Summer internship project report on

“Export financing and foreign bank charges”
Carried out at

Submitted towards the fulfillment of SUMMER TRANING (2008-2009)

SUBMITTED BY : VISHESH GARG

Information Sheet
Name of the company :- VARDHMAN TEXTILES LIMITED Address of the company :- CHANDIGARH ROAD
LUDHIANA-141001

Phone No. of the company :- 0161-2228943/44/45/46/47/48 Date of internship Commencement :- May 15th 2008 Date of internship Completion :- July 7,2008 Signatures & Name of the industry Guide :Designation of the industry Guide :Student’s Name :- Vishesh Garg Student’s Roll Number :- 27078 Student’s E-mail ID :- visheshgarg1986@gmail.com Student’s Mobile/ residence numbers:- 09999091440 Mrs. Seema Saggar

ACKNOWLEDGEMENT
I thank NIILM-CMS for giving me an opportunity to undertake my project work and for giving me knowledge in field of finance during my two months Summer Internship Any person can never do work of this nature alone. I express my sincere and humble gratitude to Mrs. Seema Saggar for being my and Industry guide and educating me to make this project a Great Success I would like to thank Mrs meenakshi for her valuable guidance and support in completion of my project .I would express my sincere thanks to all the staff members of VARDHMAN TEXTILES LIMITED (Mr. Rajeev , Mr. Pankaj, Mr. Rohit and many more ………..without their support this project would not have been a success Last but not least I would like those person This formal piece of acknowledgement may not be sufficient to express the feeling of gratitude & respect for those who were associated with the project & whose encouragement and ideas enriched my project project

PREFACE
When everybody is providing what is expected from him, the person delivering the unexpected to its customers succeeds in the long run. In today’s marketplace, it is no longer enough to satisfy the customers, the manufacturer needs to delight them as well. To conquer the modern business world one needs to be one- step ahead of its competitors. All this might not be of any relevance if not managed properly and that is what a management graduate is expected to deliver to the industry. However, studying the theoretical cannot serve the purpose of young & learning managers & that’s why they are placed in the corporate world to have its imminent view. Summer training helps the students to view the real business world closely, which in turn widely influences their conceptions & perceptions. I was fortunate to pursue my training in a reputed, well established, fast growing & a professionally managed organisation. This project report is the result of eight weeks training at Vardhmān Group, Ludhiana. It gave me great deal of exposure & I found practical work very different from theoretical one.

ABSTRACT

Vardhman is one of the largest textile producer in India having footprints in specialized yarns, fabrics, sewing threads, acrylic fiber and steel Every year Out of the total turnover of the Vardhman Group, approximately 19.94% consists of exports amounting to Rs.489.23 crores. Majority of the exports is L/C based with a usance period of 90 days to 120 days. These charges are normally on account of Telex, re-imbursement and/or Discrepancies. In the FY2007-08, Vardhman paid an amount of 154.83 lacs on account of foreign bank charges The Company prepares a Bank Charges Analysis Report every year to analyze the trend in the amount of charges paid, here our main objective is to analyise these can further be reduced . This report contains the Bank Charges Analysis Report FY 2007-08.

METHODOLO GY
BASIC METHODOLOGY:
EXPLORATORY RESEARCH USING SECONDARY DATA

TEXTLE INDUSTRY
Textile industry is primarily concerned with the design and/or manufacture of clothing as well as the distribution & use of textiles. During the late medieval period cotton become known as an imported fibre in Northern Europe. By the end of 16TH century, cotton was cultivated throughout America. In roman times wool linen & leather clothes, was a curiosity that only naturalise had herd of & silk imported along the silk road from china was an extravagant luxury. The use of flax fibre & the manufacturing of clothes in northern Europe dates back to Neolithic times. The process of making clothes depends slightly on the fibre being used, but there are three main stepsPreparation of fibres forSpinning Weaving & knitting.

The preparation of fibres differ the most depending on the fibre used. Flax requires retting & dressing while wood requires carding & washing. The spinning & weaving processes are very similar between fibres though. Spinning wheels & spindles or part was invested in India between 500 & 1000 AD. DURING THE INDUSTRIAL REVOLUTION:The textile industry grew out of the industry revolution in the 18 TH century as mass production of clothing became a main stream industry.

POST INDUSTRIAL REVOLUTION:Power looms were shuttle operated but in early part of the 20TH century, the faster & the more efficient shuttle less looms came into an existence. Today advances in technology have produced a variety of looms designed to maximised production for specific types of material. The most common of these are – Air jet looms & water jet looms. Industrial looms can weave at speeds of six rows per second & faster.

INDIAN TEXTILE INDUSTRY & ITS GLOBAL POSITION
The Indian textile industry witnessed growing investments during the last three years. It is estimated that the textile industry received fresh investment of Rs. 50,000 crores during 2004 and 2006.the fresh investment will enable the industry to expand capacities and achieve economies of scale. Our economy is largely dependent on textile manufacturing and trade in addition to other major industries. About 27% of the foreign exchange earnings are on account of export of textiles & clothing alone. The textile & clothing sector contribute about 14% of the industrial production & about 3% to the gross domestic product of the country. Around 8% of the total excise revenue collection is the contributed by the textile industry. The textile industry in India has a strong multi-fibre raw material production base. A technology SAVVY industry to meet the challenges ahead. “India is presently exporting 6 billion U.S. dollars worth of garments, where as with the WTO regime in place, we can increase the production and export of garment from 18 to 20 billion U.S. dollars within next 5 years.” First time a separate policy statement was made in 1985 in regard to development of textile sector. With new investment flow, India’s cotton production increased by 57% over the last 5 years & 3 million additional spindles & 30000 shuttles less looms was installed.

 The Indian Textile Industry is the second largest in the world.  It has the largest cotton acreage (9 million hectares).  It is the third largest cotton producer.  It ranks 4TH in terms of staple fibre production & 6TH in filament yarn production.  India accounts for (circa) 25% of the Global trade in cotton yarn.  It is the largest producer of Jute, the second largest producer of silk and the 5 th largest producer of synthetic fibre / yarn.

THE INDIAN TEXTILE INDUSTRY WITHIN THE INDIAN ECONOMY

 The Indian Textile and Apparel industry : o contributes to circa 3.6% of India’s gross domestic product o Accounts for 25% of India’s exports.(Ref 7).  The Textile Industry accounts for about 20% of industrial production.  The Textile Industry employs over 15 million people.  Textiles and Garment exports account for 39% of India’s total exports.  Globalisation has brought opportunities for Indian Textiles.  But Globalisation also brings threats which have to be addressed (particularly from cheap imported fabrics).  If the WTO means better distribution of world trade, it will not be free for all and only the fittest will survive.  WTO benefits for Indian Textiles will also apply to other developing countries.  The Indian Textile Industry has great potential, but great challenges ahead.  It must maximise its strengths and minimise its weaknesses.

INDIA’S COMPETITORS

India’s exports fall into the low risk category because of its well developed domestic textile industry. Despite this, India’s exports do face serious competition from the following countries
• • • •

China Bangladesh Pakistan Sri Lanka

Main markets of Indian textiles are:• • • • • Australia Mauritius Bangladesh New Zealand Belgium

• • • • • • • • • • • • • • • • • • •

Russia Canada Saudi Arabia China Singapore Columbia Spain Egypt Sri Lanka Germany Switzerland Greece Syria Hong Kong Thailand Indonesia Ukraine Israel U.K

• • • • • • • • •

Italy USA Japan Uruguay Korea Venezuela Lebanon Vietnam Malaysia.

MULTI-FIBRE ARRANGEMENT (1974)

After the textile quota regime of quantitative import restrictions under the Multi- fibre Arrangement (MFA) came to an end on Ist Jan 2005 under WTO agreement on textiles & clothing. MFA was designed to be a short term measure primarily to give industrialise countries time to adjust to competition from imports from developing countries. Aim of MFA was to allocate export quotas to low cost developing countries & limiting the amount of imports to countries whose domestic industry’s faced serious challenges from rapidly increasing imports. The expiration of MFA didn’t however mean the end of quotas on textile & clothing exports from developing countries. The MFA is regime served to protect newly industrialised countries like Korea, Taiwan & Hong Kong that have now become non-competitive due to substantial increase in domestic wages. It checks the decline of textile sector in the industrialised countries but failed to help it revive

SWOT ANALYSIS

STRENGTHS:
 Indian Textile Industry is an Independent & Self-Reliant industry.  Abundant Raw Material availability that helps industry to control costs and reduces the lead-time across the operation.  Availability of Low Cost and Skilled Manpower provides competitive advantage to industry.  Availability of large varieties of cotton fibre & has a fast growing synthetic fibre industry.  India has great advantage in Spinning Sector and has a presence in all process of operation & value chain.  India is one of the largest exporters of Yarn in international market & contributes around 25% share of the global trade in Cotton Yarn.  The Apparel Industry is one of largest foreign revenue contributor & holds 12% of the country’s total export.  Industry has large and diversified segments that provide wide variety of products.  Growing Economy and Potential Domestic & International Market.  Industry has Manufacturing Flexibility that helps to increase the productivity WEAKNESSES:
    

Indian Textile Industry is highly Fragmented Industry. Industry is highly dependent on Cotton. Lower Productivity in various segments. There is Declining in Mill Segment. Lack of Technological Development that affect the productivity & other activities in whole value chain. Infrastructural Bottlenecks and Efficiency such as, Transaction Time at Ports and transportation Time. Unfavourable labour Laws. Lack of Trade Membership, which restrict to tap other potential market. Lacking to generate Economies of Scale.

  

Higher Indirect Taxes, Power and Interest Rates.

OPPORTUNITIES:
     

Growth rate of Domestic Textile Industry is 6-8% per annum. Large, Potential Domestic & International Market. Product development and Diversification to cater global needs. Elimination of Quota Restriction leads to greater Market Development. Market is gradually shifting towards Branded Readymade Garment. Increased Disposable Income & Purchasing Power of Indian Customer opens New Market Development. Emerging Retail Industry and Malls provide huge opportunities for the Apparel, Handicraft & other segments of the industry. Greater Investment & FDI opportunities are available.

THREATS:

Competition from other developing countries, especially China.

Continuous Quality Improvement is need of the hour as there are different demand patterns all over the world. Elimination of Quota system will lead to fluctuations in Export Demand. Threat for Traditional Market for Power loom & Handloom Products & forcing them for product diversification. Geographical Disadvantages. International labour & Environmental Laws. To balance the demand & supply.

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  

To make balance between price & quality

COMPETITOR STRENGTHS AND WEAKNESSES

Country

Strengths Weaknesses World’s largest Textile Economy. Large obsolete production capacities sector. The largest exporter of textiles & in 2002). Low value addition. clothing (worth US $ 62 billion in the cotton

This accounts for 17% of world trade (Textiles = 13%; Clothing = 20%).

World’s Cotton. China World’s

largest

producer

of

largest

producer

of

Synthetic fibres.

Textile sector generates 10% of its GDP; and 20% of its merchandise output.

Relatively low labour costs.

One of the world’s largest (exports of US $ 5 billion pa). Significant presence in US markets, due to a large quota. Also enjoys quota free, & duty & Norway.

Raw material base; no production; & relies heavily on imported yarns and fibres. Inadequate infrastructure. Leads to congestion &

exporters of readymade garments indigenous cotton

free access to Australia; Canada delays at ports. Inadequate communications Its status as a least developed country (LDC) will give it Bangladesh favourable market access in the Uncompetitive and post quota era (01/01/2005); withunreliable power supply preferred facility for EU markets. Has mastered the garment trade & has low cost / high productivity in that sector. leads to production delays & elevated costs. network.

Textile & Apparel Industry has crucial part of country’s economy. It is the country’s biggest employer in manufacturing; & number 1 export earner. Sri Lanka In 2001 it accounted for 69% of

Small domestic fabric base. Relies heavily on yarn & fabric imports. Industry is seeing decline in competitiveness due to its heavy reliance on quota categories, concentration on

the country’s industrial exports and 53% of its total exports. Relatively secure markets in with USA; EU & Canada through bilateral agreements. Relatively small domestic market, little cash generation to support investment in developing export markets. Fourth largest Cotton producer inLimited manufacturing base the world. Highly developed garment confection industry, & also dyeing & finishing industry. Pakistan Abundant labour force, which relatively cheaper than China & India. in clothing & processing. Limited research & development restricting diversity in product & innovation. a few markets, inability to develop new markets or major purchasers because of direct marketing contacts.

CHALLENGES FACED BY TEXTILE INDUSTRY

 Rising rupee brought the inherent structural weaknesses that have plagued the industry for decades.

 The textile industry suffers from low competitive position too with regard to the availability of good quality cotton, low level of technology, poor automation, lack of integrated supply chain, low brand image in overseas markets etc.

 Infrastructural bottlenecks like the transaction time at ports, inland transportation time, lack of initiatives by textile manufacturers to going for technological up gradation, fragmentation of Indian textile industry etc.

 Indian industry will have to become competitive by raising its level of efficiency to meet the challenges both in international & domestic markets.

 The speedy development of the technology in the world textile industry.

 The substantial issues related to fibre resources i.e. energy, water, environment etc.

 And the increasing cost of HR and other.

 A growing over supply pressure in the world market for apparel.

CHALLENGES:1. PRODUCT Products are inadequate to suit the demands of both the international & domestic markets. The bulk of products are medium & low quality between Chinese made & those made in the developed 2. INEFFICIENT OPPERATION countries. Inefficient operation in the textile enterprises due to historical reasons, which led to high cost production, an excessive work force & poor management skills, slow reaction on the customer’s 3. PROCESSING TECHNOLOGY 4. AWARENESS 5. RESPONSE requests & old business operation made. The low level processing technology- there is excessive of production capacities for lower end products & lack of creativity in product design. Improve the awareness of the fashion in the textile industry & keep up with the pace of the world. Sharpen quick response awareness.

COMPANY’S PROFILE

Vardhman is one of the largest textile conglomerates in India having footprints in specialized yarns, fabrics, sewing threads, acrylic fiber and steel.

HISTORY OF THE GROUP
The industrial city of Ludhiana, also known as the Manchester of India nestles the corporate headquarters of Vardhman group. Vardhman, a household name in Northern India, has carved out a niche for itself in textile industry. The Vardhman group was setup in 1962 by late Lala Rattan Chand Oswal, father of present Chairman cum Managing Director, Sh. S.P. Oswal. At time of installation, the group had a modest capacity of 14,000 spindles which after more than three decades of operations has increased manifolds. The group presently has

Group Companies

GROWTH OF THE COMPANY

Company also has a strong presence in various countries like Japan, Hong Kong and EU in addition to domestic market. Yet another forward integration project on readymade garments is in the offing and is to be realized soon. Vardhman group is earning laurels by exporting yarn and fabrics to international quality to several countries in west, Africa and Far East earning valuable foreign currency for country. Vardhman group is first company among textile industry to receive the 9002/ISO 14002 quality awards in India

PORTFOLIO

The Group portfolio includes manu11facturing and marketing of Yarns, Fabrics, Sewing Threads, Fiber and Alloy Steel.

Various unit locations of Vardhman Group are as follows:

ST Y C F

Steel Yarn Cotton Yarn Fabric

MISSION
Vardhman aims to be world class textile organization producing diverse range of products for the global textile market. Vardhman seeks to achieve customer delight through excellence in manufacturing and customer service based on creative combination of stateof-the-art technology and human resources. Vardhman is committed to be responsible corporate citizen.

COMPANY’S PHILOSOPHY
 Faith in bright future of Indian textiles and hence continued expansion in areas “which we know the best”  Total customer focus in all operational areas.  Product to be of best available quality for premium market segments through TQM and zero defect implementation  Global orientation targeting – at least 20% production for exports.  Integrated diversification / product range expansion.  World class manufacturing facilities with most modern R&D and process technology.  Faith in individual potential and respect for human values.  Encouraging innovation for constant improvements to achieve excellence in all functional areas.  Accepting change as a way of life.

 Appreciating our role as a responsible corporate citizen.

MARKET PERFORMANCE

500 400 300 200 100 0
06 07 20 19 19 19 19 19 20 20 20 20 20 20 20 20 08 95 96 97 98 99 00 01 02 03 04 05

o Largest Spinning capacity in India - over half a million spindles. o Largest producer of Cotton, Synthetics and Blended yarns in the country o Largest Dyeing Capacity of Fibre and Yarn o Largest Exporter of Cotton Yarn o Market Leader in Hand Knitting Yarns in India o Largest range of Textile products o Second largest producer of Sewing Thread in the country o Collaborations with specialist worldwide

o

ERP enabled solutions for online order tracking

FINANCING OF EXPORT
The areas where finance would be essentially needed, after one gets an export order will be:(1) Procuring raw material and components for manufacturing the product. (2) Refinance facilities so as to get the proceeds of export bills at the time of negotiations of export documents, soon after shipping the goods. (3) Availability of funds until the export benefits are realized. (4) Refinance facilities for long term credit are offered for the export of the product.

FINANCING OF SHORT TERM REQUIREMENTS:(A) PRE- SHIPMENT FINANCE:Pre- shipment finance is also known as “Packing credit”. It is the advance granted to the exporter to procure, process, manufacture, pack and prepare the goods, before and till the goods are shipped. Pre- shipment credit enables him to meet his working capital requirement for the purchase of raw- materials and components, processing, packing, transportation and warehousing. Packing credit is short term finance. In India preshipment credit is provided by Indian and foreign commercial banks which are members of the Foreign Exchange Dealers Association of India (FEDAI). TYPES OF PRE- SHIPMENT FINANCE:The types of credit depend upon the nature of production and procurement system concerning the commodity to be exported, which are as follows:-

(1) EXTENDED PACKING CREDIT LOAN:It is granted to the clients for making advance payment to the supplier for procuring goods to be exported. Thus it is clean in nature and usually extended to the parties, who are rated as first class, for a very short duration.

(2) PACKING CREDIT HYPOTHECATION:It is extended where raw materials, work in progress and finished goods meant for export are available as security. The processing/manufacturing may be under taken by the exporter himself or through sub contractors’ captive units. (3) PACKING CREDIT LOAN:The PCI can be granted as loan in the form of pledge in cases where exporters are required to collect/obtain the raw materials in odd o bunched lots or the raw material is seasonal in nature and the actual & delivery schedules agreed upon by the overseas buyer. (4) SECURED SHIPPING LOAN:Once the goods are ready for shipment and exporter/supplier has handed over the goods to the transport operator clearing & forwarding agent for dispatch and effecting the Shipment, the advance can be granted as secured shipping loan. This is normally sanctioned for a short period considering the time taken for dispatch of goods to port towns and competition of shipping custom formalities. Secured shipping loan can also be released on receipt/rail receipt from the supplier and after forwarding the same o the C&F agent with shipping instructions from the party. (5) COMBINATION OF CLEAN AND SECURED ADVANCE:Packing credit can also be given a combination of clean and secured advances

(6) INLAND/IMPORT LETTER OF CREDIT:Where the exporter procures goods from the sub- supplier or requires imported raw materials, back to back letter of credit facility can be extended to him and goods/raw materials so acquired can be taken under pledge/hypothecation by releasing preshipment credit in due course. (7) RUNNING ACCOUNT FACILITY:Banks may grant pre- shipment finance for exports of any commodity on the following conditions:(a) The need for running account facility has been established by the exporter to the satisfaction of the bank. (b) The exporter track record continues to be good. (c) The letter of credit or firm order should be produced within 30 days. (d) The packing credit amount should be maintained separately and not mixed with normal current account or cash credit account of the customer. (8) LETTER OF CREDIT OR FIRM ORDER:Pre- shipment credit facility can be given on the products of sufficient evidence of export order like cable, telex, irrevocable and confirmed letter of credit. It can also be given under the ‘red clause letter of credit’ which means at the instance and responsibility of the foreign bank establishing the letter of credit. (9) ADVANCE AGAINST DUTY DRAWBACK:Duty drawback refers to the import duty paid on raw materials or components for export or the excise duty paid on the items which are produced for export are repaid to the exporter. The exporter’s funds are locked up during verification process by various agencies. Normally, the exporter can claim the duty drawback amount (incentive) only after the exports of goods by producing necessary documents. But bank may finance

against incentives permissible to the exporter at the pre- shipment stage or at the postshipment stage. (10)PRE SHIPMENT CREDIT IN FOREIGN CURRENCY (PCFC) SCHEME:For providing pre- shipment credit to Indian exporters at internationally competitive rates of interest from authorized dealers in foreign exchange, pre shipment credit in foreign currency (PCFC) is provided in domestic currency or foreign currency. It is available on the basis of Confirmed letter of credit or firm export order for a maximum period of 180 days.

POST- SHIPMENT FINANCE:-

Finance and credit are available to keep not only export production but also to export on credit under various schemes for post shipment credit and for deferred payment. Postshipment finance means any loan or any other credit provided by any institution to an exporter of goods from India from the date of extending the credit after shipment of goods to the date of realization of export proceeds and includes any loan or advance granted to an exporter, on consideration of or on the security of any drawback or any cash receivable by way of incentives from the government forms. Post shipment finance is provided against shipping documents. It is provided against duty drawback claims.

TYPE OF POST SHIPMENT FINANCE:

(1) PURCHASE OF EXPORT DOCUMENTS: Purchase or discount facilities in respect of export bills drawn under confirmed export order are generally granted to the customer who are enjoying bill purchase or discounting bills from bank on the basis of security offered under letter of credit or depending upon the credit worthiness of exporters as well as importers or generally on the basis of ECGC (Export Credit Guarantee Corporation) guarantee fixes the limits for individual customers. At the time of purchasing the bill bank has to ascertain that this drawee is not exceeded so as to make ineligible for claim in case non payment.

(2) ADVANCE AGAINST EXPORT BILLS SENT ON COLLECTION:

This facility is another form of post shipment advance and is sanctioned by the bank on the same terms and conditions as applicable to the facility of negotiation/ purchase/ discount of export bills. A margin of 10% to 25% is stipulated in such cases. In such cases the export bills are sent by bank on collection basis. The bank may accommodate him by allowing an overdraft or granting a loan up to a certain percentage of the value of the bill under collection. The types of facility is however, not very popular. Post shipment advance can be granted against bill of collection basis in the following situation: (a)When the accommodation available under the foreign bills purchase limit is exhausted. (b) When same export bills drawn under L/C have discrepancies. (c) Where it is customary practice in the particular line of trade and in case of export to countries where there are problems of externalization. (d) The currency in which the bill is denominated is ruling low, but expects it to gain value soon. (3) ADVANCE AGAINST GOODS SENT ON CONSIGNMENT BASIS: When the goods are exported on consignment basis means where payment is receivable subject to sale of goods. The goods are exported at the risk of the exporter for sale and eventual remittances of sale proceeds to the exporter by the agent/ consignee, bank may finance against which transaction subject to the customer enjoying specific limit to that effect. The overseas branch/correspondent of the bank is instructed to deliver the documents against “thrust receipt”. (4) ADVANCE AGAINST UNDRAWN BALANCE: In some trade, exporters do not draw bills for the full invoice value of goods and leave some part undrawn for payment adjustment due to the difference in rates, weight, quality which is ascertained after approval and inspection of goods. Banks keeping some margin do finance against undrawn at 13% rate of interest up to 90 days that is maximum time limit which the proceeds must be realized. (5) ADVANCE AGAINST RETENTION MONEY:

Banks also grant advances against retention money, which payable within one year from the date of shipment, at a concessional rate of interest which is 13% up to 90 days. If such advances extend beyond one year, they are treated as deferred payment advances which are eligible for concessional rate of interest. (6) ADVANCE AGAINST CLAIMS OF DUTY DRAWBACK: Custom houses at Delhi, Mumbai, Calcutta, Hyderabad have evolved a simplified procedure under which claims of duty drawback are settled immediately against shipment and no funds of exporters are blocked. However, where settlement is not possible under the simplified procedure exporters may obtain advances claims of duty drawback as provisionally certified at the rate of 13% p.a. for period of 90 days

HOW DOES VARDHMAN FINANCE ITS EXPORT???????
1) Packing Credit: It is the option available to the company in order to facilitate the exports of the company . This consists of pre-shipment and post-shipment credit. The bank offers different limits for both these loans . While the pre-shipment credit is for filling the gap between the shipment and actually receiving the payment from the customer . This may be in Indian rupees or foreign currency . As soon as the shipment is made ,the pre-shipment is nullified and the same amount is made outstanding as post shipment credit.This can be availed in two forms: • Packing Credit: They take loan against the exports of the company. The export cell liquidates these loans by discounting the export bills from the bank.The interest at this loan is approx 7-8%. Packing credit in foreign currency: This is exactly the same as PC .The difference is just, that PCFC is in foreign currency. The interest at this loan is approx 4.5%.But in this loan we need to face the foreign exchange rate fluctuations.

The amount of loans raised for exports in last 2 years is given as under:
Amount of loans raised in 2006-07(in Rs. Crores) PC/PC FC 191 Amount of loans raised in 2007-08(in Rs. Crores) 408

METHODS OF PAYMENT
To succeed in today’s global marketplace and win sales against foreign competitors, exporters must offer their customers attractive sales terms supported by appropriate payment methods. Because getting paid in full and on time is the ultimate goal for each export sale, an appropriate payment method must be chosen carefully to minimize the payment risk while also accommodating the needs of the buyer. • To succeed in today’s global marketplace and win sales against International trade presents a spectrum of risk, which causes uncertainty over the timing of payments between the exporter (seller) and importer (foreign buyer). • For exporters, any sale is a gift until payment is received. • Therefore, exporters want to receive payment as soon as possible, preferably as soon as an order is placed or before the goods are sent to the importer. • For importers, any payment is a donation until the goods are received. • Therefore, importers want to receive the goods as soon as possible but to delay payment as long as possible, preferably until after the goods are resold to generate enough income to pay the exporter.

Cash-in-Advance With cash-in-advance payment terms, the exporter can avoid credit risk because payment is received before the ownership of the goods is transferred. Wire transfers and credit cards are the most commonly used cash-in-advance options available to exporters. However, requiring payment in advance is the least attractive option for the buyer, because it creates cash-flow problems. Foreign buyers are also concerned that the goods may not be sent if payment is made in advance. Thus, exporters who insist on this payment method as their sole manner of doing business may lose to competitors who offer more attractive payment terms.

Letters of Credit Letters of credit (LCs) are one of the most secure instruments available to international traders. An LC is a commitment by a bank on behalf of the buyer that payment will be made to the exporter, provided that the terms and conditions stated in the LC have been met, as verified through the presentation of all required documents. The buyer pays his or her bank to render this service. An LC is useful when reliable credit information about a foreign buyer is difficult to obtain, but the exporter is satisfied with the creditworthiness of the buyer’s foreign bank. An LC also protects the buyer because no payment obligation arises until the goods have been shipped or delivered as promised.

Documentary Collections A documentary collection (D/C) is a transaction whereby the exporter entrusts the collectionof a payment to the remitting bank (exporter’s bank), which sends documents to a collecting bank (importer’s bank), along with instructions for payment. Funds are received from the importer and remitted to the exporter through the banks involved in the collection in exchange for those documents. D/Cs involve using a draft that requires the importer to pay the face amount either at sight (document against payment) or on a specified date (document against acceptance). The draft gives instructions that specify the documents required for the transfer of title to the goods. Although banks do act as facilitators for their clients, D/Cs offer no verification process and limited recourse in the event of non-payment. Drafts are generally less expensive than LCs.

Open Account An open account transaction is a sale where the goods are shipped and delivered before payment is due, which is usually in 30 to 90 days. Obviously, this option is the most advantageous option to the importer in terms of cash flow and cost, but it is consequently the highest risk option for an exporter. Because of intense competition in export markets, foreign buyers often press exporters for open account terms since the extension of credit by the seller to the buyer is more common abroad. Therefore, exporters who are reluctant to extend credit may lose a sale to their competitors. However, the exporter can offer competitive open account terms while substantially mitigating the risk of non-payment by using of one or more of the appropriate trade finance techniques, such as export credit insurance.

LETTER OF CREDIT
A letter of credit is a document typically issued by a bank or financial institution, which authorizes the recipient of the letter (the "customer" of the bank) to draw amounts of money up to a specified total, consistent with any terms and conditions set forth in the letter. This usually occurs where the bank's customer seeks to assure a seller (the "beneficiary") that it will receive payment for any goods it sells to the customer. For example, the bank might extend the letter of credit conditioned upon the beneficiary's providing documentation that the goods purchased with the line of credit have been shipped to the customer. The customer may use the letter of credit to assure the beneficiary that, if it satisfies the conditions set forth in the letter, it will be paid for any goods it sells and ships to the customer. In simple terms, a letter of credit could be said to document a bank customer's line of credit, and any terms associated with its use of that line of credit. Letters of credit are most commonly used in association with long-distance and international commercial transactions.

Elements of a Letter of Credit

• • • • • • •

A payment undertaking given by a bank (issuing bank) On behalf of a buyer (applicant) To pay a seller (beneficiary) for a given amount of money On presentation of specified documents representing the supply of goods Within specified time limits Documents must conform to terms and conditions set out in the letter of credit Documents to be presented at a specified place

PARTIES TO AND ASSOCIATED WITH THE LETTER OF CREDIT
1. Applicant The applicant is the party who requests and instructs the issuing bank to open a letter of credit in favor of the beneficiary. The applicant usually is the importer or the buyer of goods and/or services. The applicant can also be another party acting on behalf of the importer, such as a confirming house. The confirming house is equivalent to a buying office, it acts as an intermediary between importer and exporter, and it can be located in a third country or in the exporter’s country. The confirming house negotiates and books the order on behalf of the importer and guarantees payment to the exporter, and often finances the importer. When dealing with importers in a country with a foreign shortage, for example Nigeria, the exporter may deal with the confirming house in the United Kingdom or in other areas to ensure payment. 2.Beneficiary The beneficiary is entitled to payment as long as he can provide the documentary evidence required by the letter of credit. The letter of credit is a distinct and separate transaction from the contract on which it is based. All parties deal in documents and not in goods. The issuing bank is not liable for performance of the underlying contract between the customer and beneficiary. The issuing bank's obligation to the buyer, is to examine all documents to insure that they meet all the terms and conditions of the credit. Upon requesting demand for payment the beneficiary warrants that all conditions of the agreement have been complied with. If the beneficiary (seller) conforms to the letter of credit, the seller must be paid by the bank. 3.Issuing Bank The issuing bank's liability to pay and to be reimbursed from its customer becomes absolute upon the completion of the terms and conditions of the letter of credit. Under the

provisions of the Uniform Customs and Practice for Documentary Credits, the bank is given a reasonable amount of time after receipt of the documents to honor the draft. The issuing banks' role is to provide a guarantee to the seller that if compliant documents are presented, the bank will pay the seller the amount due and to examine the documents, and only pay if these documents comply with the terms and conditions set out in the letter of credit. Typically the documents requested will include a commercial invoice, a transport document such as a bill of lading or airway bill and an insurance document; but there are many others. Letters of credit deal in documents, not goods. 4.Advising Bank An advising bank, usually a foreign correspondent bank of the issuing bank will advise the beneficiary. Generally, the beneficiary would want to use a local bank to insure that the letter of credit is valid. In addition, the advising bank would be responsible for sending the documents to the issuing bank. The advising bank has no other obligation under the letter of credit. If the issuing bank does not pay the beneficiary, the advising bank is not obligated to pay. 5.Confirming Bank The correspondent bank may confirm the letter of credit for the beneficiary. At the request of the issuing bank, the correspondent obligates itself to insure payment under the letter of credit. The confirming bank would not confirm the credit until it evaluated the country and bank where the letter of credit originates. The confirming bank is usually the advising bank. 6.Negotiating Bank: The bank which negotiates the draft or documents presented by the beneficiary or bonafide holder is known as negotiating bank. When the bank negotiates the draft and documentsi.e.the negotiation it gives value to such draft and documents ,not just examination of the documents.

Bank Charges
Bank charges are the charges paid by the Company for availing various facilities from the banks like Cash Management Service , Demand Draft Issue , Upfront Fees, Gurantee Fees, Foreign Bank Facilities like L/C opening, L/C amendment, L/C advising, etc.. In simple terms, these fees are called the Service Charges that the banks levy on its customers for its operations. The Vardhman Group is majorly into export of its thread and fabric material. Due to the dollar depreciating in value, the company is facing a huge cost. The company is constantly making efforts to reduce its expenses in all its other areas to compensate the rising export cost. The Bank Charges Analysis is a major area of interest to reduce the cost as negotiations can be done with the banks to reduce the charges levied seeing the increasing size of the company and huge transactions. Moreover the banks also devise new products/ facilities to make the dealings easy with the corporates and provide faster funds. A brief summary of all the charges paid by the company is explained below. The bank charges levied by various banks are listed below, further with there detailed explanation: 1. Credit Rating Charges 2. Debenture Trusteeship Fees 3. Up Front Fees 4. Forex Booking and Cancellation 5. Import L/C Bill Retirement /Collection Charges 6. Guarantee Charges 7. DD Issue 8. TT Issue 9. CMS Charges 10. Inland Bill Retirement Charges 11. Lead Bank Charges 12. Processing Charges 13. Export Negotiation Charges

14. Foreign Bank Charges 15. Early Delivery Charges 16. Other Financial Charges The following data shows the above charges paid by the subsidiaries of Vardhman Textiles along with the codes given to each charges for easy operation.

Credit

Rating Charges: In order to avail finance from the open market, the credit

worthiness of a company needs to be rated by a recognized credit rating agency. These agencies charge a fee for providing a credit rating, which is generally a percentage of the amount rated subject to a minimum amount of fee. Debenture Trusteeship Fees: Since debentures are transferable instruments, a single contact point is needed for purposes of security creation, etc. The company appoints a Debenture Trustee for this purpose, paying him an annual fees which might be fixed or a %age of the outstanding amount of debentures. Since the company has the facility of loan sanction under TUFS and the outstanding debentures would be fully repaid in March,2008 , hence it doesn’t require funds from the open market. This would act as a huge saving potential for the company. Upfront Fees: When the company enters into the documentation for a term loan, the bank charges an upfront fees, which is generally %age (usually around 1%) of the loan sanctioned. The company has to pay these charges only once i.e at the time of the inception of the loan. As most of the loans had been tied up during the year against the coming expansions, these charges are likely to be NIL in the FY2007-08. Forex Booking and Cancellation: These are the charges levied by the banks on booking/cancellation of the forward contarcts. Booking charges are generally between Rs.250-1000/- per contract and cancellation charges are between Rs. 100-500/- per contract.

The company has negotiated with the banks and these charges are likely to be Nil in the FY2007-08. Import L/C Bill Retirement/ Collection Charges: These charges are levied by the

banks for opening of a Letter of Credit. It basically include: L/C Opening Charges L/C Amendment Charges L/C Advising Charges L/C Transfer Charges The company pays these charges on negotiated terms with the banks like 0.05% per month for an average period of 3.25 months for SBOP and PNB and 0.06% per month for an average period of 8 months against transactions in USD. The charges can be reduced by settling with a lower flat rate for more number of documents. Guarantee Charges: The company is required to give gurantee for the purpose of insurance of its properties and various statutory grarantee. The banks levy a charge for giving such guarantees on behalf of the company. These charges are given by the company mainly for insurance, power(HPSEB), power(MPSEB) and for subsidy. The corporation enjoys a concession of 50% in rates for all gurantees other than insurance where it is 75% on grounds of higher amount involved. DD Issue : These are the service charges levied by the bank against the issuance of demand drafts. The charges are incurred for making various payments and also for receiving various payments from the customers. Currently the company is getting the DDs issued both in INR for various payments and in foreign currency for payments of agency commissions, etc. the normal DD charges in INR are Rs.2.50 to Rs.3.00 per thousand. For the company to reduce its charges further, negotiations have been done with a few private banks to issue the DDs free of cost.

TT

Issue: These are the service charge levied by the bank against the telegraphic

transfer of funds which is both domestic and overseas fund transfer. The normal TT issue charges for domestic transfers are in the range of Rs.2.50 to Rs.3.00 per thousand. In regards to TT issue charges for overseas fund transfer, a sanction of Rs.900 to Rs.1000 per transaction is availed. Seeking a saving potential in these charges, negotiations are been carried out with few of the foreign/private/nationalized banks to transfer the funds free of cost. In regards to overseas fund transfer, a flat rate of Rs.500 to Rs.750 per transaction is expected. CMS Charge: Cash Management Service is associated with the collection of cheques and cash. It provides its customer(s) speed, accuracy and efficiency. It ensures not only unlocking of funds in transit, but also enhances liquidity in corporate system and enables effective funds management. In simple words, CMS means anywhere banking. Under this, money reaches the bank account of the company usually one day after the cheque is issued by the customer for payment provided it is a Local Cheque. Well the beauty of the CMS is that it makes most of the cheques a Local Cheque. Inland Bill Retirement Charges: These are the inland bills which are sent on collection basis to the customer’s bank for realization of payment. The company has concessional rate of Rs.4.50 per thousand for all its documents with SBOP in yarn and fabric business. In case of steel business, the charges has been reduced to Rs.2.50 per thousand paid to HDFC as opposed to Rs.4.50 per thousand paid to SBOP. Lead Bank Charges: Lead bank charges are levied by the lead bank who heads the consortium of banks which provide working capital finance to the company through fund based and non-fund based credit limits. The normal lead bank charges are 0.1% of the limits sanctioned. The credit limits are generally renewed in November every year and the charges are paid for the next one year. The bank has agreed to give a concession of 75% on the normal bank charges.

Processing Charges : These are levied by the consortium banks towards working capital limits( fund based and non- fund based). These expenses are levied as a fixed %age of the limits sanctioned(as per the bank’s internal guidelines) or they are pre-negotiated with the company. As per the worked out terms with the banks, the company receives a concession of 75% on the normal charges. SBOP has decided to waiver off these charges fully. Further conciliations were made to make the charges inclusive of service tax.

Export Negotiation Charges: Export negotiation is a service offering by which the exporter’s corresponding bank receives and authenticates the full set of export documents submitted by the exporter, before paying for the bills and documents.

Foreign Charges

Bank

Out of the total turnover of the Vardhman Group, approximately 19.94% consists of exports amounting to Rs.489.23 crores. Majority of the exports is L/C based with a usance period of 90 days to 120 days. Some other is on sight basis. In addition to that, a small part of exports is on CAD/DA/DP/Advance payment basis. The customer’s bank deducts certain charges on the realization of documents. These charges are deducted from the amount received by the beneficiary, by an intermediary bank and/or the beneficiary's bank. The charges relate to their role in transmitting and processing the payment, and can vary. These are Foreign Bank Charges (FBC). These charges are normally on account of Telex, re-imbursement and/or Discrepancies. In the FY2006-07, Vardhman paid an amount of 154.83 lacs on account of foreign bank charges.

NORMAL FBC

Reimbursement Charges (per document)

US$30 US$40

Swift / Telex Charges (per document)

US$30 - US$40

Total Charges for Clean Documents Discrepancy Charges (only in case of discrepancy) Total Charges for Discrepant Documents

US$60 - US$80 US$50 - US$60 US$110 - US$140

DETAILS OF DISCREPANCIES
A significant portion of the foreign bank charges pertain to discrepancy charges. Discrepancies Generally Observed In The Export Documents: 1. L/C expired. 2. Late shipment. 3. Photo copy of courier receipt presented 4. Late presentation 5. Certificate of origin not legalized. 6. Beneficiary differs 7. Name of the manufacturer not indicated on certificate of origin. 8. Bill of lading not showing L/C issuing bank’s name & actual port of loading. 9. Packing list not indicating that goods are packed in standard export packing. 10. Unauthorized carrier issues bill of lading. 11. Declaration of no wood material not presented. 12. Fumigation certificate not presented. 13. Shipping company not showing ship mark. 14. Beneficiary certificate not as per L/C. 15. Packing List not as per L/C. 16. Shipping certificate not presented. 17. Alteration on shipping company certificate not authenticated. 18. Partial shipment. 19. Gross weight and contract number differs from L/C.

TOP 20 CUSTOMERS
The top 20 customers of Vardhman group along with their respective countries according to invoice total is as follows :

CUSTN COUNTRY NISSHINBO INDUSTRIES INC. Total japan PACIFIC OVERSEAS TEXTILES MACAO Total CHINA SHINKO SANGYO CO. LTD. Total japan PROMPTEX YARNS INC. Total canada IM INTERNATIONAL Total australia PROSPERLINK(MACAO COMMERCIAL Total SRI LANKA MASUMA KHATUN TEXTILE INDUSTRIESLTD Total BANGLADESH OCEAN LANKA (PRIVATE) LIMITED Total SRI LANKA CHORI CO. LTD. Total japan FOUNTAIN SET LIMITED Total HONGKONG SERVIFIOS IMPORTACAO E EXPORTACAO- Total PORTUGAL AUSTRALIAN WEAVING MILLS Total australia SACOTEX YARNS N.V. Total BELGIUM GOLDTEX LTD. Total BANGLADESH STANDARD KNITTING MILLS PTY LTD Total australia HOJET INDUSTRIES LTD Total HONGKONG UNION TEXTILE DE TOURCOING Total BELGIUM FABRIQUE DE FLANELLES SAMIR Total egypt

TOP 20 CUSTOMERS
. The top 20 customers of Vardhman group along with their respective countries according to FBC total is as follows :

CUSTN COUNTRY PACIFIC OVERSEAS TEXTILES MACAO Total CHINA NISSHINBO INDUSTRIES INC. Total JAPAN IM INTERNATIONAL Total AUSTRALIA AUSTRALIAN WEAVING MILLS Total AUSTRALIA OCEAN LANKA (PRIVATE) LIMITED Total SRI LANKA PROMPTEX YARNS INC. Total CANADA SHINKO SANGYO CO. LTD. Total JAPAN PROSPERLINK(MACAO COMMERCIAL Total SRILANKA GULF DENIM FZE Total UAE SERVIFIOS IMPORTACAO E EXPORTACAO- Total PORTUGAL FOUNTAIN SET LIMITED Total HONG KONG MASUMA KHATUN TEXTILE INDUSTRIESLTD Total BANGLADESH MARUBENI CORPORATION JAPAN Total JAPAN GENEVIEVE YARNS DYERS AUSTRALIA PTY Total AUSTRALIA CDL FABRICS LTD. Total MAURITIUS CHORI CO. LTD. Total JAPAN PROEXSA S.A. Total SPAIN MARUBENI TEXTILE ASIA PACIFIC LTD. Total HONG KONG

The Foreign Bank Charges are in totality customer based because these charges are paid by them when they receive the desired material. Hence a separate report on these charges customer wise along with recommendations with each gives a clear picture of the discrepancies and ways to reduce them

OBSERVATIONS AND RECOMMENDATIO N AFTER ANALYSIS OF TOP 20 FOREIGN CUSTOMERS

CUSTOMER NAME: NISSHINBO INDUSTRIES INC.

IMPORTER BANK: MIZUHO CORPORATE BANK OBSERVATIONS:
1) This customer has the highest share in the exports in value terms (i.e. 14267703.48 ) 2) This customer has the second highest amount of FBC charges(i.e. $29032.45) 3) NO. OF INVOICES ARE ABOUT 262 4) Average FBC per document is $110.81 5) AVERAGE AMT OF INVOICE 491.44

FINDINGS:
1) 2) • MOST COMMON EXPENSES ARE all bank charges and reimbursement ,advising ,amendment, commission The main Discrepancies present in case of this customer are

Late shipment

• •

L/C expired Port of Discharge not as per L/C

RECOMMENDATIONS:• If late shipment is on demand of the applicant then charges should be borne by the applicant • If LC is opened through The Bank of Tokyo-Mitsubishi UFJ Ltd. then discrepancy charges would be comparatively less

CUSTOMER NAME: PACIFIC OVERSEAS TEXTILES MACAO.

IMPORTER BANK: 1. THE HONGKONG AND SHANGHAI BANKING
CORPORATION LTD. 2. BNP PARIBAS MACAU BRANCH 3. HANG SENG BANK LIMITED

OBSERVATIONS:
1) This customer has the maximum share in the total FBC charges of the organization i.e. 45829.24 2) 3) FBC charges range from $147.53-$403.7 NO. OF INVOICES ARE ABOUT 212

4) 5) 6)

Average FBC per document is $ 213.63 AVERAGE AMT OF INVOICE 219.92 This customer has the second highest share in business amounting to. $9960115.4

FINDINGS:

1) MOST COMMON EXPENSES ARE • • • • • $40-$50 as Discrepancy fees, $104-$80 as Cable charges , Deferred payment Comm. $110.57-$353.15, Reim. Fees $30 Acc. Fees $114.99-$243.08(variation due to diff. bank and diff. in invoice amount)

2)

The main Discrepancies present in case of this customer are • • • • • • Late shipment L/C expired Fumigation not showing L/C no., RMP no. etc. Port of Discharge not as per L/C AGE OF VESSEL EXCEED 20 YEARS COURIER RECEIPT DTD. 5 DAYS AFTER SHIPMENT

RECOMMENDATIONS:• • • • • • We recommend our customer to open l/c with THE AGRICULTURE BANK OF CHINA then the discrepancy charges will be less If late shipment is on demand of the applicant then charges should be borne by the applicant. I Also recommend that VARDHMAN should take Care that fumigation will show l/c no. and RMP no. VARDHMAN have to care in the future that port of discharge will be according to l/c Company is recommended to either ask it’s customer to waive off the vessel age norms from the l/c or contact shipping company regarding it Bank charges will get reduced if the customer open l/c with one bank instead of three.

CUSTOMER NAME: IM INTERNATIONAL IMPORTER’S BANK : NATIONAL AUSTRALIA BANK LIMITED OBSERVATIONS:
 FBC charges range from $20-$308.13  Average FBC per document is $185.36  NO. OF INVOICES ARE ABOUT 101  AVERAGE AMT OF INVOICE 203.76

 TOTAL FBC ARE ABOUT 18721.36  TOTAL VALUE OF CUSTOMER IS 3814572.07

FINDINGS: 1) MOST COMMON EXPENSES ARE • • • Discrepancy fees $65 or AUD 85, Reim. Comm. $65 or AUD 85 ACC. Comm. $66.52-$99.24 or AUD 80- AUD 122.78(variation due to diff. in invoice amount)

2) The main Discrepancies present in case of this • • • • Late shipment Late presentation L/C expired L/C OVERDRAWN

customer are

RECOMMENDATIONS:• • • The Beneficiary should present all the documents on time If late shipment is on demand of the applicant then charges should be borne by the applicant Company should request its customers to extend the date of expiry

CUSTOMER NAME: AUSTRALIAN WEAVING MILLS

IMPORTER’S BANK : AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

OBSERVATIONS:
FBC charges range from $25-$367.8  Average FBC per document is $253.80  NO. OF INVOICES ARE ABOUT 54  AVERAGE AMT OF INVOICE 110.55  TOTAL FBC ARE ABOUT 13705.32  TOTAL VALUE OF CUSTOMER IS 1515139.25

FINDINGS:
MOST COMMON EXPENSES ARE • • • • Discrepancy charges $83.43-$85.87 Rnb. Fees $100.12-$106.80 Acc. Fees $83.43-$133.50 OTHERS $20(variation due to diff. in invoice amount) customer are

The main Discrepancies present in case of this • • • • • Late shipment Late presentation L/C expired L/C OVERDRAWN

DESCRIPTION OF GOODS NOT AS PER L/C

RECOMMENDATIONS:• If late shipment is on demand of the applicant then charges should be borne by the applicant • • Beneficiary should present all the documents on time

If LC is opened through ST. GEORGE BANK LIMITED Limited then charges will be less

COMPANY should send goods as per the description mentioned in l/c

CUSTOMER NAME: OCEAN LANKA (PRIVATE) LIMITED DRAWEE BANK: STANDARD CHARTERED BANK (HONG KONG) LIMITED OBSERVATIONS:
FBC charges range from $56-$385  Average FBC per document is $225.78  NO. OF INVOICES ARE ABOUT 59  AVERAGE AMT OF INVOICE 195.15  TOTAL FBC ARE ABOUT 13321.1  TOTAL VALUE OF CUSTOMER IS 2599551.21

FINDINGS:
1) MOST COMMON EXPENSES ARE • • • • $60 Discrepancy fees $60 Reimb FRR, $120 TELEX $55 others customer are

2) The main Discrepancies present in case of this • • L/C EXPIRED

COPY OF NO WOOD PACKING MATERIAL NOT PRESENTED

• • •

SHIPPING CO CERT NOT PRESEDTED FUMI CERT NOT CERTIFYING AS PER LC F/C IS NOT AS PER L/C

RECOMMENDATIONS:• • • Company should request its customers to extend the date of expiry Company should attached certificate of fumigation as per l/c norms Copy of no wood packing must be presented as per l/c norms so that discrepancy charges can be reduced

CUSTOMER NAME: PROMPTEX YARNS INC. DRAWEE BANK: THE TORONTO-DOMINION BANK OBSERVATIONS:
FBC charges range from $56-$385  Average FBC per document is $140.49  NO. OF INVOICES ARE ABOUT 83  AVERAGE AMT OF INVOICE 334.56  TOTAL FBC ARE ABOUT 11660.69  TOTAL VALUE OF CUSTOMER IS 3901264.27

FINDINGS:
1) MOST COMMON EXPENSES ARE • • $100 Cable charges $50 Discrepancy fees

The main Discrepancies present in case of this • • • • • L/C EXPIRED LATE PRESENTATION L/C AMT. OVERDRAWN LATE SHIPMENT

customer are

B/L NOT SHOWING DDC CHARGES PREPAID AS PER L/C REQUIREMENT

• •

QUANTITY OVERSHIPPED B/L SHOWING NOTIFY PARTY TO INSTEAD ULTIMATE CONSIGNEE

RECOMMENDATIONS:• • • • • Company should request its customers to extend the date of expiry The Beneficiary should present all the documents on time If late shipment is on demand of the applicant then charges should be borne by the applicant Company should try to avoid the over shipment as much as possible If overdrawn is done on the request of customer then charges should be borne by the customer not the beneficiary • If LC is opened through The Bank of Nova Scotia then charges will be less

CUSTOMER NAME: SHINKO SANGYO CO. LTD. DRAWEE BANK: THE BANK OF TOKYO-MITSUBISHI UFJ, LTD. OBSERVATIONS:
 Average FBC per document is MINIMUM OF ALL i.e. 54.75  NO. OF INVOICES ARE ABOUT 192  AVERAGE AMT OF INVOICE 856.71  TOTAL FBC ARE ABOUT 10512.44  TOTAL VALUE OF CUSTOMER IS 9006115.31

 FBC CHARGES RANGES FROM $7 - $268.49

FINDINGS:
MOST COMMON EXPENSES ARE • • Discrepancy fees $45 All BANK CHARGES

1) The main Discrepancies present in case of this • • • L/C EXPIRED LATE SHIPMENT LATE PRESENTATION

customer are

RECOMMENDATIONS:• • • Company should request its customers to extend the date of expiry The Beneficiary should present all the documents on time If late shipment is on demand of the applicant then charges should be borne by the applicant

CUSTOMER NAME: PROSPERLINK (MACAO COMMERCIAL DRAWEE BANK: 1. STANDARD CHARTERED BANK (HONG KONG) LIMITED 2. SUMITOMO MITSUI BANKING CORPORATION OBSERVATIONS:

 Average FBC per document is 188.38  NO. OF INVOICES ARE ABOUT 54  AVERAGE AMT OF INVOICE 306.62  TOTAL FBC ARE ABOUT 10172.29  TOTAL VALUE OF CUSTOMER IS 3118979.95  FBC CHARGES RANGES FROM $70 - $295

FINDINGS:
1) MOST COMMON EXPENSES ARE • • • • 2) • • • • • $60 Discrepancy fees $60 Reimb. Charges $120 TELEX $41 others CHARGES The main Discrepancies present in case of this L/C EXPIRED LATE SHIPMENT E- SHIPPING MARKS DIFFER OVERSHIPMENT EFFECTED FOR GOODS ITEM NO. 1. DESCRIPTION OF GOODS ON B/L NOT AS PER LC customer are

RECOMMENDATIONS:-

• •

Company should request its customers to extend the date of expiry

If late shipment is on demand of the applicant then charges should be borne by the applicant

• • •

Company should try to avoid the over shipment as much as possible COMPANY should send goods as per the description mentioned in l/c Bank charges will get reduced if the customer open l/c with SUMITOMO MITSUI BANKING instead of two banks.

CUSTOMER NAME: GULF DENIM FZE

DRAWEE BANK: HSBC BANK MIDDLE EAST LTD.

OBSERVATIONS:
 Average FBC per document is 209.52  NO. OF INVOICES ARE ABOUT 38  AVERAGE AMT OF INVOICE 153.46  TOTAL FBC ARE ABOUT 7961.87  TOTAL VALUE OF CUSTOMER IS 1221804.44  FBC CHARGES RANGES FROM $80.63 - $290

FINDINGS:
1) MOST COMMON EXPENSES ARE • • • • 2) • • • All bank charges reimbursement acceptance , discount charges customer are

The main Discrepancies present in case of this

SHIPPING CO. CERT. - CERTIFICATION NOT AS PER DC DC NO. NOT SHOWN. QUALITY APPROVAL CERT. . QNTY. OF GOODS INCONSISTANT WITH INV

Late shipment

RECOMMENDATIONS:• • If late shipment is on demand of the applicant then charges should be borne by the applicant Quantity of goods should be matched with invoice

CUSTOMER NAME: SERVIFIOS IMPORTACAO E EXPORTACAODRAWEE BANK: BANCO ESPIRITO SANTO S.A.

OBSERVATIONS:
 Average FBC per document is 225.89  NO. OF INVOICES ARE ABOUT 32  AVERAGE AMT OF INVOICE 222.46  TOTAL FBC ARE ABOUT 7228.42  TOTAL VALUE OF CUSTOMER IS 1609498.51  FBC CHARGES RANGES FROM $60 - $328.8

FINDINGS:
1) MOST COMMON EXPENSES ARE • • • • all bank charges discount 70 usd telex and cable usd 20 commision and advising charges

2) The main Discrepancies present in case of this • • • • • • LATE SHIPMENT L/C EXPIRED

customer are

B/L WITH UNAUTHENTICATED ERASURES BENF. DECL. NOT EXACTLY AS PER LC TERMS E- LC IS ISSUED AFTER INVOICE DATE QTY. EXCEEDED

RECOMMENDATIONS:• • Company should request its customers to extend the date of expiry

If late shipment is on demand of the applicant then charges should be borne by the applicant

• •

Company should try to avoid the over shipment as much as possible Beneficiary declaration should be as per l/c terms

CUSTOMER NAME: FOUNTAIN SET LIMITED DRAWEE BANK: STANDARD CHARTERED BANK (HONG KONG)LIMITED OBSERVATIONS:
 Average FBC per document is 175.45  NO. OF INVOICES ARE ABOUT 40  AVERAGE AMT OF INVOICE 255.08  TOTAL FBC ARE ABOUT 7018  TOTAL VALUE OF CUSTOMER IS 1790173.71  FBC CHARGES RANGES FROM $47.5 - $293

FINDINGS:
MOST COMMON EXPENSES ARE • $50 Discrepancy fees

• •

$91 SWIFT charges $24 others customer are

2)The main Discrepancies present in case of this • • • • • L/C EXPIRED LATE SHIPMENT

DECL. OF NO WOOD PCKG. MATERIAL NOT PRESENTED B/L DID NOT INDICATE NAME OF CARRIER SHIPPING MAKES IN D/C IS NOT AS PER LC\

RECOMMENDATIONS:• • • • • Company should request its customers to extend the date of expiry

If late shipment is on demand of the applicant then charges should be borne by the applicant Copy of no wood packing must be presented as per l/c norms so that discrepancy charges can be reduced Bill of landing should indicate name of carrier Bank charges will get reduced if the customer open l/c with SUMITOMO MITSUI BANKING instead of two banks.

CUSTOMER NAME: MASUMA KHATUN TEXTILE INDUSTRIESLTD DRAWEE BANK: SOUTHEAST BANK LIMITED OBSERVATIONS:
 Average FBC per document is 112.84  NO. OF INVOICES ARE ABOUT 56  AVERAGE AMT OF INVOICE 458.01  TOTAL FBC ARE ABOUT 6318.85  TOTAL VALUE OF CUSTOMER IS 2894080.97  FBC CHARGES RANGES FROM $37.83 - $188

FINDINGS:

1) MOST COMMON EXPENSES ARE • • all bank charges REIMBURSEMENT AND FUND TRANSFER customer are

2) The main Discrepancies present in case of this • Beneficiary Extended the MATURITY DATE

RECOMMENDATIONS:• If extension of maturity date is on demand of the applicant then charges should be borne by the applicant

CUSTOMER NAME: MARUBENI CORPORATION JAPAN DRAWEE BANK: THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., MIZUHO CORPORATE BANK LTD.,

OBSERVATIONS:
 Average FBC per document is 198.64  NO. OF INVOICES ARE ABOUT 30  AVERAGE AMT OF INVOICE 176.39

 TOTAL FBC ARE ABOUT 5959.15  TOTAL VALUE OF CUSTOMER IS 1051122.94

FINDINGS:
MOST COMMON EXPENSES ARE • • • • • Discrepancy fees $50 Cable charges $40 Acc. Commission $92.65-$138.05 Reimb. Fees of $50 others $18(varriation due to diff. bank and diff. in invoice amount)

The main Discrepancies present in case of this customer are • • • • LATE PRESENTATION L/C EXPIRED LATE SHIPMENT POD IS NOT AS PER LC

RECOMMENDATIONS:-

• •

Company should request its customers to extend the date of expiry

If late shipment is on demand of the applicant then charges should be borne by the applicant

The Beneficiary should present all the documents on time

CUSTOMER NAME: GENEVIEVE YARNS DYERS AUSTRALIA PTY DRAWEE BANK: ST GEORGE BANK LIMITED OBSERVATIONS:
FBC charges range from $82.5-$195 Average FBC per document is 152.36  NO. OF INVOICES ARE ABOUT 39  TOTAL FBC ARE ABOUT 5942

 TOTAL VALUE OF CUSTOMER IS 617911.54

FINDINGS:
MOST COMMON EXPENSES ARE • • • • $75 Acc. Commission $45 Reimb. Commission $45 Discount charges $18 others

The main Discrepancies present in case of this customer are • • • • • L/C EXPIRED LATE SHIPMENT ALTERATION ON B/L NOT SIGNED SHIPPING MARKS ON ALL DOCUMENTS DIFFER TO B/L PARTIAL SHIPMENT

RECOMMENDATIONS:• • Company should request its customers to extend the date of expiry

If late shipment is on demand of the applicant then charges should be borne by the applicant

• •

If there will be alteration then it should be signed by authorized person

If partial shipment is on demand of the applicant then charges should be borne by the applicant

Shipping marks on documents should be matched with bill of landing

CUSTOMER NAME: CDL FABRICS LTD. DRAWEE BANK: THE MAURITIUS COMMERCIAL BANK LIMITED OBSERVATIONS:

 NO. OF INVOICES ARE ABOUT 19

 TOTAL FBC ARE ABOUT 5742  TOTAL VALUE OF CUSTOMER IS 801728.27  FBC charges range from $20-$628  Average FBC per document is 302.21

FINDINGS:
MOST COMMON EXPENSES ARE • • • • Discrepancy fees $75-$160 Disc. Comm. $75-$340 Cable charges $510 others $30-$48(variation due to diff. in invoice amount)

The main Discrepancies present in case of this customer are • • • • MARKS AND NUMBERS DIFFER FREIGHT PREPAID SUBJECT TO CHEQUE REALISATION ON BILL OF LADING COURIER RECEIPT: DATED MORE THAN 3 DAYS AFTER SHIPMENT Beneficiary differs

RECOMMENDATIONS:-

• • •

l/C should be transferred to the name of the beneficiary through which shipment is done Company should take due care that marks and number don’t differ Bank charges will get reduced if the customer open l/c with STATE BANK OF MAURITIUS instead of THE MAURITIUS COMMERCIAL BANK LIMITED

CUSTOMER NAME: CHORI CO. LTD. DRAWEE BANK: 1. MIZUHO CORPORATE BANK LTD. 2. SUMITOMO MITSUI BANKING CORPORATION 3. BANK OF CHINA

OBSERVATIONS:

Average FBC per document is 78.65

 NO. OF INVOICES ARE ABOUT 73  AVERAGE AMT OF INVOICE 326.52  TOTAL FBC ARE ABOUT 5741.48  TOTAL VALUE OF CUSTOMER IS 1874724.62  FBC CHARGES RANGES FROM $15 - $178

FINDINGS:
MOST COMMON EXPENSES ARE • • • $50 Discrepancy fees, $30 Cable charges $7 others

The main Discrepancies present in case of this customer are • • • • • BENEFICIARY DIFFER L/C EXPIRED LATE SHIPMENT E- APPLICANT REF. NO. ON B/L IS NOT AS PER LC B/L SHOWING UNAUTHENTIC CORRECTION.

RECOMMENDATIONS:-

l/C should be transferred to the name of the beneficiary through which shipment is done

• •

Company should request its customers to extend the date of expiry

If late shipment is on demand of the applicant then charges should be borne by the applicant

• •

If there will be alteration then it should be signed by authorized person

Bank charges will get reduced if the customer open l/c with SUMITOMO MITSUI BANKING CORPORATION

CUSTOMER NAME: PROEXSA S.A. Total

DRAWEE BANK: 1. DEUTSCHE BANK S.A.E. 2. BANCO DE SABADELL S.A.,

OBSERVATIONS:

 Average FBC per document is 276.50  NO. OF INVOICES ARE ABOUT 18  TOTAL FBC ARE ABOUT 4977.01  TOTAL VALUE OF CUSTOMER IS 859995.74

FINDINGS:
MOST COMMON EXPENSES ARE • • • all bank charges ,commission Reimbursement CHARGES

The main Discrepancies present in case of this customer are • • • LATE SHIPMENT E- LC EXPIRES BENEFICIARY DIFFER

QUALITY CER.- DOES NOT IDENTIFYING THE SIGNER AS THE MILL MANAGER

RECOMMENDATIONS:• l/C should be transferred to the name of the beneficiary through which shipment is done • • • Company should request its customers to extend the date of expiry

If late shipment is on demand of the applicant then charges should be borne by the applicant Bank charges will get reduced if the customer open l/c with DEUTSCHE BANK S.A.E

CUSTOMER NAME: MARUBENI TEXTILE ASIA PACIFIC LTD. DRAWEE BANK: 1. MIZUHO CORPORATE BANK LTD. 2. THE BANK OF TOKYO-MITSUBISHI UFJ, LTD. 3. SUMITOMO MITSUI BANKING CORPORATION OBSERVATIONS:
 FBC charges range from $48-$318.61  Average FBC per document is 236.28  NO. OF INVOICES ARE ABOUT 21  TOTAL FBC ARE ABOUT 4961.67  TOTAL VALUE OF CUSTOMER IS 869594.08

FINDINGS:
MOST COMMON EXPENSES ARE • • • • Discrepancy fees $50 Cable charges $40 Acc. Commission $92.65-$138.05 Reimbursement Fees of $50

others $18 (variation due to diff. bank and diff. in invoice amount)

The main Discrepancies present in case of this customer are • • • • • LC EXPIRED LATE SHIPMENT LATE PRESENTATION FUMIGATION CERT. NOT SUBMITTED B/L NOT SHOWING BY WHOM THE CORRECTION AUTHENTICATION IS MADE

RECOMMENDATIONS:-

• •

Company should request its customers to extend the date of expiry

If late shipment is on demand of the applicant then charges should be borne by the applicant

• • • •

The Beneficiary should present all the documents on time If there will be alteration then it should be signed by authorized person Company should attached certificate of fumigation as per l/c norms Bank charges will get reduced if the customer open l/c with MIZUHO CORPORATE BANK LTD instead of three banks

CUSTOMER NAME: SACOTEX YARNS N.V. DRAWEE BANK: CBC BANQUE S.A. OBSERVATIONS:
 Average FBC per document is 114.70

 NO. OF INVOICES ARE ABOUT 37  AVERAGE AMT OF INVOICE 355.71  TOTAL FBC ARE ABOUT 4244.02  TOTAL VALUE OF CUSTOMER IS 1506952.93  FBC CHARGES RANGES FROM $5 - $232

FINDINGS:

MOST COMMON EXPENSES ARE • • $137.07 Discrepancy fees $8.50 SWIFT charges

The main Discrepancies present in case of this customer are • • • E- LATE SHIPMENT LC EXPIRED BENEFICIARY DIFFER

RECOMMENDATIONS:• • Company should request its customers to extend the date of expiry

If late shipment is on demand of the applicant then charges should be borne by the applicant

l/C should be transferred to the name of the beneficiary through which shipment is done

Bank charges will get reduced if the customer open l/c with BANQUE POPULAIRE DU NORD,

CUSTOMER NAME: GOLDTEX LTD. DRAWEE BANK: 1. THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD. 2. STANDARD CHARTERED BANK OBSERVATIONS:
 Average FBC per document is 137.19

 NO. OF INVOICES ARE ABOUT 30  AVERAGE AMT OF INVOICE 347.05

 TOTAL FBC ARE ABOUT 4115.6  TOTAL VALUE OF CUSTOMER IS 1428306  FBC CHARGES RANGES FROM $61 - $207

FINDINGS:
MOST COMMON EXPENSES ARE • • • • • $75 Discrepancy fees $50 Reimbursement $20 Remittance Cable $10 $18 others

The main Discrepancies present in case of this customer are • • • • • LC EXPIRED SHIPPING CO. NOT AS PER DC BILL OF LADING NOT SHOWING THE CLAUSE AS PER L/C TERMS B/L NOT CONSIGNED TO THE ORDER OF ISSUING BANK E- LATE SHIPMENT

RECOMMENDATIONS:• • Company should request its customers to extend the date of expiry If late shipment is on demand of the applicant then charges should be borne by the applicant

Shipping co. should be as per dc

LIMITATIONS OF THE STUDY

Details regarding some of the charges were not available with the banks. Therefore, bifurcation of these charges was not possible because of which recommendations to some of the foreign clients could not be given.

Because of time constraint all the foreign customers of Vardhman could not be studied and given recommendations.

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