DISSERTATION REPORT

COMPARATIVE ANALYSIS OF DEPOSITORY SERVICE OF

BANK
ON
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS
FOR THE MASTERS DEGREE IN BUSINESS ADMINISTRATION
OF

UTTARAKHAND TECHNICAL UNIVERSITY, DEHRADUN

SUBMITTED TO:
SUBMITTED BY:
(FACULTY GUIDE)

M.B.A.-4 Sem

UTTARANCHAL INSTITUTE OF TECHNOLOGY

PREMNAGAR, DEHRADUN (U.K.)

BATCH (2012-2014)

CERTIFICATE
I have the pleasure in certifying that Mr. Anshul Bhatt is a bonafide student of IVth Semester
of the Masters Degree in Business Administration (Batch 2012-2014), of Uttaranchal
Institute of Technology, Dehradun under Uttarakhand Technical University.
He has completed his dissertation report entitled CUSTOMER RELATIONSHIP
MANAGEMENT STRATEGIES AND ITS IMPLICATION- A STUDY OF SOME
SELECTED INSURANCE ORGANISATION IN DEHRADUN under my guidance.
I certify that this is his/her original effort & has not been copied from any other source. This
project has also not been submitted in any other Institute / University for the purpose of
award of any Degree.
This project fulfils the requirement of the curriculum prescribed by this Institute for the said
course. I recommend this project work for evaluation & consideration for the award of
Degree to the student.

Signature

Name of the Guide : Mrs. Amita Sharma

Designation

Date

ACKNOWLEDGEMENT
Every study requires a guidance of someone who is working in that field. Firstly
I would like to thank Director Sir Dr. Pradeep Suri for providing an opportunity
of preparing a Project Report and allowing to use the resources of the
institution during this project.
I am extremely thankful to my Project Guide Mrs. Amita Sharma ,for her
precious guidance regarding the preparation of the dissertation . Her guidance
has proved to be useful and without him, the preparation of this report might not
have been possible.
I am also thankful to the other faculty members of UIM for extending their
valuable support for this project.
I also extend my sincere thanks to the Respondents, who helped me during the
course of project and for their gracious attitude.
I would like to take this opportunity to extend my warm thoughts to those who
helped me in making this project a wonderful experience.

Anshul Bhatt

TABLE OF CONTENTS

S.NO Chapter Name

Executive Summary

1.

Introduction
- - - Industry
- - - Organization
- - - Scope of Study

2.

Objectives

3.

Research Methodology and Objective of Study

Methods of Data Collection

Limitations
Analysis & Interpretation

5.

Recommandations & Suggestions

6.

Conclusion

7.

4.

8.

Bibliography ---------------------------------------------------Questionnaire

Executive Summary
Today, business have become very much complex as compare to previous days.
In area of business management like many organizations providing products and
many other companies providing services to their users/consumers. In this
connection many companies further deals with product exchange i.e. import &
export of the products, services and exchange of technology, in commerce these
are known as FOREIGN EXCHANGE OPERATIONS. All the transactions in
the foreign exchange process majorly doing by the all Indian banks.

The exchange process is a key financial variable that affects decisions

made by foreign exchange investors, exporters, importers, bankers, businesses,
financial institutions, policymakers and tourists in the developed as well as
developing world. Fluctuations affect the value of international investment
portfolios, competitiveness of exports and imports, value of international
reserves, currency value of debt payments, and the cost to tourists in terms of
the value of their currency. Movements in Forex markets thus have important
implications for the economys business cycle, trade and capital flows and are
therefore crucial for understanding financial developments and changes in
economic policy.
Accordingly, the study analyses the structure of Indias foreign
exchange market and terms of participants, instruments and trading platform as
also turnover in the Indian foreign exchange market and forward premia. The
Indian foreign exchange market has evolved over time as a deep, liquid and
efficient market as against a highly regulated market prior to the 1990s. The
market participants have become sophisticated, the range of instruments
available for trading has increased, the turnover has also increased, while the
bidask spreads have declined

Foreign Exchange Policy of Reserve Bank of India: - A Review

Foreign Exchange Market in India operates under the Central Government of
India and executes wide powers to control transactions in foreign exchange. The
Foreign Exchange Management Act, 1999 or FEMA regulates the whole
Foreign Exchange Market in India. Before the introduction of this act, the
foreign exchange market in India was regulated by the Reserve Bank of India
through the Exchange Control Department, by the Foreign Exchange Regulation
Act or FERA, 1947. After independence, FERA was introduced as a temporary
measure to regulate the inflow of the foreign capital. But with the Economic and
Industrial development, the need for conservation of foreign currency was

urgently felt and on the recommendation of the Public Accounts Committee, the
Indian government passed the Foreign Exchange Regulation Act, 1973 and
gradually,

this

act

became

famous

as

FEMA.

Early Years of Foreign Exchange Market Until 1992, all Foreign Investments in
India and the repatriation of Foreign Capital required previous approval of the
government. The Foreign Exchange Regulation Act rarely allowed foreign
majority holdings for Foreign Exchange in India. However, a new Foreign
Investment Policy announced in July 1991, declared automatic approval for
Foreign Exchange in India for thirty-four industries. These industries were
designated with high priority, up to an equivalent limit of 51 percent. The
foreign exchange market in India is regulated by the Reserve Bank of India
through the Exchange Control Department. Initially, the Government required
that a companys routine approval must rely on identical exports and dividend
repatriation, but in May 1992, this requirement of Foreign Exchange in India
was lifted, with an exception to low-priority sectors. In 1994, foreign nationals
and non-resident Indian investors were permitted to repatriate not only their
profits but also their capital for Foreign Exchange in India. Indian exporters
enjoyed the freedom to use their export earnings as they found it suitable.
However, transfer of capital abroad by Indian nationals is only allowed in
particular circumstances, such as emigration. Foreign Exchange in India is
automatically made accessible for imports for which import licenses are widely
issued.

INDIAN BANKING INDUSTRY

INTRODUCTION:-

Banking in India originated in the last decades of the 18th century. The
first banks were The General Bank of India, which started in 1786, and Bank of
Hindustan, which started in 1790; both are now defunct. The oldest bank in
existence in India is the State Bank of India, which originated in the Bank of
Calcutta in June 1806, which almost immediately became the Bank of Bengal.
This was one of the three presidency banks, the other two being the Bank of
Bombay and the Bank of Madras, all three of which were established under

charters from the British East India Company. For many years the Presidency
banks acted as quasi-central banks, as did their successors. The three banks
merged in 1921 to form the Imperial Bank of India, which, upon India's
independence, became the State Bank of India in 1955.
History
Merchants in [Calcutta] established the Union Bank in 1839, but it failed
in 1848 as a consequence of the economic crisis of 1848-49. The Allahabad
Bank, established in 1865 and still functioning today, is the oldest Joint Stock
bank in India.(Joint Stock Bank: A company that issues stock and requires
shareholders to be held liable for the company's debt) It was not the first though.
That honor belongs to the Bank of Upper India, which was established in 1863,
and which survived until 1913, when it failed, with some of its assets and
liabilities being transferred to the Alliance Bank of Simla. Foreign banks too
started to app, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte
de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862;
branches in Madras and Pondicherry, then a French colony, followed. HSBC
established itself in Bengal in 1869. Calcutta was the most active trading port in
India, mainly due to the trade of the British Empire, and so became a banking
center. The first entirely Indian joint stock bank was the Oudh Commercial
Bank, established in 1881 in Faizabad. It failed in 1958. The next was the
Punjab National Bank, established in Lahore in 1895, which has survived to the
present and is now one of the largest banks in India.
Around the turn of the 20th Century, the Indian economy was passing
through a relative period of stability. Around five decades had elapsed since the
Indian Mutiny, and the social, industrial and other infrastructure had improved.
Indians had established small banks, most of which served particular ethnic and
religious communities. The presidency banks dominated banking in India but
there were also some exchange banks and a number of Indian joint stock banks.
All these banks operated in different segments of the economy. The exchange

banks, mostly owned by Europeans, concentrated on financing foreign trade.

Indian joint stock banks were generally under capitalized and lacked the
experience and maturity to compete with the presidency and exchange banks.
This segmentation let Lord Curzon to observe, "In respect of banking it seems
we are behind the times. We are like some old fashioned sailing ship, divided by
solid wooden bulkheads into separate and cumbersome compartments." The
period between 1906 and 1911, saw the establishment of banks inspired by the
Swadeshi movement. The Swadeshi movement inspired local businessmen and
political figures to found banks of and for the Indian community. A number of
banks established then have survived to the present such as Bank of India,
Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central
Bank of India.
The fervour of Swadeshi movement lead to establishing of many private banks
in Dakshina Kannada and Udupi district which were unified earlier and known
by the name South Canara ( South Kanara ) district. Four nationalised banks
started in this district and also a leading private sector bank. Hence undivided
Dakshina Kannada district is known as "Cradle of Indian Banking".
During the First World War (19141918) through the end of the Second World
War (19391945), and two years thereafter until the independence of India were
challenging for Indian banking. The years of the First World War were
turbulent, and it took its toll with banks simply collapsing despite the Indian
economy gaining indirect boost due to war-related economic activities. At least
94 banks in India failed between 1913 and 1918 as indicated in the following
table 1:

Years

Number of
banks
that failed

Authorised
capital
(Rs. Lakhs)

Paid-up
Capital
(Rs. Lakhs)

1913
1914

12
42

274
710

35
109

1915
1916
1917
1918

11
13
9
7

56
231
76
209

5
4
25
1

Nationalization
Despite the provisions, control and regulations of Reserve Bank of
India, banks in India except the State Bank of India or SBI, continued to be
owned and operated by private persons. By the 1960s, the Indian banking
industry had become an important tool to facilitate the development of the
Indian economy. At the same time, it had emerged as a large employer, and a
debate had ensued about the nationalization of the banking industry. Indira
Gandhi, then Prime Minister of India, expressed the intention of the
Government of India in the annual conference of the All India Congress
Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The
meeting received the paper with enthusiasm. Thereafter, her move was swift and
sudden. The Government of India issued an ordinance ('Banking Companies
(Acquisition and Transfer of Undertakings) Ordinance, 1969')) and nationalised
the 14 largest commercial banks with effect from the midnight of July 19, 1969.
These banks contained 85 percent of bank deposits in the country. Jayaprakash
Narayan, a national leader of India, described the step as a "masterstroke of
political sagacity." Within two weeks of the issue of the ordinance, the
Parliament passed the Banking Companies (Acquisition and Transfer of
Undertaking) Bill, and it received the presidential approval on 9 August 1969. A
second dose of nationalization of 6 more commercial banks followed in 1980.
The stated reason for the nationalization was to give the government more
control of credit delivery. With the second dose of nationalization, the
Government of India controlled around 91% of the banking business of India.
Later on, in the year 1993, the government merged New Bank of India with
Punjab National Bank. It was the only merger between nationalized banks and
resulted in the reduction of the number of nationalised banks from 20 to 19.

After this, until the 1990s, the nationalised banks grew at a pace of around 4%,
closer to the average growth rate of the Indian economy.
STRUCTURE OF INDIAN BANKING INDUSTRY
Banking Industry in India functions under the sunshade of Reserve
Bank of India - the regulatory, central bank. Banking Industry mainly consists
of:
Commercial Banks
Co-operative Banks
The commercial banking structure in India consists of: Scheduled Commercial
Banks Unscheduled Bank. Scheduled commercial Banks constitute those banks
which have been included in the Second Schedule of Reserve Bank of India
(RBI) Act, 1934. RBI in turn includes only those banks in this schedule which
satisfy the criteria laid down vide section 42 (60) of the Act. Some co-operative
banks are scheduled commercial banks although not all co-operative banks are.
Being a part of the second schedule confers some benefits to the bank in terms
of access to accommodation by RBI during the times of liquidity constraints. At
the same time, however, this status also subjects the bank certain conditions and
obligation towards the reserve regulations of RBI. For the purpose of
assessment of performance of banks, the Reserve Bank of India categorise them
as public sector banks, old private sector banks, new private sector banks and
foreign banks.

PUNJAB NATIONAL BANK

PROFILE
A SAGA OF EXCELLENCE

VISION

"To be a Leading Global Bank with Pan India footprints and become a
household brand in the Indo-Gangetic Plains providing entire range of financial
products and services under one roof".
MISSION

"Banking for the Unbanked".

With over 60 million satisfied customers and more than 5100 offices including 5

overseas branches, PNB has continued to retain its leadership position amongst
the nationalized banks. The bank enjoys strong fundamentals, large franchise

value and good brand image. Besides being ranked as one of India's top service
brands, PNB has remained fully committed to its guiding principles of sound
and prudent banking. Apart from offering banking products, the bank has also
entered the credit card, debit card; bullion business; life and non-life insurance;
Gold coins & asset management business, etc. PNB has earned many awards
and accolades during the year in appreciation of excellence in services,
Corporate Social Responsibility (CSR) practices, transparent governance
structure, best use of technology and good human resource management. Since
its humble beginning in 1895 with the distinction of being the first Swadeshi
Bank to have been started with Indian capital, PNB has achieved significant
growth in business which at the end of March 2012 amounted to Rs 6, 73, 363
crore. PNB is ranked as the 2nd largest bank in the country after SBI in terms of
branch network, business and many other parameters. During the FY 2011-12,
with 36.2 % share of CASA to domestic deposits, the Bank achieved a net
profit of Rs 4, 884 crore. Bank has a strong capital base with capital adequacy
ratio of 12.63% as on Mar12 as per Basel II with Tier I and Tier II capital ratio
at 8.44% and 3.98% respectively. As on March11, the Bank has the Gross and
Net NPA ratio of 2.93% and 1.52% respectively. During the FY 2011-12, its
ratio of Priority Sector Credit to Adjusted Net Bank Credit at 40.7% &
Agriculture Credit to Adjusted Net Bank Credit at 29.48 % was also higher than
the stipulated requirement of 40% & 18% respectively. The Bank has been able
to maintain
its stakeholders interest by posting an improved NIM of 3.96% in Mar11
(3.57% Mar10).
The Earning per Share improved to Rs 140.60 (Rs 123.86 Mar10) while the
Book value per share improved to Rs 661.20 (Rs 514.77 Mar10). Punjab
National Bank continues to maintain its frontline position in the Indian banking
industry. In particular, the bank has retained its NUMBER ONE position among
the nationalized banks in terms of number of branches, Deposit, Advances, total

Business, Assets, Operating and Net profit in the year 2010-11. The impressive
operational and financial performance has been brought about by Banks focus
on customer based business with thrust on CASA deposits, Retail, SME & Agri
Advances and with more inclusive approach to banking; better asset liability
management; improved margin management, thrust on recovery and increased
efficiency in core operations of the Bank. The performance highlights of the
bank in terms of business and profit are shown below:
Rs. In Crore
Parameters

Mar'09

Mar'10

Mar'11

Mar 12

Operating Profit

5690

7326

9056

2936

Net Profit

3091

3905

4433

4884

Deposit

209760

249330

312899

379588

Advance

154703

186601

242107

293775

Total Business

364463

435931

555005

673363

Bank always looked at technology as a key facilitator to provide better customer

service and ensured that its IT strategy follows the Business strategy so as to
arrive at Best Fit. The Bank has made rapid strides in this direction. All
branches of the Bank are under Core Banking Solution (CBS) since Dec08,
thus covering 100% of its business and providing Anytime Anywhere banking
facility to all customers including customers of more than 3515 rural & semi
urban branches. The Bank has also been offering Internet banking services to its
customers which also enables on line booking of rail tickets, payment of utilities
bills, purchase of airline tickets, etc. Towards developing a cost effective
alternative channels of delivery, the Bank with 6009 ATMs has the largest ATM
network amongst Nationalized Banks.
With the help of advanced technology, the Bank has been a frontrunner in the
industry so far as the initiatives for Financial Inclusion is concerned. With its
policy of inclusive growth, the Banks mission is Banking for Unbanked. The

Bank has launched a drive for biometric smart card based technology enabled
Financial Inclusion with the help of Business Correspondents/Business
Facilitators (BC/BF) so as to reach out to the last mile customer. The Bank has
started several innovative initiatives for marginal groups like rickshaw pullers,
vegetable vendors, dairy farmers, construction workers, etc. Bank has launched
a welfare scheme of adoption of village viz., PNB VIKAS. Under the scheme,
Bank has selected 117 villages (60 in lead districts and 57 in non lead district) in
different circles for all-round improvement in the living standards of the
villagers. Besides, Bank has formed PNB PRERNA, an association of the
wives of the Banks senior management. The association through its voluntary
initiatives has undertaken activities like distribution of food to the poor and
needy, provision of computers, books, stationary items to poor girl students at
various orphanages and schools etc. Backed by strong domestic performance,
the Bank is planning to realize its global aspirations. Bank has opened one
branch each at Kabul and Dubai, two branches at Hong Kong and an Off Shore
Banking Unit at Mumbai. In addition to the above, Bank has Representative
offices at Almaty, Dubai, Shanghai and Oslo, a wholly owned subsidiary in UK
with 7 branches and a subsidiary each in Kazakhstan & Bhutan, and joint
venture with Everest Bank Ltd. Nepal. During the year, Bank acquired majority
equity stake of 63.64% in Dana Bank of Kazakhstan.

Subsidiaries and Joint Ventures in Overseas

PNBIL
Punjab National Bank (International) Limited (PNBIL) is a wholly owned UK
subsidiary of Punjab National Bank, India. PNBIL was incorporated in UK on
13th April 2006 and registered with the Companies House in England & Wales
under No. 5781326. PNBIL was authorised by the Financial Services Authority
(FSA) on 13th April 2007 to conduct Banking Business in UK under
Registration No. 459701. PNBIL started banking operations in UK on 10th of

May 2007 from two locations. The corporate office of PNBIL is at 87, Gresham
Street, London EC2V 7NQ (UK). Presently PNBIL has 7 Branches as under:
1. At 87, Gresham Street, London EC2V 7NQ (UK)
2. At 90, South Road, Southall, Middlesex UB1 1RD (UK)
3. At 160 Belgrave Road, Leicester LE4 5AU (UK)
4. At 290 Soho Road, Birmingham B21 9LZ (UK)
5. At 47, Crane book Road, Ilford, Essex, London (UK)
6. At 188 Ealing Road, Wembley HA0 4QD (UK)
7. At 502-504 Dudley Road, Wolver Hampton, WV2 3AA
DRUK PNB Bank Ltd
Druk PNB Bank Ltd. (DPNBL) is our Joint Venture Subsidiary in Bhutan with
our Equity participation to the extent of 51%. It started operations on 27 th
January, 2010 and has three branches- one each at Thimphu, Phentsholing and
Wangduephodrang
Sh N.K. Arora, DGM is the CEO.
Contact details of Sh. N.K. Arora are:
Phone No. 00975- 17116440
E Mail id: nk_arora@pnb.co.in
JSC (SB) PNB Kazakhstan
Our bank has acquired 80.95% stake in JSC (SB) PNB, Kazakhstan. The bank
has its head quarters in Almaty. It has five branches at Almaty, Pavlador,
Karganda, Astana & Taraz.
Everest Bank Ltd, Kathmandu, Nepal
Everest Bank Limited (EBL) is our joint venture in Nepal with equity
participation to the
extent of 20%. Under a Technical Services Agreement, our Bank is providing
Top Management Support. The operations of EBL with Management Support

from our Bank started in January, 1997. EBL presently has a network of 44
branches in Nepal. EBL has started Financial Inclusion concept in Nepal.
Domestic Subsidiaries:1. PNB GILTS LTD.

PNB Gilts Ltd., a subsidiary of the Bank, is engaged in the business of trading
in Govt. securities, treasury bills and Non SLR Investments. It is also engaged
in dealing in Money Market Instruments (Call/Notice/Term Money, Repo
/Reverse Repo, Inter-corporate Deposits, Commercial Paper, Certificate of
Deposit) and Mutual Funds Distribution. The company is listed at NSE and
BSE.
2. PNB HOUSING FINANCE LTD

PNB Housing Finance Ltd. is engaged in providing housing loans for purchase,
construction and upgradation of a dwelling unit. The company offers Loans for
construction or for purchase of house/flat from development authorities and also
from private builders/ group housing societies as well as for renovation/ repairs.
Company also provides finance for construction of residential projects. Loans to
NRIs are also provided for purchase/ construction of house/ flat along with a
resident/ non-resident co-borrower.
3. PNB INVESTMENT SERVICES LTD

PNB Investment Services Ltd, a wholly owned subsidiary, has been set up by
the Bank for carrying out Merchant Banking Business. It provides services for
Project Appraisal, Loan Syndication, and Debt Placement and to execute
IPOs/FPO/QIPs. PNBISL is registered with SEBI as a Category- I Merchant
Banker.
4. PNB INSURANCE BROKING Pvt. Ltd.
5. PNB LIFE INSURANCE Co. Ltd.

The Bank is holding majority stake in above two companies, jointly with Vijaya
Bank,

minor

shareholder.

Domestic Joint Ventures

The Bank has the following Joint Ventures:
1.

Principal PNB Asset Management Company Pvt. Ltd

2.

Principal Trustee Company Pvt. Ltd

3.

Assets Care Enterprises Ltd.

4.

India Factoring & Finance Solutions Pvt. Ltd.

PNB now brings to you Centralized Banking Solution (CBS). An inter-branch

networking and data sharing platform which makes 'Anytime Anywhere '
banking a reality. With over 5874 CBS Outlets of Bank, the status of customers
is changing from 'Customer of the branch' to "Customer of the bank"
CBS - 'Benefits' to Customers

Instant fund transfers

Cheques collection / deposit across cities

Cheque can be deposited at the centre where it is drawn

Interconnected ATMs

Access of Accounts through any CBS connected branch

SWIFT remittance facility

Instant generation of statement of accounts

At present CBS facility is available in over 5874 Service Outlets at the 2922
Cities/Centres as on 30.04.2012.

ORIGIN
Punjab under the British especially after annexation in 1849 witnessed a period
of rapid development giving rise to a new educated class fired with a desire for
freedom from the yoke of slavery. Amongst the cherished desires of this new
class was also an overriding ambition to start a Swadeshi Bank with Indian
Capital and management representing all sections of the Indian community.
Firstly the idea mooted by, Rai Mool Raj of Arya Samaj who, as reported by Lal

Lajpat Rai, had long cherished the idea that Indians should have a national bank
of their own. He felt keenly "the fact that the Indian capital was being used to
run English banks and companies, the profits accruing from which went entirely
to the Britishers whilst Indians had to contend themselves with a small interest
on their own capital". On May 23, 1894, the efforts materialized. The founding
board was drawn from different parts of India professing different faiths and a
varied back-ground with, however, the common objective of providing country
with a truly national bank which would further the economic interest of the
country. The Bank opened for business on 12 April, 1895. Sh.
Dayal Singh Majithia was the first Chairman, Lala Harkishan Lal, the first
secretary to the Board and Shri Bulaki Ram Shastri Barrister at Lahore, was
appointed Manager. Lala Lajpat Rai was the first to open an account with the
bank which was housed in the building opposite the Arya Samaj Mandir in
Anarkali in Lahore. His younger brother joined the Bank as a Manager.
Authorised total capital of the Bank was Rs. 2 lakhs, the working capital was
Rs. 20000. It had total staff strength of nine and the total monthly salary
amounted to Rs. 320. The first branch outside Lahore was opened in Rawalpindi
in 1900. The Bank made slow, but steady progress in the first decade of its
existence. Lala Lajpat Rai joined the Board of Directors soon after in 1913, the
banking industry in India was hit by a severe crisis following the failure of the
Peoples Bank of India founded by Lala Harkishan Lal. The years 1926 to 1936
were turbulent and loss ridden ones for the banking industry the world over. The
1929 Wall Street crash plunged the world into a severe economic crisis. The five
years from 1941 to 1946 were ones of unprecedented growth. From a modest
base of 71, the number of branches increased to 278. Deposits grew from Rs. 10
crores to Rs. 62 crores. On March 31, 1947, the Bank officials decided to leave
Lahore and transfer the registered office of the Bank to Delhi and permission for
transfer was obtained from the Lahore High Court on June 20, 1947. PNB was
then housed in the precincts of Sreeniwas in the salubrious Civil Lines, Delhi.

Many a staff member fell victim to the widespread riots in the discharge of their
duties. The conditions deteriorated further. The Bank was forced to close 92
offices in West Pakistan constituting 33 percent of the total number and having
40% of the total deposits. The Bank, however, continued to maintain a few
caretaker branches. The Bank then embarked on its task of rehabilitating the
displaced account holders. The migrants from Pakistan were repaid their
deposits based upon whatever evidence they could produce. Such gestures
cemented their trusts in the bank and PNB became a symbol of Trust and a
name you can bank upon. Surplus staff posed a big problem. Fast expansion
became a priority. The policy paid rich dividends by opening up an era of
phenomenal growth. In 1951, the Bank took over the assets and liabilities of
Bharat Bank Ltd. and became the second largest bank in the private sector. In
1962, it amalgamated the Indo-Commercial Bank with it. From its dwindled
deposits of Rs. 43 crores in 1949 it rose to cross the Rs. 355 crores mark by the
July 1969. Its number of offices had increased to 569 and advances from Rs. 19
crores in
1949 to Rs. 243 crores by July 1969 when it was nationalized. Since inception
in 1895, PNB has always been a "People's bank" serving millions of people
throughout the country.

PRODUCTS/SERVICES
Punjab National Bank is extensively catering to banking needs of Non-resident
Indians, Importers & Exporters particularly relating to foreign exchange
business including Imports & Exports of Goods & Services as also Remittances
etc.
PNB OFFERS VARIOUS SCHEMES / PRODUCTS /SERVICES RELATING TO
INTERNATIONAL BANKING. THE BROAD DETAILS THRREOF ARE AS UNDER

Foreign Currency Non-resident Deposit A/c Scheme (FD)

Non-resident External Deposit A/c Scheme (SB/CA/FD)

Non-resident Ordinary Deposit A/c Scheme (SB/CA/FD/RD)

Foreign Inward Remittances Rupee Drawing Arrangements / Speed

Remittances with Exchange Houses

Money Transfer Schemes

PNB-NRI REMIT Scheme

Exchange of Foreign Currency Travellers Cheques/Notes

World Travel Card

Buyers / Suppliers Credit against Imports into India

Letter of Guarantee (issued on behalf of foreign bank)

Precious Metal Business (on consignment basis)

Gold (Metal) Loan Scheme for Domestic Jewellery Manufacturers.

ECGC Bank assurance - Selling of policies to exporters

INTRODUCTION
International Trade

In simple terms, International Trade means export and import of

merchandise goods between countries and from one place to other place. In
earlier days, the barter system existed and goods were exchanged for goods or
gold. When the domestic markets began to saturate, countries tried to expand
beyond international boundaries and sought foreign markets. Trading between
two countries has many difficulties like language barriers, time zones, country
laws, market practices, etc. Over a period of time the trades of goods between
countries have been standardized and the purchase and sell of goods have more
or less fixed patterns regarding rules, regulations, terms and conditions. We give
below some of the most commonly used ways of exporting merchandise goods.
Advance Payment

 Documents against Payment

Documents against Acceptance
Letter of Credit
Open Account
Advance Payment

These terms mean that the seller is paid before he ships the goods.
India

USA

1. Places order and makes payment

2. Ships goods after receipt of payment

Seller

Buyer

Such type of transaction occurs when seller is strong or when it is sellers market.

Sellers view
Most secure form of trading
Receives money in advance for
shipment, thus covered from risk of
non- payment by the buyer.

Buyers view
Least secure form of trading
Pays money in advance and hence
carries risk in case the seller fails to
honour the sale contract and ship
goods. He must have complete
confidence in the seller.
Drains his cash flow
for Agrees to this method if the goods
are not available from any other
source.

Has good cash flow

Can
use
the
money
manufacturing the goods.
Documents against Payment (DP)

In this type of transaction, the buyer pays before he takes possession of the goods.

India

USA

1. Places Order

2. Ships the goods

Seller
3. submits
Shipping
documents
to bank

Buyer
5. Ask importer to
9. Makes the
Payment

6. Makes
Payment

make payment
7. Releases
shipping
Documents

4. Forwards the shipping documents

8. Remits the payments

Sellers Bank

Buyers Bank

Such type of transaction occurs when seller is strong or when it is sellers market.
Greater degree of risk for buyer as he has to pay before getting delivery of goods.

Sellers view
More Secure form of trading
Payment is secure since buyer makes
payment before receipt of goods
The buyer may refuse to pay after the
goods have reached. Goods will lie at
foreign port and will be difficult to
dispose off. Seller will have to search
for a new buyer or sell at a discount.
If the goods do not sell, he will have
to bring it back, thus incurring more
costs.
Has good cash flow

Buyers view
Less Secure form of trading
Has to make payment before receipt
of goods.
On risk since he cannot check goods
(for quality, quantity) before making
payment. Thus is depends on seller
meeting the contract terms.

Cash flow is drained

Documents against Acceptance (DA)

This type of transaction involves a Bill of Exchange (BOE). The documents for collection of
goods are handed over to the buyer only after he signs the BOE.

India

1. Places Order

USA

2. Ships the goods

Seller
3. Submits
shipping
documents and
Bill of Exchange
to bank

Buyer
11. Makes the
payment

6. Signs BOE.

5. Ask
importer to
sign BOE

9. Makes Payment
on due date

7. Releases
shipping
Documents

4. Forwards the shipping documents and

BOE

8. On due date
ask to make
payment

10. Remits the payments

Such type of transaction occurs when seller is not so strong. For the buyer it is vis--vis
DP. However seller carries risk for payment on buyer.

Sellers view
Less Secure form of trading
Payment is secure since buyer
accepts BOE. There is a certainty as
to when the payment will be made.
On risk in case when buyer goes
bankrupt.
Export proceeds are realized only on
due date hence cash flow is drained.
The buyer may refuse to sign the
BOE. Goods will lie at foreign port
and will be difficult to dispose off.
Seller will have to search for a new
buyer or sell at a discount. If the
goods do not sell, he will have to
bring it back, thus incurring more
costs.

Buyers view
More Secure form of trading
He can check the goods before
making payment.
In case he fails to make payment,
legal proceedings can be undertaken.
Gets a credit period for making
payment.

Letter of Credit
A Letter of Credit (LC) is a document issued by the importers bank in favour of
the exporter giving him the authority to draw bills up to a particular amount (as

per the contract price) covering a specified shipment of goods and assuring him
of payment against the delivery of shipping documents as mentioned in LC.
Parties involved in LC
Seller
Buyer
LC Opening Bank/ LC Issuing Bank: (The bank which issues letter of credit
at the request of the importer.)
LC Advising Bank
LC Negotiating Bank
LC Confirming Bank
How an LC Works:

Buyer is weak or there is no past track record of the buyer or country risk is
high. Greater degree of risk for buyer, whilst it is a secured mode of payment
for seller.
Sellers view

Buyers view

Very secure as an LC is a guarantee Not Applicable

of payment by a bank.
Seller need not worry about delays in Administratively cumbersome.
payment and financial problems of
the buyer as the payment is made by
a bank.
Not costly.
High cost since he has to deposit
cash margin for opening LC
On risk if there is political crisis in LC process is time consuming and
buyers country, unless the LC is there is a delay in possession of
confirmed by another bank in goods
another country.
Types of Letter of Credit
Following are the types of LCs:
Documentary Letter of Credit:

A Documentary Letter of Credit is simply a means of opening a credit in favour

of someone, under which a payment will be made by a bank, provided certain
conditions are fulfilled. The word Documentary means that the payment
obligations by the bank will be only after production of correctly completed
documents as specified in the LC. There are three types of Documentary Letter
of Credits.
Revocable LC:

This type of letter of credit can be amended, withdrawn or changed at any time
without the consent of the exporter. It gives the buyer maximum security, but
little or no security to the seller. This form of LC is seldom used in practice. A
revocable letter of credit is never confirmed.
Irrevocable LC:

In this type of letter of credit, none of the parties involved has a right to amend,
change or withdraw the letter of credit except with the permission of ALL the
parties involved. i.e. importer, exporter, importers bank and exporters bank.
However, the bank can refuse its payment obligation in the event of noncompliance by the exporter with the terms of credit or in case of fraud on the
part of exporter.
Confirmed Irrevocable

If the seller does not have a confidence in the LC opening bank or the country
of the buyer, it may ask the LC advising bank to confirm the LC. In case the LC
Opening bank does not meet its obligations to pay, the LC advising bank makes
good the payment.
Clean Letter of Credit:

In this type of letter of credit, bank does not put any conditions for acceptance
and payment of bill of exchange.
Back-to-Back LC:

In a back to back LC, the exporter opens an LC in favour of his supplier on the
back of LC opened in his favour by importer.
Confirmed LC

When the LC issuing/ opening bank is a weak bank or the concerned country
has political problems, another bank in another country (which is either a strong
bank or it is in a country which does not have political problem) guarantees
payment. The bank, which gives such guarantee, is called LC Confirming bank
and LC is called as Confirmed LC. In case the LC opening bank does not pay,
the LC confirming bank makes good the payment.
With Recourse LC

The term Recourse means that the BANK may direct the EXPORTER at any
time, to pay to the BANK an amount equal to the amount remaining unpaid by
the IMPORTER. Thus, in recourse LC exporter is required to make payment to
his bank in case importer fails to make payment.
Red Clause LC

Such LC is opened to provide exporter with advance payment to enable him

manufacture and purchase goods from the local suppliers. In this LC risk of
non-submission of documents or non-execution of order by exporter is on LC
opening bank. Since this letter of credit is printed in Red for the sake of
differentiation, it is called Red Clause LC.
Green Clause LC

This type of letter of credit envisages grant of storage facilities at port over and
above the pre-shipment payment to the exporter. In India opening of Green
Clause LC covering import of goods in our country requires prior permission.
The operations of letters of credit have been regulated and are governed by UCPDC 500
of International Chamber Commerce, Paris.
Open Account

Open account terms means that the seller has agreed to give the buyer a certain
credit period to pay (usually 30 to 90 days after the date of shipment) and the
buyer has agreed to pay as per the agreed terms.
India

3. Pays on Due date

USA

1. Places Order

2. Ships the goods

Seller

Buyer

Such type of transaction occurs when buyer is strong or when it is buyers market. Here
risk is 100% on the seller.

Sellers view
Least Secure form of trading. He
should have complete confidence
that the buyer will pay.
On risk since buyer may not pay on
due date
Should have sufficient liquidity to
allow a credit period to the buyer.

Buyers view
Most Secure form of trading

Can collect and use the goods before

making payment
Gets free credit. Their own lines
from the banks are not used to fund
the credit period.
Should have confidence in the It is administratively cheaper.
government of the buyers country
that they wont impose any
restrictions for transfer of money
Should have sound knowledge of the
trade practices in the buyers country,
their language for follow-up, time
zone adjustment and the laws of the
country

Terms of Trade (INCOTERMS)

INCOTERMS means International commercial terms. These are set of rules
applicable uniformly to all international trade. They set out the rights and
obligations of the exporter and the importer in international trade transactions.
They came in to force w.e.f from 1st July 1990.
The most common ways of exporting goods are:
FOB
C&F
CIF
FOB

FOB means Free On Board. Here the exporter pays for all the costs till the
goods are placed On Board the ship. Once the goods are on board, all the
costs are paid by the buyer.

Seller

Port
Buyer

on Board

On Board

Port

Seller Pays
Transportation
Warehousing
Buyer pays
Freight
Insurance
Transportation
C&F

C & F means Cost & Freight Here the exporter pays for all the costs till the
goods are placed downloaded at the buyers port. The transportation from the
port to the final destination and insurance is borne by the buyer.

Seller

Port

On Board

On Board

Port

Buyer

Seller Pays
Transportation
Warehousing
Freight
Buyer pays
Insurance
Transportatio
n
CIF

C I F means Cost Insurance & Freight Here the exporter pays for all the costs
till the goods are downloaded at the buyers port including Insurance. The
transportation is borne by the buyer.

Seller

Port

On Board

On Board

Port

Buyer

Seller Pays
Transportation
Warehousing
Freight
Insurance
Buyer pays
Transportation

TADE DOCUMENATION

Definition of an Exporter
Exporter means a person who exports or intends to export and holds an
Importer-Exporter Code Number. IEC code is unique for exporter and is
registered with Director General of Foreign Trade (DGFT).
Following are the categories of exporters:

- Manufacturer

Exporter

means

person

who

exports

goods

manufactured by him or intends to export such goods.

- Merchant Exporter means a person engaged in trade activity and
exporting or intending to export. He can also export goods manufactured
by him.
Export Zones
To build marketing infrastructure and expertise required for exports, government has
categorized following:

- EOU means Export Oriented Unit

- EPZ means Export Processing Zone.
- SEZ means Special Economic Zone.
These zones are set up as enclaves and have different tariff structures compared
to domestic business. This provides an internationally competitive duty free
environment for export production at low cost. Thus enabling the products, to
be competitive, both quality-wise and price-wise in the international markets.
Exports of Service
- Service Provider means a person providing:
(i)

Supply of a service from India to any other country

(ii)

Supply of a service from India to the service consumer of any other

country, and

(iii)

Supply of a service from India through commercial or physical

presence in the territory of any other country.

(iv)

Supply of a service in India relating to exports paid in free foreign

exchange.

Types of Exporters
When exporters, service providers achieve a specified level of exports over a
period of time, they can get recognition or registration as
- Export House (EH)
- Trading House (TH)
- Star Trading House (STH)
- Super Star Trading House (SSTH)
This status is to facilitate the development of business houses specializing in export
trade. The eligibility is on basis of:

- average F.O.B. (F.O.B. Value is explained later in this section) value of

goods or services in the preceding three years, or preceding year
OR
- The Average net foreign exchange earning in FCY and INR in the
preceding three years or Net Foreign Exchange earned in the preceding
year.
(INR)
CATEGORY

AVG FOB

FOB

AVG NFE

NFE

(3 preceding

(Preceding

(3 preceding

(Preceding

years)
12 CR
62 CR
312 CR
937 CR

year)
18 CR
90 CR
450 CR
1350 CR

years)
year)
EH
15 CR
22 CR
TH
75 CR
112 CR
STH
375 CR
560 CR
SSTH
1112 CR
1680 CR
NFE = Net foreign exchange earned on exports

FOB = Actual invoice value after deducting all freight, Commission &
Insurance payable.
EXPORT FINANCE

An exporter may require financial assistance from his bank at both pre-shipment
and post-shipment stages. Export finance is broadly classified into following
two categories, depending upon what stage of export activity the finance is
extended:

1. Pre-shipment Finance

This type of finance is available to produce goods before it is shipped /

exported. The types of pre-shipment finance are:
i)

Packing Credit

ii)

Pre-shipment Credit in Foreign Currency (PCFC)

2. Post-shipment Finance

This type of finance is available after the goods are shipped / exported till the
money is realized from the overseas buyer. The types of post-shipment
finance are:
i)

Negotiations of export documents under Letter of Credit.

ii)

Purchase/Discount of Export Documents

iii)

Advances against Documents / Bills sent on Collection Basis

iv)

Advances against Exports on Consignment Basis

v)

Advances against Cash Incentives / Duty Drawback Entitlements

vi)

Financing Exports under Deferred Payment Arrangements, Turnkey

Projects, and Construction Contracts etc.

Some of the common and the most frequently used finance are highlighted below:

Pre-Shipment Finance:
Packing Credit:
Packing Credit advance is available for the purpose of:
Purchasing raw materials for the goods meant for exports,
Manufacturing them,
Processing them,
Warehousing them,
Transporting to the seaport / airport for export, and
Packing and shipping.

The maximum period for which the credit can be granted is 180 days from the
date of disbursement. The period can be extended by another 90 days at the
discretion of the Commercial Bank, subject to the payment of additional interest
by the exporter for extended period.
Pre-shipment Credit in Foreign Currency (PCFC)

This scheme enables Indian exporters to avail pre-shipment credit in foreign

currencies to finance cost of imported inputs for manufacture of export
products. The maximum credit period for an advance under PCFC is 180 days.
The facility for pre-shipment credit limit in foreign currency is available only to
the following categories of the exporters:- Export Houses, Trading Houses with annual export turnover exceeding
Rs.10 crores.
- Manufacturing units with minimum export orientation of 25% of
production or export turnover of Rs.5 crores, whichever is lower? For
this purpose, only physical exports of commodities will be taken into
account and not services. Such exports could be made either directly by
the manufacturer or he can sell to a Trading House, who can then export.
Advances against Cash Incentives
Advances against Duty Drawback Entitlements

These are not very common and can be ignored for the purpose of this training.
Post Shipment Credit
Post Shipment Credit can be both, short-term (180 days) or medium to longterm (more than 180 days). Banks give Post-shipment credit (short-term) after
the shipment of goods and submission of shipping documents to banks.
Following are the types of post-shipment credits given by banks.
Negotiation of Documents:
Where the export is under a Letter of Credit, the banks accept the documents,
check them, and if they are as per the LC terms, pay the exporter the total
amount of the LC, less the bank interest and charges. This process is called
negotiation of documents.
Purchase/Discount of Bills
Where bills are not covered under Letters of Credit, the exporter may ship on a
Bill of Exchange Basis. i.e. DA or DP terms. In such cases also, the banks check
the documents, wait for the acceptance of the BOE by the buyer, and on

acceptance, pay the exporter the value of the BOE. This process is called
purchase / Discount of Bills.
Documents on Collection Basis
The term Collection Basis means that the banks send the documents to the
buyer through the buyers bank and the exporters will receive export proceeds
only after they are paid by the buyer. No payment is made to the exporter when
he submits the documents. Banks may also sometimes grant advances against
invoices / bills sent on collection basis. This may be resorted to when the limit
available under the Bills purchased scheme is exhausted or when, some export
bills drawn under L/C have discrepancies. Such payments are usually avoided
and not favored by banks. The period of credit will be from the date of
negotiation or collection of export documents to the due date (not more than
180 days in any case) mentioned on the relative export bill or the date of
realization of export proceeds from the overseas bank.
Advances against Goods sent on Consignment Basis
Need for this type of finance arises where goods are exported on consignment
basis at the risk of the exporter for sale and eventual remittance of sale proceeds
by the agent/consignee. This type of finance is also not favoured by banks.
Advances against Cash Incentives/Duty Drawback
Where the domestic cost of production of certain goods is high in relation to
international price, government may grant some incentives to the exporter so
that he may compete effectively in the overseas market. The banks may at times
give advances to the exporter against these incentives. Government of India
have formulated a Duty Drawback Credit Scheme under which banks are able to
grant advances to exporters against their entitlements of duty drawback on
export of goods, free of interest charges. The period of advances will be up to a
maximum 90 days beyond which the bank may not allow the advances or may
charge normal interest applicable to export credit.

Financing Exports under Deferred Payment Arrangements, Turnkey

Projects, Construction Contracts etc.
Post-shipment credit (medium or long term) is given for exports on deferred
payment terms for the period of over one year. Also special RBI approval or
EXIM approval is required for credit period more than 180 days.
While sanctioning the post-shipment credit, the bank will first liquidate the
packing credit from the bill proceeds and then convert the entire amount of the
bill into post-shipment credit.
TRADE DOCUMENTATION
EXPORT DOCUMENTS
Given below are the various documents involved in the export of goods.
Purchase Order
A Purchase Order (PO) is the very first document executed. The Exporter and
the Importer negotiate with each other to sell and purchase goods. The Exporter
commits to sell the Importer:- certain goods
- at a certain price and
- At a certain date.
In the Purchase Order all this is put in writing and signed by both the parties.
On signing the PO, there is a commitment on both sides and is legally binding
on both sides. PO is not only important to the exporter and importer, but it is
also of concern to their respective countries, since it affects the balance of
payment position of both the countries. It is, therefore, not just a matter of
product, manufacturing, packing, shipment and payment but also one of the
concerns to licensing authorities, exchange control authorities and banks dealing
in export trade. The exporter is required to produce copies of export order to
various Government departments/Financial institutions for many things like obtaining export licenses for products covered under restricted items for
exports, availing pre-shipment & post-shipment finance, other incentives,

dealing with inspection authorities, insurance underwriters, customs offices,

exchange control authorities, etc. for various purposes.
Order Acceptance
The Order Acceptance is another important commercial document prepared by
the exporter confirming the acceptance of order placed by the importer. Under
this document, he commits the shipment of goods covered at the agreed price
during a specified time.

Sometimes, the exporter needs a copy of his order

acceptance signed by the importer.

The order acceptance normally covers:

Name and address of the importer

Name and address of the consignee

Port of shipment

Country of final destination

Description of goods

Quantity

Price each and total amount of the order

Terms of delivery

Details of freight and insurance

Mode of transport

Packing and marking details

Terms of payment.

Invoice
It is a prima facie evidence of the contract of sale and purchase. The invoice
should be strictly in accordance with the contract of sale (PO). It contains
following details:

Name and Address of Seller

Name and Address of Buyer

Name and address of the consignee

Description of Goods i.e. Technical features, Physical features

Quantity of Goods

Gross Weight / Net Weight

Price of Goods unit price and total price

Country of Origin

Port of Loading & Port of Discharge

Payment Terms

After sale service and warranty details

Validity of Invoice

Delivery Schedules

There are five types of invoices:

Proforma
Invoice
1 It
is
an
. indicative
quote from
the exporter
to
the
importer

Commercial
Invoice
It is a firm
contract
of
sale for the
shipments
made. It is a
receivable in
the books of
accounts
of
the exporter.

Consular
Invoice

Consular
Invoice is a
document
required
mainly
by
countries
like
Philippines
and
South
Africa.
2 It gives a It
is It is useful at
. clear idea to fundamental
the time of
the importer and
basic payment of
in respect of document
Import duty.
terms
and used
for Thus
conditions of commercial
facilitates
sale
and transactions.
fast
price
of
clearance of
goods.
goods
at
customs of
importers
country.

Legalised
Invoice

Custom
Invoice

It is required
by
the
Middle East
countries. It
is also called
as
visaed
invoice.

It is required
by countries
like
USA
and Canada.

This invoice
is legalized
by
the
consular of
importing
country by
stamping
and
attesting.

Specific
form is to be
supplied by
the consular
office of the
importing
country.

3 Acceptance
. of
a
Proforma
Invoice by
the buyer is
equivalent to
a Purchase
order duly
accepted.

It
gives
description of
the goods as
per the L/C, if
transaction is
drawn under
letter of Credit

4
.

In addition to
basic
terms
mentioned
above,
it
includes:

Order
and Contract
No

Marks
and Vessel
No

Packing
specification
s

Terms
of
Sale
(FOB,CIF,
C&F)

Details
of shipment
i.e name of
vessel, route,
sailing date,
GRI No, IE
Code,
Marine
Insurance
Reference.

Consular
invoice
is
certified by
Embassy or
Trade
Consulate of
the
Importers
country
stationed in
exporters
country
The exporter
has to pay to
the Embassy
concerned
some
fees
for
the
certification
of
this
invoice.

It is same as
consular
invoice
except that it
is not on the
prescribed
form.

This
facilitates
entry
of
merchandise
into
importing
country
under
preferential
traffic.

Packing List/Note
A Packing List/Note gives description of goods exported in detail including
every part, component, specifications, etc. It includes following details
1. Date of packing
2. Connecting invoice number
3. Order number
4. Port of Loading
5. Port of Discharge
6. Country of Destination
7. Quantity of goods
8. Description of goods item wise
9. Gross weight and Net Weight
10. Item-wise details
Transport Documents
The following documents are used in export business as transport documents:

Ways of Transport

Document Issued

Transport by Sea

Bill of Lading
Freight Forwarders Receipt
Airway Bill/Air consignment note
Railway Receipt/Consignment note
Post Parcel Receipt
Courier Receipt/Way Bill

Air Freight
Rail/Road
Post
Courier
Bill of Lading
It is a document of title and it is evidence of shipment.

The Bill of Lading is a document issued by the shipping company or its agent:
- acknowledging the receipt of goods mentioned in the bill for shipment on
board the vessel
- undertaking to deliver the goods in the same order and condition as
received,
- to the consignee mentioned on the Bill of Lading.
Consignor is one who ships the goods.
Consignee is one who can collect goods from shipping company.
The Bill of Lading contains details such as the:

Name of the consignor

Name and destination of the vessel

Destination of the goods

Description of goods

Quantity of goods

Marks and numbers

Invoice number

GR number

Gross and Net weight

Number of packages
Amount of freight etc.
Date and place of shipment

From the legal point of view, a Bill of Lading is:

i)

A formal receipt by the ship-owner or the master of the ship

acknowledging that the goods of the stated specifications, quantity and
condition has been received in the custody of the ship-owner for the
purpose of shipment or is on board a certain ship;
ii) A memorandum of the contract of carriage, repeating in detail, the terms of
the contract which was in fact concluded prior to the signing of the bill;
and
iii) A document of title of the goods enabling the consignee to dispose of the
goods by endorsement.
Bills of Lading are usually made out in sets of three.

The exporter should submit ALL the sets of Bill of Lading together with the
mate receipt to the shipping company, which would calculate the freight amount
on the basis of measurement or weight as certified by the recognized Chamber
of Commerce. On payment of the freight, the shipping company returns the
Bill of Lading duly signed and stamped. If required, the exporter may prepare
additional copies of the Bill of Lading.
In some cases, the exporter may have the Bill made out to his own order or in
the name of the Bank. The consignee or the consignor, as the case may be, may
transfer the bill either by:
- an endorsement, which names the transferee to whom the delivery is to be
made or
- By an endorsement in blank (i.e. without naming an endorsee).
Airway Bill/Air Consignment Note
Airway Bill or Air Consignment Note is the receipt issued by the airline
company for the carriage of goods under certain terms and conditions. Airway
Bill or Air Consignment Note is NOT treated as a document of title and is not
issued in negotiable form. Airway Bill is generally issued in three copies. One
copy each is for the carrier, consignee and the consignor.
Post Parcel Receipt
Post parcel receipt evidences the receipt of goods for exports by the post office
and it is also NOT treated as a document of title.
Mates Receipt
Mates Receipt is issued by the Chief of Vessel after the cargo is loaded.
It contains

Name of shipping line


Vessel Name

Port of loading

Port of discharge

Place of delivery

Marks and numbers

Number and kind of containers

Description of goods

Container status/seal number

Gross weight

Condition of cargo at the time of its receipt on board the vessel

Shipping bill number and date.

The mate receipt is of a transferable nature and must be presented immediately
at the shipping companys office to be exchanged into Bill of Lading.
Marine Insurance
In the International trade, when the goods are in transit, they are exposed to
marine perils. Marine Insurance is intended to protect the exporter/importer
against the risk of loss or damage to goods in transit due to marine perils.
In India Marine insurance is governed by the following laws:

1.

The Indian Contract Act 1872

2.

The Marine Insurance Act 1963

3.

The Insurance Act 1938

4.

The Insurance Rule 1939

5.

The Indian Stamp Act 1899

6.

Exchange Control Regulation relating to General Insurance

7.

Common Laws

8.

Marine Insurance Practice

Marine Insurance includes following types:

1.
2.
3.
4.
5.

Insurance of goods in transit by various modes of transport (e.g. Sea,

Land, Air, Rail
etc.)
Insurance of Ships (e.g. merchant vessels, passenger vessels etc.)
Insurance of ship during construction
Insurance of ship during breakage
Freight Insurance

In India and in majority of countries of the world the clauses drafted by institute
of London underwriters (ILU) are in vogue. There are about 225 clauses in this
set. There are other clauses also in world market like American Clauses or
Deutsch Clauses.
For general cargo there are two types of clauses based on mode of transport.

Transit by Sea
Transit by Air
i) Institute Cargo Clauses(C) Institute Cargo Clauses(A) ICC (A)
ICC (C)
ii) Institute Cargo Clauses(B) (Excluding carriage by post)
ICC (B)
iii) Institute Cargo Clauses(A)
ICC (A)
The scope of cover under ICC(C), ICC (B) & ICC (A)
ICC(C)
Loss or damage subject to
(i)
Fire or explosion
(ii) Vessel or craft being stranded, grounded, sunk or capsized
(iii) Overturning or derailment of land conveyance
(iv) Collision/contract of vessel, craft or conveyance with external
object other than water.
(v) Discharge of cargo at port of distress
(vi) General average sacrifice
(vii) Jettison
ICC (B) above (I) to (vii) points plus the following:
(viii) Earthquake, volcanic eruption
(ix) Washing Overboard
(x) Entry of sea, lake or river water into vessel, craft, hold,
conveyance, container, lift van or place of storage
(xi) Total loss of any package lost overhead or dropped whilst loading
onto, or unloading from, vessel or craft.
ICC (A) above (I) to (xi) points plus the following:
(i)
Rainwater damage
(ii) Piracy
(iii) Malicious damage
(iv) Rough handling
(v) Breakage, leakage, denting, scratching etc
(vi) Heating, sweating
(vii) Just by external factors
(viii) Country damage
(ix) Theft, pilferage and non delivery
(x) Hook and sling damage

(xi) Contamination
(xii) Oil damage
(xiii) All other accidental loses/ damage to cargo
ICC (Air) is similar to ICC (A) but it does not cover General Average or
Salvage Charges which are peculiar to sea transit.
Exclusions applicable to all ICC (C), (B) & (A)
1. Willful misconduct of insured
2. Ordinary leakage, ordinary loss in weight or volume, ordinary wear and
tear of cargo.
3. Insufficiency or unsuitability of packing or preparation of cargo
4. Inherent vice or nature of cargo
5. Insolvency or financial default of owners, managers, characters or
operators of the vessels. Un-seaworthiness of the vessel or craft and
unfitness of vessel, craft, conveyance, containers or lift vans.
6. Deliberate damage
7. Nuclear losses
8. War Risk
9. Strike, Riots, Civil commotion and terrorism
Insurance is mandatory when goods are shipped on CIF basis.
As soon as the goods are ready for shipment, the exporter has to buy Insurance.
Total Amount to be Insured = Invoice Value + 10%of the Invoice value
Bill of exchange
Bill of exchange is also known as Draft. A bill of exchange is an instrument in
writing containing an unconditional order, signed by the maker, directing a
certain person to pay a certain sum of money only to or to the order of a person
or to the bearer of the instrument.
A bill of exchange contains an order from the creditor to the debtor to pay a
specified amount to a person mentioned therein.
- Drawer is the person who draws the bill.
- Drawee is the person who accepts the bill and agrees to pay.
- Payee is the person who receives payment.
Sight draft or Draft drawn at first sight or On demand or On presentation
The exporter expects the importer to make immediate payment upon the
presentation of the draft.
Usance Draft or Usance Bill or Demand Draft

Draft is drawn for payment at a date later than presentation. The bill of exchange
or Draft is drawn in a set of two. Each one bears a reference to the other. When
any of the drafts is paid, the second draft becomes null and void.
NTR (Notification and Transfer of Receivables
This form is used only for factoring. All the documents are enclosed along with
this form. The form is to legally notify the Export Factor of the invoices
submitted for factoring.
Export Declaration Forms
As per the Exchange Control Regulations, exporters are required to submit
declaration in one of the following prescribed forms to the prescribed authority
before any export of goods from India is made. The prescribed forms are given
below:
Form GR

Exports to all countries made other than by Post. This is

prepared
manually.
Form SDF

This is similar to GR Form except that it is issued by certain

offices of
customs where electronic systems are in place.
Form PP

Exports to all countries by Parcel Post, except when made on

Value Payable or Cash on Delivery basis.

Form SOFTEX

To be used for declaring software exports through data

communication links and receipt of royalty on the software
packages/products exported.

1) The GR form is the most important document as far as the regulators

are concerned. The GR Form gives the following:
- the exact amount of Foreign Exchange coming into India at a specific
date.
- Control and regulation of exports from India
- To estimate the balance of Payments situation of the country

The details of the GR form are to be reported to RBI on a fortnightly basis. The
GR form is to be released to RBI after the foreign currency is received into
India. Authorized dealers India are not supposed to accept any documents unless
the GR form accompanies the export documents.
Shipping Bill
Shipping Bill is an important document required by the Customs Authorities for
allowing shipment. It is prepared by the exporter and it contains:

Name of the vessel,

Master or agents, flag

Port at which goods are to be discharged

Country of final destination

Exporters name and address

Details about packages

Number and description of goods

Marks and numbers

Quantity

FOB price, real value as defined in the Sea Customs Act

Whether Indian or Foreign merchandise to be re-exported

Total number of packages with total weight

Value and the name and address of the Importer.

The Shipping Bills are of following types.

i) Duty-free shipping Bill:
This type of Shipping Bill is printed on white paper and used for the goods
for which
neither duty nor cess is applicable.

It is also used for the goods

manufactured out of
materials imported under the duty-free import.
ii) Dutiable Shipping Bill:

This type of shipping bill is used for the goods subject to export duty/cess,
which is either entitled or not entitled for drawback. This shipping bill is
used separately in respect of which export duty is levied on the basis of (a)
market price and (b) tariff assessed value, and printed on yellow paper for all
goods except mica and jute.
iii) Drawback Shipping Bill:
If the export of goods is simultaneously by duty free and/or subject to export
duty/cess, this type of shipping bill is compulsorily to be used whether alone
or along with any other shipping bill. This type of shipping bill is printed on
the Green paper.
iv) Shipping Bill for Shipment Ex-bond:
In case of goods imported for re-export and kept in-bond, this type of
shipping bill is used which is printed on yellow paper.
Certificate of Origin
It is issued by a recognized Chamber of Commerce, Export Promotion Council
or Government Department.
It certifies that the goods are of Indian origin and are manufactured in India. It is
also required by exporter to categories its product under get concession/
exemptions on duties from the government.
Manufacturers Certificate
In addition to the certificate of origin, some countries require Manufacturers
Certificate stating that:
- the goods exported by him are manufactured in India
- the goods does not contain any raw material or components imported into
India from other country
G.S.P. Certificate
The EEC countries comprising France, Germany, Belgium, Netherlands, Italy,
UK, Ireland, Denmark and Greece have adopted the Generalized System of
Preferences (GSP). Under his system, manufacturers and semi-manufacturers

from developing countries including India will be entitled to a concessional rate

of import duty in these countries.
The Government of India has authorized the Export Inspection Council of India
and its various agencies to issue the GSP Certificate.
2)

Certificate of Inspection:Certificate of Inspection is issued by the Inspection Agency concerned,

certifying that
the consignment has been inspected as required under the Export (Quality
Control &
Inspection) Act, 1963 and satisfies the conditions relating to quality control
and
inspection as applicable to it and is certified export worthy. In addition to
this certificate,
some countries need Clean Report-of-findings under a certificate of SGS.
(SGS is a
company who inspects the goods and gives a certificate to that effect).
Transshipment Bill
India

Singapore

Port of

Intermediate

USA

Final Port

of
Loading
Destination

Port

In the word Transshipment - Trans stands for transfer and Shipment means
cargo i.e. when cargo is transferred from one ship to another it is called as
Transshipment.

Sometimes shipping companies do not have direct ship

service to the port of discharge. In such cases,

goods are taken by one vessel (ship) to a port from where they are transferred to
another vessel for delivery to port of discharge.
Transshipment Permit
The transshipment permit is the permission for transshipment of goods from the
vessel on which the same are booked originally to another for export.

FOREIGN EXCHANGE MARKETS

THE EXCHANGE RATE SYSTEM IN INDIA
BALANCE OF TRADE AND BALANCE OF PAYMENT

It is customary to classify a countrys foreign currency receipts and foreign

currency payments under two broad headings
1.
2.

Current account transactions

Capital Account transactions

Current Account Transactions

Current account transactions relate to export and import of trade goods taking
place in the country. It also includes invisible transactions like services rendered
by companies, purchase of books, subscription to foreign courses, foreign travel
related expenses, etc.

The difference between all the inflows minus all the outflows on the current
account is called
BALANCE OF TRADE.

It is customary to report all imports on CIF basis and all exports on FOB basis
for calculating balance of trade. Invisibles comprises of items other than that of
merchandise trade. Some of the more important items under this head are travel,
transportation, books and periodicals, dividend payments, etc.
Capital Account Transactions

Capital Account comprises of short-term and long-term international

borrowings and lending. Examples are acquisition of assets in a foreign country,
external borrowings, repayment of external borrowings, investment or
disinvestments in shares of overseas companies, payment of interest on foreign
borrowings, etc.
The difference between all the inflows minus all the outflows on the current
account plus capital account is called the BALANCE OF PAYMENT.
A negative on the Bop means tells you whether a country is a debtor (owes
money) or a creditor (has to receive money) vis--vis the rest of the world. India
always had a negative BoP position since independence. India also had a
negative Balance of Trade position till date. This means that the Indian Imports
has always been more than its Exports.
Counter Trade
Countries facing balance of payments difficulties (negative BoP i.e. deficit and
growing over a period of time) encourage counter trade as a means of financing
exports. Under counter Trade, imports are paid for, not in convertible currencies
but in the form of goods. We have been invoicing all our exports to the
communist countries in Non-Convertible Indian Rupees and these are used to
finance our imports from those countries. In other words, counter trade can be
termed to the barter system of trade. Counter Trade is said to be cost effective
and loaded against the countries having balance of payment difficulties. It was

widely believed that the goods imported by the erstwhile communist countries
against Rupee payment terms were sold to other countries against payment in
hard currencies, thus depriving India of valuable foreign exchange. Countries
requesting for country trade, who may have to import essential goods from
abroad, may have to export more of their goods at cheap rates, so as to meet
counter trade obligation. In reality, they may be paying much more for the same
goods imported under Barter than they would have paid in free foreign
exchange.
Convertibility of Indian Rupee
A currency is said to be convertible if its holder can convert it, at any time, into
any other generally acceptable foreign currency without any restriction from the
monetary authorities.
Following are most commonly used, accepted currencies in India.
GBP

Great Britain Pounds

USD

U S Dollars

EUR

Euro

JPY

Japanese Yen

AUD

Australian Dollars

SGD

Singapore Dollars

CAD

Canadian Dollars

Convertible on the current account

When you say that rupee is fully convertible on the current account, it means
that for all the current account transactions, you can convert FCY into INR and
vice versa freely without any restrictions / approval from the monetary
authorities (RBI / Ministry of Finance).
Example: If you want to make import payments in USD, you can convert

equivalent Rupees into USD and remit the amount. You need not take RBI
approval for the same.

Example: Similarly, if you receive export payments in USD, you can convert the

amount in USD into equivalent Rupees without any RBI approval.

In India, Rupee is fully convertible on the current account, but partially
convertible on the capital account. i.e. you require prior RBI approval to remit
money for capital account transactions. The restrictions are put on convertibility
of rupee to ensure that it does not become a channel for flight of capital from
country.
Rupee can be

Fully Convertible

Partially Convertible

Non-Convertible

Rupee is Fully convertible

for following transactions:

Rupee is partially
convertible for Capital
account transactions e.g.

Not Applicable

Travel
Business travel
Travel for Medical
purpose
For Education
For Pilgrimage
Transportation
Freight on imports
Freight on exports
Shipping remittance
by foreign/ India
companies
Insurance Premium,
commission &
payments
Services like Bank
charges, commission,
Soft/Hardware
consultancy services,
Computer services,
Technical fees
Transfers like gifts,
donation etc.
Income on NRI
deposits, loans,
dividends etc.

Foreign Exchange Market

Investments
In Shares abroad by
residents
In debt securities
abroad by residents
In real estates abroad
by residents
Repatriation
Of foreign
investments in shares,
debt markets
Of foreign
investments in
subsidiaries/ branches,
in real estates
Repayment
Long term/ Medium
term loans, NR
deposits, short term
loans etc.

To convert Rupee into foreign currency or vise-versa, exchange rate is involved.

The market, which deals with exchange rate mechanism for conversion of
currencies, is called Foreign Exchange Market (FOREX).
There is no physical Forex market like the Stock Exchange, but its
participants and players determine it.
Participants purchase and sell foreign currency for the various
transactions, which affect the demand/supply of FCY and Rupee. This
demand and supply determines to some extent the exchange rate.
Factors determining the Exchange Rate of a currency
Following factors determine the exchange rate of a currency vis--vis another currency.

Balance of Payments
Local Interest Rates
Monetary Policy
Exchange Control Regulations
Inflation
Central Bank Intervention
Speculation
Demand / Supply of a currency
Players in FOREX Market
Following are the players in a FOREX market.

Participants purchasing and selling foreign currency for the various

purposes
Commercial banks, Merchant banks, Investment Banks, Co-op Banks,
Merchants,
Moneychangers, tourist, etc.
RBI purchase and sell foreign currency to control demand/supply of
FCY/ Rupee, to control rupee value compared to other currencies and for
foreign currency reserves.
The Exchange rate in a Forex market is quoted for the following four types of
transactions:

- For Purchase of foreign currency cash the rate quoted is called as TT

Buying rate
- For Sale of foreign currency cash the rate quoted is called TT Selling
Rate
- Rate quoted for Negotiation of an Export Bill is called Bill Buying Rate

- Rate quoted for Negotiation of an Import Bill is called Bill Selling Rate
* cash does not mean only hard currency, but also amount to be remitted out /
received by way of a Telegraphic Transfer.
TT Buying rate

Bill Buying rate

TT Selling rate

Bill Selling rate

Quoted when a bank

pays rupee equivalent to
a customer after getting
FCY from him

Quoted when a bank

negotiates an export bill
and there is no cash
transaction taking place
immediately, but cash will
be received at a later date.

Quoted when a bank

pays FCY to a customer
after getting equivalent
rupees from him

This is opposite of Bill

Buying where
payment is made for
import bills.

Types of transactions
Clean inward
remittance
Conversion of
proceeds of
export bill
realized.
Cancellation of
outward TT,
DD, MT, PO

Types of transactions
Purchase/discount
of bills and other
instruments

Types of transactions
Outward
remittance in
foreign currency
(TT/MT/ PO,
DD)
Cancellation of
forward
contracts
Bill purchased
returned unpaid
Bill purchased
transferred to
collection
account

Types of transactions
Transactions
involving
transfer of
proceeds of
import bills.

Types of Exchange Rates

Following are the different types of Exchange Rates
Cash Rate

A Cash transaction is the one in which delivery of foreign exchange takes place
immediately.
I.e. if you have USD with you and go to a bank for conversion into INR, the
bank will convert FCY at a rate and give you INR immediately. The transaction
as well as settlement is complete immediately on the same day. Such types of
transactions are called as cash transaction and the rate quoted is called as cash
rate.

TOM Rate

A TOM transaction is the one in which delivery of foreign exchange takes place
the next day. i.e. If you expect to get USD tomorrow, you may book a rate today
and give USD to bank tomorrow. The Bank will give you INR tomorrow. This
means that you have done the transaction today, but the settlement is done the
next day. Such types of transactions are called as TOM transactions and the rate
quoted is called as TOM rate.
Spot Rate

A Spot transaction is the one in which delivery of foreign exchange takes place
the third working day. i.e. If today is 11th June and you expect to get USD on
14th June, you may book a rate today and give USD to bank on the 14th. The
Bank will give you INR on the 14th. This means that you have done the
transaction today, but the settlement is done the third working day. Such types
of transactions are called as spot transactions and the rate quoted is called as the
spot rate.
Forward Rate

A Forward transaction is the one in which delivery of foreign exchange takes

place at a future date, which is greater than the third working day.

Cash Rate
Tom Rate
Spot Rate
Forward Rate

Deal Date
Today
Today
Today
Today

Value Date
Today
Tomorrow
Third working day
Any day after the third
working day

How are Forward rates calculated?

Forward Rates are calculated based on the following formula:
Forward Rate = Spot Rate +/- Margin
If Forward rate is more than Spot rate, then the local currency is quoting
at a premium
If Forward rate is less than Spot rate, then the local currency is quoting at
a discount
Eg: If today is 15 June and the spot rate of today is 49. You want a forward rate
as of 15 July. The bank gives you 49.50. As the forward is more than the spot,

rupee is quoting at a premium. The premium is 49.50 49.00 = 0.50. Thus the
premium is 50 paise.
Eg: If today is 15 June and the spot rate of today is 49. You want a forward rate
as of 15 July. The bank gives you 48.75. As the forward is less than the spot,
rupee is quoting at a discount. The discount is 48.75 49.00 = -0.25. Thus the
discount is 25 paisa.
How are Premium / Discount quoted?

Whether there is a premium or a discount depends upon the Interest rate

difference between two countries to which the currency relates.
Eg
Interest Rate
Difference

India

USA

10% p.a.

5% p.a.

5%p.a.

Since USA interest rate is lower than that of the India INR is quoted at premium
of 5% p.a. i.e. 42paise (0.05/12).
Lower the interest rate higher is the premium quoted.
Premium means that the FCY quoted will be more expensive and so a seller
will have to pay more of his own currency. The quoted margin should be
added to the spot rate to get the forward rate.
Discount means that the FCY quoted will be cheaper and so a seller will get
less of his own currency. The quoted margin should be deducted to the spot
rate.
Par, which means there will be no change.
Forward Contract
Suppose you export today on 15 June. Your buyer is expected to pay USD on 15 July. The
forward rate as on 15 July is 49.50. However, you do not book a forward rate and

the spot rate becomes 40 on 15 July. Your buyer pays you and your bank
converts at 49 because you did not book a forward rate on 15 June. You lose 50
paise. If you had booked a forward rate, you would have got 49.50 and could
have hedged the exchange rate risk. This booking of a forward rate is legalized
under The Indian Contracts Act and the underlying contract is called as a
Forward Contract.

Forward Contract is thus a hedging tool available to Indian corporate to

safeguard against adverse movement in exchange rates. The rate at which a
currency can be bought or sold at a future date can be fixed today thus
effectively fixing the costs of imports or export receivables due at a future date.
It thus renders debtors and creditors free from the risk arising out of exchange
rate fluctuations. Authorised Dealers have been delegated powers to book
forward contracts subject to the following conditions:
1.

Forward facility can be extended to resident customers only.

2.

Forward cover can be for genuine transactions only and not for
speculative transactions.

3.

AD should satisfy himself that the party for whom the forward cover
is being booked is in fact exposed to exchange risk.

4.

While booking a forward contract, ADs should verify the necessary

documents to ensure authenticity of the transaction.

5.

The underlying transaction should be firm and not anticipated or

speculative in nature.

6.

A customer transaction can be covered in whole or in part. The period

and extent to which cover can be obtained may be left to the customer
though the cover should ordinarily match the maturity of the original
transaction.

Option Forward
In a forward contract, the settlement of currencies is at a fixed date in future. In
our above example, if a forward contract is booked as on 15 July, the money
should be delivered to the bank on the 15th. In case the money is not delivered,
the contact is cancelled with some penalties. In an option forward contract a
further period, of say 30 days, is given to make the settlement. I.e. you can
deliver the money any time between 15 July to 15 Aug and you will get the
same rate booked by you. This further period is called as an option period and
the contract is called as an option forward contract.

How does GTF book Forward Contracts?

GTF books forward contracts through Standard Chartered bank. Forward
Contracts are applicable usually for prepayments in INR only. In case it is
required to book a forward contract, following will be done:
- The forward rate as on the due date of the invoice will be booked and
the invoice value will be converted at that rate.
- The forward contract will be booked with an option forward of 30
more days. This is done to avoid cancellation of the contract in case
the money is not received on due date.
- If the money is received in our account by the option forward date, the
forward rate will be used to convert the received amount.
- If the money is not received in our account by the option forward date,
(i.e. by the 30th day after the due date), the forward contract is
crystallized and the money will then be converted at the days spot rate.
In such case, all exchange rate gains / losses / cancellation charges
will have to be borne by the seller.
-

In case the money is received before the due date, corresponding

premium (excess
premium from the date of receipt of funds till the due date) will be

deducted.

Invoice Shipping
Date
Date

Due
Date

Option Forward
Date
30 Days

All incidental charges including stamp duty, if any, for booking and cancellation
of forward contracts will have to be borne by the seller.
Examples of Forward Rate
There can be three situations:

Money comes on the due date

Money comes after the expiry of the contract period

 Money comes before the due date

Money comes on the due date:

Suppose you have an invoice of USD 100 with you today on 5 July. The due
date of the invoice is 5 Aug. You take a forward rate as on 5 Aug with an option
forward till 5 Sep. You get the following rates:
30 Days

Invoice
Date

Due
Date

Option Forward
Date

5 July

5 Aug

5 Sep

Spot Rate
49

Fwd Rate
49.50

If the money comes to you on the due date i.e. 5 Aug or any time between 5 Aug to 5 Sep, the
bank will give you 49.50.
Money comes after the option forward period:
Suppose you have an invoice of USD 100 with you today on 5 July. The due date of the
invoice is 5 Aug. You take a forward rate as on 5 Aug with an option forward till 5 Sep. You
get the following rates:
30 Days

Invoice
Date

Due
Date

Option Fwd
Date

Money
Recd

5 July

5 Aug

5 Sep

15 Sep

Spot Rate
49

Fwd Rate
49.50

Spot Rate
49.80

If the money comes to you on, say, 15 Sep. The bank will cancel the forward
contract on 5 Sep and will levy penal charges as follows:
Penal Charges = (Spot Rate as on 5 Sep Fwd Rate taken as on 5 Sep)
= 0.30 on the full invoice value.
The penal charges are levied because the money has not been received on option
forward the due date and the bank has to borrow money from the market to
crystallize its commitment.

Money comes before the due date:

Suppose you have an invoice of USD 100 with you today on 5 July. The due
date of the invoice is 5 Aug. You take a forward rate as on 5 Aug with an option
forward till 5 Sep. You get the following rates:
30 Days

Invoice
Date
5 July

1 Aug

Due
Date
5 Aug

Spot Rate
49

Fwd Rate
49.25

Fwd Rate
49.50

Option Fwd
Date
5 Sep

If the money comes to you on, say, 1 Aug. The bank will now charge the actual
premium from 5 July to 1 August and will convert at 49.25. The customer will
not get 49.50. In other words, the bank will calculate the fwd premium from 1
Aug to 5 Aug, which is , say, 0.25. This is the excess premium and will be
deducted from the actual forward rate booked. i.e. 49.50 0.25 = 49.25 will be
charged.

Nostro / Vostro Accounts

Nostro Account

When you deal in foreign currency, the currency is required to be held in the
country to which it belongs. This means that you cannot keep USD in a bank in
India. USD is a local currency of United States of America and hence the USD
should be kept in USA. Therefore if any bank in India wants to deal with, say,
USD, the Indian bank will have to open a current account with a bank in USA,
and deposit USD there. The Indian bank then can use the USD deposited in the
current account of the US Bank and make transactions. This current account
opened by an Indian Bank is called as a Nostro Account.

Definition

A foreign currency account maintained by a bank in India with a foreign bank in

a foreign country in its currency is called as a Nostro Account. (Our Account
with You, in your currency in your country.)
Eg State Bank of India, Mumbai branch opening a USD current account with

Chase Manhattan Bank, New York branch is called a USD Nostro Account.
Eg Punjab National Bank, Mumbai branch opening a GBP current account with

Barclays Bank, London branch is called a GBP Nostro Account.

As you may understand that a USD account cannot be opened in London as
USD is not the local currency of UK.
Vostro Account

An INR Account opened by a foreign bank with an Indian bank in India is

called as a Vostro Account. (Your Account with Us in our currency in our
country).
Eg Chase Manhattan Bank, New York branch opening a INR current account
with State Bank of India, Mumbai branch is called a INR Vostro Account.
LIBOR
LIBR stands for London Interbank Offered Rate. It is a benchmark giving an
indication of the average rate at which a leading bank can obtain unsecured
funding in the London interbank market for a given period, in a given currency.
It therefore represents the lowest real-world cost of unsecured funding in the
London market. It is produced for ten currencies with 15 maturities quoted for
each - ranging from overnight to 12 months - thus producing 150 rates each
business day.
E.g.: - If you want to borrow, say, USD 1M from Standard Chartered London,
they will quote you LIBOR + 2% (say).
[Nostro Account opened by Indian bank at foreign center in foreign currency
Vostro Account opened by foreign bank in India in Indian Rupee.]

Foreign Exchange Management in India

Foreign exchange management comes under the jurisdiction of Ministry of
Finance (MOF)
M.O.F. operates in the market through the following three institutions:
1.

RBI

2.

Customs

3.

Enforcement Directorate

Until 31st May 2002, all foreign exchange management in India was governed
by Foreign Exchange Regulation Act 1973 (FERA). On 1st June 2002, FERA
was replaced by Foreign Exchange Management Act 1999 (FEMA).

Following are 4 points of difference between FERA and FEMA

FERA

FEMA

Objective was to conserve foreign

exchange

Objective is to manage foreign exchange

Under FERA offense was punishable

Under FEMA offense is compoundable

Under FEMA burden of proof was on

accused

Under FEMA burden of proof is on

Enforcement department

NRI was not acceptable as per IT act

NRI is acceptable as per IT act as well as

defined by FEMA

[According to IT act NRI is a person who is outside India for more than 182 days out of
365 days of previous financial year for any employment or financial gain]

Under FERA/FEMA M.O.F. has instructed RBI to do foreign exchange

management? RBI has delegated powers to Authorised Persons i.e. Authorised
Dealers and Authorized Moneychangers.
Authorised Dealers

Authorised Dealers (ADs) are those entities which are authorized by The
Reserve Bank of India to deal in Foreign Currency. They are usually Banks, but
can be companies like Thomas Cook, or even us.
Authorised Moneychangers
In order to provide facilities for encashment of foreign currency to visitors from
abroad i.e. foreign tourist, RBI has granted license to certain established firms,
hotels and other organizations permitting them to deal in foreign currency notes,
coins & travelers cheques. These are of two types:
1.

Fully Fledged Moneychangers They are authorized to undertake both

purchase and sell transaction with public.

2.

Restricted Moneychangers They are authorized only to purchase

foreign currency i.e. notes coins and travelers cheque. These purchases/
collections has to be surrendered to an Authorized dealer/ Full Fledged
Moneychangers.

Following three institutes plays important role in Foreign Exchange

Management

2.I.

FEDAI Foreign Exchange Dealers Association in India

It is a bankers association licensed by RBI to deal in foreign

exchange

It is an advisory body to RBI.

All rules governing Import- Export foreign exchange management is

decided by FEDAI. i.e RBI gives guidelines while FEDAI decides
rules.

All the operational issues are discussed during association meet and
put up to RBI.

2.II.

It conducts educational training programs for bank officers.

ICC International Chamber of Commerce

ICC was established in 1999 and its office is based in Paris

It aims at standardizing rules governing operations of Documentary

Credits know as UCPDC.

It works towards trade liberalization based on free and fair

competition.

It maintains laison with United Nations.

Enjoys the status of first category consultant with UNO.

ICC has brought all countries at a common platform of understanding on

documents.
The UCP 600 has come into effect from July 1, 2007 onwards and UCP 600 has
a number of substantial changes that affect not only how banks will determine
compliance, but also how contracts for sales utilizing Letter of Credits should
be written. Some of the new articles in UCP 600 have adopted practices in
International Standard Banking Practices (ISBP) and followed principles of
International Standby Practices (ISP 98), besides providing new articles in
examination, documentation and other aspects for issuing the letters of credits
for banks involved in foreign exchange.
"UCP" is the common reference for the Uniform Customs and Practice for
Documentary Credits. The objective of the UCP is to create a set of contractual
rules that would establish uniformity to conflicting national regulations.

The Uniform Customs and Practices (UCP) for Documentary Credits were first
issued in 1933 by the International Chamber of Commerce. The purpose was to
overcome conflicting national laws on letters of credit as well as to bring about
uniformity in banking practices. The rules have been revised a number of times.
The recent revision, UCP 600, took more than three years of consultation and
the Consulting Group, which comprised more than 40 representatives from 26
countries proposed changes to the various drafts. During its 24-25 October 2006
meeting, the ICC Commission on Banking Technique and Practice approved
new UCP 600 rules for documentary credits.
UCP 600 vs. UCP 500
UCP 600, which came into effect on July 1, 2007, incorporates a number of
changes from the UCP 500 that was followed by banks for more than a decade
till June 2006. These changes include:
A reduction in the number of articles from 49 to 39

New articles on "Definitions" and "Interpretations" providing more

clarity and precision in the rules

A definitive description of negotiation as "purchase" of drafts of

documents

The replacement of the phrase "reasonable time" for acceptance or refusal

of documents by a maximum period of five banking days

New provisions allow for the discounting of deferred payment credits

Banks can now accept an insurance document that contains reference to

any exclusion clause

Some of the important changes in UCP 600 and their implication for banks in
handling letter of credit transactions are highlighted below:
UCP 600 does not apply by default to letters of credit issued after July 1st 2007.
A statement needs to be incorporated into the credit (LC), and preferably also
into the sales contract that expressly states it is subject to these rules. Article 1
of UCP 600 also leaves open the possibility for either party to exclude the
application of any part of UCP 600 as long as the exclusion is stipulated in the
credit.
Following 3 documents of ICC are statutory requirement in India

(a) UCPDC 500 Uniform customs and practice for documentary

credit. Effective from 01-01-1994. All L/Cs are opened as per
UCPDC recommendations.

(b) URC 522 Uniform rules for Collection. Effective from 01-011996. e.g Bills sent on collection basis.
(c) URR 525 [Bank to Bank transactions].

Uniform rules of

reimbursement. Effective from 01-07-1996.

Obligations of an Authorised Dealer

RBI has stipulated various obligations as far as handling and reporting of export
documents as well as dealing in foreign currency is concerned. Some of the
important obligations are highlighted below:
The export documents are to be accompanied by a GR Form. The ADs
should number these forms in running sequence on a calendar year basis.
These numbers should be 7 digit number prefixed by the type of finance
granted. Eg If Export documents are negotiated, the serial should no. will be
N0000001, etc. If Export documents are purchased, the serial should no. will
be P0000001, etc.
The export documents should be submitted to the AD within 21 days from
the shipment date. If not, then the exporter should give valid reason for the
delay and the AD should be satisfied with the reason.
If the exporter could not ship the goods declared on the GR, then a short
shipment certificate is to be attached with the GR.
The GR should mention the name of the AD through which the FCY will be
received.
The GR form details are to be reported by the AD to RBI on a fortnightly
basis. i.e. All documents handled by the AD in a fortnight (1st to 15th of the
month and 16th to last day of the month) should be reported to the RBI
within 7 days from the close of the fortnight.
The AD will release the original GR to RBI only when the full amount
declared on the GR is realized. If not part payment will be reported to RBI.
(Full payment means 90% of the invoice value should be realized. 10%
deduction is allowable)

 If the buyer pays less due to discount given to the buyer, the same should be
declared on the GR before shipment. Or else the deduction becomes
unauthorized.
If any commission is payable to the buyers agent, the same should be
declared on the GR before shipment.
The full FCY value declared on the GR should be realized within 180 days from
the shipment date. If not, then approval for extension in time limit is to be taken
from RBI.

Retail Banking Operations

The creation of an institutional structure, usually called the foreign exchange
market. This is a market where one countrys currency can be exchanged for
other countries. Contrary to what the term might suggest, the foreign exchange
market actually is not a geographic location. It is an informal network of
telephone, telex, satellite, facsimile, and computer communications between
banks, foreign exchange dealers, arbitrageurs, and speculators. The market
operates simultaneously on three tiers:

1. Individuals and corporations buy and sell foreign exchange through their
commercial banks.
2. Commercial banks trade in foreign exchange with other commercial banks in
the same financial center.
3. Commercial banks trade in foreign exchange with commercial banks in other
financial centers.
The first type of foreign exchange market is called the retail market, and the last

two are known as the interbank market.

We must first understand the organization and dynamics of the foreign exchange

market in order to understand the complex functions of global finance. This

chapter explains the roles of the major participants in the exchange market,
describes the spot and forward markets, discusses theories of exchange rate
determination (parity conditions), and examines the roles
of arbitrageurs.
PARTICIPANTS IN THE EXCHANGE MARKET
The foreign exchange market consists of a spot market and a forward market. In
the spot market, foreign currencies are sold and bought for delivery within two
business days after the day of a trade. In the forward market, foreign currencies
are sold and bought for future delivery. There are many types of participants in
the foreign exchange market: exporters, governments, importers, multinational
companies (MNC), tourists, commercial banks, and central banks. But large
commercial banks and central banks are the two major participants in the
foreign exchange market. Most foreign exchange transactions take place in the
commercial banking sector.
Commercial Banks
Commercial banks participate in the foreign exchange market as intermediaries
for customers such as MNCs and exporters. These commercial banks also
maintain an interbank market. In other words, they accept deposits of foreign

banks and maintain deposits in banks abroad. Commercial banks play three key
roles in international transactions:
1. They operate the payment mechanism.
2. They extend credit.
3. They help to reduce risk.
Operating the payment mechanism
The commercial banking system provides the mechanism by which
international payments can be efficiently made. This mechanism is a collection
system through which transfers of money by drafts, notes, and other means are
made internationally. In order to operate an international payments mechanism,
banks maintain deposits in banks abroad and accept deposits of foreign banks.
These accounts are debited and credited when payments are made. Banks can
make international money transfers very quickly and efficiently by using
telegraph, telephone, and computer services.
Extending credit
Commercial banks also provide credit for international transactions and for
business activity within foreign countries. They make loans to those engaged in
international trade and foreign investments on either an unsecured or a secured
basis.
Reducing risk
The letter of credit is used as a major means of reducing risk in international
transactions. It is a document issued by a bank at the request of an importer. In
the document, the bank agrees to honor a draft drawn on the importer if the draft
accompanies specified documents. The letter of credit is advantageous for
exporters. Exporters sell their goods abroad against
the promise of a bank rather than a commercial firm. Banks are usually larger,
better known, and better credit risks than most business firms. Thus, exporters
are almost completely assured of payment if they meet specific conditions under
letters of credit.

RESIDENT FOREIGN CURRENCY (DOMESTIC) ACCOUNT

Resident individuals can open, hold and maintain a foreign currency account i.e.
Resident Foreign Currency (RFC) (Domestic) Account with authorized
branches.
OPENING OF ACCOUNTS

Branches authorized to handle foreign exchange business can maintain RFCD

Accounts. In case, request for opening of RFCD Account is received by other
branches, the same may be opened at the nearest authorized branch or at the
designated link branch. The Account Opening Form for opening of Current
Account of individuals in rupees is to be used for opening these Accounts by
affixing a stamp RFCD Account.
TYPES OF ACCOUNTS

The Account can be opened in form of Current Account and no interest will be
payable on this account. RFCD accounts at present can be opened in three
currencies i.e. Pounds Sterling, US Dollars and Euro.
JOINT ACCOUNTS

The account can be opened in the name of Residents individuals singly or in

joint names with eligible persons:PERMISSIBLE CREDITS

Foreign exchange acquired in the form of currency notes, bank notes and
travellers cheques from the sources specified hereunder:
a. was acquired by him while on a visit to any place outside India by way of
payment for services not arising from any business in or anything done in
India; or
b.

was acquired by him, from any person not resident in India

and who is on a visit to India, as honorarium or gift or for services
rendered or in settlement of any lawful obligation;

c.

Was acquired by him by way of honorarium or gift while

on a visit to any place outside India.

d.

Represents the unspent amount of foreign exchange

acquired by him from an authorised person for travel abroad.

e. As gift from a close relation, as defined in section 6 of the Companies

Act, 1957.
f. By way of earning through export of goods/services or as royalty,
honorarium or by any other lawful means.
g.

Representing the disinvestment proceeds received by the

resident account holder on conversion of shares held by him to
ADRs/GDRs under the sponsored ADR/GDR Scheme approved by the
Foreign Investment Promotion Boards of Government of India.

h.

By way of earnings received as the proceeds of life

insurance policy claims/maturity/surrender values settled in foreign
currency from an insurance company in India permitted to undertake life
insurance business by the Insurance Regulatory and Development
Authority.

PERMISSIBLE DEBITS

Debits to the account shall be for the payment towards current/capital account
transactions in accordance with existing regulations under FEMA applicable to
resident Individuals.
MINIMUM BALANCE

The RFCD Account may be opened subject to maintenance of minimum

balance of USD1000 or its equivalent, presently. There will be no upper ceiling
on balances held in these accounts.
CHEQUE BOOK FACILITY

Branches shall issue cheque book to RFCD Account holders for making
payments for permitted purposes in terms of existing provisions of Foreign
Exchange Management Act 1999.

Cheque book facility may be permitted

subject to maintenance of minimum balance of USD 1000 or its equivalent,

presently in these accounts. Branches shall issue rupee cheque book to RFCD
account holder by affixing a stamp on top of the cheques RFCD Account.
LOANS/OVERDRAFTS

No loan/overdraft shall be permissible against balances held in RFCD Accounts.

ACCOUNTING PROCEDURES

The accounting procedure for maintenance of RFCD account shall be the same,
which is applicable to FCNR (B) accounts.
PROCEDURAL GUIDELINES

Funds held in RFCD Accounts can be freely converted into Indian Rupees at the
prevailing TT buying rate. However, these funds are not allowed to be sold
or transferred to accounts of other residents in India. The branches shall report
purchase of currency to the Position Maintaining Offices.
Branches shall make all eligible payments in foreign currency by issuing drafts,
traveller cheques or TT etc. by debiting the RFCD Account with the notional
amount.
In case of remittances received in currencies other than the designated currency,
the authorised branches may convert foreign currency into the designated
currency for placing deposit in RFCD account scheme at the risk and cost of the
depositor. Branches are advised to obtain cross rates from the concerned PMO
in case of such transactions.
In case, a customer surrenders foreign currency notes for opening of RFCD
Account, charges for issuing drafts in foreign currency by surrendering the
currency notes to Full Fledged Money Changers will be borne by the customer.
Notional rates of foreign currencies advised by International Banking Division
through foreign exchange circulars are to be used for maintaining these
accounts.
In case of remittances made in foreign currency where Bank does not earn any
exchange income, charges as applicable in case of EEFC accounts may be
recovered from the customer.

CHANGE OF STATUS

Balances in these accounts may be allowed to be credited to NRE/FCNR (B)

account, at the option /request of the account holders consequent upon change
of their residential status from resident to non-resident.

REPORTING IN WEEKLY STATEMENT OF AFFAIRS

The funds held in these accounts should be shown along with figures of RFC
deposits in the Annexure to the Weekly Statement of Affairs. The deposit
figures should not be clubbed with NRE/FCNR (B) deposits.
RECONCILIATION OF BALANCES
At the end of each quarter, PMOs shall send a statement of RFCD Accounts as

per their records to the concerned branches for reconciliation purposes. The
branches upon receiving the statement shall tally the same as per their records
and in case of any difference/discrepancy, the matter shall be taken up with the
concerned PMO.
Whenever there is a change in notional rate of the foreign currency, the balance
of RFCD funds shall immediately be revalued in terms of revised notional rate
and the rupee balance be reconciled with respective PMOs.

Foreign Exchange Derivative Instruments in India

Foreign Exchange Forwards

Authorised Dealers (ADs) (Category-I) are permitted to issue forward contracts

to persons resident in India with crystallized foreign currency/foreign interest
rate exposure and based on past performance/actual import-export turnover, as
permitted by the Reserve Bank and to persons resident outside India with
genuine currency exposure to the rupee, as permitted by the Reserve Bank. The
residents in India generally hedge crystallized foreign currency/foreign interest
rate exposure or transform exposure from one currency to another permitted
currency. Residents outside India enter into such contracts to hedge or transform

permitted foreign currency exposure to the rupee, as permitted by the Reserve

Bank.
Foreign Currency Rupee Swap

A person resident in India who has a long-term foreign currency or rupee

liability is permitted to enter into such a swap transaction with ADs (Category-I)
to hedge or transform exposure in foreign currency/foreign interest rate to
rupee/rupee interest rate.
Foreign Currency Rupee Options

ADs (Category-I) approved by the Reserve Bank and Ads (Category-I) who are
not market makers are allowed to sell foreign currency rupee options to their
customers on a back-to-back basis, provided they have a capital to risk weighted
assets ratio (CRAR) of 9 per cent or above. These options are used by customers
who have genuine foreign currency exposures, as permitted by the Reserve
Bank and by ADs (Category-I) for the purpose of hedging trading books and
balance sheet exposures.
Cross-Currency Options

ADs (Category-I) are permitted to issue cross-currency options to a person

resident in India with crystallized foreign currency exposure, as permitted by
the Reserve Bank. The clients use this instrument to hedge or transform foreign
currency exposure arising out of current account transactions. ADs use this
instrument to cover the risks arising out of market-making in foreign currency
rupee options as well as cross currency options, as permitted by the Reserve
Bank.
Cross-Currency Swaps

Entities with borrowings in foreign currency under external commercial

borrowing (ECB) are permitted to use cross currency swaps for transformation
of and/or hedging foreign currency and interest rate risks. Use of this product in
a structured product not conforming to the specific purposes is not permitted.
Currency derivatives with the rupee as one leg were introduced with some
restrictions in April 1997. Rupee-foreign exchange options were allowed in July

2003. The foreign exchange derivative products that are now available in Indian
financial markets can be grouped into three broad segments, viz., forwards,
options (foreign currency rupee options and cross currency options) and
currency swaps (foreign currency rupee swaps and cross currency swaps).

ABOUT SWIFT ALLIANCE MESSENGER

Company information
SWIFT is a member-owned cooperative through which the financial world
conducts its business operations with speed, certainty and confidence. More
than 10,000 financial institutions and corporations in 212 countries trust us
every day to exchange millions of standardised financial messages. This activity
involves the secure exchange of proprietary data while ensuring its
confidentiality and integrity.
Our role is two-fold. We provide the proprietary communications platform,
products and services that allow our customers to connect and exchange
financial information securely and reliably. We also act as the catalyst that
brings the financial community together to work collaboratively to shape market
practice, define standards and consider solutions to issues of mutual interest.
SWIFT enables its customers to automate and standardise financial
transactions, thereby lowering costs, reducing operational risk and eliminating
inefficiencies from their operations. By using SWIFT customers can also create
new business opportunities and revenue streams.
SWIFT has its headquarters in Belgium and has offices in the world's major
financial centres and developing markets. SWIFT provides additional products
and associated services through Arkelis N.V., a wholly owned subsidiary of
SWIFT, the assets of which were acquired from SunGard in 2010. SWIFT does
not hold funds nor does it manage accounts on behalf of customers, nor does it
store financial information on an on-going basis.

Governance at SWIFT
SWIFT is a cooperative society under Belgian law and is owned and controlled
by its shareholders. The shareholders elect a Board of 25 independent Directors,
which governs the Company and oversees the management of the Company.
The Executive Committee is a group of full-time employees headed by the
Chief Executive Officer.
Board committees
The Board has six committees:

The Audit and Finance Committee (AFC) is the oversight body for the
audit process of SWIFT's operations and related internal controls. It
commits to applying best practice for Audit Committees to ensure best
governance and oversight in the following areas:
o

Accounting;

Financial reporting and control;

Legal and Regulatory oversight;

Security;

Budget, finance and financial long-term planning;

Responsibility and liability/Code of conduct; and

Audit oversight.

The AFC meets at least four times per year with CEO, CIO, CFO, General
Counsel and Chief Auditor, or their pre-approved delegates.
The Committee may request presence of any member of SWIFT staff at its
discretion. External auditors are present when their annual statements/opinions
are discussed and when the Committee deems appropriate.

SCOPE OF STUDY: The Principle of an autonomous monetary policy, a control over the
exchange rate and free capital movements cannot be achieved
simultaneously.
Today, majorly transactions of Foreign Exchange have wider area than
previous days by which trade between countries takes place.
The study will assist to understand the foreign exchange operations easy
and effectively to reader.
This shows the Indian system of Forex transactions by exporters and
importers

 Foreign exchange day-trading has good liquidity. The Forex currency

exchange market is the biggest financial market around the globe today.
Traders can choose their most feasible time to do trading business with
Forex day-trading, as it is a 24/7 market. The high liquidity of Forex is
combined with a real 24-hour market.
In the Forex market, there are no limitations to sell currencies short, not
like in stocks, which have to be sold, at short currencies, on an upscale.
IT is evidently to the interest of mankind that made the trade between
different countries easily, presently universally banks are using software
named as SWIFT ALLIANCE MESSENGER helping to send and
receive the foreign trade transactions.
To raise the value of the national exchange for the sake
of improving the terms of trade.

Objective(s) of the study:

To know about the how Indian government role in growing trade

exchange and in money transfer schemes.

What are the roles of banks in managing the business of foreign

exchange?

What are the factors affecting the countrys exports and imports?

Why Indian government is closely concerned with the foreign

exchange and trade transactions?

What are the laws relating to regulate the foreign trade business?

What are the risks in trade and in exchange of payments/amount

remitted by N.R.I in favour of person living in India?

What are reasons to make KNOW YOUR CUSTOMERS norms

important in trading?

RESEARCH METHODOLOGY
This study is an explanatory research into the foreign exchange operations with
respect to the various kinds of services provided by the different financial
institutions under the guidance/instructions of the RESERVE BANK OF
INDIA. The behavior of different users of Forex services is viewed in the Indian
context. The Indian foreign exchange market is developing very fast along with
the modern management lines and the importance of the investment and
satisfaction of his desires as the ultimate move of trade transactions is being

realized by more and more business firms engaged in import and export,
merchant trade, currency transactions services, treasury services along with the
foreign institutional investment opportunities. Globally, the importers and
exporters in turn, are becoming more and more aware of the exchange market in
which he undertakes the purchasing and selling of goods. To stop the
speculation, black-money flow and corrupt practices are on the target of
RESERVE BANK OF INDIA by implementing the checks of FOREIGN
EXCHANGE MANAGEMENT ACT, 1999 are increasing significant concern
as with business institutions knowledge for good trade practices and
improvement in countries economy, are becoming more and shrewder. The
present study is to study the FORIGN EXCHANGE OPERATIONS with
special reference to the Importers, Exporters, dealings in treasury operations,
money remittances under the jurisdiction/ operations of PUNJAB NATIONAL
BANK. (A number of dimensions namely the basis of educational background,
age, occupation, marital status, income etc.)

HYPOTHESIS
The truth in any field can be established by scientific research which
involves the number of steps and the time devoted by researcher to do justice
with their own practices. Formulation of hypothesis is one of the important
steps in scientific research methodology.
A hypothesis can be defined as a proposition which can be put to test to determine
validity.

The study is concerned with the factors that influence the operations
involves in the foreign exchange. It is widely believed that in foreign

exchange operations number of factors depends upon the geographical

differentiation, demographical behaviour of

importing and exporting

nations and demand in the different nations and also the foreign exchange
policy

of

that

country

plays

an

important

role

in

exchange

dealings/processes. The proposed study is aimed at verifying these

impressions. To operationally the study the following hypothesis were
formulated to be tested through the questionnaire and personal interviews:1) There is a difference in the nature and demand of Foreign Trade Market
Business:There is a geographical difference between the countries and in the trends
and their culture i.e. views it is differently.
2) Difference exists in the investment and product selection by both
Importers and
Exporters country.
3) There exists difference w.r.t. Choice of different trade tariffs applied by
Indian
Government in the different parts of country:
Factors like income and suitability while making investment.
Impact on income Tax. (As some only purchase to avert tax.)
Influence of portfolio services providers.
4) There exist economic status differences in the behavior of natives of
country.

Methodology
Methods of Data Collection:-

Every Projects successfulness and significance is based on the material gather

by the researcher from the different reliable resources and by proper using of the
data gathering tools and techniques.
DATA:Data is the basic unit in statistical studies. Statistical information like census,
population variables, health statistics, and road accidents records are all
developed from data. Data is a collection of facts, figures such as values or
measurements. It can be numbers, words, measurements, observations or even
just descriptions of things.
Data can be defined as the quantitative or qualitative values of a variable. Data
is thought to be the lowest unit of information from which other measurements
and analysis can be done. Data in itself cannot be understood and to get
information from the data one must interpret it into meaningful information.
There are various methods of interpreting data. Data sources are broadly
classified into primary and secondary data. Data is one of the most important
and vital aspect of any research studies. Researches conducted in different fields
of study can be different in methodology but every research is based on data
which is analyzed and interpreted to get information.
Types of data:Primary Data:Data that has been collected from first-hand-experience is known as primary
data. Primary data has not been published yet and is more reliable, authentic and
objective. Primary data has not been changed or altered by human beings;
therefore its validity is greater than secondary data. In the words of WESSEL,
Data originally collected in the process of investigation are known as primary
data. The concerned investigator is the first person who collects the
information. The primary therefore, first hand information.
Secondary Data:-

Secondary data are those which are already in existence, and which have been
collected for some other purpose than the answering of the question in hand.
The review of literature in nay research is based on secondary data, mostly from
books, journals and periodicals. According to WESSEL, Data collected by
other persons are called secondary data . These data are therefore, called
second hand data. Obviously since these data are already been collected by
somebody else, these are available in the form of published or unpublished
reports.
The data gather in this project is based on both Primary sources and Secondary
Sources of Information the data analysis is based on the primary or firsthand
information gathers from various Banks, Private Money Transfers and Importer
and Exporter. All the other is collected from the books, websites and brochures
given by the bank on the services they are providing to their customers.

Limitations
In this report an attempt has been made to understand the concept of Forex
operations in dealing room and scrutinize about the various complexity of
procedures they followed for the flow of work between handling the
transactions made by PNB bank on the behalf of their potential customers. The
problem rises then, when gap occurs in the paper work done by both importers
and exporters i.e. Letter of credit Bill of Lading, Invoice, Packing list, G.R.E

Certificate, and other information provided by the customer or authorised

branch to CENETRELISED BANK OF TRADE & FINANCE is not
matching and sometimes also at the time of the realization of the payment by
both in the favour of importer and exporter or vice-versa whether bank is
debiting or crediting the amount made by the parties.
The governments foreign trade policy is also plays crucial role in
incumbent for exports and the deposits made by N.R.Is and N.R.Es in whether
in NOSTRO-VOSTRO account. Today all of banking operations based on the
technology, but there is also very huge risk of data and information loss or theft,
they should have is properly contained or not, because many times it is seen that
hackers hacked the data and sites of the institutions. Due to which organizations
fails to meet with their clients need. It is general quote that risk is everywhere
but with the time some discrepancies can be removing. RISK is the entire
factor for PROFIT. If organization is able to overcome the problems no, there
is success at every step.

Analysis & Interpretation

Every research project always basis a strong cause of problem which give out
the excellent results from the existing research by implementing the proper
techniques and tools of data interpretation always the need of good research
work. The above research projects data is based on the secondary data which
given by the Organization (Punjab National Bank), the brochures and the also
the some of the copies of system originated documents as a specimen copies.
The data resulted that the Punjab National Bank is one the leading industry
in foreign exchange services they are providing the customer satisfying
services. Operationally work of Punjab National Bank is very strong as

according to the other banks. Their exchange procedure is so simple. Globally,

banking following the SWIFT software as a whole in which they send and
receives the message of receipt and payments of import and export. The internal
operations are very strongly applicable to K.Y.C norms as well as for the
source of funds. The bank maintained the standardised format according to their
software FINCALE which is characterized by the complete solutions for
banking industry. Banks also have flexibility to their regular and potential
customers who have strong businesses and deposit with the bank.
All the banks follow the R.B.I guidelines in foreign exchange and also in
foreign trade. The import and exports of goods takes places under the FEMA
guidelines which are mandatory to importers and exporters.

Que: - 1 Are you aware about the Commercial banks/ Indian Govt. undertaking
banks?

Interpretation: - As In India Banking Industry are on very strong position, Undoubtly

people of the country
are very much aware about the banking operations by which they are
fulfilling their
personal as well as business.

Que: - 2. Are you Exporter / Importer of the goods?

Interpretation: - All we know in India Exports are more than Imports, Business Houses has
been successful
in creating their image on international front. In context this exporters
engages more in
export services. On other hand, importers imports that material which easily
and cheaply
available from international market. Left, respondent deals in domestic
market.

Que: -3 In which country you deal for Products/ Services and Technology
Transfer?

Interpretation: - Today India is one of the strongest economy in world and trade practices of
India are more
with the Europe then with Singapore, U.A.E, China and with other
continenst.

Que: -4 You have any Letter of Credit with Your Bank for Foreign Trade
Services?

Interpretation: - Letter of credit is more crucial tool in Foreign Trade for fund exchange.
56% business

persons deals with foreign Importer and Exporter with the Letter of Credit.

Que: - 5 Which Indian banks you prefer for your business transactions?

Interpretation: - Indian Banks are very much involved in the foreign exchange operations,
especially the
participation of government banks. Also the foreign banks are very active
participants in
the foreign exchange business. In above graph PNB bank is leader among
other banks i.e.
are Bank of Baroda, Bank of India and the Hdfc bank.

Que: -6 What is mode of the transport you use for Import/ Export?

Interpretation: - Transportation of goods in foreign trade and % of transshipment by

waterways is more
than airways slightly. Both are very much crucial transport modes in trade.

Que: - 7 Which companys software you use for Money Transfer?

Interpretation: - For the Foreign Exchange transactions above companies are the key player
in the currency

exchange or conversion. U.A.E exchange is less like in among dealers;

Money gram is less
preference than Western Union Money transfer which is leading player in
this area.

Que: - 8 Which Company Charges more commission on Money Transfer?

Interpretation: - In the money transfer business commission charged by companies Westren

Union Money
Transfer is ahead in highly commission charges from their customers, as
compares to
other two companies.

Que: - 9 From which areas people deals most in Money Transfer?

Interpretation: - Transactions in Semi-urban area are more than urban and rural areas.

Que: - 10 Are you satisfied with the services of private money transferees?

Interpretation: - Most of the people are satisfied with the services in their areas provided by
the private money transferees. Only small proportions of people are not satisfied with their
services. People say that private service providers charge more than the banks.

Que: - 11 From which area your received the most order regarding Import
/Export?

Interpretation: - In Export and Import business most of the orders from the urban areas
because of full

awareness and the lots business opportunities. Rural

is least in both Import & Export.

Que: - 12 Are the Importer / Exporter uses the Letter of Credit?

Interpretation: - Letter of Credit is most reliable Source of fund transfer between the
Importers and
Exporters. So, that most of the Exporters and Importers prefer the Letter of
credit.

Recommendations / Suggestions

1. Indian Government should take special recommendations to boost the

exports as in Indian context to increase their foreign currencies reserves.
2. To enter in the international trade both importer and exporter should be
known to the foreign trade market in which they are dealing.
3. Indian Ministry of trade and commerce should be more concerned for own
exporters to promote their business in foreign countries.
4. There should me more flexibility of operations to take deposits from N.R.Is
and N.R.Es.
5. Under the Guidelines of RESERVE BANK OF INDIA Risk Management
Committees in every financial institution to review the different types of risk
in their organization.
6. Free Trade Agreements (FTAs) are an important element of trade strategy
sought to enhance our presence in new and emerging markets to increase our
market share.
7. Encourage domestic manufacturing for inputs to export industry and reduce
the dependence on imports.
8. Promote technological Up-gradation of exports to retain a competitive edge in
global markets.
9. Persist with a Strong market diversification strategy to hedge the risks against
global uncertainty.
10. Provide incentives for manufacturing of green goods recognizing the
imperative of building capacities for environmental sustainability

Conclusion
Every operation of banking industry regulates by bankers of bank i.e. is R.B.I
applied liberalized approach for issuing the licences to banks and other
institutions to act as Authorised Dealers in the foreign exchange market to
provide services to the business houses, various money transfer companies
working at international level. In keeping with the move towards liberalisation,
the Reserve Bank has undertaken substantial elimination of licensing,
quantitative restrictions and other regulatory and discretionary controls by
implementing the FEMA, 1999 checks and the checking of the documents on
the port by Custom departmrnts. Reserve Bank has also provided the exchange
facility for liberalised travel abroad for purposes, such as, conducting business,
attending international conferences, undertaking technical study tours, setting
up joint ventures abroad, negotiating foreign collaboration, pursuing higher
studies and training, and also for medical treatment. From the above research it
concludes that OPERATIVE FUNCTIONS of Punjab National Bank is very
efficiently working as compare to other Indian banks.

References / Bibliography:Books:-

A. VARSHNEY, P.N, 2007, BANKING LAW AND PRACTICE, SULTAN CHAND &
SONS, NEW DELHI. CHAPTER-19 Letter Of Credit.
B. PAIN, PARDIP K, 2010, INTERNATIONAL BANKING, MACMILLAN PUB. INDIA
LTD, NEW DELHI.
Journals:

http://cscjournals.org/csc/manuscript/Journals/IJBRM/volume3/Issue1/IJBRM-64.pdf

Websites:

http://www.rbi.org.in/scripts/PublicationsView.aspx?id=12252#CON

http://www.worldscibooks.com/economics/8052.html

http://dgft.gov.in/exim/2000/policy/ftpplcontentE1213.pdf

http://dgft.gov.in/exim/2000/Mspeech1213E.pdf

Questionnaire
1. Are you aware about the Commercial banks/ Indian Govt. undertaking
banks?
Yes
No
2. Are you Exporter / Importer of the goods?
Exporter
Importer
NILL
3. In which country you deal for Products/ Services and Technology
Transfer?
United State of America
China
Singapore
United Kingdom
Russia
Europe
United Arab Emirates
4. You have any Letter of Credit with Your Bank for Foreign Trade
Services?
Yes
No
5. Which Indian bank you prefer for your business transactions?
Bank of Baroda
Union Bank of India
Bank of India
Punjab National Bank
HDFC
6. What is mode of the transport you use for Import/ Export?
Airway
Waterway
7. Which companys software you use for Money Transfer?
Western Union money Transfer
Money Gram
UAE Exchange
8. Which Company Charges more commission on Money Transfer?
UAE Exchange
Western Union money Transfer
Money Gram
9. From which areas people deals most in Money Transfer?
Rural
Urban
Semi-Urban
10. Are you happy with the services of private money transferees?
Yes
No
11. From which area your received the most order regarding Import /Export?
Urban
Semi-Urban
Rural
12. Are the Importer / Exporter uses the Letter of Credit?
Yes
No