INTERNATIONAL BANKING

Group 2
Ayush Sharma (09) Neha Goyal (22) Vibhav Shukla (55) Kaustav Ghosh (17) Swagat Mahapatra (50) Nilay Kale (60)

Topics Covered
Correspondent Banking Expansion of International Banking Determinants of International banking International financial Centres Tax havens Off-Shore Banking

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Correspondent Banking

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Correspondent Banking
Correspondent Banking
Correspondent banking is the provision of banking services by one bank (the correspondent bank) to another bank (the respondent bank). These services may include cash/funds management, international wire transfers, drawing arrangements for DDs and mail transfers payable through accounts etc.

Correspondent Account
An account (often called a nostro or vostro account) established by a large banking institution to receive deposits from, make payments on behalf of, or handle other financial transactions for smaller financial institutions

Nostro Account
A bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts are used to facilitate settlement of foreign exchange and trade transactions

Correspondent Banking SBI

SBI has correspondent banking relations with around 483 leading banks worldwide Foreign Department, based in Kolkata (Calcutta), handles all operational aspects of correspondent banking, including all matters pertaining to the exchange of test keys and swift authenticator keys (SAK), appointment of correspondents, maintenance and reconciliation of Nostro accounts, and treasury management The Rupee Vostro accounts of International Banks and Institutions are maintained and serviced at SBIs International Services branch (ISBM) at Mumbai and at Overseas Branches at Kolkata (Calcutta), Chennai, Cochin, Bangalore and New Delhi
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Correspondent Banking SBI

Correspondent Banking Features
Trade Finance Collection and Realisation of Bills Letters of Credit Rupee Accounts Bid Bonds/Guarantees Corporate Funding Remittances Inward and outward remittances in major international currencies and Indian Rupees

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Expansion of International Banking

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Factors Considered To Enter A Host Country In International Banking

Credit reporting systems on bank activities Public & private credit rating agencies Credit information index Regulatory restrictions of host country on bank foreign expansion Economic restriction and other host country characteristics Bank Characteristics

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Forms of External Presence

Particulars Legal status Investment costs Control capacity Business intermediation Flexibility Number of employees Representative Office Dependent Not necessary Direct Promoting Low Low Branch Dependent Not necessary Direct Promoting High Depending on the level of activity Subsidiary Independent Necessary Direct and substantial Promoting High High

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Mergers & Acquisition In International Banking

They are form of horizontal merger Objective, reap the benefit of economies of scale Eliminates competitors Strategic benefits and enhanced customer base

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Determinants Of International Banking

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Determinants of International Banking

International trade FDI Banking service as a commodity Exchange rate volatility

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International Financial Centres

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International Financial Centers

An International financial centre is a global city that is home to a large number of Internationally significant banks, businesses, and stock exchanges which provides ease to international financial transactions According to IMF report A country or jurisdiction that provides financial services to (non) residents on a scale that is incommensurate with the size and the financing of its domestic economy Requirements for being IFC Pool of money to lend or invest Decent legal framework and High-quality human resources Infrastructure

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Major IFCs
According to London based Z/Yen consultancy group, the top ten financial centres according to the Global Financial Centres Index (GFCI) in the world are IFC rankings is based on Market transparency The legal framework Enforcement of shareholder rights Compatibility of the countrys laws with international legal standards Market capacity and liquidity Out of 75 IFCs recognized in the world, India has only Mumbai which is at 64th position
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Type of IFCs
Global (GFCs ): These are centres that genuinely serve clients from all over the world in the provision of the widest possible array of IFS. E.g London Regional (RFCs) :they serve their regional rather than their national economies examples of such Dubai, Hong Kong, Mumbai Non-global and non-regional, ordinary international IFCs: These are centres like Paris, Frankfurt, Tokyo and Sydney that provide a wide range of IFS but cater mainly to the needs of their national economies rather than their regions or the world one may call them national IFCs

Offshore (OFCs) : These are centres that are primarily tax havens for wealth management and global tax management rather than providing the full array of IFS. E.g. Mauritius, Bermuda
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Tax havens Off-Shore Banking

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Offshore Banking Unit (1/2)

Offshore banking unit (OBU) is the branch of an Indian bank located in a special economic zone (SEZ), with a special set of rules aimed at facilitating exports from the region It's a "deemed foreign branch" of the parent bank situated within India, and it undertakes international banking business involving foreign currency denominated assets and liabilities

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Offshore Banking Unit (2/2)

In 2002, RBI instituted OBUs, which would be virtually foreign branches of Indian banks. These would be exempt from CRR, SLR and few other regulatory requirements. RBI regulations make it mandatory for OBUs to deal in foreign exchange, source their foreign currency funds externally, follow all prudential norms applicable to overseas branches and are entitled for IT exemptions

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Future of Offshore Banking Unit

Analysts predict, OBUs will be of no use after the economy opens up fully and the rupee is fully convertible. These experts argue for one or two OBUs, instead of having several of them spread across the country

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Tax Havens
A country that offers foreign individuals and businesses little or no tax liability in a politically and economically stable environment. Andorra, the Bahamas, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, the Cook Islands, Hong Kong, the Isle of Man, Mauritius, Lichtenstein, Monaco, Panama, Switzerland and St. Kitts and Nevis are all considered tax havens

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Rationale for Tax Havens

Lack of transparency in a countrys taxation laws Lack of exchange of information between two countries Deliberate attempt by countries to formulate tax laws which act as taxshelters for non-residents engaging in foreign financial transactions. Specific laws/rules of a country which give undue protection to the financial information of the tax payers.

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Few Stats..
A global super-rich elite had at least $21 trillion (13tn) hidden in secret tax havens by the end of 2010, according to a major study The figure is equivalent to the size of the US and Japanese economies combined At the end of 2010, the 50 leading private banks alone collectively managed more than $12.1tn in cross-border invested assets for private clients The three private banks handling the most assets are UBS, Credit Suisse and Goldman Sachs Less than 100,000 people worldwide own about $9.8tn of the wealth held in tax havens.

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British Virgin Islands

Located approximately 80 km east of Puerto Rico Worlds premier offshore centre with over 290,000 companies incorporated in the last 10 years Legal system based on English common law No taxes levied on MNE companies with the exception of the annual government licence fee which is US$300 Must have a Registered Agent and Registered Office in the BVI No requirements for a Register of Directors to be kept at the Companies Registry Details of the directors do not appear on any public records No requirements for Annual Returns, Annual Meetings or Audited Accounts

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Mauritius
Companies may pay their licence fees for 5, 10 or 20 years in advance. Substantial discounts are offered to companies that elect to take up this offer Must have a Resident Agent and Registered Office in Mauritius, provided by a licensed trust company Shareholders may waive the requirement for annual returns and/or audited accounts

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Disadvantages of Tax Havens

Many government and governmental agencies will not accept tenders from these types of offshore entities Risky - Tax havens are generally smaller, poorer nations who have much to gain from cooperating with the government, and a lot more to lose from helping you hide the money

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Thank You

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