CORPORATE BANKING

Corporate Banking represents the wide range of banking and financial services provided to domestic and international operations of large local corporates and local operations of multinationals corporations. Services include access to commercial banking products, including working capital facilities such as domestic and international trade operations and funding, channel financing, and overdrafts, as well as domestic and international payments, INR term loans (including external commercial borrowings in foreign currency), letters of guarantee etc. Banks normally provide credit in the form of overdrafts, loans, bills discounted, or import and export finance. The process of extending any of the said forms to corporate borrowers passes through two distinctive phases; the credit decision making process (account relationship management) and the banks' internal operations. Corporate Banking services are an integral part of the Corporate Investment Banking and Markets (CIBM) structure, which focuses on offering a full range of services to multinationals, large domestic corporates and institutional clients. The Investment Banking and Markets division brings together the advisory and financing, equity securities, asset management, treasury and capital markets, and private equity activities of the Group to complete the CIBM structure and provide a complete range of financial products to our clients. Increasingly, ECA financing is being considered by customers and we work closely with our project export finance teams, both onshore and offshore, to provide structured solutions. Clients are serviced by sector based client service teams that

combine relationship managers, product specialists and industry specialists to develop customized financial solutions. These form the relationship team along with the Investment Banking & Advisory division. Each team supports the client's worldwide operations, ensuring a full understanding of the company's business and financial needs. Based on our client's requirement, HSBC also assigns Global Relationship Management teams to provide structured solutions. In today’s global Banking arena, Corporate Bankers are facing a string of unprecedented and sweeping challenges in the areas like Treasury Management, Trade Finance, Risk Management, Compliance Management, Electronic Trading and Derivatives Markets. Compounding this are the mounting complexities from ongoing regulatory changes, decreasing margins and fierce competition Global Relationship Management teams are tasked with understanding in depth the sectors in which our clients operate with the aim of adding value through detailed industry knowledge and structured financial solutions. CORPORATE BANKING OPERATIONS The bank mostly lend against appropriate tangible securities such as deposits, shares, debentures, property, guarantees supported by tangible securities, life policies, goods, gold or other precious metal. The bank may also lend against intangible securities such as unsupported guarantees or assignment of sums due to the borrower by third parties. It is essential that the bank follows the proper procedures in order to obtain good title when taking a security. There is a difference between possession and ownership. The various forms of documents used for obtaining different types of security are also important. Inadequate documentation may well cause losses to the is particularly true for the Trade Financing documentation and the Securities Agreement relating to goods.

The bank must also follow proper procedures to realise securities otherwise losses may be incurred. The corporate operations divisions are normally responsible for maintaining securities documentation and updating the customers' mandates with fresh account documentation, account statements, financial statements and relationship reviews. Handling and treatment of delinquent accounts is also an important area of operations. Grading of bad and doubtful debts for an effective recovery process is important. An effective delinquency policy is essential to avoid unnecessary financial losses. IMPORTANCE OF FEE-BASED SERVICES SEGMENT TO BANKS Q. Why should the banks be so excited about the subject? Deregulation and¬ new technology have eroded banks’ comparative advantages and made it easier for non-bank competitors to enter into hitherto exclusive banks’ domains. In response, banks have shifted their sales mix toward non-interest income by selling ‘non-bank’ fee-based financial services by charging explicit fees for services. According to another study titled ‘Fee-Based Financial¬ Services Markets: New Opportunities and Threats In the Internet Age’ by Killen Associates again, the market for retail and commercial feebased financial services will exceed that for interest-based services by 2005, reaching nearly a staggering $500 billion by 2004 globally. Banks want such services to¬ be their primary profit source for certain reasons. This revenue is more stable over time, assures a steady income and more importantly, leads to a strong relationship with the corporate client. CORPORATE BANKING STRATEGY As a result of the advent of the Internet, banks and other

Financial Institutions are rethinking their corporate banking strategy. The Internet opens a new channel for delivering services to corporate clients and helps these institutions remove cumbersome and expensive paper processes. It is significantly cheaper and much more flexible. With the Internet, large multinational companies that always used EDI can save more money by eliminating the old system’s expensive private networks and expand reach to include more businesses on the supply chain. Small-to-medium size companies, too, can conduct business-to-business transactions. The Internet simply provides a two-way electronic linkage that never existed before. So, banks can now offer a trusted solution to their corporate customers via the low-cost delivery channel i.e., the Internet. And corporations will enjoy the ability to manage cash held by their strategic banking partners in real time via a secure, efficient, Web-enabled communication system. The expected shift in volume from paper-based transactions to electronic ones would determine the path of future technology investments in banks and orient it towards electronic payment delivery systems. This shift is also driven by banks’ perception that electronic transactions contribute higher margins than paper-based transactions. CREDIT GUIDELINES & CREDIT STANDARDS THE ACCOUNT RELATIONSHIP MANAGEMENT: MEANING: The account relationship managers are those who negotiate with the targeted corporate customers with the terms acceptable to the banks and “Account Relationship Management Acceptance Criteria" or the so called "Credit Guidelines." It should be internally placed and distributed to every credit manager/officer. These guidelines set the minimum acceptance standards, in simple words, the guidelines are aimed to let the account relationship managers/officers know exactly what they should be

selling, to whom, at what price and under which conditions (securities and other terms). DECISION MAKING: Making a sound decision to extend credit to a corporate customer is a complex process. This is because corporate customers are normally engaged in a wide range of activities and are affected by a host of external and internal factors that have direct impact on their ability to meet financial obligations. The credit decision making should, therefore, be directed by an internal lending policy that takes into account such factors and aims to protect the bank's assets, preserve its reputation and optimize the relationship profitability. Based on the credit guidelines, the account relationship executive will have to submit a credit proposal evaluating the whole relationship. The Credit Evaluation process must be done systematically and within acceptable standards to maintain a high quality credit portfolio. The preparation of the credit proposal must be guided by common sense and sensible judgement. The amount of details the proposal should contain naturally depends on several elements, namely the size and strength of the customer, the size of the bank's current and proposed exposure, the socio political environment, the economy, the industry and the bank's position in relation to other creditors. CREDIT EVALUATION: The bank must place a system of credit evaluation which is based on assessment of historical, current and projected elements stated hereunder: a. FINANCIAL ANALYSIS: Sales, Profitability, Performance, Funds Flow, working Capital

Management, liquidity, balance sheet conditions...etc. b. OPERATING ANALYSIS (OPERATING RISKS) : Owners, Management, Company, Industry, Markets. In summary, the credit proposal (review) must highlight the Financial Risks and Operating Risks. It should state the magnitude and likelihood of such risks i.e. "What if" scenarios, and how will they be managed? Most global banks maintain their credit evaluating standards in an internal "Instruction Manual" containing the bank's management instructions regarding each and every aspect of the credit extension or review process. It sets the management standard of credit evaluation to eliminate risks and prevent the decline in profit margins on credit facilities. CORPORATE SERVICES PROVIDED BY INDIAN BANKS 1. CASH MANAGEMENT SERVICES MEANING: Corporations, the world over are jettisoning antiquated cash management practices and opting to put in place sophisticated cash management structures to garner the associated economic benefits and due to reasons of expediency. Conversely, banks have taken note of the enormous revenue potential in the fee-based services segment to prop up their sagging bottom lines. While appreciating the initiatives taken by the Administrative Staff College of India in organizing the Workshop. The some of the relevant issues, which the banks need to address are as follows. OBJECTIVE OF CASH MANAGEMENT: The fundamental objective of cash management is ‘optimization of liquidity through an improved flow of funds.’ In today’s highly competitive environment, where time is

considered as money, deployment of staff to render basic routine tasks does not make economic sense. As a sequel, cash management today is not what it used to be. Electronic banking, which began as a passive desktop access to bank balances, is emerging into complex processes of liquidity management through numerous techniques. Almost all of the corporations in advanced countries are now planning to use the services of banks to help them collect payments on monthly bills they issue to consumers and other types of cash management services. IMPORTANCE OF CASH MANAGEMENT FOR A CORPORATE ENTITY: Q. Why there is need to put in place a specialized cash management system by corporate? Good cash management is a conscious¬ process of knowing when, where, and how a company’s cash needs will occur; knowing what the best sources for meeting additional cash needs; and being prepared to meet these needs when they occur by keeping good relationships with bankers and other creditors. Scientific cash management results in¬ significant savings in time, decrease in interest costs, less paper work and greater accounting accuracy. Proper cash management creates more control¬ over time and funds; provides timely access to information; enables easy employee related payments; supports electronic payments; produces faster electronic reconciliation; allows for detection of bookkeeping errors; reduces the number of cheques issued and earns interest income or reduces interest expense. Corporations with subsidiaries worldwide, can pool everything¬ internationally so that the company can offset the debts with the surplus monies from various subsidiaries. The end result will transform treasury function¬ as a profit-centre by optimizing cash and put it to good use. Creative and¬ pro-active cash management solutions can contribute dramatically to a company’s profitability and to its competitive edge.

The ultimate purpose of proper¬ management of liquidity, needless to emphasize, is to improve the overall productivity of funds. TYPES OF CASH MANAGEMENT SERVICES: The menu of cash management services offered by banks abroad is indeed diverse and tempting. The services broadly fall under collection services, Disbursement services, Information and control services, services related to Electronic data interchange (EDI), Commercial web banking services, Sweep services, Fraud detection solutions, Global trade solutions and Investment solutions. Collection Services accelerate receipt of payments from sales and quickly turn them into usable cash in accounts. Disbursement Services make efficient payments by reducing or eliminating idle balances in company’s accounts. Information and Control Services receive the data and provide the management capability needed to monitor company cash picture, control costs, reconcile and audit bank accounts, and reduce exposure to fraud. Financial Electronic Data Interchange (EDI) is a computerized exchange of payments between a company’s business and its customers and vendors. Commercial Web Banking Services give a wide range of services from any Internet connection, which can help streamline banking process quickly and efficiently. Sweep Services maintain liquidity and increase earnings without having to actively monitor accounts and move money in and out of them. Information reporting solutions assist companies, which need to receive account data that is timely, precise, and easy to access and interested in initiating online transactions. Investment solutions help to minimize excess balances and maximize return on available funds. CASH MANAGEMENT SERVICES - INDIAN SCENARIO: It is apposite to review the Indian scenario in this regard. As we are well aware, banks’ desire for funds has lost under the

onslaught of the current slowdown. Despite the offer of very soft terms corporates are refusing to borrow, while bank deposits have been ballooning. Compelled to service the burgeoning liabilities, but unable to lend hastily and allow their non-performing assets (NPAs) to grow, bankers are forced to compete for the handful of safe bets among their borrowers. Banks chose to use the opportunity to refocus their activities, seeking clearly defined identities in terms of services and customer segments. Most of them concentrated on cleaning up their books by peeling down their NPAs. All of them attempted freezing of costs, improving operational efficiencies, and boosting productivity. The strategy of the banks, which performed well, is to use feebased services to maintain earnings growth. With interest rates falling, non-interest income was, unsurprisingly, the fastest-growing component of the banks’ total income. Fee-based activities will complement though not substitute the core business of lending. It is gratifying to note that a number of banks in India are offering wide-ranging cash management services to their corporate clients. All the three categories of banks viz., nationalized banks, private banks, and foreign banks operating in India are active in the cash management segment. SBI, PNB, ICICI Bank, GTB, HDFC Bank, Centurion Bank and Vysya Bank, are some of the active Indian banks in this segment. Citi Bank, Standard Chartered Bank, ABN Amro Bank, BNP, ANZ Grindlays and HSBC are the foreign banks operating in India, which are prominent among the cash management services providers. Currently, the turnover of cash management services in Indian market is estimated over Rs.25,000 crore per month. State Bank of India alone is estimated to handle over Rs.12,000 crore per month through its product called SBI-FAST. Indian banks are offering services like Electronic funds transfer services, provision of cash related MIS reports, cash pooling services, collection services, debit transfer services, guaranteed

credit arrangements, sweep products, tax payment services, receivables and payables management. Foreign banks operating in India are offering regional and global treasury management services, liquidity management services, card services, electronic banking services, e-commerce solutions, account management services, collection management services, cash delivery management services and investment solutions. The cash management services offered to Indian corporates are comparable to what their counterparts are getting in advanced countries. Banks realised that if they do not offer the services required by corporate customers it would result in a net loss of clientele, returns and goodwill. Banks in India need to continuously monitor international trends in innovations taking place in providing cash management services and swiftly offer similar services to their corporate clients. RESERVE BANKS INITIATIVE IN CMS: The Reserve Bank of India has been taking a number of initiatives, which will facilitate the active involvement of commercial banks in the sophisticated cash management segment. One of the pre-requisites to ensure faster and reliable mobility of funds in a country is to have an efficient payment system. Considering the importance of a robust payment system to the economy, the RBI has taken numerous measures since mid Eighties to strengthen the payments mechanism in the country. Introduction of computerized settlement of clearing transactions, use of Magnetic Ink Character Recognition (MICR) technology, provision of inter-city clearing facilities and high value clearing facilities, Electronic Clearing Service Scheme (ECSS), Electronic Funds Transfer (EFT) scheme, Delivery vs. Payment (DvP) for Government securities transactions, setting up of INdian FInancial NETwork (INFINET) are some of the significant initiatives which highlight the seriousness with which the Reserve Bank has taken up the reforms in Payment systems. Introduction of a Centralized Funds Management System (CFMS),

Securities Services System (SSS), Real Time Gross Settlement System (RTGS) and Structured Financial Messaging System (SFMS) are the top priority items on the agenda to transform the existing systems into a state-of-the-art payment infrastructure in India by the Reserve Bank. The current vision envisaged for the payment systems reforms is one, which contemplates linking up of at least all important bank branches with the domestic payment systems network thereby facilitates cross boarder connectivity. With the help of the systems already put in place in India and which are coming into being, both banks and corporates can exercise effective control over the cash management. Q. HOW CORPORATES SELECT A BANK FOR SOURCING CASH MANAGEMENT SERVICES? It is normally the client-bank relationship,¬ which is a main consideration in choosing a bank for cash management. ¬ Pricing, obviously, is a very dominant factor. Making a choice between the¬ local banks and the more highly priced foreign banks usually depends on how cost savings are presented by the banks. Multinational corporates with complex¬ treasury operations admire their respective banks’ expertise and ability to offer creative solutions. Flexibility, reliability, security and stability¬ have been cited as vital parameters for any electronic banking system. The¬ systems should be tailored to provide pertinent reports and the ability to upgrade easily in future. The technology should allow real-time cash¬ management with strategic banking partners. It should integrate easily¬ with legal framework in place. It should lower operating costs and resolve¬ disputes quickly by providing secure and legally enforceable audit trails. ¬ It should be capable of reducing risk of fraud in electronic funds transfers and other treasury activities. It should also be able to use a low-cost public¬ network

infrastructure like Internet, which eliminates the need for dedicated leased lines.

CHANGING CASH MANAGEMENT PROCESSES AND ‘ E-BANKING’: INNOVATIONS: The enlightened participants in this Workshop are aware that the cash management techniques have been undergoing a metamorphosis as a result of the extensive technological advancements. Positioning finance as a valuable part of a business organization means re-engineering of business processes. Electronic Bill Presentment and Payment (EBPP) is now widely accepted in Western countries. It replaces the slow and costly process of preparing and mailing paper bills and receiving cheques as payment. Corporations look to electronic bill presentment and payment as an opportunity to expand marketing and sales efforts, enhance customer care and increase efficiency, while reducing costs. As technologies evolve with amazing speed, the IT choices facing treasurers are becoming more intricate simultaneously increasing their expectations too. Today, a multinational company has tall demands from its banker. When the treasurer sits at his desk, he expects that his computer has to automatically update his files with real-time information on the company’s account balances. Without moving, he wants to manoeuvre funds between accounts to capture more interest from pooled accounts, he demands to lag his payments to make his cash work to the fullest and he desires to get an up-to-date report on the progress of his collections. If relieved of numerous manual errands, his treasury can effectively plan for the future. As the Internet explodes into life, companies want to be among the first to use the Internet to market their products, receive orders, deal with suppliers and settle transactions.

Corporates visualize technology as a tool to cut their costs and improve efficiency. CORPORATE CASH MANAGEMENT TO BENEFIT FROM ELECTRONIC PAYMENTS: The new electronic payment products and services offer the corporate clients an improved bottom line by helping manage cash requirements. It helps corporate to make the best use of their funds and provides an effective means of managing their financial requirements. Several of the trends in cash flow forecasting favor the use of electronic payment products like RTGS, Electronic Funds Transfer (EFT) and card payments. Improved technology and systems integration makes it more attractive to use electronic payment products because these methods of payment can be incorporated into firm-wide computing systems. The new forecasting techniques also suggest use of electronic payments, because they offer disaggregated revenue and spending data that can easily be categorized and studied. Electronic payments and cards provide control over incoming funds, and allow companies to limit access to these funds to authorized parties. In addition, limiting corporate purchases to electronic payments makes it easier for firms to monitor cash outflows and prevent unauthorized expenditures, because these payments are easier to document and provide an audit trail. From the perspective of a Corporate, the electronic payment systems ensure speed and security of the transaction processing chain, from verification and authorization to clearing and settlement. Also it gives a great deal of freedom from more costly labor, materials, and accounting services that are required in paper-based processing, better management of cash flow, inventory, and financial planning due to swift bank payments. CHALLENGES TO COMPANIES IN AVAILING TECHNOLOGYORIENTED CASH MANAGEMENT SERVICES FROM BANKS:

a. Electronic Communication with a Bank: The first challenge facing a treasury is how to communicate electronically with a bank, although this is often dictated by cost limitations, security concerns and the infrastructure peculiarities of different countries. It is likely that the company itself may be lacking the necessary expertise to choose an appropriate form of communication where the company needs banker’s advice.

b. Economic Considerations: Costs associated with the new services do pose a challenge to small and medium companies. A host-to-host connection is a sophisticated, direct, two-way link between the bank’s and the customer’s computers, which is expensive to set-up and maintain. However, it is highly automated and allows the corporate to use more of the banks’ services. Small companies, unfortunately, may not be able to afford host-to-host connection. Concerns associated with high costs may be effectively addressed once the Internet’s security apprehensions have been resolved. c. Decisions Regarding Sourcing of Software: The three sources of software applications for on-line banking and on-line cash management in particular are… 1) Built in-house: Large banks prefer to build applications in-house owing to their belief that it provides them with competitive advantage 2) Bought from independent software vendors: Building Web-enabled cash management solutions requires a thorough understanding of both technology as well as business issues. 3) Outsourced to a trusted third party: Smaller banks who do not wish to make significant investment in back-office systems prefer to outsource on-line banking services. LIMITATIONS OF THE SERVICES: All said and done, the Internet as it operates today has its

limitations as a medium for banking and finance. For this reason, the conventional means of delivering electronic banking services will be maintained in parallel with on-line systems at least in the medium term. We all agree that the technology is only as good as its underlying services. There is no such thing as one-size-fits-all when it comes to electronic banking products. No one product can provide an absolute solution to all the customers. An electronic banking product is a means of delivering banking services to the customer and is only as good as all the operations and processes that underpin those services. 1. Provision of CMS by Banks - Challenges and Issues: The conventional formal line between treasury and control and between cash and accounting strategies is fading. Now, bankers and controllers are working together closely in seeking solutions in the complex cash management function. In today’s world, the key differentiator between a successful bank and other bank is the stress each lays on technology. As such, let me turn your attention to the numerous challenges bankers need to address squarely, while gearing up to provide cash management services in a technology dominated environment. 2. Provision of Customized Services: One important ingredient of a treasury system is ‘customization’. Bank’s ability to customize a treasury system is critical. The ‘user interface’ is very personal and users want to be comfortable with the look and feel of the system. Deployment, configuration and database options need to be flexible. New system should be capable of easily getting synchronized with enterprise resource planning (ERP) and other corporate systems. 3. Need to Comprehend the Client’s Line of Activity:

Bankers need to really understand the accounting and control side of its client business. The bankers should see themselves as strategic partners in company’s growth and need to spend a lot of time learning about the concerned industry. They have to use that knowledge to propose solutions that never would have occurred to the client. Banks can’t go out and propose good ways to re-engineer a company’s business processes until they have developed a really sophisticated understanding of the cash and accounting practices.

4. Provision of Other Advisory Services to Clients: Companies would like to see banks solve certain other related problems. For instance, a company may like someone to tell it exactly what is wrong with their MIS department. Changing systems is a major initiative with far-reaching implications to the companies so banker cannot afford to make a mistake. As the technology changes almost monthly, companies do expect bankers to tell them what to do and where to spend their money. Bankers cannot build a standard solution always, because the customers do not pose standard problems. Bankers have to customise the solution that will resemble what the customer is wishing for. 5. Shift to Web-enabled Services: Web-enablement may be fashionable, but what treasurers really want is the functionality in products that help them perform optimally. After all, the web is only a delivery channel. Most corporate electronic banking systems currently used are

based on old technology architecture. Banks, now, have to gradually turn to open systems architecture, wherein a Web-server accesses the bank’s back-end systems with adequate security features in place. 6. Special Consideration to Small and Medium Companies: When the corporate scene in India is dominated by a multitude of small and medium companies, a legitimate question that arises is, are the high-tech banking cash management services just for the large companies or do they have any immediate practical value for smaller companies also? Although technology and size may not go together banks have to cost-justify the cash management services companies use. No doubt, banks did invest a lot in the technology-based services. But with the advent of the Internet and other tools, banks should strive to make accessible cash management services to middle and small companies without totally phasing out their existing hardware. 7. Need to Work as a Team: When banks develop cash management solutions, they have to necessarily work directly with corporate financial controllers and their staff. When outsourcing is involved, with something as complex as payables or receivables the corporate teams get bigger and more varied. Besides financial controllers, banks have to work with systems people and sometimes marketing people.

8. Need to Work with Technology Vendors: A growing number of non-bank vendors also offer paymentrelated services to corporate clients in Western countries. Banks bring the strong relationships with customers that they

have built over time. No single player can do it alone in the future because there are so many dimensions to technology and different industries need different solutions. Alliances will have to be forged, so that vendors with different technological pieces will work together to provide integrated solutions.

2. GOLD CARD SCHEME OBJECTIVES OF THE SCHEME: Promotion of export by extending various facilities to exporters having good track record, on better terms. ELIGIBILITY CRITERIA: a. All exporters including those in small and medium sectors and conforming to the borrower gradation category of CB1 and CB2. b. Exporter clients, with good track record for minimum 3 years. c. Accounts classified as `standard' during the last 3 financial years. d. Exporter clients earning profits continuously for the last 3 years, having positive tangible net worth and positive net working capital as at the end of the last financial year.

FIXATION OF CREDIT LIMITS: ‘In-principle' limits will be sanctioned for a period of 3 years with a provision for automatic renewal subject to fulfillment of the terms and conditions of sanction and satisfactory conduct of the account subject to annual review. The performance of the exporters vis-a-vis projections will be reviewed annually with a view to decide whether the benefits of better terms and conditions under the Gold Card Scheme are to

be continued/ amended/ withdrawn. RATE OF INTEREST : Concession by approx 25 bps on Rupee Export Credit TENURE: The Gold Card will be issued initially for a period of approximately 3 years, which shall be automatically renewed for a further period of three years unless there are adverse features/ irregularities in the account. CREDIT LIMITS : Upto approximately 50% of sanctioned limit made available to facilitate urgent credit needs for executing sudden orders. SPECIAL CONCESSIONS/ BENEFITS FOR THE CARD HOLDERS: a. Preference for sanction of Packing Credit in Foreign Currency [PCFC]. b. Preference for granting loans under FCNR[B] funds etc. over non-export borrowers AND granting term loans in foreign currency in deserving cases out of FCNR[B], RFC Funds etc. c. Proposals to be submitted in the simplified Application Form d. The time-frame for disposal of application received for sanction of credit under the Scheme shall be as under: For disposal of fresh applications : 21 working days Renewal of limits : 14 working days Sanction of ad hoc limits : 7 working days SERVICE CHARGES: Approx 20% concession in fees/charges. ADDITIONAL FACILITIES: ATM, Internet Banking, International Debit Card, etc.

CANCELLATION: Gold Card sanctioned will be liable to be cancelled in the event the borrower fails to comply with any of the eligibility norms and other conditions of the Bank 3. WORKING CAPITAL FINANCE MEANING: Working Capital facility is provided to the industry to finance dayto-day production & sales. For production, funds are generally required for purchase of raw materials, stores, fuel, for payment of labor, power charges, for storing finished goods till they are sold out & for financing the sales by way of sundry debtors / receivables. Cash Credit facility is granted to the customers to bridge working capital gap. The Bank also provides short term loan facility for a period of up to 1 year for the purpose of bridging temporary cash flow mismatches arising due to various reasons like non-realization of receivables in time, routine capex etc. The finance extended under this category would be for meeting the funds requirements for day to day operations of the units i.e., to meet recurring expenses such as acquisition of raw material, the various expenses connected with products, conversion of raw materials into finished products, marketing and administrative expenses, etc.. The working capital limits would be considered only after the project nearing completion and after ensuring full tie-up of the term loan requirements of the borrower. These limits would be either in the form of fixed loans or running accounts and / or bill financing facility. SECURITY: The credit facilities shall be secured by inventories and debtors as may be required quantum and duration of the credit and risk perception.

KEY BENEFITS: Funded facilities, i.e. the bank provides funding and assistance to actually purchase business assets or to meet business expenses. Non-Funded facilities, i.e. the bank can issue letters of credit or can give a guarantee on behalf of the customer to the suppliers, Government Departments for the procurement of goods and services on credit. It is Available in both Indian as well as Foreign currency. RBI GUIDELINES ON LOAN FOR WORKING CAPITAL PURPOSE: In tune with the Reserve Bank of India guidelines on Loan System for delivery of bank Credit for working capital purposes to larger borrowers, the same would be extended in the form of fixed loan (working capital Demand loan) and cash credit (running account) in the ratio of 60:40 in respect of borrowers enjoying aggregate working capital limits of Rs.10 crore and above from the Banking system. The working capital demand loan facility shall be for a minimum fixed term of 7 days subject to roll over at the option of the borrower concerned. LIMITATIONS OF WORKING CAPITAL FINANCE: The working capital limits would require such security and personal/ third party guarantees as applicable to general lending norms of the bank and risk perception in respect of individual borrowal account. Eligible Working Capital Limits would be assessed by adopting various methods such as Projected Turnover Method, Permissible Bank Finance Method, Cash Budget Method and Net Owned Funds Method, depending upon the type of borrower, the aggregate working capital facility enjoyed from the banking system, the scale of operation, nature of activity/enterprise and the duration/ length of the production cycle, etc. 4. PROJECT FINANCE

MEANING: Project finance is the financing of long-term infrastructure and industrial projects based upon a complex financial structure where project debt and equity are used to finance the project. Usually, a project financing scheme involves a number of equity investors, known as sponsors, as well as a syndicate of banks which provide loans to the operation. The loans are most commonly non-recourse loans, which are secured by the project itself and paid entirely from its cash flow, rather than from the general assets or creditworthiness of the project sponsors, a decision in part supported by financial modeling. The financing is typically secured by all of the project assets, including the revenue-producing contracts. Project lenders are given a lien on all of these assets, and are able to assume control of a project if the project company has difficulties complying with the loan terms. SELECTION OF A PROJECT BY BANK: The proposals for project finance would be considered by the bank on a selective basis in view of the larger outlay of funds an longer duration of credit which may have an adverse impact on bank's Asset-Liability Management system and strain on its liquidity. Usually such projects would be operationalised through consortium arrangement along with the Term Lending Financial Institutions and other public/ private sector Banks. The project would be appraised by the Lead Bank of the consortium and all other banks would accept the appraisal made by the lead bank. If required, the assistance of the professionals in the line/ project appraisal groups of FIS/ Commercial Banks would be obtained for the appraisal. Before extending finance for Projects, the economic feasibility and financial viability of the project in relation to the macro economic conditions prevailing at the time of conceptualization of the project and also the likely scenario that may prevail during

the normal life span of the project should be established. The project should be able to withstand reasonable levels of variation in crucial parameters which should be established by sensitivity analysis of the cash flows. The means of finance for the project along with provisions to meet contingencies such as cost/ time overrun should be established. The entire source of funds for the project from sources other than that by the promoters shall be fully tied-up before sanction/ disbursement of the limits. Wherever the project is one of unusually longer duration such as infrastructure development, the involvement of agencies such as Financial Institutions and ways of reducing the blockage of bank's fund that are sourced mainly out of short term lending institutions, take-out financing, securitization, Inter-Bank participation Certificates, etc. would be resorted to. The disbursements under project Finance would be made strictly in tune with the sanction terms, only after ensuring the end use of funds already disbursed by the consortium, meeting the required margin at each stage of project implementation and certification by the competent consultants/ specialists as per the procedure in vogue from time to time and as decided by the consortium. RATE OF INTEREST: The rate of interest on such credit facilities would be determined based on the borrower gradation and the interest rate policy of the bank from time to time. SECURITY: The credit facilities shall be secured by tangible assets and collaterals as may be required based on the nature of project, quantum and duration of the credit, anticipated return on investment and risk perception. In addition to the above, Bank's usual normal lending norms and policy guidelines in force from time to time would be equally applicable to project finance cases also

5. EXIM FINANCE KEY BENEFITS: Efficient service to our importer/exporter clients. Connectivity with the Customs Department to facilitate payment of custom duty and receipt of duty draw back by the importer/exporter clients through the electronic media. Under this system of Electronic Data Interchange (EDI), Custom Authorities process the shipping bills and also effect on line payment of duty draw back for exporters. Further, they undertake processing of Bill of Entry and deposit of custom duty for imports. EXCHANGE EARNERS FOREIGN CURRENCY (EEFC) DEPOSITS SCHEME: The Exchange Earners Foreign Currency (EEFC) Deposits Scheme was started by RBI in the year 1992 with the introduction of Liberalized Exchange Rate Management System. Under this scheme, the recipient of inward remittances, exporters and other eligible bodies are allowed to keep a portion of their inward remittances / export proceeds in foreign currency with the banks in India which can later be utilized for permissible purposes.

SERVICES OFFERED TO EXPORTERS: Pre-shipment finance in foreign currency and Indian rupees. Post-shipment finance in foreign currency and Indian rupees. Handling export bills on collection basis. Outward remittances for purposes as permitted under Exchange Control guidelines. Inward remittances including advance payments. Quoting of competitive rates for transactions. Maintenance of Exchange Earners Foreign Currency (EEFC) accounts. Assistance in obtaining credit reports on overseas parties.

Forfeiting for medium term export receivables. SERVICES OFFERED TO IMPORTERS: Establishment of Import Letters of Credit covering import into India and handling of bills under Letter of Credit. Handling of import bills on collection basis. Remittance of advance payment against imports. Offering utilization of PCFC ( pre-shipment credit in foreign currency) for imports. Credit reports on overseas suppliers 6. SHORT TERM CORPORATE FINANCE METHODS OF LENDING: Like many other activities of the banks, method and quantum ofshort-term finance that can be granted to a corporate was mandated by the Reserve Bank of India till 1994. This control was exercised on the lines suggested by the recommendations of a study group headed by Shri Prakash Tandon. The study group headed by Shri Prakash Tandon, the then Chairman of Punjab National Bank, was constituted by the RBI in July 1974 with eminent personalities drawn from leading banks, financial institutions and a wide cross-section of the Industry with a view to study the entire gamut of Bank's finance for working capital and suggest ways for optimum utilization of Bank credit. This was the first elaborate attempt by the central bank to organize the Bank credit. The report of this group is widely known as Tandon Committee report. Most banks in India even today continue to look at the needs of the corporates in the light of methodology recommended by the Group. As per the recommendations of Tandon Committee, the corporates should be discouraged from accumulating too much of stocks of current assets and should move towards very lean inventories and receivable levels.

The committee even suggested the maximum levels of Raw Material, Stock-in-process and Finished Goods which a corporate operating in an industry should be allowed to accumulate. These levels were termed as inventory and receivable norms. Depending on the size of credit required, the funding of these current assets (working capital needs) of the corporates could be met by one of the following methods: FIRST METHOD OF LENDING: Banks can work out the working capital gap, i.e. total current assets less current liabilities other than bank borrowings (called Maximum Permissible Bank Finance or MPBF) and finance a maximum of 75 per cent of the gap; the balance to come out of long-term funds, i.e., owned funds and term borrowings. This approach was considered suitable only for very small borrowers i.e. where the requirements of credit were less than Rs.10 lacs SECOND METHOD OF LENDING: Under this method, it was thought that the borrower should provide for a minimum of 25% of total current assets out of longterm funds i.e., owned funds plus term borrowings. A certain level of credit for purchases and other current liabilities will be available to fund the build up of current assets and the bank will provide the balance (MPBF). Consequently, total current liabilities inclusive of bank borrowings could not exceed 75% of current assets. RBI stipulated that the working capital needs of all borrowers enjoying fund based credit facilities of more than Rs.10 lacs should be appraised (calculated) under this method. THIRD METHOD OF LENDING: Under this method, the borrower's contribution from long term funds will be to the extent of the entire CORE CURRENT ASSETS, which has been defined by the Study Group as representing the absolute minimum level of raw materials, process stock, finished

goods and stores which are in the pipeline to ensure continuity of production and a minimum of 25% of the balance current assets should be financed out of the long term funds plus term borrowings. (This method was not accepted for implementation and hence is of only academic interest) CORPORATE BANKING OF STATE BANK OF INDIA 2006-07 & 200708 INTRODUCTION: State Bank of India (SBI) (LSE: SBID) is the largest bank in India. It is also, measured by the number of branch offices and employees, the largest bank in the world. Established in 1806 as Bank of Bengal, it remains the oldest commercial bank in the Indian Subcontinent. It provides a range of banking products through its vast network in India and overseas, including products aimed at NRIs. With an asset base of $126 billion and its reach, it is a regional banking behemoth. The Government of India nationalized SBI in 1955 with the Reserve Bank of India having a 60% stake. SBI has laid emphasis on reducing the huge manpower through Golden handshake schemes and computerizing its operations.

PROFILE: The SBI’s powerful corporate banking formation deploys multiple channels to deliver integrated solutions for all financial challenges

faced by the corporate universe. The Corporate Banking Group and the National Banking Group are the primary delivery channels for corporate banking products. The Corporate Banking Group consists of dedicated Strategic Business Units that cater exclusively to specific client groups or specialize in particular product clusters. Foremost among these specialized groups is the Corporate Accounts Group (CAG), focusing on the prime corporate and institutional clients of the country’s biggest business centers. The others are the Project Finance unit and the Leasing unit. The National Banking Group also delivers the entire spectrum of corporate banking products to other corporate clients, on a nationwide platform. HIGHLIGHTS OF CORPORATE BANKING IN 2006-07 1. PARTICULARS AS ON AS ON GROWTH 31.03.2006 30.03.2007 % (Amount in Rs. crore) Deposits 15,406 16,882 9.58 Advances(including food) 84,823 1,06,581 25.65 Advances(excludingfood) 78,721 98,273 24.84 2. CORPORATE ACCOUNTS GROUP (CAG): CAG’s loan portfolio constituted about 24% of the Bank’s Commercial and Institutional non-food credit and 11.75% of the total domestic credit portfolio as on 31.03.2007. INITIATIVES TAKEN: During the year 2006-07, Corporate Accounts Group ( CAG) has focused on increasing its fee based income, which registered an impressive growth of approx. 44% Y-O-Y . To this end, it has put in place different technology based products offering wholesale banking services to our corporate customers to enable them to fully outsource their Accounts Payable and Accounts Receivable function. A new Group - Institutional Accounts Group has been formed for

focusing on Banks and Financial Institutions, providing them with various Banking Products/ Services, and for forming strategic alliances in the areas of mutual interest. SBI FAST, the CMP Product offered by CAG, had a turnover of Rs. 5,06,752 crore as on 31.03.2007. CMP is now comprehensive cash management solution, offering payments in addition to collections. CMP also empowers the corporates in their liquidity management by offering auto sweep facility, customized MIS and reconciliation support. Introduction of Direct Debit facility, handling Bulk RTGS transactions, Bulk Drafts printing, Dispersed Direct Credits are some of the new initiatives. CAG is now well poised to recapture the interest and dividend warrants business of the large corporates. All the CAG branches have migrated to Core Banking Platform. Vendor financing package, which provides easy finance against the receivables of various vendors of our corporates across the country has been successfully implemented in 6 branches in 3 Circles, and is now ready for a full scale rollout. Six Sigma has enabled CAG to continue on the growth trajectory in the forex business registering Y-O-Y growth of nearly 44%. The forex turnover reached Rs. 2,04,273 crore, as on 31.03.2007. CAG is a major contributor to the forex kitty with around 40% share in the total domestic forex turnover of SBI. With the active co-operation of Treasury Marketing Units, CAG has marketed for derivative business to the tune of Rs. 8,651 crore.

3. LEASING SBU: In view of unfavourable climate and availability of alternative funding options at cheaper cost, the Bank decided not to write leases during the current year also. As at the end of March 2007, the disbursements and capitalization were “NIL and profit amounted to Rs.16.42 crore. ”

4. PROJECT FINANCE SBU (PFSBU): The Project finance-SBU focuses on funding core projects like power, telecom, roads, ports, airports, SEZ and others. It also handles non-infrastructure projects with certain ceilings on minimum project costs. During the year, the focus was on syndication and underwriting of project loans. HIGHLIGHTS OF CORPORATE BANKING IN 2007-08 A. CORPORATE STRATEGY & NEW BUSINESSES In order to maintain our premier position in the financial services arena the Bank has institutionalized innovation and change. Against this backdrop, and in order to quickly identify and respond to emerging opportunities the Bank created the position of Dy Managing Director (Corporate Strategy & New Businesses) in the year 2006. During the last one and a half year, various new business initiatives have been undertaken by the Bank, as under: PENSION FUND BUSINESS: State Bank of India has been appointed as a sponsor of Pension Fund Manager (PFM) by PFRDA to manage the pension funds of Central and State Govt. Employees under New Pension System (NPS) of Govt. of India. SBI Pension Funds Pvt. Ltd. has been incorporated as a wholly owned subsidiary of State Bank of India to manage the pension funds under NPS. The Company has been allocated the largest share (55%) in the pension fund corpus.

FINANCIAL PLANNING AND ADVISORY SERVICES (FP&AS):

Financial Planning and Advisory Services initiative is focused on deepening the existing relationship of the Bank with mass affluent and high-end customers and help them in managing their assets through a mix of products/strategies. Our relationship managers will advise the customers to meet their needs of protection, invest in various classes of assets through investment planning, tax planning, retirement and real estate plans. Going forward, we plan to commence wealth management services by March 2009 and further introduce private banking by March 2012. MOBILE BANKING: The proliferation of mobiles has led to the emergence of a new channel for the delivery of basic banking services and small value e-commerce services. Considering the immense potential and the cost effectiveness of delivery, the Bank has decided to introduce mobile telephone based banking services which we plan to commence before the end of the first quarter of 2008-09. PRIVATE EQUITY: The Bank has identified private equity in different areas as a key new business. The rapid expansion of Indian economy, especially in growth sectors like Technology, Pharma, Health Care, Realty and Infrastructure, has opened up large opportunities of equity funding which have continuously shown superior returns. The Bank is at an advanced stage of preparedness for setting up various equity funds. Regulatory approval processes and JV formation are under implementation and a few funds are expected to be floated by the end of first half of the financial year. CUSTODIAL SERVICES: With increasing securities transactions originating from domestic

and foreign investors, there is an excellent demand for providing full range of custodial services. Accordingly, the bank has decided to expand its present capabilities in the domestic custody and offer these services as a new business in collaboration with a leading global custodian. The process of forming the Joint Venture is at an advanced stage. In addition to Custody (local and foreign institutional) & Depository services the JV would provide other value added services like Fund administration and securities lending and borrowing services on a full fledged Straight Through Processes (STP) and web enabled environment. NON- LIFE INSURANCE: While SBI Life is meeting a part of the requirements under Protection Services, the insurance offering bouquet will be complete with the inclusion of General Insurance products, greatly enhancing the customer value proposition at our vast branch network and enhancing the brand value of the Bank. With this end in view the Bank has decided to enter General Insurance Business through the joint venture route. The Bank aspires to be amongst the top 3 players in the General Insurance space within a period of 10 years. It is expected that the JV partner will be identified shortly and MOU/ Definitive Agreement(s) will be signed during the quarter ending June ‘08. After this process, Insurance Regulators (IRDA) and RBI will be approached for seeking regulatory clearances. We anticipate the start of the business by the year end. MERCHANT ACQUISITION BUSINESS: The increase in usage of cards of various kinds provides huge opportunities. We are in the process of entering merchant acquisition services through a Joint Venture subsidiary in order to bring in the best practices and services at par with international benchmarks. We expect this business to grow substantially over the next few

years and achieve market leadership position. B. COMMUNICATION & CHANGE During the year, the first Mass Internal Communication Programme named "Parivartan" was rolled out across the Bank. Over 3300 inclusive Two Day workshops were conducted by over 360 specially trained Trainers in a span of 100 days covering 1,30,000 employees. Never in the history of the bank had so many been trained in so short a time. The workshops caught the imagination of all employees and unleashed a new positive energy. A professional Study conducted by Xavier Institute of Management, Bhubaneswar, found that Parivartan had brought about a perceptible positive change in each of the 25 identified Customer Service parameters. As a part of the Transformation process, special brain storming Conclaves were held for the Top 55 CAG branches, all Heads of OAD at OLROs/RBOs/ ZOs/LHOs and Assistant General Manager (RTI) at Corporate Centre have been designated as Assistant Public Information Officers (ACPIOs). General Managers of Networks at Local Head Offices, Deputy General Managers & Branch Heads of Corporate Account Group, General Manager of Mid Corporate- Region, General Manager of Stressed Assets Management Group (SAMG) and General Manager (OL & CS) at Corporate Centres have been designated as Central Public Information Officers (CPIOs). The Chief General Managers of LHOs, Corporate Account Group, Mid Corporate Group, Stressed Assets Management Group have been designated as Appellate Authority under the Act in their respective area of control and Chief General Manager (Banking Operations) for Corporate Centres and its establishments. An exclusive ‘RTI Department’, has been created at Corporate Centre to handle and coordinate various issues under the Act. WEBLIOGRAPHY

Credit cards, home loans, business banking and more | HSBC Bank India (http://www.hsbc.co.in) :: IDBI Bank Ltd :: (http://www.idbi.com) :: STATE BANK OF INDIA :: Safe Banking With SBI :: (http://www.statebankofindia.com) Welcome to Punjab National Bank - the name you can BANK upon (http://www.pnbindia.com) Hexaware Technologies | Global Business Solutions (http://www.hexaware.com)

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