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Meaning of Offshore Banking: Offshore banking refers to the international banking business involving non residentforeigncurrencydenominatedassetsandliabilities.Itreferstothebankingoperationsthatcoveronly nonresidentsanddonotmixwiththedomesticbanking. MeaningofOffshoreBankingcentre:Anoffshorebankingcentreisaplacewheredeliberateattemptismadeto attractinternationalbankingbyofferingmanyconcessionsintheformoftaxesandleviesbeingimposedatlower ratesornotbeingcharged,moderateorlightfinancialregulation,secrecyinbankingetc. MeaningofOffshoreBankingunits(OBUs):Offshorebankingunitsinthecentrecancarryontheiractivitiesof deposittakingfromandlendingtointernationalenterprisesorinvestorswithoutconflictwiththedomesticfiscal andmonetarypolicy. Offshorebankingunitsarebranchesofinternationalbanksorsubsidiaries.Theydonotcarryretailbusiness,but generally provide wholesale banking services, namely project financing, syndicated loans, merchant banking activitiesinforeigncurrencydenominatedbondsandequityshares.MNCsmostlyprefertransactinginOffshore financialcentresbecauseoftaxbenefits,freedomfromexchangecontrolregulations,maintenanceofsecrecyof dealsetc. Presence of OBU worldwide: Offshore banking is carried out in about 20 centres throughout the world which offerthefollowingbenefits: 1. Exemptionfromminimumreserverequirementsi.eCRR,SLR.. 2. Freedomfromcontroloninterestrates 3. Lowornonexistenttaxesandlevies 4. Entryisrelativelyeasy 5. Licencefeesaregenerallylow FeaturesofOBUs: 1. Involvesnonresidentforeigncurrencydenominatedassetsandliabilities 2. Enjoymanyconcessionsintaxations,exchangecontrolregulationsandotherbankingregulations 3. Themarketsoperates24hoursaday 4. OffshorebankingisanextensionoftheconceptofEurocurrencytoEast.Thesecentresexistinalmostall AsiancountrieslikeSingapore,Hongkong,Korea,Philippines,ColomboandBahamas. 5. ProvideWholesalebankingservices 6. MNCspreferbankingwithOBUsduetotaxadvantages,secrecyoftransactions,freedomfromexchange controletc. 7. Providesbetteraccesstointernationalcapitalmarkets ParticipationoftheIndianbanks FewIndianbanks,suchasStateBankofIndia,IndianOverseasBank,BankofIndiaandBankofBaroda,haveset upoffshorebankingunitsfordeposittakingandfinallendingatBahrain,HongKong,Colombo,CaymanIslands, and so on. Indian Bank, Bank of Baroda and Union Bank of India jointly floated a deposit taking company, IBU InternationalFinance,inHongKongforbothoffshoreandonshorebanking. ThebenefitsfortheIndianbanksfromtheseventuresare: 1. Sizeableprofitsastheseventuresinvolverelativelylowoperatingcosts. 2. Withmulticurrencydepositbases,thebankswouldbeabletoservebettertheneedsoftheircustomers whohavesetupjointventuresabroadintheformofforeigncurrencyfinance. 3. Thebankswouldstrengthenthecountry'sbalanceofpaymentsthroughrepatriationofprofitsfromthe venture. OffshorebankingcentreinIndia Financial experts have been pleading to establish an offshore banking centre in India. Geographically, India providesdistinctadvantagesinattractingoffshorebankingunits,becauseithasastableeconomicandpolitical performance, a vast market, technical manpower that could find employment in these centres. Another DeepakFulwadhaya9967008172PrakashFulwadhaya9820797729

www.jmdtutorials.com JMDTutorials advantageis that the Indianmarketwouldopenalittle beforetheTokyomarket closes,andclose beforeNew Yorkopens,thusprovidingavitaltimelinkforinternationalmoneymarketdealers. InanerawheremanyIndiancorporationsarefunctioningabroad,andmanycorporationsaregrantedpermission toseekoverseasfinance,establishinganoffshoreunitwillhelptaptheresources. ThebenefitsofOffshoreBanking: 1. Exporterswouldbenefitintermsoffinermarginsonloansandbetterforeignexchangeratesavailablevia anoffshorebankingunit. 2. Thebenefitsofmulticurrencyoperationswhich,toanextent,minimisecurrencyfluctuationrisk,willbe anaddedadvantage. 3. Salaries paid by offshore banks and local expenditure incurred by them contribute to the economy's welfare.Forsmallercountries,thebenefitwouldbegreater.ForalargercountrysuchasIndia,however, thismaynotformasignificantportionofthetotalincome. 4. Indiamayearnrevenueintheformoflicencefees,profittaxesimposedonthebanksoperatinginthe area.Itmayalsogetthebenefitofbanks'fundsintheformofcapitalandliquidityrequirements. 5. Thecountrycangainimprovedaccesstotheinternationalcapitalmarkets. 6. Thedomesticfinancialsystemmaybecomemoreefficientthroughincreasedcompetitionandexposure ofthedomesticbankstothepracticesofoffshorebanks. 7. The offshore banking centres will provide opportunities to train the local staff which will, in turn, contributetofastereconomicgrowth. 8. TheoffshorebankingunitswouldhelpchannelisenonresidentIndianinvestments. 9. Setting up offshore banking centres would trigger enforced development of more advanced communicationfacilitiesamustfortheirfunctioning. Butestablishingoffshorecentresalsocomeswithaprice/Disadvantages 1. Thesupervisionandregulationofoffshorebanksmayinvolvesubstantialcosts. 2. Encouraging offshore banking may result in the diminution in autonomy of domestic monetary policy, sinceitisdifficulttodrawalinealwaysbetweentheoffshoreandonshoreoperations,particularlyinthe absenceofexchangecontrol. 3. Offshore banking provides scope for tax evasion by residents. For instance, in Hong Kong, it was found that residents place deposits with offshore banks and take loans of the same amount. The interest on loanwouldbeadeductibleexpenditurefortaxation,whiletheincomefrominterestondepositsisnot taxed. 4. Offshorebanksmayprovetobeharmfulcompetitorstothelocalbanksandmayinhibittheirgrowth. In India Offshore banking units are permitted to be set up in SEZs. These branches would be virtually foreign branches of Indian banks but located in India. These OBUs are exempt from CRR , SLR and they provide internationalfinancetoSEZunitsandSEZdevelopers. LoanSyndication: Meaning:Syndicatedloansareloansmadebytwoormorelendersandadministeredbyacommonagentusing similartermsandconditionsandcommondocumentation. Since Eurocredit runts into a huge amount, it is not safe or possible for a single bank to undertake the entire amount.Thusfewbanksformasyndicatetoprovidefundstotheborrower.Thepracticeisalsopartlyduetothe US laws which provide limitations on loans of any single bank to any single borrower. Bank syndicates are not permanentgroupings.Theyareformedineachcasebybankswillingtoparticipateinthecredit. PartiesinLoanSyndication: 1. LeadManagerorArranger 2. Comanagers 3. ParticipatingBanks 4. ManagingAgent Ellaboratetheirrolefromtheexplanationgivenintheprocessofmechanismofloansyndicationonp.g.21. BenefitsofLoanSyndication: TotheBorrower: DeepakFulwadhaya9967008172PrakashFulwadhaya9820797729

www.jmdtutorials.com JMDTutorials 1. Loan Syndication allows the borrower to access from a diverse group of financial institutions. The borrowerisnotrequiredtodealwithdifferentlendersseparately.Hehastodealwiththeleadmanager andthemanagingagentonly,therebysavingtimeandresources. 2. Borrowerscanraisefundsmorecheaplyinthesyndicatedloanmarketthantheycanborrowthesame amountofmoneythroughaseriesofbilateralloans.Thiscostsavingincreasesastheamountrequired rises. 3. Raisingfinancethroughthismethodisquickerandsimplewayofraisinghugefundsascomparedtoissue ofbondsorequity. 4. Flexibilityinstructureandpricing.Borrowershaveavarietyofoptionsinshapingtheirsyndicatedloan, includingmulticurrencyoptions,riskmanagementtechniques,andprepaymentrightswithoutpenalty. 5. Syndicated loan facilities can increase competition for banks, prompting other banks to increase their efforts to put market information in front of you in hopes of being recognized. This would benefit the borrowerbystrengtheninghisbargainingposition. TotheLendingBanksandparticipants: 1. The most important advantage to the bankers is diversification of risk because each member of the syndicatecontributespartoftheloanamount. 2. Smalllendinginstitutionsalsogettheopportunitytofinancelargeproposalsashavetocontributeapartof thecapitalprovidedbywayofloan 3. Theleadbank/arrangergetsfeebasedincomewithoutcommittingcapital. 4. Lendingsyndicationprocessincreasesbankscredibilityanditsnetworkwithotherbanks. 5. Loansyndicationprovidesextrabusinessopportunitytothelenders EXIMBank: ExportImportBankofIndiaisthepremierexportfinanceinstitutionofthecountry,setupin1982underthe ExportImportBankofIndiaAct1981.GovernmentofIndialaunchedtheinstitutionwithamandate,notjustto enhanceexportsfromIndia,buttointegratethecountrysforeigntradeandinvestmentwiththeoverall economicgrowth.Sinceitsinception,EximBankofIndiahasbeenbothacatalystandakeyplayerinthe promotionofcrossbordertradeandinvestment. Objective: for providing financial assistance to exporters and importers, and for functioning as the principal financial institution for coordinating the working of institutions engaged in financing export and import of goods and services with a view to promoting the countrys international trade shallactonbusinessprincipleswithdueregardtopublicinterest :TheExportImportBankofIndiaAct,1981 EximBankoffersthefollowingExportCreditfacilities,whichcanbeavailedofbyIndiancompanies,commercial banksandoverseasentities. ForIndianCompaniesexecutingcontractsoverseas Preshipmentcredit:EximBank'sPreshipmentCreditfacility,inIndianRupeesandforeigncurrency,provides accesstofinanceatthemanufacturingstageenablingexporterstopurchaserawmaterialsandotherinputs. Supplier'sCredit:ThisfacilityenablesIndianexporterstoextendtermcredittoimporters(overseas)ofeligible goodsatthepostshipmentstage. ForProjectExporters: IndianprojectexportersincurRupeeexpenditurewhileexecutingoverseasprojectexportcontractsi.e.costsof mobilisation/acquisitionofmaterials,personnelandequipmentetc.EximBank'sfacilityhelpsthemmeetthese expenses. ForExportersofConsultancyandTechnologicalServices: DeepakFulwadhaya9967008172PrakashFulwadhaya9820797729

www.jmdtutorials.com JMDTutorials EximBankoffersaspecialcreditfacilitytoIndianexportersofconsultancyandtechnologyservices,sothatthey can,inturn,extendtermcredittooverseasimporters. GuaranteeFacilities:Indiancompaniescanavailofthesetofurnishrequisiteguaranteestofacilitateexecutionof exportcontractsandimporttransactions. ForcommercialBanks:EximBankoffersRediscountingFacilitytocommercialbanks,enablingthemtorediscount exportbillsoftheirSSIcustomers,withusancenotexceeding90days. WealsoofferRefinanceofSupplier'sCredit,enablingcommercialbankstooffercredittoIndianexportersof eligiblegoods,whointurnextendthemcreditover180daystoimportersoverseas. OtherFacilitiesforIndianCompanies:IndiancompaniesexecutingcontractswithinIndia,butwhichare categorizedasDeemedExportsintheForeignTradePolicyofIndiaorcontractssecuredunderinternational competitivebiddingorcontractsunderwhichpaymentsarereceivedinforeigncurrency,canavailofcreditunder ourFinanceforDeemedExportsfacility,aimedathelpingthemmeetcashflowdeficits. ForOverseasEntities: Buyer'sCredit:OverseasbuyerscanavailofBuyer'sCreditfromEximBank,forimportofeligiblegoodsfromIndia ondeferredpaymentterms. EligibleGoods:Capitalgoods,plantandmachinery,industrialmanufactures,consumerdurablesandanyother itemseligibleforbeingexportedunderthe'EximPolicy'oftheGovernmentofIndia. WhatisECGC? Export Credit Guarantee Corporation of India Limited, was established in the year 1957 by the Government of Indiatostrengthentheexportpromotiondrivebycoveringtheriskofexportingoncredit. Beingessentiallyanexportpromotionorganization,itfunctionsundertheadministrativecontroloftheMinistry ofCommerce&Industry,DepartmentofCommerce,GovernmentofIndia.ItismanagedbyaBoardofDirectors comprising representatives of the Government, Reserve Bank of India, banking, insurance and exporting community. ECGCisthefifthlargestcreditinsureroftheworldintermsofcoverageofnationalexports.Thepresentpaidup capitalofthecompanyisRs.800croresandauthorizedcapitalRs.1000crores. WhatdoesECGCdo? Providesarangeofcreditriskinsurancecoverstoexportersagainstlossinexportofgoodsandservices Offersguaranteestobanksandfinancialinstitutionstoenableexporterstoobtainbetterfacilitiesfrom them Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the formofequityorloan HowdoesECGChelpexporters? Offersinsuranceprotectiontoexportersagainstpaymentrisks Providesguidanceinexportrelatedactivities Makesavailableinformationondifferentcountrieswithitsowncreditratings Makesiteasytoobtainexportfinancefrombanks/financialinstitutions Assistsexportersinrecoveringbaddebts Providesinformationoncreditworthinessofoverseasbuyers Needforexportcreditinsurance Paymentsforexportsareopentorisksevenatthebestoftimes.Theriskshaveassumedlargeproportionstoday duetothefarreachingpoliticalandeconomicchangesthataresweepingtheworld.Anoutbreakofwarorcivil warmayblockordelaypaymentforgoodsexported.Acouporaninsurrectionmayalsobringaboutthesame result.Economicdifficultiesorbalanceofpaymentproblemsmayleadacountrytoimposerestrictionsoneither importofcertaingoodsorontransferofpaymentsforgoodsimported.Inaddition,theexportershavetoface DeepakFulwadhaya9967008172PrakashFulwadhaya9820797729

www.jmdtutorials.com JMDTutorials commercial risks of insolvency or protracted default of buyers. The commercial risks of a foreign buyer going bankrupt or losing his capacity to pay are aggravated due to the political and economic uncertainties. Export creditinsuranceisdesignedtoprotectexportersfromtheconsequencesofthepaymentrisks,bothpoliticaland commercial,andtoenablethemtoexpandtheiroverseasbusinesswithoutfearofloss.

Dofromvipultextbook:briefinformationofschemesofECGC/guarantiesprovided
Someimportantpoints: Makethemostofholidays...uallareluckybatchtogetholidayforapaperlikeIBF..dontwastetime andfinishportionbeforetime...studysmart.. P.gNo.1to13:Emphasizeonthefollowingquestions: 1. FixedExchangeRatesystemmeaning,advantages&disadvantages 2. FlexibleExchangeratesystemmeaning,advanddisadvantages 3. Goldstandard:Features,Advantages,Disadvantages/reasonsforfailure 4. BWS:Features,Breakdown,Triffinsparadox,Smithsonianagreement 5. GoldStandardv/s.BWS DontdoEMUgivenonpageno.4&5 6. BalanceofPaymentsMeaning,Components(format),relevance 7. ShortnoteonSDR 8. Rupee Convertibility: meaning (pg 5) and then insert point no 10, 11, 12 and current status fromptno.13ofhistoryofINR AdvantagesandDisadvantagesofRupeeConvertibility PrerequisitesandwhynoFCAC Otherchaptersdoall: Note:MechanismofADRissameasGDR..justmakechangeswhereverrequiredintheanswer DistinctionbetweenDirectExchangeandIndirectexchangerateisimportant DistinctionbetweenIndianGAAPrulesandUSGAAPrulesisimportant KeeptimetostudyExternalhedgingstrategiesfromFSM..inournoteswehaveaskedutodofrom FSM...i.eDerivatives..Futures,options,forwards.. Afterdoingtheorycompletelykeeptimetorefertopastboardpapersandunderstandhowquestions areframed..manytimesstudentsdontunderstandtherequiredquestionandwritewronganswers.. AlsolearntheformatofadvancesasitappearsinbanksbalancesheetandNPAfromothersubjects..

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