Study on Foreign Exchange Remittances & Interbank Dealings

A

PROJECT REPORT

ON

“A Study of Foreign Exchange Remittances

And

Interbank Dealings”

FOR

NKGSB CO-OP.BANK LTD.

MASTER OF MANAGEMENT STUDIES (MMS)

UNIVERSITY OF MUMBAI

SUBMITTED TO

MARATHA MANDIR’S

BABASAHEB GAWDE INSTITUTE OF

MANAGEMENT STUDIES

MUMBAI CENTRAL

SUBMITTED BY: SACHIN KAJAVE

BATCH:

ROLL NO: 19

DECLARATION

I, Sachin P. Kajave student of Masters of Management Studies (Semester III) of

Babasaheb Gawde Institute of Management Studies (BGIMS), hereby declare that I have

successfully completed this project on “STUDY OF FOREIGN EXCHANGE

REMITTANCES AND INTERBANK DEALINGS” as a part of my ‘Summer

Internship’. The information incorporated in this project is true and original to the best of

my knowledge.

____________________________________

Signature

CERTIFICATE

ACKNOWLEDGEMENT

My sincere gratitude to NKGSB Co-op Bank Ltd for providing me with an

opportunity to work in the Banking Sector. I take this opportunity to acknowledge the

efforts of all those individuals who have helped me in making the project.

First and foremost, I am highly indebted to my Industry guide and Mentor Mr. Nirmal

Parekh, Assistant Manager and Mrs. Poonam Madam, Forex Department, NKGSB

for their guidance and constant supervision as well as for providing necessary

information regarding the project & completion of the project. Without their vision and

support this project would not have been so beneficial to me in which I had worked.

I would also like to express my gratitude to Ms. Sanchita and Ms. Shambhavi

Forex Dept., NKGSB Co-op Bank Ltd, Girgaum Branch for their timely guidance and

valuable experience that they shared with me during my project and sincerely appreciate

their suggestions, encouragement and approachability from day one through the end and

for making the one and half month period a memory to cherish.

I gratefully thank our Director and all the faculty members and my friends for adding

value to my knowledge base by providing with valuable insights into the completion of

this project and sharpening me for the corporate world.

INDEXChapter

No CONTENTS Page No.

1. Executive Summary 1

2. Introduction to project 2

3. Objectives of Study 10

4. Research methodology 11

5. NKGSB profile 13

6. Foreign exchange market

7. Forex Department & their functions

8. Remittance overview

8.1 Benefits of remittances 14

8.2 Types of remittances 21

8.3 Operating model in remittance business 23

8.4 Remittance transaction process

9. NKGSB’s AD II activities 25

9.1 Purposes of Remittances

10. Inter Bank dealings 69

10.1 Procedure & Documentation required 71

10.2 Purchase and Sale of Foreign Currency Travelers cheques (FTC)

10.3 Purchase and Sale of Foreign Currency notes (FC)

11. Travel Currency card

Advantages Of Travel Currency Cards

12. Recommendation and suggestions 78

13. Conclusion 79

14. Bibliography 80

Executive Summary

During one and half month period, NKGSB bank has given greater opportunity to work

with Forex Department and learn how Banks play an important role in Foreign Exchange

Remittances, Trade Finance activities and also Foreign Exchange currency convertibility

transaction. Though the process can be done without banks but for the security of the

payment and assurance of the Credit worthiness of the parties’ banks plays a major role to

it.

In this globalizing world, migration of people from one country to another

for employment opportunities h a s b e c o m e a c o m m o n phenomenon.

Dominant migration corridors have been formed between various countries/regions.

Documentary Credits mainly Letter of Credit is involved in the process of the importing

and exporting of goods through Banks, as some of the foreign exchange transactions and

applications are studies. It is universal processes accepted by all the countries dealing in

forex and adheres to terms and agreement from WTO and strict guidelines given by

Reserve Bank of India for trading in India. This work gives brief information about

Benefits of remittances and various purposes of remittances.

During this study, I have found out Foreign Remittance business may follow the

conventional banking model or any of the non-banking models. As studying there are

their views regarding the LC process and charges relating to it. There are too many banks

who are dealing with Forex so there is intense competition among all of them for

providing better services to the customers. However the margin or Credit given by all the

banks differs from each other. RBI is playing a very important role in maintaining strict

guidelines for Banks in India, Traders in India, Traders outside India and Foreign Banks.

Since my project states Trade Finance activities and foreign exchange currency dealing

especially inward remittance and Outward remittance which has given a new scenario to

all the New Traders on how to function in import/export activities and Various Tariffs

regarding import/export of goods into India and what all Process has to be followed with

what sort of documents, Licenses required.

1.1 Introduction to project

Globalization and financial liberalization in India have brought about enormous changes

in the financial functioning of the economy, as a result of which, the resultant gain of the

global integration of domestic and foreign financial markets has thrown open new

opportunities but at the same time exposed the financial system to significant risks.

Until 1991 before liberalization, India was isolated from the world markets, to protect its

economy as they fear of the colonization and to achieve self-reliance. Foreign trade was

highly difficult as import tariffs were extremely high around 300%, export taxes was also

levied and also quantitative restrictions, while foreign direct investment(FDI) was

restricted by high-limit equity participation, there were restrictions on technology

transfer, and government approvals.

This could be explained by the invoicing of imports in India in US dollars (80-90 per

cent) and the presence of menu cost in changing invoice price. For small exchange rate

change, it is not worthwhile to change the invoice price of imports in its own currency

due to the menu cost (a fixed cost involved in altering invoice price). Thus, the import

price in local currency (domestic prices) would change by the extent of the exchange rate

change, i.e., a higher pass-through. Invoicing pattern of trade, exchange rate movements

and exchange rate pass-through to domestic prices, thus, have implications for exchange

rate management and trade competitiveness.

It recommended that banks be allowed to initiate cross currency positions abroad and to

lend or borrow short-term funds up to six months, subject to a specified ceiling. Another

important suggestion related to allowing exporters and importers to retain 100 per cent of

their earnings in any foreign currency with an Authorised Dealer (AD) in India, subject to

liquidation of outstanding advances against export bills.

There are possibilities that the visible cost advantage apparently gained by the firm may

erode if the export or import risk factors were not properly identified and managed.

This project has been prepared with such focus on the issues faced to types of foreign

exchange dealing and techniques to resolves the issues faced by export/import

International trade and finance.

1.2 Objective of Research/Study

Study the operation of foreign exchange markets and alternative exchange rate systems.

Acquire essential skills for managing foreign exchange risks and operating exposure.

Operations for the bank in an informed and effective manner.

To utilize new process improvements for operational efficiency.

To understand the Operating model in remittance business.

To equip participants with the updated acknowledge for Trade Finance.

To acquire skills to understand how Interbank Dealings is done in the bank.

1.3 Research Methodology

Historical Research Design –

The purpose is to collect, verify, synthesize evidence to establish facts that defend or

refute your hypothesis. It uses primary sources, secondary sources, and lots of

qualitative data sources such as logs, diaries, official records, reports, etc. The limitation

is that the sources must be both authentic and valid.

Sources of Data

Data Collections from various sources like,

RBI circulars

Bank’s Forex Management Guide Book.

Banks official website

Journals on Foreign Exchange

Indian Institute of Banking and Finance’s book on

Practitioners of Trade Finance

Statistical Tools used in the study- Presentations in Graphical Form.

Limitations

(a) Unavailability of the data from the Bank.

(b) The study is limited to period to one and half months only

Introduction

Migrant remittances are a steadily growing external source of capital for

developing countries. While foreign direct investments and capital market flows fell

sharply in the last years due to the recession in the high income countries, migrant

remittances continued to grow, reaching USD 149.4 billion in 2002. The importance of

remittances in compensating the human capital loss of developing countries through

Migration and their potential in boosting economic growth was already recognised in the

beginning of the 1980s. A wide range of issues related to remittances became the subject

of political debate, as well as of more in-depth research. These topics include the

determinants of remittances, the transfer channels used and their economic impact on the

remittance receiving countries. Over the past years, partly because of the sharp increase

in remittance flows, the research on these issues gained momentum, resulting in a

mushrooming of scientific literature.

This introduction presents a critical overview of the state-of-art literature on

remittances and is organized as follows: in the following section, the data on migrant

remittances, methods of estimating the amounts of remittance flows, global and regional

trends in remittance flows, and their importance as a source of capital for developing

countries, are discussed. The third section gives an overview of the theoretical and

empirical research on the determinants of remittances and the following section outlines

the transfer channels, the cost involved with international money transfers and the

evolutions of money transfer markets. The last two sections examine the literature on the

effects of remittances on inequality, growth and the balance of payments, and present the

conclusions.

Banking Sector: An overview

Banking Regulation Act of India, 1949 defines Banking as “accepting, for the

Purpose of lending or investment of deposits of money from the public, repayable on

demand or otherwise and withdraw able by cheques, drafts, and order or otherwise.”

Most of activities a Bank performs are derived from the above definition. In

addition, Banks are allowed to perform certain activities which are ancillary to this

business of accepting deposits and lending. A bank’s relationship with the public,

therefore, revolves around accepting deposits and lending money. Another activity which

is assuming increasing importance is transfer of money –both domestic and foreign –

from one place to another. This activity is generally known as “remittance business” in

banking parlance. The so called forex (foreign exchange) business is largely a part of

remittance albeit it involves buying and selling of foreign currencies.

The law governing Banking Activities in India is called “Negotiation Instruments

Act 1881”. The banking activities can be classified as:

Accepting Deposits from public/others (Deposits)

Lending money to public (Loans)

Transferring money from one place to another (Remittances)

Acting as trustees

Acting as intermediaries

Keeping valuables in safe custody

Collecting Business

Government business

Co-operative Banks Defined

A co-operative bank is a financial entity which belongs to its members, who are at the

same time the owners and the customers of their bank. Co-operative banks are often

created by persons belonging to the same local or professional community or sharing a

common interest.

Co-operative banks generally provide their members with a wide range of banking and

financial services (loans, deposits, banking accounts).

Introduction of Cooperative Bank

Cooperative banking is retail and commercial banking organized on a cooperative basis.

Cooperative banking institutions take deposits and lend money in most parts of the world.

Cooperative banking (for the purposes of this article), includes retail banking, as carried

out by credit unions, mutual savings and loan associations, building societies and

cooperatives, as well as commercial banking services provided by mutual organizations

(such as cooperative federations) to cooperative businesses. Co-operative banks differ

from stockholder banks by their organization, their goals, their values and their

governance. In most countries, they are supervised and controlled by banking authorities

and have to respect prudential banking regulations, which put them at a level playing

field with stockholder banks. Depending on countries, this control and supervision can be

implemented directly by state entities or delegated to a co-operative federation or central

body. Even if their organizational rules can vary according to their respective national

legislations, co-operative banks share common features Customer-owned entities in a co-

operative bank, the needs of the customers meet the needs of the owners, as co-operative

bank members are both. As a consequence, the first aim of a co-operative bank is not to

maximize profit but to provide the best possible products and services to its members.

Some co-operative banks only operate with their members but most of them also admit

non-member clients to benefit from their banking and financial services. Democratic

member control: co-operative banks are owned and controlled by their members, who

democratically elect the board of directors. Members usually have equal voting rights,

according to the co-operative principle of “one person, one vote”. Profit allocation: in a

co-operative bank, a significant part of the yearly profit, benefits or surplus is usually

allocated to constitute reserves. A part of this profit can also be distributed to the co-

operative members, with legal or statutory limitations in most cases. Profit is usually

allocated to members either through a patronage dividend, which is related to the use of

the co-operatives products and services by each member, or through an interest or a

dividend, which is related to the number of shares subscribed by each member.

NKGSB Profile NKGSB was founded by a great visionary Sheth Shantaram Mangesh Kulkarni on

26th September, 1917.

The Bank with a modest beginning in 1917, is now a Multi-State Bank having its

area of operation in the States of Maharashtra, Karnataka, Goa, Gujarat and Union

territories of Daman, Diu, Dadra and Nagar Haveli.

Today the Bank has 64 branches spread over in the state of Maharashtra, Goa ,

Karnataka & Gujarat.

Mumbai - 34 branches

Navi Mumbai – Vashi, CBD Belapur, Panvel, Nerul, Kharghar & Kamothe (6

branches)

Maharashtra other than Mumbai - Pune – (Kothrud, Aundh, Chikhli, Chakan,

Bhosari & Magarpatta), Kolhapur – (Kolhapur Main & Uma talkies. These are

take over of Shahu Co-operative Bank, Ichalkaranji), Nashik – (Nashik & Am-

bad) & Sindhudurg – (Kudal) and Ratnagiri

Goa- Ponda, Panaji, Madgaon & Mapusa

Karnataka – Karwar- Main. Karwar -Baad, Hubli, Belgaum & Sirsi.

Gujarat – Vadodara, Surat.

Over the years, the Bank has consistently shown robust growth both quantitatively

and qualitatively. The Bank has not only grown in size of deposits and advances,

but has multiplied its net worth making the institution financially sound and fun-

damentally strong.

The Board of Directors of the Bank consists of well qualified professionals en-

riched with varied experience in the strategic fields of Finance, Technology, Busi-

ness and Management. Being driven by the co-operative principles, management

lays emphasis on profits but with focus on the welfare of our stakeholders.

As a part of good governance practice, the Bank has adopted code of good busi-

ness principles and accepted the responsibility to ensure that they are observed

down the line as a work culture in its true spirit. The business philosophy is based

on four core values i.e. pillars of service excellence, customer focus, product in-

novation and resourceful people.

In terms of our commitment for harnessing the state of art technology, networking

all 64 branches counter under ‘Core banking solution’, customers can access their

accounts and perform banking operations ‘anywhere anytime’ with value added

services.

The Bank has varied Deposit products to suit every needs of customers, so also

the bank has occupied a place of pride with those who are financed for offering

tailor-made complete credit solutions under one roof packaged at liberal, compet-

itive and flexible terms, let it be personal finance or loan facilities for Short term

as well Long term requirement of Small Businessman, Professionals, Small &

Medium Enterprises and Corporates.

The Bank has always been in the forefront to add on value to its products and has

entered into correspondent relationship and strategic alliances to offer best of the

services to its customers efficiently and with convenience such as:

Tied-up with Insurance Companies to sell both the insurance products, life insurance

with “Max New York Life” and non-life with “Oriental Insurance Company Ltd.”

A member of payment & settlement gateways of RBI through INFINET and

RTGS system by way of Electronic Fund Transfer (EFT) and Electronic Cheque

Clearing (ECC), which provides instant realization of funds & speedy remittances

including Electronic Clearing System (ECS) both account debit & credit.

Provides Demand Draft facility under arrangement with private sector bank

Amongst few Co-operative banks, having secured License as Authorised Dealer

Category II of RBI which offers sale and purchase of foreign exchange, foreign

remittances, etc.

Also caters to Forex business needs through foreign exchange arrangement made

with private sector bank.

Tied up with UAEXchange for fast inward remittance of foreign exchange.

Providing facilities - Pension a/cs, ‘SMS Banking’ and also ‘iConnect’ for hassle

free payment of taxes.

Tied up with NSDL as a Depository Participant offering Demat services at all our

branches

Management

Board of Directors is composed of eminent, well qualified professionals enriched

with varied experience in the strategic fields of Finance, Technology, Business and

Management. Being driven by the Co-operative principles, the management lays

emphasis on profits but with entire focus on the welfare of stakeholders.

As a part of good governance practice, the bank has adopted code of good business

principles and accepted the responsibility to ensure that they are observed down the

line as a work culture in its true spirit. The business philosophy is based on four

core value pillars of service excellence, customer focus, product innovation and

resourceful people.

Vision A premier co-operative bank

Operating Principles

We will make our Customers, Shareholders and Community at large very proud

We will always strive to provide Customers the best products and services that

leads to their progress and prosperity

We shall act with high level of integrity, achieving the set goals with active in-

volvement, devotion and commitment of our employees

SWOT Analysis:

Strengths:

Online Services: NEFT, RTGS, Online Login.

Advanced Infrastructure: Branches at NKGSB are well equipped that provide the

customers with taster banking services. All the computerized machines are located in

suitable manner & are very useful to the customers & staff of the bank.

Friendly Staff: The staff at NKGSB in all branches is very friendly & help the

customers in all cases. They provide faster services along with bonding & personal

relationship with the customers.

Banking Hours: It has Banking Hours from 8am to 8pm. It is more convenient to

customers.

Other Facilities to the Customers & Employees: NKGSB also provides other

facilities like drinking water facilities, proper sitting arrangements to the customers.

Money Transfer Banking: Newly introduced “Money Gram” by NKGSB to

facilitate all money transfers electronically can be wire transfer through this services,

hence provide greater value to customers in preference of time saving..

SMS Banking: NKGSB sends sms to its customers for their new products and

services and can be access from any place any where.

Weakness

No Proper Facilities to Uneducated customers: NKGSB provides all services

through electronic computerized machines. This creates problems to the less educated

people. But this threat falls in the 4th quadrant so it’s negligible. The company can

avoid this threat.

Opportunities

Increase in percentage of Returns on increase: The bank should provide

higher returns on deposits in comparison of the present situation. This will also

upto large extent help the bank earn profits & popularity.

Popularity in Investments in Capital Markets: As an on going situation as

market capitalization of NKGSB increases, it should increase its investments in

capital markets such as securities market, mutual fund and insurance.

Threats

Competition from Other already established Nationalized Banks.

Competition from Private Banks which provide more Speedy Transactions.

Net Services: NKGSB provides all kind of services on-line. There can be a

Threat of Hacking. The confidential information of the customers can be leaked

easily through the e-mail ids.

Foreign Exchange Market:

An Overview

The Foreign Exchange Regulation Act, 1973 (FERA) was repealed and a new Act called

the Foreign Exchange Management Act, 1999 (FEMA) came into force with effect from

June 1, 2000, with a view to facilitating external trade and payments and promoting

orderly development and maintenance of foreign exchange market in India.

The foreign exchange market exists wherever one currency is traded for another. It is by

far the largest market in the world, in terms of cash value traded, and includes trading

between large banks, central banks, currency

speculators, multinational corporations,

governments, and other financial markets and

institutions. The trade happening in the forex

markets across the globe currently exceeds

US$1.9 trillion/day (on average). Retail traders

(individuals) are currently a very small part of

this market and may only participate indirectly through brokers or banks.

The foreign exchange market provides the physical and institutional structure through

which the money of one country is exchanged for that of another country, the rate of

exchange between currencies is determined, and foreign exchange transactions are

physically completed.

The retail market for foreign exchange deals with transactions involving travelers and

tourists exchanging one currency for another in the form of currency notes or travelers’

cheques. The wholesale market often referred to as the interbank market is entirely

different and the participants in this market are commercial banks, corporations and

central banks.

Authorised Persons for Foreign Exchange Transaction

Foreign Exchange Management Act (FEMA) stipulates that all foreign exchange

transactions are required to be routed only through the entities that are licenced by the

Reserve Bank to undertake such transactions. Such entities are defined as Authorised

persons in Section 10 of the Act. Under current dispensation, such authorised person may

be:

a. A Commercial bank (AD), or

b. A Money changer (FFMC), or

c. Any financial institution authorized for limited kind of transactions, depending on their activity, or

d. Any other entity authorized by the Reserve Bank.

Foreign Exchange Market participants:

The foreign exchange market consists of two tiers:

The client or retail market and

The interbank or wholesale market

Five broad categories of participants operate within these two tiers:

1. Bank and nonbank foreign exchange dealers

Banks and a few nonbank foreign exchange dealers operate in both the interbank and

client markets. They profit from buying foreign exchange at a ‘bid’ price and reselling it

at a slightly higher ‘ask’ price. Dealers in the foreign exchange departments of large

international banks often function as market makers.

Currency trading is quite profitable for commercial and investment banks. Small to

medium sized banks are likely to participate but not as market makers in the interbank

market. Instead of maintaining significant inventory positions, they buy from and sell to

large banks to offset retail transactions with their own customers.

2. Individuals and firms conducting commercial or investment Transactions

Importers and exporters, international portfolio investors, Multi National Enterprises,

tourists, and others use the foreign exchange market to facilitate execution of commercial

or investment transactions. Some of these participants use the market to ‘hedge’ foreign

exchange risk.

3. Speculators and arbitragers

Speculators and arbitragers seek to profit from trading in the market itself. They operate

in their own interest, without a need or obligation to serve clients or to ensure a

continuous market. A large proportion of speculation and arbitrage is conducted on behalf

of major banks by traders employed by those banks. Thus banks act both as exchange

dealers and as speculators and arbitrages.

4. Central banks and treasuries

Central bank and treasuries use the market to acquire or spend their country’s foreign

exchange reserves as well as to influence the price at which their own currency is traded.

They may act to support the value of their own currency because of policies adopted at

the national level or because of commitments entered into through membership in joint

float agreements.

5. Foreign exchange brokers

Foreign exchange brokers are agents who facilitate trading between dealers. Brokers

charge small commission for the service provided to dealers. They maintain instant

access to hundreds of dealers world wide via open telephone lines.

Foreign Exchange Department

Vision

To evolve appropriate environment in discharging the basic objective of the For-

eign Exchange Management Act (FEMA), 1999;

To facilitate external trade and payments and to promote orderly development and

maintenance of foreign exchange market in India; and

To frame prompt and pro-active policy responses, as part of active capital account

management, within the evolving macroeconomic conditions.

Mission

To effectively integrate the needs of the users, both resident and non-resident, with the

evolving market dynamics and external sector developments by:

Evolving and disseminating rules and regulations in a user friendly language;

Moving towards fuller capital account convertibility in a calibrated manner;

Having regular interface with the users to assess their needs with greater focus on

the requirements of resident individuals / entities;

Rendering effective and efficient customer service with greater transparency;

Empowering authorized persons and enlarging their role as a conduit to create

awareness about the developments;

Facilitating hassle-free cross-border transactions;

Capturing data on a real time basis to dynamically induce policy changes; and

Disseminating data in a transparent manner.

Foreign Exchange department in a bank has following functions:

1. EXPORTS

Pre-shipment Advances

Post-shipment Advances

Export Guarantees

Advising/Confirming Letter of Credit

Facilitating project exports

Bills for collection

2. IMPORTS

Opening letters of credit

Advance bills

Import loans and guarantees.

3. EXCHANGE DEALINGS

Rate computation

Nostro/Vostro Accounts

Forward contracts

Derivatives

Exchange position and cover operations

4. REMITTANCES

Issue of DD, MT, TT etc.

Encashment of cheques, DD, MT, TT etc.

Issue and encashment of travelers' cheques

Sale and encashment of foreign currency notes

Non-resident deposits

5. STATISTICS

Submission of returns

Collection of credit information

Under the FEMA, foreign exchange transactions are divided into two broad categories -

current account and capital account transactions. Transactions that alter the assets or

liabilities, including contingent liabilities outside India, of persons resident in India or

assets or liabilities in India of persons resident outside India are classified as capital

account transactions. All other transactions are current account transactions.

Capital Account Transactions

Capital account transaction is defined as a transaction which:- Alters the assets or liabilities, including contingent liabilities, outside India of per-

sons resident in India. In other words, it includes those transactions which are

undertaken by a resident of India such that his/her assets or liabilities outside In-

dia are altered (either increased or decreased). For example: - (i) a resident of

India acquire an immovable property outside India or acquire shares of a foreign

company. This way his/her overseas assets are increased; or (ii) a resident of In-

dia borrows from a non-resident through External commercial Borrowings

(ECBs). This way he/she has created a liability outside India.

Alters the assets or liabilities in India of persons resident outside the India. In

other words, it includes those transactions which are undertaken by a non-resi-

dent such that his/her assets or liabilities in India are altered (either increased

or decreased). For example, (i) a non-resident acquire immovable property in

India or acquires shares of an Indian company or invest in a Wholly Owned

Subsidiary or a Joint Venture with a resident of India. This way his/her assets

in India are increased; or (ii) a non-resident borrows from Indian housing fi-

nance institute for acquiring a house in India. This way he/she has created a li-

ability in India.

The Act also contains a list of some of the most common capital account

transactions:-

Transfer or issue of any foreign security by a person resident in India;

Transfer or issue of any security by a person resident outside India;

Transfer or issue of any security or foreign security by any branch, of-

fice or agency in India of a person resident outside India;

Any borrowing or lending in rupees in whatever form or by whatever

name called;

Any borrowing or lending in rupees in whatever form or by whatever

name called between a person resident in India and a person resident

outside India;

Deposits between persons resident in India and persons resident out-

side India;

Export, import or holding of currency or currency notes;

Transfer of immovable property outside India, other than a lease not

exceeding five years, by a person resident in India;

Acquisition or transfer of immovable property in India, other than a

lease not exceeding five years, by a person resident outside India;

Giving of a guarantee or surety in respect of any debt, obligation or

other liability incurred-

(i) By a person resident in India and owed to a person resident outside

India; or

(ii) By a person resident outside India.

The Act has empowered the Reserve Bank of India (RBI) to specify, in consultation with

the Central Government, the permissible capital account transactions and the limits up to

which foreign exchange may be drawn for these transactions. But it shall not impose any

restriction on the drawal of foreign exchange for payments due on account of

amortization of loans or for depreciation of direct investments in the ordinary course of

business.

The FEMA Notification contains the list of permissible capital account transactions as

well as list of prohibited capital account transactions. The permitted capital account

transactions have been classified into two categories:-

Capital account transactions by persons resident in India includes,

Investment in foreign securities;

Foreign currency loans raised in India and abroad;

Acquisition and transfer of immovable property outside India;

Guarantees issued in favour of a person resident outside India;

Export, import and holding of currency or currency notes;

Loans and overdrafts (borrowings) from a person resident outside India;

Maintenance of foreign currency accounts in India and outside India;

Taking out the insurance policy from an insurance company outside India;

Remittance outside India of capital assets of a person resident in India;

Sale and purchase of foreign exchange derivatives in India and abroad and

commodity derivatives abroad.

Capital account transactions by non- residents includes,

Investment in India such as (i) issue of security by a body corporate or an

entity in India and investment therein by a non-resident and (ii) investment

by way of contribution to the capital of a firm or a proprietary concern or

an association of persons in India;

Acquisition and transfer of immovable property in India;

Guarantee in favour of, or on behalf of, a person resident in India;

Import and export of currency/currency notes into/from India;

Deposits between a person resident in India and a person resident outside

India;

Foreign currency accounts in India of a non-resident;

Remittance of the assets in India held by a non-resident.

There are generally two types of prohibitions on capital account transactions:-

General Prohibition: - A person shall not undertake or sell or draw foreign ex-

change to or from an authorized person for any capital account transaction. This

prohibition is subjected to the conditions specified by Reserve Bank in its circu-

lars and notifications. For example, Reserve Bank of India has issued an AP

(DIR) Circular, wherein a resident individual can draw from an authorized person

foreign exchange up to US$ 25,000 per calendar year for a capital account trans-

action specified in Schedule I to the Notification.

Special Prohibition:- A non resident person shall not make investment in India in

any form, in any company or partnership firm or proprietary concern or any en-

tity, whether incorporated or not, which is engaged or proposes to engage:- (i) in

the business of chit fund, or (ii) as Nidhi Company, or (iii) in agricultural or plan-

tation activities or (iv) in real estate business, or construction of farm houses or

(v) in trading in Transferable Development Rights (TDRs).

Current Account Transactions

The Act defines the term 'current account transaction' as a transaction other than a capital

account transaction and without prejudice to the generality of the foregoing such

transaction includes,

Payments due in connection with

Foreign trade,

Other current business,

Services and

Short-term banking and credit facilities in the ordinary course of business;

Payments due as

Interest on loans and

Net income from investments,

Remittances for living expenses of parents, spouse and children residing abroad and

Expenses in connection with

Foreign travel,

Education and Medical care of parents, spouse and children.

Medical care of parents, spouse and children.

Above definition implies that even if the transactions listed above may fit into the

definition of capital account transactions, such transactions shall be treated current

account transactions. For example, resident of India imports goods from outside India on

a short term credit (for a period of less than 6 months), he is creating a liability outside

India and thus, it can be treated a capital account transaction but, it is specifically

included in the above definition as a current account transaction. As a general rule, any

person may sell or draw foreign exchange if such sale or drawal is a current account

transaction. Under the Act, Central Government may, in public interest and in

consultation with the Reserve Bank, impose such reasonable restrictions for current

account transactions as may be prescribed. Accordingly, the Central Government has

issued the Foreign Exchange Management (Current Account Transaction) Rules. It

contains the list of current account transactions for which drawal of foreign exchange is:-

Totally prohibited;

Permitted, subject to the prior approval of concerned Ministry, Central

Government;

Permitted, subject to prior approval of the Reserve Bank of India;

http://www.rbi.org.in/home.aspx

No restrictions or limits are applicable for undertaking the transactions that are

not covered by the above rules and the authorized dealers are free to release

foreign exchange upon the satisfaction that the transactions will not involve and is

not designed for the purpose of, violation of the Act, or any rules, regulations

made there under.

In today's changed scenario, Indian rupee has become fully convertible so far as current

account transactions are concerned. This implies that foreign exchange is freely available

to the residents for remittance on account of current account transactions for the various

purposes like foreign travel, foreign education, and medical treatment abroad etc. The

non-residents are also freely allowed to remit outside India the income or capital gain

generated in India. But, even today, the Indian rupee, in respect of capital account

transactions, is not fully convertible.

REMITTANCE Overview

“Remittance is the act of transmitting money to a distant location to fulfill an obli-

gation”. A remittance is a transfer of money by a foreign worker to his or her home

country.

Money sent home by migrants constitutes the second largest financial inflow to many de-

veloping countries, exceeding international aid. Estimates of remittances to developing

countries vary from International Fund for Agricultural Development's US$301 billion

(including informal flows) to the World Bank's US$250 billion for 2006 (excluding infor-

mal flows). Remittances contribute to economic growth and to the livelihoods of people

worldwide. Moreover, remittance transfers can also promote access to financial ser-

vices for the sender and recipient, thereby increasing financial and social inclusion. Re-

mittances also foster, in the receiving countries, a further economic dependence on the

global economy instead of building sustainable, local economies.

Apart from accepting deposits and lending money, Banks also carry out, on behalf of

their customers the act of transfer of money - both domestic and foreign from one place

to another. This activity is known as "remittance business". Banks issue Demand Drafts,

Banker's Cheques and Money Orders etc. for transferring the money. Banks also have the

facility of quick transfer of money also know as Telegraphic Transfer or Tele Cash Or-

ders.

In Remittance business, Bank 'A' at a place 'a' accepts money from customer 'C' and

makes arrangement for payment of the same amount of money to either the customer 'C'

or his "order" i.e. a person or entity, designated by 'C' as the recipient, through either a

Branch of Bank 'A' or any other entity at place 'b'. In return for having rendered this ser-

vice, the Banks charge a pre-decided sum known as exchange or commission or service

charge. This sum can differ from bank to bank. This also differs depending upon the

mode of transfer and the time available for affecting the transfer of money.

Faster the mode of transfer, higher the charges.

Reasons:

In this globalizing world, migration of people from one country to another for

employment opportunities h a s b e c o m e a c o m m o n phenomenon. Dominant

migration corridors have been formed between various countries/regions. This is primar-

ily due to the socio-economic conditions prevailing in the migrants’ countries of origin

and destination. A few examples:

Migrant-sending country:

Lack of job opportunity

Lower wage rates

Social insecurity

Political instability

Extreme geographical conditions

Migrant-receiving country:

Availability of employment

Friendly migration policies

Shortage of skilled resources

Financial liberalization

Abundance of natural resources

A few examples of such corridors (sender country-receiving country) are Mexico-

US, South Asia-UAE and India-US.

Benefits of Remittances

Remittances are playing an increasingly large role in the economies of many countries,

contributing to economic growth and to the livelihoods of less prosperous people (though

generally not the poorest of the poor). According to World Bank estimates, remittances

totaled US$414 billion in 2009, of which US$316 billion went to developing countries

that involved 192 million migrant workers. For some individual recipient countries, re-

mittances can be as high as a third of their GDP. As remittance receivers often have a

higher propensity to own a bank account, remittances promote access to financial ser-

vices for the sender and recipient, an essential aspect of leveraging remittances to pro-

mote economic development

It’s easy to look at the numbers surrounding money sent overseas and realize that

there are a very large number of people who leave their home and families behind to pur-

sue better wages and opportunities in other countries. It is estimated that over $350 bil-

lion was sent to home countries from foreign lands in 2007 alone, most of it in monthly

installments of between $100 and $250.

In several countries with developing economies, remittances can make up as much as

one-third of a nation’s gross domestic product. When we look at the remittance market on

a macro level, we get an understanding of the sheer size of the money flowing to devel-

oping nations.

What we can’t get by looking at the numbers, however, is a sense of the decision making

process that goes into leaving one’s home, family, and country to pursue opportunities

overseas. Migrant workers often leave home with no guarantees or promises of jobs, only

hope that they will find something that suits them when they arrive at their destination.

Many leave home knowing that they will not see their children again for up to several

years. These workers leave home for a variety of reasons. For some, it is to escape the

clutches of poverty that pass from generation to generation in many developing countries.

For others, they leave a country with a corrupt or violent government in hopes of eventu-

ally building a new life abroad and then sending for their family to join them. No matter

the reason, the decision to leave is usually a difficult one that calls for great sacrifice both

for the worker moving abroad and the family staying behind.

Remittances do a great deal of good for developing economies, and their reach is more

powerful than helping family members buy groceries, clothing, and medicine.

The money that is sent in the form of remittances often is more than sufficient to meet the

daily needs of living in these small countries and it allows family members to save and

invest in themselves and their community. Developing nations would be wise to make the

remittance process as easy as possible to encourage even more money to be sent by citi-

zens working abroad.

In the United States, many migrant workers from the same home country have banded to-

gether to make the money they send home even more powerful. In addition to sending

money to their individual families, many workers will contribute to funds that are pooled

and used in times of need, such as after natural disasters.

For instance, Mexican immigrants in the United States have formed thousands of groups

to pool funds and send money to those who need it most. The Mexican government, real-

izing the potential for more money to flow into their country, has encouraged action such

as this by matching remittances sent through these organizations

Types of Remittances:

Foreign remittance can be defined as ‘the purchase and sale of freely convertible foreign

currencies as admissible under Exchange Control Regulations of the country’.

A looser translation is the sending of money home while working in a foreign country.

Thousands of people are currently working and living in a country that is not their home,

and sending funds regularly back to their families in their home country.

There are two types of remittances:

Foreign Inward Remittance: The receiving country, where the beneficiary resides.

The bank receives the money that has been sent from the sending person in the coun-

try in which the money has been earned. The term 'inward remittance" means pur-

chase of foreign currencies in whatever form and includes not only remittances by

M.T., T.T., draft etc., but also purchase of travellers cheques, drafts under travellers

letters of credit, bills of exchange, currency notes and coin etc. Debit to banks' non-

resident Rupee accounts also constitutes an inward remittance.

Inward remittances: India gets a lot of money from remittances abroad mostly from

expats who transfer money for families back home.

Foreign Outward Remittance: The sending country, where the wage earner is lo-

cated. The sender uses a bank or foreign exchange company to send money to foreign

country. Many of the receiving banks have established remittance relationships with

currency houses and banks in other countries to better facilitate the flow of remit-

tances into the country.

There is no restriction on receipt of remittances from abroad either in foreign currency

or by debit to non-resident Rupee accounts of banks' overseas branches or correspon-

dents. Authorised Dealers may freely purchase T.Ts, M.Ts, drafts, bills etc., expressed

and payable in foreign currencies or drawn in Rupees on banks' non-resident Rupee

accounts. There is also no objection to their obtaining reimbursement in foreign cur-

rency from their overseas branches and correspondents in respect of Rupee bills and

drafts which are purchased by them under letters of credit opened by non-resident

banks or under other arrangements.

Outward remittances: Indians like to give gifts to people abroad. They also like to

invest in international equity and debt. But they invest less in overseas deposits.

According to RBI data, money sent abroad by resident Indians crossed the $1 billion

mark for the first time in 2010-11. Between April and November of the current fiscal,

such outward remittances stood at $628 million or around Rs 3,000 crore, down 15 per

cent over a similar period in 2010-11. The dip was mainly on account of a drop in money

sent for maintenance of close relatives living abroad.

The RBI's liberalized remittance scheme currently allows residents to remit up to

$2,00,000 in a financial year for various purposes, both for capital and current account

transactions. From $25,000 in 2004, this limit has been increased over the years.

Investment made abroad in deposits, immovable property, equity or debt instruments are

all included under the scheme. Gift, donations, money spent on travel or for medical

treatment abroad, money sent for maintenance of close relatives living abroad as well as

funds used for studying overseas also fall under the scheme.

Investments abroad: Of these, well over a fifth of total remittances were made for

investing in equity and debt instruments abroad, both in 2010-11 and till November this

fiscal. This could be due to better performance by some of the markets and because of the

products or vehicles offered by portfolio/wealth management firms, for Indian investors

to diversify internationally.

Investments made in these overseas instruments expanded at a compounded annual rate

of 22 per cent in the last three years to $266 million in 2010-11. The same stood at $148

million for the eight months ending November 2011.

Although purchase of property rose to $66.3 million in 2010-11 after a dip in 2009-10, it

is still not as popular as investing in equity or debt.

Value of gifts: Indians also seem to splurge in gifting. At $242 million in 2010-11 and

$166.5 million till November 2011 of this fiscal, the value of gifts rose from 20 per cent

of total outward remittances last fiscal to 25 per cent this financial year so far. The RBI,

through a notification in September 2011, allowed gifts in the form of shares, debentures

or any security up to $50,000 in a financial year. This limit was earlier $25,000 a year.

Interestingly, money sent for maintenance of close relatives saw a sharp increase in 2010-

11 but has declined in 2011-12 thus far. For the eight months ending November 2011,

Indians sent $95 million under this category, down 46 per cent over a similar period a

year ago. Improved employment numbers in countries such as the US may have resulted

in Indians sending less money to their relatives abroad.

Operating Models In the Remittance Business

An International Remittance business may follow the conventional banking model or any

of the non-banking models.

Conventional Banking Model

In this model, an end-to-end remittance transaction involves the following parties:

• Remitter’s B a n k - Th e b a n k w h e r e t h e remitter has an account that is

debited for transferring money to the beneficiary

• Beneficiary’s Bank - The bank where the beneficiary of the remittance has

an account that is credited for the remittance money received

• Correspondent Bank (only in cases where the above-mentioned entities do

not have a direct business tie-up) - an intermediary bank which has

associated with various banks globally, through which remittance

transactions are routed

Figure 4 Nostro-based setup

Figure 4 illustrates the Nostro-based setup, wherein the Beneficiary Bank has an account with the Correspondent Bank, while

Figure 5 shows the generic process involved in a remittance transaction based on a Nostro account model.

Modes of Remittance

There are various Origination Modes, which are used by the remitter to transfer

money. The remitter can issue a remittance request to his bank either;

a. By visiting the branch and furnishing a Remittance Instruction Form

prescribed by the Remitting Bank, bearing all details necessary for effecting the

remittance along with an account debit mandate

or

b. By dropping a cheque from an account with the Remitting Bank along with the

Remittance Instruction Form. Based on the details in the form, the Remitter’s

Bank debits his bank account and sends a SWIFT message to transfer the

money to the Beneficiary’s Bank.

Listed below are the various Disbursement Modes of remittance using which the

money can be tendered to the beneficiary.

1. Direct Credit to the beneficiary’s account with the Beneficiary Bank

2. Disbursement of Cash to the beneficiary on furnishing appropriate photo -

identification/ address proof in the event of his not having a bank account

3. Transfer of Money by the Beneficiary Bank to the beneficiary’s

account with some other local bank using the local payment mechanism

4. DD issuance in the name of the beneficiary

Non-Banking Channels

Non-banking players play a vital role in the remittance space and have a larger share in

the Global Remittance business than conventional banks. These entities operate in

various forms:

Money Transfer Operators

MTOs (Money transfer Operators) like Western Union and Money Gram have a

network of agents across the globe and serve as non-bank remittance channels. The

remitter can visit an MTO outlet and pay cash in foreign currency to send money to any

part of the globe where the MTO’s agent is present. The receiver can visit the MTO

agent at his location and collect the money in local currency.

Following depicts the process for an International Remittance

transaction effected through an MTO:

The settlement between the MTOs in the two countries takes place through their

partner banks. On receiving the remittance amount in cash from the remitter, MTOs

deposit those funds in their local bank accounts. MTOs request their bank to

transfer the consolidated amount to the bank account of the MTO agent in the

receiving country. In order to minimize costs, only the net amount (total amount to

be sent to the recipient country minus total amount to be received from that country) is

sent. Please note that the beneficiary receives the money much before the settlement

between the MTOs

Costs

The fixed costs incurred by an MTO are listed below:

1. Origination and Disbursement Agent Network Costs

Setting up agency networks/outlets in the country of origination and disbursement forms

a significant portion of an MTO’s costs. Though traditionally, MTOs have had

proprietary agents, of late, third party agents have also been appointed by Western

Union and Money Gram. While these agents receive a fixed minimum compensation,

major incentives are linked to the number and value of transactions. The MTOs thus

share the risk of expanding their network with these partners.

2. Processing and Money Transfer Costs

These are the fees to be paid to the local bank which buys and sells various

international currencies, on behalf of the remittance service provider. These costs are

linked to the aggregate transaction value and MTOs with large volume transactions

could negotiate lower fees.

3. Marketing Costs

This simple transaction processing business has now become commoditized and players

have started spending on advertising and brand building.

4. Compliance and Regulatory Costs

Various mandatory compliance/regulatory procedures in the remittance business are

listed below. Expenses involved in following them form a sizeable part of the total

cost.

• KYC of Remitter / Beneficiary:

To prevent practices like transfer of money between anti-social elements, the

“Know Your Customer” checks are done by the Remitter ’s and the

Beneficiary’s Bank. KYC would typically involve obtaining documents such as

photo-ID, address proof, passport details, driving license details etc.

• Regular Reporting of Transaction: Details to the Central Bank

Central Banks place limits on the value of an individual’s remittances within a

certain time frame. Additionally, institutions are also supposed to comply

with Anti-Money Laundering requirements and report any suspicious/fraudulent

transactions to the Central Bank.

5. Administrative and IT costs

The MTO will also have to bear office maintenance expenses as well as system

development and maintenance costs.

Salient Features of the MTO model-

1. It is the fastest mode of transfer since the beneficiary can receive the money

within seconds after it is sent.

2. People without b a n k a c c o u n t s c a n a l s o transact in this model.

3. The cost per transaction is lower compared to other models.

4. MTOs have the biggest market share in the remittance business.

5. Setup costs are high, acting as a barrier for new entrants.

E-mail: The exchange house sends e-mail to the Beneficiary Bank instructing

it to transfer the amount to the furnished beneficiary account.

Integration of exchange house and Beneficiary Bank systems

B e n e f i c i a r y B a n k ’s p r o p r i e t a r y remittance platform

Exchange Houses:

Exchange Houses are extensively used for remittances from the Middle East. Unlike the

banking channel, this channel is based on Vostro accounts i.e. the accounts

maintained by exchange houses with various banks in the beneficiary countries.

These accounts are pre-funded by the exchange houses.

Salient Features of the Exchange House Channel

1. Since the Vostro accounts are pre-funded, the beneficiary amount is

paid based on the funding in this account. Hence o n r e c e i v i n g

t h e E x c h a n g e H o u s e’s instruction, the beneficiary

receives the amount almost instantaneously.

2. The Exchange House has to fund its account with the Beneficiary

Bank hence the latter enjoys the float.

3. The Exchange House can draw a DD on its Vostro account in favor of the

beneficiary and hand it over to the remitter over the counter, which can then

be dispatched by courier or even sent along with a friend travelling back

home. Alternatively, the DD can also be drawn in favor of the remitter,

who can then carry it back to his home country on his return and get it

cleared there. This is a secure option for blue collar workers who would

otherwise have to travel with hard cash.

The Remittance T ransaction Process

Step 1 The remitter deposits the remittance money in the overseas currency in cash

at the Exchange House counter.

Step 2 The exchange rate and the transaction fee are communicated and confirmed

over the counter.

Step 3 The beneficiary account details are provided by the remitter.

Step 4 The exchange house instructs the Beneficiary Bank with whom it has a

tie-up for transferring the requisite amount in the beneficiary country’s

local currency using one of the following modes:

Figure depicts the Vostro-based setup wherein the Correspondent Bank has an account with the Beneficiary Bank

Impact on Global economy

This section highlights the magnitude and impact of increased migration on the world

economy. The World Bank estimates that remittances in 2 0 0 9 t o t a l e d $ 420

b i l l i o n - o u t o f w h i c h $317 billion went to developing countries - and involved

some 192 million migrants or 3.0% of the world population.

Figures 1 and 2 respectively depict the remittances of top remittance sending and receiving countries for 3 consecutive years.

Figure 1 Top Remittance-Sending Countries (figures in US $ million)

Figure 2 Top Remittance-Receiving Countries (figures in US $ million)

Figure 3 Remittances as a Percentage of GDP

Figure 3 expresses the quantum of this incoming money as a percentage of GDP

thereby indicating its significance to the destination country’s overall development.

(Source: World Bank website)

NKGSB’s AD-II Activities:

Reserve Bank of India has renewed NKGSB’s AD II license and also given a

permission to start AD II activities in all branches. At present following

Branches are doing the AD – II Activity and acting as a focal point for

designated branches.

Forex Dept; Girgaum, Dadar, Dindoshi, Mulund (East), Thane.

Under AD-II License following activities can be carried out by NKGSB bank –

Foreign Demand Draft remittances

Telegraphic Transfers

Purchase & Sale of Foreign Currency Notes

Purchase & Sale of Foreign Travellers Cheque

Under Telegraphic Transfer and Demand Draft remittances only clean

remittances are allowed. The above mentioned activities can be carried out for

the purpose mentioned as under:

(a) Private visits,

(b) Remittance by tour operators/travel agents to overseas

agents/principals/hotels,

(c) Business Travel,

(d) Fee for participation in global conferences and specialised training,

(e) Remittance for participation in international events/ competitions

(towards training, sponsorship and prize money,

(f) Film shooting,

(g) Medical Treatment abroad,

(h) Disbursement of crew wages,

(i) Overseas Education,

(j) Remittance under educational tie up arrangements with universities

abroad,

(k) Remittance towards fees for examinations held in India and abroad

and additional score sheets for GRE, TOEFL, etc,

(l) Employment and processing, assessment fees for overseas job

applications,

(m)Emigration and Emigration Consultancy fees,

(n) Skills/ credential assessment fees for intending migrants,

(o) Visa fees,

(p) Processing fees for registration of documents as required by the

Portuguese/ other Governments, Registration/Subscription/

Membership fees to International Organisations,

(q) Registration / Subscription/ Membership fees to International

Organisations.

Personal/ Private/ Leisure Visits

Foreign exchange for private visit can also be released to a person who is availing of

foreign exchange for travel outside India for any purpose up to the limits specified in

Schedule III to the Rules.

Eligibility:

Resident Indian Nationals.

Foreign Nationals permanently resident in India are also eligible to avail of this

quota provided the applicant is not availing of facilities for remittance of his salary,

savings etc .abroad in terms of the existing

FEMA regulations.

Foreign born wife of Indian nationals.

Children endorsed on parent’s passport are

also eligible for full entitlement.

Quantum of Exchange:

UptoatotalofUS$10000orits equivalent per resident individual on a financial year ba-

sis.

Out of which maximum of US$3000or its equivalent in Currency notes per visit

and resting Travelers Cheques for all the countries except for travel to Iraq, Libya,

Islamic Republic of Iran, Russian Federation and other Republics of Common

wealth of Independent States.

Individual traveling to countries like Nepal & Bhutan are not eligible to withdraw

foreign exchange under this scheme.

For Travelers proceeding to Iraq or Libya exchange in the form of currency notes

may be sold up to limit not exceeding USD 5000orits equivalent per resident indi-

vidual on a financial year basis.

For Travelers proceeding to the Islamic Republic of Iran, Russian Federation and

other Republics of Commonwealth of Independent States entire exchange can

be released in the form of currency notes.

Foreign exchange quota for personal visit can be availed over & above the

specified amount under all other schemes for release of foreign exchange.

Documentation:

Request cum FEMA Declaration form for release of exchange under personal

visit scheme.

Form A2 or Simplified Application cum Declaration up to USD 5000

Equivalent

Original passport for pages showing name, address, valid visa & passport num-

ber and validity should be verified by the Counter Staff & details to be note don

their quest form Confirmed ticket-showing travel within 60days of taking for-

eign exchange should be verified & details of the ticket number should be noted

on their quest form by Counter Staff.

Request form should have the undertaking from the Counter Staff that all

originals including the passport &he/she has dully verified the ticket. Photo-

copies need to be kept.

Photocopy of the crossed account payee cheque /draft or pay order along with

debit advice.

If the applicant is a foreign national permanently resident in India, he/she

should give an undertaking on the application itself that he/she is perma-

nently resident in India and is not availing of facilities for remittance of his/her

salary. Saving etc. abroad in terms of existing FEMA Regulations.

Exceptions to be noted by Counter Staff:

o Visa may not be insisted up on in cases where travel is to a country-offering visa

on arrival. However, undertaking for the same may be obtained

o For Airline staff open ticket may be accepted. Proof of Airline staff may be kept

in record.

Sales to Business Visit

Foreign exchange may be released for undertaking

business travel or attending a conference or specialised

training or for maintenance expenses of a patient going

abroad for medical treatment or check up abroad or for accompanying as attendant

to a patient going abroad for medical treatment / check up to the limits specified in

Schedule III to the Rules.

Eligibility:

Executive’s sponsored by firms/companies/ organizations in India.

Participation in international conferences /seminars which are of a scientific,

technical or educational nature.

Specialized training/study tour sponsored by institutions or undertaken by pro-

fessionals like Doctors.


Up to USD25000 per business trip irrespective of period of stay

Release of exchange beyond USD 25000 for a single business visit requires prior

approval of RBI.

Exchange may also released to foreign nationals if the visit is sponsored by the

company/firm/organization in India where they are employed on regular basis.

If a passenger plans to club both Conference and business visit together the enti-

tlement remains only up to a maximum of USD25000.

Personal Visit entitlement can be availed over and above the specified amount

under this scheme

Documentation:

Request cum FEMA Declaration form for release of exchange under business

visit scheme on company’s letter head, duly signed by Authorized official of the

company.

A -2 form (Only for the amounts exceedingUSD 5000equivalent.)

In case of Travel for a conference/ seminars the brochure giving full particulars

of the Conference/seminar shall also be submitted along with the application.

In case of Travel related to Training/ Study tours the details of training/study tour

along with a letter from the overseas institutions agreeing to provide necessary fa-

cilities for the training /study tour, and certifying that the expenses are being

borne by the organization.

All the above documents to be kept on record along with Copy of Cash Memo.

Medical treatment abroad Resident Indian proceeding for permanent emigra-

tion abroad (needs to be confirmed)

With a view to enable residents to avail of foreign exchange for medical treatment

abroad without any hassles and any loss of time, Authorised Dealers may release for-

eign exchange up to an amount of USD 100,000 or its equivalent, on the basis of

self declaration that the applicant is buying exchange for medical treatment outside

India, without insisting on any estimate from a hospital/doctor. For amount exceeding

the above limit, estimate from the doctor in India or hospital/ doctor abroad, is re-

quired to be

submitted to

the Authorised

Dealers. A

person who

has fallen sick

after proceeding abroad may also be released foreign exchange by an Authorised

Dealer for medical treatment outside India.

Eligibility:

Resident Indian

must be suffering from an ailment requiring specialized treatment abroad.

Resident I n d i a n f a l l e n s i c k a f t e r proceeding abroad

Going abroad for Medical Check Up.

Quantum of exchange: USD 100,000

Documentation:

Request cum FEMA Declaration form for release of exchange by filling the

relevant portion as per the type of remittance.

Photocopy o f t h e p a s s p o r t h a v i n g valid visa in case the remittance is for

employment, education abroad, and medical treatment and for permanent

emigration.

A - 2 form (Only for the amounts exceeding USD 5000 equivalent.)

For application fees in case of foreign education or processing fees for

immigration, valid visa is not required.

Medical treatment abroad for Resident Indian:

Quantum of exchange: Exceeding U S D 1 0 0 0 0 0 o n submission to AD of an

estimate from the Doctor in India or hospital/ doctor abroad.

Cultural Tours

Dance troupes, artistes, etc., who wish to undertake tours abroad for cultural purposes

should apply to the Ministry of Human Resources Development (Department of

Education and Culture), Government of India, for their foreign exchange requirements.

Authorised Dealers may release foreign exchange, on the strength of the sanction from

the Ministry concerned, to the extent and subject to conditions indicated therein.

Emigration:

Eligibility:

USD 100,000 or amount prescribed by country of Emigration (lower of the two)

Quantum of exchange:

Resident Indian Proceeding for permanent emigration abroad

Documentation:



Photocopy of t h e p a s s p o r t h a v i n g valid visa in case the remittance is for


emigration.




Remittances for Tour Arrangements (At the request of the traveler)

Authorised Dealers may remit foreign exchange up to a reasonable limit, at the

request of a traveler towards his hotel accommodation, tour arrangements, etc., in the

countries proposed to be visited by him or for making other tour arrangements for

travelers from India, provided in each case the Authorised Dealer is satisfied that the

remittance is being made out of the foreign exchange purchased by the traveler

concerned from an Authorised Person (including exchange drawn for private travel

abroad), in accordance with the Rules, Regulations and Directions in force.

Authorised Dealers may effect remittances at the request of agents in India who have

tie-up arrangements with hotels / agents, etc., abroad for providing hotel accommodation

or making other tour

arrangements for travel from

India, provided the Authorised

Dealer is satisfied that the

remittance is being made out

of the foreign exchange

purchased by the traveler concerned from an Authorised Person(including exchange

drawn for private travel abroad) in accordance with the Rules, Regulations and

Directions in force.

Eligibility:

Traveler traveling abroad on personal/Leisure visit or business visit can remit up to a

reasonable limit towards his hotel accommodation, tour arrangements, etc., in the

countries proposed to be visited by him, provided it is out of foreign exchange

purchased by the traveler from us (including exchange drawn for private travel abroad)


Quantum of Exchange is not specified in the RBI Circulars

Documentation:

Letter from the Client duly signed by their authorized signatories clearly

indicating the following details/particulars : -

Request for the remittance with the currency, amount and date of remittance. [In

case of difference in amount between underlying document/s against the actual

remittance amount, such adjustments should be explicitly stated along with the

reason and final net amount to be remitted should be specified]

Purpose of Remittance

Debit authority – a u t h o r i z i n g t h e bank to debit their INR/EEFC account with us

towards the amount of remittance and our charges / commission and

Beneficiary & Bank details for remittance.

Form A2 – Dully filled – in and signed by authorized signatories

FEMA Declaration format duly signed by authorized signatories

Remittances for Tour Arrangements (At the request of the Agent)

Eligibility:

Agents in India, having a good track record and s a t i s f y i n g a l l KYC norms, and

have tie up arrangements with hotels/agents etc., abroad for providing hotel

accommodation or making other tour arrangements for travelers from India, provided

the remittance is made out of foreign exchange purchased by the concerned

traveler from us or from an authorized person (including exchange drawn

for private travel abroad)


Amount as per the invoice of the overseas hotels/agent within the prescribed limits of

personal / business visit Forex quota as mentioned above.

Documentation:

Agent’s Declaration from the client to the effect that the remittance is being

made out of the foreign exchange purchased by the concerned traveler from an

authorized person (including exchange drawn for private travel abroad) in

accordance with the Rules, Regulations and Directions in force.

That he (agents) has received the undertaking from the travelers in addition

to the normal required conditions applicable for release of foreign exchange that

the traveler has/will purchase the foreign exchange from the Authorized person only

and within the prescribed limits (including the amount now being remitted abroad

as advance payment) in accordance with the Rules, Regulation and Direction in

force.

That he will take care and follow up that t h e tour/services for which the advance

is being/has b e e n remitted should be executed and ensure that the beneficiary

of advance remittance has fulfilled his obligation under the Contract/agreement/tie-

up and will inform the Bank within reasonable time from the completion of

the Tour and undertake to repatriate the unspent advance remittance, if any.

Employment abroad

Eligibility: USD 100,000


Resident Indians

Employment Visa / Work P e r m i t and letter from the overseas employer

Documentation:



Photocopy of the passport having valid visa in case the remittance is for

employment, education abroad, and medical treatment and for permanent emigration.

A -2 form (Only for the amounts exceeding USD 5000 equivalent.)

For application fees in case of foreign education or processing fees for immigration,

valid visa is not required.

Maintenance of close relatives abroad ( by resident Indian)

Eligibility:

Resident Indians can remit to their close relative who are Nonresident and require

funds abroad for their maintenance.


USD 100,000 (per year, per recipient)

Documentation:



Photocopy of the p a s s p o r t h a v i n g valid visa in case the remittance is for


emigration.




Maintenance of Close relative abroad (By resident but not permanently resi-

dent in india)

Eligibility:

By resident but not permanently resident in India and

Is a citizen of a foreign state other than Pakistan or

Is a citizen of India, who is on deputation to the office or branch or

subsidiary or joint venture in India of such foreign company


Not exceeding net salary (after deduction of taxes, contribution to provident fund

and other deductions)

Documentation:

Request cum FEMA Declaration form for release of exchange by filling the relevant

portion as per the type of remittance.



emigration.




Education abroad:

Eligibility:

Resident Indian

Confirmed admission in overseas college/university/educational institution.

Student h o l d i n g I n d i a n p a s s p o r t s that had earlier gone abroad for pursuing

studies without availing of exchange can avail foreign exchange for the balance

period of the course

Students holding foreign passports dependent on their parents resident in India


USD 100,000(Academic year) FEES: Agreed

Documentation:

Request cum FEMA Declaration form for release of exchange by filling the relevant

portion as per the type of remittance.



emigration.




Remittance under Liberalized Remittance Scheme:

Eligibility:

All Resident Individuals including Minors are eligible to avail the facility under

scheme.

The facility will not be available to corporate, partnership firms, HUF, Trusts,

etc.


USD 200,000

The facility will be per financial year basis (April-March).

Limit of USD 200,000 under the Scheme would also include remittances

towards Gift and donation by a resident individual.

Purpose:

This facility is available for making remittance up to USD 200,000 per financial

year basis (April-March) for any current or capital account transactions or a

combination of both.

Under this facility, resident individuals will be free to acquire and

hold immovable property or shares, units of Mutual Funds or any other asset

outside India and will also able to open and maintain and hold foreign currency

accounts with a bank outside India for making remittances under the

scheme. The foreign currency account may be used for putting through all

transactions connected with or arising from remittances eligible under this scheme.

Gift.

Donation

Purchase of objects of Art.

R emittance of funds for acquisition of ESOPS.

Documentation:

R equ i r e m e n t s t o b e c o m p li e d wi t h t h e r e m i tt e r ( C u s t o m e r )

Request cum FEMA Declaration form for release of exchange

The remitter individual will have to designate our branch through which all the

remittances under the scheme will be made.

Application cum declaration duly filled in all respect and signed by the

applicant is to be taken.

R equ i r e m e n t s t o b e c o m p li e d b y B r an c h ; Counter (Counter Staff)

To Comply with KYC & AML Guidelines while allowing the facility

If the applicant is an existing account holder, he should have maintained the

account for a period of one year.

If the applicant is a new customer, Counter Staff must take respective

confirmation from the respective branch that they have carried out due

diligence on the opening, operations & maintenance of the account

Obtain the bank statements from the applicant for to check the source of funds. If

unavailable, please ask for latest Income Tax Statement Order/ Return filed by the

applicant / PAN

In case the applicant doesn’t have account with us, in that case the payment to

be taken in the form of Cheque drawn on applicants accounts/ debit to his account

or by Demand Draft/ Pay Order.

The remitting office (CPU) must certify that remittance is not being made

directly or indirectly to ineligible entities and follow RBI guidelines.

Exceptions to be noted by Counter Staff

Remittance for any purpose specifically prohibited under Schedule-I (like

purchase of lottery/sweep stakes, tickets proscribed magazines etc) or any item

restricted under Schedule II of Foreign Exchange Management (Current Account

Transactions) Rules,

2000.

Remittance made directly or indirectly to Bhutan, Nepal, Mauritius or Pakistan.

Remittances made directly or indirectly to countries identified by the Financial

Action Task Force (FATF) as “non co-operative countries and territories” (as

available on FATF website) viz Cook Islands, Egypt, Guatemala, Indonesia,

Myanmar, Nauru, Nigeria, Philippines and Ukraine.

Remittances directly or indirectly to those individuals and entities identified as

posing significant risk of committing acts of terrorism as notified separately by

the Reserve Bank to the Banks. FES: Agreed

Transactions in the nature of remittance for margins or margin calls to

overseas exchanges/overseas counterparty are not allowed under the Scheme.

It is clarified that the banks should not allow any kind of credit facilities to

resident individuals to facilitate remittances under the Scheme.

Inter Bank Dealings

Bank transactions that deal with foreign exchange and money markets within

other banking facilities and financial institutions that are not banks in the local areas and

overseas. Describing any loan, deposit, transaction or other relationship between

two banks. Interbank transactions provide a great deal of liquidity to the market.

Interbank interest rates are often used as benchmarks for other rates.

Inter-bank transactions

Authorised dealers may freely undertake foreign exchange transactions as under:

A. With authorised dealers in India:

i. Buying/Selling/Swapping foreign currency against rupees or another foreign

currency

ii. Placing/Accepting deposits and Borrowing/Lending in foreign currency.

B. With banks overseas and Off-shore Banking Units in Special Economic Zones

i. Buying/Selling/Swapping foreign currency against another foreign currency to

cover client transactions or for adjustment of own position,

ii. Initiating trading positions in the overseas markets.

Under Interbank Dealings, following activities can be carried out by NKGSB co-op bank –

Purchase of Foreign Currency Notes

Sale of Foreign Currency Notes

Purchase of Foreign Travellers Cheque

Sale of Foreign Travellers Cheque

Purchase of foreign currency from customer

Sale of foreign currency to customer

Procedure to be followed in Sale and Purchase of foreign currency notes and

Travellers Cheques –

Presently this facility will be extended only to our existing account holders.

Bank has made arrangements with Thomas Cook (India) Ltd. & Pheroze Fram-

roze & Co. Ltd. for carrying out sale & purchase of Foreign Currency Notes &

Travelers Cheque.

If customer comes to your Branch for sale & purchase of Foreign Currency Notes

& Travelers Cheque, take the applicable rate from Forex department, take proper

precautions as per given guidelines, take acknowledgement from the customers

(format attached) & contact TCIL for pick-up & delivery of Foreign Currency

Notes or Travelers Cheque as & when required

The Branch Manager should confirm the Exchange Rates from Forex Department

via e-mail before undertaking any transactions & subsequently take a print copy

of the same to be forwarded to the dept.

In respect of any further queries related to Foreign Exchange activities needs to be

directed to Forex dept.

The following documents are attached herewith for your reference –

1. RBI License copy.

2. Guidelines for encashment of Foreign Currency Notes & Travellers Cheque.

3. Accounting entries to be passed as per guidelines.

4. Thomas Cook (India) Ltd. and Pheroze Framroze & Co. Ltd. tie-up agreement.

5. Guidelines for detecting of counterfeit notes.

6. Example, How to quote Foreign Currency Notes rates & Travellers Cheque?

7. Specimens Registers of FLM 1 to FLM 7 is enclosed for maintaining records.

8. Documents required for A2 transactions.

9. Encashment Certificate, Cash Memo & A2 form, BTQ as per FEMA

specifications will be delivered by Forex Dept.

10. Specimen of FEMA declaration.

11. FLM – 8 Report should be filled up & sent to Forex dept. on or before 5 th of every

month.

12. Acknowledgement specimen for purchase & sale foreign currency.

13. List of Thomas Cook branches, contact person name & telephone no.s for pick up

and delivery of foreign currency notes / travellers cheques.

Guide Line for Encashment of Foreign Currency Notes & Travellers Cheques

NKGSB have been granted A. D. Category – II License by R.B.I. Under AD – II License,

they can do Foreign Exchange Business as Full Fledged Money Changers (FFMCs)

Bringing and taking out of Foreign Exchange

I. Foreign Exchange in any form can be brought into India freely without any

limit provided it is declared on Currency Declaration Form (CDF) on arrival.

When Foreign Exchange brought in the form of currency Notes or Travelers

Cheques does not exceed US $ 10000/-or it’s equivalent and/or the value of

Foreign Currency Notes does not exceed US$ 5000/- or its equivalent

declaration thereof on CDF is not insisted upon.

II. Taking out Foreign Exchange in any form, other than Foreign Exchange

obtained from an authorised dealers or a money changer is prohibited unless it

is covered by a general or special permission of Reserve Bank. Non-resident

however has general permission to take out an amount not exceeding the

amount originally brought in by them subject to compliance with the

provision of above para.

Purchase / Encashment of Foreign Currency Travelers Cheques (FTC)

Need to exercise care and caution

Encashment of Foreign Currency Travelers Cheques is very sensitive department as

“Reported Lost/Stolen Travelers Cheques are in large circulation. Also most of the

banks which are issuing FTC (including American Express) have stopped the practice

of issuing periodical list of Lost/Stolen Travelers Cheques. Therefore, encashing staff

must be more careful and vigilant while encashing the Foreign Travelers Cheques.

How to Scrutinise

The encashing Staff should exercise maximum care and caution while encashing

the Foreign Travelers Cheques. They should first take the FTCs from the

customer than see whether the Travelers Cheques presented for encashment are

genuine & no countersign have been made prior, (bonafide) by referring to the

Security features as per details supplied by issuing bank including comparing the

specimen provided by the respective Travelers cheque issuing banks/institution.

These details should be readily available at the time of Encashment of FTCs

Blank Travelers cheque i.e. Cheques which were not signed by the purchaser at

the Space for Original (holder’s) signature” (when countersigned below with this

signature) at the time of purchasing them, should not be accepted for encashment.

The fact is that the cheques are blank and the procedure for their issuance to the

purchaser has not been properly followed is an indication that the person

presenting the FTCs for encashment may not be the person who purchased the

cheque. Such person should be politely directed to the nearest office of the

bank/organization that issued the travelers cheques.

It should be ensured that the cheques presented for encashment are not already

countersigned at the place where it is specified on the cheque “Countersign here

in the presence of person cashing”

The Travelers Cheques should be verified by placing under Ultra-violet ray

Machine.

Paying Officer must ensure that the person presenting the travelers cheques for

encashment makes the second signature (counter signature) with a ball point pen

in the space provided thereon in her/his presence. A careful watch should be kept

when customer is countersigning the cheques. Sketch Pen / thick pen

countersigned FTCs do not accept it, as signature might have been forged.

The paying officer must carefully compare this second signature/countersignature

with the original signature on the Travelers cheques to ensure that both the

signatures are exactly the same and there is no variation in the signature. Foreign

Travelers Cheques should not be encashed if there is the slightest variation

between the counter signature and original signature.

The Pass port of the presenter/customer should be scrutinized to establish her/his

identity. The photograph in the Pass Port should be of the same person encashing

the Travelers cheques. Photocopies of Pass port along with relevant pages

indicating Pass port Number and date, validity date, date of issue entry visa

particulars etc should be held on record.

Take his/her permanent and local address on the reverse of the voucher.

You can ask him/her to submit Travelers Cheques Purchase Agreement Copy also

if there is any doubt.

FTCs series no. is always on the right-side top corner.

Gift travelers cheque will only come in golden color.

Accounting Entries to be passed –

Purchase of Travelers Cheque -

When a customer approaches our Bank for encashment of Travelers Cheque,

following accounting entries need to be passed –

We will purchase from customers Foreign Currency Travelers Cheque

Dr …… Foreign Currency Travelers Cheque Purchase A/cCr…… Customers A/c (SB / CD / Cash)Cr…… Service Tax A/c

2. Sale of above Foreign Currency Travelers Cheque to FFMCs (KBL, TCIL & PFC) Dr……. Outward Clearing Cheque i.e. R. B. I A/c Cr….. Foreign Currency Travelers Cheque Purchase A/cCr…… P&L commission A/c AD II

Outstanding entries in Ledger/Register should be tallied with GLB every month. Reconciliation should be carried out for this.Encashment Certificate

Tourists/ customer encashing Travelers cheque may request for Issuance of Encashment

Certificate. Bank may issue Encashment Certificate as per Specimen (EC).

Sale of Foreign Currency Travellers Cheques

General

Since we are not holding Stock of Travellers cheques, any requirement of customer for

travellers cheques is fulfilled by routing this business to Thomas Cook and Thomas Cook

passes 50 % commission/exchange profit to us on these transactions.

Purchase / Encashment of Foreign Currency Notes (FCs)

Purchase of Foreign Currency Notes from our customer

Full fledged Money Changers may purchase Foreign Currency Notes, Coins from

Residents as well as non-residents. At present persons bringing Foreign Exchange in to

India are required to declare in Currency Declaration Form (CDF) Foreign Currency

brought in by them where the aggregate value of Foreign Currency Notes and Travelers

Cheques EXCEEDS US $ 10000/- or their equivalent or where the value of Foreign

Currency Notes brought by them EXCEEDS US $ 5000/- or it's equivalent.

(c) Where the Foreign Currency Notes was brought in by declaring on form CDF, the

tenderer should be asked to produce the same.

(d) Where CDF is produced, particulars of purchaser should be endorsed on the

reverse of the form giving number and date of encashment certificate issued under

the stamp and signature of the authorised Official. A copy of the form should be

retained for branch record. If entire Foreign Exchange covered by the CDF form

is encashed, the CDF form should be retained by the bank on its record

Need to Exercise Care and Caution

Proper Care and Caution should be taken at the time of Encashment of Foreign

Currency Notes as Fake/Fictitious currency notes are in circulation in large

number. It is thus imperative that the encashing Staff should be more careful and

vigilant while encashing Currency Notes.

Currency Notes Encashing Staff should follow some of the procedures of

encashment of Foreign Currency notes like -

Ask the customer to write a letter to the Bank for encashment of currencies

bearing his / her name, currency notes denomination & series number, his / her

telephone no. & his / her local address.

Also verify his/her pass port & note down the following particulars -

Nationality, Pass port Number, validity date, country of issuing pass-port, Foreign

Address etc.

Small denomination note is altered to higher value by using chemicals, which can

be detected under ultraviolet rays’ machine.

We advised you that never to “Corner Count” the notes but always check & count

the notes full – way to check the denomination as well as features of the currency

notes.

Always check the watermark, security thread & hologram in currency notes.

Currency notes can also be verified by placing under ultra violet rays’ machine or

magnifying machine.

Following are the denomination of the foreign currency notes available at present:

US Dollar Pound Euro Aus Dollar1 5 5 52 10 10 105 20 20 2010 50 50 5020 100 10050100

Do not accept mutilated notes.

Details relating how to scrutinize the counterfeit notes, Thomas Cook training

circular is enclosed for your ready reference.

Encashment Certificates

Bank should issue Encashment Certificate in form of EC in all cases of purchase of

Foreign Currency Notes from Public irrespective of whether the tenderer asks for the

certificate or not. It should be valid for three months for the purpose of reconvertion the

unspent balances, if any in to Foreign Exchange. The validity period for the purpose of

reconvertion should be prominently indicated at the top right hand corner of each

certificate.

Holding Stock of Foreign Currency Notes

Due to inherent risk involved in handling Foreign Currency Notes, we should not hold

Foreign Currency Notes Stock. We should sell to Money Changer like Thomas Cook or

Pheroze Framroze.

Accounting Entries to be passed

Purchase of Foreign Currency Notes -

When a customer approaches our Bank for encashment of foreign currency notes to

us, following accounting entries need to be passed –

1. We will purchase from customers foreign currency notesDr …… Foreign Currency Notes on hand A/cCr…… Customers A/c (SB/CD/Cheque)Cr…… Service Tax A/c

2. Sale of above currency notes to FFMCs (KBL, TCIL & PFC)

Dr……. Outward Clearing Cheque i.e. RBI A/c Cr….. Foreign Currency Notes on hand A/cCr…… P&L commission AD II A/c

Sale of Foreign Currency Notes

We have to follow some of the steps/procedure of sale of Foreign Currency Travelers Cheques.

Rate of Exchange Foreign Currency Notes should be sold at Currency Selling Rate

Procurement of Currency Notes for Sale. Foreign Currency Notes to be sold should be procured from Reputed Authorised Money Changers after negotiating best price. The names of the money changers should be approved by banks' management.

Foreign Currency Notes should be delivered to customer only after receipt of equivalent Rupee amount + Charges if any.

Accounting EntriesSince we do not keep stock of Currency notes we have to purchase Foreign

Currency Notes from Authorised Money Changers.

Following Accounting entries should be passed for purchase of Foreign Currency Notes from Money Changers i.e. Thomas Cook, Pheroze Framroze, etc

Dr…….. Foreign Currency Notes on hand A/cCr…… Outward clearing Cheque i.e. R.B.I A/c Cr…… Service Tax A/c

Delivery of currency notes to the public / customers

Dr …… Customers A/c – SB/CD (Currency notes selling rate + Commission + Service Tax)

Cr…… Foreign Currency Notes on hand A/cCr…… Service Tax A/c

Cr ….. . P & L Commission AD II A/c SALE OF FOREIGN CURRENCY TO CUSTOMER

Please refer to the transaction mentioned below & apply the rate for this transaction only –

Purchase of FC's GBP 1000/- @ Rs. 71.50 from TCILGross amount of currency exchange in rupees = Rs.71,500/- ADD - Service Tax charged by TCIL = Rs. 28/- Total Amt paid by us to TCIL by PSI = Rs. 71,528/-

Sale of FC's purchased from TCIL GBP 1000/- @ Rs.72.50 to our customerGross amount of currency exchange in rupees = Rs. 72,500/-

ADD - AD-II commission chgs. = Rs. 100/- Service Tax Payable on commission = Rs. 28/-

Service Tax charged by TCIL = Rs. 11/- Total Amt collected from customer a/c = Rs. 72,639/-

En tries to be passed –Customers A/c (SB/CD/...) Dr…… Rs. 72,639/-ABB/HO FCCASH on hand a/c Cr…… Rs. 71,528/-ABB/HO PL 4103 AD–II Comm Cr…… Rs. 100/-ABB/HO Service Tax Payable Cr…… Rs. 11/-ABB/HO PL 4104 FC Ex rate Diff Cr…… Rs. 1000/-

For purchase of currency from TCILABB/HO FCCASH on hand a/c Dr…… Rs.71,528/-Pay slip A/c (paid to TCIL) Cr…… Rs. 71,528/-

TCIL - PSI to be issued in the name of Thomas Cook (I) Ltd.

PURCHASE OF FOREIGN CURRENCY FROM CUSTOMER

Please refer to the transaction mentioned below & apply the rate for this transaction only -

Purchase of Foreign Currency THB 2960/- @ Rs. 1.37 from Customer -Gross Foreign Ex. Amt. = Rs. 4,055/-Less- SRTax of TCIL = Rs 28/-

Transaction Cost (AD II Commission) = Rs. 100/-SRTax on Rs. 4900 @ 10.30% = Rs. 11/-

Total Amt. to be paid to customer = Rs. 3,916/-

Above purchased THB 2960/- @ Rs. 1.40 to be sold to TCIL

Gross Foreign Ex. Amt. = Rs. 4,144/-(-) TCIL will recovered their SRTax from us = Rs. 25/-Pay Slip to be received from TCIL of Amt. = Rs. 4,119/-

Entries to be passed –

For Purchase of currency THB 2960/- from customers – ABB/HO FCCASH on hand a/c Dr…… Rs. 4,119/- Customers A/c (SB/CD/CC...etc) Cr…… Rs. 3,916/-ABB/HO PL 4103 AD–II Comm Cr…… Rs. 100/-ABB/HO Service Tax Payable Cr…… Rs. 11/-ABB/HO PL 4104 FC Ex rate Diff. Cr…… Rs. 92/-

For Sale of currency THB 2960/- to TCIL -Cheque/Pay slip A/c (received from TCIL) (SRYCR)

Dr…… Rs. 4,119/-ABB/HO FCCASH on hand a/c Cr…… Rs. 4,119/-

THOMAS COOK (I) LTD. TIE-UP ARRANGEMENT FOR SALE AND PURCHASE OF FOREIGN CURRENCY NOTES

This has reference to your correspondence dated 20th October 2008 regarding the above and subsequent discussion we have had with Mr.Mohan Tamhankar and Mr.Nirmal Parekh.

We have enclosed a proposal that we wish to offer in order to have an exclusive arrangement for servicing the bulk foreign exchange requirements of your bank.

The proposal also includes a brief note - Why Thomas Cook? – Which mentions the inherent features that we would bring to this association.

We would also like to explore other business avenues of common interest like;

Providing Overseas Education Loan to students referred by us.

We can provide remittance facilities (non-trade) to your bank, viz University Fees, Application Fees, Maintenance of close relatives abroad, etc. As we maintain NOS-TRO account in 8 different currencies and being a member of SWIFT, we can provide quick remittances apart from issuing Foreign Demand Drafts.

As a part of this arrangement, we would be conducting a dedicated workshop for your staff on identifying counterfeit currency. Through this workshop we endeavour to equip them with the updated information on counterfeit notes and also all the necessary tips to be followed while handling Foreign Currency and Travellers Cheques. Additionally, we send updates on email to our business partners on the latest in the currency / retail foreign exchange market.

At Thomas Cook, we share a Commitment to Quality and a determination to be the Best in the Business. We truly believe in Exceptional Service from Exceptional People and are committed to being The First Choice Worldwide.

We look forward for your response and please feel free to get in touch with us for seeking any clarifications.

Thanking you and assuring you of our Quality Service at all times.

Yours Sincerely,For Thomas Cook (India) Ltd.

Jayadev RajagopalSenior Manager Foreign Exchange

BULK FOREIGN EXCHANGE SERVICES TO NKGSB LOCATIONS

Rupee Settlement of Foreign Exchange purchased

Principal Operating Guidelines

Thomas Cook (India) Limited (TCIL) offers to purchase foreign currency

notes and encashed travellers cheques against rupee payment from NKGSB

locations.

TCIL will pick up currencies at mutually agreed periodicity from NKGSB

branches.

In case of an alert on counterfeit currency notes, TCIL may make a listing of

Currency Note distinctive numbers on the purchase bordereaux or as an An-

nexure at the Bank's premises. In case of such a listing, the same is signed by

the NKGSB representative and TCIL representative. All encashed Travellers

Cheques would have the NKGSB stamp on the back of the cheque to assist in

identification and tracking of the cheques.

Settlement would be effected by means of a local crossed rupee cheque to the

NKGSB location immediately on purchase of foreign exchange.

The transaction currency and volumes can be confirmed through a telephonic

call / email and the rate agreed would stand for the volume confirmed. TCIL

would in turn treat the same as a forward purchase and the said rate would ap-

ply for those volumes.

For currencies where a forward purchase has not been undertaken through a

telephonic call / email, the Rate would be agreed at the time of pick up.

FINANCIALSTCIL would offer the following discount on the IBR Rate prevailing at the time of

Purchase

For Purchases

USD CURRENCY – RS.0.18 PER US DOLLAR

US DOLLAR TRAVELLERS CHEQUES - RS. 0.20 PER US DOLLAR

GB POUND CURRENCY - RS.0.25 PER GB POUND

GB POUND TRAVELLERS CHEQUES- RS. 0.28 PER GB POUND

EURO CURRENCY - RS. 0.18 PER EURO

EURO TRAVELLERS CHEQUES - RS. 0.20 PER EURO

Miscellaneous Currency Notes – 3%

Rupee settlement for Sale of Foreign Currency Notes

Principal Operating Guidelines

TCIL offers to sell foreign Currency Notes to NKGSB

In case of an alert on counterfeit currencies, NKGSB may make a listing of

Currency Note distinctive numbers on the sales bordereaux or as an Annexure

at the Bank's premises. In case of such a listing, the same is signed by the

TCIL and NKGSB representatives.

The payment will be made by the NKGSB location to the respective TCIL

location through a bankers cheque on the date of foreign currency note sales.

The rate would be communicated at the time of confirming the transaction.

The transaction currency and volumes can be confirmed through a telephonic

call / email and the rate agreed would stand for the volume confirmed. TCIL

would in turn treat the same as a forward sale and the said rate would apply

for those volumes.

FINANCIALS

For Sales

TCIL would offer the following premium on the IBR Rate prevailing at the time of Sale

USD CURRENCY - RS.0.18 PER US DOLLAR

GB POUND CURRENCY - RS.0.25 PER GB POUND

EURO CURRENCY - RS. 0.28 PER EURO

MISCELLANEOUS CURRENCY NOTES – 3%

Note: As per the new directive by the Ministry of Finance, purchase and sale of

foreign exchange has been brought under the ambit of Service Tax. Effective 16th May

2008, an additional amount of Rs.28 (Transaction Fee and Service Tax) would be

levied on all transactions.

Example How to Quote Purchase & Sale of Foreign Currency Notes & Travelers Cheque taking today’s base rate only of Thomas Cook (India) Ltd. -

Purchase of Foreign Currency Notes & Travelers Cheque –

1. Read the tie – up Agreement of TCIL.2. See the rate sheet attached dated 5/12/08 only.3. Inter Bank Rate (IBR) of USD as on 5/12/08 is Rs. 49.70.

Now, IBR = Rs. 49.70 Less = Rs. 00.18 (TCIL will purchase @ 0.18 ps discount from TCIL cost of US$ = Rs. 49.52 ----------- (1) us)Purchase from us

We can purchase from customer i.e. max up to Rs. 46.95 (refer card rate), but in order to provide convenience & good rates to tap our existing customer needs, we can keep profit margin up to Rs. 1 to Rs. 1.40 depending on our Banking relationship with the customers.

4. So in the above case we can purchase from the customer as follows –

TCIL cost of US$ purchase from us = Rs. 49.52Less - NKGSB Profit Margin = Rs. 1.00Cost of purchase of Currency notes from customer = Rs. 48.52 -------- (2)

So, our profit margin is as under –Selling cost to TCIL = Rs. 49.52 from (1)Less - Cost of Purchase of FC notes from customer = Rs. 48.52 from (2)Profit = Rs. 1.00

Also collect transaction + service tax of Rs. 10.3 %Thomas Cook Chgs. Rs. 28Service Tax Rs. 11 (NKGSB)Remaining Transaction cost i.e. Rs. 100/- (NKGSB) will go to P&L 4103 Commission on AD II A/c

Same treatment needs to be carried out for Purchase of Travellers Cheque.

Sale of Foreign Currency Notes & Travelers Cheque –

1. Read the tie – up Agreement of TCIL.2. See the rate sheet attached dated 5/12/08 only.3. Inter Bank Rate (IBR) of USD as on 5/12/08 is Rs. 49.70.

Now, IBR = Rs. 49.70 Add = Rs. 00.18 (TCIL will sale @ 0.18 ps premium to TCIL cost of US$ sale to us = Rs. 49.88 ----------- (1) us)

We can sale to customer i.e. max up to Rs. 52.25 (refer card rate), but in order to provide convenience & good rates to tap our existing customer needs, we can keep profit margin up to Rs. 1 to Rs. 1.40 depending on our Banking relationship with the customers.

4. So in the above case we can purchase from the customer as follows –TCIL cost of US$ sale to us = Rs. 49.88Add - NKGSB Profit Margin = Rs. 1.00Cost of sale of Currency notes to customer = Rs. 50.88 -------- (2)

So, our profit margin is as under –Cost of sale of Currency notes to customer = Rs. 50.88 from (2)Purchase cost from TCIL = Rs. 49.88 from (1)Profit = Rs. 1.00

Also collect transaction + service tax of Rs. 128.Thomas Cook Chgs. Rs. 28Service Tax Rs. 11 (NKGSB)Remaining Transaction cost i.e. Rs. 100/- (NKGSB) will go to P&L 4103 Commission on AD II A/c

Same treatment needs to be carried out for Sale of Travellers Cheque.

D ocuments required for A2 transactions –

Sale of Foreign Currency Notes by NKGSB to the Customers -

1. A2 form

2. FEMA declaration

3. Copy of Passport, Visa & Air-ticket.

4. BTQ Form for Private / Travel visit;

OR Business Trip Form for Business / Conference /Business Promotion purpose.

Purchase of Foreign Currency Notes / TCs by NKGSB from the Customers -

1. Request Letter in case of minor from guardian.

2. FEMA declaration

3. Copy of Passport & Visa

4. Acknowledgement receipt from the customers.

Travel Currency Card:

Whether you plan on spending a romantic

weekend in Venice or you’re taking a break

with a few months in the Big Apple,

the travel money card could be a wise investment for your holiday wallet.

Travel money cards are a new breed of foreign exchange method. If you worry

about your currency changes when you travel and dislike carrying around large wads of

cash, then this could be the perfect solution. If you’re sick of the additional payments so

often associated with debt and credit cards and want an effective secure way to carry your

currency abroad then a currency card could be for you. When you’re travelling abroad,

whether it be a family vacation in the USA, a teenager embarking on their gap year in

Asia, or you regularly visit a summer house in Europe, the travel money card could be the

solution for all your currency needs.

Top five reasons to use Travel Currency Card

1. No hidden charges

A currency card, unlike most debit and credit cards, will not charge you every time you

use it. This makes it favourable when compared to credit and debit cards that often charge

you for purchases.

2. Seize the moment

Make the most of a favourable exchange rate and top up your currency card when the

conversion rates are favourable, giving you the most for your money. In the finance

industry, timing is everything and a savvy attitude to your top up moment could save you

a bundle.

3. Cash n Carry

If you feel uncomfortable carrying around lots of cash then this could be the ideal

solution for you. A travel currency card is safer than carrying around loose notes. Some

card providers also return the money to you in the case of theft, circumstance dependant

of course.

4. Reuse

If there is money left on your currency card after your trip then just pop it somewhere for

safekeeping and then you can use it again when the moment strikes. Rather than leaving

it lying around in a drawer, or being charged to change it back you should think of it for a

bonus holiday spend for the next year.

5. Convenience

A travel money card works in a very similar way to a debit card, meaning that you will be

relatively familiar with how it works. Although it must be topped up with currency in

advance, it’s easy to use and could save you money as there are no charges on singular

purchases and it can be used anywhere from shops to cash machines. It also has the added

convenience of letting you monitor roughly how much you are spending as you place a

certain amount of money on the card. Travel money cards are relatively easy to get hold

of. They are supplied from a plethora of outlets from the Post Office to Lloyds. Some

companies allow you to get a secondary card, whether you’re a regular traveller and want

one for euros and one for dollars, of your child is going on a gap year.

Whether you’re spending a summer in the South of France, or want to see every major art

gallery in Europe, or even if you fancy tracking down Route 66 this summer, the travel

money card could be the ideal way to simplify your travel finances and save you money.

ADVANTAGES OF CURRENCY CARDS

There are many great advantages to having a currency card when you travel abroad.

However as these currency cards are still fairly new many people do not understand how

they work or what their benefits are.

As we believe that these currency exchange cards are the best way of taking travel

money abroad then we would like to point out all the great advantages that they offer.

1. You can choose to have a currency card either in Dollars, Euros or Pounds Ster-

ling. You can even have a separate prepaid currency card for each different currency.

2. No foreign currency exchange rate fees, usually an extra levy of approximately

2.75%.

3. Much higher and better exchange rates than any other form of foreign currency.

4. The exchange rates are fixed at the time of loading your money onto your cur-

rency travel card. This means that you know exactly how much you are spending

when abroad and is unlike credit and debit cards whose rates can change every time

you use them.

5. Simple to load money on to them and can be easily topped-up at any time.

6. No foreign exchange charges on purchases unlike credit cards.

7. No commission fees.

8. No credit checks required. Anyone can have a travel money card as long as they

have a bank account to link to it. This makes these cards ideal for students or young

people who haven’t had time to build up a good credit rating.

9. Secure. If you lost your currency card you can only lose the money that is on the

card at most. Some providers will even be able to get some or all of your money back,

depending on the circumstances. Some card suppliers include protections against theft

and offer replacement cards.

10. As currency cards are completely separate from your bank account if your card

did get lost or stolen it would contain no bank details for anyone else to use. Also

these travel money cards don’t include any identity details so anybody who found

your card couldn’t use it to impersonate you.

11. Any funds loaded onto your card and not used on your trip can be rolled-over and

used on further holidays or trips.

12. You don’t need to show any ID to use a currency card, unlike traveller’s cheques.

This increases the safety of these cards and means that you don’t have to carry so

many important documents around with you, meaning you face less risk of losing

them and being a victim of fraud.

So as you can see currency cards have many fantastic benefits and are a great choice of

holiday money when you go overseas. There are, however, some

minor disadvantages that you should also be aware of before you choose your currency

exchange card. As always it is worth comparing the best currency cards to find the latest

offers and to get the right deal for you.

Recommendations & Suggestions

NKGSB Co-operative Bank is more favourable because Customer has No Risk that the

bank may collapse as they are supported by Government, unless an until Government

collapses. The Banking Sector is also on a Positive track for continous Growth in

Business and Profitability. Most of the People are dealing with Banks as they provide a

correct and safe process for transaction of money through Foreign Countries. Laws of the

Other Counrty are different here only RBI is there for all money transaction and DGFT

for the Trade related matter like License and Guidelines on import and export of goods to

trade with for better transaction analysis.

The Process of LC is time consuming because it covers all the essential paper work

needed to be done for importing and Exporting of Goods and Services. If we are First

time customer of Issuing LC then it is normal time. But when the same process is done

for same time and importing or exporting of same goods is also done then that process is

little time consuming because the bank also know it is the same thing which is getting

repeated all over time.

It is recommended that for speedy recovery of faulty occurences in currency margins for

bank a quick surveillance process should be implemented to over gain marketable

revenues.

It is also recommended that the International Chamber of Commerce must use a clearer

language to evaluate its presence in the current scenario must use a clearer language on

each article. In appropriate contexts of the Uniform Customs and Practice must be

changed. Each article should be written in clear and concise language that can be

understood easily for practice.

The best way to eliminate the discrepancies in presentation of import and export

documents for payments and financing is to proper circulation of notices that signifies

restrictions made on the goods transferred and documents discrepancy can be avoided

and trade transitions can be made productive and successful in both level of finance for

banks and bank’s clients.

At lastly, the personnel involved in documentary preparation and documentary

examination must be trained and certified to ensure they have enough skills to handle the

import and export documents properly.

Conclusion

In today’s changing world, trade finance banks are struggling hard to re-identify their

role.Although still there is an important role for traditional trade finance instruments in

many geographical markets and at beginning stages of a new trading association between

parties in distant locations; it is also undisputed that there is a shift towards open account

in certain markets and verticals.

In order to compete in the dynamic international trade scenario, today's primary trade

finance banks need to offer a full suite of pre-shipment, in-transit and post shipment

finance solutions. Trade Finance and Cash management activities are undoubtedly

merging within banks, a reflection of the customers’ own activities.

Only those banks that provide holistic products through a complete range of trade finance

and open account management solutions not withstanding liquidity management and

payment capabilities will be competent to meet the dynamic needs to customers and

remain successful in the industry. Whichever be the market of operation, bringing sine

qua non success to both buyers and suppliers is the elixir for survival today.

The role of the government and other parties involved in trade finance will need to evolve

along with the country’s economy. Underlying the functions provided by the different

players is the need for a clear and effective legal environment. The commercial legal

system must be transparent.

However, the best long-term solution in resolving the constraints in trade financing is to

encourage the growth and development of a vibrant and competitive financial system,

comprising mainly private sector players, financial institutions and co-operative banks.

BIBLIOGRAPHY

Book Reference: Research Methodology : BY C. R. KOTHARI

www.rbi.org.in

www.nkgsb-bank.com

www.Celent.com

www.Gtnews.com

www.Tradeevolution.com

www.eximguru.com

www.dgft.gov.in

www.unzco.com

www.igate.com

www.globip.com

www.clasic.easy-forex.com

Study on Foreign Exchange Remittances & Interbank Dealings

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