Project On Ib

INTERNATIONAL BANKING
CHAPTER NO- 1.
INTRODUCTION TO INTERNATIONAL BANKING
INTRODUCTION
The emphasis is on the theory and practice of international banking,

because of its critical importance in the modern banking framework.
International banking is not a new phenomenon; international bank
activity can be traced back to as early as the 13th century. International
banking helps us to know how important international banking for the
progress of India and also for the counter. It is one of the most important
factors responsible for economic growth of the nation. Banks in many
nations have internationalized their operation since 1970. The quantum of
operation has increased in such a manner that the concept evolved into a
subject in itself. The term multinational banking signifies the presence of
banking facilities in more than one country. “Aiber has defined
International banking as a subset of commercial banking transactions and
activity having a cross border or cross currency element”. Domestic
operation such as the currency of denomination of the transaction, the
residence of the bank customer and location of the banking office the
range of transactions comprised by International banking can be easily
distinguished. A deposit or a loan transacted in local currency between a
bank in its home country and a resident of that same country is termed as
pure domestic banking.
In order to be a success in our export activities, we need to know

how to finance our import or export and how to get paid, especially when
dealing in foreign currencies. Our banker can and should be a key
member of our advisory team. Finding a bank that is comfortable and
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proficient in providing the various products and services required by

exporting and importing firms is becoming easier as international sales
become more and more common. The expansion of the internet and the
advent of e-banking are also helping to increase the number of banks that
companies can work with for their international banking requirements.
HISTORY OF INTERNATIONAL BANK
The origin of international banking dates back to the second century BC

when Babylonian temples safeguarded the idle funds and extended loans
to merchants to finance the movements of goods. The loans extended by
the Florentine banking houses were the first instance of international
lending by the of the modern banks to the forerunners of the modern
governments. During the nineteenth century many innovations were
witnessed in the international lending, leading to trade financing and
investment banking. Trade financing started as short term lending. Of the
two investments banking accounted further great bulk of the international
lending and financial companies acted as agents or underwriters for the
placement of funds and thus originated the concept of “Capital Markets”.
By 1920, American banking institutions dominated international lending,
and the European nations were the major borrowers. There was perfect
international banking system existing till the time of First World War.
The Britton system had installed a secured financial framework and
revolutionized the economic life by creating a global shopping center.
International banking speeded up after the first oil crisis in 1973. Progress
in the telecommunications sector across the world supplemented the
growth of international banking.
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DEFINITIONS OF AN INTERNATIONAL BANK.

According to Caliber (1984) there are at least three different definitions
of an international bank.
1. A bank may be said to be international if it uses branches or

subsidiaries in foreign countries to conduct business. For example,
the scale of US dollar – denominated deposits in Toronto by
American banks with Canadian subsidiaries would constitute
international banking; the sale of the same deposits by Canadian
banks would be classified as domestic banking.
2. Definition of international banking relates to the currency

denomination of the loan or deposit, independent of the location of
the bank. Any sterling transaction undertaken by a bank
headquartered in the UK would be part of British domestic
banking, irrespective of whether this transaction is carried out in a
British branch or a subsidiary located outside the UK. But
transactions in currencies other than sterling will be part of
international banking, independent of the actual location of the
British branch.
3. way of defining international banking is by the nationality of the

customer and the bank. If the headquarters of the bank and
customer have the same national identity, then any banking
operation done for this customer is a domestic activity,
independent of the location of the branch or the currency
denomination of the transaction. For example, all Japanese
banking carried out on behalf of Japanese corporate customers
would be part of the domestic banking system in Japan, even if
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both the branch and the firm are subsidiaries located in Wales.
Noting these different definition, Caliber (1984) opted for one
close to the second definition, relating international banking
activities to the association between national currency of the
transaction and the country which has chartered the bank. A bank
is said to be engaging in international banking when it sells
deposits and buys loans in currencies other than the home currency
– that is, the currency of the country in which it is chartered. Other
authors have advocated the use of the other definitions.
CHARACTERISTICS AND DIMENTION
Though international banking concept is quite old, it has acquired certain

new characteristics and dimensions. The number of participants, which
at the beginning of the period were mainly American banks, has widened
to include German, UK, Japanese, and French and Italian banks. Nearly
three quarters of the deficit of less developed countries are financed by
commercial banks operating internationally. The maturities have risen
considerably and now the average maturities are about ten years. Banks
have started diversifying their sources of funds along with the assets.
Apart from the above, two novel kinds of overseas bank operations
characterized international bank expansion in the late 1960s and 1970s.
i) A multinational consortium bank, was created by several

established by parent banks, and
ii) The shell branch, which is not really a bank but a device to get
around the domestic government regulation, was created.
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FEATURES OF INTERNATIONAL BANKING
International banks are organized in various formal and informal ways

from simply holding account with each other to holding common
ownership.
 CORRESPONDENT BANKING – This represents an informal linkage

between banks and its customers in different countries. The linkage is
setup when banks maintain correspondent accounts with each other
and facilitates international payments and collections for customers.
 BANK AGENCIES – The agency mostly deal in the local currency

markets and in the foreign exchange markets, arranges loans and
clears cherubs.
 FOREIGN BRANCHES – These are operating banks and are subject to

local banking rules and the rules at home. These branches most of the
time offer quality services and safety that are provided by a large bank
to the customers in small countries.
 CURRENCY RISK – International Bank operate in different
currencies. Currencies may weaken or strengthen with respect to each

other. Accordingly wealth value of the bank may vary. This is a
significantly sensitive aspect in International arena.
 COMPLEXITY OF CREDIT – Credit risk has additional dimensions of

sovereign-political risk and also socio-cultural factor about honoring
credit.
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 COMPETITION FOR MARKET SHARE AMONG BANKS- Competition

is stiff because of many giant bankers. This in effect reduces margins
and demands highly efficient performance.
 CYCLICAL NATURE, WITH PERIODIC CRISES- World economies

are not moving in unison. Cycles of growth and recession move from
one continent to another Multinational bank face these waves and also
occasional crisis such as crash of economy. (Eg. South Asian crisis)
 COMPETITION FOR BANK LOANS FROM THE INTERNATIONAL
BOND MARKET – Treat of disintermediation is more because
international banking has many big value transaction which may

eventually bypass banks. Bond market is matured in developed
countries, even for foreign currency denominated bonds.
 IMPORTANCE OF INTERNATIONAL INTERBANK MARKET –As
source of liquidity and funding of banks, interbank transactions in

banker enjoy better liquidity solution.
NATURE OF INTERNATIONAL BANKS

International banking refers to the banking services that cover a wide
array of topics. It provides you personal bank accounts along with the
business bank accounts also. An important feature of international
banking is foreign currency services. This is a very useful feature for the
people who need to deal in different currencies. You can make
transactions in dollars, euro or Swiss franc.
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GETTING EXPERT ADVICE:-
Another useful service that you get from international banking

organizations is traveler's checks. All of us know the importance of
traveler's check during the traveling period. Not only can you open a
foreign currency account but you can also seek help from experts
regarding the international trade such as import and export of goods.
International banking institutes have investment consultants that can
guide you on how to improve international trade. You can manage our
bank accounts in foreign countries without any trouble. It has many
other benefits also associated with it. For example, you can save a great
amount of money because of lower or no taxes at all. It definitely gives
you an edge over our competitors. Globalization is the mantra today.
Every business owner whether he is running a small business or big
business wishes to expand his or her business beyond the boundaries of
nations. International banking is a necessary tool to globalize our
business. You cannot underestimate this feature because you cannot
grow fast without crossing the geographical boundaries. When you
expand our business in several countries you need an effective system to
manage our finances. International banking organizations offer you just
the right kind of services that you need as a multinational business
owner. International banks have branches in many different countries.
This gives you the liberty of making payments in any of these countries.
Moreover, you can get the payment in local currency saving a big
amount on transactional fees. The relations between the countries and
international scenario make a huge impact on international trade.
International banking services too cannot remain unaffected by the
political developments at the international level. That is why
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international banks have to observe keenly not only the economic

changes but political changes as well.
So, it is well-established fact now that you need international banking

services to globalize business. However, you should not select any
international bank in a hurry. Perform a thorough research on the bank
before you decide to open an account with them. You should ascertain
that the bank offers reliable and stable services to its customers.
INTERNATIONAL BANKING SERVICES WE NEED
International banking services are available to individuals and

corporations that do business internationally. The need for international
banking is a requirement of anyone who has extensive business
relationships in foreign countries or is looking to expand into the foreign
marketplace. The essential services that you need when choosing to
establish an international banking relationship are private banking
services, the ability to convert or exchange our currency and paying and
receiving payment for our goods and services. These services are the
basic level of services you require in order to be successful at
international banking.
1. Private Banking
Private banking involves the offer of loan rates and other products
and services that are not generally available to retail customers. A private
banking relationship with our international bank gives you access to
special offerings and greater discretion in the way our account
transactions are handled or the priority you account is given.
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Advantages
•Private banking gives you exclusive action to special deals and rates.
•You become a prime banking customer with the bank.
Disadvantages
•You may be subject to some additional scrutiny, depending on the

country in which you are doing business.
•Our account may be subject to special taxation or assessment, depending
on the foreign country.
2. Foreign Currency Exchange
We should have a currency exchange service set up in order to

take advantage of changes in currency rates between countries when
traveling. The foreign currency exchange department for an international
bank can help determine the best time to exchange our U.S. dollars for
local currency as well as trade currency contracts for you to increase our
account’s income.
Advantages
•Helps you take advantage of differences in exchange rates.

•Gives you an opportunity to profit from foreign currency trading.
Disadvantages
•you may have to pay higher service fees on certain currency

transactions.
•It is difficult to predict changes in currency rates, which may result in
some losses for you.
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3. Money Transfer and Collection
As you operate our business with foreign companies, the ability to collect
receivables and pay bills is important. A money transfer and collection
facility within an international bank allows you to transfer and receive
payments in an efficient and timely manner without worrying about time
or having to be present to complete transactions.
Advantages
•You can pay bills and complete payments without the need to be present.
Disadvantages
•You are relying heavily on the abilities of the bank to complete
transactions in a timely manner.
International banking services are available to individuals and
corporations that do business internationally. The need for international
banking is a requirement of anyone who has extensive business
relationships in foreign countries or is looking to expand into the foreign
marketplace. An international bank can help you meet our banking needs
when playing on the world stage by providing you with essential services
and assistance.
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CHAPTER NO- 2.
DEVELOPMENT OF INTERNATIONAL BANKING
INTERNATIONAL TRADE IN BANKING SERVICES
International trade theory may be used to address the issue of why

banks engage in the trade of international bank services. Comparative
advantage is the basic principle behind the international trade of goods
and services. A country is said to have comparative advantage in the
production of a good (or service) if it is produced more efficiently in this
country than anywhere else in the world. The economic welfare of a
country increases if the country exports the goods in which it has a
comparative advantage and imports goods and services from countries
which are relatively more efficient in their production. At firm level,
firms engage in international trade because of competitive advantage.
The exploit arbitrage opportunities.
A firm will export a good or service from one country and sell it in
another because there is an opportunity to profit from arbitrage. In
banking, the traditional core product is an intermediary service, accepting
deposits from some customers and lending funds to others. The
intermediary function involves portfolio diversification and asset
evaluation. A bank which diversifies its assets can offer a risk / return
combination of financial assets to individual investors / depositors at a
lower transactions cost than would be possible if the individual investor
were to attempt the same diversification. Banks also offer the evaluation
of credit and other risks for the uninitiated depositor or investor. The
bank acts as a filter to evaluate signals in a financial environment where
the amount of information available is limited. If banks offer
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international portfolio diversification and or credit evaluation services on

a global basis, they are engaging in the international trade of their
intermediary service.
For example, a bank may possess a competitive advantage in the

evaluation of the riskiness of international assets, and therefore, its
optimal portfolio of assets will include foreign currency denominated
assets. A by- product of intermediation is bank participation in the
payments system, including settlement, direct debit, and chequing
facilities. If some of its corporate or retail customers engage in
international trade activity, they will require global money transmission
services. The simplest example is the provision of foreign exchange
facilities across national frontiers is now well developed. In parts of
Europe, it is possible to use a debit card from one state (for example, the
UK) to obtain local currency in another state (for example, Spain). To
conclude, if a bank offers its intermediary or payments services across
national boundaries, it is engaging in international trade activities and is
like any other global firm which seeks to boost its profitability through
international trade.
COST AND BENEFITS OF INTERNATIONAL BANKING
The costs and benefits of the international banking system are

reviewed with the objective of assessing the effect of the international
banking development on the welfare of the national economies. The key
benefit from international banking is a rise in bank consumer surplus, the
difference between what a consumer is willing to pay for a bank service
and what the consumer (who in the case of international banking, is
probably a corporate customer) does pay. For bank products, consumer
surplus will increase if deposit rates raise, loans rates fall, and fees for
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bank service decline. As the globalization of banking increases,

consumer surplus should rise, for several reasons. First, international
banking should increase the efficiency of the international flow of capital.
For example, the absence of regulation on the Euromarkets has

permitted marginal pricing on loans and deposits – the unconstrained
LIBOR rates have eliminated credit squeezes which tend to arise under an
administered rate. New capital movements will be observed if, prior to
the emergence of the system, interest rates varied across countries. As
was observed earlier, there is no doubt the Euromarkets enhanced the
transfer of new capital between countries. MNBs will increase the
number of banks present in the country, thereby increasing competitive
pressure by eroding the traditional oligopolies of the domestic banking
system. Greater competition among the international banks should
reduce the price of international bank products. Domestic banking
systems will also be under greater competitive pressure if some of the
country’s consumers are able to purchase international bank products and
by-pass higher prices in the domestic market.
1. Revenue for central government may be reduced. If a central bank

imposes reserve requirements on deposits in the banking system,
the introduction of international banking facilities will lead to the
flow of funds out of the domestic banking system and into the
international system where deposit rates are higher. A reserve ratio
requirement is a form of taxation on the banking system because it
requires idle funds to be held at the central bank. The reduced
volume of domestic deposits as they move offshore will reduce
government revenues accruing from this source. These will be
reduced still further if the competition forces the central bank to
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abandon the reserve ratio requirement, or eliminate controls on

deposit rates.
2. The international banking system is not truly global, because it is

largely confined to the wholesale banking market. This means
there is discrimination in loan and deposit rates, those having
access to the offshore banks getting more favorable terms than
their fellow nationals. Since only some of the customers in a
national economy gain, it will not be possible to judge whether
there is a net gain accruing to residents of a give country.
3. The diversion of banking activity from onshore to offshore alters

the real resource costs of banking. Whether they increase or
decline is governed by the cost differential between inshore and
offshore banking. The movements of the loan and deposit rates in
the Euromarkets since their operation began suggest the real
resource costs have been lower. But they may have been
underestimated for several reasons. For example, the banks
underestimated the cost of lending in the Eurocurrency markets,
especially in the case of sovereign loans; banks thought this type of
lending was almost risk – free, because a country could not be
declared insolvent. More generally, banks lack experience in
setting the prices for newer financial products, commensurate with
their risk. Information asymmetries are normally more pronounced
in international banking. In the Euro market only the final lender
has certain knowledge of who the borrower is, the average deposit
passing through several banks before being loaned to a non-bank
borrower. Often, the exposure of other banks in the Euromarkets is
unknown to each individual bank.
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CHAPTER NO – 3.
PRODUCTS & SERVICES

The international banking services in India are provided for the benefit of
Indian customers, corporate, NRIs, Overseas Corporate Bodies, Foreign
Companies/ Individuals as well as Foreign Banks etc. by UCO Banks
International Banking Branches, Authorized Forex Branches and
Integrated Treasury Branch. Other branches in India also provide
international banking facilities through the aforesaid network of UCO
Banks branches. All the facilities are subject to the prevalent rules &
guidelines of the Bank and RBI. Brief details of services provided are
as under:-
1. NRI Banking (Please visit NRI Corner)

2. Foreign Currency Loans
3. Finance/Services to Exporters
4. Finance/Services to Importers
5. Remittances
6. Fore & Treasury Services
7. Resident Foreign Currency (Domestic) Deposits
8. Correspondent Banking Services
9. All General Banking Services
I. NRI BANKING
 DEPOSIT SCHEMES FOR NRI's
• Foreign Currency Non resident (FCNR-B) Deposits:
Customer’s overseas earnings remain fully repatriable in an FCNR (B)

Deposit account with UCO bank.
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• Reparability
The principal amount and interest earned are fully repatriable.
• Tax Exemption
The Deposit is exempted from Indian Wealth tax. Interest is exempted

from Indian Income tax.
• Choice of Currency
Place our deposit in any of the six international currencies USD, GBP,
Euro, JPY, AUD & CAD. For deposit at any of our authorized branches
in India, please remit money to our Treasury Branch Mumbai accounts
with full details.
• Remit in any Currency
Customers can remit in any convertible currency. UCO Bank shall

convert it in any of the above six currencies of our choice.During the
customers visit to India the customer may also tender foreign currency
notes/travelers cherubs to UCO banks branches.
• Minimum & Maximum Amount
There is no upper ceiling; customer can put any amount in these deposits.
The minimum amount for each currency is: USD 2,000 or its equivalent
• Earn Attractive Interest
• Large Number of Branches to choose from
• Choose the Term of Deposit
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From a minimum period of 12 months to a maximum period of 60

months, customer has the choice of keeping the deposit with the
bank. Bank also allows the customer the flexibility of closing the
customers Fixed Deposit account before the due date but the
interest rate payable will be subject to a penalty of 1%. Customers
deposit should have run for a minimum period of one year to be
eligible for interest.
• Automatic Renewal
Customers deposits are automatically renewed on maturity for the

same tenure in case no other instructions are received before due
date.
• Joint account
Customer can open a joint account with the bank with other Non-
Resident Indian(s).
• Power of Attorney (P/A)
P/A to Residents permitted for local disbursements only.
• Nomination
Customer can register nomination for this Account.
Loans available against FCNR deposits Banks offer Rupee as well as

Foreign Currency Loans in the currency of Deposit against security of
our FCNR Deposits in UCO banks authorized branches in India. The
overseas branches also offer foreign currency loans against these
deposits, subject to rules, if any, applicable in that country.
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 LOANS TO NRIS
Against Deposits
Bank gives loans against NR deposits to NRI deposit account holder and
third parties in Indian Rupees. Bank gives loans against FCNR (B)
deposits to NRI deposit account holder in foreign currency in India. This
facility is available at our overseas branches, subject to local directives, if
any in that country.
NRI Home Loans
Bank has attractive schemes to accommodate the housing needs of NRIs.
i. Loans for Residential Property NRIs can avail of loans for
• Construction of a new residential house

• Purchase of a residential flat or residential house
• Extension of a residential flat or residential house
ii. Renovation of a residential flat or residential house

iii. Loan for Plot of Land for residential use
NRIs can avail of loans for purchase of a residential plot of land for
residential use.
iv. Loans against existing residential property
NRIs can avail of loans by mortgaging an existing residential property for

any of the following purposes. The loan shall be utilized for meeting the
borrower's personal requirements or for his own business purposes :-
Education , Business ,Medical treatment.
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Prohibition:
The proceeds of rupee loan should not be utilized for any of the
following activities:
 The business of chit fund, or

 Agricultural or plantation activities or in real estate business, or
construction of farm houses, or
 Trading in Transferable Development Rights (TDRs), or
 Investment in capital market including margin trading and derivatives.
II. FOREIGN CURRENCY LOANS
a) In India (FCNR 'B' Loans): The foreign currency

denominated loans in India are granted out of the pool of foreign currency
funds of the Bank in FCNR Deposit etc. accounts as permitted by
Reserve Bank of India. These loans are commonly known as FCNR
Loans.
UCO has a broad base of NRI customers/depositors. Therefore, with the

resource base of FCNR deposits etc. UCO is in a position to offer the
Foreign Currency Loans in India to our customers as an alternative to
loans in Rupees.
These loans are denominated in foreign currency such as US Dollars and

are offered as short term loans. The interest is fixed with a reasonable
spread over LIBOR
UCO also allows loans in foreign currency to NRIs against their

FCNR Deposits at the Indian Branches. The details are available in
NRI banking section.
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b) From Outside India: With presence at two major financial

centers of the world, UCO has foreign currency resources to arrange
/grant Foreign Currency Loans to Indian as well as multinational
corporate at the competitive rates. The foreign currencies denominated
loans are granted by our overseas branches to Indian Corporate as per
External Commercial Borrowing (ECB) Policy of Govt. of India/RBI.
III. FINANCE SERVICES TO EXPORTERS
UCO GOLD CARD FOR EXPORTERS:-
UCO launches Gold card for creditworthy exporters - Simplified

access to export credit on very good terms Better terms of credit
including rates of interest than those extended to other exporters by the
Bank. Processing of applications for credit faster than for other
exporters. Simpler norms, subject to specific requirements in each case, if
any. 'In-principle' limits for a period of 3 years with a provision for
automatic renewal, subject to fulfillment of the terms and conditions of
sanction. Preference for grant of packing credit in foreign currency
(PCFC), subject to availability of foreign currency funds. Lower charges
schedule and fee-structure than those provided to other exporters.
Relaxations in the norms in respect of security and collaterals, wherever
feasible. Other facility/benefit to the exporters, subject to the fulfillment
of extant rules and regulations applicable to export finance.
TYPES of FACILITIES FOR EXPORTS
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a) Rupee Export Credit (pre-shipment and post- shipment):
UCO provides both pre and post shipment credit to the Indian exporters
through Rupee Denominated Loans as well as foreign currency loans in
India. Credit facilities are sanctioned to exporters who satisfy credit
exposure norms of UCO. Exporters having firm export orders or
confirmed L/C from a bank are eligible to avail the export credit
facilities. Rupee export credit is available for a maximum period of 180
days from the date of first disbursement. In deserving cases extension
may be permitted within the guidelines of RBI. The corporate may also
book forward contracts with UCO in respect of future export credit
drawls, if required, as per the guidelines/directives provided by RBI.
b) Pre-shipment Credit in Foreign Currency (PCFC):
UCO offers PCFC in the foreign currency to the exporters enabling them
to fund their procurement, manufacturing/processing and packing
requirements. These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import content
of the exports. The corporate /exporters with a good track record can
avail a running account facility with UCO for PCFC. PCFC in foreign
currency is available for a maximum period of 180 days from the date of
first disbursement similar to the case of Rupee facility.
Features:
In the PCFC drawls permitted in a foreign currency other than the

currency of export, exporter bears the risk in currency fluctuations. The
foreign currency drawls are restricted to major currencies at present. In
case, the export order is in a non-designated currency, PCFC is given in
US$. For orders in Euro, Pound Sterling and JPY, PCFC can be availed
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in the respective currencies or US$ at the choice of exporter. Multi

-currency drawls against the same order, are not permitted at present due
to operational inconvenience.
Repayment:
PCFC is to be repaid with the proceeds of the export bill submitted

after shipment. In case of cancellation of export order, the PCFC can be
closed by selling equivalent amount of foreign exchange at TT selling
rate prevalent on the date of liquidation.
c) Negotiation of Bills under L/C:
UCO's International Banking Branches and Authorized Forex

Branches are active in negotiation/discounting of sight /Usance
international export bills under L/Cs opened by foreign banks as well as
branches of Indian banks abroad. UCO offers the most competitive rates.
These transactions are undertaken by our branches within the
Bank/Country Exposure ceilings prescribed by UCO.
d) Export Bill Rediscounting:
UCO provides financing of export by way of discounting of export

bills, as post shipment finance to the exporters at competitive
international rate of interest. This facility is available in four currencies
i.e. US$, Pound Sterling, Euro and JPY. The export bills (both Sight and
Usance) drawn in compliance of FEMA can be purchased/ discounted.
Exporters can avail this facility from UCO to cover the bills drawn under
L/C as well as other export bills.
e) Bank Guarantees:
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UCO, on behalf of exporter constituents, issues guarantees in favor

of beneficiaries abroad. The guarantees may be Performance and
Financial. For Indian exporters, guarantees are issued in compliance to
RBI guidelines.
VI. FINANCE/SERVICES TO IMPORTERS
a) Collection of Import Bills:
UCO has correspondent relationship with reputed International

Banks throughout the world and can thus provide valuable services to
importers who may be importing from any part of the Globe. The import
bills are collected by our International Banking Branches and Authorized
Forex Branches at very competitive rates. The import bills drawn on
customers of other branches are also collected through these branches.
b) Letter of Credit:
On account of UCO's presence in international market for decades,

UCO has established itself as a well known international bank. L/Cs of
UCO is well accepted in the International market. For any special
requirement UCO can get the L/C confirmed by the top international
banks. Thus UCO's L/C facility for the purchase of goods/services etc.
fulfills the requirements of all importers to arrange a reliable supply.
UCO offers this facility to importers in India within the ambit of FEMA
and Exam policy of Govt. of India. UCO uses state of the art SWIFT
network to transmit L/Cs and with a worldwide network of
correspondents and our overseas branches facilitates prompt & efficient
services to the importers.
c) Financing of import:
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I. Usance L/C facility UCO's Usance L/C facility provides the

importer an opportunity to avail credit from their
supplier/supplier's bank.
II. Deferred Payment Guarantee/Standby LC
UCO's Deferred Payment Guarantee/Standby LC facility also provides

the importer an opportunity to avail credit from their
supplier/supplier's bank.
III. Foreign Currency Loans
Short term External Commercial Borrowings or Trade Credits for less

than three years as permitted by RBI for imports into India is allowed
by our overseas branches to Indian importers at very competitive rates.
These are generally backed by L/Cs opened by importer's bank. Indian
importers can also avail this facility from our overseas branches as
roll-over credit on their bank agreeing to extend the L/C in favor of
our overseas branches.
d) Bank Guarantees:
UCO, on behalf of importer constituents or other customers, issues

guarantees in favor of beneficiaries abroad. The guarantees may be both
Performance and Financial.
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V. REMITTANCES
Remit through us EITHER to our own account with us or any other bank
OR to our near and dear ones. We offer an efficient, easy and convenient
channel to transfer money back home in any corner in India.
Through our Overseas Branches
Just walk in to any of our branches in Singapore and Hong- Kong or call
them for assistance.
Through our Accounts with Correspondents
The most convenient way of remitting the money from any part of the
world is a direct credit into UCOBANK Treasury Branch Mumbai
Account with correspondents.
We have correspondent arrangements worldwide. The details of our

accounts in six major currencies are placed on the web for our
convenience. Just send full remittance instructions to our bank for a
direct credit into our Treasury Branch Mumbai Account with
correspondents.
Through Drafts/Cheques
Send our Bank Drafts or Cheques to any of our branches in India with
full particulars of remittance/beneficiary. If you are remitting from
Singapore or Hong Kong, avail the facility of remittance provided by our
overseas branches. UCO, through its worldwide network of
correspondents, Indian branches and overseas branches, offers prompt
inward and outward foreign remittance facilities at very competitive rates.
25
The use of SWIFT network adds to reliability and efficient handling. The
remittances are handled by our International Banking
Branches and Authorized Forex Branches. The outward
remittances of customers of other branches are also
remitted through these branches. Through our well-spread
network of branches in India, inward remittances reach
every nook & corner in India. UCO has tie-up
arrangements with Western Union Money Transfer.
VI. FOREX & TREASURY SERVICES
UCO operates in the Forex Market in India as well as abroad. In India the
inter-bank fore operations is centralized at our Integrated Treasury
Branch in Mumbai, country's undisputed financial hub. UCO's
International Banking Branches and Authorized Forex Branches
undertake customer transactions. The fore requirements of customers of
other branches are also routed through these branches. Overseas branches
undertake the fore treasury operations in Singapore and Hong Kong
centre. UCO deals in all the important international currencies. Our Forex
Treasuries generally undertake the following treasury related activities:-
Forex Inter Bank Placements/Borrowings
Sale & Purchase of currency on behalf of customers
Forward Cover Bookings
Cross Currency Swaps
Interest Rate Swaps (IRS)
a) FOREX SERVICES FOR CORPORATES
26
To improve the standard of service to the valued clientele, UCO has

integrated its Forex and Domestic Treasury Operations under one roof in
Mumbai. UCO's Forex Inter-bank desk at Treasury Branch is an active
market player. UCO's integrated operation at one place in Mumbai
enables it to participate in inter-bank transactions on a large scale. Forex
Dealing Rooms in Singapore and Hong Kong and a worldwide network
of correspondents add to UCO's strength in providing the best fore
corporate services. International Banking Branches and Authorized Forex
Branches spread across the country cater to needs of all customers in
foreign exchange. Corporate Forex Services include Foreign Currency
Sale & Purchase, Forward Booking, and Cross Currency Forward etc.
Other products like Collection & Negotiation of Export & Import Bills
under LC, LC Issuance, Advising & Confirmation Services, Arrangement
of Trader Credits, the guarantees on behalf of Indian Corporate/Projects,
EEFC Accounts, and Remittance etc. are all available to corporate
customers from UCO. UCO is establishing a Derivative Desk in India to
offer various Derivative Products, such as IRS, FRA, Cross-currency
Options, and Currency Swaps with Cross-currency Interest Rate Swap
etc. With this UCO will also offer structured products suitable for
Corporate who have large receivables or payment obligation in foreign
currencies. Derivative Desk will deal in hedging products to hedge the
market risks i.e. interest rate risk and foreign exchange risk in Bank's
balance sheet.
VII. RESIDENT FOREIGN CURRENCY (RFC)

DEPOSITS:
27
Returning Indians for permanent settlement, after staying abroad for not
less than one year, can
∙ Retain their savings in foreign currency in a RFC account with UCO

∙ Get the proceeds of FCNR (B)/NRE Deposits credited to this account
∙ Reparability
Permitted for bonafide purposes for self & dependents including

exchange required for travel, other personal purposes and investments.
∙ Conversion into FCNR (B)/NRE
On becoming an NRI again, customers can transfer these funds into an

FCNR (B) or NRE account.
∙ Choice of Currency
Place the deposit in any of the six international currencies USD, GBP,
Euro, JPY, CAD and AUD.
∙ Remit in any Currency
Customers can remit in any convertible currency. Bank shall convert it in

any of the above six currencies of our choice.
∙ Earn Attractive Interest
28
 NON RESIDENT EXTERNAL (NRE) DEPOSITS :
NRE deposits can be placed with us in following a/cuss
Savings Bank A/c – at present interest rate is 3.5%.
Fixed Deposit A/c – at following interest rates
For creation of NRE deposits, remittances from abroad should be made to

us in convertible rupees or in any hard currencies like USD, GBP, EUR
and JPY etc. Above deposits are repatriable in any currency.
 NON RESIDENT ORDINAR (NRO) DEPOSITS:
Where an Indian citizen having a resident account leaves India and

becomes non-resident, his resident account should be designated as NRO
account.
Where non-resident Indian receives income in India, he can open a NRO

a/c with such funds.
NRO a/c may also be opened by foreign exchange remitted through

normal banking channels.
All types of a/c like SB, CD and all term deposits as applicable to
domestic deposits can be opened Interest rates are as per domestic
deposits. Interest is taxable.
29
 RUPEE DEPOSITS - HIGHLIGHTS
• Type of Accounts
You can open Savings Bank, Current, Recurring and Fixed Deposit
accounts with us.
• Authorized Branches
For our Indian branches accepting Indian Rupee NRE Deposits, please
get in touch with NRI Relationship Centre at our Head Office or the
respective Regional Offices of our choice.
• Interest Rate
We offer attractive rate of interest on our deposits.
• Remit in any Currency
For NRE accounts we can remit in any convertible currency. We shall

convert it in Indian Rupees.
• Joint Accounts, Power of Attorney, Nomination
NRE Accounts – Same as in case of FCNR (B).
NRO Accounts – Joint accounts with residents permitted, Nomination

facility available.
RESIDENT FOREIGN CURRENCY (DOMESTIC) A/Cs
UCO also offers Resident individuals in India, the facility to open non-
interest bearing current account in foreign currency at the selected Indian
branches as permitted by RBI. A joint account with a resident eligible to
open RFC (D) account is permissible. Nomination facility is also
30
permitted. Thus UCO will provide an option to resident individuals to

retain their receipts from abroad in foreign currency as permitted by RBI.
VIII. CORRESPONDENT BANKING SERVICES
The extensive network of branches in India and presence in two

important international centers enables UCO to offer correspondent
banking services to the banks. The International Banking Branches and
Authorized Forex Branches in India as well as our overseas branches are
capable of providing the services that an international correspondent
Bank can offer.
UCO can provide the following main services:-
I) Collection of bills both Documentary and Clean.
ii) Advising/confirming of L/Cs opened by banks
iii) Discounting of Bills drawn under L/Cs
iv) Maintenance of foreign currency accounts in S$ and HK$
v) Maintenance of Rupee accounts in India
vi) Making foreign currency payments/remittance on behalf of customers

of banks.
UCO's excellent service with competitive charges provides a good

Correspondent Banking solution. Co’s overseas branches are active in
discounting of usance international trade bills. With foreign currency
resources of overseas branches, UCO offers the most competitive rates
for discounting of these bills. The bills under the L/Cs of the most of the
31
Indian Banks as well as International Banks are also discounted at

competitive rate.
32
IX. EXTERNAL COMMERCIAL BORROWING

(ECB)
The foreign currency loans to the Indian corporate are granted by UCO's
overseas branches. The borrowings raised by the Indian corporate from
specified banking sources outside India are termed "External Commercial
Borrowings" (ECBs). These ECBs can be raised within the Policy
guidelines of Govt. of India/Reserve Bank of India, as applicable from
time to time. ECB includes the following:-
I) Commercial Loans
ii) Syndicated Loans
iii) Floating/Fixed rate notes and bonds
iv) Lines of Credit from foreign banks and financial institutions.
v) Import loans, loans from the export credit agencies of other countries.
UCO can offer following services to the Indian corporate in respect of

cross border financing:-
I) Arranging/granting External Commercial Borrowings by way of

Foreign Currency Loans, FRNs, and Bonds for the Indian corporate.
ii) Arranging/underwriting International Syndicated Loans for the Indian

corporate.
iii) Participating in the International Loan Syndications.
iv) Granting loans backed by Export Credit Agencies.
33
CHAPTER NO - 4.
INTERNATIONAL PAYMENT SYSTEM
A payments system is the system of instruments and rules which permits

agents to meet payment obligations and to receive payments owed to
them. As was noted in Chapter 1, banks, as intermediaries, are important
players in the payments system because they are the source of the legal
currency and they facilitate the transfer of funds between agents. Denial
of access to payments can be used as an entry barriers in banking. If the
payments system extends across national boundaries, it becomes a global
concern. Typically, major banks acts as clearing agents not only for
individual customers but also for smaller banks. There is a high degree
of automation in the international banking system.
As “DELIVERY” is the essence of the contract for the importer, timely

and sure receipt of payment is the matter that is of prime interest to
exporter. International transactions have to effect payment from one party
to the other party. There are various ways to effect these payments.
Payments may be gifts or remittances; the key systems are outlined
below:
1. CLEAN PAYAMENTS :-
There is a direct form of settlement between the exporter and bank. The
merchandise is shipped by the exporter and the shipping documents and
invoice are directly forwarded to the overseas buyer. The buyer then
remits the payment . this mode of transacting carries an element of risk
for the exporter, if the foreign buyer defaults to make payment. If the
payment remitted in advance, there is an element of risk for the buyer.
34
hence these form of settlement can be used only for small value of
transaction.
2. DOCUMENTARY BILL :-
Under this system the goods are consigned by ship; the shipping
documents and commercial invoice are attached to the demand draft and
send to the overseas banker of the buyer for collection. The documents
are delivering to the buyer against payment at the overseas centre. These
are called D\P Bills. When a L\C can not be established this is the ideal
mode of payment. the exporter can also attach the after sight bill for a
specified no. of days and advise the banker to deliver the bill of lading
and other documents against acceptance of the after sight draft. The
banker will deliver the documents and on the due date of the draft he will
collect the amount and remit to the exporter. This called D\A Bill.
3. BANKERS’ DOCUMENTARY LETTER OF CREDIT(documentary
credit)
Letter of credit established by the banker of the overseas buyer, in favor

of exporter. The letter of credit is advised and generally confirmed by the
local bank in the country of exporter. Normally the l\c is made available
by the overseas buyer while sending is order initially or within a short
time thereafter, and base on the letter of credit, the exporter’s bank may
allow packing credit to the exporter to procure and export the goods. The
l\c safeguards the interest of both and offer the best mode of transacting.
4. CONSIGNMENT TERM:-
35
Under the consignment term the goods are not sold to the buyer but sent
to the agent of the exporter in foreign country. The exporter continues to
own the goods even if the agent in the overseas country remits an
advance payment. The consignment agent arranges to sell the goods at
the foreign country on behalf of the exporter.
 RTGS (REAL TIME GROSS SETTLEMENT) PAYMENT

SESTEMS
Settlement in “Real time” means payment transaction is not subjected to

any waiting period. The transaction is settled as soon as processed.
“Gross settlement” means the transaction is settled on the one to one
basis without vouching with any other transaction.
World over the central banks manages RTGS system because the all
banks in a country maintain a current account with central bank.
Accordingly, in India it is being managed by RBI.
Society for Worldwide Interbank Financial Telecommunications :-
SWIFT, the Society for Worldwide Interbank Financial
Telecommunications, which was established in Belgium in 1973.

A cooperative company, it is owned by roughly 2000 financial
institutions, including banks, worldwide. The objective of SWIFT is to
meet the data communications and processing needs of the global
financial community. It transmits financial messages, payment orders,
foreign exchange confirmations, and securities deliveries to over 3500
financial institutions on the network, which are located in 88 countries.
36
The network is available 24 hours a day, seven days a week throughout

the year. The messages include a wide range of banking and securities
transactions, including payment orders, foreign exchange transactions,
and securities deliveries. In 1992, the system handled about 1.6 million
messages per business day. Real time and on-line, SWIFT messages pass
through the system instantaneously.
FEDWIRE & Clearing House Interbank Payments System
FEDWIRE and CHIPS: both of these systems are for high value,
dollar payments. FEDWIRE, the Federal Reserve’s Fund Transfer System,
is a real – time gross settlement transfer system for domestic funds,
operated by the Federal Reserve. Deposit – taking institutions that keep
reserves or a clearing account at the Federal Reserve use FEDWIRE to
send or receive payments, which amounts to about 11000 users. In 1992,
there were 68 million FEDWIRE funds transfers, with a value of $199
trillion. The average size of a transaction is $3 million. CHIPS, the
Clearing House Interbank Payments System, is a New York – based private
payments system, operated by the New York Clearing House Association since
1971. CHIPS are an online electronic payments system for the
transmission and processing of international dollars. Unlike FEDWIRE,
there is multilateral netting of payments transactions, and net obligations
are settled at the end of each day. At 1630 hours (Eastern Time), CHIPS
informs each participant of their net position. Those in net deficit must
settle by 1745 hours, so all net obligations are cleared by 1800. Most of
the payments transferred over CHIPS are international interbank
transactions, including dollar payments from foreign exchange
transactions, and Eurodollar placements and returns. It also makes
payments associated with commercial transactions, bank loans, and
securities. Obligations on other payments or clearing systems can be
37
settled through CHIPS. In 1992, there were 40 million payments, valued

at $240 trillion.
Clearing House Automated Payments System:-
CHAPS : London – based, the Clearing House Automated

Payments System was established in 1984 and permits same – day
sterling transfers. There are 14 CHAPS settlement banks, including the
Bank of England, along with 400 other financial firms which, as sub-
members, can engage in direct CHAP settlements.
The 14 banks are responsible for the activities of sub-members, and
settle on their behalf at the end of each day. The closing time in 1510
hours (GMT). The Bank of England conducts a daily check of the
transfer figures submitted to them. In 1992, the total value of payments
through CHAPS was $20 928 billion, equivalent to a turnover of British
GDP every seven days. There are other payments systems in the UK;
CHAPS is for high-value, same-day sterling transfers. CHAPS accounts
for just over half the transfers in the UK payments system; the average
daily values transferred through the UK system were $161 billion in
1993. A framework for introducing real time gross settlement was drawn
up in 1993. It will mean transactions across settlement accounts at the
Bank of England will be settled in “real – time”, rather than at the end of
each day. A number of the large global banks run their own electronic
payments systems, primarily to facilitate internal global payments. These
systems are run alongside SWIFT and other public systems. The internal
systems are also used to attract corporate business.
CHAPTER NO- 5.
OFFSHORE BANKING CENTERS
38
INTRODUCTION:-
Offshore finance is, at its simplest, the provision of financial services by
banks and other agents to non-residents. The services include the
borrowing of money from non-resident and lending to non residents. This
can take the form of lending to corporate and other financial institutions,
funded by liabilities to offices of the lending bank elsewhere, or market
participants.
OFFSHORE FINANCIAL CENTERS:-
Offshore financial center (OFC) usually refers to law -tax, lightly

regulated jurisdiction which specializes in providing the corporate and
commercial infrastructure to facilities the use of that jurisdiction for the
formation of offshore companies. The IMF considers the following to be
characteristics of an off shore financial centers:
 Jurisdiction that have relatively large number of financial

institution engaged primarily in business with non-resident,
 Financial systems with external assets and liabilities out

proportion to domestics financial intermediation designed to
finance domestic economies ; and
 Center which provide some or all of the following services:

low or zero taxation; moderate or light financial regulation;
banking secrecy and anonymity.
39
OFFSHORE BANKING:-
An offshore bank is a bank located outside the country residence of

the depositor, typically in a low tax jurisdiction that provides financial
and legal advantages. The advantages typically include some or all
of:-
 Strong privacy
 Less restrictive legal regulation
 Low or no taxation (i.e. tax havens)
 Easy access to deposits (at least in terms of regulation)
 Protection against local political or financial instability
MERITS OF OFFSHORE BANKING:-
1. Offshore banking provides access to politically and economically
stable jurisdictions. This may be an advantage for those residents in

the areas where there is a risk of political turmoil, who fear their
assets may be frozen, seized or disappear.
2. Some offshore banks may operate with lower cost base and can
provide higher interest rates than the legal rate in the home country
due to lower overheads and a lack of government intervention.
3. Interest is generally paid by offshore banks without tax deducted.
This is advantages to individuals who do not pay tax on worldwide

income, or who do not pay tax until the tax return is agreed, or who
feel that they can illegally evade tax by hiding the interest income.
40
DEMERITS OF OFFSHORE BANKING:-
1. Offshore banking has been associated with the underground
economy and organized crime, through money laundering.

Following September 11, 2001, offshore banks and tax havens,
along with clearing houses, have been accused of helping various
organized crime gangs, terrorist groups, and other state or non-state
actors.
2. The existence of offshore banking encourages tax evasion, by
providing tax evaders with an attractive place to deposits their

hidden income.
3. Developing countries can suffer due to the speed at which money
can be transferred in and out of their economy.

4. Offshore banking is usually more accessible to those on higher
incomes, because of the establishing and maintaining offshore

accounts.
OFFSHORE BANKING IN INDIA:-
Beginning of offshore banking in India is by permitting for the first

time offshore banking units (OBUs) to be set up in special economic
zones (SEZs).
∗ SEZs will be deemed to be a foreign territory for the purpose of

trade operations and duties\tariffs so as to trigger exported growth
of the economy.
∗ The OBUs would be treated as foreign branches of Indian banks

located in.
41
∗ These OBUs would be exempt from reserve requirements and

provide access to SEZ units and SEZ developers to international
finances at international rates. The reserve bank of (RBI) has
permitted banks operating in to set up OBUS in the SEZs.
∗ The OBUS would carry out mainly wholesale banking operations.
∗ The OBUS will be regulated and supervised by RBI. OBUS in

have a limited mandate.
State bank of and icecap bank have opened the first offshore
banking units in at the seeps special economic zone, Mumbai.
ABOUT GRIFFON BANK

Private Banking with the Personal Touch
Griffon Bank Limited is a private offshore bank chartered in the

Commonwealth of Dominica, West Indies. Dominica is an independent
English speaking country located between the French islands of
Guadeloupe and Martinique. Griffon Bank Limited was established and
licensed in 1997 under Offshore Banking Act 1996. We provide banking
services to our customers worldwide in a protected environment
supervised by the Government of Dominica and Eastern Caribbean
Central Bank.
42
Our international staff from multicultural backgrounds is here to

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HISTORY
Griffon Bank Limited was established in the Commonwealth of
Dominica in 1997 by the group of businessman under the Offshore
Banking Act 1996. In the same year bank received the Class A
(unrestricted) bank license. In 2001 after receiving the approval by the
Government of Dominica Griffon Bank Limited was taken over by the
new shareholder and new Board of Directors have been elected. In
January 2002 Griffon Bank Limited has successfully launched state-of-
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user friendly up to date. In March 2002 Griffon Bank Limited has
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line, modern fire alarm and security systems and is occupied as well by
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undergoing major development of its operations in order to improve and
43
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Griffon Bank satisfies our most demanding international banking needs.
44
BALANCE SHEET OF BANKS:-
A bank’s balance sheet is different from that of a typical company

balance sheet. Regular items such as inventory, accounts receivables
or accounts payable are of little significance in case of banks. Under
the assets side banks have mostly the loans and investments, and under
the liabilities side, deposits and borrowing.
Let’s take a closer look at the balance sheet of hypothetical bank :-
31/12/2006 %of assets
Assets
50 2%
Cash
500
securities 22%
1,500
loans 67%
200
other assets 9%
Total assets 100%

2,250
Liabilities & equity
Deposits 1,400 62%
Borrowings 600 27%
Shareholder’s equity 250 11%
Total liabilities and equity 2,250 1%00
45
CHAPTER NO- 6.
MULTINATIONALIZATION OF BANKS
To complete the theoretical picture of global banking, the second

question should be addressed – that is, why do banks set up branches or
subsidiaries and therefore become multinational banks? The question is
best answered by drawing on the theory of the determinants of the
multinational enterprise. A multinational enterprise (MNE) is normally
defined as any firm with plants extending across national boundaries.
Modifying this definition for banking, a bank with cross – border
branches or subsidiaries is a multinational bank. It is important to stress
from the outset that location efficiency conditions in a given country are
necessary, but not sufficient to explain the existence of MNEs.
Location efficiency refers to the choice of a plant location –

comparatively, there is an advantage in being the lowest cost producer of
a good or service. However, to explain the existence of the MNE, other
factors are at work – otherwise, one would observe a domestically
domiciled firm producing and exporting the good or service. Thus, one
has to look beyond location efficiency to explain why a plant is owned by
non-resident shareholders. There are two important reasons why an MNE
rather than a domestic form produces and exports a good or service.
Barriers to free trade, due to government policy or monopoly power in
supply markets, are the first explanation for the existence of MNEs. For
example, Japanese manufacturers have set up European subsidiaries,
hoping to escape some of the harsh European trade barriers on the import
of Japanese manufactured goods. The second is imperfections in the
market place, often in the form of a knowledge advantage possessed by a
46
certain type of firm which cannot be easily traded. American fast food
conglomerates have been very successful in global expansion through
franchises, which profit from managerial and food know-how originally
developed in the USA. The same framework can be applied to explain
the presence of multinational banks (MNBs). Banks may opt to set up
branches or subsidiaries overseas because of barriers to free trade and / or
market imperfections.
For example, US regulations in the 1960s effectively stopped foreigners

from issuing bonds in the USA and American companies from using
dollars to finance foreign direct investment. US banks got round these
restrictions by using their overseas branches, especially in London,
because it was a key centre for global finance. Later, these banks used
their London subsidiaries to offer clients investment banking services,
prohibited under US law. Additionally, the nature of banking means
banks possess a number of intangible assts which cannot be traded in the
market place.
For example, a bank may wish to profit from the employment of superior
management skills in a foreign country, provided location efficiency
conditions are met. Thus, US banks with management expertise in
securitization may transfer these experts to their London subsidiaries, as
the securitization may transfer these experts to their London subsidiaries,
as the securitization business in Europe grows. Japanese banks have
established subsidiaries in London and New York, where the markets are
subject to fewer regulations than in Japan. This move was partly
motivated by a belief that experience gained in other markets would give
bankers a competitive edge in the event that Japanese financial markets
are deregulated. Reputation is an important intangible asset possessed
by banks. Many of the London merchant banks have established offices
47
in other countries, to exploit their reputation for expertise in corporate

finance, and other investment banking services. It is not possible to sell
reputation on an open market. Provided location efficiency conditions
are met, reputation may be a profitable reason for a bank expanding
across national borders. Many authors (for example, Callback, 1984)
have argued that MNBs exist because banks need to follow their
corporate customers overseas. The theory outlined above is not
inconsistent with this traditional explanation. Suppose the customer of a
bank decides to set up a subsidiary in a foreign country.
Additionally, the bank may follow the corporate customer overseas to

protect its own assets. If the bank is going to lend funds to a
multinational firm, it will require information on the foreign operations to
properly assess the creditworthiness of the client. The optimal way of
gathering information may be the establishment of a branch or subsidiary
in the foreign country. Effectively, the bank internalizes the implicit
market for this information. To summaries, the term international banking
should be defined to include two different activities: trade in international
banking services, consistent with the traditional theory of competitive
advantage for why firm’s trade, and MNBs, consistent with the economic
determinants of the multinational enterprise.
48
MULTINATIONAL BANKING
Historical Background
Multinational banks (MNBs) are banks with subsidiaries, branches,

or representative offices which spread across national boundaries. They
are in no way unique to the post – war period. For example, from the
13the to 16th centuries, the merchant banks of the Medici and the Fugger
families had branches located throughout Europe, to finance foreign
trade. In the 19th centuries, MNBs were associated with the colonial
powers, including Britain and, later on, Belgium, Germany and Japan.
The well – known colonial MNBs include the Hong Kong and Shanghai
Banking Corporation (HSBC), founded in 1865 by business interests in
Hong Kong specializing in the “China trade” of tea, opium and silk.
Silver was the medium of exchange. By the 1870s, branches of the bank
had been established throughout the Pacific basin. In 1992, the colonial
tables were turned when HSBC acquired one of Britain’s major clearing
banks, the Midland Bank. The National Bank of India was founded in
1863, to finance India’s export and import trade. Branches could be
found in a number of countries trading with India. The Standard Bank
was established in 1853 specializing in the South African wool trade.
Headquartered in London, it soon expanded its activities to new
developments in South Africa and Africa in general. Presently it is
known as the Standard Chartered Bank, and though it has a London head
office, the bank does virtually no domestic business in the UK. By 1914,
the Deutsche Bank had outlets around the world, and German banks had
53 branches in Latin America. The Societe General de Belgium had
branches in the Belgian African colonies, and the Mitsui Bank established
branches in Japanese colonies such as Korea. All of these banks were
“colonial” commercial banks because their primary function was to
49
finance trade between the colonies and the mother country. Branches
were normally subject to tight control by head office. Their
establishment is consistent with the economic determinants of the MNE,
discussed earlier. Branches meant banks could be better informed about
their borrowers engaged in colonial trade. Since most colonies lacked a
banking system, the home country banks’ foreign branches met the
demand for banking services among their colonial customers. A number
of multinational merchant (or investment) banks were established in the
19th century – good examples are Barings (1762) and Rothschild’s (1804).
They specialized in raising funds for specific project finance. Rather than
making loans, project finance was arranged and stock was sold to
individual investors. The head office or branch in London used the
sterling interbank and capital markets to fund the project finance these
banks were engaged in. Capital importing countries included Turkey,
Egypt, Italy, Spain, Sweden, Russia, and the Latin American countries.
Development offices associated with the bank were located in the foreign
country. Multinational merchant banks are also consistent with the
economic determinants of the MNE. Their expertise lay in the finance of
investment projects in capital poor countries; this expertise was acquired
through knowledge of the potential of the capital importing country
(hence the location of the development offices) and by being close to the
source of supply, the London financial markets. There was rapid
expansion of American banks overseas after the First World War.
In 1916 banks headquartered in the USA had 26 foreign branches

and offices, rising to 121 by 1920, 81 of which belonged to five US
banking corporations. These banks were established for the same
purpose as the 19th century commercial banks, to finance the US
international trade and foreign direct investment of US corporations,
50
especially in Latin America. In the 1920s, these banks expanded to

Europe, in particular Germany and Austria. By 1931, 40% of all US
short – term claims on foreigners were German. A few American and
British banks established branches early in the 20th century, but the rapid
growth of MNBs took place from the mid – 1960s onward. Davis (1983)
argued that in this period banks moved from a “passive” international
role, where they operated foreign departments, to one where they became
“truly international” by assuming overseas risks. However, such an
argument makes ambiguous the distinction between the MNB aspect of
international banks and trade in international banking services. As
expected, the key OECD countries, including the USA, UK, Japan,
France, and Germany, have a major presence in international banking.
51
CHAPTER NO- 7.
PROSPECTUS OF INDIA IN GLOBAL MARKET
INDIA & GLOBALISATION
Overview
In February 2005, The Foreign Policy Centre (FPC) launched a new

programmed of research, publications, forums and public discussions on
India and globalization. The programmed aims to engage a broader
group of actors with new thinking on the social and economic
consequences of globalization on India and the impact of India’s growing
influence on the future of globalization. It will adopt a pan-European
focus in exploring the way in which India fits into a changing world order
and how the new ‘rising powers’, notably India and China, can be key
actors in shaping it. The programmed will take Indian perspectives as its
departure point, focusing on three principal areas:
• How India’s government, interest groups and diverse communities see

their values and how they project these values to the world;
• Outside attempts to understand and engage with the paramount t

groups, diasporas, civil society and diverse communities; and
• The role of these diverse, often competing, Indian actors in
globalization and in shaping global trends.
52
A partnership-based programmed
The Foreign Policy Centre is working with a number of leading Indian

think tanks and other partners in various fields, including:
 Indian investors in Europe

 UK investors in India
 Prominent journalists, academics and opinion formers
 Indian Diaspora organizations in Europe, especially the UK
NGOs, think tanks and research organizations
Aims and context
India’s influence on global affairs is evident in a number of spheres –

from academia and development theory to business, technology and
movies. As suggested by the Goldman Sachs report, dreaming With
BRICs: The Path to 2050, the economies of Brazil, Russia, India and
China (BRIC) together could be larger than the G8 in dollar terms in
fewer than 40 years.
Two issues will inevitably shape India’s rise.
1. India’s projected economic power will mean that it will be a strong

force in determining international market practices and influencing
decisions in the multilateral trading system.
2. As the largest democracy in the world, India enjoys unique

political legitimacy which means that it is held up as a role model
and a progressive influence in global affairs. In the words of Sunil
Khilnani, India needs to “make use of the ‘democratic dividend’…
and be willing to play a role in the global ‘battle of ideas’”. Most
analysts agree that India has yet to find a voice in world affairs
53
appropriate to its power and potential and that India’s role on the
world stage remain unclear. In the short term, key questions
remain about how it relates to the West and other emerging
powers, especially China. More long term, India has yet to stake
out its position as a progressive international player, a positive
broker in the pursuit of multilateral solutions to global problems
and an active player in the promotion of liberal democracy around
the world.Through an interchange between small groups from
India, Europe, the US and selected other countries, the Foreign
Policy Centre’s programmed will explore how India will engage
with the world over the first decades of the 21st century. It will
aim to address clear questions about India’s future.
How is globalization shaping India’s worldview and sense of itself?

How will India look to shape its own global role?
How will India’s new role impact on the international system?
The programmed will examine a variety of cutting edge issues and new
ideas.
Focusing On Five Areas:
 International political values, multilateralism and international

security
 Evolving international economic configuration, trade and finance
 Democracy, pluralism and harnessing variety
 Technology, entrepreneurship, competitiveness, corporate governance
and the knowledge revolution.
The Foreign Policy Centre will be launching four main sets of activities:
54
 High level forums in London, Brussels and New Delhi engaging

senior participants from business, government and academic
 Publication of policy reports and papers from Indian authors under
the rubric ‘New Thinking from India’
 Publication of policy reports and papers from international observers
(business, government, journalisms and academics) on the various
Indian perceptions of their country’s place in the world.
 Associated public forums, newspaper articles and public Lecture
GLOBAL INTEGRATION IN THE BANKING

INDUSTRY
Many observers believe that significant global integration is under way in

the banking industry and that, in the coming years, individual banks will
expand their reach into many countries. Likewise, these observers expect
that many national banking markets will develop large foreign
components; as that happens, the nationality of a bank in such market will
matter little to prospective customers.
i) These forecasts are based on the observation that, over the past two
or three decades, many nations have removed important regulatory
barriers to international banking. Advances in technology also now
allow financial institutions to manage larger information flows
across more locations and to evaluate and manage risks at lower
costs than ever before.
Together, these developments have reduced the costs of supplying

banking services across borders. At the same time, growth in the
international activities and trade of multinational corporations has
55
increased the demand for services from financial institutions that operate
across borders. Despite these developments, the banking industry appears
today to be far from globally integrated, particularly in industrialized
countries.
For example, the foreign share of bank assets in most industrialized

countries remains at or below 10 percent. And although bank
consolidation has been intense within industrialized countries, mergers
and acquisitions across the borders of these countries have been much
less common
ii) To evaluate more closely the extent to which banking is becoming

globally integrated, we study the nationality and international reach
of banks that provide financial services across Europe to affiliates
of multinational corporations. We examine these affiliates because
they are among the customers most likely to demand the services
of international banks, and we focus on Europe because barriers to
financial integration have been extensively reduced on that
continent. A finding that banking integration has advanced little
even under such favorable conditions would cast doubt on the
prospects for the globalization of banking more generally.
The 1996 survey of the short-term banking practices of more than 2,000
European affiliates of multinational corporations. Perhaps surprisingly,
we find that close to two-thirds of these affiliates choose a bank
headquartered in the nation in which they are operating (a host-nation
bank) rather than a bank from their home country or a third nation.
Moreover, having chosen a host-nation bank, an affiliate is more likely to
select a bank limited to local or regional operations rather than a large
bank with global reach. The time-series data that might reveal the degree
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to which global integration has increased over the past decade. These data
cover European syndicated loans, the ratio of domestic private bank
claims to total (domestic plus foreign) bank claims, and the dispersion of
nonfinancial goods prices across Europe. In brief, the time-series data
show a picture for the current period that is not substantially different
from that at the time of the 1996 survey. These results are consistent with
the idea that affiliates Value host-nation banks over others because host-
nation banks better understand their own market and may possess
superior information about local nonfinancial suppliers and customers.
The results also imply that affiliates that have chosen host-nation banks
value the more customized and relationship based services offered by
banks with local or regional reach, as opposed to the broad-based services
offered by a host-nation bank that has global reach.
57
CHAPTER NO – 8.
RECENT TREND IN INTERNATIONAL BANKING
RECENT DEVELOPMENT IN GLOBAL BANKING
Banking crises in emerging markets in the 1990s were associated with

major macroeconomic disruptions: sharp increases in interest rates, large
currency depreciations, output collapses and lasting declines in the supply
of credit. Bank credit has since recovered in a number of countries, and
there have been significant changes in banking structure, performance
and risk management capacity. Drawing on contributions by senior
central bank officials from emerging market economies and staff of the
Bank for International Settlements, the volume seeks to shed light on
recent developments by addressing five broad topics.
1. Recent trends in bank credit
After peaking in the second half of the 1990s, bank credit to the private
sector has recently risen in a number of emerging market economies,
partly because of stronger demand for loans associated with robust
growth and low interest rates, and partly because of greater supply of
loans associated with improved bank balance sheets. The share of bank
credit to the business sector has nonetheless declined in part because
lagging investment spending has curbed corporate loan demand, and also
because of the availability of financing in bond and equity markets. In
some countries risk averse banks have held government securities rather
than lend to the corporate private sector. Financial institutions have
increased lending to households but this exposes them to new forms of
risk, as illustrated by difficulties in the credit sector in Korea earlier in
58
this decade. One concern is that banks in some countries have transferred
a significant amount of interest rate or exchange rate risk to households
through floating rate credit or loans denominated in foreign currency.
2. The pace of structural change
Banking systems in emerging economies have been transformed by

privatization, consolidation and foreign bank entry. Bank efficiency and
performance have improved, apparently in response to a more
competitive climate. More recently, reforms appear to have slowed, in
part because the easy work had been done and because of alternative
approaches to reform. For example, rather than engaging in full scale
privatization, countries like China and India are only gradually
transferring ownership of major state-owned banks to the private sector.
As for bank consolidation, it has been market-driven and foreign banks
have played an important role in central and eastern Europe and Mexico,
while the state has played a larger role in Asia. Increased concentration
was not seen as a threat to competition and access to bank financing had
improved with the growing presence of foreign banks. However foreign
banks raised political concerns because of perceived high profits and
were also difficult to supervise because parent banks' global goals and
information flows did not always coincide with the needs of host country
supervisors.
3. Evolution in and management of risks facing banks
Macroeconomic vulnerabilities (particularly to external shocks) appear to

have declined, reflecting a mix of favorable temporary conditions as well
as improved policies (higher foreign reserves, more flexible exchange
rates, domestic debt market development and improved fiscal policies).
59
However, some central banks were still concerned about vulnerability to

certain shocks (eg. to domestic demand, to increases in oil prices or
interest rates or declines in property prices), particularly given the
exposure of banks to interest rate or exchange rate risk and the need in
some countries for further fiscal consolidation. Banks increasingly relied
on systematic risk assessment procedures and quantitative risk
management techniques, with lending being influenced less by
government direction or special bank relationships with borrowers.
However, challenges still arose from lack of data on loan histories for
estimating default probabilities, and risks related to liquidity and credit
risk transfer.
4. Preventing systemic banking crises
One indicator of stronger banking systems is that the volatility of output

and inflation has fallen in emerging market economies while their capital
ratios have risen significantly. This reflects (i) policies designed to
improve bank governance and information disclosure that enhances
market discipline, (ii) regulatory measures to dilute risk concentration,
limit connected lending, establish realistic provisioning rules and to
improve inspection process; (iii) the evolution in supervisory strategy
from "ratio watching" (checking bank positions against predetermined
prudential ratios) to examining the bank's risk management process. The
ability to take early action to deal with incipient problems before a crisis
develops has also been enhanced by increased authority, independence
and legal protection for supervisors. At the same time, explicit and
limited deposit insurance has helped make clear that not all bank deposits
are guaranteed by the government. The payment of fixed premia have
encouraged banks to monitor the strictness/effectiveness of supervisory
authority and ensured weak banks share the burden of any payouts. Some
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of these improvements have been helped by efforts to adopt international

standards for best practice (Basel Core Principles for Effective Banking
Supervision, Basel I and Basel II) and outside assessments of financial
stability (i.e. Financial Sector Assessment Programs, or FSAPs).
Challenges remain, including changing the culture in supervisory
agencies as well as audit departments of banks towards more effective
risk management, and the lack of adequately trained staff.
5. Changing financial intermediation: implications for monetary

policy
Bank deregulation and global integration has on the one hand made
monetary policy in emerging markets more potent by allowing a wider
range of transmission channels, including asset market and exchange rate
channels. Domestic bank loan rates also appear to be more responsive to
changes in money market rates in countries with profit-driven banking
systems, perhaps reflecting the recovery in the health in banking systems
(pass through is lower in countries with weak bank systems eg. post
1997-1998 crisis). On the other hand, external factors unrelated to
monetary policy have also shaped bank behavior. For example, demand
for bank deposits has depended on exchange rate expectations. Global
integration had also led to some convergence in long-term interest rates.
“Indian banking – global benchmarks”. Today it is “Global banking

– paradigm shift”. This subtle change of emphasis in themes – from
Indian banking to global banking – clearly reflects today’s reality:
the increasing globalization of the Indian economy.
Over the past decade, India has emerged as one of the fastest-growing
economies on the globe. The rest of the world has been impressed to see
61
that the reforms initiated in the early 1990s are bearing fruit. To sustain
any country’s growth, of course, a strong and dynamic financial sector is
essential.
What can governments and central banks do to nurture a more efficient

and competitive financial industry and at the same time maintain the
stability of the system as a whole? This question is central to the
international deliberations on financial policy that take place at the Bank
for International Settlements.
The BIS and its various committees of experts play a major role in
shaping the policies, standards and so on that help to ensure global
financial stability. There are a few of the important committees and
groups. One is the Committee on the Global Financial System (CGFS).
This Committee regularly monitors the latest developments in financial
markets worldwide, and also investigates how structural changes affect
the working of the global financial system. Representatives of the
Reserve Bank of India are active participants in the work of the CGFS.
Another key committee is the Basel Committee on Banking Supervision,
with which many of you will be familiar. The Basel Committee
formulates broad supervisory standards and recommends guidelines for
sound practices in the areas of banking system supervision and
regulation. The Basel Committee does not enforce compliance with the
standards it issues. Rather, the expectation is that national authorities will
take steps to put in place the necessary arrangements, statutory or
otherwise, that are best suited to their own national systems. The BIS
Financial Stability Institute (FSI) helps financial sector supervisors to
implement these standards and so strengthen their financial systems. A
large number of conferences, high-level meetings and seminars are held
by the FSI in Basel as well as in different regions around the world. The
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FSI also offers an online learning tool – FSI Connect – that is helping to
train banking supervisors in some 95 jurisdictions around the world. The
FSI and the BIS generally have deepened their contacts with the financial
industry in recent years. The Basel II process provides one recent obvious
instance. This revision of banks’ capital adequacy requirements was
undertaken over a period in which consultation with the private sector –
throughout the world, not just in the main financial centers – was intense
and continuous. The three themes related to the interface between the
financial markets and various elements of the regulatory framework that I
believe are relevant to global banking today.
The first theme is: market forces and the rationale of Basel II . Because
global market forces are increasingly shaping the structures of national
banking systems, supervision needs to be conducted in ways that harness
market discipline.
The second is: the importance of market contestability . Technological

developments and international agreements on financial services are
making financial markets ever more contestable.
The third is: that effective market discipline depends on the

harmonization of standards . Global integration is creating a need for
some degree of harmonization in this area.
(i) Market forces and the rationale of Basel II
Technology, deregulation and liberalization have reinforced market

competition, locally and internationally. Banks now have significant
operations beyond their domestic borders and are handling a large
amount of business and millions of non-resident clients across the globe.
In the process, large, internationally active financial institutions with
63
complex risk profiles have grown in size. Other domestic banks and
institutions are also forging stronger cross-border linkages by acquiring
customers abroad. Three related changes have also been important.
One: In the past, it was frequently the regulators who directly limited
banks’ business and risk-taking and – very often – shielded banks from
competition. Now banks across various jurisdictions are able to take most
of their own decisions – and face the consequences. They also have to
withstand more competition. These developments have inevitably
focused the minds of senior bank managements on the significance of
managing risks.
Two: The economic context in which banks operate has changed. There
is an increasing emphasis on “shareholder value”, which leads banks to
focus on improving risk-adjusted profitability, rather than simply
boosting business volumes. Banks are more aware of risks in their
business and of the need to use their scarce capital resources effectively.
They constantly develop and seek to improve sophisticated tools for
assessing, monitoring and managing risks.
Three: Banks now face increased competition from the alternative

sources of finance that open capital markets provide. At the same time,
various capital market instruments are now available to banks that can
help them to manage their risk profiles in a more flexible manner. Banks
not only need to price their products based on a better assessment of
risks, but they also need to really understand the advanced products that
are available to mitigate or manage risks. The importance of market
discipline brings the second theme:
(i) The importance of market contestability
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Technology and international agreements on financial services have

already made global banking a reality in many countries, and are
increasingly doing so in many others. This means that countries need to
ensure that their banking and financial markets can adapt to a more
competitive environment. The “contestability”, or “competition-
friendliness”, of a market is the key issue here. The degree of
contestability varies directly with how easy it is for new firms to enter the
market. Increased competition enables the provision of a broader range of
services, reduces price distortions and cuts costs for firms and
households. It also helps to transfer new technology and skills into the
market, as well as new products and management techniques, which
improve the overall efficiency of the market. Contestability has various
dimensions The partial privatization of public sector banks in India –
involving a substantial injection of private shareholding – has been a
notable step forward. So too has the establishment of 12 new private
sector banks since 1993. Foreign direct investment (FDI) in the financial
sector is also very important. A recent comprehensive report by the
CGFS found that local banks’ exposure to global competition boosted the
efficiency of the local financial sector in a lasting way. Competition from
foreign firms forces local banks to reassess their lending practices. The
result has often been better risk management1 and more diversified
lending portfolios – and hence safer banks. The steps taken by India in
recent years to allow greater FDI in domestic private sector banks and to
permit the establishment of foreign banking subsidiaries in India are
therefore to be welcomed. It needs to be recognized, however, that
managing foreign bank involvement in the domestic financial system is a
challenge. BIS workshops held in Asia, Latin America and eastern
Europe brought to light several important # dilemmas that policymakers
face.2 A common theme of these workshops was that good
65
communication between home and host country authorities in charge of

financial sector oversight was essential.
(ii) Harmonization of standards
The three themes: that effective market discipline depends on the

harmonization of standards. As barriers to the establishment of foreign
banks and to the cross-border provision of financial services come down,
increased attention is being given to the harmonization of accounting
standards and arrangements across countries. This is not a goal that is
easily attained. The fundamental challenge is to find sufficient common
ground for an international framework that promotes broadly consistent
results – or a “level playing field” – in the face of the very real
differences that exist across countries in terms of legal systems, market
practices and business conditions. Finding such common ground
invariably involves compromise, which means that the result is unlikely
to be that which a country acting on its own would have adopted. The
process of harmonization of accounting standards began several years ago
and is being coordinated by the International Accounting Standards
Board (IASB). A number of international financial reporting standards
(IFRS) have been finalized and have been applicable to all listed
companies in the European Union since 1 January 2005. Several other
countries have also adopted IFRS as their national accounting standards.
It is estimated that more than 90 countries will either permit or require the
use of IFRS before or during 2007 for publicly traded companies. In
addition, a number of other countries are putting in place a formal policy
to bring their national standards into line with IFRS. The Securities and
Exchange Commission of the United States has also expressed strong
support for convergence between IFRS and the United States’ Generally
Accepted Accounting Principles (US GAAP). The Financial Accounting
66
Standards Board (FASB) of the US and the IASB are now working
towards finding common ground between IFRS and US GAAP. Many
of the Indian commercial banks currently prepare their statements under
US GAAP, in addition to adhering to Indian accounting standards.
Convergence between Indian and international accounting standards has
been adopted as a formal policy of the Institute of Chartered Accountants
of India. Moreover, India has been involved in the Standards Advisory
Council of the IASB, which meets periodically to inform and advise the
IASB on various issues relating to accounting standards. All this is
welcome. Adopting common financial reporting should be a major step
towards improving the efficiency of international financial markets. It
will reduce barriers to both trade and the flow of capital. Investors will
have access to more reliable financial data to assess corporate
performance in many jurisdictions. As issuers of securities, companies
will be able to attract investors more easily, potentially reduce their cost
of capital, and save the costs of having to conform to many different
requirements in different jurisdictions. Audit firms will be better able to
assure the quality of audits among national partner firms. Financial sector
supervisors and regulators will benefit from the greater consistency and
quality of information. Ultimately, the adoption of such common
standards will lead to increased opportunities for global investment, and
will boost employment and growth globally. Not surprisingly, then, there
is growing momentum in the adoption of IFRS across jurisdictions.
Summarizing three main issues. First, global banking is becoming a
reality in more and more countries.
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CHAPTER NO - 9.
CASE STUDY WITH SBI
CASE STUDY WITH SBI
International Banking services of State Bank of India are delivered for the
benefit of its Indian customers, non-resident Indians, foreign entities and
banks through a network of 67 offices/branches in 29 countries, spread
over all time zones. The network is augmented by a cluster of Overseas
and NRI branches within India and correspondent links with over 522
banks, the world over. Bank's Joint Ventures and Subsidiaries abroad
further underline the Bank's international presence. The Bank has carved
a niche for itself in the Euro land with branches located in Antwerp, Paris
and Frankfurt. Indian banks and corporate are able to avail single-window
Euro services from the Bank's Frankfurt branch. These services include:-
A. TRADE FINANCE
Trade finance includes gamut of services which include credit for both
pre shipment and post shipment activities. These primarily include:-
 Export Avenue
 Rupee Export Credit (Pre-Shipment and Post-Shipment)
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PRE-SHIPMENT EXPORT CREDIT:-
Pre- Shipment credit (Packing Credit) is extended to the exporters for

financing purchase, processing, manufacturing or packing of goods prior
to shipment. This would mean any loan or advance can be extended by
SBI on the basis of:
a) Letter of Credit opened in the favor of the customer or in favor of

some other person, by an overseas buyer
b) A confirmed and irrevocable order for the export of goods from India.
c) 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.
Packing Credit is granted for a period depending upon the circumstances

of the individual case, such as the time required for procuring,
manufacturing or processing (where necessary) and shipping the relative
goods. Packing credit is released in one lump sum or in stages, as per the
requirement for executing the orders/LC. The pre-shipment / packing
credit granted has to be liquidated out of the proceeds of the bill dawn for
the exported commodities, once the bill is purchased/discounted etc.,
thereby converting pre-shipment credit into post-shipment credit.
POST-SHIPMENT EXPORT CREDIT:-
SBI extend Post-shipment Credit that is any loan / advance granted or any
other credit provided by SBI for purposes such as export of goods from
India. It runs from the date of extending credit, after shipment of goods
to the date of realization of export proceeds and includes any loan /
advance granted on the security of any duty drawback allowed by the
69
Govt. from time to time. Post-shipment credit has to be liquidated by the

proceeds of export bills received from abroad in respect of goods
exported.
The exporter has the following options at post-shipment stage:
i. To get export bills purchased /discounted / negotiated;
ii. To get advances against bills for collection;
iii. To receive advances against duty drawback receivable from Govt.
The exporter has the option to avail of pre-shipment and post-shipment

credit either in rupee or in foreign currency. However, if the pre-shipment
credit has been availed in foreign currency, the post-shipment credit has
necessarily to be under EBR Scheme since foreign currency pre-shipment
credit has to be liquidated in foreign currency.
 Pre Shipment Credit in Foreign Currency (PCFC)
SBI‘s Pre-shipment Credit in Foreign Currency (PCFC) facilitates funds

in foreign currency. SBI’s PCFC gives the choice of four different
currencies in which to operate the scheme - the US Dollar, Pound
Sterling, Euro and the Japanese Yen. SBI has 64 branches across the
country handling the PCFC facility for the customers’ exclusive
convenience. The Bank’s Foreign Department, based at Calcutta, is the
nodal centre for raising and deploying offshore and onshore funds for
lending under PCFC.
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How do the schemes operate?
PCFC & EBR schemes go hand in hand. The operation of these schemes
is in three stages, viz.
i) Disbursement of PCFC
ii) Disbursement of EBR and simultaneous repayment of PCFC and
iii) Repayment of EBR.
When the exporter has sufficient drawing power available within his
overall limit to accommodate the proposed PCFC advance, PCFC is made
available to him either in foreign currency for payment of his import bills
or in Indian rupees for purchase of domestic raw material by converting
the foreign currency of PCFC at T.T. Buying rate. PCFC is operated like
cash credit account with balances in foreign currency. The liability of the
exporter to the Bank on account of PCFC is in foreign currency. The
rupee equivalent will be shown in the account only at notional rates
which really doesn't concern the exporter. Interest on PCFC will be
arrived in foreign currency and the rupee equivalent thereof will be
recovered at quarterly intervals from the exporter's CC or Current
account.
 Export Bill Rediscounting
The EBR advance which is a foreign currency loan will be eventually

closed when the overseas buyer pays the bill and the export proceeds are
realized.
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 LETTER OF CREDIT
SBI offers Letters of Credit to facilitate purchase of goods in international

trading operations. The bank's vast network of branches and
correspondent banks enables one’s enterprise to sustain a seamless flow
of business on a wide platform. Further, the bank's informed trade finance
crew can provide with sophisticated credit and trade information, and
market knowledge, helping to extract more value from business. Since
the Bank establishing the Letter of Credit undertakes the responsibility of
honoring the drafts drawn there under, the ability of the importer to meet
its obligation, the integrity of the exporter, the nature of goods, besides
observance of Exchange Control regulations etc. are considered.
 IMPORT AVENUE
• Foreign Currency import credit
This facility is ideal for both Indian importers and their foreign suppliers.
SBI offers credit to foreign suppliers of Indian importers by purchasing
the import bill for its full value through one of the bank's overseas
offices. The tenor of this form of supplier's credit does not exceed 180
days. The supplier gets 100 per cent of the invoice value immediately,
making his deal practically a cash sale. Importers get credit for a
maximum period of 180 days, enabling them to manage their liquidity
better. Further, their interest payables could be lower since international
interest rates are currently lower than domestic rates. These facilities are
useful for import by sellers in the domestic market as well as export-
related import.
72
• Supplier's credit
Suppliers' Credit essentially represents credit sales affected by the

supplier on the basis of accepted bills or promissory notes with or without
a collateral security. Any credit facility arranged with recourse to the
supplier for financing upto 180 days import into India which is not
backed up in the form of any letter/document/guarantee/agreement, etc.
issued by the LC opening banks or in any other manner except normal
routine commercial transactions like an LC, can be treated as a suppliers'
credit. The underlying commercial contract between the exporter and the
Indian importer should provide for drawing of usance drafts with an
upper cap of 180 days on the usance period. When documents under
such usance LCs are discounted by our foreign offices and other banks, it
is not based on any mandate/letter of comfort/guarantee given by the LC
opening bank in India either on their own behalf or at the instance of the
importer, i.e. the buyer of goods. Indian importers are free to enjoy a
credit period of 180 days on their imports from the date of shipment
provided interest for the period does not exceed the prime rate for the
currency in which the goods are invoiced. Prior approval of RBI/GOI was
required for exceeding this time limit, till September 2002. With a view
to simplifying the procedure for imports into India, RBI, in September
2002, decided that the Authorized dealers may approve proposals
received in form ECB for short term credit for financing, by way of
Suppliers' Credit, of import of goods into India, provided. The credit is
being extended for a period of less than 3 years. The amount of credit
does not exceed USD 20 million (approx. Rs. 94 crores now) per import
transaction.
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B. CORRESPONDENT BANKING
The Correspondent Banking Division develops and maintains relationship

with Banks and Financial Institutions across the Globe. This network
Correspondent Banks forms the foundation for all international
operations of SBI. SBI has correspondent banking relations with around
522 leading banks worldwide. The Rupee Vostro accounts of
International Banks and Institutions are maintained and serviced at SBI’s
International Services branch (ISBM) at Mumbai and at Overseas
Branches at Kolkata (Calcutta), Chennai, Cochin, Bangalore and New
Delhi. ACU accounts are also serviced at the overseas branches.
C. MERCHANT BANKING
SBI’s Merchant Banking Group is strongly positioned to offer perfect

financial solutions to the respective business. It provides the resources,
convenience and services to meet the needs of the customer by arranging
Foreign Currency credits through:
• Commercial loans
• Syndicated loans
• Lines of Credit from Foreign Banks and Financial Institutions
• FCNR loans
• Financing of Imports.
Products and services include:-
1) Arranging External Commercial Borrowings (ECB)
2) Arranging and participating in international loan syndication
3) Loans backed by Export Credit Agencies
74
D. PROJECT EXPORT FINANCE
State Bank of India is an active participant in the area of finance of

Project export activities. These activities will mainly involve financing
the fund based and non fund based requirements of the project exporters.
Project export contracts are generally of high value and exporters
undertaking them are required to offer competitive terms to be able to
secure orders from foreign buyers in the face of stiff international
competition. SBI’s vast network of branches spread all over the country
which are authorized to handle trade related transactions, substantial
presence overseas with branches/offices in all major commercial centers
of the world covering all time zones and strong network of correspondent
relationship with top ranking banks in several countries adds to the
competitive strengths to facilitate and meet various requirements of
project exporters. Credit facilities offered:- Various types of credit
facilities, both non fund and fund based that project exporters may need
at the time of bidding and / or for execution of the project is extended by
the Bank.
Non Fund Based Facilities
Letter of Credit facility on behalf of our customer enabling him to import

raw material required for manufacturing goods for project export is
provided by the Bank and also all other following types of guarantees
required for project export contract are issued by SBI:-
 Bid Bond Guarantee
 Advance Payment Guarantee
 Retention Money Guarantee
75
 Maintenance Guarantee
Fund based facilities include:-
I. Pre-shipment credit both in Indian rupees and in foreign currency

to extend financial assistance for procuring/ manufacturing/ processing/
packing/ shipping goods meant for export.
II. Rupee/ Foreign currency supplier's credit: - When a project export

is on deferred credit terms, we meet the financial requirement of our
exporter in Indian rupees or foreign currency.
IV. Buyer’s credit: Bank also participates in grant of credit to foreign

buyers under the Buyer’s Credit Scheme’ of Exim Bank.
E. EXPORTER GOLD CARD
State Bank of India has launched "SBI EXPORTERS GOLD CARD

SCHEME" to meet the working capital needs of exporters with good
track record and credit worthiness, subject to their fulfilling the specified
eligibility norms. The salient features of the scheme are as under:
Assessment norms have been simplified and for units with export
turnover up to Rs. 100 crore. Standby limit of 20% will be sanctioned to
all the SBI Exporters Gold Card holders over and above the sanctioned
limit to meet credit demands arising out of receipt of sudden orders.
Limits sanctioned will be valid for a period of three years.
Interest will be charged at concessional rate from the Gold Card holders.
The present rate for Packing Credit up to 180 days and Post-shipment
credit up to 365 days would be 3.75% below the Bank's benchmark Prime
Lending Rate. Also, SBI Gold Card holders will be given preference for
grant of packing credit in foreign currency.
76
F. OBU (OFFSHORE BANKING UNIT)
State Bank of India has opened the first Offshore Banking Unit (OBU) in
India at the Special Economic Zone, New Bank Building, Andheri (East)
Mumbai 400,096 on 17th July 2003 - another landmark in the history of
India's Financial Sector.
G. USA PATRIOT ACT CERTIFICATION
Following the USA PATRIOT Act and the final rules issued by the U.S.
Department of Treasury, Banks ("Foreign banks") are required to issue
Certification to U.S. banks or broker-dealers in securities ("Covered
Financial Institutions") with which they maintain Correspondent
accounts. For this purpose and as permitted by the final rules, State bank
of India has prepared a Certification for use by any financial institution
that needs a USA PATRIOT Act Certification from State Bank of India
or one of its branches. UCO Bank all set to slug it out news Venkatachari
Jagannathan 18 June 2002
 MERCHANT RATES AND FEES WITH REGARDS TO

INTERNATIONAL BANKING:-
A Merchant Account has a variety of fees, some periodic, others charged

on a per-item or percentage basis. Some fees are set by the merchant
account provider, but the majority of the per-item and percentage fees are
passed through the merchant account provider to the credit card issuing
bank according to a schedule of rates called interchange fees, which are
set by Visa and MasterCard. Interchange fees vary depending on card
type and the circumstances of the transaction. For example, if a
transaction is made by swiping a card through a credit card terminal it
will be in a different category than if it were keyed in manually.
77
DISCOUNT RATES
The discount rate comprises a number of dues, fees, assessments, network

charges and mark-ups merchants are required to pay for accepting credit
and debit cards, the largest of which by far is the Interchange fee. Each
bank or ISO/MLS has real costs in addition to the wholesale interchange
fees, and creates profit by adding a mark-up to all the fees mentioned
above. There are a number of price models banks and ISOs/MLSs use to
bill merchants for the services rendered. Here are the some price models:
TIER PRICING
The 3-Tier Pricing is the most popular pricing method and the simplest
system for most merchants, although the new 6-Tier Pricing is gaining in
popularity. In 3-Tier Pricing, the merchant account provider groups the
transactions into 3 groups (tiers) and assigns a rate to each tier based on a
criterion established for each tier.
QUALIFIED RATES
A qualified rate is the percentage rate a merchant will be charged

whenever they accept a regular consumer credit card and process it in a
manner defined as "standard" by their merchant account provider using
an approved credit card processing solution. This is usually the lowest
rate a merchant will incur when accepting a credit card. The qualified rate
is also the rate commonly quoted to a merchant when they inquire about
pricing. The qualified rate is created based on the way a merchant will be
accepting a majority of their credit cards. For example, for an internet
merchant, the internet interchange categories will be defined as Qualified,
while for a physical retailer only transactions swiped through or read by
their terminal in an ordinary manner will be defined as Qualified.
78
MID- QUALIFIED RATES
Also known as a partially qualified rate, the mid-qualified rate is the

percentage rate a merchant will be charged whenever they accept a credit
card that does not qualify for the lowest rate (the qualified rate). This may
happen for several reasons such as a consumer credit card is keyed into a
credit card terminal instead of being swiped and special kind of credit
card is used like a rewards card or business card
A mid-qualified rate is higher than a qualified rate. Some of the

transactions that are usually grouped into the Mid-Qualified Tier can cost
the provider more in interchange costs, so the merchant account providers
do make a markup on these rates. The use of "rewards cards" can be as
high as 40% of transactions. So it is important that the financial impact of
this fee be understood.
NON- QUALIFIED RATES
The non-qualified rate is usually the highest percentage rate a merchant

will be charged whenever they accept a credit card. In most cases all
transactions that are not qualified or mid-qualified will fall to this rate.
This may happen for several reasons such as:
• A consumer credit card is keyed into a credit card terminal instead

of being swiped and address verification is not performed
• A special kind of credit card is used like a business card and all
required fields are not entered
• A merchant does not settle their daily batch within the allotted time
frame, usually past 48 hours from time of authorization.
79
CONCLUSION
Banks have influenced economies and politics for centuries.

Historically, the primary purpose of a bank was to provide loans to
trading companies. Banks provided funds to allow businesses to purchase
inventory, and collected those funds back with interest when the goods
were sold. For centuries, the banking industry only dealt with businesses,
not consumers. Banking services have expanded to include services
directed at individuals, and risk in these much smaller transactions is
pooled.
International banking has become an important aspect of world economy.

It deals with various aspects of financial services. Banks offer many
different channels to access their banking and other services.
Though international banking concept is quite old, it has acquired certain

new characteristics and dimensions. Now international banking has
become a very important for international trading and financial
transaction. Its importance is increasing through the globalization of
world economy and we will see its benefits in the near
future very soon.
80
BIBILIOGRAPHY
Reference Books & Journals
• Indian Financial system – Khan M. Y.

• International Banking & Finance - ICFAI
• Financial Institution & Market – L. M. Bhole
• Indian Banking – Mr. Chanda
Websites
• www.banknetindia.com
• www.rbi.org
• www.google.com
• www.sbi.com
News papers & Magazines
• Economic Times
• Bank Management – ICFAI
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INTERNATIONAL BANKING

The emphasis is on the theory and practice of international banking,

In order to be a success in our export activities, we need to know

proficient in providing the various products and services required by

HISTORY OF INTERNATIONAL BANK

The origin of international banking dates back to the second century BC

DEFINITIONS OF AN INTERNATIONAL BANK.

1. A bank may be said to be international if it uses branches or

2. Definition of international banking relates to the currency

3. way of defining international banking is by the nationality of the

CHARACTERISTICS AND DIMENTION

Though international banking concept is quite old, it has acquired certain

i) A multinational consortium bank, was created by several

FEATURES OF INTERNATIONAL BANKING

International banks are organized in various formal and informal ways

 CORRESPONDENT BANKING – This represents an informal linkage

 BANK AGENCIES – The agency mostly deal in the local currency

 FOREIGN BRANCHES – These are operating banks and are subject to

 CURRENCY RISK – International Bank operate in different

currencies. Currencies may weaken or strengthen with respect to each

 COMPLEXITY OF CREDIT – Credit risk has additional dimensions of

 COMPETITION FOR MARKET SHARE AMONG BANKS- Competition

 CYCLICAL NATURE, WITH PERIODIC CRISES- World economies

 COMPETITION FOR BANK LOANS FROM THE INTERNATIONAL

BOND MARKET – Treat of disintermediation is more because

international banking has many big value transaction which may

 IMPORTANCE OF INTERNATIONAL INTERBANK MARKET –As

source of liquidity and funding of banks, interbank transactions in

NATURE OF INTERNATIONAL BANKS

GETTING EXPERT ADVICE:-

Another useful service that you get from international banking

international banks have to observe keenly not only the economic

So, it is well-established fact now that you need international banking

INTERNATIONAL BANKING SERVICES WE NEED

International banking services are available to individuals and

•You may be subject to some additional scrutiny, depending on the

We should have a currency exchange service set up in order to

•Helps you take advantage of differences in exchange rates.

•you may have to pay higher service fees on certain currency

3. Money Transfer and Collection

DEVELOPMENT OF INTERNATIONAL BANKING

INTERNATIONAL TRADE IN BANKING SERVICES

International trade theory may be used to address the issue of why

international portfolio diversification and or credit evaluation services on

For example, a bank may possess a competitive advantage in the

COST AND BENEFITS OF INTERNATIONAL BANKING

The costs and benefits of the international banking system are

bank service decline. As the globalization of banking increases,

For example, the absence of regulation on the Euromarkets has

1. Revenue for central government may be reduced. If a central bank

abandon the reserve ratio requirement, or eliminate controls on

2. The international banking system is not truly global, because it is

3. The diversion of banking activity from onshore to offshore alters

PRODUCTS & SERVICES

1. NRI Banking (Please visit NRI Corner)

 DEPOSIT SCHEMES FOR NRI's

• Foreign Currency Non resident (FCNR-B) Deposits:

Customer’s overseas earnings remain fully repatriable in an FCNR (B)

The principal amount and interest earned are fully repatriable.

The Deposit is exempted from Indian Wealth tax. Interest is exempted

• Remit in any Currency

Customers can remit in any convertible currency. UCO Bank shall