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Banking Products &

Operations
Session3

Small and Medium Enterprise Sector


& Commercial Banking
Business Bank Accounts:
-Business current account , Business Savings Accounts,
Business Loans:
-Business Loans, Business Credit Cards, Overdraft, Cash Credit
facility, Short term loans, Working Capital Loans, Loan against
commercial vehicles, Other Secured Loans, Lines of Credit
(Bank Guarantees, Letter of Credit), Export and Import related
credit, Customized Industry specific loans.
Business Cash less Banking / Payment Systems:
-Business debit cards, Business Credit Cards, Business Cheque
clearance & Collection, Auto Debit facility, POS & Payment
Gateway Solution (Swipe machines) ,Business Internet
Banking, Corporate Telephone Banking, Online transfer (NEFT /
RTGS),

Small and Medium Enterprise Sector


& Commercial Banking
Specialised Business Banking Services:
- Cash Collection & Door Step Banking:
Cross Selling of Products:
- Cross Selling of Insurance related products Business
Insurance
- Non-Life Insurance :( Business Premises insurance,
machinery insurance, Personal accident policy for
employees etc), Life Insurance: (Life insurance for
employees)
Advisory Services:
Loan Syndication, Debt Restructuring, Structured
Financing, Merger & Acquisition, Private Equity

Business Banking Types of


Customers
Small & Medium Enterprises:
- Sole proprietorship, Partnership firm
Egs . Restaurant, Petrol Banks, Textile shops, Super
markets, Small manufacturing business

Commercial Banking
- Large Private Limited cos, Export Import cos

Corporate Banking:
Other Sectors:
-Charities, Non-Profit Organisations, Educational
Institutions , Trusts, Apartment welfare associations
etc

Business Banking
Requirements

Business Current Accounts


Business Debit Cards
Business Credit Cards /Corporate Credit card
Business POS terminal Card swiping machines Retail
and other business
Cash Collection Door step banking
Business Loans (Short Term & Long Term)
Business Lines of Credit
Business Foreign Currency requirements
Business Insurance needs
Business Advisory needs Capital raising, investment ,
Merger & Acquisition

Channels of Business
Banking
Business Branch Banking
- through Relationship Managers

Business Online Banking (Internet Banking)


Business Telephone Banking
Business Mobile / Tablet Banking
Banking at door step (Cash Collection /
Cheque collection services)
Other banking tech. related banking services
- BACS (Business Automated Credit Systems) for
automatic salary credit

Cash Management Services for


Business
Local Cheque Collections
-

Local Cheque Collections involve collection of local


instruments from various locations on behalf of
customers. Cheques payable in local clearing are
processed and credit is given based on local clearing at
the drawee location

Upcountry Cheque Collections


Drop Box Services
-

Drop box services have been developed and


implemented to extend convenience to customers.

Door Step Banking


Doorstep banking services.
The various services offered under doorstep banking include
Cash pick-up
Cash delivery
Cash collection service has gained immense popularity across
various industry segments. Some of the banks has implemented
various customised cash pick-up solutions to meet specific
requirements of our customers.
These solutions provide various benefits such as
Minimisation of operational risk
Reduction in cost
Security
Increased efficiency

Business Current Accounts


Business Current Accounts:
Minimum Balance requirements
Cheque Book operations
Cash deposit related transactions
Online banking (Business Internet
banking)
Signatories to accounts for cheque
operations, internet banking, telephone
banking

Business Current Accounts


Business Current Account: Sample :
A current account that offers transaction benefits
basis the Monthly Average Balance (MAB) maintained
in the account.
Maintain a minimum MAB of only Rs. 25,000 and get
free cash deposit upto 12 times the maintained MAB.
Free cash deposit of upto 12 times the maintained
MAB anywhere in the country
Free RTGS and NEFT transactions
Free 100 cheque leaves per month
Free mobile alerts facility

Business /Commercial Loans


Cash Credit (Short term)
Working Capital Finance: Loans for your
day to day business (short term)
Term Loans: Invest in your business (long
term loan)
Customized Loans
Finance for Importers & Exporters
Loan for Merchant Establishment
against credit card swipes / accounts
receivable

Business / Commercial Loans Contd.


Business Overdraft
Bill Discounting
Business Lines of Credit:
- Bank Guarantee
- Letter of Credit
Loans against Securities:
- Gold Loan
- Loan against Shares / Debentures /
Bonds / Fixed deposits
Business or Commercial Mortgage

Cash Credit
Cash credit is a drawing account
against credit granted by bank
Borrower is permitted to draw on the
account with in a prescribed limit as
when and required.
Save Interest by reducing the
balances whenever they repay even
the part payment

Cash Credit contd.


Cash Credit Against Hypothecation of stocks:
Cash credit granted against the security of
stocks of raw materials / semi-finished and
finished good.
Cash Credit against hypothecation of book debts:
Cash Credit facility is also against the book
debts, ie) debit entries in the books of accounts
arising out of sales of goods or services. The
borrower makes all transactions in one account
only ie) cash credit account only.

Term loan
Medium and long term loans are called Term loans more than a year
Repayment of such loans is spread over a longer period 5 years or
more. The repayment is generally made in suitable instalments of fixed
amount. (EMIs)
Purpose of Term loans : setting up of new business activity,
renovation, modernisation, expansion/extension of existing units,
purchase of plant and machinery, vehicles, land for setting up a factory,
construction of factory building or purchase of other immovable assets.
These loans are generally secured against the mortgage of land, plant
and machinery, building and other securities.
The normal rate of interest charged for such loans is generally quite
high.
The repayment of the loans is linked to cash flows generated from the
use of such equipment or asset.

Letter of Credit
Documentary Credits, more
commonly known as letters of credit
are a widely used method to effect
payments in domestic and
international trade.
A written undertaking is issued by a
bank (usually referred to as the
issuing bank) on the instructions of
the buyer of goods to the seller. The
use of documentary credits provides
enough safeguards for the parties

Trade Services
Letter of Credit
Bank Guarantee
Bill Discounting

Letter of Credit

Letter of Credit Example

Commercial Letter of Credit Flow


1.

2.

3.
4.

5.

Applicant approaches Issuing/ Opening Bank


with LC application form duly filled and
requests Issuing Bank to issue a Letter of
Credit in favour of Beneficiary.
Issuing Bank issues a Letter of Credit as per
the application submitted by an Applicant
and sends it to the Advising Bank, which is
located in Beneficiarys country, to formally
advise the LC to the beneficiary.
Advising Bank advises the LC to the
Beneficiary.
Once Beneficiary receives the LC and if it
suits his/ her requirements, he/ she prepares
the goods and hands over them to the carrier
for dispatching to the Applicant.
He/ She then hands over the documents
along with the Transport Document as per LC
to the Negotiating Bank to be forwarded to
the Issuing Bank.

Commercial Letter of Credit Flow


(Contd..)
6. Issuing Bank reimburses the Negotiating Bank
with the amount of the LC post Negotiating
Banks confirmation that they have negotiated
the documents in strict conformity of the LC
terms. Negotiating Bank makes the payment
to the Beneficiary.
7. Simultaneously, the Negotiating Bank
forwards the documents to the Issuing Bank
to be released to the Applicant to claim the
goods from the carrier.
8. Applicant reimburses the Issuing Bank for the
amount, which it had paid to the Negotiating
Bank.
9. Issuing Bank releases all documents along
with the titled Transport Documents to the
Applicant.

Bank Guarantee
DEFINITION :
Bank Guarantee is an instrument issued by the
Bank in which the Bank agrees to stand guarantee
against the non-performance of some
action/performance of a party. The quantum of
guarantee is called the 'guarantee amount'.
The guarantee is issued upon receipt of a request
from 'applicant' for some purpose/transaction in
favour of a 'Beneficiary'. The 'issuing bank' will pay
the guarantee amount to the 'beneficiary' of the
guarantee upon receipt of the 'claim' from the
beneficiary.

Bank Guarantee contd.


Bank guarantee is a secondary
payment option and can be activated
only at unexpected situations, in
particular where applicants could not
fulfil their contractual obligations.

Bank Guarantees contd.


Bank Guarantees (BG) comprise both
performance guarantees (PG) and
financial guarantees (FG) and are
structured according to the terms of
agreement viz., security, maturity
and purpose.

Financial Guarantee
These are used to secure a financial commitment
such as a loan, a security deposit, etc.
These are used to secure a financial commitment
such as a loan, a security deposit, etc.
For example, guarantees of margin money for
stock exchanges. These are issued on behalf of
brokers, in lieu of the security deposit that needs
to be paid at the time of becoming a member of
the exchange.

Performance Guarantee
As the name suggests, Performance
BGs are the ones by which the
issuing bank, also known as the
Guarantor, guarantees the ability of
the applicant to perform a contract,
to the satisfaction of the beneficiary.
Bank agrees to stand guarantee
against the non-performance of
some action/performance of a party.

Bill Discounting
What is Bill Discounting?
Under this type of lending, Bank takes the bill
drawn by borrower on his (borrower's) customer
and pay him immediately deducting some
amount as discount/commission.
The Bank then presents the Bill to the borrower's
customer on the due date of the Bill and collects
the total amount.
If the bill is delayed, the borrower or his customer
pays the Bank a pre-determined interest
depending upon the terms of transaction.

Bills of Exchange Creation


Creation of a B/E Suppose a seller sells goods or
merchandise to a buyer. In most cases, the
seller would like to be paid immediately but the
buyer would like to pay only after some time,
that is, the buyer would wish to purchase on
credit.
To solve this problem, the seller draws a B/E of a
given maturity on the buyer. The seller has
now assumed the role of a creditor; and is
called the drawer of the bill.
.

Bills of Exchange Creation


The buyer, who is the debtor, is called
the drawee. The seller then sends the
bill to the buyer who acknowledges his
responsibility for the payment of the
amount on the terms mentioned on the
bill by writing his acceptance on the bill.
The acceptor could be the buyer himself
or any third party willing to take on the
credit risk of the buyer.

Bill Discounting
The seller can take over the accepted B/E to a
discounting agency bank, NBFC, company,
high net worth individual] and obtain ready
cash. The act of handing over an endorsed
B/E for ready money is called discounting the
B/E.
The margin between the ready money paid
and the face value of the bill is called the
discount and is calculated at a rate
percentage per annum on the maturity value.

Bill Discounting Calculation


Illustration
Effective Rate of Interest on L/C based Bill(90 days maturity)
1. Value of the bill, Rs 10,000
2. Discount charge Rs. 550 (Rs 10,000x 0.22 x 90/360)
3. Amount received by the client, = Rs 9,450 (Rs 10,000 - Rs 550)
4. Quarterly effective interest rate = 5.82% [Rs 90 x 100/Rs. 9450]
5. Annualised effective rate of interest, [(1.0582)4- 1] x 100 =
25.39%
Effective Rate of Interest on Clean Bill (60 days maturity)
6. Value of bill Rs 10,000
7. Discount Charge, = Rs 400 (Rs 10,000 x 0.24 x 60/360)
8. Amount received by the client = Rs 9,600 (Rs 10,000 - Rs 400)
9. Quarterly rate of interest = 4.17% (Rs. 400/Rs 9,600)x100
10.Effective rate of interest per annum, = 17.75%.

Advisory Services

Loan Syndication
Debt Restructuring
Structured Financing
Merger & Acquisition
Private Equity (Raising of Capital)

Loan Syndication
Loan syndication is a lending process in which a
group of lenders provide funds to a single borrower
Mainly used in extremely large loan situations,
syndication allows any one lender to provide a
large loan while maintaining a more prudent and
manageable credit exposure, because the lender
isn't the only creditor.
Loan syndication is common in mergers,
acquisitions and buyouts, where borrowers often
need very large sums of capital to complete a
transaction, often more than a single lender is able
or willing to provide.

Corporate Debt Restructuring


The reorganization of a company's outstanding obligations,
often achieved by reducing the burden of the debts on the
company by decreasing the rates paid and increasing the
time the company has to pay the obligation back.
This allows a company to increase its ability to meet the
obligations. Also, some of the debt may be forgiven by
creditors in exchange for an equity position in the company.
The need for a corporate debt restructuring often arises
when a company is going through financial hardship and is
having difficulty in meeting its obligations. If the troubles are
enough to pose a high risk of the company going bankrupt, it
can negotiate with its creditors to reduce these burdens and
increase its chances of avoiding bankruptcy.

Structured Financing
A service that generally involves highly complex
financial transactions offered by many large
financial institutions for companies with very
unique financing needs. These financing needs
usually don't match conventional financial products
such as a loan.
Structured finance has become a major segment in
the financial industry since the mid-1980s.
Collateralized bond obligations (CBOs),
collateralized debt obligations (CDOs), syndicated
loans and synthetic financial instruments are
examples of structured financial instruments.

Merger & Acquisition


Acquisition :
When one company takes over
another and clearly established itself
as the new owner, the purchase is
called an acquisition.
From a legal point of view, the target
company ceases to exist, the buyer
"swallows" the business and the
buyer's stock continues to be traded.

Merger

In the pure sense of the term, a merger happens


when two firms, often of about the same size,
agree to go forward as a single new company
rather than remain separately owned and operated.
This kind of action is more precisely referred to as a
"merger of equals." Both companies' stocks are
surrendered and new company stock is issued in its
place.
For example, both Daimler-Benz and Chrysler
ceased to exist when the two firms merged, and a
new company, DaimlerChrysler, was created.

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