Corporate Banking

Sales, front and mid office processes

R Balachandran 8 March 2010

Important notice

The contents of this presentation are for internal use, and should not be circulated to customers/prospects/any other external audience PURPOSE OF THE DOCUMENT : The presentation seeks to share the authors knowledge/experience in the corporate banking and IT industry, acquired over 20 years in multiple banks/organizations and geographies The processes presented here are intended to provide a high level overview. This presentation does not purport to capture all aspects of the corporate banking processes Keywords:Corporate Banking Declaration:
I/We hereby declare that this document is based on my/our personal experiences .To the best of my/our knowledge, this document does not contain any material that infringes the copyrights of any other individual or organization including the customers of Infosys.

Corporate banking : sales process

The Relationship Manager is the pivot Different terminology : RM, account manager, ARM etc Drawing up potential target list Market intelligence

New projects ,expansion, diversification, M&A activity etc

New relationships vs. mining existing accounts

Annual account strategy

RMs draw up annual sales plan for each target/existing relationship Various products to be offered Share of wallet Expected revenue from the customer/prospect Competitor analysis

Calling process
Typical contact initiated at CEO/CFO level Relationship based banking Breakthroughs achieved through patient calling over several months Offer value proposition New products, attractive pricing, quick turnaround of proposals, relationship are some of the key success factors CEO level mapping ( bank and customer ) Initial revenue/spreads may be low, rising over time, as the relationship is nurtured In principle approvals/indicative term sheet

Front and middle office structure

Relationship manager Sales heads Credit analysts/underwriters Independent risk management Credit approvers Documentation team Loan operations

The structure could differ from bank and bank, and within the same bank, each business segment could have its own structure

Corporate banking :products offered

Term loans Working capital : core working capital financed by long term sources Long term loans for capital expenditure Acquisition financing Typically floating rate loans with Libor as the index or the banks base rate Cap, collar and floor Upfront fees payable for long tem loans Construction loans permanent commercial mortgages

Corporate banking products offered..contd

Overdraft Working capital Secured by borrowing base, marketable securities Interest rate linked to index like banks base rate Commitment fees

Corporate banking products offered..contd

Letters of credit Comfort to seller Typically for imports, domestic as well Capital goods import; raw material purchase Standby LC Red clause LC Back to back LC

Corporate banking products offered..contd

Guarantees Bid bonds Performance bonds Deferred payment guarantees LCs vs Guarantees : what is the difference

Corporate banking products offered..contd

Capital market instruments Equity Debt : non convertible debentures Preference shares Structured products In the realm of investment banking

Corporate banking products offered..contd

Treasury products Forward contracts : spot and forward Forward contracts are a hedge against currency fluctuation Derivatives Eg.1 : interest rate swaps : converting a floating rate INR liability into fixed rate INR Eg.2 : swaps : converting a floating rate dollar liability into a fixed rate yen liability

Corporate banking products offered..contd

Syndicated lending Huge dollar values Single bank cannot arrange/finance Lead arrangers/underwriters Circulating information memorandum Forming the syndicate Agreement/contract signing Agent bank Sell down : take vs hold

Corporate banking products offered..contd

Transaction services Cash management/liquidity management Paper based/electronic clearing Remittances etc

Credit Approval Process

Risk assessment Management Analysis Borrower Analysis Industry Analysis Financial Analysis Facility Structure Analysis Security Analysis Other Analysis

Risk assessment
Financial analysis
Balance sheet spreading Cash flow analysis Ratio analysis : gearing, operating profit margin, debtor/creditor turnover ratio Forecasts Notes to accounts, an important factor Understated liabilities, inflated assets

Risk grading
Qualitative and quantitative factors Risk grade Indicator of probability of default Pricing a mix of risk grade and market forces/competition Exposure linked to risk grade

Single borrower limits regulatory linked to banks capital

Approval matrix
Complexity Multiple factors Size of exposure Aggregation of related parties facilities Collateral/security Cat 1,2,3 facilities Risk grade Borrower group Industry segment : certain segments are restricted Etc etc Credit committee/board level approval

Post approval processing

Documentation : internal/legal counsel Security perfection Pre disbursal conditions; conditions precedent Covenants Financial Non financial

Credit monitoring
Analysis of quarterly financials Quarterly annual covenant tracking Annual renewal Interim increase in facilities

Problem customer management

Events of default Market reports/intelligence Unforeseen events : fire in factory premises/environmental issues Early warning mechanism/reporting for problem accounts Transfer to specialized workout units for restructuring/recovery Provisioning/charge off : regulatory Litigation

Thank You