Commercial Banks

1. A commercial bank is owned by stockholders and operated for profit. 2. Its primary functions are to receive, transfer, and lend money to individuals, businesses, and

governments. 3. Indian banks consist mostly of Scheduled Commercial Banks (SCBs), which includes both Public

Sector Banks, and the Private Sector Banks. In Public Sector Banks, the government must retain a 51% stake.

4. Scheduled Commercial Banks in India are categorized into five different groups according to their ownership and / or nature of operation.

5. These bank groups are – – – – –

a. State Bank of India and its Associates

b. Nationalized Banks

c. Private Sector Banks d. Foreign Banks and e. Regional Rural Banks

6. In the bank group-wise classification, IDBI Bank Ltd. has been included in Nationalised Banks.

The Role of Commercial Banks in Economic Development

1. Accelerating the Rate of Capital Formation: They encourage the habit of savings among people

and mobilise idle resources for production purpose. (Capital formation means increase in

number of production units, technology, plant and machinery)

2. Provision of Finance and Credit

3. Monetisation of Economy (support to rural areas)

4. Innovations: Innovations are an essential prerequisite for economic development. These

innovations are mostly financed by bank credit in the developed countries.

5. Implementation of Monetary Policy

6. Encouragement to Right Type of Industries

7. Development of Agriculture

8. Regional Development

9. Fulfillment of socio-economic objectives

SBI, Bank of baroda, PNB, IDBI, ICICI, BOI, canara, HDFC, Axis, Central Bank of India,

Role of Commercial Banks in India

1. Trade Development: The commercial banks provide capital, technical assistance and other facilities to businessmen according to their need, which leads to development in trade. •

2. Supports to Agriculture Development •

3. Supports to Industrial Development •

4. Development of Foreign Trade: Letter of credit is issued by the importer’s bank to the exporters to ensure the payment. The banks also arrange foreign exchange. •

5. Transfer of Money •

6. Supports to more Production (Agriculture & Industry) •

7. Development of Transport (banks financed the transport sector)

8. Provision of Finance and Credit: Banks are instruments for developing internal as well as external trade. •

9. Monetisation of Economy: Banks are opening branches in rural areas can promote the process of the monetisation in the economy. •

10. Encouragement to Right Type of Industries •

11. Promote Industrial Development •

Banking section plays important role in internalation business. Today almost all major banks have offices in major cities around the world. Many banks have formed colloboration with banks in other countries to better serve their international business community. Banks form a bond of trust between buying and selling transactions in international market. For individual banks offer services like foreign exchange, traveler’s check, electronics transfer. For businesses bank plays ar ole of trusty agent by offering servics like ‘Documentary Collection’ and ‘Letter of Credit’.            One of the problem international businesses encountering doing business internationally is lack of trust. With the help financial devices commercial banks are able for a bond of trust between internalional buyers and sellers. In commercial methods like ‘Commercial Collection’ and ‘Letter of Credit’ banks act as agents to handle payments as well as relevant documents. Letter of Credit is most wide acceptable and used methog of doing international transactions. Some banks and government agencies offer export credit insurance to businesses. In some cases, exporter has to forgo a letter of credit, in such cases banks offer export credit insurance.            Foreign exchange market is another area where international commercial banks play vital role. Foreign exchange market serves two main functions, convert the currency of one country into the currency of another and provide some insurance against foreign exchange risk. Multinational corporations constantly need various currencies for their operations and to hedge against foreign exchange risk. International banks provide foreign exchange services to their commercial business

clients to complete their business transactions. These banks act as a broker between commercial customer and foreign exchanges around the world. International businesses receive payments in foreign currencies for their export, the income it receives from foreign investments and income received from licensing agreements with foreign firms. Internations business use foreign exchange market to pay foreign firms for its products and services and when it makes direct investment in foreign country. International banks play major roles in these transactions.            Many commercial banks offers short as well as long term loan finaning to internaltional businesses. Many countries have form banks backed by government fundings to provide fundings for exporters and importers. In United States, Export-Import bank, an independent agency of the US government, provides financial aid to faciliate export and import of goods. Eximbank also guarantees repayment of loans US commercial banks make to foreign borrowers for purchasing US exports.            Banking sector plays vital role of catalysts in international market. Due to technology advances in banking sector, communciation gap and delays in international business have really narrow down a lot. 

The role of commercial banks in foreign trade is to provide the financial structure and instruments necessary for the conduct of business transactions between foreign buyers and sellers. Commercial banks ensure safety and transparency in the flow of documents and money.

Letters of Credit Issued

If you are the buyer (importer) of goods from abroad, the seller (exporter) will want to be assured of payment, and you will want to be assured that all terms and conditions of the purchase agreement are kept. The most common instrument used for payment and shipment control is a letter of credit issued by the bank of the buyer in favor of the seller.

Advising Bank

After the bank of the buyer approves the issuance of the letter of credit, the issued letter of credit is sent to the advising bank that establishes the authenticity of the instrument and informs the beneficiary of receipt.

Confirmed letter of credit

The advising bank may confirm the letter of credit after checking the terms and conditions for payment by adding its own guarantee to that of the issuer.

Final Payment

After all of the terms and conditions for shipment and quality standards have been checked via the presentation of pro

DEFERRED PAYMENT

A deferred payment is an arrangement in which a debt does not have to be repaid until sometime in the future. The debt might be created when a person takes out a loan, for example, or purchases a good or service. Payment for the loan, good or service can then be deferred for a certain amount of time, depending on the arrangement. In some cases, payment in full must be made by a certain date, and in other cases, multiple smaller payments can be made until the full amount has been paid. Depending on the specific arrangement, interest might be added to the amount due starting immediately or after a certain amount of time — or no interest might be added at all.

Common Sales Tool

The use of deferred payment plans is one of the more common sales and marketing tools used by companies. Essentially, the underlying concept is that customers can buy now and pay later. When a customer is unable to pay for the purchase right away but has a reasonable expectation of being able to provide payment in full by a certain date in the future, a deferredpayment plan makes sense for both the consumer and the seller. Some companies offer these plans only to preferred customers, but others offer them to everyone.

Qualification Process

Companies that extend deferred payment options to customers normally make use of some type of qualification process. For example, a customer might have a long-standing relationship with the seller and might have an excellent history of making payments. New customers might have to pass credit checks and other evaluations to ensure that they can meet all of the requirements of their payment arrangements. In both cases, it is not unusual for the deferred payment plan to not include interest charges if the balance is paid according to the terms of the plan. If a buyer fails to make payments as specified in the agreement, however, the seller might begin to apply interest charges to the outstanding balance.

Sample Deferred Payment Plan

A common deferred payment plan is one in which the customer does not need to make any payments and is not charged any interest for the first six months after the purchase. After six months, the customer could then pay the original amount in full or begin making smaller payments. If he or she chooses to make smaller payments each month, then interest typically will be added until the debt has been paid in full. For example, a person who defers payment when buying a piece of furniture that costs

$600 US Dollars (USD) might be able to wait six months, then pay the full $600 USD or pay $50 USD, plus interest, each month for the next 12 months.

Following are the major state trading organisation in India

1. Handicraft and Handloom Exports Corporation of India Ltd. (HHEC)2. The Projects and Equipment Corporation of India Ltd. (PEC)3. MMTC Ltd.4. Mica Trading Corporation of India Ltd. (MITCO)5. Spices Trading Corporation Ltd.

Organisational Set-up and Functions The mandate of the Department of Commerce is regulation, development and promotion of India’s international trade and commerce through formulation of appropriate international trade & commercial policy and implementation of the various provisions thereof. The basic role of the Department is to facilitate the creation of an enabling environment and infrastructure for accelerated growth of international trade. The Department formulates, implements and monitors the Foreign Trade Policy (FTP) which provides the basic framework of policy and strategy to be followed for promoting exports and trade. The Trade Policy is periodically reviewed to incorporate changes necessary to take care of emerging economic scenarios both in the domestic and international economy. Besides, the Department is also entrusted with responsibilities relating to multilateral and bilateral commercial relations, Special Economic Zones, state trading, export promotion and trade facilitation, and development and regulation of certain export oriented industries and commodities.The Department is headed by a Secretary who is assisted by an Additional Secretary & Financial Advisor, four Additional Secretary and eleven Joint Secretaries & Joint Secretary level officers and a number of other senior officers.The Department is functionally organized into the following eight Divisions: 

1. Administration and General Division2. Finance Division3. Economic Division4. Trade Policy Division5. Foreign Trade Territorial Divisions6. State Trading & Infrastructure Division7. Supply Division8. Plantation Division.

  The various offices / organizations under the administrative control of the Department are: (A) three Attached Offices, (B) ten Subordinate Offices, (C) ten Autonomous

Bodies, (D) five Public Sector Undertakings, (E) two Advisory Bodies, (F) fourteen Export Promotion Councils and (G) five Other Organizations.

Definition of 'Trading House'

A business that specializes in facilitating transactions between a home country and foreign countries. A trading house is an exporter, importer and also a trader that purchases and sells products for other businesses. Trading houses provide a service for businesses that want international trade experts to receive or deliver goods or services.

Investopedia explains 'Trading House'

A trading house serves as an intermediary. It might purchase t-shirts wholesale from China, then sell them to a retailer in the United States. The U.S. retailer would still receive wholesale pricing, but the price would be slightly higher than if the retailer purchased directly from the Chinese company. The trading house must mark up the price of the goods it sells to cover its costs and earn a profit. However, the t-shirt retailer avoids the hassles of importing. The retailer also may be able to simplify its operations by dealing with one or two trading houses to get its inventory instead of dealing directly with numerous wholesalers.

Exim Policy or Foreign Trade Policy is a set of guidelines and instructions established by the DGFT in matters related to the import and export of goods in India.The Foreign Trade Policy of India is guided by the Export Import in known as in short EXIM Policy of the Indian Government and is regulated by the Foreign Trade Development and Regulation Act, 1992.

DGFT (Directorate General of Foreign Trade) is the main governing body in matters related to Exim Policy. The main objective of the Foreign Trade (Development and Regulation) Act is to provide the development and regulation of foreign trade by

facilitating imports into, and augmenting exports from India. Foreign Trade Act has replaced the earlier law known as the imports and Exports (Control) Act 1947.EXIM PolicyIndian EXIM Policy contains various policy related decisions taken by the government in the sphere of Foreign Trade, i.e., with respect to imports and exports from the country and more especiallyexport promotion measures, policies and procedures related thereto. Trade Policy is prepared and announced by the Central Government (Ministry of Commerce). India's Export Import Policy also know as Foreign Trade Policy, in general, aims at developing export potential, improving export performance, encouraging foreign trade and creating favorable balance of payments position. History of Exim Policy of IndiaIn the year 1962, the Government of India appointed a special

Exim Policy Committee to review the government previous export import policies. The committee was later on approved by the Government of India. Mr. V. P. Singh, the then Commerce Minister and announced the Exim Policy on the 12th of April, 1985. Initially the EXIM Policy was introduced for the period of three years with main objective to boost the export business in IndiaObjectives Of The Exim Policy: -Government control import of non-essential items through the

EXIM Policy. At the same time, all-out efforts are made to promote exports. Thus, there are two aspects of Exim Policy; the import policy which is concerned with regulation and management of imports and the export policy which is concerned with exports not only promotion but also regulation. The main objective of the Government's EXIM Policy is to promote exports to the maximum extent. Exports should be promoted in such a manner that the economy of the country is not affected by unregulated exportable items specially needed within the country. Export control is, therefore, exercised in respect of a limited number of items whose supply position demands that their exports should be regulated in the larger interests of the country. In other words, the main objective of the Exim Policy is:

To accelerate the economy from low level of economic activities to high level of economic activities by making it a globally oriented vibrant economy and to derive maximum benefits from expanding global market opportunities.

To stimulate sustained economic growth by providing access to essential raw materials, intermediates, components,' consumables and capital goods required for augmenting production.

To enhance the techno local strength and efficiency of Indian agriculture, industry and services, thereby, improving their competitiveness.

To generate new employment. Opportunities and encourage the attainment of internationally accepted standards of

quality. To provide quality consumer products at reasonable prices.

Governing Body of Exim PolicyThe Government of India notifies the Exim Policy for a period of five years (1997-2002) under Section 5 of theForeign Trade (Development and Regulation Act), 1992. The current

Export Import Policy covers the period 2002-2007. The Exim Policy is updated every year on the 31st of March and the modifications, improvements and new schemes became effective from 1st April of every year. 

All types of changes or modifications related to the EXIM Policy is normally announced by the Union Minister of Commerce and Industry who co-ordinates with the Ministry of Finance, theDirectorate General of Foreign Trade and network of Dgft Regional Offices.11 Main Features of the Foreign Trade Policy of IndiaThe massive trade liberalisation measures adopted after 1991 mark a major departure from the

relatively protectionist trade policies pursued in earlier years.

The current trade policy reforms seem to have been guided mainly by the concerns over

globalisation of the Indian economy, improving competitiveness of its industry, and adverse balance

of payments situation. Main features of trade policies (trade reforms) since 1991 are as follows:

1. Free Imports and Exports:Substantial simplification and liberalisation has been carried out in the reform period. The tariff line

wise import policy was first announced on March 31, 1996 and at that time itself 6,161 tariff lines

were made free.

Till March 2000, this total had gone up to 8,066. The Exim Policy 2000-01 removed quantitative

restrictions on 714 items and the Exim Policy 2001- 02 removed quantitative restrictions on the

balance 715 items. Thus, in line with India’s commitment to the WTO, quantitative restrictions on all

import items have been withdrawn.

2. Rationalisation of Tariff Structure:Acting on the recommendations of the Chelliah Committee, the government has, over the years,

reduced the maximum rate of duty. The 1993-94, Budget had reduced it from 110 per cent to 85 per

cent. The successive Budgets have reduced it further in stages. The peak import duty on non-

agricultural goods is now only 12.5 per cent.

3. Decanalisation:A large number of exports and imports used to be canalised through the public sector agencies in

India. The supplementary trade policy announced on August 13, 1991 reviewed these canalised

items and decanalised 16 export items and 20 import items. The 1992-97 policy decanalised imports

of a number of items including newsprint, non-ferrous metals, natural rubber, intermediates and raw

materials for fertilisers.

However, 8 items (petroleum products, fertilisers, edible oils, cereals, etc.) were to remain canalised.

The Exim Policy, 2001-02 put 6 items under special list — rice, wheat, maize, petrol, diesel and

urea. Imports of these items were to be allowed only through State trading agencies.

4. Devaluation and Convertibility of Rupee on Current Account:The government made a two- step downward adjustment of 18-19 per cent in the exchange rate of

the rupee on July 1 and July 3, 1991. This was followed by the introduction of LERMS i.e., partial

convertibility of rupee in 1992-93, full convertibility on the trade account in 1993-94 and full

convertibility on the current account in August 1994.

Substantial capital account liberalisation measures have also been announced. The exchange rate

of the rupee is now market-determined. Thus, exchange rate policy in India has evolved from the

rupee being pegged to a market related system (since March 1993).

5. Trading Houses:The 1991 policy allowed export houses and trading houses to import a wide range of items. The

government also permitted the setting up of trading houses with 51 per cent foreign equity for the

purpose of promoting exports.

The 1994-95 policy introduced a new category of trading houses called Super Star Trading Houses.

These houses are entitled to membership of apex consultative bodies concerned with trade policy

and promotion, representation in important business delegations, special permission for overseas

trading and special import licences at enhanced rate.

6. Special Economic Zones:A scheme for setting up Special Economic Zones (SEZs) in the country to promote exports was

announced by the government in the Export and Import Policy of March 31, 2000. The SEZs are to

provide an internationally competitive and hassle-free environment for exports and are expected to

give a boost to the country’s exports.

The Policy has provided provisions for setting up SEZs in the public sector, joint sector or by State

governments. It was also announced that some of the existing Export Processing Zones (EPZs)

would be converted into Special Economic Zones.

Some of the distinctive features of SEZ scheme are:

(i) a designated duty-free enclave to be treated as foreign territory for trade operations and duties

and tariffs;

(ii) SEZ units could be for manufacturing services;

(iii) No routine examination of export and import cargo by customs;

(iv) Sale in domestic market on full duty and import policy in force;

(v) SEZ units to be positive net foreign exchange earners in three years; (vi) no fixed wastage

norms;

(vii) Duty-free goods to be utilised within the approval period of 5 years;

(viii) Subcontracting of part of production and production process allowed for all sectors, including

jewellery units;

(ix) 100 per cent foreign direct investment through automatic route in the manufacturing sector;

(x) 100 per cent income tax exemption for 5 years and 50 per cent for 2 years thereafter and 50 per

cent of the ploughed back profit for the next 3 years;

(xi) External commercial borrowing through automatic route, etc.

7. EOU Scheme:The Export Oriented Units (EOUs) scheme introduced in early 1981 is complementary to the SEZ

scheme. It offers a wide option in locations with reference to factors like source of raw materials,

ports of export, hinterland facilities, and availability of technological skills, existence of an industrial

base and the need for a larger area of land for the project. The EOUs have put up their own

infrastructure.

8. Agriculture Export Zones:The Exim Policy 2001 introduced the concept of Agri- Export Zones (AEZs) to give primacy to

promotion of agricultural exports and effect a reorganisation of our export efforts on the basis of

specific products and specific geographical areas.

The scheme is centered on the cluster approach of identifying the potential products, the

geographical region in which these products are grown and adopting an end-to-end approach of

integrating the entire process right from the stage of production till it reaches the market.

The AEZs would have the state-of-the-art services such as pre-post harvest treatment and

operations, plant protection, processing, packaging, storage and related research and development.

The exporters in these zones can avail of the various export promotion schemes under the Exim

Policy including recognition as a status holder.

9. Market Access Initiative Scheme:Market Access Initiative Scheme was launched in 2001- 02 for undertaking marketing promotion

efforts abroad. The key features of the scheme are in- depth market studies for select products in

chosen countries to generate data for promotion of exports from India, assist in promotion of India,

Indian products and Indian brands in the international market by display through showrooms and

warehouses set up in rental premises by identified exporters, display in identified leading

departmental stores total exhibitions trade fairs, etc. The scheme shall also assist quality

upgradation of products as per requirements of overseas markets, intensive publicity campaigns,

etc.

10. Focus on Service Exports:The amended Export-Import Policy, 2002-07, announced on March 31, 2003, specifically

emphasized service exports as an engine of growth. It, accordingly, announced a number of

measures for the promotion of exports of services. For instance, import of consumables, office and

professional equipment, spares and furniture upto 10 per cent of the average foreign exchange

export earning has been allowed.

The advance licence system has been extended to the tourism sector. Under this, firms will be

allowed duty-free import of consumables and spares upto 5 per cent of their average foreign

exchange earnings of the previous three years, subject to actual user condition.

11. Concessions and Exemptions:A large number of tax benefits and exemptions have been granted during the 1990s to liberalise

imports and promote exports with the five year Exim Policy 1992-97 and Exim Policy 1997-2002

serving as the basis for such concessions.

These policies, in turn, have been reviewed and modified on an annual basis in the Exim policies

announced every year. Successive annual Union Budgets have also extended a number of tax

benefits and exemptions to the exporters.

These include reduction in the peak rate of customs duty to 15 per cent; significant reduction in duty

rates for critical inputs for the Information Technology sector, which is an important export sector;

grant of concessions for building infrastructure by way of 10-years tax holiday to the developers of

SEZs;

Facilities and tax benefits to exporters of goods and merchandise; reduction in the customs duty on

specified equipment for ports and airports to 10 per cent to encourage the development of world

class infrastructure facilities, etc.

A number of tax benefits have also been announced for the three integral parts of the ‘convergence

revolution’ the Information Technology sector, the Telecommunication sector, and the Entertainment

industry.