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CAIIB Super Notes: Corporate Banking: Module A: Corporate Banking and Finance: Corporate Banking
The document provides an extensive overview of corporate banking and finance as part of the CAIIB Super Notes series, detailing services such as salary payment, debtors management, factoring, and custodial services. It discusses various banking products and services, including cash management, loans, clearing systems, and business advisory. Additionally, it explores structured financial services like factoring and forfaiting, alongside trustee and custodial responsibilities in managing client assets.
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CAIIB Super Notes: Corporate Banking: Module A: Corporate Banking and Finance: Corporate Banking
- 1. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Corporate Banking Module A: Corporate Banking and Finance
- 2. CAIIB – Super-Notes©M S Ahluwalia Sirf Business CAIIB – SUPER NOTES Corporate Banking: Corporate Banking
- 3. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Contents Coverage: 1. Introduction 2. Corporate Banking – Meaning and Importance 3. Salary Payment 4. Debtors Management 5. Factoring and Forfaiting 6. Forfaiting 7. Trusteeship Services 8. Debenture Trusteeship 9. Security Trusteeship 10. Attorneyship 11. Custodial Services 12. Business Advisory 13. Offshore Banking Services 14. Forex Services
- 4. CAIIB – Super-Notes©M S Ahluwalia Sirf Business INTRODUCTION 1.
- 5. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Products Asset SideAsset Side •Deposit Accounts •Cash Management Services Liability SideLiability Side •Working Capital Finance •Bill Discounting •Export Credit •Short Term Finance •Structured Finance •Term Loans Off Balance Sheet Services Off Balance Sheet Services •Letters of Credit •Bank Guarantees •Collection of Documents Value Added Services Value Added Services •Loan Syndication •RTGS •Channel Financing •Corporate Salary Accounts •Bankers to rights/public issues •Corporate Internet Banking •Forex Desk •Money Market Desk •Derivatives Desk •Employees’ Trust •Tax Collection •Payment Gateway Services
- 6. CAIIB – Super-Notes©M S Ahluwalia Sirf Business MEANING AND IMPORTANCE 2.
- 7. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Services Provided 1. Cash Management 2. Local and Upcountry Cheque Collections 3. Electronic Collections 1. RTGS 2. NEFT 3. ECS 4. “Payable at Par” Customer Cheques 5. Banker’s Cheques and Demand Drafts
- 8. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Difference b/w RTGS and NEFT/EFT • RTGS is Real Time Settlement whereas in EFT/NEFT the settlement is deferred • RTGS is gross settlement system – transactions are settled on one to one basis. In NEFT/EFT transactions are settled in batches under Deferred Net Settlement System • RTGS - min limit is Rs. 2 Lacs. No minimum limit in EFT/NEFT. (RTGS – Real Time Gross Settlement)
- 9. CAIIB – Super-Notes©M S Ahluwalia Sirf Business ECS • Electronic Clearing System • Funds transfer from one bank to another using services of a Clearing House • Normally used for bulk transfers
- 10. CAIIB – Super-Notes©M S Ahluwalia Sirf Business ECS Debit System 1. Single Credit – Multiple Debit 2. Requirements: 1. ECS Mandate 2. Mandate from beneficiary 3. Advantages: 1. To Banks: 1. Free of Paper Handling/Processing 2. To Clients: 1. Trouble Free: No need for physical visit to deposit instruments. 2. No loss of instrument or fraudulent encashment 3. Better cash management
- 11. CAIIB – Super-Notes©M S Ahluwalia Sirf Business ECS Credit System 1. Single Debit – Multiple Credit 2. Participants 1. ECS User 2. Sponsor Bank(User’s Bank) 3. Beneficiary/Destination Account Holder 4. Destination Bank(Beneficiary’s Bank) 3. Advantages: 1. To Banks: 1. Free of Paper Handling/Processing 2. To Clients: 1. Trouble Free: No need for physical visit to deposit instruments. 2. No loss of instrument or fraudulent encashment 3. No delay in realisation of proceeds 4. Saves on administrative machinery 5. Ability to make payment and ensure the beneficiary’s account gets credited on a designated date
- 12. CAIIB – Super-Notes©M S Ahluwalia Sirf Business “Payable at Par” Customer Cheques • Facility of cheques payable at par for customers with bulk cheque writing requirements • Payment data taken directly from client’s accounting system in a single file download and transmitted to the bank for processing
- 13. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Banker’s Cheques and Demand Drafts • Instructions can be given through bank’s internet banking platform • Payments can be made at bank’s branch locations and through the correspondent bank network
- 14. CAIIB – Super-Notes©M S Ahluwalia Sirf Business SALARY PAYMENT 3.
- 15. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Salary Payment • Services to offer payroll solutions in a 24 x 7 environment Benefits to CorporatesBenefits to Corporates •Efficient Salary Disbursal •Web Upload Benefits to EmployeesBenefits to Employees •No minimum balance requirement •Unparalleled Access •At par cheque books •International debit cum ATM cards •Online Banking •Depository Services •Employee Reimbursement accounts •Preferential pricing on loan products and credit cards and other products and services
- 16. CAIIB – Super-Notes©M S Ahluwalia Sirf Business DEBTORS MANAGEMENT 4.
- 17. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Services • Receivables Management – Collection Services • Paper Collection: Local and outstation cheques • Local/Outstation Clearing Solutions: Lodgment for clearing • Updating of account receivables – Invoice Management – Accounts Receivable matching solutions – Electronic Collections: Collection of receivables through funds transfers and other electronic modes such as RTGS, NEFT etc
- 18. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Benefits to Clients Reduced Collection cycle Reduced Collection cycle Quicker availability of clear funds Quicker availability of clear funds Zero Settlement Risk Zero Settlement Risk Elimination of float Elimination of float Certainty in funds receipt Certainty in funds receipt Enhanced turnover Enhanced turnover Paperless transactions Paperless transactions Reduced operational risk Reduced operational risk Faster realisation of receivables Faster realisation of receivables Savings in Interest costs and bank charges Savings in Interest costs and bank charges Online querying on receivables Online querying on receivables Automated bank reconciliation Automated bank reconciliation Outsourcing of debtor’s reconciliation Outsourcing of debtor’s reconciliation
- 19. CAIIB – Super-Notes©M S Ahluwalia Sirf Business FACTORING AND FORFAITING 5.
- 20. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Factoring • An arrangement in which receivables arising out of sale of goods/services are sold by the firm (client) to a factor as a result of which the title to the goods/services represented by the receivables passes to the factor • Factor becomes responsible for all credit control, sales accounting and debt collection
- 21. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Mechanism Sale of Goods - Agreements •Buyer Negotiates terms of purchase with seller •Seller sells goods to Buyer according to the Memorandum of Understanding or contract with the buyer •At the same time, but independently, the factor enters into an agreement with the seller for rendering factoring service Sale of Goods - Agreements •Buyer Negotiates terms of purchase with seller •Seller sells goods to Buyer according to the Memorandum of Understanding or contract with the buyer •At the same time, but independently, the factor enters into an agreement with the seller for rendering factoring service Physical Transfer •Buyer Receives delivery of goods with copies of invoice, delivery challan, MoU/contract and instructions by the seller to make payment to the factor on due date Physical Transfer •Buyer Receives delivery of goods with copies of invoice, delivery challan, MoU/contract and instructions by the seller to make payment to the factor on due date Payments •By Factor: 75-80% of price of the debt to the seller on receipt of the sale documents •By Buyer: Payment on due date •Factor remits balance 20-25% on receipt of payment to seller Payments •By Factor: 75-80% of price of the debt to the seller on receipt of the sale documents •By Buyer: Payment on due date •Factor remits balance 20-25% on receipt of payment to seller
- 22. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Functions of a Factor • Maintenance of Sales Ledger • Collection of accounts receivable (Considered to be the most important function of the factor) • Financing facility of trade debts • Assumption of credit risk and credit protection • Provision of advisory services – Buyer’s perception of client’s deliverables, marketing strategies etc – Audit of the procedures followed by the client for invoicing, delivery and dealing with sales returns – Introduction to Banks and FIs dealing with leasing, hire purchase, investment banking, and so on
- 23. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Types of Factoring Based on Recourse available to Factor Based on Recourse available to Factor Recourse Non-Recourse •Full Factoring/Old Line Factoring Based on time of Payment Based on time of Payment Advance/Bank Participation Maturity/Collection Based on secrecy clause Based on secrecy clause Disclosed Undisclosed Based on nature of transaction Based on nature of transaction Domestic Export/Two Factor System
- 24. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Factoring vs. Bills Discounting Factoring Bills Discounting May be with/without recourse Always with recourse Factor takes on the responsibility if collection Seller collects receivables and pays to the financing entity Factor maintains the sales ledger and also provides advisory services Envisages only provision of finance Factored debts can only be refinanced Bills discounted can be rediscounted several times Represents assignment of debts Not the case
- 25. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Kalyansundaram Committee Report • Late 1980s • RBI constituted the committee to recommend the future direction of factoring business in India • Recommended – Encouragement of factoring for SME units – Undertaking of factoring business departmentally by banks
- 26. CAIIB – Super-Notes©M S Ahluwalia Sirf Business FORFAITING 6.
- 27. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Process Exporter sells goods on deferred payment basisExporter sells goods on deferred payment basis Importer draws promissory notes in favour of exporter/Exporter draws series of bills on the importer Importer draws promissory notes in favour of exporter/Exporter draws series of bills on the importer Bills or notes sent to exporter after being guaranteed by a bank(aval) Bills or notes sent to exporter after being guaranteed by a bank(aval) Exporter enters into forfaiting arrangement with a bank – Avalised notes/bills are sold to the forfaiter, without recourse, at a discount Exporter enters into forfaiting arrangement with a bank – Avalised notes/bills are sold to the forfaiter, without recourse, at a discount Forfaiter may hold the notes/bills till maturity or securitise and sell them in secondary market Forfaiter may hold the notes/bills till maturity or securitise and sell them in secondary market
- 28. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Forfaiting vs. Export Factoring Forfaiting Export Factoring Discounting of entire value of note/bill Advances to the extent of 75-80%. Rest is treated as factor reserve Protected by Avalling Bank Credit risk on the factor Pure finance arrangement Includes ledger maintenance, collection, etc. Long Term Credit Short Term Finance Forfaiters take on exchange rate risk and charge premium for the service Factors do not cover exchange rate risk
- 29. CAIIB – Super-Notes©M S Ahluwalia Sirf Business TRUSTEESHIP SERVICES 7.
- 30. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Services • Act as trustees for – Public, charitable, religious and other trusts – Trustees of a Settlement – Trustees of a minor’s legacy – Custodian trustee of properties – pension, provident and gratuity fund • Counseling and drafting of trust deeds • Safe keeping of trust property and payment of income to beneficiaries on due dates as per the instructions of the settlers • Making payments and undertaking other activities as per the mandate • Undertake private settlements related to formation of focused, specific period trusts for benevolent purposes
- 31. CAIIB – Super-Notes©M S Ahluwalia Sirf Business DEBENTURE TRUSTEESHIP 8.
- 32. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Services • Accept debenture trusteeship of debentures/bonds issued under private placement • Advisory on the following activities related to the issue: – Obtaining a rating from CRISIL, ICRA etc – Appointment of arrangers – a SEBI registered investment bank – Guidance on structured payment mechanism – Clarification on legal/statutory matters in issue of debentures/bonds – Documentation process – preparation of all kinds of related documents – Creation of charge, registration and compliance of legal and statutory requirements in this respect
- 33. CAIIB – Super-Notes©M S Ahluwalia Sirf Business SECURITY TRUSTEESHIP 9.
- 34. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Services • Entire procedure of security creation • Ensures execution of documents for creation of security • Enforcement of security in case of default Appointed with the consent of all the lenders at the cost of the borrower.
- 35. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Value addition by Banks • Availability of standard format of documents • Expertise, experience and specialization in handling security related transactions • Backup of specialized software • Guidance of in-house and assistance of external, legal and other professionals • Nationwide network of branches that facilitates lender/borrower to execute documents at the place of their convenience and choice
- 36. CAIIB – Super-Notes©M S Ahluwalia Sirf Business ATTORNEYSHIP 10.
- 37. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Services • Power of Attorney service • To execute the client’s instructions regarding their investments promptly and meticulously
- 38. CAIIB – Super-Notes©M S Ahluwalia Sirf Business CUSTODIAL SERVICES 11.
- 39. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Custodian Services Securities Lending and Other Value Added Services Global Custody Services Core Custody Services • Securities Lending • Performance Measurement • Risk Measurement • Compliance Monitoring • Core Custody Services • Executing ForEx transactions • Processing Tax Reclaims • Usually has sub-custodians in each market • Settlement of Trades • Investment of Cash Balances • Collection of Income • Processing Corporate Actions • Pricing Security Positions • Record keeping and reporting services
- 40. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Risks associated with Custody Services •Current and prospective risk to earnings or capital from fraud, error and the inability to deliver products or services, maintain a competitive position, and manage information •Encompasses product development and delivery, transaction processing, systems development, computing systems, complexity of products and services and the internal control environment Transaction RiskTransaction Risk •Current and prospective risk to earnings or capital arising from violations of, or non-conformance with laws, rules, regulations, prescribed practices, internal policies and procedures, or ethical standards. •Exposes the institution to fines, civil money penalties, payment of damages, voiding of contracts, diminished reputation, reduced franchise value, limited business opportunities, reduced expansion potential, and inability to enforce contracts Compliance RiskCompliance Risk •Current and prospective risk to earnings or capital arising from an obligor’s failure to meet the terms of any contract with the bank or otherwise to perform as agreed Credit RiskCredit Risk •Current and prospective risk to earnings or capital arising from adverse business decisions, improper implementation of decisions, or lack of responsiveness to industry changes Strategic RiskStrategic Risk •Current and prospective risk to earnings or capital arising from negative public opinion Reputation RiskReputation Risk
- 41. CAIIB – Super-Notes©M S Ahluwalia Sirf Business BUSINESS ADVISORY 12.
- 42. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Services • To assist clients in: – Strategizing for growth and consolidation – Introducing new operational practices and business approaches – Market diversification and planning, strategies for restructuring and revival, product planning, financial management and business process restructuring
- 43. CAIIB – Super-Notes©M S Ahluwalia Sirf Business OFFSHORE BANKING SERVICES 13.
- 44. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Offshore Banking • International banking business involving foreign currency denominated assets and liabilities • Offshore banking units(OBU) are virtually foreign branches of Indian banks but located in India • Usually set up in Special Economic Zones • Special features of OB products: – Security, liquidity and convertibility – Dealing in major currencies – USD, GBP, Euro, JPY
- 45. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Products Interest bearing Foreign Currency Call Deposit Account Interest bearing Foreign Currency Call Deposit Account Foreign Currency Fixed Deposit Account Foreign Currency Fixed Deposit Account Foreign Currency Rolling Deposit Account Foreign Currency Rolling Deposit Account Foreign Currency Switch Deposit Account Foreign Currency Switch Deposit Account Foreign Currency Trading Deposit Account Foreign Currency Trading Deposit Account International Money Transfer International Money Transfer Foreign Exchange and Derivative Transactions Foreign Exchange and Derivative Transactions
- 46. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Other Products International Trade Finance Instruments International Trade Finance Instruments • Collection of clean or trade bills • Issuance of LC, various guarantees • Bill discounting or negotiation of documentary collections Credit FacilitiesCredit Facilities • Finance in all major currencies • Short Term/Medium Term working capital or assets finance • Long Term Finance • ECB • Syndication of loans or lines of credit • Structured Finance
- 47. CAIIB – Super-Notes©M S Ahluwalia Sirf Business FOREX SERVICES 14.
- 48. CAIIB – Super-Notes©M S Ahluwalia Sirf Business ForEx Services Offered Foreign Currency Travellers Cheques (FCTCs) Foreign Currency Travellers Cheques (FCTCs) Foreign Currency Cash Foreign Currency Cash Foreign Currency Demand Drafts Foreign Currency Demand Drafts Deposit of FC Cheques Deposit of FC Cheques RemittancesRemittances Cash to MasterCash to Master Advance Remittance Advance Remittance Direct Remittance Direct Remittance Import CollectionImport Collection Letters of CreditLetters of Credit Export CollectionExport Collection Export Advance Payment Export Advance Payment Miscellaneous Outward Remittances Miscellaneous Outward Remittances
- 49. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Foreign Currency Travellers Cheques (FCTCs) • Can be encashed when needed against holder’s signature • Loss can be reported easily • Amounts are refundable to the holder/buyer • Offered in major currencies – USD, GBP, Euro, CAD, AUD and JPY.
- 50. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Foreign Currency Cash • Foreign currency notes • Major currencies – USD, GBP, Euro, AUD and CAD
- 51. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Foreign Currency Demand Drafts • For various expenses such as: – Payment of university fees abroad – Making gift remittance – Payment of application fees for exams like TOEFL, GMAT etc – Payment for medical treatment abroad – All other permitted purposes as per RBI guidelines • Normally issued in 7 currencies: USD, GBP, JPY, AUD, CAD, NZD and Euro
- 52. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Deposit of FC Cheques • Can be done directly into the current or saving accounts • Once funds are honoured the account is credited in Indian rupees • Normally cheques are accepted for USD, GBP, Euro, JPY, AUD, CAD, AED, Honk Kong Dollars and Swiss Francs • Collection period may vary from 2-15 days depending upon currency
- 53. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Remittances - Send and receive money to and from relatives and friends abroad - Executed through SWIFT
- 54. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Cash to Master • For foreign ships travelling through the country • Cash provided to captain of the ship for covering wages of the crew or other expenses on board the ship • Master of the ship has to approach the designated branch of an authorised with his passport and application form • Only in USD, GBP and Euros
- 55. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Advance Remittance • Overseas exporter seeking advance payment • Banks make foreign currency remittance on behalf of the importer
- 56. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Direct Remittance • Documents are sent directly to the client who then approaches the bank for effecting the payment
- 57. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Import Collection Overseas exporter/exporter’s bank sends documents to client’s bank on collection Overseas exporter/exporter’s bank sends documents to client’s bank on collection Bank intimates the importer about receipt of documents Bank intimates the importer about receipt of documents Importer authorizes the bank to debit his account and remit to exporter’s bank Importer authorizes the bank to debit his account and remit to exporter’s bank - In case of sight bill documents and debit authority collected from importer, amount remitted to Exporter’s bank and documents released to importer - In case of usance bill acceptance letter taken from importer and documents released. On due date amount is remitted to exporter’s bank by debiting the importer’s account
- 58. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Letters of Credit • Facilitates purchase of goods in international and domestic trading operations • LCs issued by major Indian Banks are accepted worldwide
- 59. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Export Collection • Payment for goods exported by the bank’s client • Through a network of correspondent banks Indian banks ensure a faster collection process for all export bills
- 60. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Export Advance Payment • Indian exporter might seek advance payment • Importer requested to send payment to the exporter’s bank through the correspondent bank network
- 61. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Miscellaneous Outward Remittances • Can be effected to any part of the world using SWIFT through a network of correspondent banks • All transactions are subject to FEMA regulations
- 62. CAIIB – Super-Notes©M S Ahluwalia Sirf Business Do you have any questions or queries or some feedback to give? Just mark an email to super.msahluwalia@yahoo.com
- 63. CAIIB – Super-Notes©M S Ahluwalia Sirf Business For more Super-Notes: Click Here M S Ahluwalia, amongst other things, is a visual artist, blogger, blog designer and of course an MBA and Banker from New Delhi, India. To know more about him you may visit his blog-site: Estudiante De La Vida