Trade Finance
Strategy
A Presentation
Contents
1. Introduction
2. Regulatory framework.
3. Potential Markets
4. Potential Product Matrix
5. Industry based product Drivers.
6. Income & profitability - Sensitivity
7. Product Roadmap- Products and Technology.
8. Proposed Organization structure
1- Introduction
Trade Finance/Trade Services – The specialized business which provides fillip to the
regular deposit and lending business of the bank and provides the following
advantages to the Bank.
Self Liquidating Structures- Based on cash flows and movement of goods/services with a certain
due date- both fund and non fund based products.
Risk Reduction – financing of letters of credit, Vendor Financing and TREDS.
Short to medium term- Focus on structures upto 1 year for lending and upto 3 years for non fund
- letters of credit and Guarantees.
Potential to boost flow and fee business – Forex revenues from export credit, letters of credit and
non export/non import inflows and outflows. Documents on collection.
Potential for indirect lending to credit worthy names – Vendor Financing and TREDS
Potential of priority sector lending fulfilment – TREDS and lending to MSME.
2. Regulatory Framework – new developments
• Large Exposure Framework – Capping exposure on 20% of Tier 1 Capital on corporate clients as well
as Banks. Effective from April 1, 2019. Affects bank exposures considerably as there were no
restrictions earlier.
• Bank Guarantees – 1 year claim period – effect on limitation to 1 year. However affects the credit
limits that can be provided to non fund customers considering the lock-in for further 1 year.
• TREDS- new avenue for MSME lending and priority sector achievements.
• Factoring Act 2012- Provides fillip to without recourse structures – limits capping for such structures
left to Bank Boards.
• Initiatives in Digital Trade – SWIFT India, TREDS and Block Chain Consortium.
• GIFT City – Potential to raise foreign currency as an offshore branch, more capabilities for offshore
structures such as ECBs, Import financing, Factoring – offshore structures and Derivatives. Removes
the limitation of not having an overseas branch.
• Opportunities in Renewable Energy and Smart Cities.
3. Potential Markets- a brief overview
• Mumbai – Mid and Large corporates – industries to be targeted – auto, chemicals, Pharma, IT, Gems
& Jewellery and Engineering/EPC.
• NCR- Auto, Engineering
• Pune – IT and Auto.
• Ahmedabad – Chemicals, Textile, Engineering and Pharma.
• Baroda/Surat – Chemicals, Textile and Gems & Jewellery
• Chennai – Auto, Pharma, IT, Engineering and Infra.
• Coimbatore/Tiruppur –Textiles, Gems & Jewellery, Auto, Engineering
• Cochin – Textiles, Agro based trading
• Bangalore – Auto, Textiles, Pharma and IT.
• Hyderabad – Infra, IT and Pharma.
Export: Non Fund:
• Export Preshipment Credit – FCY • Letters of Credit Issuance – Import
and INR. and Domestic.
• Export Postshipment Credit – FCY • Bank Guarantees – Domestic and
and INR client lines International
• L/C Confirmations and Discounting – • Bank Guarantees for Long Term
Bank Lines Export Advances.
• Export Factoring/Receivables
financing.
• Forward Contracts and Options.
(applicable for Imports also).
Domestic: Fee Based:
4. Product Matrix
• Bill discounting- Sales and Purchase • Import documents on Collection
– client lines • Export Documents on Collection.
• Vendor and Dealer Financing • Fx margins on flows- trade
• TREDS • Fx margins on flows – non trade –
• INR L/C backed discounting – top 10- Current and capital account
15 banks transactions. ECB flows.
• EEFC and other foreign currency
accounts.
5.Product Drivers – Industry Wise
Industry Wise Product Mapping - for Trade
S no Industry Export Cr L/C B/G Bill Disc LCBD Factoring/RF Fx Flows TREDS
1 Auto P P O P O P P P
2 Engineering P P P P P P P P
3 EPC/Infra P P P P P P P P
4 Textiles P P O P P P P P
5 Pharma P P P P P P P P
6 IT P O O P O P P P
7 Gems & Jewellery P O O O O O P O
6a. Income & Profitability- Sensitvity -1
Profitability Sensitivity - Scenario 1- 50% fund+50% NF
INR Crores
S No Product Fund/NF b/s size Flows Margin Int Inc-A Fee InC -B RWA% RWA cr Capital- 9%
1 Export Credit F 750.00 1.50% 11.25 50% 375.00 33.75
2 Bill Discounting/TREDS F 500.00 1.50% 7.50 50% 250.00 22.50
3 LCBD F 750.00 1% 7.50 20% 150.00 13.50
4 L/C NF 500.00 1% 5.00 10% 50.00 4.50
5 B/G NF 500.00 1% 5.00 20% 100.00 9.00
6 Fx Lines 8% LEV F 40.00 0.30% 0.12 50% 20.00 1.80
7 Flows - no RWA 1000.00 0.20% 2.00 0% 0.00 0.00
8 Handling and other comm 0.50 0% 0.00 0.00
Total 3040.00 1000.00 26.25 12.12 945.00 85.05
INR Crores
Total Income (Int+Fee)- A+B 38.37
Cost & Overheads - assumed @30% 11.51
Income after Cost & Overheads 26.86
Taxes- 25.17% 6.76
Net Income 20.10
Capital 85.05
Portfolio Returns against 9% capital 24%
6b. Income & Profitability- Sensitvity -2
Profitability Sensitivity - Scenario 2- 75% fund+25% NF
INR Crores
S No Product Fund/NF b/s size Flows Margin Int Inc- A Fee Inc-B RWA% RWA cr Capital- 9%
1 Export Credit F 950.00 1.50% 14.25 50% 475 42.75
2 Bill Discounting/TREDS F 650.00 1.50% 9.75 50% 325 29.25
3 LCBD F 800.00 1% 8.00 20% 160 14.4
4 L/C NF 300.00 1% 3.00 10% 30 2.7
5 B/G NF 300.00 1% 3.00 20% 60 5.4
6 Fx Lines 8% LEV F 48.00 0.30% 0.14 50% 24 2.16
7 Flows - no RWA 1000.00 0.20% 2.00 0% 0 0
8 Handling and other comm 0.50 0% 0 0
Total 3048.00 1000.00 32.00 8.14 1074 96.66
INR Crores
Total Income (Int+Fee)- A+B 40.14
Cost & Overheads - assumed @30% 12.04
Income after Cost & Overheads 28.10
Taxes- 25.17% 7.07
Net Income 21.03
Capital 96.66
Portfolio Returns against 9% capital 22%
7 Product Road Map – Products and Technology
• Products:
Right mix of products for fund and non fund to improve
profitability
Focus on both risk based and fee based income
Opportunistic deals in non trade inflows/outflows
• Technology:
Investment in front end – for better client experience.
Investment and upkeep of core banking.
Worflows for trade documents.
Address and regularly focus on cyber security and security
of SWIFT.
EDPMS/IDPMS automation and upkeep.
