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Banking Products &

Operations

Session3

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Small and Medium Enterprise Sector& Commercial Banking

Business Bank Accounts:

-Business current account , Business Savings Accounts,

Business oans:

-Business oans, Business Credit Cards, Overdra!t, Cas" Credit

!acilit#, S"ort term loans, $orking Capital oans, oan againstcommercial ve"icles, Ot"er Secured oans, ines o! Credit%Bank uarantees, etter o! Credit', E(port and )mport relatedcredit, Customi*ed )ndustr# speci+c loans

Business Cas" less Banking Pa#ment S#stems:

-Business de.it cards, Business Credit Cards, Business C"e/ueclearance & Collection, Auto 0e.it !acilit#, POS & Pa#mentate1a# Solution %S1ipe mac"ines' ,Business )nternetBanking, Corporate 2elep"one Banking, Online trans!er %E42 52S',

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Small and Medium Enterprise Sector& Commercial Banking

Specialised Business Banking Services:

- Cas" Collection & 0oor Step Banking:

Cross Selling o! Products:

- Cross Selling o! )nsurance related products 6 Business)nsurance

- on-i!e )nsurance :% Business Premises insurance,mac"iner# insurance, Personal accident polic# !oremplo#ees etc', i!e )nsurance: %i!e insurance !or

emplo#ees'Advisor# Services:

oan S#ndication, 0e.t 5estructuring, Structured4inancing, Merger & Ac/uisition, Private E/uit#

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Business Banking 6 2#pes o!

Customers

• Small & Medium Enterprises:

- Sole proprietors"ip, Partners"ip +rm

Egs 5estaurant, Petrol Banks, 2e(tile s"ops, Supermarkets, Small manu!acturing .usiness

• Commercial Banking

- arge Private imited cos, E(port 6 )mport cos

• Corporate Banking:

•

Ot"er Sectors:-C"arities, on-Pro+t Organisations, Educational)nstitutions , 2rusts, Apartment 1el!are associationsetc

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Business Banking5e/uirements

• Business Current Accounts

• Business 0e.it Cards

• Business Credit Cards Corporate Credit card

• Business POS terminal6 Card s1iping mac"ines 6 5etail

and ot"er .usiness

• Cas" Collection 6 0oor step .anking

• Business oans %S"ort 2erm & ong 2erm'

• Business ines o! Credit

• Business 4oreign Currenc# re/uirements• Business )nsurance needs

• Business Advisor# needs 6 Capital raising, investment ,Merger & Ac/uisition

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C"annels o! BusinessBanking

• Business Branc" Banking

- t"roug" 5elations"ip Managers

• Business Online Banking %)nternet Banking'

• Business 2elep"one Banking• Business Mo.ile 2a.let Banking

• Banking at door step %Cas" Collection C"e/ue collection services'

• Ot"er .anking tec" related .anking services

- BACS %Business Automated Credit S#stems' !orautomatic salar# credit

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Cas" Management Services !or

Business

• ocal C"e/ue Collections- ocal C"e/ue Collections involve collection o! local

instruments !rom various locations on .e"al! o!customers C"e/ues pa#a.le in local clearing are

processed and credit is given .ased on local clearing att"e dra1ee location

• 7pcountr# C"e/ue Collections

• 0rop Bo( Services- 0rop .o( services "ave .een developed and

implemented to e(tend convenience to customers

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0oor Step Banking

0oorstep .anking services

 2"e various services o8ered under doorstep .anking include

9Cas" pick-up

9Cas" deliver#

Cas" collection service "as gained immense popularit# acrossvarious industr# segments Some o! t"e .anks "as implementedvarious customised cas" pick-up solutions to meet speci+cre/uirements o! our customers

 2"ese solutions provide various .ene+ts suc" as

9Minimisation o! operational risk95eduction in cost

9Securit#

9)ncreased ecienc#

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Business Current Accounts

• Business Current Accounts:

 – Minimum Balance re/uirements

 – C"e/ue Book operations

 – Cas" deposit related transactions

 – Online .anking %Business )nternet.anking'

 – Signatories to accounts !or c"e/ueoperations, internet .anking, telep"one.anking

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Business Current Accounts

• Business Current Account: Sample :

•  A current account that ofers transaction benetsbasis the Monthly Average Balance (MAB) maintainedin the account.

• Maintain a minimum MAB o only Rs. 25!!! and getree cash de"osit u"to #2 times the maintained MAB.

94ree cas" deposit o! upto ;< times t"e maintainedMAB an#1"ere in t"e countr#

94ree 52S and E42 transactions94ree ;== c"e/ue leaves per mont"

94ree mo.ile alerts !acilit#

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Business Commercial oans

• Cash Credit (Short term)

• Working Capital Finance: oans !or #ourda# to da# .usiness %s"ort term'

• Term Loans: )nvest in #our .usiness %longterm loan'

• Customized Loans

• Finance for mporters ! "#porters

• Loan for $erchant "sta%lishmentagainst credit card s&ipes ' accountsreceia%le

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Business Commercial oans Contd

• Business erdraft

• Bill *iscounting

• Business Lines of Credit:- Bank +uarantee

- Letter of Credit

Loans against Securities:

- +old Loan

- Loan against Shares ' *e%entures 'Bonds ' Fi#ed deposits

Business or Commercial $ortgage

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Cas" Credit

• Cas" credit is a dra1ing accountagainst credit granted .# .ank

• Borro1er is permitted to dra1 on t"eaccount 1it" in a prescri.ed limit as1"en and re/uired

• Save )nterest .# reducing t"e

.alances 1"enever t"e# repa# event"e part pa#ment

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Cas" Credit contd

Cas" Credit Against >#pot"ecation o! stocks:

• Cas" credit granted against t"e securit# o!stocks o! ra1 materials semi-+nis"ed and

+nis"ed goodCas" Credit against "#pot"ecation o! .ook de.ts:

• Cas" Credit !acilit# is also against t"e .ookde.ts, ie' de.it entries in t"e .ooks o! accounts

arising out o! sales o! goods or services 2"e.orro1er makes all transactions in one accountonl# ie' cas" credit account onl#

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 2erm loan

$edium and long term loans are called ?2erm loans@ 6more t"an a #ear

,epa-ment o! suc" loans is spread over a longer period 6 #ears ormore 2"e repa#ment is generall# made in suita.le instalments o! +(edamount %EM)s'

.urpose of Term loans : setting up o! ne1 .usiness activit#,

renovation, modernisation, e(pansione(tension o! e(isting units,purc"ase o! plant and mac"iner#, ve"icles, land !or setting up a !actor#,construction o! !actor# .uilding or purc"ase o! ot"er immova.le assets

 2"ese loans are generally secured  against the mortgage o land "lantand machinery building and other securities.

 2"e normal rate o! interest c"arged !or suc" loans is generall# /uite

"ig" 2"e repa#ment o! t"e loans is linked to cas" o1s generated !rom t"euse o! suc" e/uipment or asset

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etter o! Credit•

$ocumentary %redits morecommonly &no'n as letters o creditare a 'idely used method to efect

 "ayments in domestic andinternational trade.

•  A 'ritten underta&ing is issued by aban& (usually reerred to as the

issuing ban&) on the instructions othe buyer o goods to the seller. heuse o documentary credits "rovides

enough saeguards or the "arties

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 2rade Services

• etter o! Credit

• Bank uarantee

•

Bill 0iscounting

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etter o! Credit

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etter o! Credit E(ample

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Commercial etter o! Credit 4lo1

; Applicant approac"es )ssuing Opening Bank1it" C application !orm dul# +lled andre/uests )ssuing Bank to issue a etter o!Credit in !avour o! Bene+ciar#

< )ssuing Bank issues a etter o! Credit as pert"e application su.mitted .# an Applicantand sends it to t"e Advising Bank, 1"ic" is

located in Bene+ciar#@s countr#, to !ormall#advise t"e C to t"e .ene+ciar#

3 Advising Bank advises t"e C to t"eBene+ciar#

Once Bene+ciar# receives t"e C and i! it

suits "is "er re/uirements, "e s"e preparest"e goods and "ands over t"em to t"e carrier!or dispatc"ing to t"e Applicant

>e S"e t"en "ands over t"e documentsalong 1it" t"e 2ransport 0ocument as per C

to t"e egotiating Bank to .e !or1arded tot"e )ssuing Bank

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Commercial etter o! Credit 4lo1%Contd'

D )ssuing Bank reim.urses t"e egotiating Bank1it" t"e amount o! t"e C post egotiatingBank@s con+rmation t"at t"e# "ave negotiatedt"e documents in strict con!ormit# o! t"e Cterms egotiating Bank makes t"e pa#ment

to t"e Bene+ciar# Simultaneousl#, t"e egotiating Bank

!or1ards t"e documents to t"e )ssuing Bankto .e released to t"e Applicant to claim t"egoods !rom t"e carrier

F Applicant reim.urses t"e )ssuing Bank !or t"eamount, 1"ic" it "ad paid to t"e egotiatingBank

G )ssuing Bank releases all documents along

1it" t"e titled 2ransport 0ocuments to t"eApplicant

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Bank uarantee

• 0E4))2)O :

• Bank uarantee is an instrument issued .# t"eBank in 1"ic" t"e Bank agrees to stand guaranteeagainst t"e non-per!ormance o! some

actionper!ormance o! a part# 2"e /uantum o!guarantee is called t"e Hguarantee amountH

•  2"e guarantee is issued upon receipt o! a re/uest!rom HapplicantH !or some purposetransaction in

!avour o! a HBene+ciar#H 2"e Hissuing .ankH 1ill pa#t"e guarantee amount to t"e H.ene+ciar#H o! t"eguarantee upon receipt o! t"e HclaimH !rom t"e.ene+ciar#

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Bank uarantee contd

• Bank guarantee is a secondary "ayment o"tion and can be activatedonly at une"ected situations in

 "articular 'here a""licants could notull their contractual obligations.

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Bank uarantees contd

• Bank uarantees %B' comprise .ot" "erormance guarantees (*+) andnancial guarantees (,+) and are

structured according to t"e terms o!agreement vi*, securit#, maturit#and purpose

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Financial +uarantee

 2"ese are used to secure a +nancial commitmentsuc" as a loan, a securit# deposit, etc

 2"ese are used to secure a +nancial commitment

suc" as a loan, a securit# deposit, etc4or e(ample, guarantees o! margin mone# !orstock e(c"anges 2"ese are issued on .e"al! o!.rokers, in lieu o! t"e securit# deposit t"at needs

to .e paid at t"e time o! .ecoming a mem.er o!t"e e(c"ange

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Per!ormance uarantee

• As t"e name suggests, Per!ormanceBs are t"e ones .# 1"ic" t"eissuing .ank, also &no'n as the

+uarantor guarantees the ability othe a""licant to "erorm a contractto t"e satis!action o! t"e .ene+ciar#

• Bank agrees to stand guaranteeagainst the non-"erormance osome action"erormance o a "arty.

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Bill 0iscounting

$"at is Bill 0iscountingI

/nder this ty"e o lending Ban& ta&es the billdra'n by borro'er on his (borro'er0s) customerand "ay him immediately deducting someamount as discountcommission.

he Ban& then "resents the Bill to the borro'er0scustomer on the due date o the Bill and collectsthe total amount .

1 the bill is delayed the borro'er or his customer "ays the Ban& a "re-determined interestde"ending u"on the terms o transaction.

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Bills o! E(c"ange Creation

Creation o! a BE Suppose a seller sells goods ormerc"andise to a .u#er )n most cases, t"eseller 1ould like to .e paid immediatel# .ut t"e.u#er 1ould like to pa# onl# a!ter some time,t"at is, t"e .u#er 1ould 1is" to purc"ase oncredit

 2o solve t"is pro.lem, t"e seller dra1s a BE o! a

given maturit# on t"e .u#erThe seller has

now assumed the role of a creditor; and is

called the drawer of the bill.

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Bills o! E(c"ange Creation

 2"e .u#er, &ho is the de%tor/ is calledthe dra&ee0 he seller then sends thebill to the buyer 'ho ac&no'ledges his

res"onsibility or the "ayment o theamount on the terms mentioned on thebill by 'riting his acce"tance on the bill. he acce"tor could be the buyer himselor any third "arty 'illing to ta&e on thecredit ris& o the buyer.

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Bill 0iscounting

 2"e seller can take over t"e accepted BE to adiscounting agenc# .ank, B4C, compan#,"ig" net 1ort" individualJ and o.tain read#

cas" 2"e act o! "anding over an endorsedBE !or read# mone# is called discounting t"eBE

 2"e margin bet'een the ready money "aid

and the ace value o the bill is called thediscount and is calculated at a ratepercentage per annum on t"e maturit# value

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Bill 0iscounting Calculation

)llustration

"1ectie ,ate of nterest on L'C %ased Bill(23 da-s maturit-)

; Kalue o! t"e .ill, 5s ;=,===

< 0iscount c"arge 5s = %5s ;=,===( =<< ( G=3D='

3 Amount received .# t"e client, L 5s G,= %5s ;=,=== - 5s ='

uarterl# e8ective interest rate L F<N 5s G= ( ;==5s G=J

Annualised e8ective rate o! interest, %;=F<'- ;J ( ;== L<3GN

"1ectie ,ate of nterest on Clean Bill (43 da-s maturit-)

D Kalue o! .ill 5s ;=,===

0iscount C"arge, L 5s == %5s ;=,=== ( =< ( D=3D='

F Amount received .# t"e client L 5s G,D== %5s ;=,=== - 5s =='

G uarterl# rate o! interest L ;N %5s ==5s G,D=='(;==

;=E8ective rate o! interest per annum, L ;N

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Advisor# Services

• oan S#ndication

• 0e.t 5estructuring

•

Structured 4inancing• Merger & Ac/uisition

• Private E/uit# %5aising o! Capital'

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oan S#ndication

• Loan s-ndication is a lending process in 1"ic" agroup o! lenders provide !unds to a single .orro1er

• Mainl# used in e(tremel# large loan situations,s#ndication allo1s an# one lender to provide a

large loan 1"ile maintaining a more prudent andmanagea.le credit e(posure, .ecause t"e lenderisnHt t"e onl# creditor

• oan s#ndication is common in mergers,

ac/uisitions and .u#outs, 1"ere .orro1ers o!tenneed ver# large sums o! capital to complete atransaction, o!ten more t"an a single lender is a.leor 1illing to provide

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Corporate 0e.t 5estructuring

•  2"e reorgani*ation o! a compan#Hs outstanding o.ligations,o!ten ac"ieved .# reducing t"e .urden o! t"e de.ts on t"ecompan# .# decreasing t"e rates paid and increasing t"etime t"e compan# "as to pa# t"e o.ligation .ack

•  2"is allo1s a compan# to increase its a.ilit# to meet t"eo.ligations Also, some o! t"e de.t ma# .e !orgiven .#creditors in e(c"ange !or an e/uit# position in t"e compan#

 2"e need !or a corporate de.t restructuring o!ten arises1"en a compan# is going t"roug" +nancial "ards"ip and is

"aving dicult# in meeting its o.ligations )! t"e trou.les areenoug" to pose a "ig" risk o! t"e compan# going .ankrupt, itcan negotiate 1it" its creditors to reduce t"ese .urdens andincrease its c"ances o! avoiding .ankruptc#

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Structured 4inancing

• A service t"at generall# involves "ig"l# comple(+nancial transactions o8ered .# man# large+nancial institutions !or companies 1it" ver#uni/ue +nancing needs 2"ese +nancing needs

usuall# donHt matc" conventional +nancial productssuc" as a loan

• Structured +nance "as .ecome a maor segment int"e +nancial industr# since t"e mid-;GF=s

Collaterali*ed .ond o.ligations %CBOs',collaterali*ed de.t o.ligations %C0Os', s#ndicatedloans and s#nt"etic +nancial instruments aree(amples o! structured +nancial instruments

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Merger & Ac/uisition

Ac/uisition :

• $"en one compan# takes overanot"er and clearl# esta.lis"ed itsel!

as t"e ne1 o1ner, t"e purc"ase iscalled an ac/uisition

• 4rom a legal point o! vie1, t"e target

compan# ceases to e(ist, t"e .u#erQs1allo1sQ t"e .usiness and t"e.u#erHs stock continues to .e traded

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Merger

• )n t"e pure sense o! t"e term, a merger "appens1"en t1o +rms, o!ten o! a.out t"e same si*e,agree to go !or1ard as a single ne1 compan#rat"er t"an remain separatel# o1ned and operated

•  2"is kind o! action is more precisel# re!erred to as aQmerger o! e/ualsQ Bot" companiesH stocks aresurrendered and ne1 compan# stock is issued in itsplace

•

4or e(ample, .ot" 0aimler-Ben* and C"r#slerceased to e(ist 1"en t"e t1o +rms merged, and ane1 compan#, 0aimlerC"r#sler, 1as created

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