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Summer training project ppts Presentation Transcript

  • 1. TRADE FINANCE SERVICES TO SMEs IN LUDHIANA BY HSBC
    Presented by:
    NITIN KOCHHAR
    MBA 2C
  • 2. INTRODUCTION TO HSBC
    • Headquartered in London
    • 3. One of the world’s largest banking & financial services organization
    • 4. 8,000 offices in 88 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa
    • 5. Serves over 100 million personal and almost three million commercial customers
    • 6. Listed in London, New York, Hong Kong and Paris stock exchanges.
  • HISTORICAL BACKGROUND
    • Bank owed its origins to the business communities of the China coast in the 1860s.
    • 7. Thomas Sutherland is known to be the founder of the bank.
    • 8. Started with an initial capital of HK$5 million.
    • 9. Bank was founded in 1865 and opened for business in Hong Kong on 3rd March 1865.
    • 10. Acted as a banker to the Hong Kong govt.
    • 11. In Jan 1993, the group’s head office was transferred from Hong Kong to London.
  • VISION
    • To be the world’s leading financial services company.
    • 12. To become the first choice of their customers.
    • 13. To be recognised as the world’s respected financial services employer.
    • 14. To generate best returns to its shareholders.
    • 15. To provide technology for customers to do business with HSBC
  • HSBC IN INDIA
    • The Mercantile Bank of India, China & London was founded in Bombay (Mumbai) in Oct 1853.
    • 16. The Hong Kong & Shanghai Banking Corporation Limited (HBAP) commenced its operations in 1867 in India.
    • 17. In 1959, The HSBC Limited acquired The Mercantile Bank.
    • 18. Currently having a network of 50 branches in India with 155 ATMs at 126 locations.
    • 19. HSBC gave India its first ATM in 1987.
  • SENIOR EXECUTIVES IN INDIA
    • Stuart A Davis : Chief Executive Officer (CEO)
    • 20. Richard Collie : Chief Financial Officer (CFO)
    • 21. Tarun Kataria : Head of Global Banking and Markets
    • 22. Hitendra Dave : Head of Global Markets
    • 23. Ravininder Singh : Head of Corporate Banking
    • 24. Puneet Chaddha : Head of Commercial Banking
    • 25. Rajnish Bahl : Head of Personal Financial Services
    • 26. Ramnath Krishnan : Head of Private Banking
    • 27. Ravi Menon : Head of Corporate Strategy & Development
    • 28. TanujKapilashrami : Head of Human Resources
    • 29. MaliniThadani : Head of Group Communications & Corporate
    Sustainability
    • Maitri Kumar : Head of Marketing
    • 30. DeveshMathur : Chief Technology & Services Officer
  • AWARDS & RECOGNITION
    • In Feb 2010, ranked No.1 Bank in the world by Brand Finance Global Banking 500.
    • 31. In 2010, won the Innovation in Recruitment – Employer Branding Award
    • 32. 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.
    • 33. HSBC was adjudged as the Best Securities Services Provider in India by AsianInvestor in the AsianInvestor Service Provider Awards, 2009.
    • 34. HSBC equity fund was ranked 5 star fund by Value Research Online in March 2009.
    • 35. HSBC has been ranked second amongst the Financial Institutions and 22nd amongst all companies in an Outlook Business Hewitt Association Study.
  • SWOT ANALYSIS
    • STRENGTHS :
    - Brand Name
    - Various Products & Services
    - Customer Relations
    - Located in the financial hub of Ludhiana
    • WEAKNESSES :
    - Only having one branch in the city
    - Suitable for business class customers only
    - More focus on investments & insurance
    - Centralisation
  • 36. Contd.
    • OPPORTUNITIES :
    - Untapped Market
    - Growing number of businesses in
    Ludhiana
    • THREATS :
    - Tough competition from both public sector &
    private sector banks
    - Unawareness among people
    - Restrictive norms of RBI
  • 37. SMALL & MEDIUM ENTERPRISES IN INDIA
    • Contribution 40% of Total Exports
    • 38. Backbone for developing country like India
    • 39. 45% of Industrial Output
    • 40. Produces more than 6000 quality goods
    • 41. Creates 1 million jobs every year
    • 42. Remarkable progress in various Industries like Manufacturing, Food processing, Pharmaceuticals, Textile & Garments, Retail, Agro, IT & Service sector.
  • Contd.
    • 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
    • 43. Significant export earnings
    • 44. Low investment requirements
    • 45. Operational flexibility
    • 46. Location wise mobility
    • 47. Low intensive imports
    • 48. Competitiveness in domestic and export markets
  • CHALLENGES TO SME SECTOR
    • Absence of adequate and timely banking finance
    • 49. Limited knowledge and non-availability of suitable technology
    • 50. Low production capacity
    • 51. Ineffective marketing and identification of new markets
    • 52. Non availability of highly skilled labour at affordable cost
  • TRADE FINANCE
    • Trade Finance is the science that describes the management of money, banking , credit, investments and assets for international trade transactions.
    • 53. Different from commercial lending, mortgage lending or insurance.
    • 54. Trade Finance enables credit worthy businesses to fund purchases from suppliers.
  • RISKS
    • Country Risk
    Political and economic stability
    War and civil disturbance
    Import/export regulations
    • Importer Risk
    Non-payment of invoices
    Delayed payment of invoices
    Insolvency of buyers
    • Industry Risk
    Demand for particular products
    Recession in particular industry
    Competitive products/pricing
    Fashionable or seasonal goods
  • 55. Contd.
    • Foreign Exchange Risk
    Fluctuating exchange rates affect pricing and profit
    • Exporter Risk
    Problems in producing correct documentation
    Failure in supply goods in accordance with the sales contract
    • Transportation Risk
    Risks associated with the mode of transport, e.g. marine risks
    Storage facilities in ports
    Delayed shipment
  • 56. HSBC GLOBAL TRADE SOLUTIONS
  • 57. Four Ways To Settle International Trade Debts
    • Open Account
    • 58. Advance Payment
    • 59. Documentary Credit
    • 60. Documentary Collection
    • Open Account
    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.
    • Advance Payment
    Payment is received in advance for the goods being
    dispatched by the exporter. This method of
    payment is least secure for the importer.
  • 61. DOCUMENTARY CREDITS
    • “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”.
    • 62. Commonly known as Letter of Credit (L/C)
    • 63. The document is issued by a financial organization at the buyer’s request.
    • 64. It provides security to both buyer and seller because trade transactions are honoured through banking system.
  • PARTIES TO LETTER OF CREDIT
    • Applicant (Opener)
    • 65. Buyer’s Bank – Also known as Collecting Bank/Issuing
    Bank/ Opening Bank/Presenting Bank
    • Beneficiary
    • 66. Seller’s Bank – Also known as Advising Bank/Confirming
    Bank/Negotiating Bank/Remitting Bank
  • 67. TYPES OF LETTER OF CREDIT
    • Revocable Letter of Credit
    • 68. Irrevocable Letter of Credit
    • 69. Confirmed Letter of Credit
    • 70. Sight Credit and Usance Credit
    • 71. Transferable Letter of Credit
    • 72. 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.
    • 73. 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
  • 74.
    • 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.
    • 75. DC NEGOTIATION/DISCOUNTING– When the exporter requires funds before due date then he can discount or negotiate the LCs with the negotiating bank.
    • 76. The first condition to discount an LC is that it should be a Usance LC.
    • 77. The bank earns interest and charges, thus earns from LC discounting.
  • 78. 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)
  • 79. TYPES OF DOCUMENTARY COLLECTIONS
    Documents against Payment (D/P)
    Documents against acceptance (D/A)
  • 80.
    • Documents against Payment
    • 81. The collecting bank hands over the shipping documents including the document of title (bill of lading) only when the importer has paid the bill.
    • 82. These terms are used when a collection order does not contain a bill of exchange.
    • 83. The exporter keeps control of the goods (through the banks) until the importer pays
    • 84. Documents against Acceptance
    • 85. The Exporter allows credit to Importer, the period of credit is referred to as Usance
    • 86. 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.
  • 87. Buyer’s Credit
    • Buyers’ credit refers to loans for payment of imports into India.
    • 88. 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.
    • 89. The importer reflects the buyers credit as a loan in the balance sheet.
    • 90. 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.
    • 91. The importer can deal with exporter on sight basis, negotiate a better discount and use the buyers credit route to avail financing.
    • 92. The funding currency can be in any FCY (USD, GBP, EURO, JPY etc.) depending on the choice of the customer.
    • 93. The importer can use this financing for any form of trade viz. Open account, collections or LCs.
  • COST INVOLVED
    • Interest Cost: This is charged by funding bank as a financing cost (LIBOR Based).
    • 94. Arrangement fees: This is charged by HSBC India for arranging the funds for the transaction.
    • 95. 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
    • Avalisation is the co acceptance of usance export non LC bills by the importer’s bank
    • 96. 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.
    • 97. HSBC will discount up to 85-90% of the bill value upon receiving the confirmation from the drawee’s bank.
  • FORFEITING
    • Forfeiting means to surrender ones right on something to someone else.
    • 98. It refers to purchasing of an exporter’s receivables at a discount price by paying cash
    Process
    • Commercial contract between exporter & importer
    • 99. Exporter approaches the forfeiter to ascertain the terms of forfeiting
    • 100. Forfeiter estimates risk involved in it and then quotes the discount rate.
    • 101. Exporter signs a contract with the forfeiter
    • 102. Export takes place against documents guaranteed by the importer’s bank and discounts the bill with the forfeiter
  • FOREIGN EXCHANGE/TREASURY SERVICES
  • 103.
    • SPOTS
    • 104. Simple to operate
    • 105. No protection against movement in rates
    • 106. FORWARDS
    • 107. Allows a firm to book an exchange rate now, for payment in future
    • 108. Eliminates the risk of fluctuating exchange rates
    • 109. Options
    • 110. 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 .
    • 111. Premium based product
  • TITLE – TRADE FINANCE SERVICES TO
    SMEs IN LUDHIANA BY HSBC
  • 112. Need of the study
    • Every business is not always aware about all the services being provided by its bank.
    • 113. Clients do not operate their current accounts for a long time.
    • 114. 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.
    • 115. To know the factors influencing the selection of a bank to avail Trade services.
    • 116. To know the satisfaction level of SMEs from the services of HSBC.
  • RESEARCH METHODOLOGY
    • 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.
    • 117. RESEARCH DESIGN
    Exploratory Research Design
    Descriptive Research Design
    Causal Research Design
  • 118. SAMPLING PLAN
    • Population – All the SMEs in Ludhiana having current account with HSBC, is the population of the research project.
    • 119. Sampling Unit – Any SME using the services of HSBC.
    • 120. Sample size – 30 SMEs in Ludhiana having current account with HSBC
    • 121. Sampling technique
    • 122. Probability sampling technique
    • 123. Simple Random Sampling
  • DATA COLLECTION
    • Primary Data
    • 124. Structured Questionnaire
    • 125. Secondary Data
    • 126. Magazine articles
    • 127. Journals
    • 128. Research papers
  • 129.
    • Table No. 4a
    • 130. Title:- Number of SMEs availing Trade Services
    • Table No. 4a.1
    • 131. Title:- Type of Trade Services availed by SMEs
    • Figure No. 4b
    • 132. Title:- No. of SMEs having awareness about different Trade Services
    • Table No. 4a.2
    • 133. Title:- No. of SMEs having awareness about foreign exchange services of HSBC
    • Table No. 4a.3
    • 134. Title:- No. of SMEs having awareness about different foreign exchange services
    • Figure No. 4b.1
    • 135. Title: - SMEs availing services of banks other than HSBC
    • Figure No. 4b.2
    • 136. Title:- Factors considered before selecting a bank for availing Trade services
    • Figure No. 4b.4
    • 137. Title:- Level of satisfaction of those SMEs having current account with HSBC
    • Table No. 4a.4
    • 138. Title:- No. of SMEs likely to shift to other Bank
  • Figure No. 4b.5
    Title:- SMEs likely to join other banks
  • 139. RESULTS & FINDINGS
    • LCBD (Letter of Credit Bill Discounting) is the most preferred trade service i.e. availed by SME clients from HSBC.
    • 140. 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.
    • 141. 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.
  • Contd.
    • 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
  • THANK YOU