PROFILE OF HDFC BANK

The Housing Development Finance Corporation Limited (HDFC Ltd) was amongst the

first to set up a bank in the private sector. The bank was incorporated on 30th August

1994 in the name of ‘HDFC Bank Limited’, with its registered office in Mumbai. It

commenced its operations as a Scheduled Commercial Bank on 16th January 1995. The

bank has grown consistently and is now amongst the leading players in the industry.

In a milestone transaction in the Indian banking industry, Times Bank was merged with

HDFC Bank Ltd., effective February 26, 2000. The amalgamation added significant

value to HDFC Bank in terms of increased branch network, expanded geographic reach,

enhanced customer base and skilled manpower.

As of 1st April 2005, the Bank has an enviable network of 495 branches spread over 217

cities across the country. All branches are linked on an online real-time basis. It also has a

network of over 900-networked ATMs across these cities. Moreover, all domestic and

international Visa/Master Card, Visa Electron/Maestro, Plus/Cirrus and American

Express Credit/Charge cardholders can access its ATM network.

Promoted in 1995 by Housing Development Finance Corporation (HDFC), India's leading

housing finance company, HDFC Bank is one of India's premier banks providing a wide

range of financial products and services to its over 11 million customers across over three

hundred cities using multiple distribution channels including a pan-India network of branches,

ATMs, phone banking, net banking and mobile banking. Within a relatively short span of

time, the bank has emerged as a leading player in retail banking, wholesale banking, and

treasury operations, its three principal business segments. The bank's competitive strength

clearly lies in the use of technology and the ability to deliver world-class service with rapid

response time. Over the last 13 years, the bank has successfully gained market share in its

target customer franchises while maintaining healthy profitability and asset quality. As on

December 31, 2007, the Bank had a network of 754 branches and 1,906 ATMs in 327 cities.

For the quarter ended December 31, 2007, the bank reported a net profit of Rs. 4.3 billion, up

45.2%, over the corresponding quarter of previous year. Total deposits were Rs. 993.9 billion,

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up 48.9% over the corresponding quarter of previous year. Total balance sheet size too grew

by 46.7% to Rs.1,314.4 billion.

Vision & Mission:

HDFC Bank’s mission is to be a World-Class Indian Bank. The objective is to build

sound customer franchises across distinct businesses so as to be the preferred provider of

banking services for target retail and wholesale customer segments, and to achieve

healthy growth in profitability, consistent with the bank’s risk appetite. The bank is

committed to maintain the highest level of ethical standards, professional integrity,

corporate governance and regulatory compliance. HDFC Bank’s business philosophy is

based on four core values - Operational Excellence, Customer Focus, Product

Leadership and People.

Business Areas:

The bank has three key business areas:

1. Wholesale Banking Services:

In this field target market is primarily large, blue-chip companies and to a lesser extent,

emerging mid-sized corporates. For these corporates, bank provide a wide range of

services, including working capital finance, trade services, transactional services, cash

management, etc..

2. Retail Banking Services:

The objective of the Retail Bank is to provide target market customers a full range of

financial products and banking services, giving the customer a one-stop window for all

his/her banking requirements. The products are backed by world-class service and

delivered to the customers through the growing branch network, as well as through

alternative delivery channels like ATMs, Phone Banking, Net Banking and Mobile

Banking.

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3. Treasury Operations:

Within this business, the bank has three main product areas -

a) Foreign Exchange and Derivatives,

b) Local Currency Money Market &

c) Debt Securities and Equities.

With the liberalization of the financial markets in India, corporate need more

sophisticated risk management information, advice and product structures. These are

provided through the bank's Treasury team. The Treasury business is responsible for

managing the returns and market risk on the bank's investment portfolio.

HDFC BANK TOP MANAGEMENT

Jagdish Capoor Chairman

Aditya Puri Managing director

Group heads

A Rajan Operations

Abhay Aima Equities and private banking

Ashish Parthasarthy Trading

Bharat Shah Depository and merchant services

CN Ram Information technology

G Subramaniam Audit, compliance, service quality

Harish Engineer Wholesale banking

Kaizad Barucha Credit and market risk

Mandeep Maitra Human resources

Sudhir Joshi Treasury

Vinod Yennemadi Finance, admin, legal

Samir Bhatia Corporate banking

Parlay Mondal Unsecured products

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AWARDS AND HONORS WON BY THE HDFC BANK:

HDFC Bank began operations in 1995 with a simple mission: to be a "World-class Indian

Bank".

Various honors can be summed up as follows:

1. The Business Today-KPMG Survey published in the leading Indian business

magazine Business Today has named HDFC Bank "Best Bank in India" for the

third consecutive year in 2005.

2. The Asset magazine named HDFC Bank "Best Cash Management Bank" and

"Best Trade Finance Bank" in India, in 2006.

3. HDFC Bank named the "Most Customer Responsive Company - Banking and

Financial Services" in The Economic Times - Avaya Global Connect Customer

Responsiveness Awards 2005"

4. HDFC Bank has been named "Best Domestic Bank in India" in The Asset

Triple A Country Awards 2005.

5. In 2004, HDFC Bank won the award for "Operational Excellence in Retail

Financial Services" - India as part of the Asian Banker Awards 2003.

6. In 2003, Forbes Global named us in its ranking of "Best Under a Billion, 200

Best Small Companies for 2003".

7. Leading business newspaper The Financial Express named HDFC Bank the "Best

New Private Sector Bank 2003" in the FE-Ernst & Young Best Banks Survey

2003.

8. NASSCOM and economictimes.com have named us the 'Best IT User in

Banking' at the IT Users Awards 2003.

9. “Company of the Year” Award in The Economic Times Awards for Corporate

Excellence 2004-05.

4

Finance Asia “Best Bank - India” in 2005, "Best Domestic Commercial Bank – India” in

1999, 2000 and 2001 respectively and “Best Local Bank – India” in 2002 and 2003.

5

INTRODUCTION

Banking in India originated in the first decade of 18th century with The General Bank of

India coming into existence in 1786. This was followed by Bank of Hindustan. The oldest

bank in existence in India is the State Bank of India being established as "The Bank of

Calcutta" in Calcutta in June 1806. Couple of decades later, foreign banks like HSBC and

Credit Lyonnais started their Calcutta operations in the 1850s. At that point of time,

Calcutta was the most active trading port, mainly due to the trade of the British Empire,

and due to which banking activity took roots there and prospered. The first fully Indian

owned bank was the Allahabad Bank set up in 1865.

By the 1900s, the market expanded with the establishment of banks like Punjab National

Bank, in 1895 in Lahore; Bank of India, in 1906, in Mumbai - both of which were

founded under private onwership. Indian banking sector was formally regulated by

Reserve Bank of India from 1935. After India's independence in 1947, the Reserve Bank

was nationalized and given broader powers.

NATIONALIZATION

The next significant milestone in Indian Banking happened in the late 1960s when the

then Indira Gandhi government nationalized, on 19th July, 1969, 14 major commercial

Indian banks, followed by nationalization of 6 more commercial Indian banks in 1980.

The stated reason for the nationalisation was more control of credit delivery. After this,

until the 1990s, the nationalised banks grew at a leisurely pace of around 4%-also called

as the Hindu growth of the Indian economy

To understand the indian banking sector more easily a diagram is shown regarding the

name os the bank, its numbers shown in the bracket and also the category of bank under

which it falls.

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Structure of the organised banking sector in India.

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History

At the beginning of the 20th century, Indian economy was passing through a relative

period of stability. Around five decades have elapsed since the India's First war of

Independence, and the social, industrial and other infrastructure have developed. At that

time there were very small banks operated by Indians, and most of them were owned and

operated by particular communities. The banking in India was controlled and dominated

by the presidency banks, namely, the Bank of Bombay, the Bank of Bengal, and the Bank

of Madras - which later on merged to form the Imperial Bank of India, and Imperial Bank

of India, upon India's independence, was renamed the State Bank of India. There were

also some exchange banks, as also a number of Indian joint stock banks. All these banks

operated in different segments of the economy. The presidency banks were like the

central banks and discharged most of the functions of central banks. They were

established under charters from the British East India Company. The exchange banks,

mostly owned by the Europeans, concentrated on financing of foreign trade. Indian joint

stock banks were generally under capitalized and lacked the experience and maturity to

compete with the presidency banks, and the exchange banks. There was potential for

many new banks as the economy was growing. Lord Curzon had observed then in the

context of Indian banking: "In respect of banking it seems we are behind the times. We

are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate

and cumbersome compartments."

Under these circumstances, many Indians came forward to set up banks, and many banks

were set up at that time, and a number of them set up around that time continued to

survive and prosper even now like Bank of India and Corporation Bank, Indian Bank,

Bank of Baroda, and Canara Bank.

These days lots of new facilities have been developed in banks.Today, vastly more

powerful information technologies than word-of-mouth have become available to the

world of finance: high-capacity telecommunications links, powerful and interconnected

computers, cheap storage, value-added data networks, unbreakable encryption, and much,

much more. These technologies led to numerous changes:

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1 Internal management information systems permitted better control from a distance

and enabled banks to grow in size, geographic reach, and scope of activities.

2 Easy credit verification and billing made widespread credit card operations feasi-

ble. Today, two thirds of all Indian adults carry a credit card.

3 Electronic funds transfer led to vast money flows. In 1994, the average number of

funds transferred by CHIPS clearance system of major New York banks was

about $1.2 trillion per day. In the U.K., the combined clearance systems ac-

counted for about $200 billion per day, and the Swiss Interbank Clearing $135

billion daily.

4 The composition of bank employment changed. By 1961, only two years after

G.E. began marketing the Electronic Recording Method of Accounting, the Bank

of America had already replaced 2,332 book keepers.

5 Automatic teller machines permitted banks to reconfigure branches. Whereas the

average cost for a teller transaction is $1.07, it is only $0.27 for an ATM transac-

tion. There are more than 20, 00,000 ATM's machines installed in India and are

projecting to further extend these machines soon.

Future prospects

One could imagine that all these changes like Internal management information systems,

facilities of credit cards, Electronic funds, Direct payroll deposit systems, Automatic

teller machines strengthened banks by making them faster, smarter, broader, and more

global. But this is not so. To the contrary. Even though banks have become bigger, they

have been weakened. One of the major reasons is that the new technologies have

accelerated the entry of rival institutions that were more adept in utilizing them. Today,

American banks' share in borrowing dropped from 36% in 1974 to 22%. For thrift

institutions, it dropped from 21% in 1976 to 8% in 1994. Commercial banks' share of

total financial intermediary assets dropped from a steady 40% in the 60s through 80s to

below 30% in 1994, the first time that deposits in non-banks were greater than in banks.

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One major reason for the decline was the growth of alternative sources of funds.

Information technology enabled investors to evaluate securities and to be reached directly

by borrowers. Thus, commercial paper outstanding as a percentage of business loans rose

from 5% in 1970 to above 20% in 1994. Computers could be used to evaluate credit risk

by using various quantitative methods, and this made it possible for non-banks to

transform loans into marketable securities. This technique of securitization by non-banks

is now also moving to small business loans.

In response, banks increased non-lending activities. The share of their non-interest

income rose from 17% in 1977 to 34% in 1994. Their commercial real estate loans, as a

percentage of assets, doubled from 4% in 1970 to 9% in 1994. And they began to be

heavily active in financial derivatives. In non-lending activities, too, banks fell behind

institutions without banking charters but with superior operational or technological

ability. In credit card processing, banks lost all but 20% of the market to non-banks such

as First Data Resources. Banks were slow in offering Electronic Data Interchange (EDI)

services that standardized invoicing and payments for transactions. When EDI emerged

outside of banks it reduced the need for bank intermediaries.

ATMs, too, proved a mixed blessing. The linkage of ATMs to banks declined: physically,

over 41% of American ATMs are not located at banks anymore. As this reduction in

physical presence continued, the banks' advantage of proximity declined. Customers deal

with machines that are now interlinked by vast ATM networks, and care little about who

is behind them -- a bank, a near-bank, a non-bank, or a distant bank. Institutionally, over

13,000 ATMs are operated by non-banks, and their share is increasing. ATMs led to a

reduction in branches. Between 1990 and 1992, 4,000 bank branches were closed; by

1997, another 15,000 are projected to be eliminated.

This retreat from brick-and-mortar has long-term effects on banks as organizations. In the

past, the work process was organized such that the employees would come to the place

where the information relevant to the business was present, physically or in the

knowledge of their co-workers, and the customers would come to the employees. But this

flow is being reversed as it is becoming much cheaper to move information than people.

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Therefore, data will move to the employees, wherever they are; customers, too, will be

everywhere. In the process, banks will gradually become virtual organizations --

networks of specialists sharing information, decentralized boutique operations

interacting, and customers distributed around the globe, often equally virtual as the

banks. Many employees will work at home or at far-away locations. Indeed, the concept

of stable employment itself will change to ad-hoc arrangements and to independent

contractors working for multiple employers. For many tasks, these employees will, be

located at the lowest cost locations -- perhaps not Tokyo and New York but Manila and

Bombay.

By focusing on ATMs as teller-less branches, banks lost sight that these were merely one

electronic form of customer interface, and a fairly inconvenient one at that. Thus, banks

were unprepared for the emergence of terminals and network relations outside their

control, as the Internet emerged as a locus of commercial activity in which vast numbers

of customers are connected to a vast number of businesses, transacting with each other in

increasingly secure and authenticated ways. Financial institutions are only feebly using

the Internet as a business tool. In late 1993, when data for user activity on the Internet

was still being broken down, J.P. Morgan and Citibank topped the list of bank users, with

respectively 7 billion and 80 million bytes out of Internet NSFNet backbone and 600

million bytes into the Internet by Morgan. But this traffic was trivial relative to what

some non-financial users were logging, less than 1/100 of 1 percent of the of the biggest

Internet users among technology firms. In America, the penetration of micro-computers

will reach 40% in 1996. By the year 2000, estimates US News and World Report , there

will be 13 million American households banking by computer. As this happens,

customers can out-migrate electronically to distant banks or other types of institutions.

Yet banking's strength is based on proximity to customers, and its core competency is

relations. How could that be preserved when a bank becomes a branchless virtual

organization?

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PRODUCTS AT A GLANCE

ACCOUNTS & DEPOSITS

Savings Accounts

Regular Savings Account

Savings Plus Account

Savings Max Account

No Frills Account

Retail Trust Account

Salary Accounts

Payroll

Classic

Regular

Premium

Defense Salary Account

Kid's Advantage Account

Pension Saving Bank Account

Family Savings Group

Current Accounts

Plus Current Account

Trade Current Account

Premium Current Account

Regular Current Account

Reimbursement Current Account

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RFC - Domestic Account

Fixed Deposits

Regular Fixed Deposit

Super Saver Account

Sweep-in Account

Demat Account

Safe Deposit Lockers

HDFC Bank Preferred / Classic

Private Banking

Loans

Personal Loans

Home Loans

Two Wheeler Loans

New Car Loans

Used Car Loans

Overdraft Against Car

Express Loans

Gold Loan

Educational Loan

Loan Against Securities

Loan Against Property

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Loans Against Rental Receivables

Commercial Vehicle Finance

Vehicle Working Capital Finance

Construction Equipment Finance

Cards

Credit Cards

Silver Credit Card

Gold Credit Card

Woman's Gold Credit Card

Platinum Plus Credit Card

Corporate Credit Card

Business Credit Card

Titanium Credit Card

Value Plus Credit Card

Health Plus Credit Card

HDFC Bank Idea Silver Card

HDFC Bank Idea Gold Card

Debit Cards

Easy Shop International Debit Card

Easy Shop Gold Debit Card

Easy Shop International Business Debit Card

Easy Shop Woman's Advantage Debit Card

Prepaid Cards

Forex Plus Card

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Gift Plus Card

Investments & Insurance

Mutual Funds

Insurance

General & Health Insurance

Bonds

Financial Planning

Knowledge Centre

Equities & Derivatives

Forex Services

Trade Finance

Traveler’s Cheques

Foreign Currency Cash

Foreign Currency Drafts

Foreign Currency Cheque Deposits

Foreign Currency Remittances

Cash To Master

Forex Plus Card

Growing with America

In the next decades, the firm acquired a major credit insurer and a casualty insurance

company. In 1944, we organized an insurance unit that later became American Health

15

& Life Insurance Company. In 1968, Commercial Credit became a wholly owned

subsidiary of Control Data Corporation.

Going Public

Wall Street legend Sanford I. Weill assumed control of the operations of Commercial

Credit in 1986 and took the company public. Within two years, the company acquired

Primerica Corporation, the parent company of several investment, Bank services and

insurance firms, including the well-known Smith Barney.

Joining the Travelers Group

In 1992, Primerica purchased 27% of Travelers Insurance, a company with one of the

most recognizable logos in the U.S. - the red umbrella. Less than a year later, Primer-

ica purchased the remaining 73% of Travelers, which later adopted the name Travel-

ers Group. In subsequent years, Travelers Group acquired Shearson-Lehman's retail

brokerage, Aetna's property and casualty business, Security Pacific Bank Services,

and Salomon Brothers, creating the nation's third largest investment house - Salomon

Smith Barney.

The Creation of HDFC group

In 1998, Travelers Group merged with banking powerhouse HDFC corp. to create

HDFC group, a global Bank services company serving 20 million customers world-

wide. HDFC group's businesses include asset management, banking, credit and

charge cards, insurance, investments, investment banking and trading.

An International Company with a New Name

16

In 1999, we purchased 128 offices of Texas-based Associates First Capital, giving us

more than 2,000 offices in 45 states. We then turned our focus to Canada, buying As-

sociates First Capital offices there. In September, we changed our name to HDFC

Bank to proudly recognize our affiliation with our parent company and to better re-

flect what we do today. As a member of HDFC group, we continue to provide you

with a full range of exceptional products and services to help you find a Bank solu-

tion that's right for you. HDFC group is the world's most global Bank services com-

pany whose other subsidiaries

Include HDFC Bank, Travelers Life and Annuity, Smith Barney, and Primerica.

A Global Leader in the New Millenium

In November of 2000, HDFC group acquired Associates First Capital Corporation;

the largest publicly traded finance company in the U.S. with managed assets of more

than $100 billion and 2,750 offices in the U.S. and 13 other countries. The Associates

has a particularly strong presence in Japan and in Europe, where it has more than

700,000 customers. This transaction marked a defining moment in HDFC group's

history, building upon its leadership position in the global economy.

Spin-off Plans Ensure a Bright Future

At the end of 2001, HDFC group announced its plans to spin off its wholly owned

subsidiary Travelers Property Casualty Corporation by selling up to 20% in an initial

public offering and spinning off its remaining majority interest on a pro-rata basis to

HDFC group shareholders in a tax-free transaction. The initial public offering took

place in the first quarter of 2002, with the spin-off concluded at year-end 2002.

HDFC group units will continue to offer Travelers Property Casualty products. The

spin-off enables HDFC group to focus its resources more fully on higher growth ar-

eas of global Bank services and, at the same time, positions Travelers Property Casu-

alty as an independent public company.

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Crossing Boarders

In the third quarter of 2001, HDFC group purchased Mexico's "Banacci" (Grupo Fi-

nanciero Banamex-Accival), renamed it Grupo Financiero

Banamex and integrated operations in Mexico under the Banamex brand name. It is the

largest foreign acquisition in Mexico and largest Bank sector deal ever in Latin America.

Expanding our Reach

In the third quarter of 2002, HDFC group completes the acquisition of Golden State

Bancorp, parent company of First Nationwide Mortgage and Cal Fed, second-largest

U.S. thrift. The transaction enabled HDFC Bank to expand its retail distribution fran-

chise in key California and Nevada markets and add approximately 1.5 million new

customers.

Accelerating Growth

In the first quarter of 2004, HDFC group announced the acquisition of Washington

Mutual Finance Corporation for $1.25B. The acquisition included 409 WMF offices

located in 25 states, primarily in the Southeastern and Southwestern United States. The

company has more than 2,300 employees and total assets of approximately $4 billion, as

of September 30, 2003. "This transaction, which solidifies HDFC Bank’s position as the

leading community-based lender in the U.S., exemplifies how we are focusing our proven

acquisition capabilities on incremental acquisitions that expand the reach of our

businesses both geographically and strategically," said Bob Willumstad, HDFC group

President and Chief Operating Officer.

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STRUCTURE OF THE ORGANIZATION

THE COMPANY OWES ITS SUCCESS TO ITS STRONG MANAGEMENT

TEAM, MOST OF WHICH HAS BEEN THERE SINCE ITS INCEPTION.

ORGANIZATION STRUCTURE:

National Sales and Marketing Head

Vice President-Investment Vice President-Sales

Assistant Vice President-Investment Assistant Vice President-Sales

Zonal manager investment Regional Sales Head

Senior Investment manager Branch Manager

Manager Investment Team Leader

Relationship Manager

Associate Relationship Manager

Asst. Relationship Managers

. Relationship Executive.

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PROBLEMS OF THE ORGANIZATION

The company plans its raw material requirement from the sales projection, which was

done by the marketing department of the company. At the end of every month,

marketing department creates its budgeted sales for the existing product and new

products. Marketing department creates its budgeted sales by considering demand of the

product, actual sales in the previous month and the sales in the current month of the

previous year.

Production, Planning and Material Control Department (PPMC) is based on the sales

projection and calculates the requirement of the raw material for each department for

each product. PPMC department authenticates raw material issued.

After the PPMC Department calculates the requirement of the raw materials, the

purchasing department places an order to the vendor or supplier for each department.

Then the supplier dispatches the material in the factory premises.

Now the raw material proceeds through the testing process. Here it is checked whether

the raw material is as per the standard quality prescribed by company at the time of

placing an order. At the time of testing they also allocate specific identification number

to each material so that it can be referred at the time of production, if any defect occurs.

Then raw materials are issued to the production department.

Company is following batch production process. They assign the batch number and lot

number so that if any problem occurs while it is consumed they can detect the fault.

20

COMPETITION INFORMATION

ICICI BANK

Loans are for salaried & self employed individuals

Loans are available from Rs. 20000 to Rs. 15 lakhs

Tenures from 12 to 60 months

No security & guaranter required

All loans are done via EMI- equated monthly installments

Processing fees of 2%

3 months bank statement

Latest 2 salary slips

Latest 2 years ITR

Proof of turnover, proof of continuity current job,ID proof, residence proof, office

proof and proof of qualification of highest degree.

HDFC Bank

EMI as low as Rs. 36 per Rs. 1000 per month for 36 months &

50% off processing fees.

Bank of India

Personal loans for as low as 18% per annum for 5 years.

SBI

Term- 2 years, the total amount- 100000 (11,75%), 500000 (11.75%) & 1000000

(19%).

ICICI Bank India is the largest private bank in India and the second largest in the entire

banking sector (consisting of banks belonging to both public and private sector). Only

21

State Bank of India (SBI), controlled entirely by the Government of India has a bigger

business than ICICI Bank.

About ICICI Bank IndiaFounded in 1955 as Industrial Credit and Investment Corporation of India, ICICI Limited

was established by the Government of India in the 1960s as a Financial Institution like

Industrial Development Bank of India (IDBI) to finance large industrial projects.

ICICI then, was not a bank and hence could not take retail deposits and was not required

to comply with Indian banking requirements for liquid reserves. ICICI borrowed funds

from various agencies like the World Bank, often at concessional rates. These funds were

deployed in large corporate loans. However, the scenario changed drastically in1990s

when ICICI founded a separate legal entity and named it "ICICI Bank".ICICI Bank,as

the name would suggest, undertook normal banking operations like accepting deposits,

issuing credit cards, providing car loans etc. The experiment was so successful that ICICI

merged into ICICI Bank and this "reverse merger" happened in 2002.

ICICI Bank's Trade Roaming Current Account is a unique amalgamation of domestic

banking features of the Roaming Current Account and Global Trade Services. It offers a

composite banking solution to exporters and importers. An important part of this is the

"zero balance" account that enables you to utilize your financial resources more

effectively.

AccountQuarterly Average

Balance Requirement

Standard Rs.10,000

Classic Rs.25,000

Premium Rs.50,000

Gold Rs.1,00,000

GoldPlus Rs.3,00,000

Platinum Rs.5,00,000

22

ICICI Bank’s fourth quarter results were not that encouraging. The profit after tax (PAT)

recorded a growth of approximately 40%, which is higher than the growth in previous

quarters of FY08. However, it was better expense management, which resulted in such

growth numbers.

The operating expenses (including salaries) grew by 20%, which was lesser when

compared to average growth of 26% in the previous three quarters. What is important is

that the bank laid stress on maintaining the current cost-to-income ratio in future. This, to

a certain extent, can also mean that in case of a slowdown in credit off-take, cost

rationalisation would be the strategy to post high growth in PAT as compared to growth

in top line. .

SWOT ANALYSIS OF THE TRADE FINANCE OPERATIONS

STRENGTHS OF THE HDFC BANK -

1. HDFC Bank has 32 softwares as a whole for their various operational purposes,

in which currently 22 are in use. The number of softwares in HDFC Bank is

comparatively very high in comparison to other banks.

In trade of HDFC Bank there are at least six softwares used:

Capture

Branch operation

BG Professor

SWIFT Alliance

Flexcube corporate

LSS

These softwares are helpful in facilitating the work of the bank and if one

Software is disturbed due to some or the other reasons then other can be

helpful. This will ensure the continuity of the work without disturbance.

23

2. Goodwill of the bank attracts lots of customers from various parts of the city.

The awards and honors won by the bank are very helpful in increasing the faith of

the traders in the bank.

3. There are lots of trade services provided by the bank as per the requirement of

the customer. Export, import, bank guarantee, letter of credit. The aim is that a

trader must be able to find all the facilities of his requirement in the bank itself

only then he will find a reason to come to bank again and again. This gives an

image of one stop shop of the Bank.

4. Efficient employees are the assets of any company. Unless and until the

employees are not efficient, the company cannot perform efficiently. The

employees of the bank are efficient enough to perform the assigned task well and

take the emerging challenges of the market.

5. Centralized banking facilitates smoothen and centralized flow of all the

transactions related to trade. All the trade related transactions are informed to

Mumbai head office before proceeding further. The head office has to know the

nature and frequency and all the transactions happening at various branches.

6. The mode of payment, which is used by HDFC BANK, is not only used by this

bank but it is used all over the country by all the other banks to settle international

payment. Hence we can say that this mode of payment is internationally accepted

and well recognized. It is the SWIFT (Society for Worldwide Inter Bank

Financial Telecommunication). All the international level transactions are carried

on with the help of SWIFT. This helps the bank to carry out its transactions very

well within TAT. Hence, it is one of the strength of the bank, which is helping it

to grow, and proving it within international standards.

WEAKNESS OF THE HDFC BANK-

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1. They have reduced their trade charges due to present level of competition.

The competition is low in comparison to any other big city but the bank itself

faces huge competition with the SBI & PNB, which is spread like grains at

every part of the city. The trade charges of the other relative banks are low so

HDFC Bank also needs to keep the charges low to compete well with the

other banks.

2. HDFC Bank follows centralized banking due to which proper reporting has

to be done to central office at each and every moment. These frequent

reporting cause unnecessary delay in the workings of the bank.

e.g. Any nationalized bank takes half an hour to open any BG but HDFC Bank

takes four hours for the same thing.

3. Lots of softwares are very difficult to be handled by the employees, since

one employee cannot be efficient in handling all the 32 softwares.

OPPORTUNITIES OF THE BANK:

1. Lots of traders are still untapped whom the bank can trap. There is a great

opportunity in front of the bank to trap these traders, by offering them through

telecalling, e-mails or any other ways, they can be very profitable for the bank.

2. Regular and loyal customers can help in building goodwill and more customers.

In trade also like in other business customer loyalty is very important. There are

many opportunities with the bank in the form of loyal customers.

THREAT OF THE BANK

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1. The most important threat which appears in HDFC Bank are the competitors in

which the major competitors are State Bank of India, Punjab National Bank,

ICICI Bank and Central Bank of India who have many branches and that’s why it

is more convenient for the people to approach that bank. Apart from that they

have their own goodwill which is a threat for the trade of HDFC Bank.

2. Since new Private Sector Banks like UTI Bank and Kotak Mahindra Bank and

some foreign bank like ABN Amro Bank are also planning to start their

operations with their expertise, the future seems to be highly uncertain for HDFC

Bank.

SIGNIFICANCE OF THE STUDY

Significance of the project is to find out prospect investors and also to provide key

information about the investor’s perception and preferences by Financing of External

Trade in HDFC Bank industry. The study will help in getting information about their

performance at distributors as well as at their own investment center or why people go for

Financing of External Trade in HDFC Bank for investments. Study will also helps in

finding out the problems related to distribution.

MANAGERIAL USEFULNESS OF THE STUDY

The study provides the problems related to distribution of Financing of External

Trade in HDFC Bank so that they can improve the service rendered by them as a

distributor.

The study will also give information about prospective investors both individual

as well as institutional clients in areas of surrey where they can get lead.

26

The study provides the complete information about all close competitors in Fi-

nancing of External Trade in HDFC Bank investment.

It provides the AMC a feedback from customers regarding their problems and

perception about investing in Financing of External Trade in HDFC Bank so that

they can improve their services

27

CONCEPTUAL DECISION

TRADE FINANCE It consists of all the things about the trading terms. Like every trade involves import,

export, letter of credit, bank guarantee, inward remittance and outward remittance.

Along with discussing the banks trading activities the concept of all the trading terms has

been discussed below.

Trade is an important part of commerce. It refers to the sale, transfer or exchange of

goods and services for a certain price. Exchange of goods and services is the basis of

trade finance.

Trade can be classified into two parts:

1. External trade

2. Internal trade

1. External trade:

External trade or foreign trade involves trading of goods among countries of the world.

Every country buys and sells different goods from and to other countries. Goods worth

crores are bought and sold. Foreign trade is an important economic activity because it

enables the countries participating in it to secure resources for economic development as

well as for balance of payment. For some countries foreign trade is the most important

economic activity because most of their industrial activities are dependant on it.

Nature of external trade:

It consists of export trade and import trade. Export trade involve sale of goods of

purchases to other countries. Imports consist transactions from other countries. When

goods are traded then it is called visible trade. External trade in services is called

invisible trade. When goods are imported into a country with the purpose of re-exporting

them to some country, it is known as entrepot trade.

28

There are two types of external trade:

1. Import of goods and services

2. Export of goods and services

External Trade Services

As a business professional they need flexibility, which helps in closing a deal faster, and

maintaining goodwill with business associates. At Bank, they have always been

committed to understand customers’ needs.

A. Export of goods and services

Banks offers a wide range of export services designed to assist the business and its

opportunities around the world. Routing all the export related transactions it helps in

facilitating all the export related hassles of the customers. The customers can get the

following facilities with the expertise and experience of the bank:

1. Faster payment

2. Competitive exchange rates

3. Increased control over foreign receivables

4. Improved cash flows

5. Competitive charges.

All the above mentioned facilities are available for the following export bills:

1) Export documents against payment

2) Export documents against acceptance

3) Export bills under letter of credit

4) They also provide packing credit and bill discounting facilities.

B. Import of goods and services

Banks offers its customers a comprehensive range of import services. Bank is highly

respected in the world of in international finance a cross border transaction. The bank has

correspondent relationship with other reputed international banks throughout the world

can provide all the services to importers who may be importing from any part of the

world.

29

The following facilities are available for importers:

1. Direct remittance

The customer may require the exporter overseas to dispatch the goods first and then remit

the payment for the goods. The exporter would then dispatch the goods to the customer.

The overseas exporter will then send the documents directly to customer. When customer

approaches bank along with the documents for sending remittance to the exporter, bank

ensures that the remittance is done promptly.

Documentation for Direct Remittance:

a) Request Letter cum Debit Authority cum OGL cum FEMA Declaration

b) IE Code Number Certificate

c) Form A1

d) KYC Report

e) Transport Docs in original - Bill of Lading / Airway Bill

f) Invoice

g) Bill of Entry (Exchange Control Copy)

2. Advance remittances

Overseas exporter may require customer to make full payment in advance for the

goods to be exported. The exporter would dispatch the goods to customer after he

receives full payment from importer.

For this purpose, Bank will make remittance in foreign currency to the exporter at a

very competitive rate.

Documentation for sending Advance Remittance

a) Request Letter cum Debit Authority cum OGL cum FEMA Declaration

b) IE Code Number Certificate

c) Form A1. (Duplicate)

d) KYC Report

e) Purchase Order / Proforma Invoice with Advance payment term.

f) Bill of Entry Declaration with Commercial Invoice

30

g) Bank Guarantee from the Exporters Bank if Advance amount is > $ 1, 00,000.

3. Import bills under letter of credit

In a business cycle, as buyer needs to pay for his purchases in international and domestic

markets. Letter of credit helps to facilitate purchase of goods in international and

domestic trading operations.

All Banks letters of credit issued are valued and accepted worldwide.

When the importer opens an LC through Bank for imports of goods, it is an undertaking

by Bank that if the exporter exports the goods and produces the documents as stipulated

in the Letters of Credit, then Bank would honor the draft(s).

4. Import collection:

The exporter from overseas exports the goods the customer. The overseas exporter /

exporter's bank sends the documents to Bank on collection. Bank will then intimate the

customer about the receipt of the documents. All customer need to do is to authorize us to

debit your a/c and send the remittance to the exporter’s bank.

If it is a sight bill (Documents against Payment), then the necessary documents and debit

authority is collected from customer (importer) and remittance is paid to the exporters

bank and the documents are released to him. If it is a usance bill (Documents against

Acceptance), then the acceptance letter is taken from customer and the documents are

released. On the due date remittance is made to the exporter’s bank by debiting customers

account.

5. Letter of credit:

The letter of credit is demanded by the exporter to ensure its payment through a reliable

source. The letter of credit is then issued by the importers’ bank that ensures the exporter

that if the importer delays or fails to make the payment within stipulated period of time

then the bank itself will make the payment. That is in any case the exporter will not be a

31

sufferer and payment will be made to him. Being India’s leading private sectors bank, it

assures its customers that all the letters of credit issued will be valued and accepted by all

the business counterparts overseas.

6. Bank guarantee:

The bank issues bank guarantees on behalf of its customers to fulfill any obligation

under the business contracts with the help of which the business can improve along with

relationships with the bank

EXTERNAL TRADE FINANCE SERVICES PROVIDED BY HDFC

BANK

We can discuss the Trade finance services provided by HDFC Bank into 4 parts:

1. Import of goods and services including letter of credit and bank guarantee

2. Export of goods and services

3. Inward remittance

4. Outward remittance

IMPORT OF GOODS AND SERVICES

Import of Goods and Services into India is being allowed in terms of Section 5 of the

Foreign Exchange Management Act 1999 (42 of 1999), read with Notification No. GSR

381(E) dated May 3, 2000 as amended from time to time.

IMPORT TRADE FINANCE

INTRODUCTION

The Directorate General of Foreign Trade (DGFT) under Ministry of Commerce &

Industry, Department of Commerce, and Government of India regulates import trade.

Authorized dealers, while undertaking import transactions, should ensure that the imports

32

into India are in conformity with the Export Import Policy in force and Foreign Exchange

Management (Current Account Transactions) Rules, 2000 framed by Government of

India vide Notification No. G.S.R.381 (E) dated May 3, 2000 and the directions issued by

Reserve Bank under Foreign Exchange Management Act from time to time.

Authorized dealers should follow normal banking procedures and adhere to the

provisions of Uniform Customs and Practices for Documentary Credits (UCPDC), etc.

while opening letters of credit for import into India on behalf of their constituents.

IMPORT OF GOODS

General: -- Rules and Regulations from the Exchange Control angle to be followed

by the authorized dealers while undertaking import payment transactions on behalf

of their clients are set out in the following paragraphs. Where specific regulations do

not exist, authorized dealers may be governed by normal trade practices. Authorized

dealers may particularly note to adhere to "Know Your Customer" (KYC)

guidelines issued by Reserve Bank (Department of Banking Operations &

Development) in all their dealings.

Form A 1: -- Applications by persons, firms and companies for making payments,

exceeding USD 500 or its equivalent, towards imports into India must be made on

appropriate form A 1.

Import Licenses: -- Authorized dealers may freely open Letters of credit and allow

remittances for import of goods unless they are included in the negative list

requiring licence under the EXIM Policy in force. In such cases, licenses marked

‘For Exchange Control purposes’ should be called for and special conditions, if any,

attached to such licenses adhered to Exchange Control copy of the import licence

submitted by importer for opening of Letter of Credit or making remittance, when

fully utilized, should be retained by authorized dealers and may be preserved till its

scrutiny by the internal auditors or inspectors is completed.

33

Interest on Import Bills:-- Authorized dealers may allow payment of interest on

usance bills or overdue interest for a period of less than three years from the date

of shipment at the rates prescribed in the Master Circular on trade credits.

34

IMPORT LETTER OF CREDIT

Parties to a letter of credit transaction:

Applicant:-- The applicant should give a precise detail for the opening of the letter of

credit. The applicant should indemnify banks against rules and regulations imposed by

the foreign countries. (Article 5 & 18)

35

Beneficiary/ seller-

In whose favour LC is opened

Beneficiary/ seller-

In whose favour LC is opened

Advising bank-Which advices

the LC

Advising bank-Which advices

the LC

Confirming bank-

Which confirms the LC

Confirming bank-

Which confirms the LC

Negotiating bank-

Beneficiary’s bank

Negotiating bank-

Beneficiary’s bank

Reimbursing bank-

Nostro bank

Reimbursing bank-

Nostro bank

Opening bank-This opens LC

Opening bank-This opens LC

Applicant/ buyer-

On whose behalf LC is

opened

Applicant/ buyer-

On whose behalf LC is

opened

Parties to a letter of credit

transaction

Parties to a letter of credit

transaction

Beneficiary:-- The beneficiary in whose favour the credit is established can in no case

avail himself of the contractual relationship existing between the banks or between the

applicant for the credit and the issuing bank. (Article 3)

Issuing bank:-- The issuing bank gives a conditional undertaking and reimburses the

negotiating bank against submission of the prescribed documents. It should verify the

documents presented under the credit within 7 banking days following the day of receipt

of the documents and if any discrepancy is found it will refuse reimbursement.

Advising bank:-- The bank advising the letter of credit acts without any engagement on

its part but will take reasonable care to check the authenticity of the Credit. If incomplete

or unclear instructions are received, it will give the preliminary information to the

Beneficiary without any responsibility on its part. (Article 7, 12)

Confirming Bank:-- When the confirmation to a credit is added by a confirming bank at

the specific request of the opening bank it constitutes a definite, equitable undertaking on

the part of the Confirming Back in addition to the Opening Back, provided the stipulated

documents are presented in accordance with the terms and conditions of the Credit with

in the due date. (Article 9 & 13)

Negotiating Bank:-- The nomination of a bank by the opening bank for negotiation of

documents under a credit does not constitute any undertaking on the nominated bank

unless the credit is confirmed by it. Negotiating bank may be the bank of the beneficiary

of the credit and / or a bank, which pays value against a set of documents drawn under a

credit. Issuing bank will reimburse the nominated bank if it has negotiated the documents

as per the letter of credit terms. (Article 9&10)

Reimbursing bank:-- Reimbursing bank will reimburse the claim made by the

negotiating bank or by any claiming bank under a documentary credit under the authority

of the opening bank. It need not insist for submission of any certificate of compliance

from the negotiating bank along with their claim if it was not specifically insisted in the

36

credit. Issuing bank will have prior arrangement or provide sufficient funds with the

reimbursing bank for honoring the reimbursing claim as and when it is made. (Article19)

Application for letter of credit:

Application for the letter of credit requires the following information:

1. Revocable/irrevocable

2. Without recourse

3. Amount (state currency)

4. By cable/ airmail/swift

5. Beneficiary’s full name and address

6. Merchandise

7. Shipment by steamer/post-parcel/airfreight

8. Country of origin

9. Usance of draft

10. Freight prepaid/paid at destination

11. Insurance by beneficiaries/covered here

12. Part shipment/permitted /prohibited

13. Transhipment permitted/prohibited

14. Shipment from………… shipment to…………….

15. Latest date of shipment

16. Latest date of presentation of documents

17. Documents must be presented for negotiation within…days from shipment date

18. Licence no.

19. Import permitted under pare no………Exim policy 2002-07

20. We confirm described merchandise can be imported against above mentioned

licence/para… of foreign trade policy 2004-09 (OGL)

21. Special instructions, if any

37

Documents under the letter of credit

Draft:

The beneficiary should draw it as per the tenor stipulated in the letter of credit.

It should be drawn either on the issuing bank or on the confirming bank or on the

nominated bank as per the stipulations of the documentary credit.

It should indicate the LC no. and the name of the bank.

Packing list:

It contains buyer’s name, items, dimensions, weight (gross and net both) of the goods,

the quantity which is to be delivered.

Certificate of origin:

The goods, value, shipper, bill of lading number etc. should be verified of their

originality. This should be issued by the chamber of commerce or any other authority

as indicated in the letter of credit. (Article 21)

Work test certificate:

It certifies that the goods are well tested of their function as per the demand of the

buyer.

Certificate of warranty :

It certifies regarding the warranty period of the goods.

Purchase order:

It is the very first document between both the parties. It contains the details regarding

the goods required to be purchased.

Certificate of compliance

It certifies that the terms of the purchase order has been well taken care of regarding

well functioning of the goods and quickly dispatched.

38

Commercial invoice:

a. The beneficiary as mentioned in the letter of credit should draw the invoice.

b. It should be drawn in the name of the opener of the credit.

c. The description of the merchandise should be exactly in agreement with that

mentioned in the letter of credit.

d. The reference number of the letter of credit and the bank, which has opened, should

be mentioned in the invoice.

e. The invoice value should not exceed the value of letter of credit.

f. Terms of the contract such as CIF, CFR, and FOB should be clearly indicated in the

invoice as mentioned in the credit.

g. Other particulars such as bill of lading, shipping marks, Import Licence number,

gross weight, net weight etc.

h. The invoice should conform to article 37 of the UCPDC.

Bill of lading:

a. The bill of lading should be in sets with the number of non-negotiable copies as

stipulated in the letter of credit.

b. The shipping company or its authorized agents should sign on it.

c. It should be marked clean and should not have any indication to the defective

conditions of packages or goods, etc.

d. The description of the goods should be as per the letter of credit requirement and

should agree with the description in the invoice.

e. The letter of credit should call for ‘shipped on board’ bill of lading. Bill of lading

should evidence goods having being loaded on the vessel and also the date on which

it was loaded.

f. ‘Freight prepaid’ or ‘freight to be paid at destination’ should be clearly indicated in

the bill of lading as per the letter of credit terms (article 33).

39

CHARGES BY HDFC BANK:

For import letter of credit:

Commitment charges for the full validity of the credit

Usance charges according to the tenor

In the case of LC established with 100% cash margin charges may be fixed by the

banks at their discretion irrespective of the value of the credit.

In the case of extension of the validity period of credit, if it falls within a 3

months period for which commitment charges has already been recovered, a

minimum amendment commission will be recovered.

Any amendment to a letter of credit other than extension of the validity of its

value, minimum commission will be charged.

1) IMPORTS BILLS:

Advance Payment

Charges: .125% (Min Rs 500/) + Rs 500/ Swift Charges

Direct Payment

Charges: .125% (Min Rs 500/) + Rs 500/ Swift Charges

2) Collection Bills (Sight payment and Usance Payment)

Charges: .25% (Min Rs 500/) + Rs 500/ Swift Charges

40

LETTER OF CREDIT

LC: LC opening against cash margins. Services like LC,

advising and confirming also done.

Local LC requires 110% cash margin

FCY LC requires 120% cash margin.

Charges: Rs 1000/ Documentation Charges. + Rs 1500/ Swift

Charges.

BANK GUARANTEE :

BG: BG opening against cash margins.

100% cash margins required.

Charges: Rs 1000/- Documentation Charges. + 1.8% of the

amount.

– Bank guarantee in INR backed by FD (> = 100 % of facility amount)

– Inland Letter of Credit backed by FD (> = 110 % of facility amount)

– Foreign Letter of Credit backed by FD(> = 120 % of facility amount)

41

EXPORTS BILLS:

Advance Export Bill (RBI Reporting, GR Attestation)

Charges: .0625% (Min Rs 500/)

Collection Bills (LC Bill, Site Bills and Usance Bills)

Charges: .0625% (Min Rs 500/)

BRC Issuance

Charges: Rs 100/-

Sending of Docs to Importer Bank

Charges: Rs 1000/ (Courier Charges)

42

EXPORT TRADE FINANCE

INTRODUCTION:

As far as export is concerned the bank provides export finance to the exporting country as

and when required. Export finance is a short term, working capital finance allowed to an

exporter. Funds should be available to the exporter at the required time.

43

IMPORT PAYMENT

FAVOUR-ABLE

BALANCE OF

PAYMENT

GENERATE

EMPLOY-MENT

INCREASE

GDP

HELP IN MEETING

INTER-NATIONA

L OBLIGATI

ON

EARN FOREIGN

EXCHANGE

BENEFITS OF

EXPORT

TYPES OF EXPORT FINANCE:

A. PRE-SHIPMENT FINANCE

It helps in financial assistance for the execution of an export order from the date

of receipt of an export order till the date of shipment

It is a type of loan or advance granted to an exporter for financing the purchase,

processing or packing of goods on the basis of confirmed and irrevocable order or

any other evidence including Letter of Credit.

Types of pre-shipment finance

1) packing credit:

Follow up of packing Credit Advances:

a) Submission of Stock Statement: Exporter should submit stock statement reporting the

stocks, which are under pledge or hypothecation to the bank for securing the Packing

Credit Advance. Frequency of submission of stock statement must be decided by the

Authorized Dealer at the time of sanctioning the packing Credit and should be adhered to,

by the exporter.

b) Physical inspection of stocks: Stocks pledged/hypothecated by the exporter must be

duly inspected by the Authorized Dealer at regular interval

Liquidation of Packing Credit advances:

Packing credit advance will always be liquidated with the export proceeds of the relevant

shipment. At this stage the pre-shipment liability of the exporter will be converted into

post shipment liability.

For any reasons, if export does not take place at all, the entire advance will be recovered

at commercial rate penal interest as decided by the banks.

With the recent liberalization and deregulation of interest rates, banks will have

operational flexibility for liquidating packing credit advances as per RBI’s guidelines

issued with effect from 14.12.1994.

44

Criteria to be applied for allowing above relaxation:

Even though Reserve Back has now permitted the above relaxation for liquidating a

Packing credit advance, each Bank has got their own conditions to extend this facility to

the exporter-customer. In general, the following conditions are observed while extending

this facility to the exporter:

Bank should ensure that substitution is commercially necessary and unavoidable. The

sanctioning authority must also satisfy him about the valid reasons as to why packing

credit extended for shipment of a particular commodity cannot be liquidated in the

normal. It is suggested that as far possible, the substitution of contract should be allowed

if the exporter maintains account with the same bank or it has the approval of the

members of the consortium.

Overdue Packing Credits and ECGC procedures:

If the borrower fails to pay the amount on due date / extended due date and bank

considers it as overdue, an overdue report of advance should be made to concerned

Regional / Branch office of ECGC in prescribed form within 30 days.

If the overdue position persists, back should take necessary steps to realize dues as per its

usual recovery procedure and the default to ECGC. This default report should be sent to

concerned Regional / Branch office of ECGC in prescribed form within one month from

date of recalling the advance or within 4 month from date / extended due date of the loan

amount whichever is earlier. Payment of ECGC premium may be discontinued after the

month in which the default is reported to the month in which insolvency of the exporter is

reported ECGC.

Back should recover the overdue by liquidating the securities, if any, available. Nursing

programme can be initiated, if found feasible, with the consent of ECGC. If recovery is

not possible, bank can prefer Claim under the WTPC Guarantee within 6 months from

the date of report of default.

45

Pre-shipment credit in foreign currency (PCFC)

• PCFC was introduced on 8 November 1993.

FEATURES:

• All convertible currencies

• Similar terms and conditions like P/C-L/C or Order

• Running Account also available

• Only for cash exports

• Banks may source the funds either by using the offshore funds available with

them such as balances in EEFC /RFC/ ESCROW accounts

• Source of funds -Any foreign currency funds

• Prior permission of RBI not required

• Liquidated by discounting of bills under rediscounting of Export Bills abroad –

SELFLIQUIDATING.

• Cost of borrowing abroad not to exceed1% over LIBOR by the Banks (Competi-

tive international rates).

• Exporters at a cost not exceeding 2% over the appropriate LIBOR excluding the

holding tax by Banks having Overseas Branches and 2.5%by other banks.

• Normally for 180 days.

• If no export within 360 days PCFC adjusted at TT selling rate for currency con-

cerned - Interest will be charged at appropriate rates on rupee equivalent of the

principal amount at ECNOS (plus a penal rate as per bank’s discretion).

• Running account facility can be given.

• Forward Contracts can be booked for future drawls account facility.

• It would be in order for banks to liquidate PCFC granted to a Diamond Dollar ac-

count holder by dollar proceeds from sale of cut and polished diamonds to another

DDA holder.

• Diamond Dollar Accounts can be maintained by Firms/ Cos. With a track record

of at least three years and having an average annual turnover of Rs.5 crores or

above during the preceding three licensing years.

46

Running Account facilities

• Effective 14 March 1992, banks can grant pre-shipment advances for exports of

any commodity, without prior lodgment of L/C, export orders under Run-

ning Account.

Conditions for Running Account

• Need-based facility

• Exporters with good track record

• L/Cs firm orders can be produced within reasonable time (for products under SCC

L/Cs firm orders to be produced within one month

• Exporters in EOUs, EPZs and SEZs also eligible

• No such facility for sub-suppliers.

B. POST SHIPMENT FINANCE

It is an advance against receivables which is in the form of shipping documents. If the

bank has given the pre-shipment credit to the bank then he cannot deny the post-shipment

credit, if asked.

Types of post-shipment finance:

1. Export bills purchased/negotiated/discounted: The risk of non-payment is

there if letter of credit is not there. The risk is more pronounced if documents are

under acceptance. In order to safeguard the interest of the bank and also the

exporter, ECGC offers coverage of credit risks through their guarantees/policies

at the post-shipment stage. The general banks cover the advance under the Whole

Turnover Post Shipment Guarantee scheme. But the HDFC Bank never trusts the

ECGC. In addition to this the exporter is advised to go for separate buyer wise

policy also.

2. Export bills negotiated: All the documents presented to the bank for negotiation

should be strictly in accordance with the L/C terms. Even the slightest deviation

from those terms and conditions specified in the L/C can give an excuse to the

47

issuing bank for non-payment.

3. Advances against bills sent on collection basis: In some cases the exporter

himself may requests for sending the bills for collection basis. Bank may allow

advance against these collection bills to an exporter. Concessive rate of interest is

charged for this advance from the exporter according to the period.

4. Advances against exports on consignment basis: Goods are exported on

consignment basis at the risk of the exporter. Eventual remittance of sale proceeds

will be made by agent. The overseas branch of the bank will be instructed to

deliver the documents against trust receipt.

5. Advances against undrawn balances: In certain line of trade it is the practice of

the exporter to leave a part of the amount as undrawn balance. Authorized dealers

can handle such bills provided the undrawn balance is inconformity with the

normal level of balance left undrawn in the particular line of export trade subject

to a maximum of 10% of the full export value. Advances against undrawn

balance can be made at a concession rate of interest for a maximum period of 90

days.

6. Advances against duty drawback: Where the domestic cost of production of

certain goods is higher in relation to international price, the exporter may get

support from the government so that he may compete effectively in the overseas

market. The government of India and other agencies provides export incentives

under the export promotion scheme. this can only be in the form of refund of

excise and customs known as duty drawback.

Bank grants advances to exporter against their entitlements under above category

at low interest rate for a maximum period of 90 days.

48

GENERAL GUIDELINES OF THE BANK FOR SANCTIONING EXPORT

FINANCE TO CUSTOMERS:

1. Banks should meet the genuine credit requirements of the export sector promptly

and in full. They should review their internal arrangements and take such action

as is necessary, including delegating enough powers to Branch

Managers/Regional Managers to export sector. Queries should not be raised in

piecemeal or information sought at various stages, leading to delays in extending

credit.

2. Bank may adopt a flexible attitude with regard to debt – equity ratio; margin and

security norms but there could be no compromise in respect of viability of the

proposal and the integrity of the borrower.

3. Exporters should be able to satisfy their banker about their capacity to execute the

orders within the stipulated time and have proper expertise to manage the export

business.

4. The quantum of finance sought should commensurate with the expected export

turnover and the cost of inputs required.

5. If the exports will be covered under letters of credits, banks would need to be

satisfied about the standing of the credit opening bank and also the acceptability

of the conditions specified in the credit.

6. Where exports are not covered by Letters of Credit and will be on the basis of

firm contracts, banks may insist for obtaining a satisfactory status report on the

overseas buyer.

49

INWARD REMITTANCE AND OUTWARD REMITTANCE IN

HDFC BANK

OUTWARD REMITTANCE:

It is the way in which money from a country goes to another country in some other way

than export or import of goods.

Outward Remittances (Miscellaneous) for other purposes can be remitted with ease.

Remittances by way of DD / TT / Swift can be affected through banks strong network of

correspondent banks to any part of the world. All transactions are subjected to FEMA

regulations.

Outward Remittance (Miscellaneous) List

BTQ / Business Travel / Gift Remittances / Medical Treatment / Student Remittances /

Donations / Immigration / Employment Abroad / Maintenance of Family / Subscription

fees / Examination fees of Foreign Universities / Repatriation of all NRI accounts of

Individual customers / Exhibition Fee / Conference Invitation / Credit Card Payments /

Subscription of Magazines and periodicals / Repatriation of sale proceeds of property /

Repatriation from NRO a/c / Repatriation of funds relating to OCB / Repatriation under

the Liberalized remittance scheme of USD 25,000/- per calendar year for Resident

Individuals.

50

INWARD REMITTANCE:

GENERAL:

Foreign exchange due or accrued as remuneration for services rendered in or outside

India, or in the settlement of any lawful obligation, or an income on asset held outside

India, or as inheritance, settlement or gift is to be sold to an authorized person within

7 days from the date of receipts.

FOREIGN INWARD REMITTANCE PAYMENT SYSTEM (FIRPS):

Foreign exchange dealers’ association of India (FEDAI) has evolved FIRPS to

facilitate quick transmission of funds to beneficiaries in India against inward

remittance received from abroad through banking channels in rupees as well as in

foreign currency.

ISSUE OF BANK CERTIFICATE:

Authorized Dealers should issue bank certificates against receipt of inward remittance

or realization of foreign exchange on security papers if the amount exceeds Rs.

15000/- in value, bearing distinctive serial numbers and reference numbers.

REMITTANCE THROUGH HDFC BANK TO OTHER BANKS (OUTWARD):

Rs. 0.25/- per. 1000/- per transaction

(Minimum- Rs50,

Maximum- Rs.1000)

TYPES OF INTERNATIONAL/EXTERNAL TRADE SETTLEMENT:

In international business the settlement can be done by the following ways:

1) Advance payment.

2) Open account.

3) Bill on collection basis.

51

4) Follow up of overdue bills (when the terms are not under LC).

5) Documentary credit

Advance payment :

When the buyers’ credit is doubtful or the seller wants the payment before dispatching

the goods then he asks for the advance payment where the money is paid before taking

the ownership of the goods.

Open account:

By an agreement between buyer and the seller manufactured goods will be delivered to

the buyer directly or to his order and the buyer will pay at the end of the agreed period.

Bill on collection basis:

It is an agreement by which the seller after shipping the goods submits the documents to

his bank as agent for collection.

Bill of exchange may be defined as an order given by the exporter to the importer to pay

the amount of sale value mentioned in it. It is sent along with the other documents by the

exporter bank within 21 days of shipment of the goods (if the documents are under LC

term then the bank may deny to make the payment to the exporter’s bank if the

documents are received after 21 days, since it will treat it as a discrepancy. Once

discrepancies have been found the exporter will get the amount only if the importer

wishes. The issuing bank has no obligation in the case where any discrepancy is found) to

the importer bank so that he can give it to importer. Bill of exchange is first among all the

documents given to the importer and when importer makes the payment then only he is

entitled to receive other documents with the help of which he can release his goods from

the dock.

Follow up of overdue bills (when the terms are not under LC):

It is the duty of the importer’s bank that if the payment by the importer is not made to the

exporter after the due date then he must return the documents back to the exporter’s bank

within 180 days so that the exporter’s bank can crystallize the bill. If importer’s bank has

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not send the documents after 180 days then the exporter reports this to RBI(in case if the

exporter is in India).RBI then prepares a list of defaulters. It will also make necessary

adjustments in the balance of payments. When exporter gets his documents back he will

call his goods also back to him. After this no transaction is possible. In such a case

exporter has to look for alternate buyer.

Documentary credit:

It provides complete financial security to the seller of the goods. Once a letter of credit is

established by the buyers’ bank on the behalf of the buyer in favour of the seller and the

seller submits the set of required documents to the opening bank or to the nominated

bank seller is assured of the payment.

Types of documentary credit:

a) Revocable- irrevocable credit

A revocable letter of credit may be amended or cancelled at any moment without the

prior notice to the beneficiary.

Irrevocable credit has to be amended or cancelled with the consent of Applicant and

Beneficiary.

b) Confirmed credit:

When a bank in the exporter’s country has added its confirmation by way of an

additional undertaking to make payment at the specific request of the issuing bank, it

becomes a confirmed credit (article 9).

c) Back to back credit:

In the case where exporter is not the actual manufacturer and he gets his work done

by the sub - suppliers and if the sub – suppliers demand letter of credit in their favour,

the exporter approaches his banker to establish second set of letters of credit on the

basis of export letter of credit received by him. The second set of credit opened by

the bank at the request of the exporter is known as back to back credit.

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BANK GUARANTEE :

The term bank guarantee can be defined as:

‘a guarantee given by a bank to a third person, to pay him a certain sum on behalf of the

bank’s customer, on the customer failing to fulfill any contractual or legal obligations

towards the third person.’

Various types of bank guarantees:

1. Financial guarantee: These are the guarantee issued by bank on behalf of the

customers, in lieu of the customer being required to deposit cash security or

earnest money. These kinds of guarantees are mostly issued on behalf of

customers dealing with government departments. If the contractor does not

fulfill his obligation then the government department invokes the guarantee

and collects the money from the bank.

2. Performance guarantee: These are the guarantees issued by the bank on

behalf of its customer whereby the bank assures a third party that the customer

will perform the contract entered into by the customer as per the condition

stipulated in the contract, failing which the bank will compensate the third

party up to the amount specified in the guarantee.

Banks’ obligation to pay primary

Bank guarantees are called the life blood of international commerce and even

though they are an off shoot of a primary contract between the debtor and the

creditor, these guarantees are independent commitments taken by bank on behalf

of the customers.

The obligation of the bank is irrespective of the disputes between the beneficiary

and the debtor.

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Precautions which bank takes while issuance of bank guarantee:

The bank’s criteria taken into consideration while issuance of bank guarantee on the

following basis:

1) Amount guaranteed: when the bank issues a guarantee, first and the foremost

consideration that it takes is the amount he is called upon to issue. In the

guarantee agreement the amount has to be specifically stated both in figures and

words. Care should be taken to state whether the amount is inclusive of all

interest, charges, taxes and other levies. This is important to avoid unnecessary

disputes regarding the liability of the bank.

2) Period of guarantee: Bank always specifies the period for which their guarantee

subsists and an additional period during which a claim has to be made on the bank

to make payment. The former period during which the guarantee subsists is called

the validity period and the latter the claim period. If any default has been

committed by the debtor (i.e. the bank’s customer) it should be within the validity

period. It is thus necessary as a matter of great caution that this period e specified

to the exact date.

Once this outer limit for the bank to guarantee default of the debtor is fixed then

the creditor can make a claim only if the default has occurred within this period,

an for any default beyond this date the bank cannot be held liable.

Claim period in a guarantee: in a guarantee it is necessary to provide for a period

slight longer than the validity period for the beneficiary to make a claim. The

claim period is usually a few months more than the validity period of the

guarantee.

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OBJECTIVES

To study the Financing of External Trade in HDFC Bank industry in detail

To study the Investment procedure in Financing of External Trade in HDFC Bank

To study the Accounting and Valuation methods of Financing of External Trade

in HDFC Bank

To study in brief various Financing of External Trade in HDFC Bank promoted

by other competitors

To study the investors Preference regarding Investment in Financing of External

Trade in HDFC Bank

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SCOPE OF THE STUDY

In current scenario, the bank rates have been cut down rapidly due to severe competi-

tion, so people are not going for contemporary deposits because that cannot provide

them the better returns or the desired interest rates. So, they can look for some other

investment options like Financing of External Trade in HDFC Bank, which can pro-

vide them higher returns in medium to long term and can easily meet their financial

goals.

To look out for new prospective customers who are willing to invest in Financing of

External Trade in HDFC Bank.

A Pioneering Beginning founded by Alexander Duncan as Commercial Credit in 1912,

our company was a pioneer in the consumer finance industry. In 1916, we offered an

installment loan program to help people purchase what was then an ex HDFC ng new

invention - the automobile. That led to the development of installment buying plans for

home appliances and other consumer goods.

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RESEARCH METHODOLOGY

Primary Objective:

The primary objective is to study, understand and analyze various aspects related to the

Investment patterns of Trusts and Societies.

Research Design:

The research is based on the information collected by the help of the questionnaires

filled.

The first three questions aim at the basic introductory information of the organization and

the person being interviewed thus rendering the follow up work easier. The fourth

question is about the financial standing of an organization, it gives an idea about the

financial status of the society being approached. The fifth question aims at generating

information about the various sources of funds of the societies. The sixth and seventh

questions deal about the financial performance of the societies. The eighth question is to

find out about what a society does with the surplus amount generated by them. The ninth

question is meant to gather information about the people who are instrumental in advising

and putting to action the investment plans for the society. The tenth question is about

what kind of investments are preferred by the society, on the basis of the organization or

on the basis of the time period. The eleventh question talks about the institutions in which

the societies make their investments in, say the banks or other institutes. The twelfth

question tries to assess what is it exactly that the societies look for, while investing. For

example do they prefer a high rate of interest, or safety, or location, etc..

Thus the research is based only on the basis of the information gathered with the help of

the questionnaires.

Sample design:

The objective is to study the investment pattern of various Trusts and Societies. For this

purpose I obtained a list of all the trusts situated in Delhi. Due to lack of time I had to fo -

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cus my study on all the Societies situated in South Delhi. I made a list of all the trusts sit -

uated in the south and targeted them in order to generate the required information.

Data Collection:

Data has been collected from sources like books, periodicals, journals, newspapers, Inter-

net and through the questionnaires.

PRIMARY DATA: Primary data was collected from the sample by a self-administered

questionnaire in presence of the interviewer.

SAMPLE SIZE

The survey is conducted among 100 respondents.

SAMPLE AREA

Delhi

SAMPLE DURATION

3 months

SECONDARY DATA: The chief sources of secondary data were magazines, newspa-

pers, journals etc.

Research methodology means the method carried out to study the problem. It shows the

type of the sample design used, its size and the procedure used to dew sample. The extent

of precision achieved and the method used for handling any special problem during the

course of the study.

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DATA ANALYSIS

1. Does HDFC Bank have reasonable rate of interest for providing

loans for external trade?

Interpretation

The response to the above question heavily states that HDFC bank charge reasonable rate

of interest for external trade loans as 93% of respondents belong to yes category.

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2. Are you fully aware of the Functions, Features and Range of the

finance that HDFC is offering ?

a) Yes b) No

Range Satisfaction

94%

6%

a Yes

b No

Findings

Out of total people surveyed 94% of them say that they are satisfied with the present

range of finance and rest 6% suggest that some changes should introduce:

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A Yes 76

B No 5

3. Do you think that the criteria for selection to finance should

anything to do with education?

Interpretation

As regards the relationship between financing criteria and educational qualification, the

response is quite hazy. 27% of the respondents are of the opinion that the financing

criteria should be guided by educational qualification of the candidates whereas 52% of

the respondents are not for such a link and it is understood that they put more emphasis to

their experience over the education of fresh candidates.21% of respondents can’t say

anything.

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4. Do you think that HDFC Bank providing finance is essential for

the consumer productivity with the bank in the present day

scenario?

Interpretation

79% of the respondents agree whereas 5% don’t and 16% can’t say anything about it.

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5. Do you believe that there exists any bias in financial process or

selection criteria of HDFC bank?

Interpretation

48% of the officials claim that there is no bias or prejudice on the part of the bank

administration so far as financial process and practice of the bank is concerned but that

does not give us license to reject the response of the 34% of the employees who think that

there exists some sort of bias in the recruitment and training of the officials. Whereas

18% of the employees can’t say anything about biasness.

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Q.6 What is the satisfaction level of consumers with number of

branches of HDFC Bank ?

Interpretation

HDFC Bank has 57 Branches all over India, and in Delhi alone it has 13 Branches.

From the study we can see that about 40% of the total respondent has said that they are

somewhat satisfied with the number of Branches of HDFC Bank, and only 8% of the

total respondents have said they are very satisfied with number of Branches.

There is a large portion of respondent (32%) who are neither satisfied nor dissatisfied

with number of HDFC Bank Branches whereas 10% of the respondents are somewhat

dissatisfied.

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Q. 7 Is minimum balance for financing in external trade with HDFC

bank (rs. 10000) too high?

Yes 89%

No 11%

Interpretation

The Banks which operate in the Private Sector have not been able to gain such a foothold

in the Market of Saving Accounts when compared to the Nationalized Banks

89% of people are not satisfied with this minimum balance ,whereas 11% are satisfied

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IS MINIMUM BALANCE (RS. 10000) TOO HIGH ?

Yes89%

No11%

Q. 8 What factor having most bearing on choosing HDFC Bank?

Reputation of bank 45%

Branch near office/residence 36%

Rate of interest 3%

Others 16%

Interpretation

All Banks are keen to find out that one reason that made a prospective client make up

their mind to open an Account with the Bank, this is a very important aspect but the truth

of the matter is that there is no single one reason which convinced the customer to open

an account with the Bank , a variety of reasons in acting in tandem help a prospective

customer make up his mind.

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FACTOR HAVING MOST BEARING ON CHOOSING A BANK

Rate of Interest Offered

3%

Reputation of Bank45%

Others16%

Branch near Office/Residenc

e36%

FINDINGS

1. The trusts can participate in finance of only those institutions which have the “Trustee

Security and Benefit Status” under Sec. 11(5)(ix)). Due to this legal compulsion the

options with the trusts to invest in the fixed deposits gets restricted. All the more, the

trusts usually have very large amounts and placing these deposits with small and not

very reliable companies is not advisable because of safety reasons. HDFC enjoys a

reputation of never having defaulted in its interest payments or refund of deposits.

HDFC holds the ‘Numero Uno’ position. As was said earlier with the people

considering banks to be the safest options for deposits all that HDFC needs to do is to

bank upon its unquestionable strength.

2. An awareness needs to be created amongst the masses about the importance of

“Credit Ratings” and what it actually means to earn such credible ratings as ‘FAAA’

& ‘MAAA’ for 11 consecutive years which has been a significant achievement of

HDFC over the years.

3. The additional questions that formed a part of the post interview discussion brought

into light the fact that the people come to know about the various schemes offered by

the financial institutions through the newspapers, magazines and journals. With the

response available, it was seen that HDFC needs to strengthen upon the reach of its

advertisements.

4. A lot of stress has been laid on spreading the information regarding the financing

schemes in the report. In this context HDFC is constrained because it can advertise

only in a statutory format approved by the NHB. But advertising is absolutely

essential and the corporation must advertise within the framework prescribed by the

NHB.

5. To conclude, it can be said that the biggest asset of HDFC is its goodwill and the

corporation must exploit this goodwill to the maximum possible extent to increase the

participation of the general public at large and the trust sin particular in its fixed

deposits schemes.

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SUGGESTION & RECOMMENDATION

The following are the points of consideration :-

1. It is required that the depositor trust and the potential depositor trust be sent a

comparative interest rate table showing the rate of interest being offered by the

various housing finance companies and other such institutions.

2. It is so because when HDFC cuts interest rates the media publicizes it widely,

while when other housing finance companies do the same it goes unnoticed. This

has given an impression to the trusts that HDFC is paying lower rate of interest.

3. The fact that people consider banks to be more safe than any other institution and

safety being the most preferred criteria for their selection of investment schemes,

HDFC Ltd can bank upon advertising in a manner that emphasizes the company’s

advantage in this aspect.

4. The role of advertising has been very limited in collecting deposits. This needs to

change, for more advertising brings more deposits.

5. The deposit schemes can be advertised to the trusts by post. A brochure giving

details of the deposit schemes can be sent to the trusts who have not been

participating in the deposit scheme of HDFC.

6. It is known that HDFC is at a disadvantage as are other housing finance

companies when it comes to advertising due to the restriction by the NHB. But

still the deposits schemes must be advertised within the framework laid down by

the NHB.

7. Most people known HDFC as a lending institution and do not know that HDFC

also accepts deposits. This fact makes it very important to advertise vigorously,

the deposit schemes of the corporation.

8. To increase the goodwill of the corporation further in the minds of the depositors.

HDFC should send greetings to its depositors on such occasions as festivals.

Small New Year gifts such as cards, calendars, diaries, etc can also be sent.

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LIMITATIONS

As far as limitations are concerned present research work has been completed in the face

of following major constraints.

The date used in my research study is secondary data.

Latest data and information about Financing of External Trade in HDFC Bank is

very less.

The data is available till the year 2007 in most of the cases.

Limited analytical techniques have been used due to the nature of data available

on the subject.

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