Happy Diwali wishes to all!!   

Let the new year bring abundant income to everybody!

Imports - Exports related issues

Dealing with fake companies abroad

Small exporters - importers, especially in SME sector, get in to trouble with fake companies abroad when they undertake transactions without making proper due diligence on the counter parties. This results in financial loss to the client as well as to the country.  Though this is not unique to India, bankers have a moral responsibility to educate the customers to take precautions while dealing with unknown clients, mostly sourced through internet.

Exports:

The fraudster buyer abroad demands goods first before sending the payment, which does not come either fully or part.   They neither send advance remittance or open Letter of Credit.  May be in some cases, clients in both the countries like to avoid bank charges.

To mitigate this, exporters are to be advised to get the credit opinion and due diligence report from reputed service providers like Dun and Bradstreet.   Even Export Credit Guarantee Corporation (ECGC) in India is doing such help by keeping a database.   Such service providers give the payment history also along with the report.

Imports:

In the case of imports, such cases are far and few.   However many fly-by-night operators abroad, some of them are hand-in-gloves with the importers in India, indulge in un-ethical activities, thus siphoning precious foreign exchange from the country.

In such cases also, bankers should insist on due diligence report before undertaking transactions, so that they will not be abetting such wrongdoers.  This will eliminate transactions with shell companies.

Care:

While the incidence of loss may befall on the customers in most of the cases, ultimately any hit on the balance sheet of customers will indirectly reflect on the balance sheet of the banks, if not immediately.   Hence it is prudent for bankers to insist the customers on proper risk management while dealing with unknown clients as well as new clients in other centres.

Imports - Exports related issues

Under Invoicing / Over Invoicing

The latest scam has brought to light some of the issues the bankers are facing from some 'fraudulent' customers.

Strictly speaking, the material to be imported / exported should be correctly invoiced and should be declared in Bill of Entry / Shipping Bill accordingly.   However some clients do indulge in over / under invoicing based on their 'requirement' to either bring in excess money stashed abroad OR to send excess money abroad for storing OR to claim duty drawbacks wherever applicable.    Ultimately it will result in either Money Laundering or cheating the Government or fudging accounts in case of capitalisation of exports, etc.

It becomes difficult for bankers and customs authorities alike to keep a check on those, as nowadays many transactions take place on 'declarations' and such declarations are also accepted on 'face value' or 'as given'.

It may not be possible for customs authorities to check each and every item to determine value, unless there is suspicion.  So random checking is the only solution.

Unless the clients are genuine and compliant to regulations, it will be difficult to arrest such defaulters.

Care: 

Bankers should check the invoice with Shipping Bill / Bill of Entry and any difference should be questioned.  Whenever there is doubt for aberration, bankers can discreetly check with the industry associations.

Advance Remittance for Imports 

How Bankers can protect themselves?

The recent issue in certain banks and its aftermath has created a panic across bankers to deal with advance remittances.

But a clear understanding of the procedure is suffice to avoid such costly errors where bankers' ignorance or reduced compliance is exploited by a few 'clients'.   

Protection to bankers are available when they follow:

1. KYC - when they open account

Verification process when opening account should be effective.    Verification of PAN, visit to place of residence, company premises, market enquiry, cross-checking with referenced entity, checking for Benami accounts, etc. should be done meticulously.    Many frauds can be avoided at this entry point.

Care: Greed to add more current accounts, get quick CASA deposits, etc. will invite trouble; instead genuineness of the customer should be established beyond doubt.

2. Due Diligence - when they handle transactions

High value transactions in newly opened accounts should be avoided or scrutinised at multiple levels.   Such entities should be asked to route their transactions through their existing bankers at least for six months.   Or such transactions can be discussed with the previous banker to know the modus operandi. 

Care: Over-ambitiousness to earn more non-interest income / fee based income should be discouraged; instead genuineness and necessity of the transaction should be evaluated.

3. Follow up - post remittance

FEMA clearly specifies certain guidelines for sending remittances and the follow up for Bill of Entry as evidence of imports.  Waiver of Bill of Entry follow up, up to an equivalent of USD 100,000 is subject to conditions.    Post-remittance follow up cannot be compromised and it should be monitored by the controlling offices also.  

Care: Some times lack of clear segregation of follow up work between Authorised Dealer and Non-AD branches also contribute to negligence: instead both have to follow up the submission of evidence.

4. Report - in case of non-compliance

Escalation to controlling office / regulator should be done if the clients fail to comply with the guidelines.    This is possible only if the follow up is effective.

Care: In the name of retaining the clients, bankers compromise on compliance giving long rope to clients to fulfil their commitments; instead financial and performance discipline of the customers should be given more importance over retaining 'such' clients.

postscript

Competition among banks, competition among the same bank branches and pressure to perform - are all contributing to the mad rush to give in to the unjust 'demands' of customers, old or new.

Will it be possible to do banking on Banks' terms?

On a winning spree

It is amazing to note that the duo Martina Hingis and Sania Mirza are making it a habit to win all tournaments in which they participate.

Though both had a lean patch a few years ago, now they are unstoppable.   It is great to watch the game.

Consistency, perseverance and team work has paid off.     Let the winning spree continue for a few more years.

God Bless!

Remembering Roots

The picture shows a Thailand beauty queen, recently crowned, went straight to her 'rubbish collector' mom to take her blessings.    She didn't forget the sacrifices made by her mom to raise her.

Nowadays it is becoming rare to even recognise the relationship, though for various reasons, leave alone supporting them.    May be we are becoming too selfish or the circumstances force us to do so.

Anyway, the trees still remember the roots....

Unity

Today we remember Sardar Vallabhbhai Patel and Indra Gandhi.    Both of them have done their best for the nation.    Some decisions may be controversial but overall their contribution to the image of India is immense.

Such a strong, stubborn leaders are rare nowadays.   we wilt under pressure.  Let the younger generation take a few leaf out of these leaders' experiences.