process of remittance

Presented by:

The Hedonist(83015) Asheesh Ranjan Jha

(83026) Lokesh S Chauhan

(83035) Bharat Ostwal

(83037) Rahul Sood

Process of Remittance

Overview

Definitions to important terms SWIFT and MT’s CHIPS Charges Domestic Clearing Bilateral Settlement Applying Online Transaction through correspondent bank Case SWIFT messages and payment requests Payment involving two correspondent banks

Some Useful Definitions:

Nostro Account: A banking term to describe an account one bank holds with a bank in a foreign country, usually in the currency of that foreign country.

“Our account with them”

Vostro (Loro) Account: The counterpart to nostro account; vostro (Latin, 'yours') describes the record of an account held by a bank as correspondent on behalf of an overseas bank.

“Their account with us”

International Bank Account Number (IBAN)

GB 29 BOFS 8020 0100 1234 56

30 Characters max/ country specific

Check digits

Basic Bank Account Number

NationalSort Code

Bank Code Customer A/c No.

G B 2 9

Country code

(Bank of Scotland)

Developed by the European Committee for Banking Standards to improve the efficiency of cross-border payments with regard to speed, quality and cost

Bilateral Key Exchange (BKE): It is an arrangement between FI’s/Banks which is mandatory for exchange of SWIFT instructions amongst member institutions.

Bank Identifier Code (BIC):A unique address that identifies precisely the financial institutions involved in international financial transactions.

A BIC consists of 8 or 11 characters comprising the following

Bank Code, Country Code, Location Code and Branch Codee.g. ABNA NL 2A

DEUT DE FF500

SWIFT(Society for Worldwide Interbank Financial Telecommunication):

It is a worldwide financial messaging network where messages are securely and reliably exchanged between banks and other financial institutions

SWIFT is solely a carrier of messages.

Why SWIFT ? Secure

Well Connected

Inexpensive

Fast

Trouble Free

Message Type(MT):

A specific type of Standards message that is expressed in the SWIFT proprietary syntax and is identified by a unique 3-digit number. e.g. MT100, MT101, MT202…

Series Category

MT 100 Customer Transfer

MT 200 Financial Transfer

MT 300 Treasury Transactions

MT 400 Documentary Collection Transactions

MT 500 Securities Transactions/ Depository Services

MT 600 Precious Metals and Syndication Transactions

MT 700 Documentary Credits and Guarantee Transactions

MT 900 Statement Reports, such as daily statements, debit and credit

CHIPS(Clearing House Interbank Payment System

Participant Community

• 47 Financial Institutions

• 20 Countries

Average Daily Volume (2008):

• 365 thousand Payments

• $2.01 Trillion

• 2008 Annual Totals:

• $ 508.75 Trillion• 91.99 million payments

Average Dollar Amount per payment:

• $5.6 million

CHIPS Statistics

www.chips.org

Charges

OUR / BEN / SHA

`Payer(X)

Payer’s Bank

Beneficiary(Y)

Beneficiary’s Bank

Central Bank

ClearingInstitution

Information

Funds

Domestic Clearing ( Settlement Through Central Bank)

Bilateral Settlement

Payer (X)

Payer’s Bank

Beneficiary (Y)

Beneficiary’s Bank

Country A Country B

A in Delhi approaches ICICI bank and he wants to transfer Rs. 1 lakh into the account of B in Michigan. B wants the money in USD.

A(Delhi)

B(Michigan)

ICICI Bank, ND

JPM Chase, Michigan

Rs. 1,00,000 = USD 2032.52*

+ Charges(1347/- or .25 %)

USD 2032.52

* 1 USD = INR 49.20 [Market rate - 48.9650]

Payer (X)

Payer’s Bank

Beneficiary (Y)

Beneficiary’s Bank

Central Bank

Information

Funds

Correspondent Bank

LocalClearing

Institution

Cross Border Transfer through a Correspondent Bank

Country A Country B

Mourant and Co. Limited, Jersey has an account with ABN AMRO Jersey. The Mourant and Company limited ordered its bank to make a payment of 3,554,897 EUR to its account with Royal Bank of Scotland, Jersey. The currency for Jersey is Sterling Pound(GBP).

Case 2

Payment involving two corresponding banks

If USD were to be sent to a country where it wasn’t the prime currency e.g USD transfer between HDFC bank and ICICI bank in India

HDFC, India

ICICI, India

HSBC, NY

JPMC, NY

CHIPS Fed Reserve

Another Cross Border Payment Case

Mr. John Smith, a Diamond Trader in New Delhi holds an INR A/c with HSBC, New Delhi and he wants to make a payment of INR 50,000,000 to his business partner Mr. Marc in London. Mr. Marc holds an account with Bank of Tokyo, London and asks for the money in USD and with the condition that he wont bear the transaction charges.

Assumption: 1 USD = INR 50

Payment to Mr. Marc

BOTK US NY

HSBC US NY

BOTK JP PY

BOTK GB 2L

HSBC IN NDUSA

UK

India

Japan

CHIPSMT 101

MT 202

MT 202

MT 202

Federal Reserve

NY

MT 101

MT 202

Bank Charges

Ordering BankBeneficiary

Bank Currency Amount Charges

ABNAJESH RBOSJESX EUR 35,54,897.00 11.79 GBP

BCITITMM BCITUS33 USD 12,49,341.32 9.72 USD

RBOSGB2L BNPAFRPP EUR 27.32 Nil

ICICGB2L ICICINBB USD 15,949.29 Nil

UBSWCHZH80A ABNANL2A EUR 1,958.47 17.7 EUR

CITIINND CITIUS33 USD 1,50,00,370.00 Nil

CHASUS33 RBOSFRPP EUR 68,710.00 3.36 EUR

ABNANL2A BOTKJPPY GBP 30,94,724.00 41.3 GBP