Tag: OU B.com free notes

Regulatory Compliance in Finance

The ever-changing regulatory environment poses a constant challenge for financial institutions of all types. Regtech is an emerging industry that can help ease the burden of compliance. By using the latest FinTech technologies to address regulatory compliance, RegTech startups are bridging the gap between regulators and the financial service industry.

Cybercrime in Finance

Data breaches involving financial service firms increased by 480% from 2017 to 2018. With each attack costing financial institutions millions, innovative solutions are needed if we are to avoid a repeat of the lawless days of the Wild West. Whatever cybercrime solutions emerge to protect financial services, blockchain technology must be the foundation. As more and more institutions adopt distributed ledger technology (DLT), blockchain will become the de facto solution to keeping financial data secure while at rest.

Integrating DLT with existing financial infrastructures poses some serious obstacles that must be overcome. Even so, we are past the point of asking whether blockchain is the holy grail of financial data security.

Eliminating Data Breaches

Financial service firms are prime targets for cybercrime. Because of the sensitive data they carry, they are more likely to be targets. In fact, financial service firms were hit 300 times more than other business.

Big Data Use in Finance

Big data provides both opportunities and obstacles for financial service providers. Tapping into social media, consumer databases, and even news feeds can help banks better serve their customers, while better protecting their own interests.

But sorting through torrents of unstructured data for useful information is no small undertaking. It requires powerful data analytics technology if institutions are to reap a benefit.

Fortunately, data analytics solutions are emerging with the potential to transform asset management, trading, risk management, and other financial services.

Customer Retention in The Financial Services Industry

Competition for financial service clients has never been fiercer. While brand loyalty may not be dead, it is definitely on life support.

What matters to most customers in this year is greater personalization, more automated services, and easier access to services. Institutions that can deliver all three will capture their share of the market.

Key to not losing the battle is recognizing that customers are less concerned with brand familiarity than getting the services they want. Providing customers those services is key to client retention.

Exceeding Consumer Expectations

Consumers continue to expect a lot from their financial institutions. Many want a more personalized service from their financial providers.

According to the 2019 Accenture Global Financial Services Consumer Study, one in two consumers want personalized advice from banks based on their personal circumstances. They want an analysis on their spending habits and advice on how to handle money. 64% of the participants are interested in insurance premiums that are tied to their behavior, such as having a good driving record.

AI Use in Finance

Industry experts believe that AI will transform nearly every aspect of the financial service industry. Automated wealth management, customer verification, and open banking all provide opportunities for AI solution providers.

Powerful advances in deep learning technology are paving the way for AI. In fact, if you have been alerted by your bank of suspicious activity on your account, you have likely already benefited from AI.

The challenge that financial services face is learning how to benefit from the power of AI, without being victimized by it. In R&D labs across the world, that question is being pondered at this very moment.

Employee Retention in The Financial Service Industry

Today’s financial service companies not only find it difficult to attract customers, but they are also finding it difficult to attract employees.

A lack of qualified talent to fill new IT roles, and a millennial workforce that shuns long-term employment, are leading factors in finding good help.

Institutions that want to attract and retain a qualified workforce must change their philosophy. No longer is it enough to offer good pay and benefits; workers now expect employers to nurture a culture that is accommodating to the values and lifestyles of the employee. Change is necessary if stable and qualified workforces are to be achieved. But don’t expect it to come easy.

Blockchain Integration in Finance

We talked earlier about blockchain as a key component in the battle against cybercrime. But data security is not the only application for blockchains in the financial sector.

Far from it, cases across the globe are already proving the value of blockchain in a wide variety of banking and investment applications. From solving challenges faced by investment banks to helping customers make safer payment transactions, the list is growing daily.

Crossing the Digital Divide in Financial Services Marketing

Success in the era of digital banking means more than having a mobile app. It means digitizing your entire brand. How do you do that? You shift your advertising campaigns from conventional ad media to digital channels. Which is another way of saying you reach your target audience where they are today, rather than where they were yesterday.

Of course, social media exposure is necessary, but you need more than a Facebook ad. You must tap big data and AI to help locate potential customers, and to deliver customized offers in real time.

1. Leasing:

Leasing is the most significant development as a method of procuring assets which has taken place in the field of finance during the past five decades although it was on real estate leasing at first During the past several years, various firms are granting lease almost all types of fixed assets.

There are two principal techniques of leasing, viz.:

(i) Leasing rather than purchasing the assets

(ii) Sale and Lease Back.

However, in the case of former, a firm makes a contract to rent an asset from another firm.

Advantages of Leasing:

There are some authorities who do not accept all the advantages of lease financing.

But the following advantages are accepted by them:

(i) Permits a lease to obtain the use of property that he cannot acquire in any other way;

(ii) Provides facilities that are needed only temporarily;

(iii) Avoids the risks of obsolescence;

(iv) Relieves the user of maintenance, service and administrative problems;

(v) Provides an additional source of financing; and

(vi) Gives the lease flexibility.

The following four advantages are not accepted unanimously by the authorities. They are:

(i) Lease frees working capital;

(ii) It yields a tax savings;

(iii) It improves the lessees’ apparent financial position; and

(iv) It spares management the need to review capital expenditure.

Disadvantages of leasing:

(i) High cost

(ii) Loss of residual values

(iii) The possibility that a premium will be demanded for vital equipment unless adequate care is taken when the lease is negotiated

(iv) Inadequate evaluation due to habitual leasing

(v) The lack of accumulation of equity, which could have some adverse effects on future financing; and

(vi) Various facilities may be lost at the end of the lease period.

However, the validity of the above disadvantage depends on the various alternatives which should carefully be chosen while negotiating lease agreement. Because, there are several factors which directly affect the leasing finance for alternations, e.g., rate of tax, the repayment schedule, the rate of interest, the method of depreciation etc.

Classification of Leases:

(a) Operating Lease:

Under the circumstances it does not impose any long-term obligation neither the lessor nor the lessee and it may be cancelled by either side after serving a stipulated notice, e.g., the rental of an office space on a 3-year lease cancellable on 30 days.

(b) Service Lease:

Under the circumstances, the lessor supplies both financing and servicing the asset during the lease period. Usually, capital assets, e.g., computers, trucks etc. are leased under this type of contract which provide maintenance or servicing of the assets

(c) Financial Lease:

Under the circumstance, the lease arrangement is considered as long- term lease on fixed assets which must not be cancelled either by the lessor or by the lessee. It is, practically, like long-term debt financing.

Characteristics of Leases:

(1) Service Leases:

Services leases are becoming popular as the modern machinery and equipment require frequent specialised maintenance and servicing.

Its significant characteristic are:

(i) Cost of Maintenance is included in Lease:

According to the terms, the lessor is liable for maintaining the equipment and supplying all routine services including repairs It actually protects the lessee from correcting major break-downs for the same,

(ii) Lease may be Cancelled:

Usually, the service lease is cancelled by the lessee. For this purpose, the lessee makes some provisions for a penalty if the lease is cancelled before its expiry date although a stipulated notice is necessary for cancellation.

(iii) Equipment Machinery may not totally he Amortized:

In case of amortization, usually a firm writes it off completely during the period under consideration. In this type of lease, however, the lease payment may be insufficient to allow the lessor to recover the original cost of such asset which implies that the lease period is comparatively less than the service life of the asset.

(2) Financial Leases:

The characteristic of financial leases is noted below:

(i) Long-Term Period:

These types of leases cover a long-time period, e.g., 1 to 10 years. At this period, the firm must have to satisfy lease requirements even if the equipment becomes obsolete or of no use.

(ii) Rigid Obligation:

It imposes certain obligations. It cannot be cancelable.

(iii) Fully Amortizing:

According to the terms of agreement the lease covers the service period i.e., if the expected life of the equipment/machinery is 10 years, the firm also takes the period of lease approximately 10 years.

It is interesting to note that if asset possess an indefinite life, like Land and Building, the lease will be written as even service life may be considered as 30 years. Under the circumstance, the Land and Building is totally amortized.

(iv) Profit earned during the period of lease:

This lease gives some profit to the lessor (i.e., total lease payment is more than the total cost of the assets) during the period of lease. If the asset possesses any residual value, the entire amount will be treated as an extra profit.

Sources of Funds for Leasing. It has been highlighted above that financial institutions, insurance companies, finance companies and institutional investors supply funds for leasing. In other words, a firm who seeks funds finds various institutions for the purpose.

Some of them are:

(a) Commercial Bank

At present commercial banks are increasingly interested in lease financing. The banks make necessary arrangement to buy equipment and lease the same to a customer either directly or through a company. As the additional service is provided by the bank it attracts the customers for other financial services.

(b) Financial Service Companies:

We know that there are some commercial finance companies/leasing companies who supply the necessary funds for specialised machinery or equipment. Usually these companies take expert staffs who are acquainted with the re-sale market for such specialised equipment or machinery and terms of the lease agreement is practically developed by them.

(c) Life Insurance Companies:

The Life Insurance Companies are quite known in long-term leasing, particularly in the case of real estate. Usually a life insurance company has a large cash inflow which can easily be invested as the amount is not immediately required for the payment of policies. As such, these excess cash can easily be invested by them in office-building, warehouse which can be leased to the occupants.

2. Hire-Purchase:

A line-put transaction is one when the seller owner of certain goods delivers has goods to a person (known as hire-purchase) with a condition that he (hire-purchaser) with repay the price of the goods which is inclusive of certain amount of interest) by different specified periodical instalments and acquires the property (goods) immediately but the same is transferred only when the last instalment is paid.

In other words, a hire purchase agreement is one under which a person takes delivery of goods promising to play the price by a certain number of instalments and. until full payment is made, to pay hire charges for using the goods. The law regaining the subject has been codified by the parliament in 1972 viz the Hire-Purchase Act (No 25 of 1972).

Generally a certain sum of money is paid at the time of taking delivery known as down payment’ or ‘initial payment’ and the instalment is paid at the end of the period, say, yearly, half-yearly or quarterly. Needless to mention here that the total payment made under hire purchase agreement should always be higher than the cash price since interest is charged with cash price of hire-purchase transactions.

Legal Position/Hire-Purchase Agreement:

The Hire-Purchase Act came into being on 1st Sept 1972. According to the Act, a hire-purchase agreement means “an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of the agreement and includes an agreement under which:

(i) Possession of goods is delivered by the owner thereof to a person on condition that such person pays the agreed amount in periodical installments

(ii) The property in the goods is to pass to such person on the payment of the last of such instalments

(iii) Such person has a right to terminate the agreement at any time before the property so passess” :Sec. 2 (c).

The following terms are widely used in hire-purchase transactions:

(a) Price:

The H. P. Act defines various terms in relation to prices which are noted below:

(i) Cash Price Installment:

An amount which bears to the net price the same proportion as the amount of the hire-purchase instalment bears to the total amount of hire- purchase price.

(ii) Hire-Purchase Price:

The total sum payable by the hirer as per hire-purchase terms in order to complete the transac­tions.

(iii) Net Hire-Purchase Charges:

The difference between the net hire-purchase price and the net cash price of the goods.

(iv) Net Cash Price:

Total cash price less any deposit.

(v) Down Payment:

The amount which is paid at the time of taking delivery of the goods.

(vi) Net Hire-Purchase Price:

Total amount of hire-purchase price minus:

(a) Delivery expenses, if any;

(b) Registration or other kinds of fees related to agreement; and

(c) Insurance expenses, if any.

(b) Hirer:

The person who obtains the possession of goods from the owner under a hire-purchase agreement.

(c) Hire:

The sum payable periodically by the hirer under the agreement.

(d) Installment:

The amount which is inclusive of interest together with principle paid at the end of the period.

According to Sec. 4 the contents of hire-purchase agreement which includes the following:

(i) The hire-purchase price of the goods to which the agreement relates;

(ii) The case price of the goods i.e., the price at which the goods may be purchased by the hirer for cash;

(iii) The date on which the agreement shall be deemed to have commenced;

(iv) the number of installments by which the hire-purchase price is to be paid, the amount of each of those instalments and the date, or the mode of determining the date, upon which it is payable, and the person to whom and the place where it is payable;

(v) The goods to which the agreement relates, in a manner sufficient to identify them;

(vi) where any part of the hire-purchase price is, to be paid otherwise than by cash or by cheque, the hire-purchase agreement shall contain a description of that part of the hire-purchase price; and

(vii) where any of the above requirements has not been complied with, the hirer may institute a suit for getting the hire-purchase agreement rescind, and the court may, if it is satisfied that the failure to comply with any such requirement has prejudiced the hirer, rescind the agreement on such terms as it thinks just, or pass such other order as it thinks fit in the circumstances of the case.”

3. Bill Discounting:

When the holder of a bill wants to get the money before the due date, he can sell the bill to a bank against a small charge, known as discounting charges i.e., a supplier or creditor of goods discounts the incomes for sale of goods.

Discounting charge is imposed by the bank at a fixed rate present p. a from the date of discounting to the date of maturity. At present in our country, through the discounting of bills of exchange a major part of lending of money taken place by commercial banks.

However, a clean bill carries only the personal security of the drawer and drawee, but a documentary bill, however, accom­panied by Bill of Lading, Railway Receipt or other documents of title of goods, which provide extra security in addition to the personal security of the drawer and drawee.

It is needless to say that if the bill is dishonored by the drawee/drawer, the bank naturally will recover the amount from the drawer/creditor of the bill.

4. Factoring:

A factor is a financial institution who takes the responsibility of financing and collecting debts that may arise out of credit sales. It is done on a continuous basis. Under the arrangement as soon as new bills receivables come in they are taken by the factor and the proceeds are credited to the accounts of the client correspondingly.

If there is no default or irregularities overdraft facility may also be allowed In Western country, factoring is well-established.

But in our country, factoring have been set up by nationalized banks only in four regions, viz:

(i) State Bank of India (in the West);

(ii) Canara Bank (in the south);

(iii) Punjab National Bank (in the north); and

(iv) Bank of Allahabad (in the east)

However, RBI Study Group suggested that there is greater scope of factoring in India and the demand has been estimated at about 4.000 crores. They also suggested that in the case of Textile, Engineering, Automobile Ancillaries, Chemicals and Consumer Durable industries factoring services are urgently needed.

Characteristics of a Factoring Arrangement:

(i) The factor takes the responsibility for realising/collecting the debts. It pays to the client when the amount is collected or at the end of the credit period which one is earlier for each and individual transaction.

(ii) Usually, the factors take a commission of 1% to 3% of the face value of the debt.

(iii) It may be on the following two basis:

(a) Recourse basis (when risk is borne by the client);

(b) Non-recourses basis (when risk is borne by the factor).

In our country, however the former one is taken into consideration.

(iv) The factor usually advanced 70% to 80% of the face value of the debt and the rate of interest becomes a slight higher than the prevailing bank rate although the factor advances the credit against not yet dud not yet collected debts to the clients.

5. Venture Capital:

Venture capital implies the financial investment to high-tech growing companies (i.e., higher risk based) as equity capital with the expectation of a higher rate of return which is inclusive of initial as well as development capital for a company.

Although the concept is very old, it is not widely accepted. Sometimes, this capital is being introduced as a result of the product of any scientific improvement and technology and to bring it into real world situation. It also helps the new companies to issue shares who find it difficult.

Features/Characteristics

It is to be noted that there is no such standard form on which venture capital will be supplied.

However, the following characteristics are denoted:

(i) In the first two years, the financial burden becomes negligible;

(ii) The venture capital firms take a high degree risk with the expectation of a high rate of return in future

(iii) Usually, the venture capital firms desires to liquidate its investment after 3 to 5 year

(iv) The Venture Capital firm takes the active participation in the management of the assisted firm including the help extended to procure fund

Innovative financial instruments are a range of activities such as:

• Participation in equity (risk capital) funds
• Guarantees to local banks lending to a large number of final beneficiaries, for instance small and medium-sized enterprises (smes)
• Risk-sharing with financial institutions to boost investment in large infrastructure projects.

The aim is to boost the real economy through increasing the access to finance for enterprises and industry producing goods and services. Spending through innovative financial instruments is another way of spending country budget than giving grants or subsidies.

Innovative financial instruments can attract funding from other public or private investors in areas of country strong interest but which are perceived as risky by investors. Examples include sectors with high economic growth or innovative business activities.

Despite the accelerated industrial growth experienced this decade from recent economic reforms, most major investors around the globe do not yet see India as an ideal country for foreign investment. The competition for global capital will only get tougher in the years to come, and unless the political, judicial and economic environments are right, India will lag behind many other emerging nations. More importantly, the rising expectations of the middle-class, widening income and wealth inequalities between the haves and have-nots, require efficient initiatives from Government and corporate to attract and accommodate the funds available.

Variety of financial products like mutual funds, insurance, shares, debentures, derivative instruments, etc. are available in India. However, the reach of these products is very limited and the features of many of these products are very basic in nature. Further development and innovation in these products would be faster if they are accessed by all classes of investors in urban as well as rural areas. The thrust lies mainly on the development of new financial products to deepen the improvements in the product distribution itself. The responsibility of ensuring these improvements vests with all the stakeholders in the financial services industry.

The Indian financial market has been primarily divided into three categories namely: Equity; Debt; Derivatives. Every category has its own importance in the development of financial markets. In most of the developed nations after the development of Equity now the major focus is on Debt and Derivatives market. The reason for this focus can be many supportive benefits which accrue to a market by development of double ‘D’ market.

Surprisingly in financial market is used as a synonym for equity market which has completely under deployed Debt and derivative markets. The importance and potentials of debt market are still under a doubtful impression in India and no major revolution has been brought to this effect in the recent periods. Focus of more and more to just equity markets has created saturation in Indian stock market. So willingly or unwillingly now the focus has to be shifted towards other possible avenues.

Some of the possible avenues have been categorized during this research conducted on various instruments which are globally available but cannot find place in Indian markets. Now these instruments are also categorized in the various forms and accrue to a specific market.

Firstly the focus is laid on so called Backbone of Indian Financial system Vis the Indian equity market, which has incorporated every possible instrument which can be accommodated in Indian family of Equity instruments. Few instruments has been recognized which can be absorbed in Indian market, which can be Indian Depository Receipt (IDR), Non-Voting Shares, Cumulative convertible preference shares (CCPS), Debt-equity swap.

Secondly it comes the most awaited Debt market which needs great development especially in case of corporate bonds. In India 80% of bonds are Govt. issued and 80% of remaining by institutional investors. So there has to happen lot of work by GOI (Government of India). In this few instruments which can be of utmost importance for Indian environment can be Inflation linked bonds (ILB), junk bonds, Specialized debt fund for infrastructure funding, securitization of debt.

Thirdly it comes to the funds of masses i.e. pension funds and retirement schemes which are always backed by government and also has gained support from the government. In this case one of the major innovative works can be on New Pension Scheme.

Fourthly, it comes to mutual funds which has the role of UTI, SEBI, RBI, AMFI and other such authorities which are regulating the workings of mutual funds in India. One of New Direction in mutual funds can be Investment funds in international Markets.

Fifthly it comes to the derivatives market, which can be divided in two major forms futures and options. In future major development can be in the newly arrived concepts which can become,

Instruments of masses. These include Futures on the Index of Industrial and Economy growth and Index and futures for Carbon Emission in the country. Further option market again has a lot of scope for improvements in the fields of Weather derivatives, Commodity Options, Credit derivatives.

Last but not the least there is an open category which also has few innovative instruments to be captured. These can be Index for Natural Disaster and risk Management and Financial development Index.

Important consideration to be noticed here is that India is a great Economy with tremendous growth opportunities has to cater with ongoing global competition in terms of capital and Money markets developments.

Another important issue here is that India has to balance its Financial market with the equitable share of debt and equity.

It should be open for latest and innovative types of instruments suitable for the growth and development of financial system.

New concepts like Carbon Emission index should be a given a proper research and find out the ways to develop and implement it.

The financial industry is quite adept at creating new products and successfully marketing them to the masses. Many of these products have been successes that have made money for investors and the financial institutions that offer them. Think mutual funds and exchange-traded funds, for example.

Recent financial innovations include hedge funds, private equity, weather derivatives, retail-structured products, exchange-traded funds, multi-family offices, and Islamic bonds (Sukuk).

However, other products have either been outright disasters or worse, have brought the world to the brink of financial ruin. The prime or should we say subprime example of such toxic products would undoubtedly be U.S. mortgage-backed securities, whose implosion circa 200 –09 caused a global credit crisis and the Great Recession.

Concept of New Financial Products

The first step in developing a new financial product is to conceptualize it. The idea for a new product can arise from a variety of sources, such as client demand, internal sales force or a third party. Exchange-traded funds came about because they did away with the limitations of traditional mutual funds by trading on an exchange, and thus offering instant liquidity and transparency traits that are of immense appeal to investors.

Product Development

Coming up with a product idea is one thing, but developing it is another thing altogether since the devil truly is in the details. At this stage, the product development team has to translate the idea into a tangible product that can be sold to the institution’s clientele at a reasonable profit. The development team has to walk a fine line in devising a product that is neither unnecessarily complex (a real risk with financial products), nor is so plain-vanilla that it is easy for the competition to replicate.

Regulatory, Legal Requirements

The new product must meet securities regulations mandated by the appropriate authority.

As regulation is primarily designed to protect retail investors from dubious products or services offered by unscrupulous firms, ensuring that the new product fully complies with all regulations applicable to it is essential for ensuring its success (not to mention avoiding potential embarrassment later). On the legal side, the firm’s legal luminaries will ensure that the intellectual capital invested in the product is protected through the necessary filings. The legal team will also confirm that regulatory requirements pertaining to such issues as product suitability and conflicts of interest have been adhered to.

Operations

At this stage of a new product’s evolution, the nitty-gritty is hammered out. This is probably the most important step in the entire new product development process since it encompasses all the key details involved with offering the product. This includes developing the forms and paperwork to be filled out by a client, ensuring the transaction will be efficiently executed on the firm’s platform and identifying the steps involved in processing the trade in the back office. It also includes other key elements such as devising risk management and controls to make sure that risks to the firm arising from the new product are mitigated, as well as client reporting, employee training (front office and back office) and supervision.

Registration of Products

The new product may need to be registered through a prospectus or offering documents with the applicable body such as the Securities Exchange Commission in the U.S., SEBI in India.

Marketing New Financial Products

Marketing a new product is vital to ensure its success. This phase also involves educating the client if the product is quite complex. In general, marketing cannot commence or can only be conducted in a limited manner until such time as approval has been received from the body with whom the prospectus or offering document has been registered. Developing marketing literature such as brochures and presentations that effectively communicate the product’s features and benefits, and formulating a cohesive media strategy, are time-intensive activities that can take weeks to complete.

Distribution of the New Product

This is another key step since if there is no effective sales force to sell or distribute the product, it will be doomed to failure. The firm or institution has to make a number of important decisions at this stage who will sell the product, how will they be compensated, what is the level of compensation and so on. The product’s attributes are essential for determining the right target audience for it.

Product Launch

Finally, the big day arrives when the product is finally launched, the culmination of months of effort. New financial products are typically launched with a lot of fanfare, right after or during a media blitz to raise product awareness. Some new products may fly off the shelf as soon as they are released, while others may take more time to gain traction. It all depends on which investor need is being met by the new product income, growth, hedge, or other needs as well as its risk profile.

Compliance

The firm’s compliance department will monitor sales of the new product to ensure that it is only being sold to those clients of the firm for whom the product is suitable. Client suitability is a very big issue in the financial industry. An advisor who sells a complex structured note to an 80-year-old with limited means of income will soon receive a visit from a compliance officer and could be in jeopardy of being shown the door. Depending on the specifications of the (new) product being offered, compliance would also be on the lookout for prohibited practices such as front-running or manipulative trading.

Product, Profitability Review

In the final stage of a new product’s development cycle, it will be reviewed at set periodic intervals to assess various parameters product sales versus projections, unexpected challenges, risk management, the product’s contribution to profit and so on. Depending on the outcome of such periodic reviews, the new product may either turn out to have a short shelf life, or it may be a winner that expands the firm’s portfolio of successful product offerings.

Bank guarantees

Bank Guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. Commercial Bank sanctions Bank Guarantee limit to facilitate issue of guarantees on behalf of its clients. Various types of guarantees offered are, financial, performance, bid bond, tenders, customs, etc. Our guarantees are accepted by all government agencies including Customs, Excise, Insurance Companies, Shipping Companies, all Capital Market Agencies such as NSE, BSE, ASE, CSE etc. and all major corporates.

Letters of Credit

Letter of credit is a legal document issued by a buyer’s bank that upon presentation of required documents payment would be made. Usually confirmed by the seller’s bank, protection is given to the seller that payment will be made if the goods are shipped correctly, following the conditions laid down when the LC is opened or based on subsequent amendments and protection is given to the buyer that the goods will be shipped before payment is made.

The LC facility can be granted to the importers after assessing their requirement/ credit worthiness/ financial strength and other parameters being to the satisfaction of the Bank.

Commercial Bank can extend Import financing through Letters of Credit, which are well accepted globally and are supported by a strong trade finance set-up. We are direct members of SWIFT and have correspondent banking arrangements with many banks worldwide.

Co‑acceptance of Bills

• Limits for co‑acceptance of bills will be sanctioned by the banks after detailed appraisal of customer’s requirement is completed and the bank is fully satisfied about the genuineness of the need of the customer. Further customers who enjoy other limits with the bank should be extended such limits.
• Only genuine trade bills shall be co‑accepted and the banks should ensure that the goods covered by bills co‑accepted are actually received in the stock accounts of the borrowers. The valuation of goods as mentioned in the accompanying invoice should be verified to see that there is no overvaluation of stocks.
• The banks shall not extend their co‑acceptance to house bills/ accommodation bills drawn by group concerns on one another.
• Before discounting/purchasing bills co‑accepted by other banks for Rs.2 lakh and above from a single party, the bank should obtain written confirmation of the concerned controlling office of the accepting bank.
• When the value of total bills discounted/purchased (which have been co‑accpeted by other banks) exceed Rs.20 lakh for a single borrower/ group of borrowers prior approval of the Head Office of the co‑accepting bank shall be obtained by the discounting bank in writing.
• Banks are precluded from co‑accepting bills drawn under Buyer’s Line of Credit schemes of financial institutions like IDBI, SIDBI, PFC etc. Similarly banks should not co‑accept bills drawn by NBFCs. Further, banks should not extend co‑acceptance on behalf of their buyers/constituents under the SIDBI scheme.
• However, banks may co‑accept bills drawn, under Seller’s Line of Credit schemes for Bill Discounting operated by the financial institutions like IDBI, SIDBI, PFC etc. without any limit subject to buyer’s capacity to pay and the compliance with exposure norms applicable to the borrower.
• Where banks open L/C and also co‑accept bills drawn under such L/C, the discounting banks, before discounting such co‑accepted bills, must ascertain the reason for co‑acceptance of bills and satisfy themselves about the genuineness of the transaction.
• Co‑acceptance facilities will normally not be sanctioned to customers enjoying credit limit with other banks.

Operational aspects of IDBI bills rediscounting scheme have already been discussed and similar procedure shall be adopted while allowing co acceptance facilities which are not covered under the scheme. Important operational aspects in respect of letter of credit facilities and issuance of guarantees will be discussed in this chapter.

Collection of Documents

• Better turnaround time through timely processing of your documents
• Facilitating faster payments
• Lower cost
• Excellent trade support
• Arrangement of credit reports of overseas parties

Modern Activities of Financial Services

• Merger and acquisition planning and helping with their smooth carry out.
• Providing guidance in capital reconstructing to corporate customers.
• Assisting in rehabilitation and reconstruction of sick companies.
• Portfolio management of large public sector corporations.
• Providing recommendations in management style and structure for attaining better results.
• Acting as trustees to the debentures-holders.
• Providing project advisory services ranging from project preparation to capital raising.

The person who performs the banking activities such as accepting of deposits, lending money, withdrawing facilities, exchanging of money is known as a banker. In other words, the person who directly related to the banking business is called banker.

Cheques are a form of payment that is recorded by accountants on your receivables ledger. While you may record the payment instantly upon receipt, there will be a lag time between when you record the payment and when the check clears the bank and is posted to your account.

The Banker must, therefore, refuse payment of the cheques without incurring the liability.

When the drawer countermands payment:

• A cheque has been lost by him.
• Stop payment must be signed by the drawer.
• Change number and date must mention.

When the account is closed:

When the customer gives notice to the banker for closing his account, the banker must not pay the customer’s cheques after that date, i.e., the date of closing of the account.

When the banker has received a Garnishee order:

Garnishee order implies a prohibiting order by a court of law attaching the funds in the customer’s account. On receipt of such order, the banker must refuse the payment of the customer’s cheque. If the banker by mistake makes payment of any cheque after receipt of such order, it will have to bear the loss itself. In this case it cannot recover from the payee who gets payment of an otherwise valid cheque.

When the customer has countermanded payment:

If a customer countermands payment, i.e., issues instructions to his/her banker not to pay or honor, i.e.,’stop payment’ of a particular cheque issued by him/her, the banker is bound to comply with such instruction. It is important to note that the customer must duly sign the countermand notice, which should contain correct particulars of the cheques and give to the banker in sufficient time, i.e., before the banker makes the payment of the cheque that is desired for ‘stop payment’. However, it is not necessary that such a notice be given in writing always. An oral countermand is equally effective.

Where the instrument has been materially altered:

When there is a material alteration on the instrument or where the signature of the drawer does not match with the specimen signature kept by the banker, the latter must dishonor such cheques. However, in case of payment by mistake, the banker is entitled to a refund from the wrong payee if traceable, failing which the banker will have to bear the loss itself.

When the banker has come to know of any defect in the Title:

When the banker comes across any defect in the title of the person presenting the cheque, it must refuse to honor the cheque. Even the holder of a bearer cheque is subject to this rule and the banker should insist on identification of the presenter in the event of any suspicion or doubt about the integrity of the possessor of the instrument.

When the customer has lost the instrument:

When the customer has lost the cheque and has informed the banker about the loss of the instrument, the bank must, in turn, dishonor the cheque.

Where the banker has received a Notice of Assignment:

When the banker receives notice of assignment from the customer about his credit balance, it must refuse payment of the cheque(s) drawn by that customer.

When the customer has become insolvent or insane:

A banker must also refuse payment of cheques when its customer has been adjudged insolvent or has become insane since in such cases its original authority to pay on behalf of the customer ceases to exist. A fresh authority is required on those accounts. If a banker makes any payment even after receiving a due notice as regards insolvency or insanity of the account holder, such payment is not good against the drawer and in such a case the banker cannot get a refund from the payee, who gets payment of an otherwise valid cheque.

When the customer has died:

If the banker receives notice of a customer’s death, it must dishonor the cheque presented to it after the notice of death. However, a banker is justified in making payment if such payment is made before receiving the notice of death and the payment so made is valid.

Paying Bankers duties & responsibilities.

A banker on whom the cheque is drawn should pay the cheque, when it is presented for payment. It is his obligation by section 31 of the NI Act. A banker is bound to honour his customers cheque to the extent of the fund available & the existence of no legal bar for payment. The paying banker should use reasonable care and diligence in paying a cheque so as to abstain from any action likely to damage his customer’s credit.

At the time of making payment of he should observe the following very carefully:

• Verification of signature of the drawer.
• Verification of the genuineness of the instrument.
• Payment not stopped by the A/c holder.
• Holders title on the cheque is valid.
• A/c is not dormant one.
• A/c holder is not bankrupt, deceased and insanse.
• A/c is not under subject of liquidation process.
• ‘Guernsey Order’ is issued by count.
• Properly endorsed.
• Cheque is not drawn beyond limit fixed by the drawer is respect of amount.
• Instrument being presented is crossed.
• Instrument is not state or post-dated.
• No material alteration is made.
• Sufficient balance in the A/c

Duties & Responsibilities of Collecting Bankers:

• Acting as agent: While collecting an instrument, whether for credit to customer’s account or for himself, the Bankers works as agent of his customer. As an agent he has generally to take such steps & precautions to protect the interest or his customer as a man of ordinary prudence would take to safe-guard his own interest.
• Scrutinizing the instruments: Name of the holder, Branch name, date, amount in world and figure, any cutting without signature, material alteration of any to be checked carefully.
• Checking the endorsement: Bankers has to check the instrument whether it has been endorsed properly.
• Presenting the instrument in due time: It is the responsibility of the collecting bank to present the instrument in due time to the paying bank.
• Collecting the proceeds in the payee’s account: It is the duty of collecting banks to collect and credit the proceed of the instruments to the proper/correct account.
• Notice of dishonor and returning the instruments: If any instrument is dishonored by the paying bank it should be informed to the customer on the business day following the receipt of the unpaid instruments.

Collecting Banker’s Protection:

Under section 131 of negotiable instrument Act the collecting banker is not liable to the true owner of a cheque or a banker’s draft if his title to the instrument proves defective provided the cheque or draft was one crossed generally or specially to himself and collected for a customer is good faith and without negligence.

The above statutory protection is available to the collecting banker only if he fulfills the following conditions:

• The cheque he collected is a crossed cheque.
• He collected such crossed cheque only for his customer as an agent & not as a holder for value.
• He collected such crossed cheque in good faith and without negligence.

No Protection:

• Opening of A/c without satisfactory references/ introduction.
• Crediting the proceeds of cheque to an endorsee with irregular endorsement.
• Crediting the proceed of a cheque to the personal A/c of director, partners or any employee when it is payable to the company.
• Crediting the proceeds of charge to personal name of the official when it is payable to a govt. agency, autonomous body, or corporation.
• Crediting the amount of a cheque in the personal A/c which is drawn by an agent on behalf of its principal.
• When the customer depositing the cheque is of little means and the cheque deposited suddenly is of sizable amount and the banker credited the proceeds there to without making proper enquiry.
• Cheque drawn by customer is dishonored very often and crediting such account with the proceeds of collecting cheque without making proper enquiry.
• If the crossed cheque is collected and credited the proceed to the other account.

Loans Against Securities is available in the form of an overdraft facility which is pledged against financial securities like shares, units and bonds. Loan Against Shares/Bonds/Mutual Funds is basically a loan wherein you pledge the securities you have invested in as collateral against the loan amount. A Loan Against Securities is the best way to make your investments work harder and smarter for you.

Eligibility

When taking out a loan against securities, you are essentially borrowing from yourself. Having that said, still, need certain eligibility criteria to be met before the loan is sanctioned.

Take a look at some of the basic criteria.

• You need to be an Indian resident
• You can only qualify if you have attained 21 years of age
• You must be either self-employed or a salaried employee with a regular income source

Required Documents

You need following documents to avail a loan against securities from Fullerton India.

• Application form
• All KYC documents including PAN Card, Identity Proof, Address Proof
• Passport-sized photographs
• Original Insurance Policy or Financial Security that you intend to pledge as collateral
• Deed of Assignment

For Self-Employed Individuals and non-professionals:

• Proof of business continuity by providing any one of these documents – Shop and Establishment Certificate/Tax registrations-VAT/Service tax/GST registrations
• Proof of firm constitution via submission or either of these documents – MOA/AOA/Partnership Deed/GST Registration Certificate/Form 32 for knowing the latest directors
• Audited financials for the last 3 years
• Tax Audit Report for the last 3 years – Form 3CB + 3CD in case of proprietorship and partnerships and Form 3CA + 3CD in case of Companies
• Latest VAT/GST/Service Tax returns for the current financial year
• The breakup of all secured and unsecured loans
• As on date List of Directors and Shareholding Pattern
• Sanction letters for any existing loans with corresponding statements reflecting EMIs for the last year
• Business Account Statements for the last 1 year

For Salaried Individuals:

• Last 3 months salary slips
• Form 16
• Proof of Employment in case your present employer does not match with your Form 16 information
• Last 6 months bank statements that reflect any existing EMI repayment and salary

Loans against insurance policies can only be availed in case one pledges specific traditional policies like money back and endowment policies. Besides having a savings component, these policies also have a life cover component which makes it acceptable to banks. In order to avail a loan on an insurance policy, the policy must acquire a surrender value. The amount sanctioned for the loans is usually 85% to 90% of the policies surrender value.

Insurance policies are now being considered as valuable collaterals for banks after LIC of India confirmed that banks are the biggest lenders of personal loans. LIC apart, several other life insurers such as Edelweiss Tokio Life and ICICI Prudential Life in addition to many other banks including HDFC Bank, ICICI Bank and the State Bank of India grant loans to customers against insurance policies.

Loans against insurance policies are sanctioned only when traditional policies such as money back and endowment policies are pledged. These policies have life cover in addition to savings elements that make them acceptable to banks. Unit-linked insurance plans and term insurance covers are usually not accepted as collateral.

The surrender value must be acquired by the policies if the applicant is to gain eligibility or the loan. The policy must be assigned in favour of the insurer, and usually, the amount of money granted by insurance companies is 85% to 90% of the surrender value. The rate of interest charged by LIC is 10% and it has to be paid on a half-yearly basis.

The repayment tenures are very flexible and LIC also provides customers with a choice of making only interest payments, with a provision for the deduction of the loan amount from the claim amount when it is time to settle the loan. The repayment procedure and interest rates will differ based on the bank or lender from whom you wish to take out the loan. The interest rates, however, are comparatively lower than those charged by banks for secured loans. They are also considerably lower than rates associated with personal loans.

Why are Loans against Insurance policies gaining Prominence

Top up Loans are becoming increasingly popular among a large section of customers who seek personal finance services. The flexibility offered in terms of repayment in addition to the fact that the loan amount can be deducted from the claim amount has been attracting customers, especially those who are in financial turmoil. Even customers with relatively low credit scores find it to be a convenient option as the eligibility criteria for availing this kind of loan are fairly easy to meet. The loan is also sanctioned fairly quickly once the application is submitted, usually within seven days, and in case of the death of the policyholder during the tenure of the loan, the dependents wont be the only beneficiaries of the policy.

The bank or lender can choose to deduct the loan amount as well as interest from the proceeds. Customers are recommended to purchase term cover in order to protect the interests of their families. Based on the age, life insurance company and policy tenure, online term plans are less expensive options. Also, customers are advised to Secured Loans from their insurers instead of approaching banks to hand over their policy as collateral.

Customers who intend to utilise the whole amount they borrow should approach their insurer, but if funds are required on an on-and-off basis and the loan is viewed as a means to up their liquidity, they may consider approaching banks that provide overdraft facilities against policies.

Benefits of taking a Loan Against Insurance

High Loan Value

Take a loan up to Rs. 10 crore, to finance a diverse range of needs. Be it the purchase of new premises for your business, a merger with another organisation or buying a high-value property, this loan can help you attain various personal and professional goals with equal ease.

Dedicated Relationship Manager

Get access to a dedicated Relationship Manager who will offer 24-hour support, all days of the week. Hence, you need not travel long distances to the branch, to seek answers to your doubts.

Easy Repayments

By taking a Loan Against Insurance, make repayments easily. You also benefit from relaxed prepayment and foreclosure terms, so you don’t have to pay any additional charges.

Easy online application

With a loan Against Insurance, you can enjoy a simple online application process. Upon approval, the amount will be credited directly to your bank account.

Easy eligibility criteria

This loan features simple eligibility criteria. If you are a salaried or self-employed resident citizen of India, of 21 years of age or more, you can apply for this loan. However, you need to ensure that the value of your insurance is at least Rs.10 lakh, and that you have regular income.

Hassle-free access to your account

You can monitor and track all your loan-related details easily, and view interest statements, principal statements and account balance, by simply logging in to the customer portal with your allotted user ID and password.

Minimal documentation

You don’t have to take on the hassle of submitting several documents when applying for this loan. You can speed up the application process by submitting only basic documents such as ID proof, address proof, document proof of the insurance policy, and a passport size photograph.

Flexi Loan facility

A flexi-loan facility is best for individuals needing finance unexpectedly, or on a periodic basis. You can use this facility to make multiple withdrawals from your total sanctioned amount, and pay interest only on the amount utilised. You can also choose to pay interest-only EMIs and repay principal at the end of tenor.

Note: Age and Amount differ for each Loan Provider

Salaried individuals

You can easily avail a Loan against Property from any floan provider if you meet the following criteria:

• You should be between 33 to 58 years of age.
• You should be a salaried employee in an MNC, a private company or the public sector.
• You should be a resident of India.

Self-employed individuals

You are eligible for a Loan against Property for Self Employed with quick loan disbursal within 4 days if you meet the following criteria

• You should be between 25 to 70 years of age.
• You should be a self-employed individual with a regular source of income
• You should be a resident of India residing in the following cities

Note: Age Subject to change