Corporate Banking

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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 payment-related 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.

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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

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3. WORKING CAPITAL FINANCE

MEANING:

 Working Capital facility is provided to the industry to finance day-to-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.

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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

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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

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6. SHORT TERM CORPORATE FINANCE

METHODS OF LENDING:

 Like many other activities of the banks, method and quantum of short-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 long-term 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)

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CORPORATE BANKING OF STATE BANK OF INDIA 2006-07 & 2007-08

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.

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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.

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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.

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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.