In Feb 2010, ranked No.1 Bank in the world by Brand Finance Global Banking 500.
In 2010, won the Innovation in Recruitment – Employer Branding Award
In 2009, HSBC was the proud recipient of two awards at the first ever Dun & Bradstreet Bank Awards – for Best Asset Quality – Foreign Banks and Best SME Financing –Foreign Banks.
HSBC was adjudged as the Best Securities Services Provider in India by AsianInvestor in the AsianInvestor Service Provider Awards, 2009.
HSBC equity fund was ranked 5 star fund by Value Research Online in March 2009.
HSBC has been ranked second amongst the Financial Institutions and 22nd amongst all companies in an Outlook Business Hewitt Association Study.
- Brand Name - Various Products & Services - Customer Relations - Located in the financial hub of Ludhiana
- Only having one branch in the city - Suitable for business class customers only - More focus on investments & insurance - Centralisation
- Untapped Market - Growing number of businesses in Ludhiana
- Tough competition from both public sector & private sector banks - Unawareness among people - Restrictive norms of RBI
SMALL & MEDIUM ENTERPRISES IN INDIA
Contribution 40% of Total Exports
Backbone for developing country like India
45% of Industrial Output
Produces more than 6000 quality goods
Creates 1 million jobs every year
Remarkable progress in various Industries like Manufacturing, Food processing, Pharmaceuticals, Textile & Garments, Retail, Agro, IT & Service sector.
MSMED Act 2006, which came into force w.e.f. 02/10/2006, defines the Micro, Small, and Medium Enterprises. The following chart indicates the threshold investment levels for both Manufacturing sector (INVESTMENT IN PLANT & MACHINERY) and Services sector (INVESTMENT IN EQUIPMENT)
WHY FOCUS ON SMEs
High contribution to domestic production
Significant export earnings
Low investment requirements
Location wise mobility
Low intensive imports
Competitiveness in domestic and export markets
CHALLENGES TO SME SECTOR
Absence of adequate and timely banking finance
Limited knowledge and non-availability of suitable technology
Low production capacity
Ineffective marketing and identification of new markets
Non availability of highly skilled labour at affordable cost
Trade Finance is the science that describes the management of money, banking , credit, investments and assets for international trade transactions.
Different from commercial lending, mortgage lending or insurance.
Trade Finance enables credit worthy businesses to fund purchases from suppliers.
Political and economic stability War and civil disturbance Import/export regulations
Non-payment of invoices Delayed payment of invoices Insolvency of buyers
Demand for particular products Recession in particular industry Competitive products/pricing Fashionable or seasonal goods
Foreign Exchange Risk
Fluctuating exchange rates affect pricing and profit
Problems in producing correct documentation Failure in supply goods in accordance with the sales contract
Risks associated with the mode of transport, e.g. marine risks Storage facilities in ports Delayed shipment
HSBC GLOBAL TRADE SOLUTIONS
Four Ways To Settle International Trade Debts
In open account method, the importer is trusted to pay the exporter after receipt of goods. The main drawback of open account method is that exporter assumes all the risks.
Payment is received in advance for the goods being dispatched by the exporter. This method of payment is least secure for the importer.
“An undertaking by an issuing bank, on behalf of an importer (the applicant), that payment will be made for goods and services supplied by an exporter (the beneficiary), provided that the exporter complies with all terms and conditions established by the credit”.
Commonly known as Letter of Credit (L/C)
The document is issued by a financial organization at the buyer’s request.
It provides security to both buyer and seller because trade transactions are honoured through banking system.
PARTIES TO LETTER OF CREDIT
Buyer’s Bank – Also known as Collecting Bank/Issuing
Bank/ Opening Bank/Presenting Bank
Seller’s Bank – Also known as Advising Bank/Confirming
Bank/Negotiating Bank/Remitting Bank
TYPES OF LETTER OF CREDIT
Revocable Letter of Credit
Irrevocable Letter of Credit
Confirmed Letter of Credit
Sight Credit and Usance Credit
Transferable Letter of Credit
Stand by Letter of Credit
DOCUMENTARY CREDITS (DC) ADVISING
The basic responsibility of an advising bank is to advise the credit received from its overseas branch after checking the apparent genuineness of the credit recognized by the issuing bank.
Functions of the Advising Bank (Governed by Article 7 of UCPDC 500)
Authenticate the DC Verifies DC is “workable” Collects advising commission and despatches DC to the beneficiary Evaluates DC for confirmation, if requested
DC CONFIRMATION– When a bank, other than the Issuing Bank, adds its undertaking to pay under the DC is known as DC Confirmation. The political and transfer risks are mitigated from exporter’s viewpoint.
DC NEGOTIATION/DISCOUNTING– When the exporter requires funds before due date then he can discount or negotiate the LCs with the negotiating bank.
The first condition to discount an LC is that it should be a Usance LC.
The bank earns interest and charges, thus earns from LC discounting.
DOCUMENTARY COLLECTIONS Payment Collection against Bills also known Documentary Collection. Bank only acts as a medium for the transfer of documents but does not make any payment guarantee Collection of documents is subjected to the Uniform Rules for Collections published by the International Chamber of Commerce (ICC)
TYPES OF DOCUMENTARY COLLECTIONS Documents against Payment (D/P) Documents against acceptance (D/A)
Documents against Payment
The collecting bank hands over the shipping documents including the document of title (bill of lading) only when the importer has paid the bill.
These terms are used when a collection order does not contain a bill of exchange.
The exporter keeps control of the goods (through the banks) until the importer pays
Documents against Acceptance
The Exporter allows credit to Importer, the period of credit is referred to as Usance
Under D/A terms the importer can inspect the documents and, if he is satisfied, accept the bill for payment on the due date, take the documents and clear the goods; the exporter loses control of them.
Buyers’ credit refers to loans for payment of imports into India.
The offshore branch credits the nostro of the bank in India and the Indian bank uses the funds and makes the payment to the exporter’s bank as an import bill payment on due date.
The importer reflects the buyers credit as a loan in the balance sheet.
All documents have to be routed through banking channels i.e. no direct dispatch of documents
BENEFITS OF BUYER’S CREDIT TO THE IMPORTER
The exporter gets paid on due date; whereas importer gets extended date for making an import payment as per cash flows.
The importer can deal with exporter on sight basis, negotiate a better discount and use the buyers credit route to avail financing.
The funding currency can be in any FCY (USD, GBP, EURO, JPY etc.) depending on the choice of the customer.
The importer can use this financing for any form of trade viz. Open account, collections or LCs.
Interest Cost: This is charged by funding bank as a financing cost (LIBOR Based).
Arrangement fees: This is charged by HSBC India for arranging the funds for the transaction.
Withholding Tax (WHT): The customer has to pay WHT on the interest amount. (The WHT is not applicable where HSBC India arranges for buyers credit from offshore offices of Indian Banks or Banks incorporated locally in Mauritius).
Avalisation is the co acceptance of usance export non LC bills by the importer’s bank
Drawee bank is not just giving an acceptance on behalf of the customer, but is co accepting the bills which mean even in the event of the importer not paying, the drawee bank will pay HSBC.
HSBC will discount up to 85-90% of the bill value upon receiving the confirmation from the drawee’s bank.
Forfeiting means to surrender ones right on something to someone else.
It refers to purchasing of an exporter’s receivables at a discount price by paying cash
Commercial contract between exporter & importer
Exporter approaches the forfeiter to ascertain the terms of forfeiting
Forfeiter estimates risk involved in it and then quotes the discount rate.
Exporter signs a contract with the forfeiter
Export takes place against documents guaranteed by the importer’s bank and discounts the bill with the forfeiter
FOREIGN EXCHANGE/TREASURY SERVICES
Simple to operate
No protection against movement in rates
Allows a firm to book an exchange rate now, for payment in future
Eliminates the risk of fluctuating exchange rates
It gives the right but not the obligation, to buy or sell one currency against delivery of another at a specific rate on a specific date .
Premium based product
TITLE – TRADE FINANCE SERVICES TO SMEs IN LUDHIANA BY HSBC
Need of the study
Every business is not always aware about all the services being provided by its bank.
Clients do not operate their current accounts for a long time.
Competition among banks to attract more customers to increase their income.
OBJECTIVES OF RESEARCH
To know the awareness level of SMEs regarding Trade Finance services.
To know the factors influencing the selection of a bank to avail Trade services.
To know the satisfaction level of SMEs from the services of HSBC.
Research methodology is a way to systematically solve the research problem. It may be understood as the science of studying how research is done scientifically.
Exploratory Research Design Descriptive Research Design Causal Research Design
Population – All the SMEs in Ludhiana having current account with HSBC, is the population of the research project.
Sampling Unit – Any SME using the services of HSBC.
Sample size – 30 SMEs in Ludhiana having current account with HSBC
Probability sampling technique
Simple Random Sampling
Table No. 4a
Title:- Number of SMEs availing Trade Services
Table No. 4a.1
Title:- Type of Trade Services availed by SMEs
Figure No. 4b
Title:- No. of SMEs having awareness about different Trade Services
Table No. 4a.2
Title:- No. of SMEs having awareness about foreign exchange services of HSBC
Table No. 4a.3
Title:- No. of SMEs having awareness about different foreign exchange services
Figure No. 4b.1
Title: - SMEs availing services of banks other than HSBC
Figure No. 4b.2
Title:- Factors considered before selecting a bank for availing Trade services
Figure No. 4b.4
Title:- Level of satisfaction of those SMEs having current account with HSBC
Table No. 4a.4
Title:- No. of SMEs likely to shift to other Bank
Figure No. 4b.5 Title:- SMEs likely to join other banks
RESULTS & FINDINGS
LCBD (Letter of Credit Bill Discounting) is the most preferred trade service i.e. availed by SME clients from HSBC.
SME clients are aware about Documentary Credits, Buyer’s Credit & Import payments while its other trade products like Forfeiting, Avalisation are not known to its SME clients.
Public Sector Banks State Bank of India, Punjab National Bank; and Private Sector Banks ICICI, HDFC are popular among SMEs who are also availing services from these banks along with HSBC.
The most important factor:
“Fee & charges of a bank” followed by “Documentation Process” & T.A.T. (Turn Around Time)
Least important factor
“Number of branches in the country” but when it comes to select HSBC, “Brand name” plays an important role followed by “References” & “Customer Relations”.
SME clients of HSBC are satisfied with the services of HSBC but still some of them want to shift to some other bank and those who want to shift will mostly prefer a Public Sector Bank but no foreign bank