sheriff seth 09063 bank of baroda
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Summer Internship Report
Overview
Of
Banks Working
Submitted by: Sheriff Seth
SMBA09063
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Institute of Management Technology, DubaiTABLE OF CONTENTS
ACKNOWLEDGEMENT………………………………………………………………………...3
EXECUTIVE SUMMARY………………………………………………….................................4
EVALUATION OF BANKING………….……………………………………………………….5
CENTRAL BANK OF UAE…………………………………………………...............................6
BANK OF BARODA – INTRODUCTION.............................................................................…...7
-BOARD OF DIRECTORS………….………………………...................8
DEPARTMENTS AT BANK OF BARODA………………………………………………..…....9
-CUSTOMER SERVICE…........................................................................9
-TYPES OF ACCOUNT..........................................................................10
NRI SERVICE ………………………………………..................................................................13
REMITTANCES
….......................................................................................................................18
TRADE FINANCE DIVISION….................................................................................................22
-LETTER OF CREDIT…………………….…………………………...23
CLEARANCE DIVISION……………………………………………………………………....30
TREASURY DIVISION................................................................................................................35
RISK
MANAGEMENT ................................................................................................................38
-ORGANISATION CHART…………………………………………..40
BIBLIOGRAPHY
SNAPSHOT OF FINACLE
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ANNEXURE
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ACKNOWLEDGEMENT
By the Grace of Almighty, I'm here by submitting my internship report, at the end of my first
practical experience and I'm glad to have it with Bank of Baroda- “India’s International bank”. I
would like to acknowledge extremely valuable assistance provided by all the Officers,
Supervisors and other staff members for their great cooperation. The office working environment
is very good at BOB. I had a new, challenging and a perfect environment to learn. My parents'
prayers and their teachings were always with me and hereby I would like to take this opportunity
to show my gratitude to all those who made my internship an adventurous journey.
I extend my deepest gratitude to my project guides Mr. P.K Raut- HR Manager, Mr. Murli
Krishna- Chief Manager- Operations, Mr. Sunil Tutoo- Sr. Manager India Desk for their
help, support and guidance throughout the tenure of the project. I take the opportunity to thank
the entire Branch and Back office team at BOB, specifically to Shri. Ashok K Gupta- Chief
Executive (GCC Operations) without the support of all of them the project would not have
been successfully completed.
I am grateful to the institute and our internship coordinator Dr. K Abdul Waheed, Associate
Dean for permitting me to undergo internship at BOB, Dubai.
I owe my special regards to my college and my college mentor Dr. Sujit for providing me time
to time guidance for making my internship assignment a great success.
This acknowledgement would be incomplete without mentioning about the Managers of all the
departments, the Human Resources department and each and every staff member at Bank of
Baroda for soliciting their valuable support provided me during the entire eight week period.
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EXECUTIVE SUMMARY
As a part of my MBA curriculum I have done my internship training at Bank of Baroda, Dubai.
In this report I am going to share my experience in the Bank for the period of 45 days. The
objective of the study was to have a general view of how things work in banking sector. This
report is based on the data collected over the short period which includes primary as well as
secondary data.
Banking is one of the most sensitive businesses all over the world. Banks play very important
role in the economy of a country. Banks are custodian to the assets of the general masses. The
banking sector plays a significant role in a contemporary world of money and economy. It
influences and facilitates many different but integrated economic activities like resources
mobilization, poverty elimination, production and distribution of public finance. Banks are
always there to serve its customer better.
Bank of Baroda is the 3rd largest bank in India, after State Bank of India and Punjab National
Bank and ahead of ICICI Bank. Bank of Baroda offers a wide range of banking products and
financial services to corporate and retail customers through a variety of delivery channels and
through its specialized subsidiaries and affiliates in the areas of investment banking, credit cards
and asset management etc. Bank of Baroda started its operations in 1974 in Dubai and Abu
Dhabi and till now it is the only Indian bank in Dubai providing full fledged Banking facilities to
its customers.
Transparency and accountability are central to Bank of Baroda’s business, ensuring that the
controls necessary for effective risk management, regulatory compliance, and accurate disclosure
of information to the market are in place. Bank of Baroda is committed to operating according to
international best practices.
Bank of Baroda abides by all international banking regulations, UAE Central Bank rules and its
rigorous risk and capital management fully complies with Basel II requirements. All of the
bank's operations comply with international Anti Money Laundering laws following KYC
guidelines.
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EVALUATION OF BANKING
Definitions of Bank:
(1) “Banks do business of money. Rather banks do business of lending and Borrowing of loans.”
(2) “Banks are guardian distributor of cash money”.
(3) “Banker or a bank or a person or company carrying on the business receiving moneys and
collecting drafts for customers subject to the obligation of honoring cheques drawn upon them
from time to time by the customer to the extent of the amount available on their current
accounts”.
General banking:
Financial institution that stands between ultimate borrowers and lenders is known as banking
financial institution. Banks perform this function in 2 ways taking deposits in different forms and
lending that money to other potential investors in different forms. The starting point of all the
banks is general banking which offers taking deposits and simultaneously providing the
customers with various services. Bank receives deposits from its customers on daily basis and
meets their demand for cash by honoring cheques. It opens new accounts issue pay orders remit
funds etc. This general/ everyday banking is also called as retail banking. This section is not only
confined to these services only besides they offer a whole range of services viz. Customer
service, Opening/Closing of an account, Remittance (Inward and Outward), Deposit Service,
Accounts department.
Commercial Banks
Commercial bank is an institution which accepts deposits, make business loans and offer various
services. Commercial banks mostly deal with deposits and loans from corporation or large
businesses. These banks receive deposits from general public, which are repayable on demand
upon written orders of the depositors.
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Central Banks
Central banks occupy the unique position in banking structure of a country because they have
been interested with the responsibility of controlling the money supply, interest rate, and
financial market of a country for the purpose of economic development.
Central Bank of UAE
The main responsibility of the Central Bank of UAE is formulation and implementation of
banking, credit and monetary policies, to ensure the growth of the national economy of the UAE
in a balanced manner. Central bank is also to maintain a fixed exchange rate of Dirham against
the U.S. dollar and to ensure the free convertibility of the national currency into foreign
currencies. It has come up with various laws and regulations governing the work of Banks and
other financial institutions to provide banking services with consumer protection.
Central bank of UAE provides various services to the bank
ICCS ( Image clearing cheque system )
WPS ( Wages protection system )
ICCS
ICCS (Image Cheque Clearing System) was introduced in July 2008 by the Central Bank of
UAE. Every bank including Bank of Baroda follows T+0 settlement i.e. settlement taking place
on the same day the cheque is deposited.
WPS
The Central Bank introduced WPS (Wages Protection System) in September 2009 in order to
meet the objectives of the Ministry of Labor. WPS provides a safe, efficient and robust
mechanism to allow the timely payment of employees' wages. All Banks and Money Exchanges
registered with Central Bank can act as agents to this system.
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Mission
"To be a top ranking National Bank of International Standards committed to augmenting stake
holders' value through concern, care and competence"
Introduction and History of Bank of Baroda
Bank of Baroda was setup by Sir Sayajirao Gaekwad ׀׀׀ (Maharaja of Baroda), on July 20,
1908 in state of Baroda in Gujarat. The bank was nationalized in 1969 along with 13 other major
commercial banks of India. It has significant international presence with a network of 78 offices
in 25 countries, six subsidiaries, and four representative offices. Among Bank of Baroda's
overseas branches are ones in the world’s major financial centers i.e. New York, London, Dubai,
Hong Kong, Brussels and Singapore, as well as a number in other countries. Bank of Baroda
maintains representative offices in Malaysia, China, Thailand, and Australia.
Overview of Bank of Baroda
India’s International Bank, Bank of Baroda, one
of the earliest Indian banks to venture into
international banking arena, set up its first
foreign branch in Mombassa, Kenya in 1953,
followed by London in 1957 this expansion
continued what originated as India’s
International Bank having 78 branches in 25
countries in 5 continents and having 3101
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domestic branches.
It is the 3rd largest bank in India after State
Bank of India and Punjab National Bank and
recently ahead of ICICI Bank with its total
Business crossing 400000 Crores. It is the only
Indian Bank operating in UAE since 1974,
carrying out full fledged banking operations,
with 6 branches - Dubai , Deira, Abu Dhabi,
Sharjah, Ras-Al-Khaimah and Al Ain. In Oman
they have 3 branches – Muttrah (2 branches)
and Salalah. They are in a process of spreading
their branches in other parts of GCC countries
i.e. Qatar, Kuwait and Saudi Arabia and
recently they have opened 2 new EBSU units in
UAE.
BOARD OF DIRECTORS
Shri. M.D. Mallya Chairman & Managing Director
Shri Rajeev Kumar Bakshi Executive Director
Shri N S Srinath Executive Director
Shri Alok Nigam Director
Shri A. Somasundaram Director
Shri Ajay Mathur Director
Shri Ranjeet Kumar Chatterjee Director
Dr. Masarrat Shahid Director
Dr. Atul Agarwal Director
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Dr. Dharmendra Bhandari Director
Dr. Deepak B Phatak Director
Shri. Maulin Vaishnav Director
Departments at Bank of Baroda
NRI Services
Customer Services
Cash Division
Fund Transfer/ Fixed Deposit division
Treasury Division
Trade Finance Division
Clearance Division
Advances/ Credit Division
Risk Management Division
CUSTOMER SERVICES [DEPOSIT
DIVISION]
Customer services in Bank of Baroda complies of
4 basic things :
Opening/ Closing of an Account
Issuing Cheque books
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Issuing Debit Card
Providing Statement of respective
accounts
Account opening procedure
First of all customer is required to fill an
application form as prescribed by the
bank which is available in any of the
branches of Bank of Baroda where the
customer wishes to open his account.
Then he needs to attach his passport
photocopies both of front and back page
and copy of his visa. He also needs to
bring his original passport with him for
verification purpose else it can be verified
by the company itself where he is
presently working. Labor card photocopy
is also to be attached with the form. All
these documents are taken keeping in
mind the KYC ( Know Your Customer)
guidelines prescribed by the Central Bank
of UAE
After all this formality he needs to fill the
deposit slip and deposits minimum
required amount on the cash counter.
Now, the bank will enter all the details of
the customer in their database and entry
will be done in Finacle (Core Banking
Solution implemented by the bank) and
new account number will be generated for
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the respective customer.
Various types of accounts offered by Bank to
its customers are :
Savings Deposits
Current deposits
Special Current Account
Term Deposits
Recurring Deposit
Salary Account
Savings Accounts { SB 101 }
This type of account is the most common
operating account for any individual for his day
to day transactions other than commercial
transactions. Savings account helps individual
earns some return on their savings kept with the
bank. This account is opened for persons who
wants to make small savings and can be opened
with a minimum balance of AED 1000/- failing
which will attract a Charge of AED 50/- . In
this type of account bank takes maintenance
charges i.e. AED 25/- twice a year in March
and September.
Persons eligible to open this kid of account
Any person can open this account in his/
her name
Any Individual, Minor and Illiterate can
open this account
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Two or more persons in their joint names
but in this case it is to be specified in the
form that who will handle the mode of
operation both or any individual
Bank of Baroda opens this account in 3 major
currencies other than AED viz. USD, GBP,
EUR. Customers having this type of account
will enjoy interest @ 0.40% p.a. As prescribed
by Central bank of UAE cheque facility is not
provided on savings account so the customer
will not be issued a cheque book for his savings
account.
Current Account
Current accounts are mainly cheque operated
accounts maintained for business purpose by
various corporate bodies. These are Non
Interest bearing accounts and a customer has
choice in this he can opt for any out of these 2
Accounts :
Regular Current Account
Special Current Account
Regular Current Account { CA 101 }
Generally Banks insists to maintain higher
minimum balance in these types of accounts
than savings account, so this requires minimum
balance of AED 5000/- failing to maintain this
balance will attract a Charge of AED 100/-.
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This account can also be opened in any of 3
major currencies other than AED viz. USD,
GBP, EUR. Customer will be provided with
facility of writing cheques and will be issued a
cheque book of minimum 50 or 100 leaves as
per the requirement of particular organization.
The cheques can be used for unlimited times in
a month.
Special Current Account { CA 102 }
This Account is for individuals who want to
opt for cheque book facility. For enjoying this
facility he needs to maintain the minimum
balance of AED 2500/-. Customer will be
issued a cheque book of 25 leaves but only 4
cheques can be issued in a month that can
either be through clearing or cash counter.
Salary/ Payroll Accounts { SB106 }
Bank of Baroda offers an excellent service for
the companies and its employees called
Salary/ Payroll Account. It enables the
employer of the company to credit his
employees’ salary directly to that account.
This account comes with a feature of:
Free ATM card
First cheque book will be Free for of
50 leaves
Statement of account will be send
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for free in email
No restrictions on number of
Withdrawals
Zero minimum balance (After
transfer of 1st salary)
Account maintenance charge of
AED 10/- per month
Requirements to open a Salary/Payroll
account:
To enjoy the benefits of this account
one must have a minimum salary of
AED 4000/- and they must be
working in UAE for the past 6
months.
Minimum initial deposit of AED
100/-
Zero balance is allowed after
transfer of 1st Salary
Charges:
Cheque Book Charges
AED 1/- per leaf after issue if first 50 leaves
Account balance certificate
Free once in the financial year AED 50/- for extra certificate
Closure of Account If within a year AED 100/-
Account maintenance AED 25/- half yearly will be deducted in March and September
For funds transfer to India
AED 10/- if the Account is with Bank of Baroda in India else AED 15/-
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NRI SERVICES
NRIs are very important segment of customers
for any Bank. Bank of Baroda is fulfilling
various banking requirements of NRIs in UAE.
They have specialized NRI desk which takes care
for all the needs of the NRIs. For Indian
customers they have taken special care so that
they don’t have to go there and every
requirement is being fulfilled here only. They
have come up with a very nice tag line for the
Indian customers “You do not have to go to India
for banking, we bring India to you”.
Definition of an NRI as defined under
Foreign Exchange Regulation Act (FERA) : :
An Indian citizen who stays abroad for
employment/carrying on business or vocation
outside India or stays abroad under
circumstances indicating an intention for an
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uncertain duration of stay abroad is a Non-
Resident. (Persons posted in UN organizations
and officials deputed abroad by Central/State
Governments and Public Sector undertakings
on temporary assignments are also treated as
Non-Residents). Non-Resident foreign citizens
of Indian origin are treated on par with Non-
Resident Indian citizens (NRI's).
Indian Students studying abroad are also
treated as NRIs provided their stay abroad is
for more than 182 days in the preceding
financial year and their intention to stay
outside India for an uncertain period when
they go abroad for studies.
NRI division provides with various services
as:
Opening of an NRI Account
On the spot renewal of Rupee FDRs
Providing Loans against NRE/FCNR
deposits
Issuing of cheque books for selected
Indian branches
Assistance in obtaining PAN card
Online Remittance Service
View based Internet banking
Various products and services being offered:
Deposit Products
Loan products
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Other Services
Deposits products
NRE A/c (Non Resident External)
NRO A/c (Non Resident Ordinary)
FCNR A/c (Foreign currency Non
Resident)
NRE Account
Income tax benefits
Interest earned in NRE / FCNR A/c is
exempt for Individuals who are NRI
under FERA.
Can be maintained by NRI's with Bank’s
branches in India
Can be opened jointly with other NRI
Requirements for opening an Account;
Any person who wants to open an NRI account
with BOB needs to fill the specified form
Documents required for opening an account :
Original Passport and Visa (for
verification).
2 Passport size color photographs of the
applicant.
Procedure:
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First of all, the applicant/ customer is
required to fill the specified form
(Account opening form for Individuals)
which is available with any of the branch
as well as on Bank of Baroda’s UAE site.
The branch officers will check the form
and original Passport as well as Visa and
verify it.
After verification the person is to deposit
minimum required amount to be
maintained for opening an account (AED
200 or equivalent INR).
Once the amount is being deposited by
the customer his part is over and now the
cash department will send the draft of that
amount to the account opening section
after sometime.
The Draft is then attached with the
application form and the same is sent to
the respective Indian BOB branch where
the applicant wants to open his account,
through Air Mail.
On receiving the documents by the
respective Indian branch they open the
account in their system and will respond
to UAE branch within 15-20 days.
If cheque book or pass book is being
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applied by the applicant in the form then
the same is being delivered within 15-20
days of receiving the application form by
the Indian branch.
If applicant has applied for Internet
Banking- Baroda Connect then the
desired User ID will come with the
cheque book and passbook and its
Password will be available after 1 week
of receiving the cheque book, the
applicant has to come to the branch to
collect the password for Baroda Connect.
With all these formalities being done the
account is operational and applicant can
remit the funds to India now.
NRO Account
Interest is taxable @ 12.5% p.a
Besides Inward remittance, Indian rupees
can be deposited and the account can
jointly be opened with resident Indian
Funds can be deposited from India also
A/c is opened following KYC norms
FCNR Account
A/c can be opened in 6 major
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currencies viz. Australian dollar
(AUD), US dollar (USD), Canadian
dollar (CAD), Pound sterling (GBP),
Japanese yen (JPY), EURO (EUR)
A/c is opened following KYC norms
If the customer is having FCNR A/c
he is eligible for Loans in India (In
INR or Foreign currency) as well as in
Abroad.
For Remittance to India
Bank offers fastest and cheapest mode of
remittances to India through 6 branches in UAE,
3 in Oman and one in Bahrain. Remitter can be
any Individual having an NRI account with BOB
or Corporate for remitting salary payments to
their employees in India. Bank of Baroda is also
open on Friday’s for remittance purposes. Some
of its features are :
Easy and hassle free money transfer to
India from any Bank of Baroda branches
in UAE
Fast remittance facility and credit will be
provided within 24 hours to the
beneficiary’s account
Free remittance on Friday’s
Process: Funds can be remitted to India through
2 ways :
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Rapids funds2India
RTGS/ NEFT
RTGS :
Real time gross settlement systems are funds
transfer systems where transfer of money takes
place from one bank to another on a "real time"
and on "gross" basis. Settlement in "real time"
means payment transaction is not subjected to
any waiting period. This is the interbank money
transfer i.e. from BOB Dubai to BOB India.
In RTGS, Settlement will take place
continuously between 9.00 A.M and 2.00 P.M
and the return time allowed is up to two hours
from the time of the receipt of the payment. But
in RTGS the amount should be above Rs 1.00
Lakh. This is generally being used by the
corporates who have huge money transfers.
NEFT :
For NEFT (National Electronics Fund Transfers)
Money can be transferred from Bank to
Bank but both the branches should have
their IFS Code (IFSC).
One can transfer any amount through
NEFT there is no upper or lower limit for
it.
In NEFT, clearing are done on the basis
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of settlement batches every hour a batch
is being passed and the return time
allowed is 24 hours. The messages
received by RBI within each settlement
batch time will be consolidated and
distributed to payee's banks after
settlement. Normally, payment message
reaches receiving (payee's) bank within
15 to 30 minutes from the batch time. For
e.g. message sent to RBI for the 12.00
clock settlement batch, will reach
receiving bank by 12.30 P.M.
NEFT is the most suitable mode of
payment for small value payments and
settlements are faster when compared
with other modes of payment like
Demand Draft or Telegraphic Transfer.
The NEFT and RTGS are message based mode
of funds transfer means for transfer of funds,
message is being sent by originating bank
branch (where customer account will be
debited) to the receiving branch (In India)
where the beneficiary or intended customer will
be having account through RBI intervention. In
Bank of Baroda instructions received till 2 p.m
will be processed on the same day else on the
next day.
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REMITTANCES
This division in Bank of Baroda deals with Clean
Remittances i.e. no documents are involved like
in case of LC. If any person wants to send his
money to any foreign country (except India) from
UAE then this department will do so. A customer
can pick any one funding mode for remitting its
money:
Demand draft
Telegraphic Transfer
The following modes of payments are provided
by Bank of Baroda:
Local Remittance: For payments made to
another bank in UAE local remittance is being
done. The transfer can be either by Managers
cheque (MC) or telex transfer (TT). Every
transaction will through Central bank.
International Remittance: For payments made
to another bank outside UAE this is done through
the correspondent banks. The transfer can be
made either by Demand Draft (DD) or Telex
Transfer (TT). In this case money is sent through
the correspondent banks of Bank of Baroda in
other countries.
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Types of remittances:
There can be two types of remittances for a Bank
viz. Inward Remittance and Outward remittance
which are explained in detail as below:
Inward remittance:
Inward remittance means transferring (receiving)
funds from foreign country to UAE through the
Correspondent bank of Bank of Baroda.
Example
‘A’ wants to send the money from USA to ‘B’ in
UAE and ‘A’ is having his A/c with HSBC, US
and ‘B’ is having his A/c with Bank of Baroda,
Dubai. Now how the remittance is being done at
BOB is discussed:
Steps
Now in this case HSBC will send BOB,
Dubai a SWIFT message [FIN 199] to
confirm their correspondent bank in US
(if not given by the customer).
After getting confirmed from BOB,
HSBC will send the money to BOB,
Dubai’s correspondent bank in US with
whom BOB is maintaing their Nostro
A/c.
Let’s assume that BOB is having his
Nostro A/c with Standard Chartered Bank
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Limited (SCBL). Now HSBC will Dr. his
customers A/c and will Cr. the proceeds
to Central bank after deducting its
charges. After passing the transaction
HSBC will send SWIFT message [FIN
202] to SCBL as well as to BOB, Dubai
[FIN 103] confirming the same.
SCBL after receiving the SWIFT message
will pass the necessary entry in its system
and will Dr. their Central Bank A/c and
Cr. will be given to BOB Nostro A/c thus
confirming this to BOB by sending
SWIFT message [FIN 103].
Now as soon as the SWIFT message is
being received by BOB they will Dr. their
Nostro A/c with SCBL and will Cr. the
account of ultimate Beneficiary by
deducting their own charges.
Charges:
As every transaction is being routed through
various banks each bank takes their own
charges. For this purpose SWIFT message will
be providing the details of the charges. There
can be three types of charges:
All the Charges being borne by the
remitter/sender.
All the Charges being borne by the
ultimate Beneficiary/receiver.
Charges are being Shared by the
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remitter and the beneficiary both.
Outward Remittance:
Outward Remittance means transferring
(sending) funds to foreign country from Bank
of Baroda, UAE. The procedure of Outward
remittance will be same as that of Inward
remittance, but in this case Bank of Baroda will
send the money to the correspondent bank
which will Cr. the money to the ultimate
Beneficiary. In this case BOB will Cr. the
Vostro A/c of that bank if the a/c is being
maintained with BOB and will send the SWIFT
message to that bank. The SWIFT message will
contain the following details :
Beneficiary name, address and his
account no. where the money is to be
Credited
Ordering institution i.e. who is sending
the money
Payment details so as to why the money
is being sent, for what purpose
Nostro/Vostro A/c:
An account that a bank holds with a foreign
bank. For routing purpose every banks have
their Nostro/Vostro accounts with other foreign
banks in almost every country. Bank of Baroda
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is also having their Nostro A/c with various
banks viz. J.P Morgan Chase, Standard
Chartered Bank Limited, Bank of Baroda in
New York (US). In Europe they are
maintaining their Nostro Accounts with Bank
of Baroda, Brussels and Deutsche Bank. In UK
they are having the A/c with Bank of Baroda,
London and so on. The customer has to
mention the SWIFT ID, CHIPS UID, IBAN so
that the money is transferred to that particular
branch only. The SWIFT ID for Bank of
Baroda, Dubai is BARBAEADDUB.
The account which other banks is maintaining
with Bank of Baroda is Vostro for Bank of
Baroda and Nostro for them.
Standing Instructions:
Standing Instructions is a service provided to
the customers whereby they can set up a
payment instruction to make regular payments
of a specific amount to a named beneficiary
holding account with Bank of Baroda or any
bank inside or outside the territory of UAE.
Correspondent Bank:
The inter-bank market is a network of
correspondent banking relationships. All banks
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maintain ‘nostro’ accounts with other banks
which are called as correspondent bank like
Bank of Baroda is having their Nostro A/c with
J.P Morgan Chase New York hence the
correspondent bank for Bank of Baroda is J.P
Morgan. Correspondent relationships facilitate
Forex operations, export and import
transactions. Correspondents provide advisory,
confirmation and collection services (LC). All
the communication between the banks is done
through SWIFT messages.
SWIFT (Society for Worldwide Interbank
Financial Telecommunication) :
SWIFT is a telecommunications industry which
provides a worldwide Financial messaging
network which exchanges messages between
banks and other Financial institutions. Almost
every international interbank message is
communicated through SWIFT. Sending a
SWIFT message will not facilitate funds
transfer, rather, it sends an authenticated
message for the payment orders to the other
institution which will be settled via
correspondent accounts.
Hence SWIFT is a secure network for
transmitting messages between financial
institutions. It is having a set of standards for
financial messages [Like templates from FIN
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101 to FIN 999 message].
TRADE FINANCE DIVISION
Trade finance is mostly related to international trade. Where the seller and buyer both enters in a contract for the Import and Export of the goods. For this Bank of Baroda provides various forms of support to its customers besides opening of LC viz. :
Overdraft Facility by opening O/D account {OD 104}Trust Receipt by opening T/R account {TR 105}
Bills Finance (L/C)
Foreign Bills Collection (FBC)
Discounting of Usance bills
In short, trade finance covers money lent to exporters or importers by dealing with the Bills.
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Inland Bills :
Bills drawn by the party in UAE on the other
person in UAE itself.
Foreign Bills :
Bills drawn outside UAE and payable to the
person residing outside UAE or, bills drawn
outside UAE and payable to the person residing
in UAE.
Demand/Sight Bills :
This bill is payable on demand and no time is
given by the exporter to the importer for making
payment
Usance bills :
Classification of bills
PERIOD NATURE1. Inland Bills
2. Foreign Bills 3. Demand/Sight Bills
4. Usance Bills
5. Clean bills
6. Documentary Bills
PLACE
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This type of bill provides the importer with some
time to make the payment which will be
specified. The date specified is called as
“Maturity/ due date”.
Clean Bills :
In this kind of bill there will be only bill of
exchange no documents of title to goods will be
there. This type of bill is generally drawn when
both the parties have faith in them and only
payment is to be made through the banks as
described in 2nd example (FBC).
Documentary Bills:
This bill will come with the documents relating
to the title to the goods. Documentary bills are of
2 types i.e. D.P (documents against payable)
Bills and D.A (documents against acceptance)
Bills.
LETTER OF CREDIT(L/C)
INTRODUCTION
In international trade the buyer and seller are
miles apart having different legal systems and
both unaware of each other’s financial position.
So in these cases it is preferable that both the
parties deal through their banks. The documents
45
covering the goods are being routed through
their banks and both the parties are being
assured that the terms of trade would be
complied. So for this case Letter of Credit is
being issued by the Importers Bank called
Issuing Bank and his client is called as
Applicant to the Exporters Bank called the
Advising Bank and his client is called as
Beneficiary who will receive the money by
redeeming the Letter of Credit.
DEFINITION
LC is an arrangement whereby a bank acting at
the request of a customer undertakes to pay a
third party(beneficiary) by a given date
according to agreed stipulations and against
presentation of documents the counter-value of
goods and services supplied for this banks deal
only in documents and not in goods.
There are 2 types of Documentary Bills (LC)
Import L/C: When we issue any L/C on
behalf of our customer (applicant) i.e.
Importer on other customer (beneficiary)
i.e. exporter to Import the goods and
make the payments.
Export L/C: When any L/C is being
opened on our customer by any other
bank. In this case our customer is the
exporter (beneficiary) of the goods and
45
other party is the Importer (applicant).
Documents under L/C
Bill of Exchange
Proforma Invoice
Inspection Certificate
Certificate of Origin
Certificate of Analysis
Packing List
Weight Certificate
Parties to a Letter of Credit
Applicant/Buyer/Importer: He is the
person who comes to the bank to open an
LC. He has to make payments for
importing his goods by availing the banks
facilities.
Issuing Bank: The bank which opens the
LC on request of the Applicant.
Beneficiary/Seller/Exporter: He is the
person who is to receive the money under
LC.
Advising Bank: The bank with whom the
beneficiary is having his account. The
advising bank will forward the LC to the
beneficiary and in return will give the
documents to the Issuing Bank.
ADVANTAGES
To the Buyer:
45
Buyer does have to make the payment in
advance to the seller.
In most cases the bills are payable over a
period of time (called Usance bills) hence
additional credit is given to the buyer.
The quality of goods is assured by
opening an L/C. The buyer can insist for
the Inspection certificate certified by an
Inspector which is to be sent along with
the bill of exchange and bill of
negotiation. In case the document is not
provided by the exporter the bank will not
make the payment on bills.
To the Seller:
The seller will be assured that he will
receive payment on time for his exports.
The need not to bother about the
fluctuations in currency as this will be the
responsibility of the buyer.
How it works
Let’s take an example of a business called
“XYZ” Ltd. Now XYZ is a regular importer of
goods from ABC ltd. whose bank is Standard
Chartered Bank Ltd. (SCBL) UK and XYZ is
having his account with Bank of Baroda Dubai.
XYZ places an order of $100,000 with ABC ltd
who agreed to sell the goods and gave him 60
days to pay for them. Now XYZ will approach to
45
Bank of Baroda to open an L/C and these steps
will be followed:
XYZ comes to Bank of Baroda and
requests to open an L/C worth $100,000
favoring ABC ltd.
Bank of Baroda issues a Letter of Credit
by checking the applicant’s capacity i.e.
the bank will open an L/C if they know
that buyer will pay and they can rely on
reimbursement by the applicant. So in this
case XYZ have to deposit enough money
to cover the letter of credit and Lien will
be marked on his account.
BOB will send the L/C to SCBL favoring
ABC ltd. assuring that full payment will
be done on time and they can ship the
merchandise with the necessary
documents. SCBL will scrutinize the
documents and will send the original or
2nd copy of the shipping documents to
BOB.
ABC ltd. will give the merchandise and
Proforma Invoice along with Bill of
Lading (in case goods are sent through
Ship) to SCBL and SCBL will send these
documents to BOB.
As soon as documents are received
Supervisor of BOB will scrutinize the
documents and will check that there
should not be any discrepancy, these
45
documents must conform to terms and
conditions set out in the letter of credit if
any such thing arises then BOB will
inform SCBL through SWIFT message to
look into the matter.
Now as soon as the documents are
received BOB will inform XYZ ltd. to
collect these documents within specified
time limit and after the collection of the
documents BOB will debit his account by
taking the charges.
To pay on a letter of credit,
banks simply review documents proving that a
seller performed his required actions. They do
not worry about the quality of goods or other
items that may be important to the buyer and
seller. Hence Bank only deals in documents
and not in goods.
All the communication between the banks is
through SWIFT message which is an
authenticate message and all the rules and
regulations are subject to UCP 600.
Seller(EXPORTER)(Beneficiary)
Buyer(IMPORTER)
(Applicant)Ships Goods
45
Credit Report: Sometimes the applicant just to
make sure that whether the exporter is capable of
supplying the goods asks the advising bank about
the credit worthiness of the exporter. So in this
case the advising bank will give the credit report
to the issuing bank confirming the exports of the
Seller’sBank
(Advising Bank)
Buyer’sBank
(Issuing Bank)
Documents(Bill of Lading, Bill of exchange etc)
Payment
Docum
ents
Paym
ent
SWIFT messages
App
lies f
or L
C
Adv
ises
LC
Opens LC and sends for Advising
Doc
umen
ts(B
ill o
f Lad
ing,
B
ill o
f exc
hang
e et
c)
Paym
ent b
y de
duct
ing
the
char
ges
L/C
45
goods.
Buyers Credit: Bank of Baroda also offers
Buyers Credit to its customers. It is the credit
given to the Importer (Applicant) so that he
makes his payment on due date. This credit is
generally being given at the request of buyers.
BankBankPayment
Paym
ent
Payment
SELLER BUYERGoods with Documents
Foreign bill Collection: (FBC)
In this case both the parties have faith in them and by their mutual consent FBCs are drawn. In this case goods are directly being sent to the Importer with the documents by the exporter and payment is made through the banks.
FBC
45
Steps for
Bills Collection
Export LC Import LC
Lodge in FINACLE under FBC menu
We receive the documents
Again send these documents to the issuing bank after scrutinizing
them
We send the LC to advising bank
Lodge/Open LC in FINACLE under FIBC menu
Again we will receive the documents with bill of lading and
bill of exchange etc.
45
CLEARANCE DIVISION
Clearing of cheques in UAE is done through
ICCS (Image cheque clearing system) and the
cheque is cleared on the same day in UAE. The
same day image cheque clearing system or ICCS
benefits customers by reducing their time to
one/single day it takes for a cheque to clear. The
process is shown in diag. under :
Receive the Payment and Credit it to the customers A/c
After confirmation we will make the payment to advising bank by debiting
our customer A/c
45
In ICCS scanned images are received/ sent
through Central Bank of UAE. In case of Outward
clearing BOB will send the scanned images of the
cheques through ICCS to Central Bank before
10:30 a.m because after that Central Bank does
not accepts the cheques for same day clearing and
in case of Inward clearing BOB will receive the
scanned images from Central Bank throughout the
day. So there are 2 types of clearing :
Inward cheque clearing
Outward cheque clearing
45
Inward Cheque Clearing:
Inward clearing means the cheques received by
Bank of Baroda from other banks. Here Bank of
Baroda is the Issuing bank and other bank is the
Presenting bank. These cheques are the cheques
drawn by the bank/branch customers on their
account in favour of other parties. On receipt of
the inward clearing cheques the account of the
cheque issuer or drawer with Bank of Baroda is
debited and the payment is made to the bank
presenting the cheque (whom with favouring
party is having his A/c). The debit will be
indicated in the statement of A/c of the customer
(Bank of Baroda’s) confirming that the cheque
has been paid.
Inward Cheque return:
Cheque return can be from following reasons
If the balance is insufficient to pay the
inward cheque, the bank will return the
same to the presenting bank and will debit
his customer account with cheque return
charges i.e. AED 200/-.
If the cheque is
Stale dated i.e. the date written on
the cheque is before 180 days
from the settlement date.
Post dated (PDC) i.e. the date
written on the cheque any future
date from the settlement date. For
45
example A comes with a cheque
dated 18/06/2010 and settlement
is taking place on 16/06/2010 then
it is a PDC and it will not be
cleared on 16th.
If MICR (Magnetic Ink Character
Recognition) number written on the
bottom of the cheques is not visible
because of improper scanning by the
Presenting bank.
Other Reasons i.e. signature missing,
signature not matching with one in
FINACLE, payee name missing etc.
Cheque Clearing- Inward
Bank of Baroda will scrutinize the cheque by checking the beneficiary name, A/c no.
and signature from FINACLE
Central Bank will send that images to Bank of Baroda
Approved
After scrutiny, cheques are being approved by the supervisor of Bank of
Baroda and the same are then tallied with the Central bank settlement report
(ICE/OCE)
Presenting bank sends scanned images of cheque and deposit slips to Central Bank
before 10:30
If Insufficient
balance
Wait for O/D approval or
check if there is any Standing instruction
Original cheque is received after 5 days from C.B which is scanned in ICCS RECON by Bank of Baroda for reconciliation purpose
45
Outward Cheque Clearing:
Outward Cheque Clearing:
When “A” deposits a cheque to his account with
Bank of Baroda for local collection then it is sent
through clearing for claiming money from the
concerned bank on which the cheque is drawn.
After clearance of the cheque i.e. after getting
money from other bank, Bank of Baroda will
credit the amount to A’s account. In this case
Bank of Baroda is Presenting bank and other
bank is Issuing bank. For same day clearance “A”
has to deposit his cheque to BOB before 9:30 a.m
and all the cheques which are received after 9:30
a.m will be cleared on the next day. The cheques
received are of 2 types :
Individual cheques : In individual cheque
every cheque is attached with a deposit
The report received is then uploaded in FINACLE which is called as “Floppy
upload process”
Approved
Not
Dr. is made in customers A/c and Cr. is given to the clearing house
Cheque is returned
After uploading the zone in FINACLE it is being authorized by the supervisor
In the evening BOB will Dr. clearing house and will Cr. the proceeds to the
Central Bank
45
slip i.e. there is only one cheque with one
deposit slip
Bulk cheques : In case of bulk cheques,
one deposit slip will have more than one
cheque attached with it.
Outward Cheque Clearing Procedure is
explained below through the flow chart
Cheque Clearing- Outward
Bank of Baroda scan images of cheques and deposit slips specifying it as Individual or Bulk
cheque
Accordingly batches will be made in ICCS
45
Benefits of same day clearance
Through same-day cheque clearance customers
will have access to the proceeds of deposited
cheques on the same day, if deposited before cut-
off time i.e. 9:30 a.m. This system has huge
benefits to entities; big and small, as before it,
money was locked-in for even three to four days
thereby working capital was stuck with banks.
With this new system, customers will realize that
money received by a cheque dated today is equal
to cash received today.
After scrutinizing the images with original deposit slips and the officer will authorize and
send it to Central bank before 10:30 a.m
Central bank will send the settlement report (ICE/OCE)
Report is being uploaded in FINACLE under PTW menu
Cheque returns will come
Modification is being done in FINACLE under OCLODGE menu
Every batch will be approved by the supervisor by scrutinizing every cheque with original
deposit slip
BOB will Dr. Central bank A/c and gives Cr. to its customers A/c(SAME DAY)
Cheque is being returned to the customer
45
TREASURY DIVISION
Countries of the world have been exchanging
goods and services amongst themselves. This has
been going from times and the World has come a
long way now as economy is becoming more
globalized. As every nation has a distinct national
currency, international trade and financial
transactions have been necessitated exchange of
currencies which further necessitated to exchange
rates. Like any other commodity the price of one
unit of foreign currency can be stated in terms of
domestic currency (AED). Treasury division in
banks generally deals in Forex- all the claims
payable abroad whether consisting of funds held
in foreign currency with banks abroad or bill
cheque payable abroad. Forex Market has many
participants whom with bank deal viz. Central
Bank, Commercial Banks, Investment Banks,
Forex brokers, Corporations.
Forex market is a global market with no barriers,
supporting large capital and trade flows hence it
is highly liquid market. There are very high
fluctuations in currency rates and settlements are
affected by time zone factor. Keeping time zone
in mind Forex market has different types of
transactions i.e. :
45
Cash/ Today -: In this settlement of funds
takes place within the same day in
between the banks.
Tom -: In settlement of funds take
place on next working day
Spot -: The settlement of funds is
done on the second working day.
Forward -: Delivery of funds on any
day after Spot date
Value Date - : Value Date is the day on
which the exchange of currencies actually
takes place
In all of these transactions contract terms (Price)
are set now but delivery and payment occurs at a
future date. The current price of any currency
trading in the market is Spot Price and BOB
dealers have to accordingly calculate the rate for
Cash, Tom, Forward transaction.
Treasury Division in BOB
Bank of Baroda, Dubai has a specialized cell of
treasury who takes care of all the Forex
transaction for all its 6 branches in UAE. Its
treasury office comprises of three divisions:
Front Office (Dealing Room)
Mid Office (Risk management)
Back Office (Accounts and reconciliation)
45
Front Office
The Front office of Bank of Baroda acts as in
intermediary between the branch offices of BOB
in UAE. They maintain orders, receives reports
as they come in, responds to branch queries,
advises rates obtained from the dealing desk
(Treasury) to branches, passes on information and
transactions meant for the branches, tracks
balances.
The Front office is also required to make sure that
the branches put through transactions only at the
permitted rates (as set out in the Card Rate) by the
Dealers. Provisional rates are finalized to the
merchant desk (Front Office). Competitive rates
are offered to customers at the branches by the
NRI Desk Managers through the merchant desk,
which carries out this task in consultation with the
dealing room.
Front office of Bank of Baroda deals with various
types of transactions in Forex markets that are:
Merchant Transactions :
The majority of transactions taking place
in branch are on account of their clients,
these transactions are related to the
buy/sell foreign exchange from/to
exporters/importers and other customers.
All these transactions at Bank of Baroda
45
are being reported by various departments
(Trade Finance, IR/OR etc.) to the
treasury front office through ADS
(Automated Dealing System) as
implemented by Bank of Baroda. These
transactions are undertaken only for
customers and speculation under this is
prohibited.
All the communication between the banks
is done through SWIFT, "REUTERS"
system etc which are available to the
dealers in the front office.
Interbank transactions:
This includes Interbank transactions i.e.
when one bank deals with another bank
buys/sells foreign exchange. If a bank
can't meet its liquidity requirements, it
will need to borrow money in the
interbank market to cover the shortfall.
Some banks, on the other hand, have
excess liquid assets above and beyond the
liquidity requirements. These banks will
lend money in the interbank market,
receiving interest on the assets. These
interest rates are being changing in the
market on daily basis and there are 2
types of interest rate Bank of Baroda can
charge :
LIBOR Rate (London Interbank
45
Offered Rate): For transactions
taking place outside UAE i.e.
Bank of Baroda lending to a bank
outside UAE.
EIBOR Rate (Interbank Offered
Rate): For dealings with bank in
UAE this rate is applicable. These
rates are set on daily basis.
Forex Transactions:
Forex transactions refer to buy and sell of
foreign currencies to gain from the
currency movement. This is carried out by
the dealer on the behalf of the bank with
sole aim of maximizing the profit for the
bank. The rate in Forex Transactions
trading is the Spot Rate which the most
traders use when trading with other online
retail Forex broker.
The major currencies being traded in Bank of
Baroda includes Indian Rupees (INR), Euro
(EUR), Swiss Franc (CHF), Japanese Yen (JPY),
US Dollar (USD), Pound Sterling (GBP), Qatar
Riyal (QAR), Kuwaiti Dinar (KWD), and Saudi
Riyal (SAR).
Dealers at BOB deals in Bonds, Foreign
currencies and financial derivatives complying
with various Risk management guidelines.
45
Treasury of BOB generally buys/sells:
Foreign currencies
CLNs Bond (Credit Linked Notes)
FRBs (Floating rate bond)
Fixed Income bonds
Mid Office (Risk management)
The primary function of Mid office (risk
management) office is Asset/Liability
management. Risk managers asses what all risks
are there associated, define them and try to
minimize them. For all this Bank of Baroda is
following certain guidelines one of which is
BASEL ІІ. These are the recommendations on
banking laws and regulations issued by Basel
Committee.
The purpose of Basel II is to create an
international standard that banking regulators can
use when creating regulations about how much
capital banks need to put aside to guard against
the types of financial and operational risks banks
face. Generally speaking, these rules mean that
the greater risk to which the bank is exposed, the
greater the amount of capital the bank needs to
hold to safeguard its solvency and overall
economic stability. BASEL ІІ uses Three Pillar
Concept which is as follows:-
First pillar :
45
The 1st pillar deals with maintenance/calculations of minimum regulatory capital required. This can be calculated for three major components of risk that a bank faces by various approaches as:
Credit risk : Credit Risk can be calculated by using one of three approaches:
1. Standardised Approach
2. Foundation IRB (Internal Ratings Based) Approach
3. Advanced IRB Approach
Operational risk : For operational risk, there are three different approaches - basic indicator approach or BIA, standardized approach or TSA, and advanced measurement approach or AMA.
Market risk : For market risk IRB (Internal rating based) approach, Duration method and VaR (value at risk) approach are there.
Second Pillar :
The second pillar deals with banks own risk
management. It also provides a framework for
dealing with all the other risks a bank may face,
such as Concentration risk, Strategic risk,
Reputation risk, Liquidity risk and Legal risk. It
gives banks a power to review their risk
management system. For this the method used is
IRR (Interest Rate risk) method. Under 2nd pillar
banks has to ensure that they have a rigorous
process for assessing its overall capital adequacy in
45
relation to its risk profile by internal capital
adequacy assessment process – ICAAP policy.
Third pillar :
Third pillar deals with the market discipline and
transparency through public disclosures. This
recommends all the Banks to disclose all the risks
covered under 1st and 2nd pillar and how will they
minimize them to its customers through regular
circulars. Bank should assure its customers that
they are maintaining enough capital adequacy
ratio as needed.
Capital Adequacy Ratio (CAR):
This ratio is used to protect depositors and
promote the stability and efficiency of financial
systems around the world. (CAR) is a ratio that
regulators in the banking system use to watch
bank's health, specifically bank's capital to its risk.
To ensure that bank can absorb a reasonable
amount of loss CAR is maintained. The Central
Bank of the U.A.E. has determined banks
operating in the U.A.E. must maintain a capital
adequacy ratio at a minimum of 12% at all times
which will be applicable from June 30, 2010.
LEARNINGS AND RECOMMENDATIONS
45
From this 45 days experience in Bank of Baroda, I got good exposure about what really the
corporate life is about. I fell honored that I have worked with such experienced professionals. All
these 45 days were full of events, full of learning, and most importantly full of professional
working. Each department I worked with was a different experience in itself. I worked in each
and every department starting from NRI service division to the Treasury back office. I started
with NRI service department and here I got to know about what all services are being provided
by the bank to its NRI customers and learned how the entries are being made in their system
through FINACLE. Then after 1 week, I moved to Customer services department where I
interacted with lots of customers, provided them their A/c Statement, Cheque books and ATM
cards and also printed out their Statement of A/c through FINACLE. All the enquiries raised by
the customers were replied to their entire satisfaction. It was the liveliest experience of my
Internship as it helped me to interact with different kinds of customer. After learning all this, I
moved to operations (back office) Division where I learned how to pass various types of entries
in FINACLE in different divisions (Trade Finance, Clearance, Remittances). The most
interesting department which I found was Treasury where I learned how the Dealers place order
(buy/sell) of FOREX in interbank market through their trading platform “REUTERS” which they
are using. During all this period I observed a lot of things. Some of the
observations/recommendations are as under:
1) Attendance:
I noticed that all the employees mark their attendance themselves in the register. I used to
observe that whether all the employees are coming on time or not and there isn’t any proper
check on them. So they should use online attendance system which will help the managers to
keep an eye on every employee.
2) Responsibility level of employees:
The best thing I found here in BOB was that all employees are fully responsible and
dedicated towards their work. No matter how long they have to stay at bank, they are
performing their work honestly and with full dedication.
3) Overall impression of the customers:
45
Majority of the customers were very satisfied, but some of them were not. There are many
reasons for their dissatisfaction:
a) Customers had a very chronic behavior due to the parking problem, as they are not
available with enough space to park their cars.
b) Customers complained that they are not receiving their monthly statements through
mail which should be taken care of.
4) Customer dealing:
Customer dealing is really good when it comes to patience. Sometimes customers misbehave
a lot, but the staff here tries their level best to deal with them patiently and politely, and this
is something that should be appreciated.
5) Customer satisfaction survey:
I noticed that a customer satisfaction survey to get their feedback is conducted. This is really
good. In this way bank can have an idea about the needs and requirements of the consumers
and if they are satisfied with your services or not.
6) Proper training (Job rotation):
There is proper training provided to each and every employee of Bank of Baroda. Job rotation
is done after every 6 months to polish their potentials and for more improvement.
7) Token machine system:
Token system should be implemented in the branch so that hassle free services are provided
to BOB customers. This system will help the customers as customers will only have to
collect the token and wait for their turn instead of standing in a Que. This system is already
being implemented by various banks in UAE.
BIBLIOGRAPHY
45
GENERAL:
Bank of Baroda, UAE official website www.bankofbarodauae.ae
Referred to Investopedia : http://www.investopedia.com/
http://www.uaeinteract.com/docs/UAE_sticking_to_dollar_peg_CB/41223.htm
FOR REMITTANCES:
http://www.rbi.org.in/scripts/FAQView.aspx?Id=60
Bank of Baroda, India official website www.bankofbaroda.com
http://www.bankofbarodauae.ae/ezremit.htm
RISK MANAGEMENT:
http://www.uaeinteract.com/docs/
Central_Bank_sets_new_capital_adequacy_ratio/37479.htm
http://www.centralbank.ae/pdf/baselII/Draft-UAE-Basel-II-guidelines.pdf
http://www.occ.gov/ftp/release/2008-81a.pdf
FOR CHEQUE CLEARANCE:
http://www.raqmiyat.com/banking/banking-operations/iccs-connect.aspx
SNAPSHOT OF FINACLE
45
Logging Into the system:
The main Menu:
On successful login to the system, the main menu is displayed to the user
Logging Out of the system:
45
Type “exit” in the menu option (at the bottom) and press enter as shown
APPENDICES
45
Index:
Annexure 1 A/c Opening Form
Annexure 2 Form for Change of Address
Annexure 3 Closure of A/c
Annexure 4 SWIFT messages format
Annexure 5 SWIFT message FIN 103
Annexure 6 SWIFT msg. FIN 103 (Inward remittance)
Annexure 7 SWIFT msg. FIN 999 (Free format msg.)
Annexure 8 Cheque Security Features
Annexure 9 Rate Card (Treasury)
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