Final 1111

A Report On
Submitted To-
The Saraswat Co- Operative Bank Ltd
FOREX Centre Vikhroli
Prepared By-
Ketki Parulekar
Mansukhani Institute of Management College
Ulhasnagar
2011-2012
A project report by- Ketki Parulekar Page | 1

A report on
Prepared under guidance of
Mr. H P Naik sir

Senior Manager
Department Head
FOREX Centre SME Vikhroli
&
Mr. G P Sakre Sir

Senior Manager
FOREX Centre SME Vikhroli

Declaration
I, Ketki Parulekar, student of mansukhani institute of
management College, Ulhasnagar (MMS) hereby declare that I
have completed the project report titled “Trade Finance” as
part of the summer internship in the academic year 2011-2012.
The information submitted by me is true & original to
the best of knowledge.
Ketki parulekar
MIM College, Ulhasnagar

Certificate
This is to certify that,
Ketki Parulekar,
Student of Mansukhani Institute of Management College (MMS) Has

completed the project report titled “Trade Finance” as part of the
summer internship with FOREX Centre SME Vikhroli, the Saraswat Co-
operative Bank in the academic year 2011-2012.
The information submitted is true & original to best of our knowledge.
We wish her all the very best in her future endeavors.
Signature of Project Guide
Mr. H P Naik Sir Sr. Manager

Dept Head FOREX Centre, Vikhroli
FOREX Centre, Vikhroli The Saraswat Co-Op Bank
The Saraswat Co-Op Bank Ltd
Ltd
Mr. G P Sakre Sir

Acknowledgement
The most pleasant part of any project is to

express gratitude towards all those who directly
or indirectly contributed to the smooth flow of the
project work & this would be a good opportunity
to thank them.
I would like to express a sense of deep

gratitude towards my project guide Sakre Sir for
his valuable inputs & guidance & for spending
much of his valuable time in helping me with my
topic. I would also like to acknowledge the
guidance received from Nike Sir.
I also wish to express sincere gratitude

towards all at FOREX centre, VIkhroli who have
directly or indirectly contributed towards the
project without their kind co-operation this project
would not have been possible.

Contents
Company Profile....................................................................................................................................8
Executive Summary.............................................................................................................................12
Importance of Foreign Trade in Indian Economy.................................................................................13
Regulatory Framework for International Trade...................................................................................15
Foreign Exchange Management Act....................................................................................................18
INCOTERMS.........................................................................................................................................20
Accounts Related To the FOREX..........................................................................................................25
Foreign Exchange Rate System............................................................................................................27
Interbank communication (SWIFT)......................................................................................................28
Components of Trade..........................................................................................................................29
Important Trade Documents...............................................................................................................30
Air Waybill.......................................................................................................................................31
Bill of Lading....................................................................................................................................32
Certificate of Origin.........................................................................................................................34
Commercial Invoice.........................................................................................................................34
Bill of Exchange................................................................................................................................35
Insurance Certificate........................................................................................................................36
Packing List......................................................................................................................................37
Inspection Certificate.......................................................................................................................37
Methods of Payment in International Trade.......................................................................................38
Cash in Advance...............................................................................................................................39
Open account..................................................................................................................................41
Documentary Collection..................................................................................................................43
Documents against Payment.......................................................................................................44
Documents against Acceptance...................................................................................................48
Documentary Credit........................................................................................................................52
Trade finance.......................................................................................................................................68
Pre Shipment Finance......................................................................................................................68
Post Shipment Finance....................................................................................................................74
Buyer’ credit....................................................................................................................................80

Remittance services.............................................................................................................................84
Purpose & limits for remittance.......................................................................................................84
Travel related...............................................................................................................................84
Other Remittances.......................................................................................................................84
Foreign Inward Remittance.............................................................................................................85
Issue of Foreign Inward Remittance Certificate...........................................................................85
Foreign Outward Remittance...........................................................................................................86
Traveler’s Cheque............................................................................................................................87
Foreign Currency Notes...................................................................................................................88
Foreign Currency Purchase from Customer.................................................................................88
Sale of Foreign Currency to Customer.........................................................................................88
NRI portfolio....................................................................................................................................89
How to open an account in the bank?.........................................................................................89
FCNR Account..............................................................................................................................89
NRE Account................................................................................................................................89
NRO Account...............................................................................................................................90
Bibliography.........................................................................................................................................91

Company Profile
"Service to the Common Man" has been the motto of

Saraswat Bank for the last 91 years. Bank in spite of its
growth in size has been able to offer to the customers the
dual advantage of "Ability of Big Banks and Agility of Small
Banks"
The Bank still continues to function with the glorious

tradition in public services besides being the largest Urban
Co-operative Bank in India, Saraswat Bank has now
become the largest in Asia. Saraswat Bank has now 226
fully computerized branches, 15 Zonal Offices and
departments located across 6 States viz. Maharashtra,
Goa, Gujarat, Madhya Pradesh, Karnataka and Delhi.
Saraswat Bank attributes this success to its undying

spirit to serve the common man and to the sharpening of
its competitive edge by constantly upgrading technology
to match international standards. The Bank is fully
computerized and offers convenient working hours.
Saraswat Bank has introduced a wide range of credit

schemes at attractive interest rates, which has become
very popular, especially among the middle-class in view of
the easy repayment plans. Bank offers attractive interest
rates on deposits and also various add on features at very
market competitive rates.
The Saraswat Bank offers the trusted financial

solution to all complexes Trade Finance related fund
needs (both in Indian Rupees and foreign currencies).

They extend export credit finance by way of Pre-shipment
and Post shipment credit at market competitive rates.
The Saraswat Bank offers remittance services in the

areas relevant to the NRIs. Foreign exchange remittances
facility available to residents for all permitted purposes at
any of the bank’s FOREX centres. The foreign exchange is
released for travel abroad in the form of Travelers
Cheques of reputed and internationally accepted brands
and also in foreign currency notes up to the limit
prescribed by Reserve Bank of India. Bank encash
traveler’s cheques/foreign currency notes in all major
currencies. Remittances abroad are made by way of
SWIFT or issuance of Demand Drafts.
The money changers for the bank are Pheroze

Framroze & Co. Pvt. Ltd. & Thomas Cook. Bank bought &
sold all currencies from them. Bank has 14 NOSTRO
Accounts to hold balances in a currency other than rupee
in foreign country for currency settlement.

List of NOSTRO Accounts of bank is as follows-
Curren Name & address of the Swift Account
cy correspondent bank number number
Wells Fargo Bank NA (Formerly
known as Wachovia)
US 11 Penn Plaza, 4th Floor, New PNBPUS3N 20001930
Dollars York, N.Y.-10001, U.S.A. CHIPS NYC 08124
ABA No: 0509 FED ABA No:
026005092
Mashreq Bank
US MSHQUS3
50, Broadway Suite 1500, New 70008955
Dollars 3
York NY 10004 USA
Standard Chartered Bank 3582-
US
One Medison Avenue,New York, SCBLUS33 084152-
Dollars
NY10010-3603, U.S.A. 001
Bank of India277,
US 00044212
Park Avenue, New York, BKIDUS33
Dollars 75
NY10172-0083,U.S.A.
National Westminster Bank PLC
Leval 5, Premier Place ,21/2,
STG.Po NWBKGB2 00445700
Devonshire Square,
unds L 5
London EC2M 4BA, U.K. SORT
CODE: 600004
known as Wachovia)
Yamato International
Japanes
NihonbashiBldg., 8 th Floor,2-1- PNBPJPJX 99759069
e Yen
3,Nihonbashi
Horidomecho,Chuo-Ku, Tokyo-
103-0012,JAPAN
Banque Cantonale Vaudoise
Swiss Siege Central, Case Postale
BCVLCH2L 911.00.02
Francs 300, 1001,
Lausanne,SWITZERLAND
ANZ Bank
Australi
351, Collins Street, P.O.Box No: ANZBAU3 294074-
an
537-E, Melbourne, M 00001
Dollars
AUSTRALIABSB: 014-909
National Bank of Canada
Canadi 099468
600,Rue De La Gauchetiere BNDCCAM
an 228 001
Quest 5th floor, Montreal, MINT
Dollar 001 01
QUEBEC,CANADA
Standard Chartered Bank
(Germany) GMBH
Euro SCBLDEFX 18072600
Franklinstrasse 46-48,60486,
Frankfurt / Main, GERMANY.
known as Wachovia)
Euro 1 PLANTATION PLACE 30 PNBPGB2L 06380162
Fenchurch Street London, EC
3M 3BD UK.
Bank of India,
Hong
2/FL, Ruttonji Centre, 11
Kong BKIDHKHH 20803
Duddell Street, Central, Hong
Dollars
Kong.
Singapo Bank of India BKIDSGSG 35656800

138 Robinson Road,#01-01,
re
#02-01, #03-01, The Corporate 01
Dollars
Office Bldg.,Singapore-068906
Bayerische Hypo-Und
HYVEDEM
Euro Vereinsbank Ag., 69108318
M
-HypovereinsBank
About SME Vikhroli Forex Centre
SME Vikhroli FOREX Centre deals in trade financing
for exporters & importers. It has established in 2009. The
centre is communicated through SWIFT for information
transfer to all other correspondent banks. The SWIFT
number for the centre is 281. The SWIFT code for the
centre is SRCBINBBGHT.
The basic functions of FOREX centre are as under &
involve mainly 3 major sections i.e. Export, Import &
Remittance.
 Export Section
It deals in-
 Collection of documents from exporter & after
verifying sends it to importer’s bank
 Advises Letter of Credit
 Credit the payment collected from the
importers to exporters account
 Grants advances
 Issues Bank Realization Certificate
 Import Section
It deals in-
 Opens Letter of Credit
 Receives documents of our importers
 Remits payments on the behalf of the
importers
 Provides Buying Credit facility

 Remittance Section
It deals in-
 Inward & outward remittances other than
Export & Import
 Travel Related Services
 NRI Portfolio
Executive Summary
The economy of any country bears a direct relation
with its trade. International trade plays a very important
role in any country’s progress. Trade finance is related to
the International trade. Trade financing is the provision of
any form of financing that enables a trading activity to
take place and which may be made directly to the
supplier, to facilitate procurement of items for immediate
sale and/or for storage for future activities, or it could be
provided to the buyer, to enable him meet contract
obligations. The availability of trade finance, particularly in
developing and least-developed countries, plays a crucial
role in facilitating international trade. Exporters with
limited access to working capital often require financing to
process or manufacture products before receiving
payments. Conversely, importers often need credit to buy
raw materials, goods and equipment from overseas.
The absence of an adequate trade finance
infrastructure is, in effect, equivalent to a barrier to trade.
Limited access to financing, high costs, and lack of
insurance or guarantees are likely to hinder the trade and
export potential of an economy, and particularly that of
small and medium sized enterprises. Trade facilitation
aims at reducing transaction cost and time by
streamlining trade procedures and processes. One of the

most important challenges for traders involved in a
transaction is to secure financing so that the transaction
may actually take place. The faster and easier the process
of financing an international transaction, the more trade
will be facilitated.

Importance of Foreign Trade in
Indian Economy
Foreign trade has got an important place in the
economic development of a country. The importance of
foreign trade for economic development of country is
stated below:
 Foreign trade helps to produce those commodities

which have a comparative cheaper cost than others.
It results in less cost of production in producing a
commodity. If all the countries adopt this procedure
to produce these goods in. which they have less
comparative cost, it will lead to availability of goods
at a lower price.
 Foreign trade increases the scope of market

because of domestic demand and foreign demand
for the product. So there is mass production. If the
production of goods increases, average cost
declines and price of goods declines.
 Foreign trade helps the people to get different

varieties of goods both in quantities terms and
qualitative terms.
 Foreign trade helps a developing country like India

in its economic development. Iron and steel
industry, has been established due to stored iron-
ore and coal. But for the establishment of this type

industry, we have to import technical knowledge
from foreign countries. Had there been no foreign
trade, then it would not have been only difficult but
also too expensive.
 Without foreign trade, it is not possible to fulfill the

demand for petroleum products and it will retard the
economic development of our country. There is also
scarcity of consumer goods due to natural
calamities or due to any other reason. During the
time scarcity of consumer goods, we import these
goods from foreign countries and keep prices stable
which help people to get their commodities.
Due to all these above reasons, foreign trade has got an

important place in every country.

Regulatory Framework for
International Trade
In the Indian context, the major regulatory
frameworks in International Trade are laid down by:
 Directorate General of Foreign Trade (DGFT)

The Directorate General of foreign Trade
(DGFT) is the agency of the Ministry of Commerce
and Industry of the Government of India, responsible
for execution of the import and export Policies of
India. It was earlier known as Chief Controller of
Imports & Exports (CCI&E) till 1991. DGFT plays a
very important role in the development of trading
relations with various other nations and thus help in
improving not only the economic growth but also
provides a certain impetus needed in the trade
industry. For promoting exports and imports DGFT
establish its regional offices across the country.
Functions and responsibilities of DGFT:

 DGFT entrusted with the responsibility of
implementing various policies regarding trade
for example, Foreign Trade Policy.
 DGFT is the licensing authority for exporters,
importers, and export and import business.
 DGFT can prohibit, restrict and regulate
exports and imports.
 DGFT has important role to issue Notifications,
Public notices, Circulars, etc.

 DGFT grant 10 digit IEC (Importer Exporter
Code), which is a primary requirement to
Import Export
 DGFT introduces different schemes from time
to time regarding trade benefits throughout
the country.
 DGFT has introduced ITC (HS CODE) schedule-
1 for import items in India and Schedule-2 for
Export items from India.
 Reserve Bank of India

Reserve bank of India’s role in trade is
concerned with:
 Exchange Control: RBI overseas the
payments & receipts by residents to non
residents & vice a versa.
 Credit norms to RBI: Any credit being
extended to another party is controlled
by RBI credit norms.
As a result, both domestic & international
trade & currency transactions come within the scope
of various RBI regulations.
RBI also closely monitors international
transactions in order to ensure compliance with
various forex regulations. FEMA is an important act
that lays down the underlying regulations governing
all foreign currency transactions in India.
 Foreign Exchange Dealers Association of India

(FEDAI)
Foreign Exchange Dealers Association of India
(FEDAI) was set up in 1958 as an Association of
banks dealing in foreign exchange in India (typically

called Authorized Dealers - ADs) as a self regulatory
body and is incorporated under Section 25 of The
Companies Act, 1956. Its major activities include
framing of rules governing the conduct of inter-bank
foreign exchange business among banks vis-à-vis
public and liaison with RBI for reforms and
development of forex market.
Presently some of the functions are as follows:

 Guidelines and Rules for Forex Business.
 Training of Bank Personnel in the areas of
Foreign Exchange Business.
 Accreditation of Forex Brokers
 Advising/Assisting member banks in settling
issues/matters in their dealings.
 Represent member banks on
Government/Reserve Bank of India/Other
Bodies.
 Announcement of daily and periodical rates to
member banks.
 International Chambers of Commerce (ICC)

ICC is an apex international body, which forms
the guidelines for smooth functioning of trade &
forex transactions across countries. ICC has laid out
Uniform Customs & Practice for Documentary
Credits (UCPDC).
A set of rules called UCP 600 has been
created. Banks throughout the world use these
rules. Various ICC-UCPDC guidelines have been
mentioned in the relevant sections of the preceding
chapters.

Foreign Exchange Management
Act
Foreign Exchange Management Act or in short
(FEMA) is an act that provides guidelines for the free flow
of foreign exchange in India. It has brought a new
management regime of foreign exchange consistent with
the emerging frame work of the World Trade Organization
(WTO). Foreign Exchange Management Act was earlier
known as FERA (Foreign Exchange Regulation Act), which
has been found to be unsuccessful with the pro
liberalization policies of the Government of India.
FEMA is applicable in all over India and even

branches, offices and agencies located outside India, if it
belongs to a person who is a resident of India.
Some Highlights of FEMA

 It prohibits foreign exchange dealing undertaken
other than an authorized person;
 It also makes it clear that if any person residing in
India received any Forex payment (without there
being a corresponding inward remittance from
abroad) the concerned person shall be deemed to
have received they payment from a non authorized
person.
 There are 7 types of current account transactions,
which are totally prohibited, and therefore no
transaction can be undertaken relating to them.
These include transaction relating to lotteries,
football pools, banned magazines and a few others.

 FEMA and the related rules give full freedom to
Resident of India (ROI) to hold or own or transfer any
foreign security or immovable property situated
outside India.
 Similar freedom is also given to a resident who
inherits such security or immovable property from
an ROI.
 An ROI is permitted to hold shares, securities and
properties acquired by him while he was a Resident
or inherited such properties from a Resident.
 The exchange drawn can also be used for purpose
other than for which it is drawn provided drawl of
exchange is otherwise permitted for such purpose.
 Certain prescribed limits have been substantially
enhanced. For instance, residence now going abroad
for business purpose or for participating in
conferences seminars will not need the RBI's
permission to avail foreign exchange up to US$.
25,000 per trip irrespective of the period of stay,
basic travel quota have been increased from the
existing US$ 3,000 to US$ 5,000 per calendar year.

INCOTERMS
The Incoterms rules or International Commercial
terms are a series of pre-defined commercial terms
published by the International Chamber of Commerce
(ICC) widely used in international commercial
transactions. A series of three-letter trade terms related to
common sales practices, the Incoterms rules are intended
primarily to clearly communicate the tasks, costs and risks
associated with the transportation and delivery of goods.
The Incoterms rules are accepted by governments, legal
authorities and practitioners worldwide for the
interpretation of most commonly used terms in
international trade.
They are intended to reduce or remove altogether

uncertainties arising from different interpretation of the
rules in different countries. First published in 1936, the
Incoterms rules have been periodically updated, with the
eighth version—Incoterms 2010—having been published
on January 1, 2011. "Incoterms" is a registered trademark
of the ICC.
Incoterms 2010 are subdivided into two categories

based only on method of delivery.
Rules for Any Mode(s) of Transport

The seven rules defined by Incoterms 2010 for any
mode(s) of transportation are:
 EXW – Ex Works (named place of delivery)

The seller makes the goods available at its
premises. This term places the maximum obligation
on the buyer and minimum obligations on the seller.
The Ex Works term is often used when making an
initial quotation for the sale of goods without any
costs included. EXW means that a seller has the
goods ready for collection at his premises (works,
factory, warehouse, plant) on the date agreed upon.
The buyer pays all transportation costs and also
bears the risks for bringing the goods to their final
destination.
The seller doesn't load the goods on collecting
vehicles and doesn't clear them for export. If the
seller does load the good, he does so at buyer's risk
and cost. If parties wish seller to be responsible for
the loading of the goods on departure and to bear
the risk and all costs of such loading, this must be
made clear by adding explicit wording to this effect
in the contract of sale.
 FCA – Free Carrier (named place of delivery)

The seller hands over the goods, cleared for
export, into the disposal of the first carrier (named
by the buyer) at the named place. The seller pays
for carriage to the named point of delivery, and risk
passes when the goods are handed over to the first
carrier.
 CPT - Carriage Paid To (named place of

destination)
The seller pays for carriage. Risk transfers to
buyer upon handing goods over to the first carrier.

 CIP – Carriage and Insurance Paid to (named
place of destination)
The containerized transport/multimodal
equivalent of CIF. Seller pays for carriage and
insurance to the named destination point, but risk
passes when the goods are handed over to the first
carrier.
 DAT – Delivered at Terminal (named terminal

at port or place of destination)
Seller pays for carriage to the terminal, except
for costs related to import clearance, and assumes
all risks up to the point that the goods are unloaded
at the terminal.
 DAP – Delivered at Place (named place of

destination)
Seller pays for carriage to the named place,
except for costs related to import clearance, and
assumes all risks prior to the point that the goods
are ready for unloading by the buyer.
 DDP – Delivered Duty Paid (named place of

destination)
Seller is responsible for delivering the goods
to the named place in the country of the buyer, and
pays all costs in bringing the goods to the
destination including import duties and taxes. This
term places the maximum obligations on the seller
and minimum obligations on the buyer.
Rules for Sea and Inland Waterway Transport

The four rules defined by Incoterms 2010 for
international trade where transportation is entirely
conducted by water are:
 FAS – Free Alongside Ship (named port of

shipment)
The seller must place the goods alongside the ship
at the named port. The seller must clear the goods
for export. Suitable only for maritime transport but
NOT for multimodal sea transport in containers (see
Incoterms 2010, ICC publication 715). This term is
typically used for heavy-lift or bulk cargo.
 FOB – Free on Board (named port of shipment)

The seller must load the goods on board the
vessel nominated by the buyer. Cost and risk are
divided when the goods are actually on board of the
vessel (this rule is new!). The seller must clear the
goods for export. The terms are applicable for
maritime and inland waterway transport only but
NOT for multimodal sea transport in containers (see
Incoterms 2010, ICC publication 715). The buyer
must instruct the seller the details of the vessel and
the port where the goods are to be loaded, and
there is no reference to, or provision for, the use of
a carrier or forwarder. This term has been greatly
misused over the last three decades ever since
Incoterms 1980 explained that FCA should be used
for container shipments.
 CFR – Cost and Freight (named port of

destination)

Seller must pay the costs and freight to bring
the goods to the port of destination. However, risk is
transferred to the buyer once the goods are loaded
on the vessel (this rule is new!). Maritime transport
only and Insurance for the goods is NOT included.
This term is formerly known as CNF (C&F).
 CIF – Cost, Insurance and Freight (named port

of destination)
Exactly the same as CFR except that the seller
must in addition procure and pay for the insurance.
Maritime transport only.

Duties of buyer/seller according to
Incoterms 2010

Accounts Related To the FOREX
 Nostro Account
A bank account held in a foreign country by a
domestic bank, denominated in the currency of that
country. Nostro accounts are used to facilitate
settlement of foreign exchange and trade
transactions. The term is derived from the Latin
word for "ours."
 Vostro Account
Accounts that are held by the domestic bank
in its home country for foreign banks are called
vostro accounts, derived from the Latin word for
"yours."
 EEFC A/c
Exchange Earners' Foreign Currency Account
(EEFC) is an account maintained in foreign currency
with an Authorized Dealer i.e. a bank dealing in
foreign exchange.
It is a facility provided to the foreign exchange
earners, including exporters, to credit 50 per cent of
their foreign exchange earnings to the account, so
that the account holders do not have to convert
foreign exchange into Rupees and vice versa,
thereby minimizing the transaction costs.
 RFC A/c

An RFC (Resident Foreign Currency) account is
a foreign currency bank account in India that can be
maintained by a Non-resident Indian who has
returned home for permanent settlement, after
staying abroad for a minimum period of one year.
 Escrow Account
An escrow account is where money is held by
a party but does not belong to the party. Funds in an
escrow account should not be commingled with the
funds of the person or entity that is holding the
funds. In short, a segregated account where
customer money is kept separate from a dealer's
operating funds.
 Diamond dollar Account

Under the scheme of Government of India,
firms and companies dealing in purchase / sale of
rough or cut and polished diamonds / precious metal
jewellery plain, minakari and / or studded with /
without diamond and / or other stones, with a track
record of at least 3 years in import / export of
diamonds / coloured gemstones / diamond and
coloured gemstones studded jewellery / plain gold
jewellery and having an average annual turnover of
Rs. 5 crores or above during the preceding three
licensing years (licensing year is from April to
March) are permitted to transact their business
through Diamond Dollar Accounts.

Foreign Exchange Rate System
The rate at which one currency is converted into

another currency is called exchange rate. The rates
quoted by the banks to their customers are based on the
rates prevailing in the interbank market. Big banks in the
market are known as market makers as they are willing to
buy or sell foreign currencies at the rates quoted by them
to any extent. The rate quoted by the market maker will
indicate two prices, one at which it is willing to buy & the
other at which it is willing to sell the foreign currency.
Application of foreign exchange rates in Bank
Selling Rates Transactions

Outward remittance in foreign currency
Cancellation of purchase (Eg. Bill purchased
TT Selling Rate
returned unpaid)
A forward purchase contract is cancelled
Transaction involving transfer of proceeds of
Bill Selling Rate
import bills.
Foreign Currency
Travelers Cheques/
At the option of AD Category I bank
Currency Notes Selling
Rates
Buying Rates Transactions
Clean inward remittances for which cover has
already been credited to AD category I bank
account abroad
TT Buying Rate Conversion of proceeds of instruments sent
for collection
Cancellation of outward TT, MT, PO etc.
Cancellation of a forward sale contract
Purchase/ discounting of bills & other
Bill Buying Rate instruments
Foreign Currency
Travelers Cheques/
At the option of AD Category I bank
Currency Notes
Encashment

Interbank communication (SWIFT)
The Society for Worldwide Interbank Financial

Telecommunication (SWIFT) provides a network that
enables financial institutions worldwide to send and
receive information about financial transactions in a
secure, standardized and reliable environment. SWIFT also
markets software and services to financial institutions,
much of it for use on the SWIFT Net Network, and ISO
9362 bank identifier codes (BICs) are popularly known as
"SWIFT codes".
The majority of international interbank messages

use the SWIFT network. As of September 2010, SWIFT
linked more than 9,000 financial institutions in 209
countries and territories, who were exchanging an
average of over 15 million messages per day. SWIFT
transports financial messages in a highly secure way but
does not hold accounts for its members and does not
perform any form of clearing or settlement.
SWIFT does not facilitate funds transfer; rather, it

sends payment orders, which must be settled by
correspondent accounts that the institutions have with
each other. Each financial institution, to exchange banking
transactions, must have a banking relationship by either
being a bank or affiliating itself with one (or more) so as to
enjoy those particular business features.

Components of Trade
Any trade transaction can be broadly broken down
into:
 Movement of goods
 Movement of documents
 Movement of funds
Traditionally, banks have played a role in the
‘Movement of documents’ and ‘Movement of funds’, while
‘Movement of goods’ has been done through a whole
range of logistics players operating at different levels of
supply chain.
Simplified Process Flow In Case Of a Typical International
Transaction
Exporter’s Bank Importer’s Bank
Documents exchange
through bank
Direct Exchange
of Documents
Exporter Importer
Inland Movement of Goods Inland Movement of Goods
Export Country Import Country

Customs/ Regulatory Customs/ Regulatory
Clearance Clearance
Color codes
A project report by-
Blue- Movement Ketki Parulekar Maroon- Movement
of Funds Page | 31
of Documents Black- Movement of goods
Important Trade Documents
International market involves various types of trade

documents that need to be produced while making
transactions. Each trade document is differ from other and
present the various aspects of the trade like description,
quality, number, transportation medium, indemnity,
inspection and so on. So, it becomes important for the
importers and exporters to make sure that their
documents support the guidelines as per international
trade transactions. A small mistake could prove costly for
any of the parties.
These documents are very important in international

trade because they serve as evidence that some action
has been carried out. For example, a bill of lading can
evidence that goods have been shipped on board. Based
on these documents, a seller can prove to the buyer that
he has fulfilled his obligations whilst the buyer is assured
of his request being carried out by the seller. In brief, the
existence of these documents makes international trade
possible.
The following is a list of documents often used in

international trade:
 Air Waybill
 Bill of Lading
 Certificate of Origin
 Commercial Invoice
 Draft (or Bill of Exchange)
 Insurance Policy (or Certificate)

 Packing List/Specification
 Inspection Certificate
Air Waybill
Air Waybills make sure that goods have been

received for shipment by air. A typical air waybill sample
consists of three originals and nine copies. The first
original is for the carrier and is signed by a export agent;
the second original, the consignee's copy, is signed by an
export agent; the third original is signed by the carrier and
is handed to the export agent as a receipt for the goods.
Air Waybills serves as:

 Proof of receipt of the goods for shipment.
 An invoice for the freight.
 A certificate of insurance.
 A guide to airline staff for the handling,
dispatch and delivery of the consignment.
The principal requirements for an air waybill are:

 The proper shipper and consignee must be
mention.
 The airport of departure and destination must
be mention.
 The goods description must be consistent with
that shown on other documents.
 Any weight, measure or shipping marks must
agree with those shown on other documents.

 It must be signed and dated by the actual
carrier or by the named agent of a named
carrier.
 It must mention whether freight has been paid
or will be paid at the destination point.
Bill of Lading
Bill of Lading is a document given by the shipping

agency for the goods shipped for transportation form one
destination to another and is signed by the
representatives of the carrying vessel.
Bill of lading is issued in the set of two, three or

more. The number in the set will be indicated on each bill
of lading and all must be accounted for. This is done due
to the safety reasons which ensure that the document
never comes into the hands of an unauthorized person.
Only one original is sufficient to take possession of goods
at port of discharge so, a bank which finances a trade
transaction will need to control the complete set. The bill
of lading must be signed by the shipping company or its
agent, and must show how many signed originals were
issued.
It will indicate whether cost of freight/ carriage has

been paid or not:
 "Freight Prepaid”: Paid by shipper
 "Freight collect”: To be paid by the buyer at
the port of discharge

The bill of lading also forms the contract of carriage.
To be acceptable to the buyer, the B/L should:

 Carry an "On Board" notation to showing the
actual date of shipment, (Sometimes however,
the "on board" wording is in small print at the
bottom of the B/L, in which cases there is no
need for a dated "on board" notation to be
shown separately with date and signature.)
 Be "clean" have no notation by the shipping
company to the effect that goods/ packaging
are damaged.
The main parties involve in a bill of lading are:

 Shipper: The person who send the goods.
 Consignee: The person who take delivery of
the goods.
 Notify Party: The person, usually the importer,
to whom the shipping company or its agent
gives notice of arrival of the goods.
 Carrier: The person or company who has
concluded a contract with the shipper for
conveyance of goods
The bill of lading must meet all the requirements of

the credit as well as complying with UCP 500. These are
as follows:
 The correct shipper, consignee and notifying
party must be shown.
 The carrying vessel and ports of the loading
and discharge must be stated.

 The place of receipt and place of delivery
must be stated, if different from port of
loading or port of discharge.
 The goods description must be consistent with
that shown on other documents.
 Any weight or measures must agree with
those shown on other documents.
 Shipping marks and numbers and /or
container number must agree with those
shown on other documents.
 It must state whether freight has been paid or
is payable at destination.
 It must be dated on or before the latest date
for shipment specified in the credit.
 It must state the actual name of the carrier or
be signed as agent for a named carrier.
Certificate of Origin
The Certificate of Origin is required by the custom

authority of the importing country for the purpose of
imposing import duty. It is usually issued by the Chamber
of Commerce and contains information like seal of the
chamber, details of the good to be transported and so on.
The certificate must provide that the information

required by the credit and be consistent with all other
document, it would normally include:
 The name of the company and address as exporter.
 The name of the importer.

 Package numbers, shipping marks and description
of goods to agree with that on other documents.
 Any weight or measurements must agree with those
shown on other documents.
 It should be signed and stamped by the Chamber of
Commerce.
Commercial Invoice
Commercial Invoice document is provided by the

seller to the buyer. Also known as export invoice or import
invoice, commercial invoice is finally used by the custom
authorities of the importer's country to evaluate the good
for the purpose of taxation.
The invoice must:

 Be issued by the beneficiary named in the
credit (the seller).
 Be address to the applicant of the credit (the
buyer).
 Be signed by the beneficiary (if required).
 Include the description of the goods exactly as
detailed in the credit.
 Be issued in the stated number of originals
(which must be marked "Original) and copies.
 Include the price and unit prices if
appropriate.
 State the price amount payable which must
not exceed that stated in the credit
 Include the shipping terms.

Bill of Exchange
A Bill of Exchange is a special type of written

document under which an exporter ask importer a certain
amount of money in future and the importer also agrees
to pay the importer that amount of money on or before
the future date. This document has special importance in
wholesale trade where large amount of money involved.
Following persons are involved in a bill of exchange:

 Drawer: The person who writes or prepares
the bill.
 Drawee: The person who pays the bill.
 Payee: The person to whom the payment is to
be made.
 Holder of the Bill: The person who is in
possession of the bill.
On the basis of the due date there are two types of

bill of exchange:
 Bill of Exchange after Date: In this case the
due date is counted from the date of drawing
and is also called bill after date.
 Bill of Exchange after Sight: In this case the
due date is counted from the date of
acceptance of the bill and is also called bill of
exchange after sight.
Insurance Certificate

It is also known as Insurance Policy, it certifies that
goods transported have been insured under an open
policy and is not actionable with little details about the
risk covered.
It is necessary that the date on which the insurance

becomes effective is same or earlier than the date of
issuance of the transport documents. Also, if submitted
under a LC, the insured amount must be in the same
currency as the credit and usually for the bill amount plus
10 per cent.
The requirements for completion of an insurance

policy are as follow:
 The name of the party in the favor which the
documents have been issued.
 The name of the vessel or flight details.
 The place from where insurance is to
commerce typically the sellers warehouse or
the port of loading and the place where
insurance cases usually the buyer's
warehouse or the port of destination.
 Insurance value that specified in the credit.
 Marks and numbers to agree with those on
other documents.
 The description of the goods, which must be
consistent with that in the credit and on the
invoice.
 The name and address of the claims settling
agent together with the place where claims
are payable.
 Countersigned where necessary.

 Date of issue to be no later than the date of
transport documents unless cover is shown to
be effective prior to that date.
Packing List
It is also known as packing specification, it contain

details about the packing materials used in the shipping of
goods. It also includes details like measurement and
weight of goods.
The packing List must:

 Have a description of the goods ("A")
consistent with the other documents.
 Have details of shipping marks ("B") and
numbers consistent with other documents.
Inspection Certificate
Certificate of Inspection is a document prepared on

the request of seller when he wants the consignment to
be checked by a third party at the port of shipment before
the goods are sealed for final transportation.
In this process seller submit a valid Inspection

Certificate along with the other trade documents like
invoice, packing list, shipping bill, bill of lading etc to the
bank for negotiation.
On demand, inspection can be done by various

world renowned inspection agencies on nominal charges.

Methods of Payment in
International Trade
To succeed in today’s global marketplace and win

sales against foreign competitors, exporters must offer
their customers attractive sales terms supported by
appropriate payment methods. Because getting paid in
full and on time is the ultimate goal for each export sale,
an appropriate payment method must be chosen carefully
to minimize the payment risk while also accommodating
the needs of the buyer.
As shown in figure 1, there are four primary

methods of payment for international transactions.
Figure 1

Cash in Advance
It is an arrangement whereby the Exporter is trusted
to ship the goods after receiving payment from the
Importer. This mode of transaction is demanded by the
exporter/ seller when the selling party is a well-known &
reputed company in its field. Thus the importer has a
reasonable amount of trust on the exporter by virtue of
the exporter’s reputation. This is usually adopted when
the trading parties do not yet have a long term
relationship.
Process flow in case of Advance Payment Transaction
3 2 1
Transfer of
Exporter’s Bank Importer’s Bank Funds
5
Direct Exchange
of Documents
Exporter Importer
4
Clearance Clearance
Color codes
Blue- Movement of Funds Maroon- Movement of Documents Black- Movement of goods

Practical Applicability in the Bank
The bank plays a very important role in this method
of payment. Bank can be Importers bank or Exporters
bank.
Role of Importer’s Bank

Importer’s bank makes the payment on the behalf of
the importer to the Exporter’s bank in advance.
Procedure of Bank
 The importer should inform for making the payment
to bank
 The bank is taken the selling rate from money
changer or utilized the forward rate which is booked
by customer earlier or if the payment is from EEFC
Account then Notional Rate is taken for system
entry.
 Enter the details of payment in the system i.e.
SWIFTCORE Software
 Authorized the details of payment in the system
 Print the advises- outward remittance party advise &
retirement memo
 Send the SWIFT Message 103 to inform about the
payment to the bank which is having our NOSTRO
Account
Role of Exporter’s Bank

Exporter’s bank receives the payment on the behalf
of the exporter from the Importer’s bank in advance.
Procedure of bank
 Bank has getting idea about the payment received
from the daily NOSTRO Account Statement

 Informing the exporter & taking disposal instruction
 Taking the buying rate from money changer or
utilized the forward rate which is booked by
customer earlier
 Enter the details of payment received in the system
i.e. SWIFTCORE Software
 Authorized the details of payment received in the
system
 Print advise - realization memo

Open account
It is an arrangement whereby the Importer is trusted

to pay the Exporter after receipt of the goods. This type of
a transaction symbolizes a long-term regular relationship
between the two parties.
A mutual level of trust between the two parties

ensures that an open-account system is carried on
smoothly.
Process flow in case of Open Account Transaction
5 4 3
Transfer of
Exporter’s Bank Importer’s Bank Funds
2
Direct Exchange
of Documents
Exporter Importer
1
Clearance Clearance
Color codes

Practical applicability in the bank
The bank plays a very important role in this method
of payment. Bank can be Importers bank or Exporters
bank.
Role of Importer’s Bank

Importer’s bank makes the payment on the behalf of
the importer to the Exporter’s bank after goods &
documents received by the importer.
Procedure of Bank
 The importer should submit the documents in the
bank & inform for making the payment
 The bank is taken the selling rate from money
changer or utilized the forward rate which is booked
by customer earlier or if the payment is from EEFC
Account then Notional Rate is taken for system
entry.
 Enter the details of payment in the system i.e.
SWIFTCORE Software
 Authorized the details of payment in the system
 Print the advises- outward remittance party advise,
retirement memo & Bill of Entry Acknowledgement
 Send the SWIFT Message 103 to inform about the
payment to the bank which is having our NOSTRO
Account
Role of Exporter’s Bank

Procedure of bank
 Bank has getting idea about the payment received

customer earlier
 Enter the details of payment received in the system
 Authorized the details of payment received in the
system
 Print advise - realization memo

Documentary Collection
Documentary collection is a method of payment

used in international trade whereby the Exporter entrusts
the handling of commercial & often financial documents to
banks & gives the banks instructions concerning the
release of these documents to the Importer. Banks
involved do not provide any guarantee of payment.
However, collections are subject to the Uniform Rules for
Collections published by the International Chamber of
Commerce.
How it works?
After the importer & the exporter have established a
sales contract & agree on a Documentary Collection as
the method of payment, the Exporter ships the goods. In a
Documentary Collection, the importer is the “Drawee” &
the exporter is the “Drawer”.
After the goods are shipped, documents originating

with the Exporter (eg. Commercial Invoice) & the transport
company (eg. Bill of Lading) are delivered to a bank,
called the Remitting Bank in the collection process. The
Remitting Bank sends these documents accompanied by a
collection instruction, giving complete & precise
instructions, to a bank in the importer’s country, referred
to as the collecting/presenting bank in the collection
process.
The collecting/presenting bank acts in accordance

with the instructions given in the collection instruction &
releases the documents to the importer against payment
or acceptance, according to the remitting bank’s collection
instructions.

Payment is forwarded to the remitting bank for the
exporter’s account. And the importer can now present the
transport/title document to the carrier in exchange for the
goods.

Documents against Payment
This is sometimes referred to as Cash against

Documents/ cash on Delivery. In effect D/P means payable
at sight (on demand). The collecting bank hands over the
shipping documents including the document of title (Bill of
lading) only when the importer has paid the bill. The
drawee is usually expected to pay within 3 working days
of presentation. The attached instructions to the shipping
documents would show ‘Release documents against
Payment’.
Process flow in case of D/P
7 4
3 Transfer of
Remitting Bank Collecting Bank
Funds
Documents Exchange 5
through bank
2
Importer
Exporter
1
Clearance Clearance
Color codes

In this mode of payment, bank can be Remitting
Bank in case of Exporter or Collecting Bank in case of
Importer.
Role of collecting Bank

Here the bank deals in collection of documents from
remitting bank & making the payments on behalf of the
importer.
 Collection of Documents
Procedure of bank
 Bank is received the documents related to the
bill from the exporter’s bank such as-
 Invoice
 Bills of Exchange
 Packing List
 Certificate of Origin
 Certificate of Analysis
 Insurance certificate
 Transport Documents such as Bill of Lading
or Airway Bill
 GR/ Exchange Control Copy
 SDF Form (if invoice amount exceeds Rs.
25,000)
 Details of documents is entered in the system
 Hands over the documents to the importer
after he makes the payment to the bank
 Remit the payments

Procedure of bank
 The bank is taken the selling rate from money
changer or utilized the forward rate which is
booked by customer earlier or if the payment
is from EEFC Account then Notional Rate is
taken for system entry.
 Enter the voucher entry of payment in the
system i.e. SWIFTCORE Software
 Print the advises- outward remittance party
advise & retirement memo
 Send the SWIFT Message 103 to inform about
the payment to the bank which is having our
NOSTRO Account
Role of Remitting Bank

exporter & collection of payment on the behalf of the
exporter.
 Collection of documents
Procedure of banks
 Bank is received the documents from exporter
such as-
 Invoice
 Packing List
or Airway Bill

25,000)
 Authorized the details of bill in the system
 Print advises- Export Collection Advise &
Export Collection Schedule
 Dispatch all documents along with the
collection schedule to the collecting bank.
 Collection of payment
Procedure of banks
 Bank has getting idea about the payment
received from the daily NOSTRO Account
Statement
 Informing the exporter & taking disposal
instruction
 Taking the buying rate from money changer or
customer earlier
 Enter the details of payment received in the
 Authorized the details of payment received in
the system
 Print Advise - realization memo

Documents against Acceptance
Under this, the exporter allows credit to the

importer; the period of credit is referred to as ‘usance’.
The importer/drawee is required to ACCEPT the bill i.e. to
make a signed promise to pay the bill at a set date in the
future.
When he has signed the bill in acceptance, he can

take the documents & clear his goods.
Process flow in case of D/A
7 5
3 Transfer of
Remitting Bank Collecting Bank
Funds
4
Documents Exchange
through bank
Process Flow
2
Order reversed
Exporter Importer
1
Clearance Clearance
Color codes

In this mode of payment, bank can be Remitting
Bank in case of Exporter or Collecting Bank in case of
Importer.
Role of collecting Bank

remitting bank & making the payments on behalf of the
importer.
Procedure of bank
 Invoice
 Packing List
or Airway Bill
25,000)
 At the time of acceptance, bank received
Delivery Order with Rs.100 stamp, Form A1,
Covering Letter etc. from importer.

 Then gives the documents to the importer
 Informs the exporter’s bank about the
acceptance through SWIFT Message 799 or
999.

Procedure of bank
 On the due date of bill, the bank has to make
payment on the behalf of the importer.
system i.e. SWIFTCORE Software.
advise & retirement memo.
NOSTRO Account.
Role of Remitting Bank

exporter & collection of payment on the behalf of the
exporter.
 Collection of documents
Procedure of bank
such as-

 Invoice
 Packing List
or Airway Bill
25,000)
Procedure of bank
Statement
instruction
customer earlier
the system


Documentary Credit
Letter of Credit L/c also known as Documentary

Credit is a widely used term to make payment secure in
domestic and international trade. The document is issued
by a financial organization at the buyer request. Buyer
also provides the necessary instructions in preparing the
document.
The International Chamber of Commerce (ICC) in the

Uniform Custom and Practice for Documentary Credit
(UCPDC) defines L/C as:
"An arrangement, however named or described, whereby
bank (the Issuing bank) acting at the request and on the
instructions of a customer (the Applicant) or on its own
behalf:
 Is to make a payment to or to the order third party
(the beneficiary) or is to accept bills of exchange
(drafts) drawn by the beneficiary.
 Authorized another bank to effect such payments or
to accept and pay such bills of exchange (draft).
 Authorized another bank to negotiate against
stipulated documents provided that the terms are
complied with.
A key principle underlying letter of credit (L/C) is

that banks deal only in documents and not in goods. The
decision to pay under a letter of credit will be based
entirely on whether the documents presented to the bank
appear on their face to be in accordance with the terms
and conditions of the letter of credit.

Parties to Letters of Credit
 Applicant (Opener)
Applicant which is also referred to as account
party is normally a buyer or customer of the goods,
who has to make payment to beneficiary. LC is
initiated and issued at his request and on the basis
of his instructions.
 Issuing Bank (Opening Bank)

The issuing bank is the one which create a
letter of credit and takes the responsibility to make
the payments on receipt of the documents from the
beneficiary or through their banker. The payment
has to be made to the beneficiary within seven
working days from the date of receipt of documents
at their end, provided the documents are in
accordance with the terms and conditions of the
letter of credit. If the documents are discrepant one,
the rejection thereof to be communicated within
seven working days from the date of receipt of
documents at their end.
 Beneficiary
Beneficiary is normally stands for a seller of
the goods, who has to receive payment from the
applicant. A credit is issued in his favor to enable
him or his agent to obtain payment on surrender of
stipulated document and comply with the term and
conditions of the L/C. If L/C is a transferable one and
he transfers the credit to another party, then he is
referred to as the first or original beneficiary.

 Advising Bank
An Advising Bank provides advice to the
beneficiary and takes the responsibility for sending
the documents to the issuing bank and is normally
located in the country of the beneficiary.
 Confirming Bank
Confirming bank adds its guarantee to the
credit opened by another bank, thereby undertaking
the responsibility of payment/negotiation
acceptance under the credit, in additional to that of
the issuing bank. Confirming bank play an important
role where the exporter is not satisfied with the
undertaking of only the issuing bank.
 Negotiating Bank
The Negotiating Bank is the bank who
negotiates the documents submitted to them by the
beneficiary under the credit either advised through
them or restricted to them for negotiation. On
negotiation of the documents they will claim the
reimbursement under the credit and makes the
payment to the beneficiary provided the documents
submitted are in accordance with the terms and
conditions of the letters of credit.
 Reimbursing Bank
Reimbursing Bank is the bank authorized to
honor the reimbursement claim in settlement of
negotiation / acceptance / payment lodged with it by
the negotiating bank. It is normally the bank with
which issuing bank has an account from which
payment has to be made.

 Second Beneficiary
Second Beneficiary is the person who
represents the first or original Beneficiary of credit
in his absence. In this case, the credits belonging to
the original beneficiary is transferable. The rights of
the transferee are subject to terms of transfer.
Types of Letter of Credit
 Revocable Letter of Credit L/C

A revocable letter of credit may be revoked or
modified for any reason, at any time by the issuing
bank without notification. It is rarely used in
international trade and not considered satisfactory
for the exporters but has an advantage over that of
the importers and the issuing bank.
There is no provision for confirming revocable
credits as per terms of UCPDC, Hence they cannot
be confirmed. It should be indicated in LC that the
credit is revocable. If there is no such indication the
credit will be deemed as irrevocable.
 Irrevocable Letter of Credit L/C

In this case it is not possible to revoke or
amended a credit without the agreement of the
issuing bank, the confirming bank, and the
beneficiary. Form an exporter’s point of view it is
believed to be more beneficial. An irrevocable letter
of credit from the issuing bank insures the
beneficiary that if the required documents are
presented and the terms and conditions are
complied with, payment will be made.

 Confirmed Letter of Credit L/C
Confirmed Letter of Credit is a special type of
L/C in which another bank apart from the issuing
bank has added its guarantee. Although, the cost of
confirming by two banks makes it costlier, this type
of L/c is more beneficial for the beneficiary as it
doubles the guarantee.
 Sight Credit and Usance Credit L/C

Sight credit states that the payments would
be made by the issuing bank at sight, on demand or
on presentation. In case of usance credit, draft is
drawn on the issuing bank or the correspondent
bank at specified usance period. The credit will
indicate whether the usance draft is to be drawn on
the issuing bank or in the case of confirmed credit
on the confirming bank.

 Back to Back Letter of Credit L/C
Back to Back Letter of Credit is also termed as
Countervailing Credit. A credit is known as back to
back credit when a L/c is opened with security of
another L/c.
A back to back credit which can also be

referred as credit and counter credit is actually a
method of financing both sides of a transaction in
which a middleman buys goods from one customer
and sells them to another.
The parties to a Back to Back Letter of Credit

are:
 The buyer and his bank as the issuer of the
original Letter of Credit.
 The seller/manufacturer and his bank,
 The manufacturer's subcontractor and his
bank.
The practical use of this Credit is seen when

L/c is opened by the ultimate buyer in favor of a
particular beneficiary, who may not be the actual
supplier/ manufacturer offering the main credit with
near identical terms in favor as security and will be
able to obtain reimbursement by presenting the
documents received under back to back credit under
the main L/c.
The need for such credits arises mainly when:

 The ultimate buyer not ready for a
transferable credit

 The Beneficiary does not want to disclose
the source of supply to the openers.
 The manufacturer demands on payment
against documents for goods but the
beneficiary of credit is short of the funds
 Transferable Letter of Credit L/C

A transferable documentary credit is a type of
credit under which the first beneficiary which is
usually a middleman may request the nominated
bank to transfer credit in whole or in part to the
second beneficiary.
The L/C does state clearly mentions the
margins of the first beneficiary and unless it is
specified the L/C cannot be treated as transferable.
It can only be used when the company is selling the
product of a third party and the proper care has to
be taken about the exit policy for the money
transactions that take place.
This type of L/C is used in the companies that
act as a middle man during the transaction but don’t
have large limit. In the transferable L/C there is a
right to substitute the invoice and the whole value
can be transferred to a second beneficiary.
The first beneficiary or middleman has rights
to change the following terms and conditions of the
letter of credit:
 Reduce the amount of the credit.
 Reduce unit price if it is stated
 Make shorter the expiry date of the letter of
credit.
 Make shorter the last date for presentation
of documents.

 Make shorter the period for shipment of
goods.
 Increase the amount of the cover or
percentage for which insurance cover must
be effected.
 Substitute the name of the applicant (the
middleman) for that of the first beneficiary
(the buyer).
Regulatory Requirements
Opening of imports LCs in India involve compliance

of the following main regulation:
 Trade Control Requirements

The movement of good in India is guided by a
predefined set of rules and regulation. So, the
banker needs to assure that make certain is whether
the goods concerned can be physically brought in to
India or not as per the current EXIM policy.
 Exchange Control Requirements

The main objective of a bank to open an
Import LC is to effect settlement of payment due by
the Indian importer to the overseas supplier, so
opening of LC automatically comes under the
policies of exchange control regulations.
 UCPDC Guidelines

Uniform Customs and Practice for
Documentary Credit (UCPDC) is a set of predefined
rules established by the International Chamber of
Commerce (ICC) on Letters of Credit. The UCPDC is
used by bankers and commercial parties in more
than 200 countries including India to facilitate trade
and payment through LC.
UCPDC was first published in 1933 and

subsequently updating it throughout the years. In
1994, UCPDC 500 was released with only 7 chapters
containing in all 49 articles.
The latest revision was approved by the

Banking Commission of the ICC at its meeting in
Paris on 25 October 2006. This latest version, called
the UCPDC600, formally commenced on 1 July 2007.
It contains a total of about 39 articles covering the
following areas, which can be classified as 8
sections according to their functions and operational
procedures.
Article Area Consisting

1 to Application, Definition &
General
3 Interpretations
4 to Credit vs. Contracts, Documents vs.
Obligations
12 Goods
Reimbursement, examination of
Liabilities &
13 to documents, complying,
Responsibil
16 presentation, handling discrepant
ities
documents

Bill of Lading, Chapter Party Bill of
Lading, Air Documents, Road Rail
17 to etc. Documents, Courier, Postal etc.
Documents
28 Receipt. On board, Shippers' count,
Clean Documents, Insurance
documents
Miscellane Extension of dates, Tolerance in

29 to
ous Credits, Partial Shipment and
33
Provisions Drawings. House of Presentation
Effectiveness of Document
34 to
Disclaimer Transmission and Translation Force
37
Majeure Acts of an Instructed Party
38 & Transferable Credits Assignment of
Others
39 Proceeds

 ISBP 2002
The widely acclaimed International Standard
Banking Practice (ISBP) for the Examination of
Documents under Documentary Credits was
selected in 2007 by the ICCs Banking Commission.
First introduced in 2002, the ISBP contains a

list of guidelines that an examiner needs to check
the documents presented under the Letter of Credit.
Its main objective is to reduce the number of
documentary credits rejected by banks.
 FEDAI Guidelines
Foreign Exchange Dealers Association of India
(FEDAI) was established in 1958 under the Section
25 of the Companies Act (1956). It is an association
of banks that deals in Indian foreign exchange and
work in coordination with the Reserve Bank of India,
other organizations like FIMMDA, the Forex
Association of India and various market participants.
FEDAI has issued rules for import LCs which is

one of the important area of foreign currency
exchanges. It has an advantage over that of the
authorized dealers who are now allowed by the RBI
to issue stand by letter of credits towards import of
goods.

As the issuance of standby of letter of Credit
including imports of goods is susceptible to some
risk in the absence of evidence of shipment,
therefore the importer should be advised that
documentary credit under UCP 500/600 should be
the preferred route for importers of goods.
Below mention is some of the necessary

precaution that should be taken by authorized
dealers while issuing a stands by letter of credits:
 The facility of issuing Commercial Standby
shall be extended on a selective basis and to
the following category of importers
 Where such standby are required by
applicant who are independent power
producers/importers of crude oil and
petroleum products
 Special category of importers namely
export houses, trading houses, star trading
houses, super star trading houses or 100%
Export Oriented Units.
 Satisfactory credit report on the overseas
supplier should be obtained by the issuing
banks before issuing Stands by Letter of
Credit.
 Invocation of the Commercial standby by the

beneficiary is to be supported by proper
evidence. The beneficiary of the Credit should
furnish a declaration to the effect that the
claim is made on account of failure of the
importers to abide by his contractual
obligation along with the following documents.

 A copy of invoice
 Nonnegotiable set of documents including
a copy of non negotiable bill of
lading/transport document.
 A copy of Lloyds /SGS inspection certificate
wherever provided for as per the
underlying contract.
 Incorporation of suitable clauses to the effect

that in the event of such invoice /shipping
documents has been paid by the authorized
dealers earlier, Provisions to dishonor the
claim quoting the date / manner of earlier
payments of such documents may be
considered.
 The applicant of a commercial stand by letter

of credit shall undertake to provide evidence
of imports in respect of all payments made
under standby. (Bill of Entry)

Process flow of Documentary Credit
8 Instructions
Reimbursing Bank for payment
2
L/C opened
1
Advising Bank
2
9
3 Confirming Bank
6 7 1
1 Application
0 for L/C
Transfer
Negotiating Bank Issuing Bank
of Funds
Documents Exchange
1
through bank
1
5
Exporter Importer
4
Clearance Clearance
Color codes
Green- L/C Issuance
In this method bank plays a very important role. It
can be importer’s bank or exporter’s bank.
Role of Importer’s bank

Here the bank deals in issue of Letter of Credit,
amendment of Letter of Credit, make the payments on the
behalf of the importer & collection of documents.
 Issue of Letter of credit

Bank issues letter of credit which can be
inland or import. Inland L/C is limited for within the
India & import L/C is for outside India.
Procedure of bank
 Bank should receive the documents from
importer such as-
 Application form of bank
 Covering Letter of Importer
 Proforma Invoice/ Purchase Order
 Income Tax Declaration
 Negative List Declaration
 FEMA Declaration
 Form 1 (only for imports)
 Enter the details of documents in the system
 Authorized the details of documents in the
system
 Print advises-
 In case of inland L/C, print draft on security
paper & Letter of Credit Issuance Advice
 In case of import L/C, print the ack copy of
issuing L/C

 In case of Import L/C, bank should send ‘SWIFT
Message 700- issue of Documentary Credit’ to
the correspondent bank
 Amendment of Letter of Credit

When the importer wants to extend the date
of L/C or amount of L/C, then through amendment
facility he can do the same.
Procedure of bank
 Bank received the following documents
 To extend the date – covering letter from
customer
 To extend the amount- covering letter from
customer as well as revise invoice.
 Enter the amendment details in the system
i.e. SWIFTCORE Software.
 In case of Inland L/C, print draft on security
paper as well as amendment advises for L/C.
 In case of Import L/C, send ‘SWIFT Message
707’ to the advising bank.
Procedure of bank
 Invoice
 Packing List
or Airway Bill

 Letter of Credit
 Scrutinize the documents as per the L/C
guidelines & if any discrepancy is there in any
of the document then bank informs to the
Advising Bank within 5 working days through
SWIFT Message.
 At the time of acceptance of bill by importer,
bank received Delivery Order with Rs.100
stamp, Form A1, Covering Letter etc. from
importer & gives the documents to the
importer & informs the exporter’s bank about
the acceptance through SWIFT Message 799
or 999.

Procedure of bank
 On the due date of L/C, bank has to make the
payment to the overseas bank.
system i.e. SWIFTCORE Software.
advise & retirement memo.
NOSTRO Account.

Role of exporter’s bank
exporter, collection of payment on the behalf of the
exporter & issue Bank Realization Certificate.
Procedure of bank
such as-
 Invoice
 Packing List
or Airway Bill
25,000)
 Letter of Credit
 Scrutinize the documents as per the L/C
guidelines & if any major discrepancy is there
in any of the document then bank informs to
the exporter & ask for changes.

Procedure of bank
Statement
instruction
customer earlier
the system
 Issue Bank Realization Certificate

Bank certificate of export and realization is
making after the shipment and realization the
payment so that exporter enables to avail Incentive
through DGFT and customs.
Procedure of bank
 Exporter issues Bank Certificate of Export &
Realization to the bank. It is as per DGFT
guidelines. He also gives covering letter along
with invoice.
 Bank should check the authenticity of the
documents.
 Bank should make records in the Diary for
future reference.

Trade finance
Trade finance generally refers to the financing of

individual transactions or a series of revolving
transactions. In addition, trade finance loans are often self
liquidating that is, the lending bank stipulates that all
sales proceeds are to be collected, & then applied to pay
off the loan.
Given the extent of control lenders can exercise
over such transactions & the existence of guaranteed
payment mechanisms unique to or established for
international trade, trade finance can be less risky for
banks/lenders than general working capital loans. Trade
finance can be pre shipment or post shipment.
Pre Shipment Finance
Pre Shipment Finance is issued by a financial

institution when the seller wants the payment of the
goods before shipment.
The main objectives behind pre shipment finance or

pre export finance are to enable exporter to:
 Procure raw materials.
 Carry out manufacturing process.
 Provide a secure warehouse for goods and raw
materials.
 Process and pack the goods.
 Ship the goods to the buyers.
 Meet other financial cost of the business.

Types of Pre Shipment Finance
 Packing Credit
 Advance against Cheques/Draft etc. representing
Advance Payments.
Pre shipment finance is extended in the following forms :

 Packing Credit in Indian Rupee
 Packing Credit in Foreign Currency (PCFC)
Requirment for Getting Packing Credit
This facility is provided to an exporter who satisfies

the following criteria
 A ten digit importerexporter code number
allotted by DGFT.
 Exporter should not be in the caution list of
RBI.
 If the goods to be exported are not under OGL
(Open General Licence), the exporter should
have the required license /quota permit to
export the goods.
Packing credit facility can be provided to an

exporter on production of the following evidences to the
bank:
 Formal application for release the packing
credit with undertaking to the effect that the
exporter would be ship the goods within
stipulated due date and submit the relevant
shipping documents to the banks within
prescribed time limit.

 Firm order or irrevocable L/C or original cable /
fax / telex message exchange between the
exporter and the buyer.
 License issued by DGFT if the goods to be
exported fall under the restricted or canalized
category. If the item falls under quota system,
proper quota allotment proof needs to be
submitted.
The confirmed order received from the overseas

buyer should reveal the information about the full name
and address of the overseas buyer, description quantity
and value of goods (FOB or CIF), destination port and the
last date of payment.
Eligibility
Pre shipment credit is only issued to that exporter
who has the export order in his own name. However, as an
exception, financial institution can also grant credit to a
third party manufacturer or supplier of goods who does
not have export orders in their own name.
In this case some of the responsibilities of meeting

the export requirements have been out sourced to them
by the main exporter. In other cases where the export
order is divided between two more than two exporters,
pre shipment credit can be shared between them
Quantum of Finance
The Quantum of Finance is granted to an exporter

against the LC or an expected order. The only guideline

principle is the concept of Need Based Finance. Banks
determine the percentage of margin, depending on factors
such as:
 The nature of Order.
 The nature of the commodity.
 The capability of exporter to bring in the requisite
contribution.
Different Stages of Pre Shipment Finance
 Appraisal and Sanction of Limits

Before making any an allowance for Credit
facilities banks need to check the different aspects
like product profile, political and economic details
about country. Apart from these things, the bank
also looks in to the status report of the prospective
buyer, with whom the exporter proposes to do the
business. To check all these information, banks can
seek the help of institution like ECGC or
International consulting agencies like Dun and Brad
street etc.
The Bank extended the packing credit
facilities after ensuring the following"
 The exporter is a regular customer, a bona
fide exporter and has goods standing in the
market.
 Whether the exporter has the necessary
license and quota permit (as mentioned
earlier) or not.
 Whether the country with which the exporter
wants to deal is under the list of Restricted
Cover Countries(RCC) or not.

 Disbursement of Packing Credit Advance
Once the proper sanctioning of the documents
is done, bank ensures whether exporter has
executed the list of documents mentioned earlier or
not. Disbursement is normally allowed when all the
documents are properly executed.
Sometimes an exporter is not able to produce
the export order at time of availing packing credit.
So, in these cases, the bank provides a special
packing credit facility and is known as Running
Account Packing.
Before disbursing the bank specifically check
for the following particulars in the submitted
documents"
 Name of buyer
 Commodity to be exported
 Quantity
 Value (either CIF or FOB)
 Last date of shipment / negotiation.
 Any other terms to be complied with
The quantum of finance is fixed depending on
the FOB value of contract /LC or the domestic values
of goods, whichever is found to be lower. Normally
insurance and freight charged are considered at a
later stage, when the goods are ready to be
shipped.
In this case disbursals are made only in stages

and if possible not in cash. The payments are made
directly to the supplier by drafts/bankers/cheques.
The bank decides the duration of packing
credit depending upon the time required by the
exporter for processing of goods.

The maximum duration of packing credit
period is 180 days; however bank may provide a
further 90 days extension on its own discretion,
without referring to RBI.
 Follow up of Packing Credit Advance

Exporter needs to submit stock statement
giving all the necessary information about the
stocks. It is then used by the banks as a guarantee
for securing the packing credit in advance. Bank
also decides the rate of submission of these stocks.
Apart from this, authorized dealers (banks)
also physically inspect the stock at regular intervals.
 Liquidation of Packing Credit Advance

Packing Credit Advance needs be liquidated
out of as the export proceeds of the relevant
shipment, thereby converting pre shipment credit
into post shipment credit.
This liquidation can also be done by the
payment receivable from the Government of India
and includes the duty drawback, payment from the
Market Development Fund (MDF) of the Central
Government or from any other relevant source.
In case if the export does not take place then
the entire advance can also be recovered at a
certain interest rate. RBI has allowed some flexibility
in to this regulation under which substitution of
commodity or buyer can be allowed by a bank
without any reference to RBI. Hence in effect the
packing credit advance may be repaid by proceeds
from export of the same or another commodity to
the same or another buyer. However, bank need to

ensure that the substitution is commercially
necessary and unavoidable.
Duration:
Though the PC is normally granted for a period of
180 / 270 days, depending upon the operating /
production cycle, packing credits can be allowed to be
extended beyond the specified period also. If PC is allowed
to remain outstanding for 360 days or more, bank shall
report to RBI and ECGC. (Under W.T.P.C.G., packing credit
should not be kept outstanding beyond 360 days.)
Running Account facility

It is a special facility under which a bank has right to
grant pre shipment advance for export to the exporter of
any origin. Sometimes banks also extent these facilities
depending upon the good track record of the exporter.
In return the exporter needs to produce the letter of
credit / firms export order within a given period of time.

 Bank is received the Covering letter from exporter &
proforma invoice for PC disbursement. Bank can be
disbursed this amount if it is in the limit sanctioned.
 Enter the disbursement details in the system i.e.
SWIFTCORE Software.
 Authorized the disbursement details in the system
 Print advise for PC Disbursement

Post Shipment Finance
Post Shipment Finance is a kind of loan provided by

a financial institution to an exporter or seller against a
shipment that has already been made.
This type of export finance is granted from the date

of extending the credit after shipment of the goods to the
realization date of the exporter proceeds. Exporters don’t
wait for the importer to deposit the funds.
The features of post shipment finance are:
 Purpose of Finance
Post shipment finance is meant to finance

export sales receivable after the date of shipment of
goods to the date of realization of exports proceeds.
In cases of deemed exports, it is extended to
finance receivable against supplies made to
designated agencies.
 Basis of Finance
Post shipment finance is provided against

evidence of shipment of goods or supplies made to
the importer or seller or any other designated
agency.
 Types of Finance
Post shipment finance can be secured or

unsecured. Since the finance is extended against
evidence of export shipment and bank obtains the
documents of title of goods, the finance is normally

self liquidating. In that case it involves advance
against undrawn balance, and is usually unsecured
in nature.
Further, the finance is mostly a funded

advance. In few cases, such as financing of project
exports, the issue of guarantee (retention money
guarantees) is involved and the financing is not
funded in nature.
 Quantum of Finance
As a quantum of finance, post shipment

finance can be extended up to 100% of the invoice
value of goods. In special cases, where the domestic
value of the goods increases the value of the
exporter order, finance for a price difference can
also be extended and the price difference is covered
by the government. This type of finance is not
extended in case of pre shipment stage.
Banks can also finance undrawn balance. In

such cases banks are free to stipulate margin
requirements as per their usual lending norm.
 Period of Finance
Post shipment finance can be off short terms

or long term, depending on the payment terms
offered by the exporter to the overseas importer. In
case of cash exports, the maximum period allowed
for realization of exports proceeds is six months
from the date of shipment. Concessive rate of
interest is available for a highest period of 180 days,
opening from the date of surrender of documents.

Usually, the documents need to be submitted within
21days from the date of shipment.
Types of Post Shipment Finance
The post shipment finance can be classified as:
 Export Bills Purchased/ Discounted. (DP & DA Bills)
Export bills (Non L/C Bills) is used in terms of

sale contract/ order may be discounted or
purchased by the banks. It is used in indisputable
international trade transactions and the proper limit
has to be sanctioned to the exporter for purchase of
export bill facility.
 Export Bills Negotiated (Bill under L/C)
The risk of payment is less under the LC, as

the issuing bank makes sure the payment. The risk
is further reduced, if a bank guarantees the
payments by confirming the LC. Because of the
inborn security available in this method, banks often
become ready to extend the finance against bills
under LC.
However, this arises two major risk factors for the

banks:
 The risk of nonperformance by the exporter,

when he is unable to meet his terms and
conditions. In this case, the issuing banks do
not honor the letter of credit.
 The bank also faces the documentary risk

where the issuing bank refuses to honor its
commitment. So, it is important for the

negotiating bank, and the lending bank to
properly check all the necessary documents
before submission.
 Advance against Export Bills Sent on Collection

Basis
Bills can only be sent on collection basis, if the

bills drawn under LC have some discrepancies.
Sometimes exporter requests the bill to be sent on
the collection basis, anticipating the strengthening
of foreign currency.
Banks may allow advance against these

collection bills to an exporter with a concessional
rates of interest depending upon the transit period
in case of DP Bills and transit period plus usance
period in case of usance bill.
The transit period is from the date of

acceptance of the export documents at the bank’s
branch for collection and not from the date of
advance.
 Advance against Export on Consignments Basis
Bank may choose to finance when the goods

are exported on consignment basis at the risk of the
exporter for sale and eventual payment of sale
proceeds to him by the consignee.
However, in this case bank instructs the

overseas bank to deliver the document only against
trust receipt /undertaking to deliver the sale
proceeds by specified date, which should be within

the prescribed date even if according to the practice
in certain trades a bill for part of the estimated
value is drawn in advance against the exports.
In case of export through approved Indian

owned warehouses abroad the times limit for
realization is 15 months.
 Advance against Undrawn Balance
It is a very common practice in export to leave

small part undrawn for payment after adjustment
due to difference in rates, weight, quality etc. Banks
do finance against the undrawn balance, if undrawn
balance is in conformity with the normal level of
balance left undrawn in the particular line of export,
subject to a maximum of 10 percent of the export
value.
An undertaking is also obtained from the

exporter that he will, within 6 months from due date
of payment or the date of shipment of the goods,
whichever is earlier surrender balance proceeds of
the shipment.
 Advance against Claims of Duty Drawback
Duty Drawback is a type of discount given to

the exporter in his own country. This discount is
given only, if the in-house cost of production is
higher in relation to international price. This type of
financial support helps the exporter to fight
successfully in the international markets.

In such a situation, banks grants advances to
exporters at lower rate of interest for a maximum
period of 90 days. These are granted only if other
types of export finance are also extended to the
exporter by the same bank.
After the shipment, the exporters lodge their

claims, supported by the relevant documents to the
relevant government authorities. These claims are
processed and eligible amount is disbursed after
making sure that the bank is authorized to receive
the claim amount directly from the concerned
government authorities.
Crystallization of Overdue Export Bills
Exporter foreign exchange is converted into Rupee

liability, if the export bill purchase / negotiated
/discounted is not realize on due date. This conversion
occurs on the 30th day after expiry of the NTP in case of
unpaid DP bills and on 30th day after national due date in
case of DA bills, at prevailing TT selling rate ruling on the
day of crystallization, or the original bill buying rate,
whichever is higher.

Here bank deals in reversal of PC into PS & reversal of PS.
 Reversal of PC into PS
After the shipment, bank has to reverse the PC
into PS. Bank should make reverse entry in the
system & excess amount should be credited to the
exporter’s account.
 Reversal of PS
On the due date bank is received the payment
against that advance. Bank should reverse that PS &
difference between the PS amount & actual received
should be debited to the exporter’s account.
 Crystallization of overdue bills

After the actual due date plus 30 days grace
period bank will crystallize the bill means exporter
account is debited with the advance amount at
selling rate or buying rate whichever is higher plus
interest. After crystallization that bill becomes clean
bill.

Buyer’ credit
Buyer's credit is the credit availed by an importer

(buyer) from overseas lenders, i.e. banks and financial
institutions for payment of his imports on due date. The
overseas banks usually lend the importer (buyer) based
on the letter of credit (a bank guarantee) issued by the
importers bank. Importer's bank or Buyers Credit
Consultant or importer arranges buyer's credit from
international branches of a domestic bank or international
banks in foreign countries. For this service, importer's
bank or buyer's credit consultant charges a fee called an
arrangement fee.
Buyer's credit helps local importers gain access to
cheaper foreign funds close to LIBOR rates as against local
sources of funding which are costly compared to LIBOR
rates.
The duration of buyer's credit may vary from
country to country, as per the local regulations. For
example in India, buyer's credit can be availed for one
year in case the import is for trade-able goods and for
three years if the import is for capital goods. Every six
months, the interest on buyer's credit may get reset.
Benefits to importer
 The exporter gets paid on due date; whereas

importer gets extended date for making an import
payment as per the cash flows
 The importer can deal with exporter on sight basis,
negotiate a better discount and use the buyers
credit route to avail financing.

 The funding currency can be in any FCY (USD, GBP,
EURO, JPY etc.) depending on the choice of the
customer.
 The importer can use this financing for any form of
trade viz. open account, collections, or LCs.
 The currency of imports can be different from the
funding currency, which enables importers to take a
favorable view of a particular currency.
Steps involved in the process
 The customer will import the goods either under LC,

collections or open account
 The customer requests the Buyer's Credit Arranger
before the due date of the bill to avail buyers credit
financing
 Arrange to request overseas bank branches to
provide a buyer's credit offer letter in the name of
the importer. Best rate of interest is quoted to the
importer
 Overseas bank to fund Importer's bank Nostro
account for the required amount
 Importer's bank to make import bill payment by
utilizing the amount credited (if the borrowing
currency is different from the currency of Imports
then a cross currency contract is utilized to effect
the import payment)
 Importer's bank will recover the required amount
from the importer and remit the same to overseas
bank on due date.
Cost involved in the process

 Interest cost: This is charged by overseas bank as a
financing cost
 Letter of Comfort / Undertaking: Your existing bank
would charge this cost for issuing letter of comfort /
Undertaking
 Forward Booking Cost / Hedging cost
 Arrangement fee: Charged by person who is
arranging buyer's credit for buyer.
 Risk premium: Depending on the risk perceived on
the transaction.
 Other charges: A2 payment on maturity, for 15CA
and 15CB on maturity, Intermediary bank charges.
 WHT (Withholding tax): The customer may have to
pay WHT on the interest amount remitted overseas
to the local tax authorities depending on local tax
regulations. In case of India, the WHT is not
applicable where Indian banks arrange for buyer's
credit through their offshore offices.
Indian regulatory framework
Banks can provide buyer’s credit up to USD 20

million per import transactions for a maximum maturity
period of one year from date of shipment. In case of
import of capital goods, banks can approve buyer’s credits
up to USD 20 million per transaction with a maturity
period of up to three years. No rollover beyond that period
is permitted.
RBI has issued directions under Sec 10(4) and Sec

11(1) of the Foreign Exchange Management Act, 1999,
stating that authorized dealers may approve proposals
received (in Form ECB) for short-term credit for financing

—by way of either suppliers' credit or buyers' credit—of
import of goods into India, based on uniform criteria.
Credit is to be extended for a period of less than three
years; amount of credit should not exceed $20 million, per
import transaction; the `all-in-cost' per annum, payable
for the credit is not to exceed LIBOR + 50 basis points for
credit up to one year, and LIBOR + 125 basis points for
credits for periods beyond one year but less than three
years, for the currency of credit.
All applications for short-term credit exceeding $20

million for any import transaction are to be forwarded to
the Chief General Manager, Exchange Control
Department, Reserve Bank of India, Central Office,
External commercial Borrowing (ECB) Division, Mumbai.
Each credit has to be given `a unique identification
number' by authorized dealers and the number so allotted
should be quoted in all references. The International
Banking Division of the authorized dealer is required to
furnish the details of approvals granted by all its
branches, during the month, in Form ECB-ST to the RBI, so
as to reach not later than 5th of the following month.
(Circular AP (DIR Series) No 24 dated September 27, 2002.
As per RBI Master circular on External Commercial

Borrowing and Trade Finance 1 July 2011, the all-in cost
ceiling for interest is now six month L + 200 bps(bps is
Basis Points . A unit that is equal to 1/100th of 1%) for
buyer's credit arrange for tenure up to three years. All
cost ceiling includes arranger fee, upfront fee, and
management fee, handling and processing charges, out-
of-pocket and legal expenses, if any.

The above ceiling go revised on 15/11/2012 to 6
Month Libor + 350 bps and got further extended on
30/03/2012 till 30/09/2012.

Remittance services
The Saraswat Bank offers Remittance Services in the

areas relevant to the NRIs. Foreign exchange remittances
facility available to residents for all permitted purposes.
Purpose & limits for remittance

Travel related
 Business / Participation in International Conferences/
seminars/ Specialised training- Upto USD.25, 000/-
per trip for visit to any country other than Nepal and
Bhutan.
 Private Visit- Upto USD.10, 000/- or its equivalent in
one calendar year for one or more visits to any
country except Nepal and Bhutan.
 Employment abroad- Not exceeding USD.100000/-
 Emigration- Not exceeding USD.100000/-
 Higher Education- Upto the estimate given by an
Institution abroad or USD.100000/- per academic
year whichever is higher.
 Medical Treatment/Hospitalization abroad- Upto the
estimate given by the Doctors in India for
Hospitalization/Doctors abroad or upto
USD.100000/- or its equivalent without insisting on
any estimate from hospitals or Doctors.
 Maintenance expenses of a patient going abroad for
treatment/check-up and for attaining higher
education abroad- USD.25,000/- each for the patient
and accompanying attendant.

Other Remittances
 Gifts- Upto USD.5, 000/- or its equivalent per
remitter/Donor in one calendar year to relatives /
friends residing abroad on any event/Festive
occasion.
 Donation- Upto USD.5, 000/- or equivalent per
remittance in a calendar year to a Charitable
/Educational / Religious or Cultural Organization
abroad.
 Maintenance of close relative abroad- Not exceeding
USD 100000 /- per recipient.
Foreign Inward Remittance
There are no restrictions for a resident individual for

receiving inward remittance from abroad through
authorized dealer bank in India.
 Bank has getting idea about the amount received
& purpose of remittance from the customer
 Documents obtain from customer such as-
 Customer letter cum declaration for purpose of
remittance
 Fema declaration
 Proof for inward remittance (e.g invoice)
customer earlier
 Enter the details of remittance in the system i.e.
SWIFTCORE Software
 Authorized the inward remittance in the system

 Print Advise – FIR Advise
Issue of Foreign Inward Remittance Certificate

Foreign Inward Remittance Certificate (FIRC) should
be issued against receipt of inward remittance or
realization of foreign exchange. Only one certificate
should be issued for each remittance received.
 Enter the details of FIRC in the system i.e
SWIFTCORE Software.
 Print FIRC on security paper.
Foreign Outward Remittance
Bank is permitted to release/ remit foreign exchange

for following transaction.
 Private visit
 Remittance by tour operation/ travel agents to
overseas agents/ principals/ hotels
 Business travels
 Fee for participation in global conferences &
specialized training
 Remittance for participation in international event/
competitors
 Film shooting
 Medical treatment abroad
 Disbursement of crew wages
 Overseas education
 Remittance under education tie up arrangement
with universities abroad
 Remittance towards fees for examination held in
India & abroad & additional score sheets for GRE
TOEFL etc.

 Employment & processing assessment fees for
overseas job applications
 Emigration & emigration consultancy fees
 Skills/ credential assessment fees for intending
migrants
 VISA fees
 Processing fees for registration of document as
required by the Portuguese/ other government
 Registration/ subscription/ membership fees to
international organization
 Commission paid outside the India
Documents required for Foreign Outward Remittance

 Customer letter cum declaration
 Passport copy
 Air Ticket
 Visa
 Form A2

 Bank received the documents from customer related
to the remittance.
 Enter the details of remittance in the system i.e.
SWIFTCORE Software
 Authorized the same in the system
 Print FOR Advise
Traveler’s Cheque
Bank purchase the traveler’s cheque from American
Express & sell it to the customers.
Practical applicability of the bank
 Forex centre should give request for TCs to IBD
along with denomination & currency. IBD will place

the same to American Express & provide the same
to respective forex centre.
 Enter the details of TCs in the system i.e.
SWIFTCORE Software as stock of TCs
 Take documents from customer for sale of TCs such
as-
 A request for issue of TCs with all relevant
details
 Form A2
 Other documents which are referred outward
remittance
 Enter the details of TCs sold in the system i.e.
SWIFTCORE Software as TC issued
 TC reconciliation & verify it
 Reporting to treasury
 Send MT202 to American Express against
settlement of TC sale

Foreign Currency Notes
Bank deals in purchase of foreign currency from customer

or sell it to the customer.
Foreign Currency Purchase from Customer

 Bank should take
 Obtain letter
 Fema declaration from customer
 Purpose of currency deposit
 Currency Declaration Form (if currency is more
than $ 5000)
 Copy of passport
 Verify the currency type/ denomination/ authenticity
of the currency
 Take the buying rate from treasury
 Enter the purchase of foreign currency details in the
 Verify the voucher entry in the system
Sale of Foreign Currency to Customer

 Bank should take
 A request for issue of currency with all relevant
details
 Form A2
 For other document refer outward remittance
 Take the selling rate from treasury
 Enter the sale of foreign currency details in the
system

 Verify the voucher entry in the system

NRI portfolio
NRi can also open accounts in the bank such as-
 FCNR Account
 NRE Account
 NRO Account
How to open an account in the bank?
 To open any NRI account, customer has to fill up the
account opening form and send it to any of the
branches along with following:
 Photocopy of Passport giving details such as name,
address, passport number, date of issue and expiry,
visa, date of departure from in India.
 Photograph and initial money remittance.
FCNR Account
 Bank accept FCNR Term Deposit in US Dollar,
Sterling Pound and EUR for a period one-year to five
years
 Minimum deposit accepted is US Dollars 1000/-.
 Accounts can be opened/credited with remittances
from abroad/transfer from existing NRE/FCNR
accounts/deposit of foreign exchange brought into
India, during visits to India.
 Accounts can be opened jointly with any other Non-
Resident Indian.
NRE Account
 This account is for non resident
 Accounts can be opened /credited with remittances
from abroad/transfer from existing NRE/FCNR
accounts/ deposit of foreign exchange brought into
India, during visits to India.
 Accounts can be opened jointly with any other Non-
Resident Indian .

 Principal amount with interest earned is eligible for
repatriation abroad
 Transfer of funds between NRE accounts of different
persons, for genuine personal purposes, freely
permitted.
 Non-Resident Indians can authorize residents to
operate their NRE accounts for local payments
through a Power of Attorney/Letter of Authority.
 Withdrawals for local payments or payments abroad
in any convertible currency are allowed.
NRO Account
 Account is maintained in Indian Rupees.
 Accounts can be opened/ credited with legitimate
local funds of the non-resident; foreign exchange
funds may also be credited into the accounts.
 Accounts can be opened jointly with non-residents/
residents. Funds held in NRO accounts, can be
repatriated outside India with an overall limit of USD
one million per financial year including sale of assets
held by NRI’s in India, on production of an
undertaking and certificate by a person making
remittance in Form and application for remittance as
given under section 195 of the Indian Income-Tax
Act. Interest is subject to deduction of tax at source
at the rate of 30% plus education cess.

Bibliography
Books
 Practitioner’s Book on Trade Finance- by IIBF
 FEDAI Guidelines
 The handbook of international trade and
finance: the complete guide to risk - By
Anders Grath
 Master circulars –by RBI
Websites
 www.wikipedia.com
 www.preservearticles.com
 www.rbi.org
 www.eximguru.com
 www.caclubindia.com
 www.saraswatbank.com

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A Report On

A project report by- Ketki Parulekar Page | 1

Prepared under guidance of

Mr. H P Naik sir

Mr. G P Sakre Sir

A project report by- Ketki Parulekar Page | 2

I, Ketki Parulekar, student of mansukhani institute of

management College, Ulhasnagar (MMS) hereby declare that I

have completed the project report titled “Trade Finance” as

part of the summer internship in the academic year 2011-2012.

The information submitted by me is true & original to

the best of knowledge.

MIM College, Ulhasnagar

A project report by- Ketki Parulekar Page | 3

This is to certify that,

Student of Mansukhani Institute of Management College (MMS) Has

The information submitted is true & original to best of our knowledge.

We wish her all the very best in her future endeavors.

Signature of Project Guide

Mr. H P Naik Sir Sr. Manager

Mr. G P Sakre Sir

A project report by- Ketki Parulekar Page | 4

The most pleasant part of any project is to

I would like to express a sense of deep

I also wish to express sincere gratitude

A project report by- Ketki Parulekar Page | 5

A project report by- Ketki Parulekar Page | 6

A project report by- Ketki Parulekar Page | 7

"Service to the Common Man" has been the motto of

The Bank still continues to function with the glorious

Saraswat Bank attributes this success to its undying

Saraswat Bank has introduced a wide range of credit

The Saraswat Bank offers the trusted financial

A project report by- Ketki Parulekar Page | 8

The Saraswat Bank offers remittance services in the

The money changers for the bank are Pheroze

A project report by- Ketki Parulekar Page | 9

A project report by- Ketki Parulekar Page | 10

A project report by- Ketki Parulekar Page | 11

A project report by- Ketki Parulekar Page | 12

A project report by- Ketki Parulekar Page | 13

 Foreign trade helps to produce those commodities

 Foreign trade increases the scope of market

 Foreign trade helps the people to get different

 Foreign trade helps a developing country like India

A project report by- Ketki Parulekar Page | 14

 Without foreign trade, it is not possible to fulfill the

Due to all these above reasons, foreign trade has got an

A project report by- Ketki Parulekar Page | 15

 Directorate General of Foreign Trade (DGFT)

Functions and responsibilities of DGFT:

A project report by- Ketki Parulekar Page | 16

 Reserve Bank of India

 Foreign Exchange Dealers Association of India

A project report by- Ketki Parulekar Page | 17

Presently some of the functions are as follows:

 International Chambers of Commerce (ICC)

A project report by- Ketki Parulekar Page | 18