Process Of Remittance

Process of Presented by:

The Hedonist (83015) Asheesh Ranjan Jha (83026) Lokesh S Chauhan

Overview Definitions to important terms SWIFT and MT’s CHIPS Charges Domestic Clearing Bilateral Settlement Applying Online Transaction through correspondent bank Case SWIFT messages and payment requests Payment involving two correspondent banks

Some Useful Definitions: Nostro Account:

A banking term to describe an account one bank holds with a bank in a foreign country, usually in the currency of that foreign country. “Our account with them”

Vostro (Loro) Account: The counterpart to nostro

account; vostro (Latin, 'yours') describes the record of an account held by a bank as correspondent on behalf of an overseas bank. “Their account with us”

International Bank Account Number (IBAN) Developed by the European Committee for Banking Standards to improve the efficiency of cross-border payments with regard to speed, quality and cost G

B

Country code

2

9

Check digits

30 Characters max/ country specific

Basic Bank Account Number

GB 29 BOFS 8020 0100 1234 56 Bank Code National (Bank of Scotland) Sort Code

Customer A/c No.

Bilateral Key Exchange (BKE): It is an arrangement between FI’s/Banks which is mandatory for exchange of SWIFT instructions amongst member institutions.

Bank Identifier Code (BIC):

A unique address that identifies precisely the financial institutions involved in international financial transactions. A BICconsists of 8 or 11 characters comprising the following Bank Code, Country Code, Location Code and Branch Code e.g. ABNA NL 2A DEUT DE FF500

SWIFT(Society for Worldwide Interbank Financial Telecommunication): It is a worldwide financial messaging network where messages are securely and reliably exchanged between banks and other financial institutions SWIFT is solely a carrier of messages.

Why SWIFT ? Secure Well Connected Inexpensive

Message Type(MT): A specific type of Standards message that is expressed in the SWIFT proprietary syntax and is identified by a unique 3-digit number. e.g. MT100, MT101, MT202…

CHIPS(Clearing House Interbank Payment System CHIPS Statistics Ø

Participant Community • 47 Financial Institutions • 20 Countries

Ø

Average Daily Volume (2008): • 365 thousand Payments • $2.01 Trillion • 2008 Annual Totals: • •

Ø

$ 508.75 Trillion 91.99 million payments

Average Dollar Amount per payment: • $5.6 million

www.chips.org

Charges

OUR / BEN / SHA

Domestic Clearing ( Settlement Through Central Bank) Central Bank

Payer’s Bank

Payer(X) `

Clearing Institution

Information Funds

Beneficiary’s Bank

Beneficiary(Y)

Bilateral Settlement

Payer’s Bank

Payer (X)

Country A

Beneficiary’s Bank

Beneficiary (Y)

Country B

A in Delhi approaches ICICIbank and he wants to transfer Rs. 1 lakh into the account of B in Michigan. B wants the money in USD. B(Michigan)

JPM Chase, Michigan USD 2032.52 ICICI Bank, ND Rs. 1,00,000 = USD 2032.52* + Charges(1347/- or .25 %) A(Delhi)

*

1 USD = INR49.20 [Market rate - 48.9650]

Cross Border Transfer through a Correspondent Bank Information Funds

Central Bank

Payer’s Bank

Correspondent Bank

Local Clearing Institution

Payer (X)

Country A

Beneficiary’s Bank

Beneficiary (Y)

Country B

Case 2 Mourantand Co. Limited, Jersey has an account with ABN AMRO Jersey. The Mourant and Company limited ordered its bank to make a payment of 3,554,897 EUR to its account with Royal Bank of Scotland, Jersey. The currency for Jersey is Sterling Pound(GBP).

Payment involving two corresponding banks If USD were to be sent to a country where it wasn’t the prime currency e.g USD transfer between HDFC bank and ICICI bank in India ICICI, India

JPMC, NY

CHIPS

HDFC, India

HSBC, NY

Fed Reserve

Another Cross Border Payment Case Mr. John Smith, a Diamond Trader in New Delhi holds an INRA/c with HSBC, New Delhi and he wants to make a payment of INR50,000,000 to his business partner Mr. Marc in London. Mr. Marc holds an account with Bank of Tokyo, London and asks for the money in USD and with the condition that he wont bear the transaction charges. Assumption: 1 USD = INR 50

Payment to Mr. Marc MT 101 BOTK US NY

MT 202

UK BOTK GB 2L MT 202

MT 202 Federal Reserve NY

BOTK JP PY

CHIPS MT 101

Japan HSBC US NY USA

India MT 202

HSBC IN ND

Bank Charges