DO NOT PRAY FOR AN EASY LIFE, PRAY FOR THE STRENGTH

TO ENDURE A DIFFICULT ONE

Bruce Lee
 CORPORATE BANKING
Corporate banking encompasses wide range of banking and financial services provided to help
domestic and international operations of large local corporates and local operations of
multinational corporations.

Investment Banking provides advisory services and financing equity securities, asset
management, treasury and capital markets and private equity activities.

Banks offer various products to corporates, both fund based and non-fund based. In other words,
balance sheet and off-balance sheet based products

On the liabilities side, they provide deposits accounts of various maturities to suit the cash flow
requirement of the business unit, cash management product for managing the cash inflows and
outflows across different locations.
On the asset side, banks provide services such as working capital finance, term loans,
discounting of bills, export credit etc.

In off-balance sheet services, banks provide non-funded services such as letters of credit, bank
guarantee and collection of documents.

Banks are also offering value added services to corporates, such as syndication of loans, NEFT,
RTGS, Channel financing, Corporate salary accounts, rights/public issues, forex services, tax
collection, payment gateway services
Various services offered by banks to corporates are

 Cash Management
 Salary Payment
 Debtors management
 Factoring and Forfaiting
 Trusteeship
 Custodial Services
 Business Advisory
 Offshore Services
 Forex Management
CASH MANAGEMENT

Cash Management services offered by banks enable their clients to :

 Boost efficiency and facilitate better decisions by treasurers.

 Accurately execute payments and collect receivables with speed
 Manage liquidity in different markets
 Plug seepage on delayed receipt and early payments.

With the availability of IT enabled service popularly known as Core Banking Solution(CBS),
that links all branches of a bank real time, all major banks provide platforms to
corporates/customers to transact online to manage their cash flow and receive reporting anytime,
anywhere through secure online site access.
Electronic Collections/Remittances

National Electronic Funds Transfer (NEFT)

Real Time Gross Settlement (RTGS)

Electronic Clearing System (ECS Debit or Credit)

National Electronic Funds Transfer (NEFT)

NEFT is a nationwide funds transfer system to facilitate transfer of funds from one bank branch
to any other bank branch. NEFT is an electronic payment system to transfer funds and it works
on Net Settlement. Transfer of funds will not happen immediately, but in different batches
depending at the time of settlement. Each bank branch is assigned IFSC (Indian Financial
system Code), a 11 character alphanumeric code (having 4 alphabets indicative of the bank name
and 7 digits for identifying the branch of that bank). This is used to identify each branch of
every bank in India. This code is specified on the cheque book of the respective branch.
Normally transfers less than 2 lakhs are remitted thru NEFT
Real Time Gross Settlement (RTGS)

In RTGS, transfer of money takes place from one bank to another on a ‘real time’ and on ‘gross’
basis. This is the fastest possible money transfer system through the banking channel.
Settlement in ‘real time’ means payment transaction is not subjected to any waiting period. The
transactions are settled as soon as they are processed. ‘Gross settlement’ means the transactions
is settled on one to one basis without bunching or netting with any other transaction. Like
NEFT, in RTGS also, IFSC is used for identifying the particular bank branch to which the
remittance is to be made. RTGS system is primarily for large value transactions, minimum
amount is Rs.2 lakhs and there is no upper ceiling. The beneficiary bank has to credit the
beneficiary’s account within two hours (max) of receiving the funds transfer message. If the
money cannot be credited for any reason, the receiving bank would have to return the money to
the remitting bank within 2 hours.
Electronic Clearing System (ECS Debit or Credit)

ECS is a mode of electronic funds transfer one bank account to another bank account using the
services of a clearing house. This can be ECS (Debit) or ECS (Credit).

ECS (Debit)

This is used for debiting many accounts in different banks and crediting a single account of the
customer of a particular financial institution or a bank.

Example: For collection of the utility bills for electricity, water, Telephone etc.

ECS (Credit)

ECS (Credit) is used for debiting one account of the customer of a bank and crediting many
accounts of different banks.

Example: Payment for dividend, interest or salary for the credit of accounts in different
accounts.
“Payable at Par” Customer Cheques

Traditionally, cheques are payable at branches where the accounts are maintained. The ability to
access the central data base in view of the evolution of Core Banking Solution facilitated issue of
Payable at Par cheques by the banks.

Banker’s cheques and Demand Drafts

Payments by Bankers’ Cheques and demand drafts can be made at the bank’s branch locations
and where there are no branches, through their extensive correspondent bank network.
SALARY PAYMENT

Banks offer Corporate Salary Payment services designed to offer payroll solutions in a 24 x 7
environment.

The Corporate client gives only a single instruction, together with a list showing the names,
account numbers and amount payable to the employees. The issue of individual cheques is
avoided. Employees also avoid the need to go to the bank to deposit the cheques.

Many banks now offer the clients a platform to transfer salaries and reimbursements directly
from their current account with the bank to the employees’ accounts using internet connectivity
from their own office.
DEBTORS MANAGEMENT

Banks offer receivables management services to their clients to manage their debtors and
receivables. These are

Collection Services: Receivables handling for cheques drawn on local and outstation locations,
lodgement for clearing.

Receivables Management

Invoice Management and Account receivable matching solutions, collection of receivables

through funds transfers and other electronic modes such as RTGS, NEFT etc.
FACTORING AND FORFAITING

Factoring can be broadly defined as an agreement in which receivables arising out of sale of
goods/services are sold by the firm (client) to a factor (a financial intermediary) as a result of
which the title to the goods/services represented by the receivable passes to the factor.
Subsequently, the factor becomes responsible for all credit control, sales accounting and debt
collection from the buyers. In a full service factoring concept, ie., without recourse facility, if
any of the debtors fails to pay the dues as a result of his financial inability, insolvency or
bankruptcy, the factor has to absorb the losses.

Forfaiting is a form of financing of receivables pertaining to international trade.

Types of Factoring:

I) Recourse and Non-Recourse Factoring

II) Advance and Maturity Factoring
III) Full Factoring
IV) Disclosed and Undisclosed factoring
V) Domestic and Export Factoring
I) Recourse and Non-Recourse Factoring.

In Recourse factoring, the Factor has recourse to the Client (seller) in case the factored debt
turns out to be irrecoverable ie., factor does not assume the credit risk associated with the
receivables. In case, the buyer defaults in payment, the client has to make good the amount to
the Factor.

In the case of Non-Recourse Factoring, the Factor does not have any recourse to the client in
case of default. In other words, the factor takes on the credit risk involved. To compensate the
higher risk involved in this type of exposure, the Factor charges a higher premium, also called a
del credere commission.

II) Advance and Maturity Factoring

In Advance Factoring, the factor extends credit to his client upto 75-80% for which the client
pays interest charges at a pre-determined rate.

In Maturity factoring (also called Collection factoring), the factor does not make any advance
payment to the client. Payment is made by the Factor on the guaranteed payment date, or on
collection.
III) Full Factoring (also known as Old line factoring)

This is the most comprehensive form of factoring encompassing non-recourse factoring with
collection, sales ledger administration, credit protection and short term finance.

IV) Disclosed and Undisclosed factoring

In disclosed factoring, the name of the Factor is mentioned on the invoice directing the Buyer to
make payment to the Factor.

But in the case of undisclosed factoring, the name of the Factor is not revealed to the Buyer. The
Factors act in the name of the Client and maintain client’s sales ledger and also extend advance
to the Client.

V) Domestic and Export Factoring

In Export factoring, 4 parties are involved

i) Exporter(client)
ii) Impoprter(Buyer)
iii) Export Factor
iv) Import factor

Since 2 factors are involved in such transactions, export factoring is also called the two factor
system
FORFAITING

Forfaiting is a form of financing of receivables pertaining to international trade.

Exporter sells goods to an importer on deferred payment basis.

The importer draws a series of promissory note in favour of the Exporter, falling due in a phased
manner, including interest charges, depending upon the tenor of the note. ALTERNATIVELY,
the Exporter draws a series of bills on the importer, falling ldue in a phased m,anner, which is
accepted by the importer.

In Forfaiting , these notes/bills have to be guaranteed by a banker(may be other than the

importers bank) before sending to the Exporter. This guarantee is referred to as an AVAL which
will be evidenced by endorsement by the bank guaranteeing payment by the Importer.
The exporter enters into a forfaiting arrangement with a bank under which the Exporter sells the
avalised bills or notes to the forfaitor, without recourse, and at a discount.

The cost of forfaiting depends on the credit rating of the “Availing” bank, the country risk of the
importer and the terms and conditions of export.

The forfaiter may hold these bills/notes till maturity. Alternatively, he can securitize them and
sell them in the secondary market to refinance his cash flow.
TRUSTEESHIP SERVICES

Banks act as Trustees for public, charitable, religious and other trusts. They also act as trustees
of a settlement. Trustees of a minor’s legacy, custodian trustee of properties held under Trusts of
a description like pension, PF and gratuity.

Banks if appointed as Trustees, assist settlers/authors in

1. Counseling and drafting of trust deeds.

2. Safe keeping of trust property and payment of income to beneficiaries on due dates as per
the instructions of the settlers.
ATTORNEYSHIP

Banks offer Power of Attorney service. This is a specialized service to help both resident and
non-resident customers who find it difficult to operate and monitor their accounts and investment
personally. After the bank obtains power of Attorney from the customer in their favour, they
execute the clients instructions regarding their investments promptly and meticulously.

Executing a Power of Attorney with the banks for this purpose is a simple and inexpensive
process.
CUSTODIAL SERVICES

Custody relationship is contractual and services performed for a customer may vary. Typical
services are settlement, safekeeping and reporting of customers’ marketable securities. Banks
provide custody services to a variety of customers, including mutual funds and investment
managers, bank fiduciary and agency accounts, insurance companies. Corporations etc.

BUSINESS ADVISORY

Banks offer specialist business advisory services for industry targeted to assist their clients in
strategizing for growth and consolidation covering the entire project development cycle and
beyond.

Banks also assist local and multinational corporate clients in market diversification and planning,
strategies for restructuring and revival, product planning, financial management and business
process restructuring.
OFFSHORE BANKING SERVICES

Offshore Banking Units are virtually foreign branches of Indian banks but located in India. It
refers to the international banking business involving foreign currency-denominated assets and
liabilities.

RBI has given permission to various banks to set up offshore Banking units in Special Economic
Zones(SEZ). The SEZs are specially delineated duty free enclaves, deemed to be a foreign
territory for the purpose of trade operations and duties/tariffs so as to usher in export-led growth
of the economy. In order words, SEZ is a geographical region that has economic laws different
from a country's typical economic laws.

Govt of India granted permission to several banks to operate OBUs in centres such as Singapore,
Bahrain, Mauritius and Bahamas.
Clients get the expert opinions and services of a bank which has an international presence in
several countries through multiple offices.

Special features of the products generally offered by offshore banks.

- Security, liquidity and convertibility

- Dealing in major currencies – USD, GBP, EURO and YEN
FOREX SERVICES

Banks offer the following Forex services

- Issue of Foreign Currency, Travellers Cheques, Demand drafts etc.

- Financing International Trade
- Foreign remittance
- Export collection and Import payment
- Letters of credit
 CORPORATE DEPOSITS

Banks offer Current Account, Fixed Deposit, Certificate of Deposit to Corporate customers.

Current Account

Banks offer intercity banking with a single account and access to the entire network of branches
and extends several facilities to the customers as below:

 Payable at par cheque facility

 Sweep-in and sweep-out facility
 Free or concessional rates for RTGS/NEFT/SWIFT remittances and demand drafts.
 Free or concessional rates for collection, both inward and outward
 Corporate internet banking facility
 Facility to upload periodical bulk payment like salary payment, dividend payment from
the client’s terminal.

Most companies require maintaining current accounts with designated banks for payment of
Dividend and Interest warrants. Once the dividend is declared or the interest falls due for
payment, the entire amount is transferred to this current account. The Dividend or Interest
warrants are drawn on these accounts by the company.
Fixed Deposits

Banks offer higher rates of interest, usually higher than the card rates for the bulk deposits of
Corporates. Corporates can keep funds under Fixed term Deposits for specific purposes.
Certificates of Deposits (CD)

CDs are negotiable money market instruments issued in dematerialized form or as a usance
Promissory Notes, for funds deposited with a bank or other eligible financial institution for a
specified time period. RBI issues directive on the issue of CDs.

 Can be issued by scheduled commercial banks excluding RRBs and Local Area
Banks(LABs); ii) Select all-India Financial institutions that have been permitted by RBI
to raise short term resources.
 Can be issued to individuals, corporations, companies, trusts, funds, associations etc.,
NRIs may also subscribe to CDs, but only on non-repatriaion basis. It cannot be
transferred to another person also.
 Minimum amount of a CD should be Rs.1 lakh and further it should be in multiples of 1
lakh.
 Maturity period should be not less than 7 days and not more than one year. FIs can issue
CDs for a period not less than 1 year and not exceeding 3 years from the date of issue.