Core Banking Concepts - GL - LC - BC - LD
General Ledger:
- User defined Format for the GL code, No Hard coded GLs
- Max 9 alphanumeric characters
- Facilitates online posting
- All GLs are multi–currency enabled with revaluation options
- It supports Multi-level / Hierarchical GL structure
- Flexible MIS reporting based on CCY- GL-MIS Class linkages
- Comprehensive query options
- Separate Reporting Lines can be defined to facilitate alternate report requirements
Letter of Credit (LC):
The Letters of Credit
(LC) module constitutes a part system comprehensive trade financing
system. Together with the Bills and Collections module, it automates the entire
gamut of trade financing.
The LC module
supports the processing of all types of documentary and clean LCs. It can
handle all activities during the lifecycle of an LC. This includes the
generation of messages and advices for all the applicable events, and the
update of account balances. The system also handles the collection of various
commissions and charges defined for an LC.
TYPE of LC:
The Letters of Credit module supports the processing of all types of clean and documentary LCs. These include:
- Import LCs
- Export LCs
- Guarantees
- Shipping Guarantees
- Clean LCs
- Standby Guarantees
Operations supported on an LC
The following are the operations supported on an LC:
• Open an import LC or guarantee
• Open and confirm an import LC
• Pre-advice an export LC
• Advice an export LC
• Advice and confirm an export LC
• Confirm an export LC
• Reimbursement claims
Thus, your bank can perform one of the following roles:
• The issuing (opening) bank for an import LC or guarantee.
• The advising bank or for an export LC.
• The confirming bank for an export LC.
In addition to amendment of the terms of an LC such as the expiry date, the amount, the latest shipment date, etc., you can amend the operation on an LC as follows:
• Open to open and confirm of an import LC
• Pre-advice to advice of an export LC
• Pre-advice to advice and confirm an export LC
• Advice to advice and confirm an export LC
Appropriate messages, advices, and covering letters are generated for these operations. These are listed in an annexure in this manual. The SWIFT messages generated for the different types of LC are listed in this chapter.
S.W.I.F.T. messages for an import LC
The messages that are generated for an
Import LC depends on the operation you perform on the LC.
The following are the S.W.I.F.T. messages
supported for an Import LC:
Event |
S.W.I.F.T. |
Issue of a documentary credit. |
MT 700 and MT 701 |
Pre-Advice of a documentary credit
instrument. |
MT 705 |
Amendment to a documentary credit. |
MT 707 |
Authorization to reimburse. |
MT 740 |
Amendment to an authorization to
reimburse. |
MT 747 |
S.W.I.F.T. messages for an export LC
For an export LC, the Acknowledgement (MT
730) is the S.W.I.F.T. message generated.
S.W.I.F.T. messages for a standby LC
The following are the
S.W.I.F.T. messages supported for a Standby LC:
Event |
S.W.I.F.T. |
Issue of a documentary credit. |
MT 700 and MT 701 |
Pre-Advice of a documentary credit
instrument. |
MT 705 |
Amendment to a documentary credit. |
MT 707 |
Authorization to reimburse. |
MT 740 |
Amendment to an authorization to
reimburse. |
MT 747 |
S.W.I.F.T. messages for a clean LC
The following are the
S.W.I.F.T. messages generated for a clean LC:
Event |
S.W.I.F.T. |
Issue of a clean credit. |
MT 700 and MT 701 |
Pre-Advice of a clean credit instrument. |
MT 705 |
Amendment to a clean credit. |
MT 707 |
Authorization to reimburse. |
MT 740 |
Amendment to an authorization to
reimburse. |
MT 747 |
S.W.I.F.T. messages for a guarantee
The following are the
S.W.I.F.T. messages generated for a guarantee:
Event |
S.W.I.F.T. |
Guarantee instrument. |
MT760 |
Guarantee amendment. |
MT767 |
Acknowledgement for a guarantee issued |
MT 768 |
S.W.I.F.T. messages for a shipping guarantee
The following are the S.W.I.F.T. messages generated for a shipping guarantee:
Event |
S.W.I.F.T. |
Guarantee instrument. |
MT760 |
Guarantee amendment. |
MT767 |
SWIFT message for a Reimbursement
The following are
the S.W.I.F.T messages generated for reimbursement claims
Event |
S.W.I.F.T. |
Acknowledgement |
MT730 |
Processing commissions and charges
In the LC module, the method of collecting
commissions and levying charges is flexible.
Commissions can be collected for the
initiation and amendment events of an LC. The definition of commission rules
facilitate the uniform and efficient application of commission across all LCs
processed under a product.
Commissions can be collected in advance or
in arrears, periodically or non-periodically. You can choose to accrue commissions
at a regular frequency (daily, monthly, quarterly, half-yearly or annually).
Similarly, the frequency of liquidation of periodic commission can be varied.
In various charges such as
handling charges, SWIFT charges, etc. can be processed.
The commissions and charges can be
collected from any party, and if necessary, debited from a receivable account
and liquidated subsequently.
Variations supported for an LC
An LC being a very flexible payment
mechanism can be made available to the customers of your bank in a number of
popular variations.
Red Clause Letter of Credit
You can process a Red
Clause LC wherein you can provide for anticipatory drawings. In such a case,
the confirming bank or any other bank is authorized to make advance payments to
the beneficiary, before the presentation of the documents.
Revocable and irrevocable LCs
You can process both revocable and
irrevocable LCs. However, irrevocable LCs is commonly used as they cannot be
cancelled without the consent of the buyer, the seller and the banks that are
parties to the transaction.
A revocable LC can be cancelled without any
notice or consent from the parties involved in the LC.
Transferable and non-transferable LCs
While capturing the
details of an LC, you can indicate whether it is transferable. This information
is part of the instrument generated for an LC.
Revolving and non revolving LCs
You can open an LC and choose to make it
available again in its original amount after the goods have been shipped,
documents presented and credit is settled. Such an LC is a revolving LC. Under
a revolving LC the amount is reinstated or renewed without any specific
amendments to the LC. A revolving LC may be revocable or non-revocable, and can
revolve in relation to the following:
·
Value or
·
Time.
This facility can be
utilized when a supplier wishes to make repetitive shipments over a period such
as a year.
The LC can have an
automatic reinstatement clause, which provides for continuing the renewal of
availability. You also have the option to manually reinstate an LC. The credit
may require approval of the opening party before it becomes available again.
Sight and Usance LC
It allows the processing of a
sight or usance payment against an LC.
·
In case of a sight LC, the
negotiating bank pays the seller immediately and is later reimbursed by the
issuing bank.
·
In the case of a usance LC, the
drawee bank accepts the obligation to pay the seller at maturity. An LC with a
time draft drawn on the opening party, calling for payment at a future date is
called a time or Usance LC.
Open ended LCs
You can also process an LC without an
expiry date known as an open ended LC.
Cash collateral against an LC
An LC can be
processed against a cash collateral. It provides you with the facility
to calculate the cash collateral either as a percentage of the LC amount or as
a fixed amount. Cash collateral advice will be generated for its collection.
When the LC amount is
amended, you also have the option of adjusting the collateral amount accordingly.
Availment against an LC
You can process the availment against an
LC either through the LC module or through the bills module of system.
Availment charges can be levied and cash collateral adjusted, during an
availment.
Reports
Information on the
LCs processed and the static maintenance done for the module is available in
the form of reports. These reports can be printed, spooled on to a disk file or
displayed on the screen. The following are some of the reports available:
·
Accrual control report
·
Closed out LCs report
·
Commission activity report
·
Commission due report
·
Confirmed LCs report
·
Daily activity report
·
Expired LCs report
·
LCs due to be closed report
·
LCs due to expire report
·
Open ended LCs
·
Un-replied tracers report
·
Process exception report
·
Overrides
·
Product report
·
Clause report
· Branch report
Bills and Collections (BC)
A bill, as an instrument of international
trade, is the most commonly used method for a seller to be paid through banking
channels. Besides credit risk considerations, bills are the customary business
practice for trade and a particularly important fee-earning service for any
bank.
The Bills and Collections (BC) module
supports the processing of all types of bills, both domestic and international.
It handles the necessary activities during the entire lifecycle of a bill once
it is booked.
Features
In an effort to empower your bank in
handling a high volume of credit and to enable you to provide superior services
to the customers of your bank, It provides you with the following
features:
·
The Bills and Collections
module supports the processing of all types of international and domestic bills
like:
Ø Incoming Bills under LCs
Ø Incoming Bills not under LC
Ø Outgoing Bills under LCs
Ø Outgoing Bills not under LCs
Ø Incoming Collections
Ø Outgoing Collections
Ø Usance or Sight Bills
Ø Documentary or Clean Bills
·
You can create products,
templates, or even copy the details of an existing bill on to a new one and
modify it to suit your requirements. This renders the input of the details of a
bill faster and easier.
·
You have the flexibility to
create and customize a product to suit almost any requirement under a bill. The
bills associated with the product will bear characteristics that you define for
it.
·
The BC module is designed to
handle the interest, charges, or fees related to a bill and record amendments
to the original terms of the bill.
·
The BC module actively
interacts with the LC module of system. This enables easy retrieval of
information for bills drawn under an LC that was issued at your bank. Most of
the details maintained for the LC will be defaulted to the bill when you
indicate the reference number of the LC involved in the bill. This eliminates
the need to re-enter the details of the LC all over again.
·
The Central Liability
sub-system automatically controls the booking of a bill against the credit
lines assigned to the customer before the bookings are made. It also supports tracking your bank’s exposure for a bill to several parties.
·
You have the option to automate
periodic processes such as:
Ø The application of floating interest rates to the components of a
bill as and when they change
Ø The movement of a bill from a given status to another
Ø Accrual of interest due to a bill
Ø Liquidation of bills on the liquidation date that you indicate
Ø Generation of tracers on the due date
These will be processed as part of the
batch processes run at BOD or EOD. The system automatically calculates the date
on which the events should take place, based on the frequency and the date
specified for the bill.
·
The module also supports
automated follow-up and tracer facility for payments and acceptance. Tracers
can be automatically generated at an indicated frequency until a discrepancy is
resolved.
·
When a repayment against the
bill, is not made on the due date, you may want to do an aging analysis for the
bill. You can define the number of days that the bill should remain in a given
status, the sequence in which a bill should move from one status to another and
also indicate the direction of movement (forward or reverse). You can follow-up
on the repayment of a bill by generating reports which detail the status of
aging bills.
·
Depending on the processing
requirements of your bank, you can define and store the standard documents,
clauses, and instructions and free format texts. These details can be
incorporated and printed onto the output document of the bill, by entering the
relevant code. This eliminates entering the details of standard components of a
bill every time you need to use them.
·
Bills can be carried over several
stages during the day. After a bill has been entered, it can be verified and
authorized on-line before further processing.
·
Information services for
managerial and statistical reporting such as on-line transactions, status
report and the immediate retrieval of information of the bills processed at
your bank can be generated.
· Corporate's
Graphic User Interface (GUI) facilitates ease of input. Picklists are provided
wherever possible. This makes the module both efficient and easy to use.
·
The media supported include
Mail, Telex and SWIFT
·
The BC module supports and
handles the following functions:
Ø Open/Amend a bill
Ø The authorization of bill contracts
Ø The reversal and liquidation of interest and charges
Ø Customer inquiries
Ø The generation of tracers and advices
Ø The generation and printing of reports
·
On-line help - indicates that
you can invoke global help by making use of the Help option in the Menu bar.
You can also invoke on-line context sensitive help, which is made available to
you, if you strike the hot key <F1> while in the application. A window
pops up displaying information associated with the field from which you invoked
it.
Operations you can perform on a
bill
The operations that you can perform on a
bill depend on the trade finance product type you are processing. Further, the
messages and advices that are generated for the bill are determined by the
operation you perform on the bill. The interest, charges or fees can be
different for each operation that you perform on the bill.
All types of bills are
classified in to two categories. They are:
·
Import Bills
·
Export Bills
All types of
incoming bills (international and domestic) handled by your bank are termed
Import bills. Similarly, all outgoing bills (international and domestic) handled
by your bank are termed Export bills.
The operations that you can perform on a
bill have been diagrammatically represented below:
Operations you can perform on a Bill (International
and Domestic) – Incoming Bills:
·
Advance
·
Payment
·
Discount
·
Collection
·
Acceptance
·
Operations you can perform on a Bill (International
and Domestic) – Outgoing Bills:
·
Payment
·
Acceptance
·
Collection
·
Purchase
·
Negotiation
·
Forfaiting
·
Discount
·
Banker’s Acceptance
The system allows you to effect a change of
operation for the following operation types:
·
Acceptance to Advance (automatic
facility provided)
·
Acceptance to Discounting
·
Collection to Purchase
·
Discount to Collection
·
Purchase to Collection
·
Acceptance to Forfaiting
·
Discounting to Forfaiting
·
Discount to Banker’s Acceptance
For instance, while processing an
acceptance bill, which needs to be discounted, you need not enter a new bill to
discount the bill. You need to just amend the operation type from acceptance to
discount.
The SWIFT messages that can be generated for
an import bill
The messages that are generated for an
Import bill depend on the operation you perform on the bill. The following are
the SWIFT messages that are supported for an Import bill.
Description |
SWIFT code |
Acknowledgement |
MT 410 |
Acceptance Advice |
MT 412 |
Payment tracer |
MT420 |
Acceptance tracer |
MT 420 |
Advice of Payment for a Collection bill |
MT 400 |
Advice of fate (principal and acceptance) |
MT 422 |
Refusal Advice (payment and accept) |
MT 734 |
Discharge Advice |
MT 732 |
Tracers that are generated |
MT 420 |
Authorization to pay, accept or negotiate |
MT 752 |
Advice of Payment for import bills under
LC |
MT 756 |
The SWIFT messages that can be generated for
an export bill
The messages that are generated for an
Export bill depend on the operation you perform on the bill. The following are
the SWIFT messages that are supported for an Export bill.
Description |
SWIFT code |
Advice of Payment for a Collection bill |
MT 400 |
Acknowledgement |
MT 410 |
Acceptance Advice |
MT 412 |
Payment tracer |
MT420 |
Acceptance tracer |
MT 420 |
Refusal Advice (payment and accept) |
MT 734 |
Discharge Advice |
MT 732 |
Amendment of instruction |
MT 430 |
Reimbursement claim |
MT 742 |
Discrepancy Requirement |
MT 750 |
Advice of Payment/Acceptance/Negotiation |
MT 754 |
Interest and Charge liquidation
The BC module has
a flexible mechanism for raising, tracking and controlling the interest that
you collect and the charges that you levy. These may be on a cash or account
receivable basis. They can be collected either in advance or in arrears and can
be accrued or non- accrued.
Interest can be
collected either as a rate or as a flat amount. Standard Interest rates can be
defined for each bill type.
Changes that you effect
to fields like the base date, exchange rate or account numbers require reversal
entries The system generates reversal entries for the corrected amount,
account, rate etc.
Loan (LD) / Consumer Lending:
The product definition facility
Defining services as Products
A Product is a specific service, or scheme,
that you offer your customers. A Loans product is a specific Loan scheme that is
offered to customers. For example, a bank may offer short-term corporate loans
to software development companies. This scheme can be defined as a product in system.
When setting up the module, the bank can
define the various loan schemes that it offers as products. For each product,
it can also define ‘attributes’, or in other words, the terms and conditions.
When a user at the bank actually processes a loan, it can be associated with a
product. The loan acquires the terms defined for the product that it involves.
The bank, however, can allow a user to change the inherited attributes of a
loan, while processing, to suit a special customer.
The advantage of defining a product
When defining a scheme as a product, the
bank can specify the following details:
·
Tenor, rollover, and interest
preferences
·
The type of interest that is
applicable
·
The minimum, maximum and
standard rates applicable
·
Penalty interest and grace days
(for loans)
·
The standards schedules
applicable
·
The ledgers to which the
accounting entries should be posted (at different events such as booking,
amendment, rollover, etc.)
·
The advices and reminders that
have to be provided to customers at different events
The product is defined only once.
Therefore, you need not specify the basic details, every time a loan is entered
into system. This feature drastically reduces processing time, thus
allowing a bank to focus on and take advantage of, the opportunities in the
market.
Methods of interest application
It is possible to
define multiple interest and charges. That is, you can specify the interest and
charge that you would like to levy at the different events in the life cycle of
a loan.
Interest can be calculated based on a rate,
or a flat amount. Interest rates may be:
·
Fixed
·
Floating – with Automatic Rate
revision or revision at a pre-defined period
·
Special
You can define tier and slab structures to
compute charges. You can also define a minimum and a maximum charge, as well as
a penalty for defaulted schedules.
Methods of interest calculation and payment
It allows computation of
interest, using both Euro and US methods.
The repayment schedules for interests can
be defined, for each transaction. Depending on the mode of payment, interest
will be liquidated either automatically or manually, according to the schedule
defined. The standard interest payment methods that are supported are:
·
Bearing — Interest is liquidated on
schedule payment date(s)
·
Discounted — In this interest payment
method, the interest payable on the loan is deducted from the principal at the
time of initiating the loan
·
True discounted —In this interest
payment method, the interest is calculated on the principal in a manner,
differing slightly, from the Discounted method. The interest rate is applied on
the Principal instead of the Nominal, as is done in the Discounted method
The frequency of interest accrual, whether
daily, monthly, quarterly, half-yearly, or annual, can be specified for a
product during set up. This specification will apply, to the accruable
components of all loans involving the product.
The system accrues interest whenever you
make a backdated rate change. An accrual, to the extent of a repayment, is
automatically carried out at the time of repayment.
The module supports amendments and payments
for previous accrual periods. Subsequent accruals will correct any adjustments
that are to be made due to these actions.
The Loans module allows you to accrue
interest at the product level. Rather than accrue interest for each loan
involving a product, and then update the ledgers of the accrued interest
individually, the bank can accrue interest for each contract involving the
product, and pass a consolidated entry to the ledgers.
Flexible repayment schedule set
up
Using the Loans module, you can define
flexible schedules for the payment of principle, interest, commission and fees.
Schedules for the payment of the various components can be defined
individually, or otherwise. The schedules can be based on one of the following
types:
·
Amortized contracts
(Amortization based on Reducing balances and Rule of 78)
·
Capitalized contracts (for
capitalizing interests)
·
Defining grace periods
A bank using this module can define a grace
period for the products it offers. This specification would apply to all
contracts involving the product. A penalty interest will be applied in case of
default in payment, on expiry of the grace period. Penalty will not be applied
if the payment is made during the grace period. In case the payment is not
made, the penalty will be calculated from the day the payment is outstanding.
Rolling over a loan
Typically, you will renew or rollover a
loan when the main attributes of the transaction such as the counterparty, the
tenor of the contract, the applicable rate of interest and the principal amount
remain the same. However, the Loans module facilitates rollover with the
following flexibilities:
·
Roll-over with interest (using
the original rate or interest or a totally new one)
·
Roll-over with interest but
deducting withholding tax
·
Roll-over of the principal
alone
·
Roll-over into a different
principal amount (higher or lower than the original principal amount)
The rolled-over contract bears the same
reference number as the original contract. However, the number of times the
contract is rolled over is recorded and always displayed. This feature
facilitates tracking. A Rollover advice is automatically generated when a loan
is rolled-over.
Tracking the status of a loan
The Loans module, allows
you to define the various status, into which overdue loans should move. The
module allows a bank to define:
·
The number of overdue days from
which a loan should be classified under a status
·
Whether accruals should be
stopped on reaching a status
·
Whether accruals should be
reversed for a status
·
The asset account to which
defaulted loans should be transferred (if they are to be reported separately)
·
The notices to be generated for
the benefit of the customer
Movement of a loan from one status to
another can be either automatic, or manual. Loans, both regular and past due,
can be tracked, automatically, across
several user-defined status.
The tax types that are
supported
It supports the processing of
a Withholding and an Expense type of tax.
Tax can be computed based on either the
liquidation amount or the schedule amount. The bank can define tax rates as
slabs or tiers and define a minimum and maximum tax amount that could apply.
The bank could bear the tax (Expense) or charge the customer for it
(withholding).
Automatic processing of
different ‘events’
A loan contract goes through different
stages in its lifecycle. These stages are referred to as events in system.
Events can be defined as Booking, Amendment, Rollover, Liquidation, etc.
Once a loan contract is initiated, system automatically processes all the events defined for it. Starting from initiation
upto liquidation, or rollover. It processes the following automatically:
·
Passes the appropriate
accounting entries
·
Generates the advices and
messages specified for the event (including billing notices and delinquency
notices to defaulters)
·
Liquidates due schedules
·
Accrues interest
·
Rolls over a loan into a new
one
·
Applies penalty interest on
default
In addition, you can automatically track
overdue loans and classify them into various status. For each status, you can
specify preferences like whether accruals should be stopped, reversed, or, if
the loan should be transferred to a different asset account.
Linking loans to deposits
System offers the facility to set
up lien on deposits from a customer, as security for a loan.
Loans can also be booked against
commitments, deposit, and accounts. Full or partial amounts can be blocked and
taken as the security for a loan.
Penalties on pre-payment
You can levy a penalty on premature loan
payments. This penalty can be specified both in terms of a percentage and as a
flat amount.
Value Dated amendments
Amendments (changes to the Maturity Date,
the Principal amount, the Interest Rate, interest spreads, etc.) are possible
on any loan contract, product, or group of contracts. These amendments can take
effect as of back-value or future dates.
The zero-based interest accrual methodology
ensures that interest accruals are recalculated and adjusted for back-valued
amendments.
Retrieving information
During the day or at the end of the day, a
user with the required authority can retrieve information on the various
operations, related to loans. This information can be generated in the form of
reports. The chapter Retrieval of information of this User manual details the
various reports that can be generated.
The bank can also opt for the Report Writer
utility that comes with system. With this utility, the bank can
custom-define the reports that it would like to generate.
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