Chapter Description Page No.

No.
I INTRODUCTION
General Introduction to the study
Statement of the Problem
Objectives
Scope of the Study
Limitations of the Study
(any other background history of the study)
II REVIEW OF LITERATURE

(ANY OTHER CHAPTERS DEPENDING ON

THE TOPIC)
III METHODOLOGY
Research Design
Data collection Methods
Tools of questionnaire design
Sampling Design
Statistical tools used

IV DATA ANALYSIS(RESULTS OF THE

STUDY)
Tables, Graphs, Charts and inferences
V FINDINGS(DISCUSSION)

VI CONCLUSION
 INTRODUCTION

Project title “TRADE FINANCE” is the study of trade facilitation aims at reducing transaction
cost and time by streamlining trade procedures and processes. One of the most important
challenges for traders involved in a transaction is to secure financing so that the transaction may
actually take place. The faster and easier the process of financing an international transaction, the
more trade will be facilitated.

Traders require working capital (i.e., short-term financing) to support their trading activities.
Exporters will usually require financing to process or manufacture products for the export market
before receiving payment. Such financing is known as pre-shipping finance. Conversely, importers
will need a line of credit to buy goods overseas and sell them in the domestic market before paying
for imports. In most cases, foreign buyers expect to pay only when goods arrive, or later still if
possible, but certainly not in advance. They prefer an open account, or at least a delayed payment
arrangement. Being able to offer attractive payments term to buyers is often crucial in getting a
contract and requires access to financing for exporters.

Therefore, governments whose economic growth strategy involves trade development should
provide assistance and support in terms of export financing and development of an efficient
financial infrastructure.

The function of trade finance is to introduce a third-party to transactions to remove the payment
risk and the supply risk. Trade finance provides the exporter with receivables or payment
according to the agreement while the importer might be extended credit to fulfill the trade order.

The parties involved in trade finance are numerous and can include:

 Banks
 Trade finance companies
 Importers and exporters
  Insurers
 Export credit agencies and service providers

Trade financing is different than conventional financing or credit issuance. General financing
is used to manage solvency or liquidity, but trade financing may not necessarily indicate a
buyer's lack of funds or liquidity. Instead, trade finance may be used to protect against
international trade's unique inherent risks, such as currency fluctuations, political instability,
issues of non-payment, or the creditworthiness of one of the parties involved.

Below are a few of the financial instruments used in trade finance:

 Lending lines of credit can be issued by banks to help both importers and exporters.
 Letters of credit reduce the risk associated with global trade since the buyer's bank
guarantees payment to the seller for the goods shipped. However, the buyer is also
protected since payment will not be made unless the terms in the LC are met by the seller.
Both parties have to honor the agreement for the transaction to go through.
 Factoring is when companies are paid based on a percentage of their accounts
receivables.
 Export credit or working capital can be supplied to exporters.
 Insurance can be used for shipping and the delivery of goods and can also protect the
exporter from nonpayment by the buyer.

Although international trade has been in existence for centuries, trade finance facilitates its
advancement. The widespread use of trade finance has contributed to international trade growth.

Trade finance can help reduce the risk associated with global trade by reconciling the divergent
needs of an exporter and importer. Ideally, an exporter would prefer the importer to pay upfront
for an export shipment to avoid the risk that the importer takes the shipment but refuses to pay
for the goods. However, if the importer pays the exporter upfront, the exporter may accept the
payment but refuse to ship the goods.

A common solution to this problem is for the importer’s bank to provide a letter of credit to the
exporter's bank that provides for payment once the exporter presents documents that prove the
shipment occurred, like a bill of lading. The letter of credit guarantees that once the issuing bank
receives proof that the exporter shipped the goods and the terms of the agreement have been met,
it will issue the payment to the exporter.

With the letter of credit, the buyer's bank assumes the responsibility of paying the seller. The
buyer's bank would have to ensure the buyer was financially viable enough to honor the
transaction. Trade finance helps both importers and exporters build trust in dealing with each
other and thus facilitating trade.

Besides reducing the risk of nonpayment and non-receipt of goods, trade finance has become an
important tool for companies to improve their efficiency and boost revenue.

Trade finance helps companies obtain financing to facilitate business but also it is an extension
of credit in many cases. Trade finance allows companies to receive a cash payment based on
accounts receivables in case of factoring. A letter of credit might help the importer and exporter
to enter a trade transaction and reduce the risk of nonpayment or non-receipt of goods. As a
result, cash flow is improved since the buyer's bank guarantees payment, and the importer knows
the goods will be shipped.

In other words, trade finance ensures fewer delays in payments and in shipments allowing both
importers and exporters to run their businesses and plan their cash flow more efficiently. Think
of trade finance as using the shipment or trade of goods as collateral for financing the companies
growth.
 OBJECTIVE

The main objective of the present study is to accomplish the following objective.

 To understand the method of payment for trade finance

 To know the benefit of trade finance

 To understand the major agencies that facilitates trade and export insurance or loan
program

 To know the trade finance services provide by HDFC Bank, kotak Mahindra bank, ICICI
Bank and Axis Bank.

LIMITATIONS

 Maximum fees as the bank guarantees the payment and also checks the documents
TRADE FINANCE IN HDFC BANK

Export Services

INTRODUCTION
As far as export is concerned the bank provides export finance to the exporting country as and
when required. Export finance is a short term, working capital finance allowed to an exporter.
Funds should be available to the exporter at the required time.

EARN
FOREIGN
EXCHANGE

HELP IN
MEETING
IMPORT INTER-
PAYMENT
NATIONAL
OBLIGATION

BENEFITS
OF
EXPORT
FAVOUR-
ABLE INCREASE
BALANCE
GDP
OF
PAYMENT

GENERATE
EMPLOY-
MENT
TYPES OF EXPORT FINANCE:

A. PRE-SHIPMENT FINANCE
 It helps in financial assistance for the execution of an export order from the date of receipt
of an export order till the date of shipment
 It is a type of loan or advance granted to an exporter for financing the purchase, processing
or packing of goods on the basis of confirmed and irrevocable order or any other evidence
including Letter of Credit.

Types of pre-shipment finance

1) Packing credit:

Follow up of packing Credit Advances:

a) Submission of Stock Statement: Exporter should submit stock statement reporting the stocks,
which are under pledge or hypothecation to the bank for securing the Packing Credit Advance.
Frequency of submission of stock statement must be decided by the Authorized Dealer at the time
of sanctioning the packing Credit and should be adhered to, by the exporter.

b) Physical inspection of stocks: Stocks pledged/hypothecated by the exporter must be duly

inspected by the Authorized Dealer at regular interval

Liquidation of Packing Credit advances:

Packing credit advance will always be liquidated with the export proceeds of the relevant shipment.
At this stage the pre-shipment liability of the exporter will be converted into post shipment liability.
For any reasons, if export does not take place at all, the entire advance will be recovered at
commercial rate penal interest as decided by the banks.
With the recent liberalization and deregulation of interest rates, banks will have operational
flexibility for liquidating packing credit advances as per RBI’s guidelines issued with effect from
14.12.1994.
Criteria to be applied for allowing above relaxation:
Even though Reserve Back has now permitted the above relaxation for liquidating a Packing credit
advance, each Bank has got their own conditions to extend this facility to the exporter-customer.
In general, the following conditions are observed while extending this facility to the exporter:
Bank should ensure that substitution is commercially necessary and unavoidable. The sanctioning
authority must also satisfy him about the valid reasons as to why packing credit extended for
shipment of a particular commodity cannot be liquidated in the normal. It is suggested that as far
possible, the substitution of contract should be allowed if the exporter maintains account with the
same bank or it has the approval of the members of the consortium.

Overdue Packing Credits and ECGC procedures:

If the borrower fails to pay the amount on due date / extended due date and bank considers it as
overdue, an overdue report of advance should be made to concerned Regional / Branch office of
ECGC in prescribed form within 30 days.
If the overdue position persists, back should take necessary steps to realize dues as per its usual
recovery procedure and the default to ECGC. This default report should be sent to concerned
Regional / Branch office of ECGC in prescribed form within one month from date of recalling the
advance or within 4 month from date / extended due date of the loan amount whichever is earlier.
Payment of ECGC premium may be discontinued after the month in which the default is reported
to the month in which insolvency of the exporter is reported ECGC.
Back should recover the overdue by liquidating the securities, if any, available. Nursing
programme can be initiated, if found feasible, with the consent of ECGC. If recovery is not
possible, bank can prefer Claim under the WTPC Guarantee within 6 months from the date of
report of default.
Pre-shipment credit in foreign currency (PCFC)
• PCFC was introduced on 8 November 1993.
FEATURES:
• All convertible currencies
• Similar terms and conditions like P/C-L/C or Order
• Running Account also available
• Only for cash exports
• Banks may source the funds either by using the offshore funds available with them such
as balances in EEFC /RFC/ ESCROW accounts
• Source of funds -Any foreign currency funds
• Prior permission of RBI not required
• Liquidated by discounting of bills under rediscounting of Export Bills abroad –
SELFLIQUIDATING.
• Cost of borrowing abroad not to exceed1% over LIBOR by the Banks (Competitive
international rates).
• Exporters at a cost not exceeding 2% over the appropriate LIBOR excluding the holding
tax by Banks having Overseas Branches and 2.5%by other banks.
• Normally for 180 days.
• If no export within 360 days PCFC adjusted at TT selling rate for currency concerned -
Interest will be charged at appropriate rates on rupee equivalent of the principal amount
at ECNOS (plus a penal rate as per bank’s discretion).
• Running account facility can be given.
• Forward Contracts can be booked for future drawls account facility.
• It would be in order for banks to liquidate PCFC granted to a Diamond Dollar account
holder by dollar proceeds from sale of cut and polished diamonds to another DDA holder.
• Diamond Dollar Accounts can be maintained by Firms/ Cos. With a track record of at
least three years and having an average annual turnover of Rs.5 crores or above during
the preceding three licensing years.

Running Account facilities

 • Effective 14 March 1992, banks can grant pre-shipment advances for exports of any
commodity, without prior lodgment of L/C, export orders under Running Account.

Conditions for Running Account

• Need-based facility
• Exporters with good track record
• L/Cs firm orders can be produced within reasonable time (for products under SCC L/Cs
firm orders to be produced within one month
• Exporters in EOUs, EPZs and SEZs also eligible
• No such facility for sub-suppliers.

B. POST SHIPMENT FINANCE

It is an advance against receivables which is in the form of shipping documents. If the bank has
given the pre-shipment credit to the bank then he cannot deny the post-shipment credit, if asked.

Types of post-shipment finance:

1. Export bills purchased/negotiated/discounted: The risk of non-payment is there if letter

of credit is not there. The risk is more pronounced if documents are under acceptance. In
order to safeguard the interest of the bank and also the exporter, ECGC offers coverage of
credit risks through their guarantees/policies at the post-shipment stage. The general banks
cover the advance under the Whole Turnover Post Shipment Guarantee scheme. But the
HDFC Bank never trusts the ECGC. In addition to this the exporter is advised to go for
separate buyer wise policy also.

2. Export bills negotiated: All the documents presented to the bank for negotiation should
be strictly in accordance with the L/C terms. Even the slightest deviation from those terms
and conditions specified in the L/C can give an excuse to the issuing bank for non-payment.
 3. Advances against bills sent on collection basis: In some cases the exporter himself may
requests for sending the bills for collection basis. Bank may allow advance against these
collection bills to an exporter. Concessive rate of interest is charged for this advance from
the exporter according to the period.

4. Advances against exports on consignment basis: Goods are exported on consignment

basis at the risk of the exporter. Eventual remittance of sale proceeds will be made by agent.
The overseas branch of the bank will be instructed to deliver the documents against trust
receipt.

5. Advances against undrawn balances: In certain line of trade it is the practice of the
exporter to leave a part of the amount as undrawn balance. Authorized dealers can handle
such bills provided the undrawn balance is inconformity with the normal level of balance
left undrawn in the particular line of export trade subject to a maximum of 10% of the full
export value. Advances against undrawn balance can be made at a concession rate of
interest for a maximum period of 90 days.

6. Advances against duty drawback: Where the domestic cost of production of certain
goods is higher in relation to international price, the exporter may get support from the
government so that he may compete effectively in the overseas market. The government of
India and other agencies provides export incentives under the export promotion scheme.
this can only be in the form of refund of excise and customs known as duty drawback.
Bank grants advances to exporter against their entitlements under above category at low
interest rate for a maximum period of 90 days.

GENERAL GUIDELINES OF THE BANK FOR SANCTIONING EXPORT FINANCE TO

CUSTOMERS:

1. Banks should meet the genuine credit requirements of the export sector promptly and in
full. They should review their internal arrangements and take such action as is necessary,
including delegating enough powers to Branch Managers/Regional Managers to export
 sector. Queries should not be raised in piecemeal or information sought at various stages,
leading to delays in extending credit.

2. Bank may adopt a flexible attitude with regard to debt – equity ratio; margin and security
norms but there could be no compromise in respect of viability of the proposal and the
integrity of the borrower.

3. Exporters should be able to satisfy their banker about their capacity to execute the orders
within the stipulated time and have proper expertise to manage the export business.

4. The quantum of finance sought should commensurate with the expected export turnover
and the cost of inputs required.

5. If the exports will be covered under letters of credits, banks would need to be satisfied
about the standing of the credit opening bank and also the acceptability of the conditions
specified in the credit.

6. Where exports are not covered by Letters of Credit and will be on the basis of firm
contracts, banks may insist for obtaining a satisfactory status report on the overseas buyer.
IMPORT SERVICES

INTRODUCTION
The Directorate General of Foreign Trade (DGFT) under Ministry of Commerce & Industry,
Department of Commerce, and Government of India regulates import trade. Authorized dealers,
while undertaking import transactions, should ensure that the imports into India are in conformity
with the Export Import Policy in force and Foreign Exchange Management (Current Account
Transactions) Rules, 2000 framed by Government of India vide Notification No. G.S.R.381 (E)
dated May 3, 2000 and the directions issued by Reserve Bank under Foreign Exchange
Management Act from time to time.
Authorized dealers should follow normal banking procedures and adhere to the provisions of
Uniform Customs and Practices for Documentary Credits (UCPDC), etc. while opening letters of
credit for import into India on behalf of their constituents.

 IMPORT OF GOODS
 General: -- Rules and Regulations from the Exchange Control angle to be followed by the
authorized dealers while undertaking import payment transactions on behalf of their clients
are set out in the following paragraphs. Where specific regulations do not exist, authorized
dealers may be governed by normal trade practices. Authorized dealers may particularly note
to adhere to "Know Your Customer" (KYC) guidelines issued by Reserve Bank (Department
of Banking Operations & Development) in all their dealings.

 Form A 1: -- Applications by persons, firms and companies for making payments, exceeding
USD 500 or its equivalent, towards imports into India must be made on appropriate form A

 Import Licenses: -- Authorized dealers may freely open Letters of credit and allow
remittances for import of goods unless they are included in the negative list requiring licence
under the EXIM Policy in force. In such cases, licenses marked ‘For Exchange Control
 purposes’ should be called for and special conditions, if any, attached to such licenses adhered
to Exchange Control copy of the import licence submitted by importer for opening of Letter
of Credit or making remittance, when fully utilized, should be retained by authorized dealers
and may be preserved till its scrutiny by the internal auditors or inspectors is completed.

 Interest on Import Bills:-- Authorized dealers may allow payment of interest on usance bills
or overdue interest for a period of less than three years from the date of shipment at the rates
prescribed in the Master Circular on trade credits.

Banks offers its customers a comprehensive range of import services. Bank is highly respected in
the world of in international finance a cross border transaction. The bank has correspondent
relationship with other reputed international banks throughout the world can provide all the
services to importers who may be importing from any part of the world.

The following facilities are available for importers:

1. Direct remittance
The customer may require the exporter overseas to dispatch the goods first and then remit the
payment for the goods. The exporter would then dispatch the goods to the customer. The overseas
exporter will then send the documents directly to customer. When customer approaches bank along
with the documents for sending remittance to the exporter, bank ensures that the remittance is done
promptly.

Documentation for Direct Remittance:

a) Request Letter cum Debit Authority cum OGL cum FEMA Declaration
b) IE Code Number Certificate
c) Form A1
d) KYC Report
 e) Transport Docs in original - Bill of Lading / Airway Bill
f) Invoice
g) Bill of Entry (Exchange Control Copy)

2. Advance remittances
Overseas exporter may require customer to make full payment in advance for the goods to be
exported. The exporter would dispatch the goods to customer after he receives full payment
from importer.
For this purpose, Bank will make remittance in foreign currency to the exporter at a very
competitive rate.
Documentation for sending Advance Remittance

a) Request Letter cum Debit Authority cum OGL cum FEMA Declaration
b) IE Code Number Certificate
c) Form A1. (Duplicate)
d) KYC Report
e) Purchase Order / Proforma Invoice with Advance payment term.
f) Bill of Entry Declaration with Commercial Invoice
g) Bank Guarantee from the Exporters Bank if Advance amount is > $ 1, 00,000.

3. Import bills under letter of credit

In a business cycle, as buyer needs to pay for his purchases in international and domestic markets.
Letter of credit helps to facilitate purchase of goods in international and domestic trading
operations.
All Banks letters of credit issued are valued and accepted worldwide.
When the importer opens an LC through Bank for imports of goods, it is an undertaking by Bank
that if the exporter exports the goods and produces the documents as stipulated in the Letters of
Credit, then Bank would honor the draft(s).

4. Import collection:
The exporter from overseas exports the goods the customer. The overseas exporter / exporter's
bank sends the documents to Bank on collection. Bank will then intimate the customer about the
receipt of the documents. All customer need to do is to authorize us to debit your a/c and send the
remittance to the exporter’s bank. If it is a sight bill (Documents against Payment), then the
necessary documents and debit authority is collected from customer (importer) and remittance is
paid to the exporters bank and the documents are released to him. If it is a usance bill (Documents
against Acceptance), then the acceptance letter is taken from customer and the documents are
released. On the due date remittance is made to the exporter’s bank by debiting customers account.

5. Letter of credit:

The letter of credit is demanded by the exporter to ensure its payment through a reliable source.
The letter of credit is then issued by the importers’ bank that ensures the exporter that if the
importer delays or fails to make the payment within stipulated period of time then the bank itself
will make the payment. That is in any case the exporter will not be a sufferer and payment will be
made to him. Being India’s leading private sectors bank, it assures its customers that all the letters
of credit issued will be valued and accepted by all the business counterparts overseas.
BANK GUARANTEES

The term bank guarantee can be defined as:

‘a guarantee given by a bank to a third person, to pay him a certain sum on behalf of the bank’s
customer, on the customer failing to fulfill any contractual or legal obligations towards the third
person.’

Various types of bank guarantees:

1. Financial guarantee: These are the guarantee issued by bank on behalf of the
customers, in lieu of the customer being required to deposit cash security or earnest
money. These kinds of guarantees are mostly issued on behalf of customers dealing
with government departments. If the contractor does not fulfill his obligation then the
government department invokes the guarantee and collects the money from the bank.

2. Performance guarantee: These are the guarantees issued by the bank on behalf of
its customer whereby the bank assures a third party that the customer will perform the
contract entered into by the customer as per the condition stipulated in the contract,
failing which the bank will compensate the third party up to the amount specified in
the guarantee.

Banks’ obligation to pay primary

Bank guarantees are called the life blood of international commerce and even though they
are an off shoot of a primary contract between the debtor and the creditor, these guarantees
are independent commitments taken by bank on behalf of the customers.
The obligation of the bank is irrespective of the disputes between the beneficiary and the
debtor.
LETTERS OF CREDIT

Applicant/
buyer-
On whose
behalf LC is
Beneficiary/ opened
Opening
seller-
bank-
In whose
This opens
favour LC is
LC
opened

Parties to a
letter of
Advising credit
bank- transaction Reimbursing
Which bank-
advices the Nostro bank
LC

Confirming Negotiating
bank- bank-
Which Beneficiary’s
confirms the bank
LC

Applicant:-- The applicant should give a precise detail for the opening of the letter of credit. The
applicant should indemnify banks against rules and regulations imposed by the foreign countries.
(Article 5 & 18)

Beneficiary:-- The beneficiary in whose favour the credit is established can in no case avail
himself of the contractual relationship existing between the banks or between the applicant for the
credit and the issuing bank. (Article 3)
Issuing bank:-- The issuing bank gives a conditional undertaking and reimburses the negotiating
bank against submission of the prescribed documents. It should verify the documents presented
under the credit within 7 banking days following the day of receipt of the documents and if any
discrepancy is found it will refuse reimbursement.

Advising bank:-- The bank advising the letter of credit acts without any engagement on its part
but will take reasonable care to check the authenticity of the Credit. If incomplete or unclear
instructions are received, it will give the preliminary information to the Beneficiary without any
responsibility on its part. (Article 7, 12)

Confirming Bank:-- When the confirmation to a credit is added by a confirming bank at the
specific request of the opening bank it constitutes a definite, equitable undertaking on the part of
the Confirming Back in addition to the Opening Back, provided the stipulated documents are
presented in accordance with the terms and conditions of the Credit with in the due date. (Article
9 & 13)

Negotiating Bank:-- The nomination of a bank by the opening bank for negotiation of documents
under a credit does not constitute any undertaking on the nominated bank unless the credit is
confirmed by it. Negotiating bank may be the bank of the beneficiary of the credit and / or a bank,
which pays value against a set of documents drawn under a credit. Issuing bank will reimburse the
nominated bank if it has negotiated the documents as per the letter of credit terms. (Article 9&10)

Reimbursing bank:-- Reimbursing bank will reimburse the claim made by the negotiating bank
or by any claiming bank under a documentary credit under the authority of the opening bank. It
need not insist for submission of any certificate of compliance from the negotiating bank along
with their claim if it was not specifically insisted in the credit. Issuing bank will have prior
arrangement or provide sufficient funds with the reimbursing bank for honoring the reimbursing
claim as and when it is made. (Article19)
APPLICATION FOR LETTER OF CREDIT:

Application for the letter of credit requires the following information:

1. Revocable/irrevocable
2. Without recourse
3. Amount (state currency)
4. By cable/ airmail/swift
5. Beneficiary’s full name and address
6. Merchandise
7. Shipment by steamer/post-parcel/airfreight
8. Country of origin
9. Usance of draft
10. Freight prepaid/paid at destination
11. Insurance by beneficiaries/covered here
12. Part shipment/permitted /prohibited
13. Transhipment permitted/prohibited
14. Shipment from………… shipment to…………….
15. Latest date of shipment
16. Latest date of presentation of documents
17. Documents must be presented for negotiation within…days from shipment date
18. Licence no.
19. Import permitted under pare no………Exim policy 2002-07
20. We confirm described merchandise can be imported against above mentioned
licence/para… of foreign trade policy 2004-09 (OGL)
21. Special instructions, if any
TRADE FINANCE IN KOTAK MAHINDRA BANK

 International – Export
 International – Import
 Bank Guarantee
 Domestic

 International – Exporter

Kotak Mahindra Bank provides a wide range of exporter related services, assisting the growth of
organization into overseas market.
Key Features
 Tailor made solutions to suit all export needs.
 Experienced trade finance team that focuses on client requirements.
 Leverage our global network of correspondent banks.

Pre-Shipment Credit
Kotak offer pre-shipment credit to exporters by way of packing credit, enabling them to finance
operations like purchase/import of raw materials or processing and packing of export goods.
Exporters can avail of this pre-shipment credit either in rupee or foreign currency.

Post-Shipment Credit
Kotak offer post-shipment credit to exporters, helping them finance export sales receivable for
the time lag between shipment of goods and date of realization of export proceeds.
Exporters can avail of the following services:
 Negotiation/payment/acceptance of export documents under letter of credit.
 Purchase/discount of export documents under confirmed order/export contracts etc.
 Advances against export bill sent on collection basis.
 Advances against exports on consignment basis.
  Advances against undrawn balance on exports.
 Advances against approved deemed exports
Exporters can avail of this post-shipment credit either in rupee or foreign currency.

Bills & Collection

Kotak have a strong, experienced trade finance team that focuses on client trade-related
requirements, whether domestic or international. This team advises and guides clients on
documentation and transactions ensuring:
 Quick turnaround times through smooth document processing.
 Faster payment through constant follow-ups with correspondent banks for timely recovery
of funds.
 Cost effectiveness
 Better reach
 Excellent trade support
 Arrangement of credit reports of overseas parties.
 Specialized advice on international trade related issues as well as technical issues such as
ECM requirements, RBI reporting, new circulars and international developments
 Kotak have developed global network of correspondent banks that enables us to handle
large volume collection portfolios. We offer world-class facilities for handling collection
related to international trade.
 It also handles documents where proceeds have been received by the exporter on an
advance payment basis and actual shipment takes place later. In such cases, the documents
need to be accompanied with a Foreign Inward Remittance Certificate (FIRC) as proof of
receipt of the advance payment.

Inward Remittances
We facilitate Foreign Inward Remittance (foreign exchange received by a person in India through
banking channels) and offer convenient modes of operations for quick and easy disbursement. The
facility is extended through arrangement with reputed, correspondent banks located in most
countries around the world.
  International-Import

Kotak Mahindra Bank provides a comprehensive range of import related services, helping to
cover trading risks.
Key Features
 Tailor made solution suit all import needs
 Experienced trade finance team that focuses on client requirements.
 Leverage our global network of correspondent banks
Letter of Credit
We offer our customers import financing services through Letter of Credit (L/C) which are well
accepted globally and supported by strong trade finance setup.
We have correspondent banking arrangements with a large number of banks worldwide for this
service. Our trade team is equipped to structure solutions for a variety of purchase requirements,
ranging from simple L/C is to revolving L/C, bid bonds, standby L/C and other performance
guarantees.

Bill & Collection

We have a strong, experienced trade focuses on client trade-related requirements, whether
domestic or international. This team advises and guide clients on documentation and transactions
ensuring:
 Quick turnaround times through smooth document processing.
 Faster payments through constant follow-ups with correspondent banks for timely recovery
of funds.
 Cost effectiveness
 Better reach
 Excellent trade support
 Arrangement of credit reports of overseas parties
 Specialized advice on international trade issues as well as technical issues such as ECM
requirements, RBI reporting, new circulars and international developments.
  We have developed a global network of correspondent bank that enables us to handle large
volume collection portfolios. We offer world-class facilities for handling collection related
to international trade.

Outward Remittances
Services in this area include:
 Payment of direct Import Bills: Processing and remittances for import Bill directly received
by importers in India.
 Advance payment toward import: Processing and remittances toward advance payment for
imports.
 Other outward remittances like divided payout, ECB payment, royalty, shipping etc.
  Bank Guarantee

Kotak offer a wide spectrum of guarantee that address varying client requirements and risk
profiles. These include performance and financial guarantees, bid bond, tender and customs
guarantees, etc.
Key Features
 Experienced trade finance team that focuses on client requirements.
 Reduce risks.

Introduction
Guarantees are given by bank on behalf of its customer regarding specific performance/obligation
by the customer to the other party. The guarantees ensure payment to the party the bank’s customer
is doing business.
Under a bank guarantee/surety bond arrangement, the bank acts as guarantor of a claim or
obligation in lieu of the debtor. The bank cannot be held liable in the event that the debtor fails to
“perform”. The banks obligation is limited to its pledge to pay a maximum specified amount on
fulfillment of the terms of the commitment.
A bank guarantee/surety bond may only be issued if the customer has been granted a line of credit.
In certain cases, the bank may require adequate collateral.
One may note that even though in both Letter of Credit and Bank Guarantee ensure that the issuing
bank guarantee payment, the difference lies in that while LC is a ‘positive action’ instrument, BG
is a non-performance instrument. Hence, payment is released under LC as and when all the terms
of the underlying trade transaction are met.
On the other hand, payment is released under BG if and when the terms of the underlying
transactions are not complied with.
TYPES OF BANK GUARANTEES

DIRECT/INDIRECT GUARANTEE
In principle, there are two types of guarantee:

1. Direct guarantee
A direct guarantee occurs when the client instructs the bank to a guarantee directly in favor
of the beneficiary.
2. Indirect guarantee
With an indirect guarantee, a second bank is involved the second bank usually a foreign
bank with head office in the beneficiary’s country of domicile, is requested by the initiating
bank to issue a guarantee in return for the latter’s counter –liability and counter- guarantee.
In this case, the initiating bank will cover the guaranteeing (foreign) bank against the risk
of any losses that it may incur in the event that a claim is made under the guarantee upon
first demand by the guaranteeing bank.
Depending on the purpose of the Guarantees may be classified as under:

1. Tend Bond
This type of bank guarantee is also known as a bid bond. The purpose of a tender bond is
to prevent a company from submitting a tender, winning the contract and them declining
to accept it on the grounds that the deals is no longer lucrative. Tender bonds offer buyers
security against dubious or unqualified bids. They are often mandatory for public
invitations to tender.

2. Performance Bond
This is also known as a performance guarantee. A performance bond/guarantee provides
security for any costs that may be incurred by the bond beneficiary on non-performance of
a contractually agreed service and/or non-performance of a contractually agreed service
and/or non-contractual deadline.
3. Credit Guarantee
Borrowers are often required to provide collateral for a credit line or a loan. A third party
may also provide collateral. A bank guarantee is one of the options creditors have to ensure
that a loan will be repaid.

4. Payment Guarantee
A payment guarantee, or payment default guarantee, provides security against default for
the goods to be delivered, for example. If the debtor fails to make payment when due, and
the beneficiary has fulfilled his or her contractual obligations, e.g. goods have been
delivered and/or services have been provided in accordance with the contract, a written
declaration to this effect is generally sufficient to redeem payment from the guaranteeing
bank.
This instrument can be used instead of a letter of credit if, for example, the buyer does not
require or demand proof of delivery by means of the usual original delivery documents.

5. Confirmed Payment Order

This is an irrevocable obligation on the part of the bank to pay a specified sum at a specified
time to the beneficiary (creditor) on behalf of the customer.

6. Advance Payment Guarantee

The advance payment guarantee is intended to bind the supplier to use the advance payment
for the purpose stated in the contract between the buyer and the supplier. An advance
payment provides the supplier with funds to purchase equipment or components, for
example, or to make other preparations
In general, the advance payment guarantee should contain a reduction clause that
automatically reduces the amount in proportion to the value of the (Partial) delivery(ies).
The advance payment guarantee should only become effective once the advance payment
has been received.
7. B/L Letter of Indemnity
This is also called a Letter of Indemnity. Individual bills of landing or the full set can go
missing or be held up in the mail. Carries may be liable for damages if they deliver the
consignment before receiving the original bill of landing.
A bank guarantee in the carrier’s favor for 100-200% of the value of the value of the goods
enables them to deliver the goods to the consignee without presentation of the original
documents.

8. Rental Guarantee
This is a guarantee of payment under a rental contract. The guarantee is either limited to
rental payment only, or includes all payments due under the rental contract.

9. Credit Card Guarantee

In certain circumstances, credit card companies will not issued a high value credit cared without a
bank guarantee. Such kind of guarantee extended by a Bank is known as a Credit Card Guarantee
  Domestic

Key Features
 Extensive range of trade –related services.
 Experienced trade finance team that focuses on client requirements.
 Tailor made solution to suit all trading needs.

Introduction

Fundamentally, the trade finance business in the domestic arena is similar to the trade finance
business on an International level. However, since no multi-currency or cross country transactions
occur, hence the regulatory framework is much simpler. The goods do not require customs
clearance and the remittances do not need to be reported to Forex regulatory bodies. Naturally,
export/import licenses are not required and export quota restrictions do not limit growth.
Also, since both the buyer and seller operate within the same legal and administrative framework,
and are often well known to each other, the level of mutual confidence is higher.
Modes of transaction in domestic trade within national boundaries are basically similar to the
modes of transaction in International Trade. These include:
 Clean Payment
 Open a/c transaction
 Advance payment
 Documentary Collections
 Delivery against payment
 Delivery against acceptance
 Documentary Credit
It is natural that due to higher degree of confidence enjoyed by the buyer and sellers within the
same regulatory and administrative boundaries, the easier to carry out and less documentation
intensive trade options like clean payment and documentary collections are used more often.
Most of the trade finance options available in International trade are also available in domestic
trade. However, here we shall discuss some financing options that are specifically more relevant
in domestic trade.
Bill Discounting
Kotak experienced and dedicated trade finance team is focused on structuring bill discounting
products to meet customer needs- be it short term or medium term finance.
In fact, our services go beyond plan bill discounting to encompass a complete range of supply
chain management solutions. We aim at increasing the efficiency of the entire cycle, ensuring that
transactions are executed speedily and effectively. We will soon offer integrated supply chain
services on an electronic platform.

Invoice Discounting
Invoice discounting entails “discounting” an accepted invoice bill for the sale of goods to provide
working capital. We offer our clients the dual advantage of simple documentation and absence of
collateral requirements. Finance is extended either by crediting the current account of the supplier
or by issuing a pay order.

Purchase Order Financing

Purchase order financing is an innovative program where we offer flexible finance to supply
chain partners of corporates. This involves "discounting" a contract/ purchase order to help finance
the manufacturing cycle for goods ordered by the corporate. This service is particularly useful for
vendors with seasonal increases in working capital requirements.

Highlights
 Service extended to key vendors identified by the corporate.
 Pre-shipment loan against Purchase Order from corporate.
 Corporate pays the bank directly for all supplies by the vendor
 Maximum tenure is currently 45 days.

Channel Financing
Through Channel Financing, Dealer are able to leverage their relation with reputed companies in
sourcing low cost funds with support from their counterparts. Channel Financing is a product that
extends working capital finance to dealer having business relationships with large companies in
India. This may be in the form of either cash credit facilities or as a bill discounting line of credit.
  Discounting of trade bills drawn by the reputed supplier and accepted by the dealer/
distributor.
 Limited overdraft facility to the dealer/distributor for his business dealing with large
corporate.
By providing short term lending to clients utilizing qualified receivables as collateral, value is
added to the client by way of working capital support, reduced accounts receivables and improved
control of the sale/ distribution channels. In addition, payables discounting serves to add value by
improving supplier relationships and enhancing cash-flow management.

Vendor Financing
Vendor can leverage their relationship with reputed companies by sourcing low cost bill
discounting line of credit. Vendor financing is a product to extend working capital finance to
vendor having business relationships with large corporate in India. Herein the bank undertakes to
discount bills drawn by the supplier/ vendor and accepted by the corporate.
TRADE FINANCE IN ICICI BANK

Introduction

ICICI Bank offers a wide range of trade services designed to meet a range of short term to
medium term trade financing requirements, so that your company can seize new business
opportunities whenever they arise. Customers can benefit from our streamlined processes based
on a sound technological backbone that are designed to provide best in class service levels, and
reduce the hassles associated with trade transactions. Whether you are an importer or exporter,
our correspondent network of over 381 foreign banks across 57 countries, and foreign currency
Nostro accounts in more than 30 currencies, will ensure that we meet almost all your
international trade requirements.
With our expertise and experience, we can also structure and customise solutions to meet
customers’ specific requirements.

Imports

Letter of Credit
A Letter of Credit (LC) is a written undertaking issued by a bank on behalf of its customer in
favour of the beneficiary to pay a certain sum of money against presentation of stipulated set of
documents that comply with the terms of the LC. Under an LC, the creditworthiness of the bank
replaces that of the customer. ICICI Bank issues, amends and pays sight and usance letters of
credit. Customers can benefit from our expertise in structuring the instrument in the best manner.
The ICICI Bank Edge
 Competitively priced
 Quick turnaround time
Import Bill Collections
Documentary Collections are a common and flexible mode of payment for goods purchased from
domestic or overseas suppliers. It involves handling of documents by bank in accordance with
the collection instruction received from remitting bank. Customers can rely on our expertise in
efficient and prompt handling of Import collection documents. This includes direct import bill
collection where the import bills / documents have been received directly by you from the
overseas supplier and you need to effect a payment against the same.

i-DOCS
The initiative provides a payment solution that focusses on open account cross border trade
which increases transparency, efficiency and reduction in turnaround time. ICICI Bank clients
can now download the import bill of entries pending for payment and initiate payment by simply
sharing certain transactional information as against earlier process of sharing multiple
documents. The product is available on ICICI Bank’s Trade internet banking channel Trade
Online ‘TOL’ within Corporate Internet banking ‘CIB’.

i-BOE
This is a self-service window available to the customer to enable them to match ORM to BoE
online. The outstanding bill of entries are shown to the client on the Bank’s Trade internet
banking portal where they can match off their outstanding outward remittances with the
respective bill of entry. This helps in enabling faster turnaround of bill of entry regularization &
regulatory compliance.

Advance Import Payment

Advance import payment is a pre-payment method in which, an importer makes the payment for
the items to be imported in advance prior to the shipment of goods. The importer benefits from
timely and accurate processing and remittances towards advance payment for imports.

Merchanting Trade
Merchanting trade is where the supplier of goods will be resident in one foreign country, the
buyer will be resident in another foreign country and the merchant or intermediary will be
resident in India. In simple terms, merchanting transaction is one which involves shipment of
goods from one foreign country to another foreign country involving an Indian Intermediary. The
Indian trader stands to benefit from our regulatory expertise & efficient transaction processing.

Exports

Export Finance
The export finance scheme is intended to make short-term working capital finance available to
exporters at internationally comparable interest rates.Exporters have the option of availing both
pre-shipment and post-shipment finance in either in rupee or in foreign currency from ICICI
Bank.As per regulations, no worthwhile export order should be denied packing credit from the
banking sector. Packing credit is released in lump sum or in stages, as per the requirement for
executing the orders/LC.
Post-shipment credit runs from the date of extending credit, after shipment of goods to the date
of realisation of export proceeds. Post shipment credit may be provided as requested by the
exporter for part or full value of the bills submitted

The ICICI Bank Edge

 Competitively priced
 Quick turnaround time

Pre-shipment Finance
ICICI Bank provides pre-shipment finance both in rupee as well as foreign currency at
competitive rates. Pre-shipment/export packing credit is available to the exporters, for financing
purchase, processing, manufacturing or packing of goods prior to shipment or working capital
expenses for rendering of services on the basis of:

 Letter of Credit opened in favor of the exporter or in favor of some other person, by an overseas
buyer;
 A confirmed and irrevocable order for the export of goods from India;
  Any other evidence of an order or export from India having been placed on the exporter or some
other person, unless lodgment of export order or Letter of Credit with the bank has been waived.

Export LC Advising
Any Letter of credit is forwarded to the beneficiary by the advising bank. The advising bank acts
as a conduit between the issuing bank and the beneficiary. The advising bank ensures that the LC
is apparently authentic, the international banks use test key arrangements with correspondent
banks to ensure that messages used are secure.

The exporter benefits from timely receipt, expert advice and a wide international network of
ICICI Bank.

Export LC Confirmation
Confirmation of LC constitutes an undertaking on part of the confirming bank to pay to the
negotiating bank or the beneficiary without recourse if the documents are presented in
accordance with the terms and conditions of the LC. This undertaking is in addition to the
undertaking provided by the issuing bank.
The exporter can eliminate the credit risk, foreign bank risk and country risks from his export
transaction once ICICI Bank add its confirmation to the Letter of Credit. The exporter is assured
of payment, subject to non-discrepant documents, irrespective of non-payment by LC opening
bank.

Export Bill Negotiation

ICICI Bank negotiates the export bills drawn under Letter of Credit, if the documents are found
to be credit compliant in terms with the Letter of Credit conditions. ICICI Bank negotiates the
bills at very competitive rates both in rupee as well as foreign currency with world-class service
standards. Negotiation under LC is much simpler than availing regular working capital limits
from a bank.
Purchase/Discounting of Export Bills
Against sanctioned credit limits, ICICI Bank can pay you the exporter the discounted value of
the invoice, immediately up on shipment. ICICI Bank offers this service at competitive rates both
in rupee as well as foreign currency and with world-class service standards.

Export Bill under Collection

Export bill collection means sending of export bills to overseas bank/buyer through his bank to
collect payment under export bills. The exporter can eliminate multiple exporting hassles by
availing documentary collection activities with ICICI Bank. The exporter stands to benefit from
increased control over export receivables and have an efficient cash flow management.

e-Softex
e-SOFTEX as an application was conceived primarily to address the software exporters’
requirements of managing its banking processes in relation to export invoices, viz. softex
management. This system leverages digitization to enable the exporters to manage its entire
export invoice lifecycle. This is a first-of-its-kind product offering in the country for the IT
segment.
The product has been created with critical inputs from IT companies across the spectrum. The
application offers a unique remittance linking and e-FIRC facility where the exporter can upload
and track all its remittances to get a comprehensive view of his realizations. Extensive reports
and MIS can be accessed and downloaded for the ease of tracking. This service additionally
provides quick regularization of softexs’ giving a seamless experience to the software exporters.

e-LC
This service allows the beneficiary to get a Single point access to the repository of all advised
LCs in Trade Online. It further eliminates the need to get the physical LC confirmed from
issuing bank for authenticity. The exporter gets near real time intimation to beneficiary once LC
is transmitted & advised. Additionally SWIFT/SFMS message of LC can be viewed or
downloaded as per requirement
Guarantees
In an increasingly challenging business environment, a bank guarantee is an effective way of
securing performance and payment. A company is often required to submit a Bank Guarantee
while entering into a large-scale business transaction or carrying out a high-value project or
receiving advance payment for working on a project. We provide world-class bank guarantee
services for both domestic as well as international markets and in this way also assure your
clients of your strong commitment. Some of the variants of guarantees offered include:

 Performance Guarantees
 Financial Guarantees
 Bid Bond Guarantees
 Advance Payment Guarantees
 Deferred Payment Guarantees
 Standby Letter of Credit

e-Bank Guarantee (e-BG)

e-BG product enables the beneficiary to have a unique repository of all the advised BGs in their
favor.

Key features include

 Auto email trigger

 e-guarantee list on Trade Online platform
 Password protected attachment

Benefits

 Vault of all advised BGs

 Beneficiary can view and download the cover message
  Real time intimation of issuance/amendment of cover message

Client needs to submit a one-page request letter for availing the given product offering.

Buyers credit backed by SBLC issued by ICICI Bank

Pursuant to the discontinuation of issuance of LoU/LuT by RBI for availing Buyers credit, lender
banks are permitted to take exposure in the form of direct buyers credit (BC) by way of an
unsecured facility. However, this is not a cost effective solution for borrowers. Also, it exposes
the BC lenders to higher credit risk. Accordingly, to facilitate the working capital requirement of
borrowers as well as to secure the buyers credit facility, ICICI Bank offers issuance of BG/SBLC
for buyers credit for imports into India.
The BG/SBLC can be issued in favour of ICICI Bank Overseas Branches/other foreign
Banks/overseas branches of Indian Banks for extending buyers credit to borrowers.

Inland Trade
ICICI Bank offers comprehensive range of Inland trade finance services that optimizes the
working capital cycle, enabling you to extend & negotiate superior commercial terms with your
customers and suppliers respectively. From financing your suppliers/vendors to the financing of
your dealers, we structure and customize solutions suited to your specific business requirements.

Inland Letter of Credit Issuance

We issue Inland Letter of Credit on your behalf that helps you facilitate purchase of goods and
negotiate for better terms with the suppliers. Our team of dedicated Relationship
Manager/Account Manager advises you in drafting the terms and conditions of the Letter of
Credit so as to protect your interest.

Inland Bill Discounting (Under Letter of Credit)

We provide finance by discounting inland bills drawn under Letters of Credit issued by
scheduled commercial banks and MNC banks in India. We offer a single window contact,
simplified processes and excellent turnaround time. Bill discounting facilities are customized to
suit your requirement for short term finance at competitive rates, which enables you to have
improved liquidity, accuracy and visibility of cash flow.

Inland Bill Discounting (Not under Letter of Credit)

We provide financing for bills drawn on documents against acceptance terms, to the extent of
your sanctioned credit limits to help improve your cash flows.

Bills for Collection

ICICI Bank offers efficient Bill Collection services that ensure timely receipt of payments. Pro-
active monitoring and diligent follow up results in effective control of timely realization of
receivables.
By routing your inland bills through ICICI Bank, you experience fewer delays in receiving
payments, receive customized MIS that is integrated to your ERP systems, gain increased control
over your trade receivables and efficient cash flow management.
Remittances

Inward Remittances
ICICI Bank's wire transfer instructions is one of the easiest methods of receiving money to your
current/business account in India.All you need to do is, select the currency in which the
remittance is intended to be received, fill in your 12-digit current account number and brief
details of remittance and forward the wire transfer instructions to your overseas business partner
in getting the remittance.Please remember to advise your overseas partner to send instructions to
their Bank with "OUR" in their charges column when they send the wire transfer.

From the time your overseas business partner places the funds transfer request with his local
bank, it takes 24-48 banking hours for the funds to reach our account held with our
correspondent bank.The Wire transfer will be processed and the money will be credited to your
account in quick time, provided you submit the required documents defining the purpose to your
ICICI Bank branch.

Outward Remittance (Non Trade)

Outward remittance is a transfer of funds in the form of foreign exchange by a person from India,
to a beneficiary outside India (except for Nepal and Bhutan) for any bonafide purposes as
permissible under Foreign Exchange Management Act (FEMA), 1999. It includes the following
two types of payment:1. Outward remittance (non-trade) 2. Outward remittance DD issuance or
any other type of payments as permitted by Reserve Bank of India as and when introduced.

The ICICI Bank Edge

Arrangement with all global and local financial institution across the globe
Quick turnaround time
TRADE FINANCE AXIS BANK

Import Financing
We offer both Buyers Credit and Suppliers Credit. The financing is available in all major currencies.

Export Financing
We offer the following facilities in both local and foreign currencies.

Pre-shipment Financing: This facility is offered to an exporter by way of packing credit to enable
him to finance purchase or import of raw materials, processing and packing of the goods meant
for exports.
Post-shipment Financing: Post-shipment Credit is offered to an exporter to finance export sales
receivables after the date of shipment of goods till the date of realization of export proceeds.
Negotiation or Discounting
Advances Against Collection Bills (AACB): This offering is in the form of a loan provided to the
exporter to bridge the working capital gap that exists before the export proceeds are realized. The
rate for this advance is the same as the post shipment rate for exports as prescribed from time to
time by RBI. Once the export proceeds are realized the loan is liquidated.

Letter of Credit
Whether you are an exporter or an importer, Axis Bank offers a gamut of services to meet your
entire Letter of Credit requirement including Opening, Negotiating or Discounting, Advising,
Confirming, Standby LC, Reimbursement and Foreign Exchange services. In addition to our
overseas branches we also have an extensive correspondent bank network. We also structure
complex Letters of credit to suit specific transaction requirements.

Advising Export Letters of Credit: One of the key offerings of the Bank under exports is advising
Export Letters of Credits. These LCs are advised to the beneficiary most expeditiously and
within a committed time period.
Confirmations of Letters of Credit: The bank also confirms letters of Credit for its customers.
Once the bank has confirmed a letter of Credit, it steps into the shoes of the Issuing Bank. It
therefore has no recourse to the exporter, once it provides post shipment credit and has recourse
only to the issuing bank.

Bank Guarantees
We offer to issue various types of guarantees - performance, financial, bid bond etc. Our
guarantees are well accepted by government agencies Capital Market Agencies and all major
corporates. Apart form the guarantees issued locally, our overseas correspondent bank alliances
also enable us to issue guarantees overseas for participation in global tenders.

Collection Services
Axis Bank offers flexible and efficient handling of commercial and financial documents for
Imports, Exports as well as for local trade. We have in place an extensive local branch network
and correspondent banking arrangements to facilitate the same.

Local Bills Collections: Our wide network of branches spread across the country enables us to
send and follow up on your LC-backed as well as clean bills sent for collection.
International Bills Collections: Our overseas branches coupled with a wide network of
correspondent banks enable us to offer efficient and prompt collections as regards imports,
exports, bills under LC and so on.

Trade Advisory Services

The trading limit is the maximum exposure tat a customer can have at a time. This limit that will
be granted will be a pre-determined number of times (referred to as a multiple) the customers
margin amount.
 CONCLUSION

Many companies, large and small, successfully use some form of trade finance as part of their
overall strategy for managing their cashflow, supply chain and revenue streams.
If your firm is considering initiating or expanding activities underpinned by import or export
transactions, trade finance offers huge financial benefits and decreases the inherent risk involved
in such ventures.
Moreover, with a clear business plan for the future and good advice from an independent trade
financier, all the disadvantages discussed above can be avoided.