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 ADMINISTRATION

to

Guru Gobind Singh Indraprastha University, Delhi

Under the Guidance of Dr.Anil Rajoria

Submitted by Tej Pratap Singh MBA-III Sem,2nd Shift 04321303912

Session 2013 14

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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 Nandwani Finance & 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 1 2 3 4 Topic Certificate Summer Training Appraisal Acknowledgement Executive Summary Chapter I: Introduction Chapter II: Company Profile Chapter III: Trade Finance Page No

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 bucketmanufacturing 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 families directly or indirectly benefit themselves.

umbrella

thousands

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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 & Scientific Research 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, multinational 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 8th 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 its operations. 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 all its 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 all aspects 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 23 rd July 2010 at Hotel Lalit.

International quality summit award

Srishti good green governance award

10th annual 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 in same 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 manufacture of 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 Cookers

Grill 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 Kettle Kitchen Cabinet Kitchen Chimney Oven

Sink Welded

Utensils: Pans Measuring Spoon Canisters Dessert Dishes Serving Bowls

Covered 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; Spoons Meat Fork Large Knife Blunt End Spoon Cutlery Starter Set Boning Knife Cheese Knife Utility 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 being considered 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 in energy 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 Finance mean? 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 credit is 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 finance instruments, and payments and settlements. Infrastructure and a host of ICT services system in operating the trade

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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 to assume 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 a definition. 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 several banks and trading enterprises.

Pre-Shipping Financing 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 bank must 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 organiz ations 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 50 million.

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 I banks 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 Category I 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 or an 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 forms to be prescribed. The Central Board of Direct Taxes (CBDT) has now, by notification No 30/2009 dated March 25, 2009, prescribed a new rule 37BB in the Income Tax Rules, 1962 (the rules) prescribing Form 15CA and Form 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 a certificate from a Chartered Accountant in Form No 15CB Step 2: Furnish the information in Form No15CA Step 3: Electronically upload Form 15CA on the designated website Step 4: Take Print out of Form 15CA and file a signed copy Step 5: Remit money to 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 Insurance Covers 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 Insurance Insurance 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 Facilitating 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 tradeable 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 to overseas 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 of India, 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 for the 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

OPENING BANK OR ISSUING BANK1.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 to negotiate, 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 check the 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 BANK1. 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 the negotiate 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 BANK1. 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 considered as 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 transaction? 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 be eventually 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 8th 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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BIBLIOGRAPHY
Jindal Stainless Steel Limited, from http://www.jindalstainless.com JSL Financial report, Gurgaon. Foreign exchange management act (FEMA). www.wikipedia.org

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