Summer Internship Report

Overview
Of
Banks Working

Submitted by: Sheriff Seth

SMBA09063

Institute of Management Technology, Dubai

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 TABLE OF CONTENTS

ACKNOWLEDGEMENT………………………………………………………………………...3

EXECUTIVE SUMMARY………………………………………………….................................4

EVALUATION OF BANKING………….……………………………………………………….5

CENTRAL BANK OF UAE…………………………………………………...............................6

BANK OF BARODA – INTRODUCTION.............................................................................…...7

-BOARD OF DIRECTORS………….………………………...................8

DEPARTMENTS AT BANK OF BARODA………………………………………………..…....9

-CUSTOMER SERVICE…........................................................................9

-TYPES OF ACCOUNT..........................................................................10

NRI SERVICE ………………………………………..................................................................13

REMITTANCES ….......................................................................................................................18

TRADE FINANCE DIVISION….................................................................................................22

-LETTER OF CREDIT…………………….…………………………...23

CLEARANCE DIVISION……………………………………………………………………....30

TREASURY DIVISION................................................................................................................35

RISK MANAGEMENT ................................................................................................................38

-ORGANISATION CHART…………………………………………..40

BIBLIOGRAPHY

SNAPSHOT OF FINACLE

ANNEXURE

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 ACKNOWLEDGEMENT

By the Grace of Almighty, I'm here by submitting my internship report, at the end of my first
practical experience and I'm glad to have it with Bank of Baroda- “India‟s International bank”. I
would like to acknowledge extremely valuable assistance provided by all the Officers,
Supervisors and other staff members for their great cooperation. The office working environment
is very good at BOB. I had a new, challenging and a perfect environment to learn. My parents'
prayers and their teachings were always with me and hereby I would like to take this opportunity
to show my gratitude to all those who made my internship an adventurous journey.

I extend my deepest gratitude to my project guides Mr. P.K Raut- HR Manager, Mr. Murli
Krishna- Chief Manager- Operations, Mr. Sunil Tutoo- Sr. Manager India Desk for their
help, support and guidance throughout the tenure of the project. I take the opportunity to thank
the entire Branch and Back office team at BOB, specifically to Shri. Ashok K Gupta- Chief
Executive (GCC Operations) without the support of all of them the project would not have
been successfully completed.

I am grateful to the institute and our internship coordinator Dr. K Abdul Waheed, Associate
Dean for permitting me to undergo internship at BOB, Dubai.

I owe my special regards to my college and my college mentor Dr. Sujit for providing me time
to time guidance for making my internship assignment a great success.

This acknowledgement would be incomplete without mentioning about the Managers of all the
departments, the Human Resources department and each and every staff member at Bank of
Baroda for soliciting their valuable support provided me during the entire eight week period.

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 EXECUTIVE SUMMARY

As a part of my MBA curriculum I have done my internship training at Bank of Baroda, Dubai.
In this report I am going to share my experience in the Bank for the period of 45 days. The
objective of the study was to have a general view of how things work in banking sector. This
report is based on the data collected over the short period which includes primary as well as
secondary data.

Banking is one of the most sensitive businesses all over the world. Banks play very important
role in the economy of a country. Banks are custodian to the assets of the general masses. The
banking sector plays a significant role in a contemporary world of money and economy. It
influences and facilitates many different but integrated economic activities like resources
mobilization, poverty elimination, production and distribution of public finance. Banks are
always there to serve its customer better.

Bank of Baroda is the 3rd largest bank in India, after State Bank of India and Punjab National
Bank and ahead of ICICI Bank. Bank of Baroda offers a wide range of banking products and
financial services to corporate and retail customers through a variety of delivery channels and
through its specialized subsidiaries and affiliates in the areas of investment banking, credit cards
and asset management etc. Bank of Baroda started its operations in 1974 in Dubai and Abu
Dhabi and till now it is the only Indian bank in Dubai providing full fledged Banking facilities to
its customers.

Transparency and accountability are central to Bank of Baroda‟s business, ensuring that the
controls necessary for effective risk management, regulatory compliance, and accurate disclosure
of information to the market are in place. Bank of Baroda is committed to operating according to
international best practices.

Bank of Baroda abides by all international banking regulations, UAE Central Bank rules and its
rigorous risk and capital management fully complies with Basel II requirements. All of the
bank's operations comply with international Anti Money Laundering laws following KYC
guidelines.

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 EVALUATION OF BANKING

Definitions of Bank:

(1) “Banks do business of money. Rather banks do business of lending and Borrowing of loans.”
(2) “Banks are guardian distributor of cash money”.
(3) “Banker or a bank or a person or company carrying on the business receiving moneys and
collecting drafts for customers subject to the obligation of honoring cheques drawn upon them
from time to time by the customer to the extent of the amount available on their current
accounts”.

General banking:

Financial institution that stands between ultimate borrowers and lenders is known as banking
financial institution. Banks perform this function in 2 ways taking deposits in different forms and
lending that money to other potential investors in different forms. The starting point of all the
banks is general banking which offers taking deposits and simultaneously providing the
customers with various services. Bank receives deposits from its customers on daily basis and
meets their demand for cash by honoring cheques. It opens new accounts issue pay orders remit
funds etc. This general/ everyday banking is also called as retail banking. This section is not only
confined to these services only besides they offer a whole range of services viz. Customer
service, Opening/Closing of an account, Remittance (Inward and Outward), Deposit Service,
Accounts department.

Commercial Banks

Commercial bank is an institution which accepts deposits, make business loans and offer various
services. Commercial banks mostly deal with deposits and loans from corporation or large
businesses. These banks receive deposits from general public, which are repayable on demand
upon written orders of the depositors.

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Central Banks

Central banks occupy the unique position in banking structure of a country because they have
been interested with the responsibility of controlling the money supply, interest rate, and
financial market of a country for the purpose of economic development.

Central Bank of UAE

The main responsibility of the Central Bank of UAE is formulation and implementation of
banking, credit and monetary policies, to ensure the growth of the national economy of the UAE
in a balanced manner. Central bank is also to maintain a fixed exchange rate of Dirham against
the U.S. dollar and to ensure the free convertibility of the national currency into foreign
currencies. It has come up with various laws and regulations governing the work of Banks and
other financial institutions to provide banking services with consumer protection.

Central bank of UAE provides various services to the bank

ICCS ( Image clearing cheque system )

WPS ( Wages protection system )

ICCS
ICCS (Image Cheque Clearing System) was introduced in July 2008 by the Central Bank of
UAE. Every bank including Bank of Baroda follows T+0 settlement i.e. settlement taking place
on the same day the cheque is deposited.

WPS
The Central Bank introduced WPS (Wages Protection System) in September 2009 in order to
meet the objectives of the Ministry of Labor. WPS provides a safe, efficient and robust
mechanism to allow the timely payment of employees' wages. All Banks and Money Exchanges
registered with Central Bank can act as agents to this system.

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 Mission

"To be a top ranking National Bank of International Standards committed to augmenting stake
holders' value through concern, care and competence"

Introduction and History of Bank of Baroda

Bank of Baroda was setup by Sir Sayajirao Gaekwad ‫( ׀׀׀‬Maharaja of Baroda), on July 20, 1908
in state of Baroda in Gujarat. The bank was nationalized in 1969 along with 13 other major
commercial banks of India. It has significant international presence with a network of 78 offices
in 25 countries, six subsidiaries, and four representative offices. Among Bank of Baroda's
overseas branches are ones in the world‟s major financial centers i.e. New York, London, Dubai,
Hong Kong, Brussels and Singapore, as well as a number in other countries. Bank of Baroda
maintains representative offices in Malaysia, China, Thailand, and Australia.

Overview of Bank of Baroda

India‟s International Bank, Bank of Baroda, one of the earliest Indian banks to venture into
international banking arena, set up its first foreign branch in Mombassa, Kenya in 1953,
followed by London in 1957 this expansion continued what originated as India‟s International
Bank having 78 branches in 25 countries in 5 continents and having 3101 domestic branches.

It is the 3rd largest bank in India after State Bank of India and Punjab National Bank and
recently ahead of ICICI Bank with its total Business crossing 400000 Crores. It is the only
Indian Bank operating in UAE since 1974, carrying out full fledged banking operations, with

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 6 branches - Dubai , Deira, Abu Dhabi, Sharjah, Ras-Al-Khaimah and Al Ain. In Oman they
have 3 branches – Muttrah (2 branches) and Salalah. They are in a process of spreading their
branches in other parts of GCC countries i.e. Qatar, Kuwait and Saudi Arabia and recently
they have opened 2 new EBSU units in UAE.

BOARD OF DIRECTORS

Shri. M.D. Mallya Chairman & Managing Director

Shri Rajeev Kumar Bakshi Executive Director

Shri N S Srinath Executive Director
Shri Alok Nigam Director
Shri A. Somasundaram Director
Shri Ajay Mathur Director
Shri Ranjeet Kumar Chatterjee Director
Dr. Masarrat Shahid Director
Dr. Atul Agarwal Director
Dr. Dharmendra Bhandari Director
Dr. Deepak B Phatak Director
Shri. Maulin Vaishnav Director

Departments at Bank of Baroda

NRI Services
Customer Services
Cash Division
Fund Transfer/ Fixed Deposit division
Treasury Division

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 Trade Finance Division
Clearance Division
Advances/ Credit Division
Risk Management Division

CUSTOMER SERVICES [DEPOSIT DIVISION]

Customer services in Bank of Baroda complies of 4 basic things :

 Opening/ Closing of an Account

 Issuing Cheque books
 Issuing Debit Card
 Providing Statement of respective accounts

Account opening procedure

 First of all customer is required to fill an application form as prescribed by the bank
which is available in any of the branches of Bank of Baroda where the customer wishes
to open his account.
 Then he needs to attach his passport photocopies both of front and back page and copy
of his visa. He also needs to bring his original passport with him for verification purpose
else it can be verified by the company itself where he is presently working. Labor card
photocopy is also to be attached with the form. All these documents are taken keeping in
mind the KYC ( Know Your Customer) guidelines prescribed by the Central Bank of
UAE
 After all this formality he needs to fill the deposit slip and deposits minimum required
amount on the cash counter.
 Now, the bank will enter all the details of the customer in their database and entry will
be done in Finacle (Core Banking Solution implemented by the bank) and new account
number will be generated for the respective customer.

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Various types of accounts offered by Bank to its customers are :

 Savings Deposits
 Current deposits
 Special Current Account
 Term Deposits
 Recurring Deposit
 Salary Account

Savings Accounts { SB 101 }

This type of account is the most common operating account for any individual for his day to
day transactions other than commercial transactions. Savings account helps individual earns
some return on their savings kept with the bank. This account is opened for persons who
wants to make small savings and can be opened with a minimum balance of AED 1000/-
failing which will attract a Charge of AED 50/- . In this type of account bank takes
maintenance charges i.e. AED 25/- twice a year in March and September.

Persons eligible to open this kid of account

 Any person can open this account in his/ her name

 Any Individual, Minor and Illiterate can open this account
 Two or more persons in their joint names but in this case it is to be specified in the form
that who will handle the mode of operation both or any individual

Bank of Baroda opens this account in 3 major currencies other than AED viz. USD, GBP,
EUR. Customers having this type of account will enjoy interest @ 0.40% p.a. As prescribed
by Central bank of UAE cheque facility is not provided on savings account so the customer
will not be issued a cheque book for his savings account.

Current Account

Current accounts are mainly cheque operated accounts maintained for business purpose by

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 various corporate bodies. These are Non Interest bearing accounts and a customer has choice
in this he can opt for any out of these 2 Accounts :

 Regular Current Account

 Special Current Account

Regular Current Account { CA 101 }

Generally Banks insists to maintain higher minimum balance in these types of accounts than
savings account, so this requires minimum balance of AED 5000/- failing to maintain this
balance will attract a Charge of AED 100/-. This account can also be opened in any of 3 major
currencies other than AED viz. USD, GBP, EUR. Customer will be provided with facility of
writing cheques and will be issued a cheque book of minimum 50 or 100 leaves as per the
requirement of particular organization. The cheques can be used for unlimited times in a
month.

Special Current Account { CA 102 }

This Account is for individuals who want to opt for cheque book facility. For enjoying this
facility he needs to maintain the minimum balance of AED 2500/-. Customer will be issued a
cheque book of 25 leaves but only 4 cheques can be issued in a month that can either be
through clearing or cash counter.

Salary/ Payroll Accounts { SB106 }

Bank of Baroda offers an excellent service for the companies and its employees called
Salary/ Payroll Account. It enables the employer of the company to credit his employees‟
salary directly to that account. This account comes with a feature of:

Free ATM card

First cheque book will be Free for of 50 leaves
Statement of account will be send for free in email
No restrictions on number of Withdrawals

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 Zero minimum balance (After transfer of 1st salary)
Account maintenance charge of AED 10/- per month

Requirements to open a Salary/Payroll account:

To enjoy the benefits of this account one must have a minimum salary of AED
4000/- and they must be working in UAE for the past 6 months.
Minimum initial deposit of AED 100/-
Zero balance is allowed after transfer of 1st Salary

Charges:

Cheque Book AED 1/- per leaf after issue if first 50 leaves
Charges

Account balance Free once in the financial year AED 50/- for
certificate extra certificate

Closure of Account If within a year AED 100/-

Account AED 25/- half yearly will be deducted in

maintenance March and September

For funds transfer AED 10/- if the Account is with Bank of

to India Baroda in India else AED 15/-

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 NRI SERVICES

NRIs are very important segment of customers for any Bank. Bank of Baroda is fulfilling
various banking requirements of NRIs in UAE. They have specialized NRI desk which takes
care for all the needs of the NRIs. For Indian customers they have taken special care so that they
don‟t have to go there and every requirement is being fulfilled here only. They have come up
with a very nice tag line for the Indian customers “You do not have to go to India for banking,
we bring India to you”.

Definition of an NRI as defined under Foreign Exchange Regulation Act (FERA) ::

An Indian citizen who stays abroad for employment/carrying on business or vocation outside
India or stays abroad under circumstances indicating an intention for an uncertain duration of
stay abroad is a Non-Resident. (Persons posted in UN organizations and officials deputed
abroad by Central/State Governments and Public Sector undertakings on temporary
assignments are also treated as Non-Residents). Non-Resident foreign citizens of Indian
origin are treated on par with Non-Resident Indian citizens (NRI's).

Indian Students studying abroad are also treated as NRIs provided their stay abroad is for
more than 182 days in the preceding financial year and their intention to stay outside India
for an uncertain period when they go abroad for studies.

NRI division provides with various services as:

 Opening of an NRI Account

 On the spot renewal of Rupee FDRs
 Providing Loans against NRE/FCNR deposits
 Issuing of cheque books for selected Indian branches
 Assistance in obtaining PAN card
 Online Remittance Service
 View based Internet banking

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Various products and services being offered:

 Deposit Products
 Loan products
 Other Services

Deposits products

NRE A/c (Non Resident External)

NRO A/c (Non Resident Ordinary)
FCNR A/c (Foreign currency Non Resident)

NRE Account

 Income tax benefits

 Interest earned in NRE / FCNR A/c is exempt for Individuals who are NRI under FERA.
 Can be maintained by NRI's with Bank‟s branches in India
 Can be opened jointly with other NRI

Requirements for opening an Account;

Any person who wants to open an NRI account with BOB needs to fill the specified form

Documents required for opening an account :

 Original Passport and Visa (for verification).

 2 Passport size color photographs of the applicant.

Procedure:

 First of all, the applicant/ customer is required to fill the specified form (Account
opening form for Individuals) which is available with any of the branch as well as on
Bank of Baroda‟s UAE site.
 The branch officers will check the form and original Passport as well as Visa and verify

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 it.
 After verification the person is to deposit minimum required amount to be maintained
for opening an account (AED 200 or equivalent INR).
 Once the amount is being deposited by the customer his part is over and now the cash
department will send the draft of that amount to the account opening section after
sometime.
 The Draft is then attached with the application form and the same is sent to the
respective Indian BOB branch where the applicant wants to open his account, through
Air Mail.
 On receiving the documents by the respective Indian branch they open the account in
their system and will respond to UAE branch within 15-20 days.
 If cheque book or pass book is being applied by the applicant in the form then the same
is being delivered within 15-20 days of receiving the application form by the Indian
branch.
 If applicant has applied for Internet Banking- Baroda Connect then the desired User ID
will come with the cheque book and passbook and its Password will be available after 1
week of receiving the cheque book, the applicant has to come to the branch to collect the
password for Baroda Connect.
 With all these formalities being done the account is operational and applicant can remit
the funds to India now.

NRO Account

 Interest is taxable @ 12.5% p.a

 Besides Inward remittance, Indian rupees can be deposited and the account can jointly
be opened with resident Indian
 Funds can be deposited from India also
 A/c is opened following KYC norms

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FCNR Account

 A/c can be opened in 6 major currencies viz. Australian dollar (AUD), US dollar
(USD), Canadian dollar (CAD), Pound sterling (GBP), Japanese yen (JPY), EURO
(EUR)
 A/c is opened following KYC norms
 If the customer is having FCNR A/c he is eligible for Loans in India (In INR or
Foreign currency) as well as in Abroad.

For Remittance to India

Bank offers fastest and cheapest mode of remittances to India through 6 branches in UAE, 3 in
Oman and one in Bahrain. Remitter can be any Individual having an NRI account with BOB or
Corporate for remitting salary payments to their employees in India. Bank of Baroda is also
open on Friday‟s for remittance purposes. Some of its features are :

Easy and hassle free money transfer to India from any Bank of Baroda branches in UAE
Fast remittance facility and credit will be provided within 24 hours to the beneficiary‟s
account
Free remittance on Friday‟s

Process: Funds can be remitted to India through 2 ways :

Rapids funds2India
RTGS/ NEFT

RTGS :

Real time gross settlement systems are funds transfer systems where transfer of money takes
place from one bank to another on a "real time" and on "gross" basis. Settlement in "real time"
means payment transaction is not subjected to any waiting period. This is the interbank money
transfer i.e. from BOB Dubai to BOB India.

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In RTGS, Settlement will take place continuously between 9.00 A.M and 2.00 P.M and the
return time allowed is up to two hours from the time of the receipt of the payment. But in RTGS
the amount should be above Rs 1.00 Lakh. This is generally being used by the corporates who
have huge money transfers.

NEFT :

For NEFT (National Electronics Fund Transfers)

 Money can be transferred from Bank to Bank but both the branches should have their
IFS Code (IFSC).
 One can transfer any amount through NEFT there is no upper or lower limit for it.
 In NEFT, clearing are done on the basis of settlement batches every hour a batch is
being passed and the return time allowed is 24 hours. The messages received by RBI
within each settlement batch time will be consolidated and distributed to payee's banks
after settlement. Normally, payment message reaches receiving (payee's) bank within 15
to 30 minutes from the batch time. For e.g. message sent to RBI for the 12.00 clock
settlement batch, will reach receiving bank by 12.30 P.M.
 NEFT is the most suitable mode of payment for small value payments and settlements
are faster when compared with other modes of payment like Demand Draft or
Telegraphic Transfer.

The NEFT and RTGS are message based mode of funds transfer means for transfer of funds,
message is being sent by originating bank branch (where customer account will be debited) to
the receiving branch (In India) where the beneficiary or intended customer will be having
account through RBI intervention. In Bank of Baroda instructions received till 2 p.m will be
processed on the same day else on the next day.

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 REMITTANCES

This division in Bank of Baroda deals with Clean Remittances i.e. no documents are involved
like in case of LC. If any person wants to send his money to any foreign country (except India)
from UAE then this department will do so. A customer can pick any one funding mode for
remitting its money:

Demand draft
Telegraphic Transfer

The following modes of payments are provided by Bank of Baroda:

Local Remittance: For payments made to another bank in UAE local remittance is being done.
The transfer can be either by Managers cheque (MC) or telex transfer (TT). Every transaction
will through Central bank.

International Remittance: For payments made to another bank outside UAE this is done
through the correspondent banks. The transfer can be made either by Demand Draft (DD) or
Telex Transfer (TT). In this case money is sent through the correspondent banks of Bank of
Baroda in other countries.

Types of remittances:

There can be two types of remittances for a Bank viz. Inward Remittance and Outward
remittance which are explained in detail as below:

Inward remittance:

Inward remittance means transferring (receiving) funds from foreign country to UAE through
the Correspondent bank of Bank of Baroda.

Example

„A‟ wants to send the money from USA to „B‟ in UAE and „A‟ is having his A/c with HSBC,

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US and „B‟ is having his A/c with Bank of Baroda, Dubai. Now how the remittance is being
done at BOB is discussed:

Steps

 Now in this case HSBC will send BOB, Dubai a SWIFT message [FIN 199] to confirm
their correspondent bank in US (if not given by the customer).
 After getting confirmed from BOB, HSBC will send the money to BOB, Dubai‟s
correspondent bank in US with whom BOB is maintaing their Nostro A/c.
 Let‟s assume that BOB is having his Nostro A/c with Standard Chartered Bank Limited
(SCBL). Now HSBC will Dr. his customers A/c and will Cr. the proceeds to Central
bank after deducting its charges. After passing the transaction HSBC will send SWIFT
message [FIN 202] to SCBL as well as to BOB, Dubai [FIN 103] confirming the same.
 SCBL after receiving the SWIFT message will pass the necessary entry in its system and
will Dr. their Central Bank A/c and Cr. will be given to BOB Nostro A/c thus
confirming this to BOB by sending SWIFT message [FIN 103].
 Now as soon as the SWIFT message is being received by BOB they will Dr. their Nostro
A/c with SCBL and will Cr. the account of ultimate Beneficiary by deducting their own
charges.

Charges:

As every transaction is being routed through various banks each bank takes their own charges.
For this purpose SWIFT message will be providing the details of the charges. There can be
three types of charges:

 All the Charges being borne by the remitter/sender.

 All the Charges being borne by the ultimate Beneficiary/receiver.
 Charges are being Shared by the remitter and the beneficiary both.

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Outward Remittance:

Outward Remittance means transferring (sending) funds to foreign country from Bank of
Baroda, UAE. The procedure of Outward remittance will be same as that of Inward
remittance, but in this case Bank of Baroda will send the money to the correspondent bank
which will Cr. the money to the ultimate Beneficiary. In this case BOB will Cr. the Vostro A/c
of that bank if the a/c is being maintained with BOB and will send the SWIFT message to that
bank. The SWIFT message will contain the following details :

 Beneficiary name, address and his account no. where the money is to be Credited
 Ordering institution i.e. who is sending the money
 Payment details so as to why the money is being sent, for what purpose

Nostro/Vostro A/c:

An account that a bank holds with a foreign bank. For routing purpose every banks have their
Nostro/Vostro accounts with other foreign banks in almost every country. Bank of Baroda is
also having their Nostro A/c with various banks viz. J.P Morgan Chase, Standard Chartered
Bank Limited, Bank of Baroda in New York (US). In Europe they are maintaining their
Nostro Accounts with Bank of Baroda, Brussels and Deutsche Bank. In UK they are having
the A/c with Bank of Baroda, London and so on. The customer has to mention the SWIFT ID,
CHIPS UID, IBAN so that the money is transferred to that particular branch only. The SWIFT
ID for Bank of Baroda, Dubai is BARBAEADDUB.

The account which other banks is maintaining with Bank of Baroda is Vostro for Bank of
Baroda and Nostro for them.

Standing Instructions:

Standing Instructions is a service provided to the customers whereby they can set up a
payment instruction to make regular payments of a specific amount to a named beneficiary
holding account with Bank of Baroda or any bank inside or outside the territory of UAE.

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Correspondent Bank:

The inter-bank market is a network of correspondent banking relationships. All banks

maintain „nostro‟ accounts with other banks which are called as correspondent bank like Bank
of Baroda is having their Nostro A/c with J.P Morgan Chase New York hence the
correspondent bank for Bank of Baroda is J.P Morgan. Correspondent relationships facilitate
Forex operations, export and import transactions. Correspondents provide advisory,
confirmation and collection services (LC). All the communication between the banks is done
through SWIFT messages.

SWIFT (Society for Worldwide Interbank Financial Telecommunication) :

SWIFT is a telecommunications industry which provides a worldwide Financial messaging

network which exchanges messages between banks and other Financial institutions. Almost
every international interbank message is communicated through SWIFT. Sending a SWIFT
message will not facilitate funds transfer, rather, it sends an authenticated message for the
payment orders to the other institution which will be settled via correspondent accounts.

Hence SWIFT is a secure network for transmitting messages between financial institutions. It
is having a set of standards for financial messages [Like templates from FIN 101 to FIN 999
message].

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 TRADE FINANCE DIVISION

Trade finance is mostly related to international trade. Where the seller and buyer both enters in a
contract for the Import and Export of the goods. For this Bank of Baroda provides various forms
of support to its customers besides opening of LC viz. :

Overdraft Facility by opening O/D account {OD 104}

Trust Receipt by opening T/R account {TR 105}
Bills Finance (L/C)
Foreign Bills Collection (FBC)
Discounting of Usance bills

In short, trade finance covers money lent to exporters or importers by dealing with the Bills.

Classification of bills

PLACE PERIOD NATURE

1. Inland Bills 3. Demand/Sight Bills 5. Clean bills

2. Foreign Bills 4. Usance Bills 6. Documentary Bills

Inland Bills:

Bills drawn by the party in UAE on the other person in UAE itself.

Foreign Bills:

Bills drawn outside UAE and payable to the person residing outside UAE or, bills drawn

22
outside UAE and payable to the person residing in UAE.

Demand/Sight Bills:

This bill is payable on demand and no time is given by the exporter to the importer for making
payment

Usance bills:

This type of bill provides the importer with some time to make the payment which will be
specified. The date specified is called as “Maturity/ due date”.

Clean Bills:

In this kind of bill there will be only bill of exchange no documents of title to goods will be
there. This type of bill is generally drawn when both the parties have faith in them and only
payment is to be made through the banks as described in 2nd example (FBC).

Documentary Bills:

This bill will come with the documents relating to the title to the goods. Documentary bills are
of 2 types i.e. D.P (documents against payable) Bills and D.A (documents against acceptance)
Bills.

LETTER OF CREDIT(L/C)

INTRODUCTION

In international trade the buyer and seller are miles apart having different legal systems and
both unaware of each other‟s financial position. So in these cases it is preferable that both the
parties deal through their banks. The documents covering the goods are being routed through
their banks and both the parties are being assured that the terms of trade would be complied. So
for this case Letter of Credit is being issued by the Importers Bank called Issuing Bank and his

23
client is called as Applicant to the Exporters Bank called the Advising Bank and his client is
called as Beneficiary who will receive the money by redeeming the Letter of Credit.

DEFINITION

LC is an arrangement whereby a bank acting at the request of a customer undertakes to pay a

third party(beneficiary) by a given date according to agreed stipulations and against
presentation of documents the counter-value of goods and services supplied for this banks deal
only in documents and not in goods.

There are 2 types of Documentary Bills (LC)

Import L/C: When we issue any L/C on behalf of our customer (applicant) i.e. Importer
on other customer (beneficiary) i.e. exporter to Import the goods and make the
payments.
Export L/C: When any L/C is being opened on our customer by any other bank. In this
case our customer is the exporter (beneficiary) of the goods and other party is the
Importer (applicant).

Documents under L/C

Bill of Exchange
Proforma Invoice
Inspection Certificate
Certificate of Origin
Certificate of Analysis
Packing List
Weight Certificate

Parties to a Letter of Credit

Applicant/Buyer/Importer: He is the person who comes to the bank to open an LC. He

has to make payments for importing his goods by availing the banks facilities.
Issuing Bank: The bank which opens the LC on request of the Applicant.
24
 Beneficiary/Seller/Exporter: He is the person who is to receive the money under LC.
Advising Bank: The bank with whom the beneficiary is having his account. The
advising bank will forward the LC to the beneficiary and in return will give the
documents to the Issuing Bank.

ADVANTAGES

To the Buyer:

 Buyer does have to make the payment in advance to the seller.

 In most cases the bills are payable over a period of time (called Usance bills) hence
additional credit is given to the buyer.
 The quality of goods is assured by opening an L/C. The buyer can insist for the
Inspection certificate certified by an Inspector which is to be sent along with the bill of
exchange and bill of negotiation. In case the document is not provided by the exporter
the bank will not make the payment on bills.

To the Seller:

 The seller will be assured that he will receive payment on time for his exports.
 The need not to bother about the fluctuations in currency as this will be the
responsibility of the buyer.

How it works

Let‟s take an example of a business called “XYZ” Ltd. Now XYZ is a regular importer of goods
from ABC ltd. whose bank is Standard Chartered Bank Ltd. (SCBL) UK and XYZ is having his
account with Bank of Baroda Dubai. XYZ places an order of $100,000 with ABC ltd who
agreed to sell the goods and gave him 60 days to pay for them. Now XYZ will approach to
Bank of Baroda to open an L/C and these steps will be followed:

 XYZ comes to Bank of Baroda and requests to open an L/C worth $100,000 favoring
ABC ltd.

25
  Bank of Baroda issues a Letter of Credit by checking the applicant‟s capacity i.e. the
bank will open an L/C if they know that buyer will pay and they can rely on
reimbursement by the applicant. So in this case XYZ have to deposit enough money to
cover the letter of credit and Lien will be marked on his account.
 BOB will send the L/C to SCBL favoring ABC ltd. assuring that full payment will be
done on time and they can ship the merchandise with the necessary documents. SCBL
will scrutinize the documents and will send the original or 2nd copy of the shipping
documents to BOB.
 ABC ltd. will give the merchandise and Proforma Invoice along with Bill of Lading (in
case goods are sent through Ship) to SCBL and SCBL will send these documents to
BOB.
 As soon as documents are received Supervisor of BOB will scrutinize the documents
and will check that there should not be any discrepancy, these documents must conform
to terms and conditions set out in the letter of credit if any such thing arises then BOB
will inform SCBL through SWIFT message to look into the matter.
 Now as soon as the documents are received BOB will inform XYZ ltd. to collect these
documents within specified time limit and after the collection of the documents BOB
will debit his account by taking the charges.

To pay on a letter of credit, banks simply review documents proving that a

seller performed his required actions. They do not worry about the quality of goods or other
items that may be important to the buyer and seller. Hence Bank only deals in documents
and not in goods.

All the communication between the banks is through SWIFT message which is an
authenticate message and all the rules and regulations are subject to UCP 600.

26
 Seller Ships Goods Buyer
(EXPORTER) (IMPORTER)
(Beneficiary) (Applicant)

Payment by deducting the L/C

Bill of exchange etc)

Documents
(Bill of Lading,

Payment
Documents

charges
Advises LC

Applies for LC
Payment
Seller‟s Buyer‟s
Bank SWIFT messages Bank
(Advising Bank) (Issuing Bank)

Documents
(Bill of Lading, Bill of exchange etc)

Opens LC and sends for Advising

Credit Report: Sometimes the applicant just to make sure that whether the exporter is capable
of supplying the goods asks the advising bank about the credit worthiness of the exporter. So in
this case the advising bank will give the credit report to the issuing bank confirming the exports
of the goods.

Buyers Credit: Bank of Baroda also offers Buyers Credit to its customers. It is the credit given
to the Importer (Applicant) so that he makes his payment on due date. This credit is generally
being given at the request of buyers.

27
Foreign bill Collection: In this case both the parties have faith in them and by their
(FBC) mutual consent FBCs are drawn. In this case goods are
directly being sent to the Importer with the documents by the
exporter and payment is made through the banks.

Goods with Documents

SELLER BUYER

Payment
Payment

FBC

Payment
Bank
Bank

28
 Steps for Bills Collection

Export LC Import LC

We receive the We send the LC to

documents advising bank

Lodge in FINACLE Lodge/Open LC in FINACLE

under FBC menu under FIBC menu

Again send these Again we will receive the

documents to the issuing documents with bill of lading and
bank after scrutinizing bill of exchange etc.
them

Receive the Payment and After confirmation we will make the

Credit it to the customers A/c payment to advising bank by debiting
our customer A/c

29
 CLEARANCE DIVISION

Clearing of cheques in UAE is done through ICCS (Image cheque clearing system) and the
cheque is cleared on the same day in UAE. The same day image cheque clearing system or
ICCS benefits customers by reducing their time to one/single day it takes for a cheque to clear.
The process is shown in diag. under :

In ICCS scanned images are received/ sent through Central Bank of UAE. In case of Outward
clearing BOB will send the scanned images of the cheques through ICCS to Central Bank before
10:30 a.m because after that Central Bank does not accepts the cheques for same day clearing

30
and in case of Inward clearing BOB will receive the scanned images from Central Bank
throughout the day. So there are 2 types of clearing :

Inward cheque clearing

Outward cheque clearing

Inward Cheque Clearing:

Inward clearing means the cheques received by Bank of Baroda from other banks. Here Bank of
Baroda is the Issuing bank and other bank is the Presenting bank. These cheques are the cheques
drawn by the bank/branch customers on their account in favour of other parties. On receipt of
the inward clearing cheques the account of the cheque issuer or drawer with Bank of Baroda is
debited and the payment is made to the bank presenting the cheque (whom with favouring party
is having his A/c). The debit will be indicated in the statement of A/c of the customer (Bank of
Baroda‟s) confirming that the cheque has been paid.

Inward Cheque return:

Cheque return can be from following reasons
 If the balance is insufficient to pay the inward cheque, the bank will return the same to
the presenting bank and will debit his customer account with cheque return charges i.e.
AED 200/-.
 If the cheque is
 Stale dated i.e. the date written on the cheque is before 180 days from the
settlement date.
 Post dated (PDC) i.e. the date written on the cheque any future date from the
settlement date. For example A comes with a cheque dated 18/06/2010 and
settlement is taking place on 16/06/2010 then it is a PDC and it will not be
cleared on 16th.
 If MICR (Magnetic Ink Character Recognition) number written on the bottom of the
cheques is not visible because of improper scanning by the Presenting bank.
 Other Reasons i.e. signature missing, signature not matching with one in FINACLE,
payee name missing etc.

31
 Cheque Clearing- Inward

Original cheque is received

Presenting bank sends scanned images of after 5 days from C.B which
cheque and deposit slips to Central Bank is scanned in ICCS RECON
before 10:30 by Bank of Baroda for
reconciliation purpose

Central Bank will send that images to

Bank of Baroda

Bank of Baroda will scrutinize the cheque If

by checking the beneficiary name, A/c no. Insufficient
and signature from FINACLE balance

After scrutiny, cheques are being

approved by the supervisor of Bank of
Baroda and the same are then tallied with
the Central bank settlement report
(ICE/OCE)

Approved Wait for O/D

The report received is then uploaded in approval or
FINACLE which is called as “Floppy check if there is
upload process” any Standing
instruction

After uploading the zone in FINACLE it

is being authorized by the supervisor

Not
Cheque is
Dr. is made in customers A/c and Cr. is returned
given to the clearing house Approved

In the evening BOB will Dr. clearing

Outward
house andCheque
will Cr.Clearing:
the proceeds to the
Central Bank

32
Outward Cheque Clearing:
When “A” deposits a cheque to his account with Bank of Baroda for local collection then it is
sent through clearing for claiming money from the concerned bank on which the cheque is
drawn. After clearance of the cheque i.e. after getting money from other bank, Bank of Baroda
will credit the amount to A‟s account. In this case Bank of Baroda is Presenting bank and other
bank is Issuing bank. For same day clearance “A” has to deposit his cheque to BOB before 9:30
a.m and all the cheques which are received after 9:30 a.m will be cleared on the next day. The
cheques received are of 2 types :

Individual cheques: In individual cheque every cheque is attached with a deposit slip i.e.
there is only one cheque with one deposit slip

Bulk cheques: In case of bulk cheques, one deposit slip will have more than one cheque
attached with it.

Outward Cheque Clearing Procedure is explained below through the flow chart

33
 Cheque Clearing- Outward

Bank of Baroda scan images of cheques and

deposit slips specifying it as Individual or Bulk
cheque

Accordingly batches will be made in ICCS

Every batch will be approved by the supervisor

by scrutinizing every cheque with original
deposit slip

After scrutinizing the images with original

deposit slips and the officer will authorize and
send it to Central bank before 10:30 a.m

Central bank will send the settlement report Cheque returns will come
(ICE/OCE)

Report is being uploaded in FINACLE under Modification is being done in FINACLE

PTW menu under OCLODGE menu

BOB will Dr. Central bank A/c and gives Cr. to its
Cheque is being returned to the customer
customers A/c
(SAME DAY)

Benefits of same day clearance

Through same-day cheque clearance customers will have access to the proceeds of deposited
cheques on the same day, if deposited before cut-off time i.e. 9:30 a.m. This system has huge
benefits to entities; big and small, as before it, money was locked-in for even three to four days

34
thereby working capital was stuck with banks. With this new system, customers will realize that
money received by a cheque dated today is equal to cash received today.

TREASURY DIVISION

Countries of the world have been exchanging goods and services amongst themselves. This has
been going from times and the World has come a long way now as economy is becoming more
globalized. As every nation has a distinct national currency, international trade and financial
transactions have been necessitated exchange of currencies which further necessitated to
exchange rates. Like any other commodity the price of one unit of foreign currency can be stated
in terms of domestic currency (AED). Treasury division in banks generally deals in Forex- all
the claims payable abroad whether consisting of funds held in foreign currency with banks
abroad or bill cheque payable abroad. Forex Market has many participants whom with bank deal
viz. Central Bank, Commercial Banks, Investment Banks, Forex brokers, Corporations.

Forex market is a global market with no barriers, supporting large capital and trade flows hence
it is highly liquid market. There are very high fluctuations in currency rates and settlements are
affected by time zone factor. Keeping time zone in mind Forex market has different types of
transactions i.e. :

Cash/ Today -: In this settlement of funds takes place within the same day in between the
banks.
Tom -: In settlement of funds take place on next working day
Spot -: The settlement of funds is done on the second working day.
Forward -: Delivery of funds on any day after Spot date
Value Date - : Value Date is the day on which the exchange of currencies actually takes
place

In all of these transactions contract terms (Price) are set now but delivery and payment occurs at

35
a future date. The current price of any currency trading in the market is Spot Price and
BOB dealers have to accordingly calculate the rate for Cash, Tom, Forward transaction.

Treasury Division in BOB

Bank of Baroda, Dubai has a specialized cell of treasury who takes care of all the Forex
transaction for all its 6 branches in UAE. Its treasury office comprises of three divisions:

Front Office (Dealing Room)

Mid Office (Risk management)
Back Office (Accounts and reconciliation)

Front Office

The Front office of Bank of Baroda acts as in intermediary between the branch offices of BOB in
UAE. They maintain orders, receives reports as they come in, responds to branch queries,
advises rates obtained from the dealing desk (Treasury) to branches, passes on information and
transactions meant for the branches, tracks balances.

The Front office is also required to make sure that the branches put through transactions only at
the permitted rates (as set out in the Card Rate) by the Dealers. Provisional rates are finalized to
the merchant desk (Front Office). Competitive rates are offered to customers at the branches by
the NRI Desk Managers through the merchant desk, which carries out this task in consultation
with the dealing room.

Front office of Bank of Baroda deals with various types of transactions in Forex markets that are:

Merchant Transactions:
The majority of transactions taking place in branch are on account of their clients, these
transactions are related to the buy/sell foreign exchange from/to exporters/importers and
other customers. All these transactions at Bank of Baroda are being reported by various

36
 departments (Trade Finance, IR/OR etc.) to the treasury front office through ADS
(Automated Dealing System) as implemented by Bank of Baroda. These transactions are
undertaken only for customers and speculation under this is prohibited.
All the communication between the banks is done through SWIFT, "REUTERS" system
etc which are available to the dealers in the front office.

Interbank transactions:
This includes Interbank transactions i.e. when one bank deals with another bank
buys/sells foreign exchange. If a bank can't meet its liquidity requirements, it will need to
borrow money in the interbank market to cover the shortfall. Some banks, on the other
hand, have excess liquid assets above and beyond the liquidity requirements. These
banks will lend money in the interbank market, receiving interest on the assets. These
interest rates are being changing in the market on daily basis and there are 2 types of
interest rate Bank of Baroda can charge :

 LIBOR Rate (London Interbank Offered Rate): For transactions taking place
outside UAE i.e. Bank of Baroda lending to a bank outside UAE.

 EIBOR Rate (Interbank Offered Rate): For dealings with bank in UAE this rate is
applicable. These rates are set on daily basis.

Forex Transactions:
Forex transactions refer to buy and sell of foreign currencies to gain from the currency
movement. This is carried out by the dealer on the behalf of the bank with sole aim of
maximizing the profit for the bank. The rate in Forex Transactions trading is the Spot
Rate which the most traders use when trading with other online retail Forex broker.

The major currencies being traded in Bank of Baroda includes Indian Rupees (INR), Euro
(EUR), Swiss Franc (CHF), Japanese Yen (JPY), US Dollar (USD), Pound Sterling (GBP), Qatar
Riyal (QAR), Kuwaiti Dinar (KWD), and Saudi Riyal (SAR).

37
Dealers at BOB deals in Bonds, Foreign currencies and financial derivatives complying with
various Risk management guidelines. Treasury of BOB generally buys/sells:
Foreign currencies
CLNs Bond (Credit Linked Notes)
FRBs (Floating rate bond)
Fixed Income bonds

Mid Office (Risk management)

The primary function of Mid office (risk management) office is Asset/Liability management.
Risk managers asses what all risks are there associated, define them and try to minimize them.
For all this Bank of Baroda is following certain guidelines one of which is BASEL ІІ. These are
the recommendations on banking laws and regulations issued by Basel Committee.
The purpose of Basel II is to create an international standard that banking regulators can use
when creating regulations about how much capital banks need to put aside to guard against the
types of financial and operational risks banks face. Generally speaking, these rules mean that the
greater risk to which the bank is exposed, the greater the amount of capital the bank needs to
hold to safeguard its solvency and overall economic stability. BASEL ІІ uses Three Pillar
Concept which is as follows:-

First pillar :

The 1st pillar deals with maintenance/calculations of minimum regulatory capital required. This
can be calculated for three major components of risk that a bank faces by various approaches as:

 Credit risk: Credit Risk can be calculated by using one of three approaches:

1. Standardised Approach

2. Foundation IRB (Internal Ratings Based) Approach

3. Advanced IRB Approach

 Operational risk : For operational risk, there are three different approaches - basic
indicator approach or BIA, standardized approach or TSA, and advanced measurement

38
 approach or AMA.

 Market risk : For market risk IRB (Internal rating based) approach, Duration method and
VaR (value at risk) approach are there.

Second Pillar :

The second pillar deals with banks own risk management. It also provides a framework for
dealing with all the other risks a bank may face, such as Concentration risk, Strategic risk,
Reputation risk, Liquidity risk and Legal risk. It gives banks a power to review their risk
management system. For this the method used is IRR (Interest Rate risk) method. Under 2nd
pillar banks has to ensure that they have a rigorous process for assessing its overall capital
adequacy in relation to its risk profile by internal capital adequacy assessment process – ICAAP
policy.

Third pillar :

Third pillar deals with the market discipline and transparency through public disclosures. This
recommends all the Banks to disclose all the risks covered under 1st and 2nd pillar and how will
they minimize them to its customers through regular circulars. Bank should assure its customers
that they are maintaining enough capital adequacy ratio as needed.

Capital Adequacy Ratio (CAR):

This ratio is used to protect depositors and promote the stability and efficiency of financial
systems around the world. (CAR) is a ratio that regulators in the banking system use to watch
bank's health, specifically bank's capital to its risk. To ensure that bank can absorb a reasonable
amount of loss CAR is maintained. The Central Bank of the U.A.E. has determined banks
operating in the U.A.E. must maintain a capital adequacy ratio at a minimum of 12% at all times
which will be applicable from June 30, 2010.

39
 LEARNINGS AND RECOMMENDATIONS

From this 45 days experience in Bank of Baroda, I got good exposure about what really the
corporate life is about. I fell honored that I have worked with such experienced professionals. All
these 45 days were full of events, full of learning, and most importantly full of professional
working. Each department I worked with was a different experience in itself. I worked in each
and every department starting from NRI service division to the Treasury back office. I started
with NRI service department and here I got to know about what all services are being provided
by the bank to its NRI customers and learned how the entries are being made in their system
through FINACLE. Then after 1 week, I moved to Customer services department where I
interacted with lots of customers, provided them their A/c Statement, Cheque books and ATM
cards and also printed out their Statement of A/c through FINACLE. All the enquiries raised by
the customers were replied to their entire satisfaction. It was the liveliest experience of my
Internship as it helped me to interact with different kinds of customer. After learning all this, I
moved to operations (back office) Division where I learned how to pass various types of entries
in FINACLE in different divisions (Trade Finance, Clearance, Remittances). The most
interesting department which I found was Treasury where I learned how the Dealers place order
(buy/sell) of FOREX in interbank market through their trading platform “REUTERS” which they
are using. During all this period I observed a lot of things. Some of the
observations/recommendations are as under:

1) Attendance:
I noticed that all the employees mark their attendance themselves in the register. I used to
observe that whether all the employees are coming on time or not and there isn‟t any proper
check on them. So they should use online attendance system which will help the managers to
keep an eye on every employee.

2) Responsibility level of employees:

The best thing I found here in BOB was that all employees are fully responsible and
dedicated towards their work. No matter how long they have to stay at bank, they are
performing their work honestly and with full dedication.

40
3) Overall impression of the customers:
Majority of the customers were very satisfied, but some of them were not. There are many
reasons for their dissatisfaction:
a) Customers had a very chronic behavior due to the parking problem, as they are not
available with enough space to park their cars.
b) Customers complained that they are not receiving their monthly statements through
mail which should be taken care of.

4) Customer dealing:
Customer dealing is really good when it comes to patience. Sometimes customers misbehave
a lot, but the staff here tries their level best to deal with them patiently and politely, and this
is something that should be appreciated.

5) Customer satisfaction survey:

I noticed that a customer satisfaction survey to get their feedback is conducted. This is really
good. In this way bank can have an idea about the needs and requirements of the consumers
and if they are satisfied with your services or not.

6) Proper training (Job rotation):

There is proper training provided to each and every employee of Bank of Baroda. Job rotation
is done after every 6 months to polish their potentials and for more improvement.

7) Token machine system:

Token system should be implemented in the branch so that hassle free services are provided
to BOB customers. This system will help the customers as customers will only have to
collect the token and wait for their turn instead of standing in a Que. This system is already
being implemented by various banks in UAE.

41
BIBLIOGRAPHY

GENERAL:

 Bank of Baroda, UAE official website www.bankofbarodauae.ae

 Referred to Investopedia : http://www.investopedia.com/
 http://www.uaeinteract.com/docs/UAE_sticking_to_dollar_peg_CB/41223.htm

FOR REMITTANCES:

 http://www.rbi.org.in/scripts/FAQView.aspx?Id=60
 Bank of Baroda, India official website www.bankofbaroda.com
 http://www.bankofbarodauae.ae/ezremit.htm

RISK MANAGEMENT:

 http://www.uaeinteract.com/docs/Central_Bank_sets_new_capital_adequacy_ratio
/37479.htm
 http://www.centralbank.ae/pdf/baselII/Draft-UAE-Basel-II-guidelines.pdf
 http://www.occ.gov/ftp/release/2008-81a.pdf

FOR CHEQUE CLEARANCE:

 http://www.raqmiyat.com/banking/banking-operations/iccs-connect.aspx

42
SNAPSHOT OF FINACLE

Logging Into the system:

The main Menu:

On successful login to the system, the main menu is displayed to the user

43
Logging Out of the system:

Type “exit” in the menu option (at the bottom) and press enter as shown

44
APPENDICES

Index:

Annexure 1 A/c O pening Form

Annexure 2 Form for Change of Address

Annexure 3 Closure of A/c

Annexure 4 SW I FT messages format

Annexure 5 SW I FT message FI N 103

Annexure 6 SW I FT msg. FI N 103 (I nward remittance)

Annexure 7 SW I FT msg. FI N 999 (Free format msg.)

Annexure 8 Cheque Security Features

Annexure 9 Rate Card (Treasury)

45