report on trade finance

8/13/2019 report on trade finance

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SUMMER TRAINING REPORT ON

TRADE FINANCE

Undertaken at

JINDAL STAINLESS LIMITED

Submitted in partial fulfillment of the requirements

for the award of the degree of

MASTER OF BUSINESS ADMINISTRATIONto

Guru Gobind Singh Indraprastha University, Delhi

Under the Guidance of Submitted by

Dr.Anil Rajoria Tej Pratap Singh

MBA-III Sem,2nd

Shift

04321303912

Session 201314


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DECLARATION

This is to certify that report entitled TRADE FINANCE which is submitted by me in partial

fulfillment of the requirement for the award of degree MBA to GGSIP University, Dwarka, Delhi

comprises only my original work and due acknowledgement has been made in the text to all other

material used.

Date: TEJ PRATAP SINGH


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PREFACE

This department is intended for the experience gained by me during summer Training

in Jindal Stainless Limited, Gurgaon.

While making this project I became familiar with the financial terms that are usually

used in a company and the different functions that a Finance Manager has to perform.

I have learnt how to manage Trade Finance.

I have also gained confidence to interact with different persons working at reputed

positions during the summer training, in preparing the project report I have tried my

level best effort to make it reliable, compact and accurate organization.


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ACKNOWLEDGEMENT

I express my sincere thanks to my project guide Mr. Sachin NandwaniFinance & Accounts

department, Jindal Stainless Limited, Gurgaon for guiding me right for the inception till the

successful completion of the project. I sincerely acknowledge him for extending their valuable

guidance and support for literature, critical review of the project and the report and the above all the

moral support he had provided for me with all the stage of this project.

I would also like to thank the supportive staff of finance department for their help & cooperation

throughout my project.

TEJ PRATAP SINGH


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CONTENTS

S No Topic Page No

1 Certificate

2 Summer Training Appraisal

3 Acknowledgement

4 Executive Summary

Chapter I: Introduction

Chapter II: Company Profile

Chapter III: Trade Finance

Chapter IV: Import

Chapter V: Working in JSL

Chapter VI: Summary & Conclusions

5 References/ Bibliography


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Executive Summary

Stainless Steel is crucial to the development of any modern economy and is considered to be

the backbone of human civilization. The level of per capita consumption of steel is treated as

an important index of the level of socioeconomic development and living standards of the

people in any country. It is a product of a large and technologically complex industry having

strong forward and backward linkages in terms of material flows and income generation. All

major industrial economies are characterized by the existence of a strong steel industry and

the growth of many of these economies has been largely shaped by the strength of their steel

industries in their initial stages of development.

Sector and has made rapid strides since then. The new Greenfield plants represent the latest in

technology. Output has increased, the industry has moved up i n the value chain and exports

have risen consequent to a greater integration with the global economy.

Trade involves purchase of merchandise from seller by a purchaser for his onward Selling

(with or without value addition to the goods) for a profit. Any trade transaction involves

movement of the documents representing settlement of the transaction. While the

merchandise passes through a range of Logistics player operating at different levels of supply

chain, bank have traditionally been playing a significant role in the movement of documents

and funds. Though this basic concept of trade and the role played by banks (as a lender or

otherwise) remains the same, the dimensions of trade and the role of players undergo a lot of

change depending on whether the entire trade transaction (sale/purchase) is carried on in the

country, or it is a cross Border transaction.


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Introduction

About OP Jindal

Shri Om Prakash Jindal more popularly known as O.P.

Jindal was born on August 7, 1930 to a farmer Late Netram

Jindal of village Nalwa of district Hisar in Haryana. Since

his childhood the young Jindal had interested in technical

work. He started his industrial career with a small bucket-

manufacturing unit in Hisar. In 1964, he commissioned a

Pipe Unit Jindal India Limited, followed by a large factory

in 1969 under the name Jindal Strips Limited.

Sh. Jindal always had the conviction that India should be

self-reliant in every sector of industry. He visited several

foreign countries to elicit latest industrial technical

development and know-how. He acquired a great deal of

knowledge, which he aptly applied to enhance production

of his industrial establishments. At present, there are twenty

factories under the flagship of the Jindal Organization,

which are worth over US $ 10 Billion, under whose

umbrella thousands of families directly or indirectly benefit themselves.

Sh. O.P. Jindal was the Chairman of the Jindal Organization. In November 2004, Sh. Jindal

was conferred the prestigious "Life Time Achievement Award" for his outstanding

contribution to the Indian Steel Industry by the Bengal Chamber of Commerce & Industry.

According to the latest Forbes' List, Sh. O.P. Jindal has been ranked 13th amongst the richest

Indians of the country and placed 548th amongst the richest persons of the world.

His life's mission was to help others particularly the common man in every possible way. The

list of his philanthropic activities is rather long. He was the Chairman of N.C. Jindal

Charitable Trust, under whose auspices a 300 Bed N.C. Jindal Institute of Medical Care

functions in Hisar Haryana. A 10+2 Girls Residential School in the name of Vidya Devi

Jindal School is also run at Hisar. The girls school spreads over 40 acres of land. Another

10+2 school by the name of N.C. Jindal Public School for 4000 students is being run in

Delhi.

For his selfless social services and philanthropic contributions, he was unanimously

nominated as the Chairman of the Maharaja Agarsen Medical Education & ScientificResearch Society. He was also the custodian trustee of the Agroha Vikas Trust. Sh. Jindal


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was known for his unassuming generosity and donates crores of rupees annually not only to

known but also to needy strangers. Numerous social and religious institution of India also

received liberal donations from Sh. Jindal for noble causes.

The Group

Jindal Organization, set up in 1970 by the steel visionary Mr. O.P. Jindal, has grown from an

indigenous single-unit steel plant in Hisar, Haryana to the present multi-billion, multi-

national and multi-product steel conglomerate. The organization is still expanding,

integrating, amalgamating and growing.

The group places its commitment to sustainable development, of its people and the

communities in which it operates, at the heart of its strategy and aspires to be a benchmark

for players in the industry the world over.

The Jindal Organization today is a global player. Its relentless quest for excellence has reaped

rich benefits and it is today one of the worlds most admired and respected groups within the

steel fraternity.


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JINDAL STAINLESS LIMITED (JSL)

Jindal stainless a part of $15 billion USD, OP Jindal group is the largest integrated

manufacturer of stainless steel in India and is ranked as the 8 th largest in the world, with a

capacity of 1.8 million tons. The foundation of the stainless steel journey began in 1978 at

hisar, in Haryana. It has been gradually enhanced to 780,000 tons over the last four decades.

It has now grown from a single unit steel plant to the present multi-location and multi product

conglomerate.

A leader and a name synonymous with enterprise, excellence and success, the companys

ethos mirrors most characteristics similar to the metal it produces; akin to stainless steel

jindal stainless is innovative and versatile in its thought process; strong and unrelenting in itsoperations. JSL has crafted its success story by fully integrating its operations based on a

strategy of both, backward and forward integration, starting from mining, melting, casting,

hot rolling to cold rolling and further value additions.

This has been the driving philosophy of the company from its one unit present in the early

70s to its present multi-location presence across the globe. An ISO: 14001 compliant, JSL

product range includes: Ferro alloys, stainless steel slabs, blooms. Hot rolled coils, plated and

cold rolled coils/sheets, stainless steel strips for razor blade steel and coin blanks for mints in

India & EU.

Driven by its focus on sustained growth & value addition in its products and services, JSL

Stainless has led the way with continuous innovation. Its new focus is on providing feasible

solutions by developing new product series such as Krome16+ to counter the challenges of

escalating raw material costs.

VISION

To be amongst the top 10 steel producers in the world To gain international recognition for cost leadership, product innovation and customer

satisfaction

To be admired as a socially responsible corporate and sustained value creator for allits stakeholders


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GUIDING PRINCIPLES

They are based on the core values. They are standard for conduct of business and behaviour

of all our employees.

Value creation

Sustained value creation for all its stake holders; customers, employee, supplier, shareholder,

society and nation.

Transparency

Conduct all business dealings along transparent lines.

Personal conduct

Display high standards of personal and professional conduct.

Learning & development

Foster an environment of learning and excellence.

Creativity & innovation

Encourage creative experimentation and institutionalize continuous improvement in allaspects of business.

Environment, safety and health

Manage and protect the safety and health of our people, products, locations and environment.

Responsible corporate citizen

Enrich the quality of life of the communities we serve.

Confidentiality

Respect and ensure confidentiality of all business related information.


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CORE VALUES

Integrity

Respect for individual

Dynamic thinking

Creativity and innovation

Social responsibility

Our Group Companies

Pt Jindal Stainless, Indonesia

JSL Stainless Steel way Ltd

JSL Architecture Ltd

JSL Lifestyle Ltd

IBER Jindal S.L LTD


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AWARDS & HONOURS

Jindal Stainless, Jaipur receives coveted odisha state govts POLLUTION CONTROL

AWARD-2011 in industrial sector in odisha.

Jindal stainless limited, the flagship company of OP Jindal group was conferred the

confederation of Indian Industry (CII) National HR excellence award 2009 commendation for

strong commitment to human resource excellence at the HR conclave 2010 held on 23rdJuly

2010 at Hotel Lalit.

International quality summit award

Srishti good green governance award

10thannual greentech safety GOLD award-2011

JSL stainless-Jaipur awarded for best practices in safety in iron & steel sector- 2009


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SWOT ANALYSIS

Strength

Produces efficient and economical steel through backward and forward integration. Has the force of innovation, adaptation of new technologies and the collective skills

of workforce.

Has the enterprising spirit and the ability to discern the future trends. Having a product portfolio which helps in satisfying the need of steel

Weakness

it is largely dependent on import weak performance on the back of high raw material cost

Opportunity

Venture into new business by leveraging its core capabilities

Increase production capacity to meet global steel demand Diversify investments to distribute risk in business

Threats

Hike in the duty Project implementation and raw material security


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Corporate Social Responsibility

OPJEMS SCHOLARSHIP

The OPJEMS(O.P. Jindal engineering and management schoarship) was started in the year

2007 to commemorate shri OP jindal, the founding father of the jindal group.

Every year approx. 40 reputed management and engineering institutes are being invited in the

s scholarship process. The institutes include IIMs and IITs with other institutes of repute.

A total of 100 students(app) receive OPJEMS scholarship every year.

NC Jindal institute of medical sciences

JIMS is a 42 years old multi speciality charitable hospital. It was founded by late sh. OP

Jindal in 1968.

Initially it was started as a dispensary for providing primary level medical care. Today with a

capacity of 450 beds, we are providing health services to the community of hisar and

adjoining distrcicts of Haryana, Punjab and rajasthan.

Located in the heart of city with multiple green lawns in the area of 14.5 acres.

VIDYA DEVI JINDAL SCHOOL, HISAR

Late shri OP Jindal, former member of parliament, philanthropist, industrialist of Haryana

had a vision of progressive state where men and women would be equal to each other in their

equality lay.

The result of this vision was the birth of vidya devi jindal school, a girls residential school in

Haryana. The school became functional in july 1984 and was granted affiliation by CBSE insame year.

The motto of the school isvidya jyoti jeevan joti which means light of knowledge is the

light of life.

OP Jindal Modern School

Founded on the munificent ideals and ethics inscribed in the very soul of its foundingfather,

shri OP Jindal, OP jindal modern school, hisar is a senior secondary , co educational,English medium day school with a whopping strength ofover 3800 students. Affiliated tp the


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central board of secondary education, delhi vide affiliation no. 530256 the school is run by

OP Jindal charitable trust.

The school has been a fast growthrajectory since its inception in 1997 and has grown from

strength to strength within the span of 15years. A double storeyed building grew into a triple

storeyed building.

OPJMS is fortified with the muscled and state-of-the-art infrastructure that lays the

foundation for the fruitful learning experience of students. Spacious and well ventilated

rooms, cricket pitch, swimming etc.

STAINLESS STEEL INITIATIVES

Stainless gallery

Stainless steel is truly the metal of the century.

Here atthe stainless we travel many geographies from the art, design, and architecture to

provide a platform for creative minds for expressing their interpretation & experimentation

with this metal.

Launched in 2007 by Ms. Deepika jindal, the stainless gallery has showcased works of

eminent designers, architects, artists and sculptors through our previous exhibitions like

saptarishis and ekant to name a few.

It is spread over 5500sq.ft, technologically endowed, this state of the art gallery has its own

unique collection of stainless steel art.

MNIT JAIPUR

This course is aimed at sensitizing budding engineers about the usage and applications of

stainless steel. The course will how the unique properties of this material can be effective in

their respective feilds of work.

The objective of the course is to equip these bright minds, that will design and create the

future of our nation, with the knowledge of stainless steel and its applications in design and

engineering.

The course will touch upon almost all the aspects of stainless steels from metallurgy to it end

applications.


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The students will also learn to use the concepts of life cycle costing and cost benefit analysis

through real world case studies.

Hisar Plant

Jindal Stainless Limited (JSL) is a stainless steel products manufacturing company. It has

export markets in over 40 countries including United States, Europe, Middle-East and South

Asian countries. JSL has integrated operations from mining, melting, casting, hot rolling to

cold rolling. The product range includes stainless steel slabs and blooms, hot rolled coils,

plates, cold rolled coils / sheets and products in precision. JSL has Ferro-chrome

manufacturing facilities in Jaipur, Orissa. JSL is setting up a Greenfield integrated stainless

steel project in the state of Orissa with capacity of 1.6 million tons per annum.

It manufactures a range of products for sale in the domestic market for customers in

segments, such as architecture, building construction, automobiles, white goods and

appliances, railways, power plants and other industrial applications. JSL also produces

stainless steel for specialty products, such as razor blades, precision strips and coin blanks.

At Hisar, Jindal Stainless has Indias only composite stainless steel plants for the manufactureof Stainless Steel Slabs, Blooms, Hot Rolled and Cold Rolled Coils, 60% of which are

exported worldwide.


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Product Line

Precision Strips

The company produces stainless steel precision strips in various grades. These strips are

produced in narrow mills in the precision cold rolling unit.

Blade Steel

The company is the exclusive producer of stainless steel strips for making razor and surgical

blades in India.

Coin Banks

Besides supplying CR Strips to the Government of India, the plant at Hisar houses a coin

banking line for supply to the Indian Mint & Mints in the global market.


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Hot Rolled Coil

It is rolled on a hot strip mill from slabs. It can be found in the market in coil or sheet form and it

proceesed further.

Plates

They are prepared after annealing or pickling hot rolled nnealed picking coils.


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Some of the products made of stainless steel which are necessary in daily life:-

Stainless Steel Cookware

Made of the finest stainless steel, the cookware set includes frying pan, covered pan,

many other cooking utensils.

Cookware:-

Cookware set Boilers Casseroles CookersGrill Pans

Kitchen Accessories:-

Banana Holder

Bread Box

Cook Book Holder

Dish Drainer

Dish Rack

Napkin Holder

Sink Strainer

Spice Rack


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Stainless Steel Electric Tea kettle

This electric tea kettle makes instant tea, coffee, hot chocolate and boils faster than a

microwave.

The kettle is made of unalloyed stainless steel, polished to a mirror finish. A great

appliance for homes and offices, this kettle provides powerful heat and safety.

Kitchen Hardware:-

Electric Tea KettleKitchen Cabinet

Kitchen Chimney

Oven

Sink Welded

Utensils:-

PansMeasuring SpoonCanistersDessert DishesServing BowlsCovered Bowls

Stainless Steel Spoon


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This crafted out with newest design that modern technology can produce. Made of

steel, they are anti-magnetic, and the seamless construction is resistant to bacteria and

germs.

Cutlery;-

SpoonsMeat ForkLarge KnifeBlunt End SpoonCutlery Starter SetBoning KnifeCheese KnifeUtility Knife set


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Energy Conservation Achievements

Jindal Stainless Ltd (CR Division) has taken the various aspects of energy conservation very

seriously.

Many energy conservation projects have been implemented and many more ideas are beingconsidered for implementation.

The company is committed to achieve Energy Conservation by providing necessary

knowledge and exposure to the employees and in the process has arranged various training

programs.

JSL has regularly upgraded its technology and constantly striving to adopt practices and

process that preclude undesirable impact on energy conservation aspects.

Energy Policy

Energy efficient production and processing of steel and sustain continuous reduction inenergy consumption year after year.

Involvement of employees for energy conservation through awareness and recognition.

Conserve and optimally utilize raw materials: petroleum fuels and by products, steam, power,

compressed air, water and other resources.

Establishing and maintain a energy management information system designed to support

managerial decision making.


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Trade Finance-Background

As international trade increases, so does the importance of trade finance. The success of a

nations export program depends on the availability of trade finance, which facilitates the

transfer of commodities and manufactured goods between countries.

Banks can participate in trade financing by providing pre-export financing, helping in the

collection process, confirming or issuing letters of credit, discounting drafts and acceptances,

and offering fee-based services such as providing credit and country information on buyers.

What dose Trade F inancemean?

The science that describes the management of money, banking, credit, investments and assets

for international trade transactions.

Trade finance refers to the various forms of financial support and financial transactions used

in trade. Trade finance uses a range of instruments to provide finance to exporters and

importers, including documentary credits such as letters of credit.

Letter of creditis a document issued mostly by a financial institution used primarily in trade

finance, which usually provides an irrevocable payment undertaking (it can also be revocable,

confirmed, unconfirmed, transferable or others to a beneficiary against complying documents

as stated in the Letter of Credit)

Banks may assist by providing various forms of support. For example, the importer's bank

may provide a letter of credit to the exporter (or the exporter's bank) providing for payment

upon presentation of certain documents, such as a bill of lading. The exporter's bank may

make a loan (by advancing funds) to the exporter on the basis of the export contract.

In many countries, trade finance is often supported by quasi-government entities known

as export credit agencies that work with commercial banks and other financial institutions.

The absence of an adequate trade finance infrastructure is, in effect, equivalent to a barrier to

trade. Limited access to financing, high costs, and lack of insurance or guarantees are likely

to hinder the trade and export potential of an economy, and particularly that of small and

medium sized enterprises.


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Need of Trade Finance

One of the most important challenges for traders involved in a transaction is to secure

financing so that the transaction may actually take place. The faster and easier the process of

financing an international transaction, the more trade will be facilitated.

Main factors influencing Trade Finance

Government agencies

Banks & other Financial Institutions

International Agencies

Key Issues in Trade Finance

The mechanics & systems for arranging receiving payment

The Legislation and custom requirements export and import countries

Foreign exchange policy and other risks associated with international trade

The institutions -the operations of the system in operating the trade

finance instruments, and payments and settlements.

Infrastructure and a host of ICT services


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Trade Financing Instruments

The main types of trade financing instruments are as follows:

Documentary Credit

This is the most common form of the commercial letter of credit. The issuing bank will make

payment, either immediately or at a prescribed date, upon the presentation of stipulated

documents.

These documents will include shipping and insurance documents, and commercial invoices.

The documentary credit arrangement offers an internationally used method of attaining a

commercially acceptable undertaking by providing for payment to be made against

presentation of documentation representing the goods, making possible the transfer of title to

those goods.

A letter of credit is a precise document whereby the importers bank extends credit to the

importer and assumes responsibility in paying the exporter. A common problem faced in

emerging economies is that many banks have inadequate capital and foreign exchange,

making their ability to back the documentary credits questionable.

Exporters may require guarantees from their own local banks as an additional source of

security, but this may generate significant additional costs as the banks may be reluctant toassume the risks. Allowing internationally reputable banks to operate in the country and offer

documentary credit is one way to effectively solve this problem.

Countertrade

As mentioned above, most emerging economies face the problem of limited foreign exchange

holdings. One way to overcome this constraint is to promote and encourage countertrade.

Todays modern counter trade appears in so many forms that it is difficult to devise adefinition. It generally encompasses the idea of subjecting the agreement to purchase goods

or services to an undertaking by the supplier to take on a compensating obligation.

The seller is required to accept goods or other instruments of trade in partial or whole

payment for its products. Some of the forms of counter trade include:

Barter This traditional type of countertrade involving the exchange of goods and services

against other goods and services of equivalent value, with no monetary exchange between

exporter and importer.


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Counter purchase The exporter undertakes to buy goods from the importer or from a

company nominated by the importer, or agrees to arrange for the purchase by a third party.

The value of the counter purchased goods is an agreed percentage of the prices of the goods

originally exported.

Factoring

This involves the sale at a discount of accounts receivable or other debt assets on a daily,

weekly or monthly basis in exchange for immediate cash. The debt assets are sold by the

exporter at a discount to a factoring house, which will assume all commercial and political

risks of the account receivable. In the absence of private sector players, governments can

facilitate the establishment of a state-owned factor; or a joint venture set-up with severalbanks and trading enterprises.

Pre-Shipping F inancing

This is financing for the period prior to the shipment of goods, to support pre-export activities

like wages and overhead costs. It is especially needed when inputs for production must be

imported. It also provides additional working capital for the exporter. Pre-shipment financing

is especially important to smaller enterprises because the international sales cycle is usually

longer than the domestic sales cycle.

Pre-shipment financing can take in the form of short term loans, overdrafts and cash credits.

Post-Shipping Financing

Financing for the period following shipment. The ability to be competitive often depends on

the traders credit term offered to buyers. Post-shipment financing ensures adequate liquidity

until the purchaser receives the products and the exporter receives payment. Post-shipment

financing is usually short-term.

Buyers Credit

A financial arrangement whereby a financial institution in the outside importers country

extends a loan directly or indirectly to a foreign buyer to finance the purchase of goods and

services from the exporting country. This arrangement enables the buyer to make payments

due to the supplier under the contract.


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Suppliers Credit

A financing arrangement under which an exporter extends credit to the buyer in the importing

country to finance the buyers purchases.


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Risks Associated With Trade Financing

The risks associated with trade financing are: credit, foreign currency translation ,transaction,

compliance, strategic, and reputation. These risks are discussed more fully in the following

paragraphs.

Credit Risk

Credit risk is the current and prospective risk to earnings or capital arising from an obligors

failure to meet the terms of any contract with the bank or otherwise to perform as agreed.

Credit risk is found in all activities in where success depends on counterparty, issuer, or

borrower performance. It arises any time bank funds are extended, committed, invested, or

otherwise exposed through actual or implied contractual agreements, whether reflected on or

off the balance sheet.

In trade finance, many transactions are self-liquidating or supported by letters of credit and

guarantees, and the examiner must review each transaction individually to properly identify

and evaluate the sources of repayment. Although trade finance has a low loss ratio

historically, it is a very specialized area, and a bank that lacks the appropriate expertise may

experience losses because of improper structuring, poor documentation, unfamiliarity with a

countrys business practices, or improper pricing. A bank should ensure that documents on

shipments of goods are proper and thorough. Any bank engaging in trade finance should

thoroughly analyze the risks. In issuing a letter of credit for a domestic importer, the bankmust evaluate the importers repayment capacity as it would that of any other type of

borrower. In confirming or accepting as collateral a foreign banks letter of credit, a U.S.

bank must evaluate the risk that the foreign importer/bank may not be able to in the importing

country.

The low default risk is due, in part, to the importance that countries assign to maintaining

access to trade credits. In a currency crisis, central banks may require all foreign currency

inflows to be turned over to the central bank.

The central bank would then prioritize foreign currency payments. Trade liabilities would be

more likely to be designated for repayment than most other types of credits. For this reason,

trade finance is viewed as having less transfer risk than other types of debt.


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Transaction Risk

Transaction risk is the current and prospective risk to earnings or capital arising from fraud,

error, and the inability to deliver products or services, maintain a competitive position, and

manage information

Risk is inherent in efforts to gain strategic advantage, and in the failure to keep pace with

changes in the financial services marketplace.

Transaction risk is evident in each product and service offered. Transaction risk

encompasses: product development and delivery, transaction processing, systems

development, computing systems, complexity of products and services, and the internal

control environment.

Transaction risk is also referred to as operating or operational risk. This risk is particularly

high in trade transactions because of the high level of documentation required in letter of

credit operations. Many transactions evolve readily from letters of credit to sight drafts or

acceptances or to notes and advances, collateralized by trust or warehouse receipts.

Repayment often depends on the eventual sale of goods and the accuracy of documentation.

Thus, the documents required to secure payment under the letter of credit should be properly

handled.

Compliance Risk

Compliance risk is the current and prospective risk to earnings or capital arising from

violations of, or non-conformance with, laws, rules, regulations, prescribed practices, internal

policies and procedures, or ethical standards.

Compliance risk also arises in situations where the laws or rules governing certain bank

products or activities of the banks clients may be ambiguous or untested. Compliance risk

exposes the institution to fines, civil money penalties, payment of damages, and the voiding

of contracts. Compliance risk can lead to a diminished reputation, reduced franchise value,

limited business opportunities, reduced expansion potential, and an inability to enforce

contracts.

Compliance risk can be overlooked because it often blends into transaction risk and

operational processing. The bank must be aware of the laws of the country in which the

counterpart to the domestic customer is located. The bank must ensure that collection and

penalty procedures stipulated in the contract are enforceable in the foreign country.


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For this reason many banks rely on foreign correspondent bank relationships in the countries

where they are active but lack branches.

Strategic Risk

Strategic risk is the current and prospective risk on earnings or capital arising from adverse

business decisions, improper implementation of decisions, or lack of responsiveness to

industry changes. This risk is a function of the compatibility of an organizations strategic

goals, the business strategies developed to achieve those goals, the resources deployed

against these goals, and the quality of implementation. The resources needed to carry out

business strategies are both tangible and intangible.

They include communication channels, operating systems, delivery networks, and managerial

capacities and capabilities. The organizations internal characteristics must be evaluated

against the impact of economic, technological, competitive, regulatory, and other

environmental changes.

Strategic risk in trade financing arises when a bank does not know enough about the region in

which it is doing business or the financing product it is using. A bank considering whether to

finance trade must carefully develop its financing strategy.

Reputation Risk

Reputation risk is the current and prospective impact on earnings and capital arising from

negative public opinion. This affects the institutions ability to establish new relationships or

services or to continue servicing existing relationships. This risk may expose the institution to

litigation, financial loss, or a decline in its customer base.

Reputation risk exposure is present throughout the organization and includes the

responsibility to exercise an abundance of caution in dealing with its customers and

community.

Trade financing is an area where reputation and market perception is particularly important.

Trade financing requires expedient processing of operations and significant attention to

details of documents.


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Import

Introduction

Import trade is regulated by the Directorate General of foreign trade (DGFT) under the

ministry of commerce and industry, department of commerce, government of India.

Authorised Dealer Category-I (AD Category-I) banks should ensure that the imports into

India are in conformity with the foreign trade policy force and foreign exchange management

rules.

AD Category I banks should follow normal banking procedures and adhere to the

provisions of uniform customs and practices.

It may also advise importers to ensure compliance with the provisions of Income Tax Act,

wherever applicable.

General guidelines

Rules and regulations from the foreign exchange angle to be followed by the AD Category-I

banks while undertaking import payment transactions on behalf of their clients are set out.

AD Category-I banks may particularly note to adhere to Know Your customer guidelines

issued by Reserve Bank.

Authorised dealer approves on the exchange control copy of import license under their stamp

and signature.

Under the present foreign exchange management rules, public sector undertakings

department are required to obtain the approval of the ministry of shipping for payment of

import on CIF basis. Public sector undertakings are required to obtain the approval of

chartering wing of ministry of shipping for payment of import on CIF basis.

In Foreign Exchange Management Act, any person acquiring foreign exchange is permitted

to use it either for the purpose mentioned in the declaration made by him to Ad category-I

Bank or for any other purpose for which acquisition of foreign exchange is permissible.

When foreign exchange has been utilised for import of goods, importer should furnish

evidences like Exchange control copy of the bill of entry, postal appraisal form etc.

Import of Currency

According to FEMA, no person shall bring any foreign currency in the country without the

general or special permission of reserve bank. A person can import currency according to

terms and conditions liable on it.

A person who is a resident of India, gone out of India on a temporary visit may bring into

India reserve bank notes up to an amount not exceeding Rs.7500 per person.


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A person may send into India without limit foreign exchange in any form other than currency

notes, bank notes.

Under the current FEMA regulations AD Category I banks are permitted to approve

suppliers and buyers credit for the import of platinum, silver for a period not exceeding 90

days from the date of shipment.

Advance Remittance for Imports

In case of advance remittance for imports, if the amount of advance remittance exceeds USD

200,000 then an unconditional or a guarantee from an international bank situated outside

India of repute is obtained.

If importer is not able to obtain the bank guarantee from the overseas supplier and AD

Category- I Bank is satisfied by track record of the importer then letter of credit may not be

required or insisted upon.

All payments towards advance remittance for imports shall be subject to the following

conditions.

The importer is a customer of the AD Category-I bank

The customer account is fully compliant with reserve bank KYC guidelines.

The AD Category banks should undertake the transactions based on their commercial

judgement.

It should follow submission of evidences for import into India

AD Category- I Bank is permitted to allow advance remittance without any limit and without

back guarantee by an importer for import of rough diamond into India.

In case of import of services if the amount exceeds USD 500,000 then a guarantee from

international bank outside India or guarantee from AD Category-I bank is obtained.

Airlines companies can make advance remittance without bank guarantee up to USD 50million.

Operational guidelines for Import

Where the goods are of short supplied, damaged and exchange control copy of import license

has already been utilised against the lost goods then the original endorsement of lost goods

may be cancelled by bank and fresh remittance is done.


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In case of postal imports, remittance against bills received for collection in respect of imports

by post parcel may be made by authorised dealers, and the goods imported are despatched by

the post parcel.

Authorised dealer may allow remittance of rent, royalty, license fee, and profit in connection

with import of cinematography films.

In case BPOs import equipment for setting up their international call centre then they are

required to make remittances towards the cost of imported equipment.

Receipt of Import Bills

Import bills and documents should be received from the banker of supplier. AD Category Ibanks should not make payment where import bills have been received directly from the

importer from overseas supplier.

AD Category I banks are permitted to allow remittance for imports up to USD 300,000

where the importer of rough diamonds has received the import bills from overseas supplier.

AD Category-I bank may receive bills directly from overseas supplier on the request on

importer.

Evidence of Import

AD Category bank may accept a certificate from CEO against of bill of entry that goods are

actually been imported into India if amount is less than USD 100,000.

In case non physical imports like software then a certificate from CA is obtained that the

software has been received by importer.

Internal inspectors carry out all the verification of evidences regarding import.

In case if importer doesnt furnish any evidence of import within the 3months then AD

CategoryI bank can issue registered letters to the importer.

Import of Gold

Gold may be imported by the banks where ownership remain with the supplier and import act

as an agent of supplier

Gold brought by NRI according to import and export policy is required to sell out to residents

in rupees.

Bank may import gold on the basis of condition that ownership of gold passes to the importer

but the prices of the gold are fixed later when the goods are sold to customers.


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About 15CA & CB

Form 15CA is a Form utilized during the process of remittance to a foreign entity and is

required to be presented as per rules laid down by the Income Tax Act of 1961. This form is

directly related to the process of making a payment to a Non Resident entity and deduction of

Tax Deductible at Source (TDS) on the payment made, at the rates in force at the time.

As per Sub Section (6) of Section 195 of the Income Tax Act of 1961, Form 15CA is

required to be presented to RBI before a remittance is made. It relates to the remittance of

payment that is made to a Non Resident individual or a foreign company.

Information included

The first section contains the Name and additional information of the Remitter. The

PAN Number and the TAN Number along with the Address of the Remitter is required to be

furnished. The Principal Place of Business is also required to be mentioned.

The second section contains details of the Recipient of the remittance. The Name, the

complete postal address, details of the Place of Business, the PAN Number, as well as the

name of the country to which the remittance has been made is required to be mentioned. The

Status of the entity, whether it is a Company, a firm or Others, is represented by the numerals

1, 2, and 3.

The third section refers to details of the Accountant. The Name of the Accountant, the name

of the firm or proprietorship concern the accountant is representing, the address, the

Registration Number and the Certificate details are mentioned here. The Certificate Number

and the Date of the Certificate are important mentions in this section.

GUIDELINES

15CA is required to be duly filled out, signed, and submitted to the Reserve Bank of India oran authorized dealer before the remittance mentioned is made.

The Form is also required to be furnished at the official website of the Tax Information

Network (www.tin-nsdl.com).

The details in the Form should be valid, especially in the case of the PAN. The details for the

Remitter, the Remittance, and the Recipient of the Remittance are required to be mentioned.

The Accountant handling the furnishing of the form and the accompanying TDS Certificate

should be fitting the definition laid down by Section 288 of the Income Tax Act of 1961.


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Finance Act, 2008 inserted a new sub section (6) to section 195 effective from April 1, 2008,

which requires the person responsible for making payment to a non-resident to furnish

information relating to such payments in formsto be prescribed. The Central Board of Direct

Taxes (CBDT) has now, bynotificationNo 30/2009 dated March 25, 2009, prescribed a

new rule 37BB in theIncome Tax Rules, 1962 (the rules) prescribing Form 15CA andForm 15CB to be filed in relation to remittances to non-residents under section 195(6) of the

Income Tax Act, 1961 (the Act).

This new rule is effective from July 1, 2009 and shall apply to all remittances being made

after July 1, 2009. The process that will have to be followed, before any remittance can be

made, is as under

Step 1: Obtain acertificatefrom a Chartered Accountantin FormNo 15CB

Step 2:Furnish the informationin FormNo15CA

Step 3:Electronically upload Form 15CA on the designated website

Step 4:TakePrint outof Form 15CA and file a signed copy

Step 5:Remit moneyto the Non Resident

Please note that all the above steps have to be undertaken before remittance of money to the

non-resident.


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Some of the Global Competitors of Jindal Stainless Limited

Arcelor mittal Acerinox TISCO POSCO Thyssenkrup stainless AK Steel NSSC YUSCO


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Export Credit Insurance

Export Credit insurance involves insuring exporters against possible:

Commercial risk such as non-acceptance of goods by buyer, the failure of buyer to pay debt,

and the failure of foreign banks to honor documentary credits.

Political risk arises from factors like war, riots and civil commotion, blockage of foreign

exchange transfers and currency devaluation.

The type of export credit insurance used varies from country to country and depends on

traders perceived needs. The most commonly used are as follows:

Short-term Export Credit InsuranceCovers periods not more than 180 days. Protection

includes pre-shipment and post-shipment risks, the former covering the period between the

awarding of contract until shipment. Protection can also be covered against commercial and

political risks.

Medium and Long-term Export Credit Insurance Issued for credits extending longer

periods, medium-term (up to three years) or longer. Protection provided for financing exports

of capital goods and services.

Investment InsuranceInsurance offered to exporters investing in foreign countries.

Exchange Rate Insurance Covers losses as a result of fluctuations in exchange rates

between exporters and importers national currencies over a period of time.

The benefits of export credit insurance include:

Ability of exporters to offer buyers competitive payment terms.

Access to working capital.

Protection against losses from foreign exchange fluctuations.


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The Role of Governments in Trade Financing

The role of government in trade financing is crucial in emerging economies. In the presence

of underdeveloped financial and money markets, traders have restricted access to financing.Governments can either plays a direct role like direct provision of trade finance or credit

guarantees; or indirectly by facilitating the formation of trade financing enterprises.

Governments could also extend assistance in seeking cheaper credit by offering or supporting

the following:

Central Bank refinancing schemes;

Specialized financing institutes like Export-Import Banks or Factoring Houses;

Export credit insurance agencies;

Assistance from the Trade Promotion Organization; and

Collaboration with Enterprise Development Corporations (EDC) or State Trading

Enterprises (STE).

Role in Facil itating and Promoting Trade

Traders need to secure financing so that the transaction may actually take place. The faster

and easier the process of financing an international transaction.

Manage cash flow, risks and costs.

Raise fund and capitals

Access Credit Information


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Buyers Credit

Buyer's credit is the credit availed by an importer (buyer) from overseas lenders, i.e. banks

and financial institutions for payment of his imports on due date. The overseas banks usually

lend the importer (buyer) based on the letter of comfort (a bank guarantee) issued by the

importers bank. Importer's bank or Buyers Credit Consultant or importer arranges buyer's

credit from international branches of a domestic bank or international banks in foreign

countries. For this service, importer's bank or buyer's credit consultant charges a fee called an

arrangement fee.

Buyer's credit helps local importers gain access to cheaper foreign funds close to LIBOR

rates as against local sources of funding which are costly compared to LIBOR rates.

The duration of buyer's credit may vary from country to country, as per the local regulations.

For example in India, buyer's credit can be availed for one year in case the import is for trade-

able goods and for three years if the import is for capital goods. Every six months, the interest

on buyer's credit may get reset.

Benefits to Importer

The exporter gets paid on due date; whereas importer gets extended date for making an

import payment as per the cash flows

The importer can deal with exporter on sight basis, negotiate a better discount and use the

buyers credit route to avail financing.

The funding currency can be in any FCY (USD, GBP, EURO, JPY etc.) depending on the

choice of the customer.

The importer can use this financing for any form of trade viz. open account, collections, or

LCs.

The currency of imports can be different from the funding currency, which enables importers

to take a favourable view of a particular currency.


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Steps Involved

The customer will import the goods either under LC, collections or open account

The customer requests the Buyer's Credit Arranger to arrange the credit before the due date of

the bill

Arrange to request overseas bank branches to provide a buyer's credit offer letter in the name

of the importer. Best rate of interest is quoted to the importer

Overseas bank to fund Importer's bank Nostro account for the required amount

Importer's bank to make import bill payment by utilizing the amount credited (if the

borrowing currency is different from the currency of Imports then a cross currency contract is

utilized to effect the import payment)

Importer's bank will recover the required amount from the importer and remit the same tooverseas bank on due date.

It helps importer in working capital management.

Cost Involved

Interest cost: is charged by overseas bank as a financing cost

Undertaking: Your existing bank would charge this cost for issuing letter of comfort /

Undertaking

Forward Booking Cost / Hedging cost

Arrangement fee: Charged by person who is arranging buyer's credit for buyer.

Risk premium: Depending on the risk perceived on the transaction.

Other charges: A2 payment on maturity, For 15CA and 15CB on maturity, Intermediary bank

charges.

WHT (Withholding tax): The customer may have to pay WHT on the interest amount

remitted overseas to the local tax authorities depending on local tax regulations. In case ofIndia, the WHT is not applicable where Indian banks arrange for buyer's credit through their

offshore offices.


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WORKING IN JINDAL STAINLESS LIMITED

Running a business globally involves dealing with diverse trade practices and transacting in

foreign currencies on a regular basis. The faster you react to opportunities, the better it is forthe business. This requirement is now days is fulfilling by trade finance.

As trade finance is becoming important part of every business. Without which a businessman

cant think to work. As it satisfy every need of business, whether it is exchange of goods,

dealing with foreign customers. As seeing the trends and basic requirement of business,

Trade financing is an important tool for most business owners as it can provide you with the

funding you need to grow your business.

In large amount of stainless steel are imported and exported that requires a big finance and

quick competition to survive in market.

Trade Finance continues to be fertile ground for structured and non-structured deals not least

because of the continuing divergence in trading regulations between the main markets of the

world.

Trade finance can serve as an important part of business as it offers various aspects of

managing finances for the company. It helps generate, manage, and establish various finance

practices like working capital, factoring solutions, banking solutions, loans, guarantees,

discounting, etc. Trade finance companies help reduce marketing cost and increase trade

profitability.

They also help in increasing the sales of the companys by promoting the products, services

or the website around the world. Trade finance companies help in eliminating most of the

commercial and political risk normally retained by the company or any small or medium

business owner.


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What is the reason of adoption of Trade Finance system in JSL

Company need to secure financing so that:

Manage cash flow, risks and costs.

Raise fund and capitals

Access Credit Information

The faster and easier the process of financing transaction may actually take place an

international transaction.

Risks Involved when act as Buyer-

Non-delivery / delayed delivery of goods Short shipment/inferior goods Goods received before the documents Foreign exchange fluctuation Regulatory changes

As seller

Non-payment/Delayed payment Exchange risk Foreign exchange fluctuation Regulatory changes


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Work flow in JINDAL Stainless Steel through Trade finance System

Marketing Department (Demand Analysis)

Production Department

Raw Material Department (Procurement dept.)

Purchase Order

LC Contract

Issuing Bank

Advising Bank

Supplier (Beneficiary)


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Functions of Various banks which involved in trading of JSL

OPENI NG BANK OR ISSUING BANK-

1.The issuing bank is primarily responsible for payment under the credit to the beneficiary.

2.Credit and any amendments thereto issued by the bank must be complete and clear. In order

to guard against confusion and misunderstanding, the opening bank should discourage any

attempt to include any excessive details in the credit or in any amendments thereto.

3.The issuing bank should nominate the bank which is authorized to pay or accept drafts or tonegotiate, unless the credit allows negotiation by any bank. By negotiating any bank, or by

allowing for negotiation by any bank, or by authorizing or requesting a bank to add it

confirmation, the issuing bank authorize such bank to pay, accept drafts or negotiate, as the

case may be, against document which appear on their face to be in accordance with the terms

and condition of the credit, and undertakes to reimburse such bank.

4.If the issuing bank fails to act in accordance with the above provision and or fails to hold

the document at the disposal of, to return them to the presenter, the issuing bank shall be

precluded from claiming that the documents are not in compliance with the terms and

condition of credit.

5.Upon receipt of document, the issuing bank must determine, on the basis of document

alone, whether or not they appear on their face not to be in accordance with terms and

conditions of the credit. If the documents appear on their face not to be in compliance with

the terms and conditions of the credit, the issuing bank may refuse to take up the document.

6.The issuing bank shall have a reasonable time not exceeding seven banking days following

the day of receipt of the document to examine the document and to determine whether to take

up or to refuse document and to inform the party from which it received the documents

accordingly.


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ADVISING BANK-

1. A credit may be advised to a beneficiary through another bank (the advising bank) without

engagement on the part of the advising bank, but that bank shall take reasonable care to checkthe apparent authenticity of credit which it advises. If the advising bank cannot establish such

apparent authenticity, it must inform, without delay, the bank from which the instructions

appear to have been received that it has been unable to establish the authenticity of the credit

and if it collects nonetheless to advise the credit it must inform the beneficiary that has not

been able to establish the authenticity of the credit.

2. If the bank elects not to advise the credit, it must inform the issuing bank without delay.

Thus the responsibility of the advising bank is to vouchsafe the authenticity if the credit. It

may negotiate document under the credit, if it so desires in which case it becomes the

negotiating bank. The beneficiary cannot compel the advising bank to negotiate documents.

CONFIRMING BANK-

1. When a bank in the exporters country adds its confirmation to the credit, it gives an

additional undertaking to the beneficiary, in addition to that of the issuing bank, to thenegotiate documents under the credit. Therefore, the relationship of the confirming bank with

the beneficiary is similar to that of issuing bank. If the documents tendered are in conformity

with the letter of credit terms and within expiry time of credit, it has to make payment against

them.

2. As to the relation of the confirming bank with the issuing bank, the position is same as that

of the negotiation bank.

NEGOTIATING BANK-

1. Unless the negotiating bank is nominated in the credit and it accepts the nomination or it is

the confirming or paying bank, no bank can be compelled by the beneficiary to negotiate

documents under the credit. A bank, under an open credit, may accept on its own to negotiate

documents.


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2. Banks must examine all documents with reasonable care to ascertain that they appear on

their face to be accordance with the terms and condition of credit. Compliance of the

stipulated documents on their face with the terms and conditions of credit, shall be

determined by international standard banking practice as reflected in these Articles.

Documents which appear on their face to be inconsistent with one another will be consideredas not appearing on their face to be accordance with the terms and conditions of the credit.

3. Therefore the negotiating bank should accept document tendered only if they conform to

the terms and conditions of credit. In documentary credit all parties concerned deal in

document and not in goods. Therefore, he cannot ensure correctness of the goods shipped but

can only see that the documents on their face appear to be required by the credits.

4. If the negotiating bank finds any discrepancies in the documents tendered, but still

negotiates, it may require the beneficiary to execute an indemnity in favour of the bank. But

such indemnity cannot be transferred to the issuing bank without the consent of the

beneficiary.


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Letter of credit an important instrument used by JSL in trade finance system

What is letter of credit?

Letters of credit (LCs) are among the most secure instruments available to international

traders. An LC is a commitment by a bank on behalf of the buyer that payment will be made

to the exporter provided that the terms and conditions have been met, as verified through the

presentation of all required documents. The buyer pays its bank to render this service. An LC

is useful when reliable credit information about a foreign buyer is difficult to obtain, but you

are satisfied with the creditworthiness of your buyers foreign bank. An LC also protects the

buyer since no payment obligation arises until the goods have been shipped or delivered as

promised.

A banks written guarantee

Made on behalf of a buyer

To pay a seller

A given sum of money

Provided that documents presented

Meet the terms specified

And are presented within a specified time

And at a specified place


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Characteristics of a Letter of Credit

Applicability

Recommended for use in new or less-established trade relationships when you are satisfied

with the creditworthiness of the buyers bank.

Risk

Risk is evenly spread between seller and buyer provided all terms and conditions are adhered

to.

Pros

Payment after shipment

A variety of payment, financing and risk mitigation options

Cons

Process is complex

Relatively expensive in terms of transaction costs


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Letter of Credit Fees

Letters of credit have certain advantages as an international payment method. If you have

enough knowledge and expertise on letters of credit field then you can use them wisely to get

paid where no other payment method works. No matter how many advantages letters of credit

have they have one big disadvantage. They are expensive. As a result you should understand

your costs before finalizing a letter of credit deal.

Who should pay bank charges in a letter of credit tr ansaction?

A bank instructing another bank to perform services is liable for any commissions, fees, costs

or expenses ("charges") incurred by that bank in connection with its instructions. If a credit

states that charges are for the account of the beneficiary and charges cannot be collected or

deducted from proceeds, the issuing bank remains liable for payment of charges."

In real life situations applicant pay only issuing bank's charges and remaining bank charges

will be paid by the beneficiary unless beneficiary is very strong against applicant.

TYPES OF BANK CHARGES

Opening Chargess

The fee charged by the L/c opening bank during the commitment period is referred to as

nuntil the last date of negotiation of documents under the L/c or the expiry of the L/c,

whichever is later.

Advising charge

The advising bank charges an advising fee to the beneficiary unless stated otherwise The fees

could vary depending on the country of the beneficiary. The advising bank charges may beeventually borne by the issuing bank or reimbursed from the applicant.

Retirement charge

This would be required at the time of retirement of LC. When the beneficiary handover all

the document related to the shipment through the advising bank then it is known as retirement

of documents.


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LC PROCESS IN JSL

Buyer ask his bank to issue an LC against the purchase contract

Issuing bank issues LC to advising bank

Advising bank notifies the seller about the LC

Seller sends the goods through shipper and collects shipping Document

Seller submits Shipping doc. to negotiating bank/ advising bank

Negotiating bank gives shipping doc. to opening bank

Bank collects the money from buyer and gives him shipping document

Opening bank pays to negotiating bank

Buyer gives the doc. to the shipping company/ vessel carrier and Collects goods

Finally, Negotiating bank gives payment to seller


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CONCLUSION

In accordance to analysis and study conduct by me on trade finance i.e. how JSL trade with

other companies all over the world, I conclude that working in JSL is a great way to go

ahead. They have taken several steps towards it spirit of producing their kind of products.

They are also gaining the competitive advantage over their competitors by manufacturing

stainless steel in india and ranked 8 th largest in the world. It is the ISO 14001 certified

company and it also takes part in social responsibility like in education, hospitals etc.


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