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The bank mostly lend against appropriate tangible securities such as deposits, shares, debentures, property, guarantees, supported by tangible securities, life policies, goods, gold or other precious metal. The bank may also lend against intangible securities such as unsupported guarantees or assignment of sums due to the borrower by the third parties. It is essential that the bank follows the proper procedures in order to obtain good title when taking a security. There is a difference between possession and ownership. The various forms of documents used for obtaining different types of securities are also important. Inadequate documentation may well cause the losses to the bank and is particularly time for the Trade Financing documentation and the securities agreement relating to goods. Documents are primary evidence. If any lacuna is found in documentation, this will jeopardize the interest of the bank and may even adversely affect the right of recovery of the documents executed properly and correctly. Further, the documents should be stamped, wherever required. The bank must also follow proper procedures to realize securities otherwise losses may be incurred. The corporate operations divisions are normally responsible for maintaining securities otherwise losses may be incurred. The corporate operations divisions are normally responsible for maintaining securities documentation and updating the customers mandates with fresh account documentation account statements, financial statements and relationship reviews. Handling and treatment of delinquent accounts is also an important area of operations. Grading of bad and doubtful debts for an effective delinquency policy is essential to avoid unnecessary financial losses.
With the internet, large multinational companies that always used EDI(Electronic Data Interchange) can save more money by eliminating the old systems, expensive private networks and expand reach to include more business on the supply chain. Small to medium size companies, too, can conduct business to business transactions. The internet simply provides a two way electronic linkage that never existed before. So, banks can now offer trusted solutions to their corporate customers via the low cost delivery channel. i.e., The INTERNET and corporations will enjoy the ability to manage cash held by their strategic banking partners in real time. Via a secure, efficient, web-enabled communication system. The expected shift in volume from paper- based transactions to electronic ones would determine the path of future technology investments in banks and orient it towards electronic payment delivery systems. This shifts is also driven by BANKS perceptation that electronic transactions contribute higher
CREDIT EVALUATION: The bank must place a system of credit evaluation which is based on assessment of historical, current and projected elements stated hereunder:
a. FINANCIAL ANALYSIS: Sales, Profitability, Performance, Funds Flow, working Capital Management, liquidity, balance sheet conditions...etc
b. OPERATING ANALYSIS (OPERATING RISKS) Owners, Management, Company, Industry, Markets. In summary, the credit proposal (review) must highlight the Financial Risks and Operating Risks. It should state the magnitude and likelihood of such risks i.e. "What if" scenarios, and how will they be managed? Most global banks maintain their credit evaluating standards in an internal "Instruction Manual" containing the bank's management instructions regarding each and every aspect of the credit extension or review process. It sets the management standard of credit evaluation to eliminate risks and prevent the decline in profit margins on credit facilities.
considered as money, deployment of staff to render basic routine tasks does not make economic sense. As a sequel, cash management today is not what it used to be. Electronic banking, which began as a passive desktop access to bank balances, is emerging into complex processes of liquidity management through numerous techniques. Almost all of the corporations in advanced countries are now planning to use the services of banks to help them collect payments on monthly bills they issue to consumers and other types of cash management services.
clearly defined identities in terms of services and customer segments. Most of them concentrated on cleaning up their books by peeling down their NPAs. All of them attempted freezing of costs, improving operational efficiencies, and boosting productivity. The strategy of the banks, which performed well, is to use fee-based services to maintain earnings growth. With interest rates falling, non-interest income was, unsurprisingly, the fastestgrowing component of the banks total income. Fee-based activities will complement though not substitute the core business of lending .It is gratifying to note that a number of banks in India are offering wide-ranging cash management services to their corporate clients. All the three categories of banks viz., nationalized banks, private banks, and foreign banks operating in India are active in the cash management segment. SBI, PNB, ICICI Bank, GTB, HDFC Bank, Centurion Bank and Vysya Bank are some of the active Indian banks in this segment. Citi Bank, Standard Chartered Bank, ABN Amro Bank, BNP, ANZ Grindlays and HSBC are the foreign banks operating in India, which are prominent among the cash management services providers. Currently, the turnover of cash management services in Indian market is estimated over Rs.25, 000 crore per month. State Bank of India alone is estimated to handle over Rs.12,000 crore per month through its product called SBI-FAST. Indian banks are offering services like Electronic funds transfer services, provision of cash related MIS reports, cash pooling services, collection services, debit transfer services, guaranteed credit arrangements, sweep products, tax payment services, receivables and payables management. Foreign banks operating in India are offering regional and global treasury management services, liquidity management services, card services, electronic banking services, e-commerce solutions, account management services, collection management services, cash delivery management services and investment solutions. The cash management services offered to Indian corporate is comparable to what their counterparts are getting in advanced countries. Banks realized that if they do not offer the services required by corporate customers it would result in a net loss of clientele, returns and goodwill. Banks in India need to continuously monitor international trends in innovations
taking place in providing cash management services and swiftly offer similar services to their corporate clients.
too. Today, a multinational company has tall demands from its banker. When the treasurer sits at his desk, he expects that his computer has to automatically update his files with realtime information on the companys account balances. Without moving, he wants to maneuver funds between accounts to capture more interest from pooled accounts, he demands to lag his payments to make his cash work to the fullest and he desires to get an up-to-date report on the progress of his collections. As the Internet explodes into life, companies want to be among the first to use the Internet to market their products, receive orders, deal with suppliers and settle transactions Corporates visualize technology as a tool to cut their costs and improve efficiency.
and settlement. Also it gives a great deal of freedom from more costly labor, materials, and accounting services that are required in paper-based processing, better management of cash flow, inventory, and financial planning due to swift bank payments.
1. Provision of CMS by Banks - Challenges and Issues: The conventional formal line between treasury and control and between cash and accounting strategies is fading. Now, bankers and controllers are working together closely in seeking solutions in the complex cash management function. In todays world, the key differentiator between a successful bank and other bank is the stress each lays on technology. As such, let me turn your attention to the numerous challenges bankers need to address squarely, while gearing up to provide cash management services in a technology dominated environment.
2. Provision of Customized Services: One important ingredient of a treasury system is customization. Banks ability to customize a treasury system is critical. The user interface is very personal and users want to be comfortable with the look and feel of the system. Deployment, configuration and database options need to be flexible. other corporate systems. New system
should be capable of easily getting synchronized with enterprise resource planning (ERP) and
3. Need to Comprehend the Clients Line of Activity: Bankers need to really understand the accounting and control side of its client business. The bankers should see themselves as strategic partners in companys growth and need to spend a lot of time learning about the concerned industry. W They has to use that knowledge to propose solutions that never would have occurred to the client 4. Provision of Other Advisory Services to Clients: Companies would like to see banks solve certain other related problems. For instance, a company may like someone to tell it exactly what is wrong with their MIS department. Changing systems is a major initiative with far-reaching implications to the companies so banker cannot afford to make a mistake. As the technology changes almost monthly, companies do expect bankers to tell them what to do and where to spend their money. Bankers cannot build a standard solution always, because the customers do not pose standard problems
5. Shift to Web-enabled Services: Web-enablement may be fashionable, but what treasurers really want is the functionality in products that help them perform optimally. After all, the web is only a delivery channel. Most corporate electronic banking systems currently used are based on old technology architecture.
6. Special Consideration to Small and Medium Companies: When the corporate scene in India is dominated by a multitude of small and medium companies, a legitimate question that arises is, are the high-tech banking cash management services just for the large companies or do they have any immediate practical value for smaller companies also? Although technology and size may not go together banks have to cost-justify the cash management services companies use. No doubt, banks did invest a lot in the technology-
based services. But with the advent of the Internet and other tools, banks should strive to make accessible cash management services to middle and small companies without totally phasing out their existing hardware.
7. Need to Work as a Team: When banks develop cash management solutions, they have to necessarily work directly with corporate financial controllers and their staff. When outsourcing is involved, with something as complex as payables or receivables the corporate teams get bigger and more varied. Besides financial controllers, banks have to work with systems people and sometimes marketing people.
8. Need to Work with Technology Vendors: A growing number of non-bank vendors also offer payment-related services to corporate clients in Western countries. Banks bring the strong relationships with customers that they have built over time. No single player can do it alone in the future because there are so many dimensions to technology and different industries need different solutions. Alliances will have to be forged, so that vendors with different technological pieces will work together to provide integrated solutions.
Cash Credit facility is granted to the customers to bridge working capital gap. The Bank also provides short term loan facility for a period of up to 1 year for the purpose of bridging temporary cash flow mismatches arising due to various reasons like non-realization of receivables in time, routine capex etc. The finance extended under this category would be for meeting the funds requirements for day to day operations of the units i.e., to meet recurring expenses such as acquisition of raw material, the various expenses connected with products, conversion of raw materials into finished products, marketing and administrative expenses, etc.. The working capital limits would be considered only after the project nearing completion and after ensuring full tie-up of the term loan requirements of the borrower. These limits would be either in the form of fixed loans or running accounts and / or bill financing facility.
Security
The credit facilities shall be secured by inventories and debtors as may be required quantum and duration of the credit and risk perception.
Key Benefits
Funded facilities, i.e. the bank provides funding and assistance to actually purchase business assets or to meet business expenses. Non-Funded facilities, i.e. the bank can issue letters of credit or can give a guarantee on behalf of the customer to the suppliers, Government Departments for the procurement of goods and services on credit. It is Available in both Indian as well as Foreign currency.
Eligible Working Capital Limits would be assessed by adopting various methods such as Projected Turnover Method, Permissible Bank Finance Method, Cash Budget Method and Net Owned Funds Method, depending upon the type of borrower, the aggregate working capital facility enjoyed from the banking system, the scale of operation, nature of activity/enterprise and the duration/ length of the production cycle, etc.
accumulating too much of stocks of current assets and should move towards very lean inventories and receivable levels. The committee even suggested the maximum levels of Raw Material, Stock-in-process and Finished Goods which a corporate operating in an industry should be allowed to accumulate. These levels were termed as inventory and receivable norms. Depending on the size of credit required, the funding of these current assets (working capital needs) of the corporate could be met by one of the following methods:
as representing the absolute minimum level of raw materials, process stock, finished goods and stores which are in the pipeline to ensure continuity of production and a minimum of 25% of the balance current assets should be financed out of the long term funds plus term borrowings. (This method was not accepted for implementation and hence is of only academic interest)
EXIM Bank
Export-Import Bank of India is the premier export finance institution of the country, set up in 1982 under the Export-Import Bank of India Act 1981. Government of India launched the institution with a mandate, not just to enhance exports from India, but to integrate the countrys foreign trade and investment with the overall economic growth. Since its inception, Exim Bank of India has been both a catalyst and a key player in the promotion of cross border trade and investment. Commencing operations as a purveyor of export credit, like other Export Credit Agencies in the world, Exim Bank of India has, over the period, evolved into an institution that plays a major role in partnering Indian industries, particularly the Small and Medium Enterprises, in their globalisation efforts, through a wide range of products and services offered at all stages of the business cycle, starting from import of technology and export product development to export production, export marketing, preshipment and post-shipment and overseas investment.
Further, they undertake processing of Bill of Entry and deposit of custom duty for imports.
Project finance
Meaning: Project finance is the financing of long-term infrastructure and industrial projects based upon a complex financial structure where project debt and equity are used to finance the project. Usually, a project financing scheme involves a number of equity investors, known as sponsors, as well as a syndicate of banks which provide loans to the operation. The loans are most commonly non-recourse loans, which are secured by the project itself and paid entirely from its cash flow, rather than from the general assets or creditworthiness of the project sponsors, a decision in part supported by financial modeling. The financing is typically secured by all of the project assets, including the revenue-producing contracts. Project lenders are given a lien on all of these assets, and are able to assume control of a project if the project company has difficulties complying with the loan terms.
sources other than that by the promoters shall be fully tied-up before sanction/ disbursement of the limits. Wherever the project is one of unusually longer duration such as infrastructure development, the involvement of agencies such as Financial Institutions and ways of reducing the blockage of bank's fund that are sourced mainly out of short term lending institutions, take-out financing, securitization, Inter-Bank participation Certificates, etc. would be resorted to. The disbursements under project Finance would be made strictly in tune with the sanction terms, only after ensuring the end use of funds already disbursed by the consortium, meeting the required margin at each stage of project implementation and certification by the competent consultants/ specialists as per the procedure in vogue from time to time and as decided by the consortium.
Rate of interest
The rate of interest on such credit facilities would be determined based on the borrower gradation and the interest rate policy of the bank from time to time.
Security
The credit facilities shall be secured by tangible assets and collaterals as may be required based on the nature of project, quantum and duration of the credit, anticipated return on investment and risk perception.