accepting of Deposits Lending of Money Subsidiary (Agency) Services.

A bank is a FINANCIAL INSTITUTION whose primary activity is to act as a payment agent for customers and to borrow and lend money. It is an institution for receiving, keeping, and lending money.

THE COMMERCIAL ROLE

Issue of BANK NOTES (promissory notes issued by a banker and payable to bearer on demand) Processing of payments by way of telegraphic transfer, internet banking or other means Issuing BANK DRAFTS and BANK CHEQUES Accepting money on TERM DEPOSITS Lending money by way of OVERDRAFT, INSTALLMENT LOAN or otherwise Providing documentary and standby LETTERS OF CREDIT [trade finance guarantees], PERFORMANCE BONDS , securities underwriting commitments and other forms of off balance sheet exposures Safekeeping of documents and other items in SAFE DEPOSIT BOXES Currency exchange Sale, distribution or brokerage, with or without advice, of insurance, unit Trusts and similar financial products as a 'FINANCIAL SUPERMARKET

THE CONCEPT OF INTERNATIONAL BANKING

Banking system came along with the development of money as an institution. The transaction of commodities across countries required financial intermediation in the international level and thus international banking business was born. International banking operations are essentially to facilitate the movement ofgoods across the

political boundary of countries. In this way, the emergence and growth of international banking is closely interwoven with the development of international trade and international capital movement. Before World War I when European banks dominated the world capital market, during the period 1940-1960, regulatory control on capital flow and convertibility of the currencies reduced the importance of international banking. From 1960 onwards globalization of capital market started and it helps in expansion of international banking in today's scenario. The major business of international banks is based on international trade, international transfer of capital and money and derivatives.

THE IMPORTANCE
If we want to make a payment abroad , you will have to deal through a bank operating on international level. Banks around the world are centers for money transfer business. Dealers in securities or exporters and importers make use of services of international banks. With the growth of Multinational companies, the importance and role of such banks have increased. International banking is also important for the growth of competition. Such banks also help the developing countries in their economic development.

ORGANIZATIONAL FORMS OF INTERNATIONAL BANKING

International banks are linked together in various formal and informal ways from simple holding account with each other, correspondent accounts-to common ownership.

1. Correspondent Banking:
An informal linkage between banks in different countries, Large banks have correspondent relationships with banks in almost every country in which they do not have an office of their own. Correspondent banking allows barks to help their customers who are doing business abroad, without having to maintain any personnel or offices overseas. This relationship is primarily for settling customer payments. The term correspondent" comes from the main or cable communications that the banks use for settling customer accounts. Today, these communications have largely been replaced by SWB3' messages, and the settling between banks occurs via CHIPS. 2. Resident Representatives: The resident representatives will keep in contact with local correspondent banks and provide help when needed. Representative offices are generally small, and they have the appearance of an ordinary commercial office rather than a bank.

3. Bank Agencies:
An agency is like a full-fledged bank in every respect except that it does not handle ordinary retail deposits. The agencies deal in the local money markets and in the foreign exchange markets, arrange loans, clear bank drafts and checks, and channel foreign funds into financial markets. Agencies also often arrange long-term loans for customers and a

4. Foreign Branches:
Foreign branches are operating banks like local banks. Generally, foreign branches are subject to both local banking rules and the rules at home, but because they can benefit from loopholes, the extra tier of regulations is not necessarily onerous. The books of a foreign branch are incorporated with those of the parent bank, although the foreign branch will also maintain separate books. The foreign branch can offer a great advantage over the lengthy clearing that can occur via correspondents. 5. Foreign Subsidiaries and Affiliates: A foreign branch is part of a parent organization that is incorporated elsewhere. A foreign subsidiary is a locally incorporated bank that happens to be owned either completely or partially by foreign parents. Foreign subsidiaries do all types of banking, and it may be very difficult to distinguish them from an ordinary locally owned bank.

6. Consortium Banks:
Consortium banks are joint ventures of the larger commercial bank. They can involve half a dozen or more partners from numerous countries. They are primarily concerned with investment, and they arrange large loans and underwrite stocks and bonds. Consortium banks are not concerned with taking deposits and they deal only with large corporations or perhaps governments. They will take equity positions-part ownership of an investment-as well as make loans, and they are frequently busy arranging takeovers and mergers.

THE REASONS BEHIND THE GROWTH OF INTERNATIONAL BANKIN

1. The growth of multinational companies: -One reason of starting an international banking activities is to continue to service the customers who themselves had established the branches abroad.

2. The growth of international trading :-Emergence and growth of international banking is closely interwoven with the development of international trade.

3. Developments in electronic commerce: -developments in computer and information technology have made dramatic changes to the way the financial services industry operates. Global network in place exploded the volume of international banking business. These changes are affecting and will affect every aspect of the international banking and offer the possibility of reduced costs. As communication costs continue to fall, the potential of outsourcing grows and make the bank enable to provide efficient services. And with the help of that advantage, international business began to grow much more rapidly.

4. Foreign direct investment: -it has been cited as an important determinant for the expansion of international banking. In fact, the presence of international banks facilitates the inflow of foreign capital and it is expected that the increase in foreign direct investment should have a positive impact on the growth of international banking.

5. capital market regulation :-Globalization of capital market has helped in development of international banking .

6. The competition: --In this competitive edge, to be a smartest bank and satisfy the customers with the latest facility of services and for long survival, the bank cannot neglect crossborder services. The considering point Indias banking sector is growing at a fast pace. It has become one of the most preferred banking destinations in the world. Indian markets provide growth opportunities, which are unlikely to be matched by the mature banking markets around the world. International banking operations have made the bank regulators realize the necessity of establishing a well defined set of ground rules for the safe operation of all banks. international organizations are placing a lot of emphasis on the development and implementation of international standards and principles The growth, in International Banking has also significantly increased the risks of international Banking

INTERNATIONAL PRODUCTS AND SERVICES IN INDIA

The international banking services in India are provided for the benefit of Indian customers, corporate, NRIs, Overseas Corporate Bodies, Foreign Companies/ Individuals as well as Foreign Banks etc. The product and services offered by different banks are: 1. NRI Banking 2. Foreign Currency Loans 3. Finance/Services to Exporter 4. Finance/Services to Importers 5. Remittances 6. Forex and Treasury Services 7. Resident Foreign Currency (Domestic) Deposits 8. Correspondent Banking Services 9. All General Banking Services

1. NRI BANKING
The international bank provide the services to the NRI customers by providing the loan and remittance and accepting the deposits like

a) Foreign Currency Non resident (FCNR-B) Deposits overseas earnings remain fully reparable in an FCNR (B) Deposit account b) Resident Foreign Currency (RFC) Deposits Returning Indians for permanent settlement, after staying abroad for not less than one year, can retain their savings in foreign currency in a RFC account .Get the proceeds of FCNR (B)/NRE Deposits credited to this account . Get the earnings out of dividend/sale proceeds of assets left abroad as well as pension received from overseas credited in this foreign currency account C) Non Resident external (NRE) Deposits : NRE deposits can be placed with .Savings Bank A/c Fixed Deposit A/c d) Non Resident Ordinary (NRO) Deposits NRO account may be opened in the following manner : Where an Indian citizen having a resident account leaves India and becomes non-resident, his resident account should be designated as NRO account. Where non-resident Indian receives income in India, he can open a NRO a/c with such funds.

2. FOREIGN CURRENCY LOANS a) In India (FCNR 'B' Loans)

The foreign currency denominated loans in India are granted out of the pool of foreign currency funds of the Bank in FCNR(B) Deposit etc. accounts These loans are denominated in foreign currency such as US Dollars and are offered as short term loans. b) From Outside India: With presence internationally, bank has foreign currency resources to arrange /grant Foreign Currency Loans to Indian as well as multinational corporates at the competitive rates. The foreign currencies denominated loans are granted by overseas branches to Indian Corporates as per External Commercial Borrowing (ECB) Policy of Govt. of India/RBI.

3.FINANCE/SERVICES TO EXPORTERS
a) Rupee Export Credit (pre-shipment and post-shipment): Many banks provide both pre and post shipment credit to the Indian exporters through Rupee Denominated Loans as well as foreign currency loans in India. Exporters having firm export orders or confirmed L/C from a bank are eligible to avail the export credit facilities. Rupee Export Credit is available generally for a period of 180 days from the date of first disbursement. In deserving cases extension may be permitted within the guidelines of RBI. b) Pre-shipment Credit in Foreign Currency (PCFC): Bank offers PCFC in the foreign currency to the exporters enabling them to fund their procurement, manufacturing/processing and packing requirements. These loans are available at very competitive international interest rates covering the cost of both domestic as well as import content of the exports. PCFC is generally available for a period of 180 days from date of first disbursement. In deserving cases extension may be permitted within the guidelines of RBI.

c) Negotiation of Bills under L/C----letter of credit Authorized Forex Branches are active in negotiation/discounting of sight/usance international export bills under L/Cs opened by foreign banks as well as branches of Indian banks abroad. d) Export Bill Rediscounting: Bank provides financing of export by way of discounting of export bills, as post shipment finance to the exporters at competitive international rate of interest. e) Bank Guarantees: Bank, on behalf of exporter constituents, issues guarantees in favors of beneficiaries abroad. The guarantees may be Performance and Financial.

4.FINANCE/SERVICES TO IMPORTERS
a) Collection of Import Bills: Local Bank has correspondent relationship with reputed International Banks throughout the world and can thus provide valuable services to importers who may be importing from any part of the Globe. The import bills are collected by Authorized Forex Branches at very competitive rates. The import bills drawn on customers of other branches are also collected through these branches. b) Letter of Credit: On account of bank reputation in international market L/Cs of banks are well accepted in the International market. L/C facility is for the purchase of goods/services etc. fulfills the requirements of all importers to arrange a reliable supply. Bank offers this facility to importers in India within the ambit of FEMA and Exim policy of Govt. of India. Bank uses state of the art SWIFT network to transmit L/Cs and with a worldwide network of correspondents and overseas branches facilitates prompt & efficient services to the importers. L/C facility is granted to the importers on satisfying credit exposure norms of the Bank. c) Financing of import: Usance L/C facility Provides the importer an opportunity to avail credit from their Supplier/supplier's bank. Rupee finance its For payment of goods and services imported from abroad Foreign Currency Loans Short term External Commercial Borrowings or Trade Credits for less than three years as permitted by RBI for imports into India is allowed by overseas branches to Indian importers. These are generally backed by L/Cs opened by importer's bank. Indian importers can also avail this facility from overseas branches as roll-Over credit on their bank agreeing to extend the L/C in favors of our overseas branches. d) Bank Guarantees: On behalf of importer constituents or other customers bank can Issues guarantees in favour of beneficiaries abroad. The guarantees may be both Performance and Financial.

5. REMITTANCES
Through its worldwide network of correspondents, Indian branches and overseas branches, banks offers prompt inward and outward foreign remittance facilities. The use of SWIFT network adds to reliability and efficient handling.

6.FOREX & TREASURY SERVICES

Banks operates in the Forex Market in India as well as abroad. Deals in all the important international currencies. Forex Treasuries generally undertake the following treasury related activities:- Forex Inter Bank Placements/Borrowings Sale & Purchase of currency on behalf of customers

Forward Cover Bookings Cross Currency Swaps Interest Rate Swaps (IRS) Forward Rate Arrangements (FRAs) Forex Money Market Operations Forex Services For Corporates To improve the standard of service to the valued clientele, the banks have integrated Forex corporate services. Corporate Forex Services include Foreign Currency Sale & Purchase, Forward Booking, and Cross Currency Forward etc. Other products like Collection & Negotiation of Export & Import Bills under LC, LC Issuance, Advising & Confirmation Services, and Arrangement of Trader Credits, the guarantees on behalf of Indian Corporate/Projects, EEFC Accounts, and Remittance etc. are all available to corporate customers

7. RESIDENT FOREIGN CURRENCY (DOMESTIC) A/Cs

To Resident individuals in India, the facility to open non-interest bearing current account in foreign currency at the selected Indian branches as permitted by RBI. Joint accounts with a resident eligible to open RFC (D) account are permissible. Nomination facility is also permitted.