INTERNATIONAL BANKING

An assignment Submitted to: Dr. Kumudiniben Thakur

Date: 15-2-09

Submitted by: Jilpa D. Patwa

Class: M.Phil (2008)

Roll no. : 10
CONTENTS
1) Introduction
2) The banking
3) The Commercial Role
4) The Concept of International Banking
5) The Importance
6) Organizational Forms of International Banking
7) International Product and Services in INDIA
8) The Reason Behind the Growth of International Banking
9) The Considering Point
INTRODUCTION

• "International banking“ can be referred as a subset of commercial banking

transactions and activity having a cross-border and /or cross currency
element

• To understand that concept one must have to clear idea about the BANK
and its activities
THE BANKING

• The business of banking has been defined under section 5(b) of the Banking
Regulation Act, 1949 as “Accepting, for the purpose of lending or
investment of deposits of money from the public, repayable on demand or
otherwise and withdraw able by cheque, draft, and order or otherwise”.

• The main functions of commercial banks are

– . Accepting of Deposits

– . Lending of Money

– . Subsidiary (Agency) Services.

• A bank is a FINANCIAL INSTITUTION whose primary activity is to act as a

payment agent for customers and to borrow and lend money. It is an
institution for receiving, keeping, and lending money.
THE COMMERCIAL ROLE

• issue of BANK NOTES (promissory notes issued by a banker and payable to

bearer on demand)

• processing of payments by way of telegraphic transfer, internet banking or

other means

• issuing BANK DRAFTS and BANK CHEQUES

• accepting money on TERM DEPOSITS

• lending money by way of OVERDRAFT, INSTALLMENT LOAN or otherwise

• providing documentary and standby LETTERS OF CREDIT [trade finance

guarantees], PERFORMANCE BONDS , securities underwriting
commitments and other forms of off balance sheet exposures

• safekeeping of documents and other items in SAFE DEPOSIT BOXES

• Currency exchange

• sale, distribution or brokerage, with or without advice, of insurance, unit

trusts and similar financial products as a 'FINANCIAL SUPERMARKET’
THE CONCEPT OF INTERNATIONAL BANKING

• Banking system came along with the development of money as an

institution. The transaction of commodities across countries required
financial intermediation in the international level and thus international
banking business was born. International banking operations are essentially
to facilitate the movement of goods across the political boundary of
countries.

• In this way, the emergence and growth of international banking is closely

interwoven with the development of international trade and international
capital movement.

• Before World War I when European banks dominated the world capital
market, during the period 1940-1960, regulatory control on capital flow
and convertibility of the currencies reduced the importance of international
banking. From 1960 onwards globalization of capital market started and it
helps in expansion of international banking in today's scenario.

• The major business of international banks is based on international trade,

international transfer of capital and money and derivatives.
THE IMPORTANCE

• If you want to make a payment abroad, you will have to deal through a
bank operating on international level.

• Banks around the world are centers for money transfer business. Dealers in
securities or exporters and importers make use of services of international
banks.

• With the growth of Multinational companies, the importance and role of

such banks have increased.

• International banking is also important for the growth of competition.

• Such banks also help the developing countries in their economic

development.
ORGANIZATIONAL FORMS OF INTERNATIONAL BANKING

International banks are linked together in various formal and informal ways
from simple holding account with each other, correspondent accounts-to
common ownership.

1. Correspondent Banking:

An informal linkage between banks in different countries, Large banks have

correspondent relationships with banks in almost every country in which
they do not have an office of their own. Correspondent banking allows
barks to help their customers who are doing business abroad, without
having to maintain any personnel or offices overseas. This relationship is
primarily for settling customer payments. The term correspondent" comes
from the main or cable communications that the banks use for settling
customer accounts. Today, these communications have largely been
replaced by SWB3' messages, and the settling between banks occurs via
CHIPS.

2. Resident Representatives:

The resident representatives will keep in contact with local correspondent

banks and provide help when needed. Representative offices are generally
small, and they have the appearance of an ordinary commercial office
rather than a bank.

3. Bank Agencies:

An agency is like a full-fledged bank in every respect except that it does not
handle ordinary retail deposits. The agencies deal in the local money
markets and in the foreign exchange markets, arrange loans, clear bank
drafts and checks, and channel foreign funds into financial markets.
Agencies also often arrange long-term loans for customers and act on
behalf of the home office to keep it directly involved in the important
foreign financial markets.
4. Foreign Branches:

Foreign branches are operating banks like local banks. Generally, foreign
branches are subject to both local banking rules and the rules at home, but
because they can benefit from loopholes, the extra tier of regulations is not
necessarily onerous. The books of a foreign branch are incorporated with
those of the parent bank, although the foreign branch will also maintain
separate books. The foreign branch can offer a great advantage over the
lengthy clearing that can occur via correspondents.

5. Foreign Subsidiaries and Affiliates:

A foreign branch is part of a parent organization that is incorporated

elsewhere. A foreign subsidiary is a locally incorporated bank that happens
to be owned either completely or partially by foreign parents. Foreign
subsidiaries do all types of banking, and it may be very difficult to
distinguish them from an ordinary locally owned bank.

6. Consortium Banks:

Consortium banks are joint ventures of the larger commercial bank. They
can involve half a dozen or more partners from numerous countries. They
are primarily concerned with investment, and they arrange large loans and
underwrite stocks and bonds. Consortium banks are not concerned with
taking deposits and they deal only with large corporations or perhaps
governments. They will take equity positions-part ownership of an
investment-as well as make loans, and they are frequently busy arranging
takeovers and mergers.
INTERNATIONAL PRODUCTS AND SERVICES – IN INDIA

The international banking services in India are provided for the benefit of Indian
customers, corporate, NRIs, Overseas Corporate Bodies, Foreign Companies/
Individuals as well as Foreign Banks etc.

The product and services offered by different banks are:

1. NRI Banking

2. Foreign Currency Loans

3. Finance/Services to Exporter

4. Finance/Services to Importers

5. Remittances

6. Forex and Treasury Services

7. Resident Foreign Currency (Domestic) Deposits

8. Correspondent Banking Services

9. All General Banking Services

1. NRI BANKING
The international bank provide the services to the NRI customers by providing the loan and
remittance and accepting the deposits like

a)    Foreign Currency Non resident (FCNR-B) Deposits 

• overseas earnings remain fully repatriable in an FCNR (B) Deposit account

b) Resident Foreign Currency (RFC) Deposits 

• Returning Indians for permanent settlement, after staying abroad for not
less than one year,
• can retain their savings in foreign currency in a RFC account
    
• Get the proceeds of FCNR (B)/NRE Deposits credited to this account
   
• Get the earnings out of dividend/sale proceeds of assets left abroad as well
as pension received from overseas credited in this foreign currency account

C) Non Resident external (NRE) Deposits   :

• NRE deposits can be placed with

• Savings Bank A/c

• Fixed Deposit A/c

d) Non Resident Ordinary (NRO) Deposits

• NRO account may be opened in the following manner :

• Where an Indian citizen having a resident account leaves India and

becomes non-resident, his resident account should be designated as
NRO account.

• Where non-resident Indian receives income in India, he can open a NRO a/c
with such funds.
2. FOREIGN CURRENCY LOANS

a) In India (FCNR 'B' Loans):

• The foreign currency denominated loans in India are granted out of the pool of
foreign currency funds of the Bank in FCNR(B) Deposit etc. accounts

• These loans are denominated in foreign currency such as US Dollars and are
offered as short term loans.

b) From Outside India:

• With presence internationally, bank has foreign currency resources to

arrange /grant Foreign Currency Loans to Indian as well as multinational
corporates at the competitive rates.

• The foreign currencies denominated loans are granted by overseas branches

to Indian Corporates as per External Commercial Borrowing (ECB) Policy of
Govt. of India/RBI.

3. FINANCE/SERVICES TO EXPORTERS

a) Rupee Export Credit (pre-shipment and post-shipment):

• Many banks provide both pre and post shipment credit to the Indian
exporters through Rupee Denominated Loans as well as foreign currency
loans in India. Exporters having firm export orders or confirmed L/C from a
bank are eligible to avail the export credit facilities.
Rupee Export Credit is available generally for a period of 180 days from the
date of first disbursement. In deserving cases extension may be permitted
within the guidelines of RBI.

b) Pre-shipment Credit in Foreign Currency (PCFC):

• Bank offers PCFC in the foreign currency to the exporters enabling them to
fund their procurement, manufacturing/processing and packing
requirements. These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import content of
 the exports.
PCFC is generally available for a period of 180 days from date of first
disbursement. In deserving cases extension may be permitted within the
guidelines of RBI.

c) Negotiation of Bills under L/C----letter of credit

• Authorised Forex Branches are active in negotiation/discounting of

sight/usance international export bills under L/Cs opened by foreign banks as
well as branches of Indian banks abroad.

d) Export Bill Rediscounting:

• Bank provides financing of export by way of discounting of export bills, as post

shipment finance to the exporters at competitive international rate of interest.

e) Bank Guarantees:

• Bank, on behalf of exporter constituents, issues guarantees in favour of

beneficiaries abroad. The guarantees may be Performance and Financial.

4. FINANCE/SERVICES TO IMPORTERS

a) Collection of Import Bills:

• Local Bank has correspondent relationship with reputed International Banks

throughout the world and can thus provide valuable services to importers who
may be importing from any part of the Globe. The import bills are collected by
Authorised Forex Branches at very competitive rates. The import bills drawn
on customers of other branches are also collected through these branches.

b) Letter of Credit:

• On account of bank reputation in international market L/Cs of banks are well

accepted in the International market.

• L/C facility is for the purchase of goods/services etc. fulfills the requirements
of all importers to arrange a reliable supply. Bank offers this facility to
importers in India within the ambit of FEMA and Exim policy of Govt. of India.
 Bank uses state of the art SWIFT network to transmit L/Cs and with a
worldwide network of correspondents and overseas branches facilitates
prompt & efficient services to the importers.
L/C facility is granted to the importers on satisfying credit exposure norms of
the Bank.

c) Financing of import

• Usance L/C facility

• Provides the importer an opportunity to avail credit from their

Supplier/supplier's bank.

• Rupee finance its

• For payment of goods and services imported from abroad

• Foreign Currency Loans

• Short term External Commercial Borrowings or Trade Credits for less

than three years as permitted by RBI for imports into India is allowed
by overseas branches to Indian importers. These are generally
backed by L/Cs opened by importer's bank. Indian importers can also
avail this facility from overseas branches as roll-Over credit on their
bank agreeing to extend the L/C in favour of our overseas branches.

d) Bank Guarantees:

• On behalf of importer constituents or other customer’s bank can Issues

guarantees in favour of beneficiaries abroad. The guarantees may be both
Performance and Financial.

5. REMITTANCES

• Through its worldwide network of correspondents, Indian branches and

overseas branches, banks offers prompt inward and outward foreign
 remittance facilities. The use of SWIFT network adds to reliability and efficient
handling.

6. FOREX & TREASURY SERVICES

• Banks operates in the Forex Market in India as well as abroad.

• Deals in all the important international currencies. Forex Treasuries generally

undertake the following treasury related activities:-
Forex Inter Bank Placements/Borrowings
Sale & Purchase of currency on behalf of customers
Forward Cover Bookings
Cross Currency Swaps
Interest Rate Swaps (IRS)
Forward Rate Arrangements (FRAs)
Forex Money Market Operations

• Forex Services For Corporates

• To improve the standard of service to the valued clientele, the banks

have integrated Forex corporate services.
• Corporate Forex Services include Foreign Currency Sale & Purchase,
Forward Booking, and Cross Currency Forward etc. Other products
like Collection & Negotiation of Export & Import Bills under LC, LC
Issuance, Advising & Confirmation Services, and Arrangement of
Trader Credits, the guarantees on behalf of Indian
Corporate/Projects, EEFC Accounts, and Remittance etc. are all
available to corporate customers

7. RESIDENT FOREIGN CURRENCY (DOMESTIC) A/Cs

 To Resident individuals in India, the facility to open non-interest bearing
current account in foreign currency at the selected Indian branches as
permitted by RBI. Joint accounts with a resident eligible to open RFC (D)
account are permissible. Nomination facility is also permitted.

THE REASONS BEHIND THE GROWTH OF INTERNATIONAL BANKING

1. The growth of multinational companies: -- One reason of starting an

international banking activities is to continue to service the customers who
themselves had established the branches abroad.

2. The growth of international trading :-- Emergence and growth of international

banking is closely interwoven with the development of international trade

3. Developments in electronic commerce: -- developments in computer and

information technology have made dramatic changes to the way the financial
services industry operates. Global network in place exploded the volume of
international banking business. These changes are affecting and will affect
every aspect of the international banking and offer the possibility of reduced
costs. As communication costs continue to fall, the potential of outsourcing
grows and make the bank enable to provide efficient services. And with the
help of that advantage, international business began to grow much more
rapidly.

4. Foreign direct investment: -- it has been cited as an important determinant for

the expansion of international banking. In fact, the presence of international
banks facilitates the inflow of foreign capital and it is expected that the increase
in foreign direct investment should have a positive impact on the growth of
international banking

5. capital market regulation :-- globalization of capital market has helped in

development of international banking

6. The competition: --- In this competitive edge, to be a smartest bank and

satisfy the customers with the latest facility of services and for long survival,
the bank cannot neglect cross-border services.
THE CONSIDERING POINT

• India’s banking sector is growing at a fast pace. It has become one of the
most preferred banking destinations in the world. Indian markets provide
growth opportunities, which are unlikely to be matched by the mature
banking markets around the world.

• International banking operations have made the bank regulators realize the
necessity of establishing a well – defined set of ground rules for the safe
operation of all banks. international organizations are placing a lot of
emphasis on the development and implementation of international
standards and principles

• The growth, in International Banking has also significantly increased the

risks of international Banking.