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India

India. Import Finance. Indian Fact of the Day. Population (July 2006 estimated ) . Indian Fact of the Day. Population (July 2006 estimated ) 1,095,351,995. Executive Summary. Why RBS? Risk Ladder Importing Problems Benefits of Importing Case Studies Currency Risk Management

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India

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  1. India Import Finance COMMERCIAL BANKING

  2. COMMERCIAL BANKING Indian Fact of the Day Population (July 2006 estimated)

  3. COMMERCIAL BANKING Indian Fact of theDay Population (July 2006 estimated) 1,095,351,995

  4. COMMERCIAL BANKING Executive Summary • Why RBS? • Risk Ladder • Importing Problems • Benefits of Importing • Case Studies • Currency Risk Management • Working with India • Open discussion

  5. COMMERCIAL BANKING The Royal Bank of Scotland Group • Sponsor of EMITA • Sixth largest bank in the world • Group includes Nat West, Coutts, Direct Line, Churchill, Lombard • We employ over 135,000 people and serve over 36 million customers in 30 countries • We have over 80,000 corporate customers of all sizes • Proud of our profits - largest payer of Corporate Tax in the UK • We have a presence in 140 countries through our network of 3000 partner and correspondent banks

  6. COMMERCIAL BANKING Managing Risk - The Risk Ladder Low Risk Open Account Importer Documentary Coll’n Letter of Credit Cash in Advance High Risk

  7. COMMERCIAL BANKING Managing Risk - The Risk Ladder High Risk Low Risk Open Account Exporter Importer Documentary Coll’n Letter of Credit Cash in Advance Low Risk High Risk

  8. Sourcing Quality Time Control Foreign Exchange Speed Minimum Quantities Costs Bureaucracy Import Controls Import Duty Finance Needs COMMERCIAL BANKING Importing brings it’s own risks and problems…. • Certainty - you think you’ve done the deal but is that what your trading partner thinks?!!!

  9. COMMERCIAL BANKING But…it CAN be worth it • Item costs can be dramatically reduced • May allow you to stay / become competitive • Give somebody else the headaches • Overseas travel becomes tax deductible • Only source of supply - you may not have an option! • What do we import? Official statistics - textiles, gems and jewellery, engineering goods, chemicals, leather • Volume US$5.5bn (5% of India’s exports)

  10. COMMERCIAL BANKING Case Studies • Nuts • Kitchenware • Household Consumables

  11. COMMERCIAL BANKING Nuts! • History of very successful trading • Won major new contract to supply • Able to demonstrate historic sales levels • Forward ‘orders’ - indications of intent • Secondary Market • Long shelf life

  12. COMMERCIAL BANKING Kitchenware • Moved from manufacturing in UK • Now import from India • Key - underlying trade cycle • Some Confirmed Purchase Orders (CPO’s) • Customers are QVC, Matalan, TK Maxx

  13. COMMERCIAL BANKING Household Consumables • Posh word for Black Bin Bags! • Trading for many years • Traditional facilities already “full” • Increased sales to one major retailer • Agreed facilities on tight structured basis to run alongside normal facilities

  14. COMMERCIAL BANKING What have we financed? • pigs intestines, candy g-strings, pickled fish, olive stones, rocks, armoured vehicles, shooting ranges, stretch limos, underground car park kits, chicken wings and adult recreational equipment!! • From India we see lots of Clothing, Footwear, Domestic Electrical Goods and Plastic Goods

  15. COMMERCIAL BANKING Managing Currency Risk • 80% of trade with India is in USD - only 5% in GBP • Essential to take action if you are on tight margins • A worked example… • Buy in India in USD and sell in UK in GBP • Purchases of say $100k • 2 Jan 2007 = £50,505 to pay (GBP/USD 1.98) • 5 Mar 2007 = £??,??? to pay

  16. COMMERCIAL BANKING Managing Currency Risk • 80% of trade with India is in USD - only 5% in GBP • Essential to take action if you are on tight margins • A worked example… • Buy in India in USD and sell in UK in GBP • Purchases of say $100k • 2 Jan 2007 = £50,505 to pay (GBP/USD 1.98) • 5 Mar 2007 = £52,083 to pay (GBP/USD 1.92) • 6 cents appreciation in value of US$ = £1578 = 3% increase in costs

  17. COMMERCIAL BANKING Managing Currency Risk - the options • Pay in Sterling - acceptable? • Do nothing - high risk • Buy at Spot and hold in currency account • Fixed Forward Contracts • Option Forward Contracts • Structured deals for higher amounts and more complex transactions eg Vanilla Options • Best form is Self-Hedging

  18. COMMERCIAL BANKING Working with India • Recommend Letter of Credit where possible & relevant to size - protects both buyer and seller • RBS have relationship with 27 Banks in India so our L/Cs are well regarded • Bills of Exchange (Documentary Collections) and Open Account becoming more acceptable for smaller transactions

  19. COMMERCIAL BANKING Open Discussion • Specific Questions • Issues that affect you • Your experiences of importing - good or bad • Benefits of security versus paperwork • Experiences of Trading with India • Role of your business partners

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