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REPORT
ON
CASH MANAGEMENT SYSTEM
&
LETTER OF CREDIT
BY
MOHIT KHURANA
A Report submitted in partial fulfillment of the requirements of the
POST GRADUATE DIPLOMA IN MANAGEMENT
Course PGDM 2009-10
ORGANIZATION
BHUSHAN STEEL LIMITED, SAHIBABAD
(Formerly Bhushan Steel and Strips Limited)
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Submitted To: Submitted By:
CERTIFICATE OF AUTHENTICITY
This is certify that the project work was done on “CASH MANAGEMENT SYSTEM
AND LETTER OF CREDIT and their financial implication’’ submitted to Accman
Institute of Management, Greater Noida is in partial fulfillment the requirement for the
award of Post Graduate diploma in Management, is a bonafide `work carried out by me
at ‘M/S Bhushan Steel Ltd’ at Sahibabad in Uttar Pradesh. I declare that the form
and the content of the above mentioned project are original and have not been submitted
in part or full, for any other degree or diploma of this or any other Organization/ Institute/
University.
Mohit Khurana Date: July, 2010
PGDM 2008-10
Roll NO - 40021
Section- A
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CONTENT
1) Acknowledgment
2) Preface
3) Executive summary
4) Objectives and Scope
5) Methodology
6) An over view of steel sector
i) Production
ii) Demand availability projection
iii) Export
iv) Investment
v) Consumption
vi) Duties and levies on iron & steel
vii) Govt. initiatives
viii) Industrial profitability
7) Profile of the organization
i) Cold rolled steel
ii) Galvanized steel
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iii) Research and development
iv) Strategic alliance
v) Integrating value
8) Activities engaged in…………
9) Clientele
10) SWOT analysis
11) Products
12) Cash management System
i) Cash inflow in CMS
ii) Benefits of CMS
iii) Limitation of CMS
13) Cash management services
14) How does CMS works
15) Banks having CMs accounts
16) Cash management at BSL
17) Introduction of LC
i) Parties to LV
ii) How does it works
iii) Types of credit
18) Companies performance at a glance
19) Bank collection charges and findings
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20) Conclusion
21) Recommendation
22) Bibliography
ACKNOWLEDGEMENT
It gives me immense pleasure to present this project report on cash management carried
out at Bhushan Steel ltd (Sahibabad).In partial fulfillment of post graduate diploma
course. This project is the result of time, efforts and knowledge contributed by various
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member of the organisation. The summer training programme was the great experience
for me as in this I got the opportunity to learn and experience the corporate world.
No work can be carried out without the help and guidance of various persons. I am happy
to take this opportunity to express my gratitude to those who have been helpful to me in
completing this project report. They have been the source of guide and motivation for the
completion of the project.
I would take the opportunity to thank Mr.Pankaj Tewari (HOD, commercial) for
providing me a chance to work as a summer trainee in Bhushan Steel Ltd.
I would like to thank a number of people who have helped to give practical and
theoretical aspect of the organization.
I would like to thank Mr.Rajat Jain (Deputy HOD) for giving his valuable time.
I would like to thank our project guide Mr.Vineet Nandewar and Mr. Harish Tiwari
without whom this project would not be possible.
I sincerely thank for the help provided by my institute “Accman Institute of
Management” which provided me necessary materials for completion of this project. I am
also thankful to our sincere mentor in the college to
Prof. S.C.Ghosh (Chief CRIC.)
Prof.S.W.Banerjee (Finance Professor)
Finally I am thankful to other members of my Organization and friends who supported
me a lot and without their help this project would not have been completed.
Finally I would like to thank my parents, friends and all well wishers who encouraged me
to do this research work.
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PREFACE
Summer Training is an essential part of the PGDM programme. It is an exposure to a
corporate environment and helps MBA aspirant to get acquainted with the organization
norms, policies, procedures, regulations. It also gives an insight of actual functioning of
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the organization. The summer training also gives a chance to try and apply the academic
knowledge into business environment.
It was a great experience for me to work with BHUSHAN STEELS during my summer
training and also gave me the better understanding on the subject CASH
MANAGEMENT SYSTEM AND LETTER OF CREDIT.
EXECUTIVE SUMMARY
Cash is your business life blood .Managed well company remains healthy and strong.
Managed poorly company goes into cardiac arrest. Cash movement in a business is tow
way traffic it keeps on moving in and out of business inflow and outflow of cash never
coincides. Important aspect which is unique to cash management is time dimension
associated with the movement of cash. Due to the non synchronicity of cash inflow and
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outflow, the inflow may be more than the outflow or outflow may be more than the
inflow at the particular point of time .This needs regulation .Left to itself cash flow is apt
to follow monsoonic pattern, and showers off cash may be heavy, Scanty or just
normal .Hence, there is the dire need to control its movement through skillful cash
management .The primary aim of cash management is to ensure that there should be
enough cash availability when the needs arises ,not too much, but never too little
Bhushan Steel Limited which had been established in 1988 is managed by Shri Brij
Bhushan Singhal who is the chairman of the Board of the Directors. It is an ISO 9002
and QS 9000 certified company having the total Revenue reached to 5410 and recording
the growth of 16%; exports sales grew by 16% to reach Rs 1463 crores profit after tax
recorded better than industry growth to reach Rs 421 crores for the financial year 2008-09
and the turnover from the Sahibabad plant is approx rupees 1500 crores in the financial
year 2007-08. At present the Company is retaining a leading market position in Cold
Rolled & Galvanized Steel. The company has Strategic Alliance with Sumitomo Metal
Industries of Japan which is one of the largest Steel producers Industry of the world and
this will give the definite edge over competitors.
Bhushan Steel defied the trend of shrinking top lines and bottom lines widely witnessed
across companies and countries during FY 09 .It pursued its expansion agenda for all 365
days of the year, with a single minded focus to further the ongoing phase II of the project
well on time .Pondered over the emerging economic challenge; made slight adjustments
towards its phase III plans moved onto create stakeholders value.
Integration has been pursued as a topmost priority on Bhushan steel agenda during the
last five years .The same integration proved to be the greatest enabler for Bhushan Steel,
when tough time unfolded in for the FY 09 .Bhushan Steel prides itself for the strategic
acumen it has displayed over years and happily attributes its spirited performance to
integration.
Bhushan Steel has been honored with the Trading House Status in the very first
year of an export, operations in 1999 by Ministry of Commerce, Government of
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India. Iron and Steel Industries are being included in the list of industries which are
being reserved for public sector & exempted from licensing W.E.F on May 24, 1992.
As Company is using the Cash Management System and Letter of Credit for their
transactions. Basically Cash Management is a policy which controls and manages the
cash inflow and outflow of a firm. Bhushan Steel Limited has been using Cash
Management Policies Strictly under C.F.O. of the Company who is fully responsible and
is to be authorized. Company is availing modern techniques of Cash Management System
provided by Corporation, UTI, HDFC, ICICI, HSBC Bank as well as various foreign
banks. As Letter of Credit is being used by the company as a Security so that transactions
which are done in crores would be safe. In this Bank gives security or becomes guarantor.
The main Objective of our study is to meet cash disbursement as per the payment
schedule and minimize the amount which is being locked up as cash balance. To achieve
the main Objective, the company has to make cash planning and cash budget to hold
adequate cash balance. This will control Cash Receipt and Cash Payments, cash flow
statement is prepared as one of the tool.
Research Methodology which is the backbone of any project .It helps us in Collection
and analysis of data in preparing the project. So primary and secondary data collection
methods are used for the purpose of the project for the Cash Management System. Data’s
are collected from P&L account; Balance Sheet and Cash Flow Statement of the
company and information about practical
Working of the transactions between company and bank are taken from DGM (finance)
& company staff. As in the technique of analysis P&L A/C, Balance Sheet and Cash
Flow Statement, & Bank collection charge are prepared
OBJECTIVES AND SCOPE OF RESARCH
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The Objective was to gather information about the collection charges charged by
different banks at different location for the given period and find out which bank provides
better services at minimum cost.
The scope of the research is spread over the comparison of the collection charges under
the cash management system availed by Bhushan steel limited through the bank which
are mentioned in the report.
Bhushan Steel ltd. has saved huge amount of cost incurred in the form of bank interest
and charges as well as problem of idle funds after adopting CMS (Cash Management
System). As it helps in reducing the collection period from 1 to 2 days instead of
previously having 4 to 5 days making the payment period shorter as well as collection
method better and accurate.
The main aim of CMS (Cash Management System) is to meet the payment schedule in
other words company should have sufficient amount of cash to meet the various need of
the company on time .The company have various requirement such as its working capital,
assets purchased payments, wages , tax etc.
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RESEARCH METHODOLOGY
Research is the systematic process of collecting and analyzing information in order to
increase our understanding of the phenomenon about which we are concerned and
interested in simple words it is the purposeful investigation.
Methodology is the bone of a project. It has also an important place as regards to
cash management system project. For this purpose I became in close contact
with sources of data collection by personally & through Internet.
The Methodology contains the following things:-
Methods of Data Collection :- For the project report, methods of data collection
also has an important role in connection with accuracy & exact information.
Primary Data : Throughout the preparation of the project report, I was in the
contact of DGM(Finance) as well as GM Finance to get the information in
connection with the practical working of transaction of the company with its
customers , suppliers & banks so I have my clear view on the topic so as to know how
much of the fund is needed by the company to meet its day to day transactions or in other
words we can say that how much of the working capital is needed .
Secondary Data: I have also collected the information, figures & data in
connection with the preparation of project report from Balance-sheet & annual
report of Bhushan Steel Ltd 2008-09 as well as the from the various bank statement of
past 2 months such as Corporation Bank ,HDFC Bank ,Axis Bank we can know what are
the collection charges and in how much fund is available to the company.
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Sources of Data :- Sources of collection of data for a project report has a very
important role. So, the sources must be very reliable and accurate. For this purpose, I
did my best efforts to get proper & correct information to the best of my
knowledge.
I have taken the figures, information & data in connection with Profit & Loss A/c,
Balance Sheet, Cash Flow Statement from the annual report of the company &
through website of the company which are most important for cash management
system.
With the help of Internet, I have got the information, data & figures about the
steel industry, beginning of steel industry in India, Recent Developments of steel
industry, history of the steel industry, global & Indian scenario of the steel industry.
I have collected the information from the website of HSBC, Corporation & Axis
Banks, HDFC regarding services provided by the banks to the company in
connection with day to day transactions like payment & receivable etc.
I have collected the data, information & figures from the printed annual report of
Bhushan Steel Ltd. (BSL) for the purpose of preparing of charts of Gross Sales,
Net Profit, Exports, EPS, Cash Accruals etc.
Bank Statements as well as the internal reports prepared by the financial department’s
officials.
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AN OVERVIEW OF STEEL SECTOR ( INDIA)
After liberalization, we have produced in surplus quantity of iron and steel material in the
country which is suitable enough to meet our as well as to export it to another countries
around the world.
Apparent consumption of finished (carbon) steel increased from 14.84 Million Tonnes in
1991-92 to 43.471 million tonnes (Provisional) in 2006-07.
Efforts are being made to boost demand through various governments scheme.
China has been an important export destination for Indian steel. The steel industry is
buoyant due to strong growth in demand particularly by the demand for steel in China.
Production
Steel industry was delicensed and decontrolled in 1991 & 1992 respectively.
Today, India is the 5th largest crude steel producer of steel in the world.
In 2007-08(Apri-May''07), production of Finished (Carbon) Steel was 8.250 million
tonnes (Prov).
Production of Pig Iron in 2007-08(April-May'07) was 0.803 Million Tonnes (Prov).
The share of Main Producers (i.e. SAIL, RINL and TSL) and secondary producers in the
total production of Finished (Carbon) steel was 33% and 67% respectively during the
period 2007-08 (April, 2007).
Demand - Availability Projection
Demand –Availability of iron and steel in the country is projected by Ministry of Steel
annually.
Gaps in availability are mostly met through imports.
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Interface with consumer by a way of steel consumer council exist, which is conducted on
regular basis.
Interface helps in redressing availability problems, complaints related to quality.
After significant production cut by many steel companies in the Oct-Dec 2008 a trend to
revert to normal output from Jan 2009 onwards has been following a surge in demand.
The demand for long steel production (Roads, Bars, Structural’s) which accounts for the
remaining half, is expected to increase during 2009-10.This could mainly on account of
the stimulus package announced by the government with its emphasis on infrastructure
spending.
Pricing & Distribution
Price regulation of iron & steel was abolished on 16.1.1992.
Distribution controls on iron & steel removed except 5 priority sectors, viz. Defense,
Railways, Small Scale Industries Corporations, Exporters of Engineering Goods and
North Eastern Region.
Allocation to priority sectors is made by Ministry of Steel.
Price increases of late have taken place mostly in long products than flat products.
While steel demand has witnessed signs of recovery since the beginning of the calendar
year 2009, distress sale by companies (de-stocking) has put pressure on prices.
As a part of third stimulus package announced in February 2009, the government has
reduced excises duty on steel products from 10% to 8% .With the steel industry intending
to pass on excise benefit to the end user ,steel items are said to become cheaper by Rs
600/700per tonne
Exports
Out of India’s annual iron ore production of more than 200 MT, about 50 per cent is
exported.
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Iron ore exports increased 17 per cent to 12.6 MT in February 2009 from 10.8 MT in the
same month a year ago, owing to a moderate revival in demand from Chinese steel
producers, as per the latest data compiled by a group of top Indian mining firms.
Earlier, according to a study, with the rise in demand for steel in China, India’s iron ore
exports went up by 38 per cent to reach 13.6 MT in December 2008 against 9.8 MT in
December 2007. Around 50-60 per cent of India’s iron ore is exported to China.
India’s exports during April-December 2008 were 64.4 MT. The government has reduced
export duty on iron ore lumps from 15 per cent to 5 per cent, which has given a further
fillip to exports.
Investments
A host of steel companies have lined up major investment proposals. Furthermore, with
an expanding consumer market, the Indian steel industry is likely to receive huge
domestic and foreign investments.
According to the Investment Commission of India investments of over US$ 30 billion in
steel are in the pipeline over the next 5 years.
Japan's Sumitomo Metal Industries is planning to build a blast furnace steel plant in India
with mid-tier producer Bhushan Steel, investing as much as US$ 3 billion.
Arcelor-Mittal, the largest steel maker of the world, is planning to set up a captive port
near Paradip in Orissa. The port will be used to serve two mega integrated steel plants of
the company proposed in Orissa and Jharkhand.
Consumption
India is the fifth-largest consumer of steel in the world. It consumes about 1.5 MT of
stainless steel a year with around 70 per cent accounting for kitchenware. However, its
use in railway coaches, wagons, airports, hotels and retail stores is growing immensely.
Demand for steel in India is likely to grow at around 12 per cent against the global
average of 5–6 per cent. Steel consumption grew at 3.8 per cent in the January-March
quarter of 2008-09 over the same period last year.
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A Credit Suisse Group study states that India's steel consumption will continue to grow
by 16 per cent annually till 2012, fuelled by demand for construction projects worth US$
1 trillion. The scope for raising the total consumption of steel is huge, given that per
capita steel consumption is only 35 kg – compared to 150 kg across the world and 250 kg
in China.
Duties & Levies on Iron & Steel
Customs Duty
Peak rate for non-agricultural products reduced from 15 % to 12.5
Customs Duty on stainless steel and other alloy steel has been reduced from 10% to 7.5
%.
Duty on non- alloy steel remains unchanged at 5%.
o Duty for Ferro alloys reduced from 10% to 7.5%.
o Customs Duty on primary and secondary forms of non-ferrous metals viz. Zinc has been
reduced from 10% to 7.5%.
o Duty on steel melting scrap has been raised to 5%.
Government Initiatives
Excise duty was reduced from 14% to 10% in December 2008.This has been further
reduced to 8% in Feb. 2009.
Custom Duty rate on all Ferro Alloys has been restored to 5% from 0%.
Custom Duty rate on TMT bars and structural’s has been restored to 10 to 0%.
5% custom duty has been levied on Pig iron, Semi finished product and long products.
HR coils have been brought under “under restricted” category for imports.
Export Duty of 8% on iron ore fines has been withdrawn while the rate of export duty on
iron ore lumps and pellets has been reduced from 15% to 5% at advalorem. Reduced
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Export duty will bring down export cost of pellet further it would lead to increase in sale
quantity.
Industrial Profitability
During the first 9 months of 2008-09, the steel industry witnessed a significant decline in
operating performance .The aggregate operating margin fell by 28% during April –
December 2008 as against 34% during the previous period.Net margin followed this
trend, falling from 18% to 12%.
The players with captive iron ore recorded an operating margin decline of 380 basis
point(bps) where as players without captive raw materials recorded a decline of more
than 600 basis point(bps) in operating margin .Domestic steel producers are expected to
control the cost of production by increasing operational efficiency in this environment of
falling demand.
Some company had renegotiated their existing raw material contacts, which has resulted
in better margin over third quarter.
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PROFILE OF THE ORGANISATION
Vision
“The vision of evolving into a totally Integrated Steel Producer by committing to achieve the
highest standards of Quality through Cutting-Edge Technology.” If you can anchor your
organization with a single-mindedness of purpose, for providing-the best service, technology and
quality to customers and stakeholders, then you can deliver higher value for money within
schedule and budget, and continue to thrive even in the face of rapid change and other challenges
besotting the Indian economy and especially the steel industry.
This is, precisely, what BSL has been doing since its inception: Acquiring the latest technology
sourced from the global leaders and maintaining global quality standards; continually upgrading
the steel plants and efficiently implementing projects within schedule and budget always meeting
financial obligations on time and yes, these are the hallmarks of BSL's Saga of Excellence.
About culture: - “To make it a place where all the people can thrive living, learning and
working in a clean, safe and healthy environment.”
About values: - “To corporate values as “The rules or guidelines by which a corporation exhorts
its members to behave consistently with its order, security and growth.”
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About people: - “See the good in people and try to develop those qualities” i.e. preparation and
grooming of next generation of the young thinkers.
About customers: - “Sell good merchandise at reasonable price; treat our customer like we
would treat our friends and the business would take care of itself. Bhushan steel endeavor is to
attain the highest level of customer satisfaction.”
About products: - “We should always be the pioneers with our products-out front leading the
market.”
Mission
“Our mission is to grow our company by providing innovative strong and
high performance products and solutions to meet our global customer needs.”
Bhushan Steel Commitments
To improve the quality of our products and complete integration of various stages of production.
To be conscious towards quality and pricing of our products. We strive by continuous research
and development to make our products world class, having distinct identity and uniqueness. Our
customers get best value for their money.
To run the company profitably year after year.
A workforce motivated, skilled and well looked after.
A workplace safe, secure and hygienic.
To make our Environment Clean, Healthy and Hospitable.
Strategies
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Integrated Quality, Environment, Occupational Health & Safety Management System
Policy.
Bhushan Steel Ltd. commits to produce cold rolled and galvanized steel sheets of world class
quality in a safe, healthy and clean environment by involving employees with continual
improvements in system implementation, technological advancement, operational integration,
prevention of pollution & hazards maintaining.
Recognitions
Bhushan Steel is leading the technological revolution in Indian Cold Rolled Steel
Industry today and defining new frontier of customer satisfaction. Be it through
technology and product upgrades, R&D efforts or stringent quality control measures,
company is consistent in its pursuit of value.
Bhushan Steel has earned a Quality Standards by getting many Certifications.
D&B D-U-N-S NUMBER 65-008-1524 OHSAS 18001:2007
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ISO 14001:2004 Trade Finance Certificate 2004
The Bhushan group took over a casting unit in Ghaziabad in 1987 and renamed it Bhushan Steels
& Strips Limited (BSSL). It was the vision of the founder; Brij Bhushan Singhal, that
the first stake was driven into the soil of Sahibabad (Uttar Pradesh).The company`s
principal activity is to produce cold rolled, galvanized and special steel and strips. It also
produces angles and wire rods. It caters to the automobile & white good sector.
The company`s plants are located at Sahibabad (Uttar Pradesh), Khopoli (Maharashtra) and
Meramandali (Orissa). It is India`s only CR steel plant with a line to manufacture CR coils &
sheets up to a width of 1,700 mm, as well as galvanized steel coils & sheets up to width of 1,350
mm. The company currently has a capacity to produce 0.6 million mt per annum of cold rolled
steel at Sahibabad works and 0.4 million mt/annum of cold rolled steel at Khopoli works.
Bhushan Steel Limited, is an ISO 9002, QS 9000 certified and a company of Rs. 2868 crores
($650 million approx.). As one of the prime movers of the Technological Revolution in the
Indian Cold Rolled Steel Industry, BSL has emerged as the country’s largest and the only CR
steel plant with an independent line for manufacturing Cold Rolled coils and sheets up to a width
of 1700 mm, as well as Galvanized Steel Coils & Sheets up to width of 1350mm. The Company
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currently has capacity to produce ALMOST ONE MILLION MT/Annum of Cold Rolled
Steel at Sahibabad and Khopoli Works. The Company is a “single-point source” for a wide
variety of products such as CRCA, Galvanized and Color coated sheets, High tensile steel
trapping, hardened and tempered steel strips (HTSS) and Precision tubes.
BSL is currently exporting to Europe, USA, Canada, Africa, China and the Middle East,
in addition to the Asian markets. And, is eagerly looking ahead, steadily defining the future of
steel day by day.
THE KEY DIFFERENTIATOR
India’s largest and the only Cold Rolled Steel Plan.
It manufactures:
a) Cold rolled coil and sheet (1700mm)
b) Galvanized Coil and Sheet (1350)
3rd largest Secondary Steel Producer Company.
Approved by ISO 9002 and QS 9000.
1.5 Million TPA Greenfield Steel and Power Plant in Orissa.
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More than 35 sales offices.
GROUP OF COMPANIES
(I) Bhushan Steel ltd :-
The company is “centralized source” for wide variety of products such as Cold Rolled
Closed Annealed, Galvanized Coil and Sheet, High Tensile Steel Strapping, Corrugated
Sheets, Galume Sheets and Coils, Hardened & Tempered Steel Strips , Billets, Sponge
Iron and Precision Tubes. Manufactured in its various plants. BSL has the distinction of
being the only producer In India of the widest width CR Sheet, besides being a preferred
supplier of automotive grade steel sheets for inner and outer panels to all leading 4-
wheeler and 2-wheeler manufacturers in the country.
The company has three manufacturing units:
• Uttar Pradesh (Sahibabad unit)
• Maharashtra (Khopoli unit)
• Orissa (Meramandali unit)
Sahibabad Plant:
The Sahibabad plant was commissioned in 1987, giving a tremendous volume thrust to
the production capacity of Bhushan Steel Ltd. With a production of 4, 75,000 MT per
annum. The plant compromises the products such as Cold Rolled Coil, Cold Rolled
Sheet, Corrugated Sheet, and Galvanized Coil And Sheet. Bhushan Steel Ltd. has
recently successfully implemented SAP system at its Sahibabad works along with its
sales outlets with the help of Siemens Information Systems ltd. (SISL) in first phase.
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Finished Product List of Sahibabad Plant
1. Cold Rolled Coil
2. Cold Rolled Sheet
3. Galvanized Plane Coil
4. Galvanized Plane Sheet
5. Galvanized Corrugated Sheet
Khopoli Plant:
The Khopoli plant, commissioned in 2004 has been playing a remarkable role not only in
the growth of exports, but in the production of a much wider variety of value added steel
like Cold Rolled Coil And Sheet, Corrugated Sheet, Galvanized Coil And Sheet,
Hardened And Tempered Coil, Precision Tubes, High Tensile Steel Strapping, Color
Coated Sheet, Galume Coil & Galume Sheet. The production capacity of the Khopoli
plant is 4, 25,000 MT per annum.
Products at Khopoli:
• Galvanized sheet
• Hardened & Tempered Strips
• Color Coated Sheets
• High Tensile Steel Strapping
• Alloy Steel/Wire Rods
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Meramandali Plant:
BSL is currently implementing a backward integration project to set up an integrated
steel plant of 2.3 MTPA capacities at Meramandali, district Dhenkanal, Orissa to
manufacture Hot Rolled (HR) coils (which is the key raw material for its existing
operations) / billets, so as to guard against future increase in prices / possible shortages of
HR coils for its cold rolling facilities. The steel plant is being implemented through
Direct Reduced Iron (DRI) – Blast Furnace (BF) – Electric Arc Furnace (EAF). The steel
plant will have the capacity to manufacture 2.0 MTPA of HR coils and 0.3 MTPA of
billets and power generation capacity of 110 MW. The plant has introduced the new
products – Billets And Sponge Iron.
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(II) Bhushan Energy Ltd:-
Bhushan Energy Limited (BEL) has been promoted by M/s Bhushan Steel Ltd., with the
main focus on power Business.
The BEL is setting up 300 MW power plants with the estimated capital outlay of Rs.
1018 crores.
The BEL Project site is located at Meramandali, Dhenkanal district of Orissa, about 18
km from Angul, about 42 km from Dhenkanal, about 100 km North West of Cuttack and
125 km from Bhubaneswar. The South Eastern Railway's line connecting Angul and
Cuttack railway station and the National Highway NH-42 are passing on the north of the
site. The plant is proposed to be connected from Meramandali railway station, which is at
a distance of 4 km from the site. The river Brahmani flows from north-west to south-east
on the northern side of the site at a distance of about 6 km. Paradip port is located at
distances of 180 km.
Our Enviable Clientele
AUTOMOBILE SECTOR
Maruti Suzuki
Tata Motors
Mahindra & Mahindra
Ashok Leyland
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Neel Metal Products
Ford
General Motors
Bajaj Auto
Hyundai
Fiat
Hindustan Motors
Honda
Veegee Industrial Enterprise
Yamaha
DURABLE GOOD SECTOR
LG
Godrej & Boyce
Electrolux
Whirlpool
Videocon
Samsung
BPL
Daikin Refrigeration
Voltas
IFB
Birla Aircon
S.W.O.T Analysis of Bhushan Steel
STRENGTHS:
BSL has earned recognition in the form of ISO 9002 and QS 9000 certification. It has
also achieved the rare distinction of being appointed Global Resource Centre for Ford,
General Motors and Honda. Its steel plant was the first Cold Rolling plant recommended
for QS 9000-1998 edition conducted by DET NORSKE VERITAS, Netherlands.
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Presently, to further its commitment to quality BSL is upgrading its quality system by
obtaining TS 16949-2002 Certification from DET NORSKE VERITAS, Netherlands.
This makes the products of the company acceptable internationally.
Bhushan Steel Ltd. Is one of the major companies in Secondary sector in India. The
original equipment manufacturers share in the total sale is more than 60% and the major
customers are automobile majors like Maruti, Ford, General Motors, Bajaj Auto,
Hyundai, Fiat (Polio), Hindustan Motors, TELCO, Honda SIEL car, Mahindra and
Mahindra, Ashok Leyland and the leading white goods manufactures like LG, BPL,
Godrej, Electrolux, Whirlpool, Videocon, Samsung. Apart from them BHEL is also one
of the major customers of BSL. Thus the customer base is not only huge but is
diversified as well.
The Company has a good debt servicing track record and has been making Profit since
inception. The company also enjoys the trust of its share holders.
The company has diversified its product range in line with the global demand e.g. it has
added a product Color coated sheets have been recognized in the European Countries and
almost all of the production is being exported. The company has successfully penetrated
into Spain, Portugal, Philippines, South Korea, Australia, New Zealand, Mexico, and
Chili etc.
BSL is heading towards a backward integration in order to become self-reliant and to
have control on raw material in terms of pricing and availability of right quality. This
would make the company a major player in the industry and increase its profitability
substantially as it would no longer be subject to the vagaries if HR availability and price
hikes ( The company is currently into Cold rolling and HR coil is the basic raw material
that the company either imports or purchase from the domestic market)
The Fitch Rating India Pvt, Ltd has reassigned short term rating of F1+ for Rs 100 Crs
Commercial Paper Program of the company. This makes the short-term borrowings easy
for the company from the market at much cheaper rates.
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WEAKNESS:
The major raw material for the company is HR coil, which it has to procure from either
domestic or international market, and thus is subject to price fluctuations. It thus becomes
difficult to make cost estimates.
The purchases made by the company are in cash whereas the sales are in cash and credit
both this makes the working capital requirement of the company very high.
The competitors of BSL are major players; though its products are competitive still the
company has not been able to capture the market convincingly despite the stringent
quality control.
The company has a conservative approach towards hedging exchange rate risks, which at
times lead to loss of revenue.
OPPORTUNITIES:
The company has exposed itself to Automobile and white goods segment there is still
scope for the company to increase its customer base.
The demand for steel is growing due to infrastructure development and rapid
globalization. So the company can take the advantage of these factors.
THREATS:
The threats to the company are the rising input costs in the industry the raw materials as
coking coal, non ferrous materials, scrap steel, Iron ore have seen an increasing trend and
are further expected to rise.
China is world’s largest steel producer. A slowdown in the Chinese economy would have
an adverse effect on the global steel industry.
All the major steel companies in India have gone for a capacity expansion plan which
would pose a serious threat to small players like BSL.
PRODUCTS
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TOR STEEL STEEL BILLETS GI PIPES GP CORRUGATED
SHEETS
ALLOY STEEL CR COILS NARROW CR COILS CR SHEETS
ROUNDS
GP COILS / SHEETS PRECISION TUBES CABLE TAPES BLACK PIPE
(ERW and CEW)
WIRE RODS POWER
CASH MANAGEMENT SYSTEM
The Cash Management System manages the transfer of funds between your cash
accounts, cash management investment accounts, asset based revolving line of credit
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accounts and line of credit account, according to the rules you set up for them. For each
account, you must establish minimum and maximum balances and determine the relative
priority for applying cash to the account, or using cash from the account.
The Cash Management System applies these rules automatically throughout the Plan
Period, using the Other/Miscellaneous cash account as a balancing account. The balance
in the Other/Miscellaneous cash account will be calculated as containing whatever cash is
available after all of the Cash Management System rules have been applied for the other
accounts in the Cash Management System.
Applying Extra Cash to the Cash Management Accounts –Cash is first applied to put
enough cash in each of the Cash Management accounts so that their minimum balance
requirements are met. This will occur even if it leaves the Other/Misc Cash account with
a negative balance.
If additional cash exists after the minimum balance requirements are met for all of the
Cash Management Accounts, then cash is first applied to 'fill up' the Priority 1 account
until it reaches its maximum allowed balance. If additional cash exists, it is next applied
to the Priority 2 account, and so on until all Cash Management accounts have been filled
to their maximum allowed balance, or the Other/Misc Cash account has run out of cash to
apply. If the system runs out of extra cash to apply, the disbursement ends, leaving the
Other/Misc Cash account with a zero balance. If all of the Cash Management accounts
are filled to their maximum allowed balance, or the Other/Misc Cash account has run out
of cash to apply. If the system runs out of extra cash to apply, the disbursement ends,
leaving the Other/Misc Cash account with a zero balance. If all of the Cash Management
accounts are filled to their maximum limits, then all remaining cash will be left in the
Other/Misc. Cash account.
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Using Needed Cash from the Cash Management Accounts - If the other/Misc. Cash account
has a positive balance; cash is first used from it until it is reduced to a zero balance. If more cash
is required, it is then taken from the Priority 1 account, until it is reduced to the minimum
amount, or no more cash is required. Next, cash is used from the Priority 2 account, and so on in
similar fashion, until no more cash is needed or until all Cash Management Accounts have been
reduced to their minimum amounts and more cash is required, then cash is removed from the
Other/Misc. Account even if this results in a negative balance.
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The Cash Management System, located under the Assumptions/ Assumption Tools branch of the
Organization Tree, allows us to view and set the cash management priorities for all of the Cash
Accounts BBB's and Lines of Credit BBB's that is set up in the model.
Cash Inflow in CMS
Realization on
day 1 or day 2 Sales in cash
Collection by
banker locking
period 1-2days
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CASH MANAGEMENT SERVICES
CASH MANAGEMENT SERVICES AT BHUSHAN STEELS AND STRIPS
LIMITED.
BSSL basically deals for this service on the following banks. They are;
1. Allahabad Bank 2. 2.Andhra Bank
3. Axis Bank 4. Bank of Baroda
5. Bank of India 6. Bank of Maharashtra
7. Barclays Bank 8. Calyon Bank
9. Canara Bank 10. Central Bank of India
11. Corporation Bank 12. Deutsche Bank
13. DBS Bank 14. Ebner Bank
15. EXIM Bank 16. Fedral Bank
17. HDFC Bank 18. HSBC Bank
19. ICICI Bank 20. IDBI Bank
21. Indian Overseas Bank 22. Indus Ind Bank
23. ING Bank 24. J & K Bank
25. Karnataka Bank 26. LIC
27. Nord LB, Singapore 28. Natixis
29. Oriental Bank Of Commerce 30. Orissa Syndication
31. Punjab National Bank 32. State Bank of Bikaner and Jaipur
33. State Bank of Hyderabad 34. State Bank of India
35. State Bank of Indore 36. State Bank of Patiala
37. State Bank of Travancore 38. Syndicate Bank
39. The Bank of Tokyo –Mitsubishi UFJ Ltd 40. UCO Bank
41. United Bank 42. Vijaya Bank
43. WEST LB 44. Yes Bank
Cash Management Services Generally offered
Cash Management offers a variety of services to its customers and it’s not necessary that
one must choose all the services offered under Cash Management for its company .Its
completely on the discretion of the company whether to avail all the services or as per the
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requirement .The following is a list of services generally offered by banks and utilized by
larger businesses and corporations.
1. Account Reconcilement Services: Balancing a checkbook can be a difficult process for
a very large business, since it issues so many cheques it can take a lot of human
monitoring to understand which checks have not cleared and therefore what the
company's true balance is. To get around this, banks have developed a system which
allows companies to upload a list of all the checks that they issue on a daily basis, so that
at the end of the month the bank statement will show not only which checks have cleared,
but also which have not. More recently, banks have used this system to prevent checks
from being fraudulently cashed if they are not on the list, a process known as positive
pay.
2. Advanced Web Services: Most banks have an Internet-based system which is more
advanced than the one available to consumers. This enables managers to create and
authorize special internal log on credentials, allowing employees to send wires and access
other cash management features normally not found on the consumer web site.
3. Armored Car Services: Large retailers who collect a great deal of cash may have the
bank pick this cash up via an armored car company, instead of employees depositing the
cash.
4. Automated Clearing House: services are usually offered by the cash management
division of a bank. The Automated Clearing House is an electronic system used to
transfer funds between banks. Companies use this to pay others, especially employees
(this is how direct deposit works). Certain companies also use it to collect funds from
customers (this is generally how automatic payment plans work).
5. Balance Reporting Services: Corporate clients who actively manage their cash balances
usually subscribe to secure web-based reporting of their account and transaction
information at their lead bank. These sophisticated compilations of banking activity may
include balances in foreign currencies, as well as those at other banks.
6. Cash Concentration Services: Large or national chain retailers often are in areas where
their primary bank does not have branches. Therefore, they open bank accounts at various
local banks in the area. To prevent funds in these accounts from being idle and not
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earning sufficient interest, many of these companies have an agreement set with their
primary bank, whereby their primary bank uses the Automated Clearing House to
electronically "pull" the money from these banks into a single interest-bearing bank
account.
7. Lockbox services: Often companies (such as utilities) which receive a large number of
payments via checks in the mail have the bank set up a post office box for them, open
their mail, and deposit any checks found. This is referred to as a "lockbox" service.
8. Positive Pay: Positive pay is a service whereby the company electronically shares its
check register of all written checks with the bank.
9. Sweep account: are typically offered by the cash management division of a bank. Under
this system, excess funds from a company's bank accounts are automatically moved into
a money market mutual fund overnight, and then moved back the next morning. This
allows them to earn interest overnight.
10. Zero Balance Accounting: Companies with large numbers of stores or locations can
very often be confused if all those stores are depositing into a single bank account.
Traditionally, it would be impossible to know which deposits were from which stores,
without seeking to view images of those deposits. To help this problem, banks developed
a system where each store is given their own bank account, but all the money deposited
into the store account is automatically moved into the company's main bank account.
This allows the company to look at individual statements for each store.
11. Wire Transfer: A wire transfer is an electronic transfer of funds. Bank wire transfers are
often the most expedient method for transferring funds between bank accounts. A bank
wire transfer is a message to the receiving bank requesting them to effect payment in
accordance with the instructions given. The message also includes settlement
instructions. The actual wire transfer itself is virtually instantaneous, requiring no longer
for transmission than a telephone call.
12. Controlled Disbursement: This is another product offered by banks under Cash
Management Services. The bank provides a daily report, typically early in the day, that
provides the amount of disbursements that would be charged to the customer’s account.
This early knowledge of daily funds requirement allows the customer to invest any
surplus in intraday investment opportunities, typically money market. This is different
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from delayed disbursements, where payments are issued through a remote branch of a
bank and customer is able to delay the payment due to increased float time.
HOW DOES CMS WORKS
Banks offering CMS allow the debtors of a corporate to deposit cheque for payment to
the corporate at their place of origin. For example, if BSSL has an account with ICICI
bank at Delhi and debtors at Chennai who wants to send this payment to BSSL through
bank, CMS would allow him to deposit the cheque at ICICI Chennai in the account of
BSSL. ICICI would not charge anything from the depositor and would give the credit of
the cheque amount of BSSL in the evening at the same day. ICICI would charge a very
nominal amount from BSSL, which is charged according to the cheque amount.
Now this means that the cheque that would have taken 3 days to reach us through some
courier and 3 more days to get cleared and involving some real transit costs, now gets
cleared the same day it is deposited and involving nominal charges. At the same time the
DD commission and clearing charges would no longer be deducted from the collectable
amount.
This CMS facility may seem convincing while going through this part of the report, but it
is very useful and efficient as would be seen in the later part of the report.
(Note: For example ICICI bank has been taken)
ADVANTAGES OF CMS:
Saves a huge amount in form of DD commission and clearing charges.
All high value cheque gets cleared and credit is given the same day.
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We desired the desired liquidity in form of cash very quickly. This means there is a
saving of interest on the amount that would have remained blocked under the normal
course of clearing and credit by banks.
Even if the cheque gets dishonored we can use the amount till the banks get to know it.
During this time we can use this money.
When credit is given same day, we have our cash position by evening we can accordingly
plan our investment and expenditures accordingly for coming days.
Limitations of CMS
Collection would have meant collection either through outstation cheque or through
demand draft.
DD’s worth crores of rupees would have brought substantial amount of DD charges to the
company’s P/L account.
Important payment settlement systems adopted by BSL:
RTGS
NEFT
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Real Time Gross Settlement System (RTGS)
RTGS is a large value funds transfer system whereby financial intermediaries can settle
interbank transfers for their own account as well as for their customers. The system
effects final settlement of interbank funds transfers on a continuous, transaction- by-
transaction basis throughout the processing day. The system went ‘live on March 26,
2004.
The acronym “RTGS” stands for Real Time Gross Settlement RTGS system is a funds
transfer mechanism where transfer of money takes place from one bank to another on a
“real time” and on “gross” basis. This is the fastest possible money transfer system
through the banking channel. Settlement in “real time” means payment transaction is not
subjected to any waiting period. The transactions are settled as soon as they are
processed. “Gross settlement” means the transaction is settled on one to one basis without
bunching with any other transaction. Considering that money transfer takes place in the
books of the Reserve Bank of India, the payment is taken as final and irrevocable.
The RTGS system is primarily for large value transactions. The minimum amount to be
remitted through RTGS is Rs.1 lakhs. There is no upper ceiling for RTGS transactions.
RTGS will eliminate settlement risk in the case of interbank and high value transactions.
National Electronic Funds Transfer (NEFT)
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This system is a nationwide funds transfer system to facilitate transfer of funds from any
bank branch to any other bank branch. Through this system the beneficiary gets the credit
on the same Day or the next Day depending on the time of settlement.
How does the NEFT system operate?
Step-1: The remitter fills in the NEFT Application form giving the particulars of the
beneficiary (bank-branch, beneficiary's name, account type and account number) and
authorizes the branch to remit the specified amount to the beneficiary by raising a debit to
the remitter's account. (This can also be done by using net banking services offered by
some.
Step-2: The remitting branches prepares a Structured Financial Messaging Solution
(SFMS) and send it to its service centre for National Electronic Fund Transfer.
Step-3: The Service Centre forwards the same to the local RBI (National Clearing Cell,
Mumbai) to be included for the next available settlement. Presently, NEFT is settled in
six batches at 0930, 1030, 1200, 1300, 1500 and 1600 hours on weekdays and 0930, 1030
and 1200 hours on Saturdays
Step-4: The RBI at the clearing centre sorts the transactions bank-wise and prepares
accounting entries of net debit or credit for passing on to the banks participating in the
system. Thereafter, bank-wise remittance messages are transmitted to banks.
Step-5: The receiving banks process the remittance messages received from RBI and
affect the Credit it to the beneficiaries account.
CASH MANAGEMENT AT BSL
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Bhushan Steels Ltd. has been efficiently and effectively using modern cash management
techniques to maintain cash inflow for its day to day operations. The most important of these
have been the cash management services (CMS) rendered to it by the HDFC, AXIS and
Corporation banks. The company has a huge customer base and is into business with customers
from all over India so it becomes very important for the company to mobilize funds to carry out
its day to operations. Before adopting CMS the company had a locking period of 6-7 days as it
used to realize payment through TPO (Transfer Pay Order). For TPO money collected by banks
over a week from Customers of BSL was transferred every Saturday to the central pool in Delhi.
Such a lock in period is not acceptable to any company specially manufacturing firms as it has a
huge requirement of working capital in addition to that the company sells goods at credit for a
period of 30-60 or 90 days, In this industry there is always a mismatch of funds as the raw
material needed is usually available only on cash payment because of demand and supply
mismatch. Also, the cost incurred by BSL was on a very high side. Cost involved an interest loss
of 6 days along with the service charges of the banker. BSL is availing CC facilities mostly at
Punjab National Bank at 11% p.a. so if there is a huge locking period it had to pay an interest for
using the funds. The other system of collection adopted was payment through drafts. The
customers paid through Drafts the problem with this system of accepting payments has been that
the company had to bear the draft and postage charges to remain competitive in the industry. The
bankers acted as agents of BSL and accepted drafts. The drafts collected over the day were sent
through courier to the Head Office. This not only was expensive but the company was losing the
interest amount for time taken in transit and realization of draft amount. Steel industry these days
is facing a pressure of rising input cost thus in order to maintain the profit margins it becomes all
the more important for the company to cut costs and manage their funds effectively and
efficiently. CMS thus offers an effective solution to manage funds. BSL is availing CMS
provided by ICICI, Corporation banks, HSBC, HDFC and AXIS Bank. The banks collect the
cheque of customers through their various branches spread over different location all over the
country and transfer the funds in the central pool at Delhi. BSL then disburses the cash thus
collected. The company has entered into a contract with the banks for the same and banks
charges it for the same
Introduction of Letter of Credit
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The Letter of Credit is one of the most convenient methods of settling payment in trade.
It provides financial security to the seller of goods up to a certain extent.
Letters of credit became necessary when trade between countries made it impossible to
simply do business by handshake.
A letter of credit is basically a document issued by a bank guaranteeing a client's ability
to pay for goods or services. A bank or finance company issues a letter of credit on behalf
of an importer or buyer, authorizing the exporter or seller to obtain payment within a
specified timeframe once the terms and conditions outlined in the letter of credit are met.
The letter of credit acts like an insurance contract for both the buyer and seller and
practically eliminates the credit risk for both parties, while at the same time reducing
payment delays. A letter of credit provides the exporter or seller with the greatest degree
of safety when extending credit. It is useful when the importer or buyer is not well known
and when exchange restrictions exist or are possible
PARTIES TO LETTER OF CREDIT
From the definition given above it can be deducted that the principal parties to a letter of
credit are:
The applicant
The issuing bank
The beneficiary
The advising bank
Confirming bank
Nominated bank
Reimbursement bank
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Applicant
The applicant is the party who requests and instructs the issuing bank to open a letter of
credit in favor of the beneficiary. The applicant usually is the importer or the buyer of
goods and/or services. The applicant can also be another party acting on behalf of the
importer, such as a confirming house. The confirming house is equivalent to a buying
office, it acts as an intermediary between buyer and seller, and it can be located in a third
country or in the seller’s country.
Beneficiary
The beneficiary is entitled to payment as long as he can provide the documentary
evidence required by the letter of credit. The letter of credit is a distinct and separate
transaction from the contract on which it is based. All parties deal in documents and not
in goods. The issuing bank is not liable for performance of the underlying contract
between the customers and beneficiary. The issuing bank's obligation to the buyer is to
examine all documents to insure that they meet all the terms and conditions of the credit.
Upon requesting demand for payment the beneficiary warrants that all conditions of the
agreement have been complied with. If the beneficiary (seller) conforms to the letter of
credit, the seller must be paid by the bank.
Issuing Bank
The issuing bank's liability to pay and to be reimbursed from its customer becomes
absolute upon the completion of the terms and conditions of the letter of credit. Under the
provisions of the Uniform Customs and Practice for Documentary Credits, the bank is
given a reasonable amount of time after receipt of the documents to honor the draft. The
issuing banks' role is to provide a guarantee to the seller that if compliant documents are
presented, the bank will pay the seller the amount due and to examine the documents, and
only pay if these documents comply with the terms and conditions set out in the letter of
credit. Typically the documents requested will include a commercial invoice, a transport
document such as a bill of lading or airway bill and an insurance document; but there are
many others. Letters of credit deal in documents, not goods.
Advising Bank
An advising bank, usually a foreign correspondent bank of the issuing bank will advise
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the beneficiary. Generally, the beneficiary would want to use a local bank to insure that
the letter of credit is valid. In addition, the advising bank would be responsible for
sending the documents to the issuing bank. The advising bank has no other obligation
under the letter of credit. If the issuing bank does not pay the beneficiary, the advising
bank is not obligated to pay.
Confirming Bank
The correspondent bank may confirm the letter of credit for the beneficiary. At the
request of the issuing bank, the correspondent obligates itself to insure payment under the
letter of credit. The confirming bank would not confirm the credit until it evaluated the
country and bank where the letter of credit originates. The confirming bank is usually the
advising bank.
Nominated bank:
Nominated bank is the bank that is nominated and authorized by the issuing bank to:
Pay if the LC is a payment LC
Incur a deferred payment undertaking
Accept drafts, if the credit stipulates so
Negotiate.
Reimbursement bank:
Reimbursement bank is the bank which is authorized to honor the reimbursement claim
in settlement of negotiation/acceptance/payment lodged with it by the paying, negotiating
or accepting bank. It is normally the bank with which the issuing bank has an account
from which payment is made.
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How Does the Letter of Credit Process Work?
The seller (known in the Letter of Credit as the "Beneficiary") advises the buyer (known
in the Letter of Credit as the "Applicant") that the purchase order is acceptable. The
Beneficiary also sends the Applicant a copy of their "Letter of Credit Guidelines" to
ensure that the credit is opened properly and will not require any costly amendments.
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A Letter of Credit Application is completed by the Applicant and is submitted to their
Bank (aka, the Opening Bank).
The Letter of Credit is issued and sent by the Opening Bank to an Advising Bank in the
country of the Beneficiary. The main role of an advising bank is to check the authenticity
of the Letter of Credit before it is advised to the Beneficiary.
The Advising Bank then sends a copy of the Letter of Credit to the Beneficiary, either
electronically, by fax, or by mail.
The Beneficiary must now carefully review the requirements of the Letter of Credit to
ensure it has been issued per the agreed terms. The Beneficiary should make sure that
they can comply with all stipulations, such as shipping terms, documentary requirements,
shipping and/or expiration dates and packing and marking conditions.
If the Letter of Credit has terms that are not per the agreement, the Beneficiary should
request an amendment to the Letter of Credit. This request is made directly to the
Applicant, who then instructs the Opening Bank to amend the Letter of Credit.
Once the Letter of Credit is in order and the shipment is ready for export, the Beneficiary
ships the goods to the freight forwarder.
The seller (or third party, such as LC Solutions) can now begin preparation of
documentation required under the Letter of Credit terms.
After goods have shipped, the transport document is acquired by the Beneficiary (or LC
Solutions), is checked for accuracy, matched up with other created documentation, and
presented to the Negotiating Bank. (The Negotiating Bank may or may not be the same as
the Advising Bank, depending on the requirements of the Letter of Credit and the wishes
of the Beneficiary.)
The Negotiating Bank checks over the documentation and advises any problems they
may find with the paperwork. They then either issue payment to the Beneficiary, or
forward the documents to the Opening Bank for payment, depending on the terms of the
Letter of Credit.
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RIGHTS AND RESPONSBILITIES OF PARTIES OF LC
The right and responsibilities of every party associated with an LC have been defined in
the UCPDC 500. It is necessary that every party dealing with the LC keep himself
informed about these responsibilities. A brief summary of these rights is as under:
All parties dealing with an LC are dealing with documents and not with goods/services,
or performances to which the documents may relate.
Exporters/beneficiary of LC has a right to receive payment against submission of
prescribed documents under the LC. It is exporter’s duty to ship the goods as per the LC
and submit the documents within the stipulated time for negotiation.
Negotiating bank: once documents under LC is submitted the negotiating bank has to
ascertain that they appear on their face to be an accordance with the terms and conditions
of the credit and if found agreeable, should effect payment as per the LC terms and
dispatch documents to the opening bank as instructed.
Opening bank: Once the documents under the LC are received from the negotiating
bank, it should scrutinize them within 7 days from the date of receipt. If it finds any
discrepancy in the documents, it must convey the same to the negotiating bank through
the fastest mean available.
Advising bank: once LC opening instructions are received from the opening bank, the
advising bank should, if it so desire to act as advising bank, verify the veracity of the LC
and advice the beneficiary about the LC and its terms.
• Confirming bank: at the request of the issuing bank the advising bank chooses to add its
conformity to the LC. It is taken upon itself, the responsibility of paying the beneficiary
against presentation of stipulated documents.
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• Applicant of the LC: the importer is responsible for making payment under the LC,
against release of stipulate documents to the opening bank.
TYPES OF CREDIT
1. Commercial and stand by L/C
Commercial letters of credit are used primarily to facilitate foreign trade. The commercial
letter of credit is the primary payment mechanism for a transaction. It is a contractual
agreement between banks, known as the issuing bank, on behalf of one of its customers,
authorizing another bank, known as the advising or confirming bank, to make payment to
the beneficiary. The issuing bank, on the request of its customer, opens the letter of
credit. The issuing bank makes a commitment to honor drawings made under the credit.
The beneficiary is normally the provider of goods and/or services. Essentially, the issuing
bank replaces the bank's customer as the payee the standby letter of credit serves a
different function. The standby letter of credit serves as a secondary payment mechanism.
The bank will issue the credit on behalf of a customer to provide assurances of his ability
to perform under the terms of a contract. A bank will issue a standby letter of credit on
behalf of a customer to provide assurances of his ability to perform under the terms of a
contract between the beneficiaries. The parties involved with the transaction do not
expect that the letter of credit will ever be drawn upon. The standby letter of credit
assures the beneficiary of the performance of the customer's obligation. The beneficiary
is able to draw under the credit by presenting a draft, copies of invoices, with evidence
that the customer has not performed its obligation. The bank is obligated to make
payment if the documents presented comply with the terms of the letter of credit.
They are issued by banks to stand behind monetary obligations, to insure the refund of
advance payment, to support performance and bid obligations, and to insure the
completion of a sales contract. The credit has an expiration date. The standby letter of
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credit is often used to guarantee performance or to strengthen the credit worthiness of a
customer. In the above example, the letter of credit is issued by the bank and held by the
supplier. The customer is provided open account terms. If payments are made in
accordance with the suppliers' terms, the letter of credit would not be drawn on. The
seller pursues the customer for payment directly. If the customer is unable to pay, the
seller presents a draft and copies of invoices to the bank for payment.
2. Revocable or irrevocable letter of credit
Letters of credit may be either revocable or irrevocable. A revocable letter of credit may
be revoked or modified for any reason, at any time by the issuing bank without
notification. A revocable letter of credit cannot be confirmed. Once the documents have
been presented and meet the terms and conditions in the letter of credit, and the draft is
honored, the letter of credit cannot be revoked. The revocable letter of credit is not a
commonly used instrument. If a letter of credit is revocable it would be referenced on its
face. The irrevocable letter of credit may not be revoked or amended without the
agreement of the issuing bank, the confirming bank, and the beneficiary. An irrevocable
letter of credit from the issuing bank insures the beneficiary that if the required
documents are presented and the terms and conditions are complied with, payment will
be made. If a letter of credit is irrevocable it is referenced on its face.
3) Sight or usance letter of credit
All letters of credit require the beneficiary to present a draft and specified documents in
order to receive payment. A draft is a written order by which the party creating it, orders
another party to pay money to a third party. A draft is also called a bill of exchange.
There are two types of drafts: sight and time. A sight draft is payable as soon as it is
presented for payment. The bank is allowed a reasonable time to review the documents
before making payment. A time draft is not payable until the lapse of a particular time
period stated on the draft. The bank is required to accept the draft as soon as the
documents comply with credit terms. The issuing bank has a reasonable time to examine
those documents. The issuing bank is obligated to accept drafts and pay them at maturity.
Accman Institute of Management, Greater Noida
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A Letter of credit is known as a Sight letter of credit if it involves payment to the seller
against a Sight Draft. On the other hand, if the payment is made against a Usance Draft,
then it is known as Usance letter of credit.
Documents Required
Invoice: a commercial invoice is prima facie evidence of the contract of sale and
purchase. It is the document made by the exporter on the importer indicating details like
description of the goods consigned, consigner’s name, name of the steamer, number and
date of bill of lading, country of origin, term of payment, amount of freight etc.
Bill of lading: a bill of lading is the document issued by the shipping company or its
agent, acknowledging the receipts for good for carriage which are delivered to the
consignee or his assignee in the same condition as they were received.
Insurance documents: in international trade, when goods are in transit they are exposed
to marine perils. Insurance is affected to protect the insured against risk of loss or damage
to goods due to marine perils.
Other documents: a addition to the above mention documents, a L/C may call for
additional documents like bill of change, health certificate, pre shipment inspection
certificate, packing list, shipping companies profile, beneficiaries
declaration/undertaking etc.
Certificate of origin: many countries require a certificate from the supplier of goods
stating the origin of the goods and certified by the Chamber of Commerce or any other
recognized authority in the exporter’s country.
Accman Institute of Management, Greater Noida
54. 54
CASH ACCURALS 108 133 203 317 312 580 688 741
NET WORTH 528 573 664 805 960 1338 2008 2781
GROSS BLOCK 989 1302 1529 2044 3091 4586 7495 10682
EPS 14 15 22 38 38 75 100 99.20
(ALL THE FIGURES ARE IN CRORES)
COMPANY PERFORMANCE AT A GLANCE
FINANCIAL HIGHILIGHT
FINANCIAL HIGHLIGHTS
YEAR ENDED
MARCH 31,2009 MARCH 31,2010
Profit Before Depreciation and Tax 79519.22 75033.91
Depreciation & Amortization 23440.67 21141.06
Profit Before Tax 56078.55 53892.85
Provision for Current Taxation 5315.00 6150.00
MAT Credit Available for set off - (2070.00)
MAT Credit Utilized 3525.00 -
Provision for Deferred Tax 4958.10 7325.13
Provision for FBT 150.00 115.00
Profit After Tax 42130.45 42372.72
Profit brought forward from Previous Year 18405.03 1749.55
Profit available for appropriation 60535.48 44122.27
Which the Directors appropriated as under:
Proposed Dividend 1061.79 1061.79
Accman Institute of Management, Greater Noida
55. 55
Provision for Dividend Tax 180.45 180.45
Transfer to Debenture Redemption Reserve 1975.00 1975.00
Release from Debenture Redemption Reserve - (7500.00)
Transfer to General Reserve 50000.00 30000.00
Balance carried forward to Balance Sheet 7318.24 18405.03
TOTAL 60535.48 44122.27
CASH FLOW STATEMENT OF BHUSHAN STEEL FOR THE YEAR 31ST MAR 2009
Year ended Year ended
31.03.2009 31.03.2008
(A) CASH FLOW FROM
OPERATING ACTIVITIES :
Net Profit before tax and 56078.55 53892.85
extraordinary items
Adjustments for :
Depreciation 23440.67 21141.06
Provisions (Retirement Benefits) 94.87 47.84
Interest & Financial Charges 25212.14 13697.35
Interest/Dividend Income on (261.64) (285.23)
Investments
Interest Income other (1289.96) (1159.08)
Profit on Sale of Investments (14.96) (112.32)
Loss / (Profit) on Sale of Fixed (68.16) (65.91)
Assets
Provision for Doubtful Debts 170.01 105.29
Loss / (Gain) on Exchange Rate 1750.62 49033.59 165.72 33534.72
Change
Operating Profit Before 105112.14 87427.57
Working Capital Changes
Adjustments for :
Increase(-) / Decrease in (10072.58) (37329.17)
Inventories
Increase(-) / Decrease in the Other 56.80 (7932.62)
Accman Institute of Management, Greater Noida
56. 56
Receivables
Increase(-) / Decrease in Loans & (16060.49) (25566.99)
Advances
Increase / Decrease(-) in Trade (20756.57) (46832.84) 33583.66 (37245.12)
Payables
Cash Flow from Operating 58279.30 50182.45
Activities
Less : Direct Tax Paid (Net of (4602.36) (6325.33)
Refund)
Net Cash Flow from Operating 53676.94 43857.12
Activities (A)
(B) CASH FLOW FROM
INVESTING ACTIVITIES :
Purchase of Fixed Assets (177344.90) (241586.13)
Sale of Fixed Assets 322.84 83.59
Purchase of Investments (29928.24) (16240.63)
Sale of Investments 25016.51 12592.32
Interest Income 1318.22 1733.64
Dividend Income 2.54 14.40
Net Cash Used In Investing (180613.03) (243402.81)
Activities (B)
(C) CASH FLOW FROM
FINANCING ACTIVITIES :
Interest & Financial Charges Paid (98194.29) (49543.13)
Proceeds From Cash Credit From (602.88) 7062.08
Banks
Proceeds From Other Borrowings 196205.30 235890.16
Proceeds From Preference Share 40044.00 -
Application Money
Dividend Paid (661.36) (934.06)
Dividend Tax Paid (180.45) (180.45)
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Net Cash Flow From Financing 136610.32 192294.60
Activities (C)
Net Increase in Cash and Cash 9674.23 (7251.09)
Equivalents (A+B+C)
Opening Balances of Cash and 2762.59 10013.68
Cash Equivalents
Closing Balances of Cash and 12436.82 2762.59
Cash Equivalents
BALANCE SHEET FOR THE YEAR 2008-09
SCHEDULE NO AS AT 31.3.2009 AS AT 31.3.2008
SOURCES OF FUNDS:
Shareholders' Funds
Share Capital 1 4247.17 4247.17
Reserves & Surplus 2 199172.73 158284.52
Preference Share 40044.00 -
Accman Institute of Management, Greater Noida
58. 58
Application Money
Loan Funds
Secured Loans 3 513632.22 333311.49
Unsecured loan 4 238502.46
292992.57
806624.79 571813.95
Deferred Tax Liability 24631.99 19673.89
(Net)
(Refer Note No.9 of
Schedule 17)
Total 1074720.68 754019.53
APPLICATION OF
FUNDS:
Fixed Assets 5
Gross Block 328185.93 292708.97
Less: Depreciation 139588.87 116807.22
Net Block 188597.06 175901.75
Capital Work in Progress 740013.28 456797.19
928610.34 632698.94
Investments 6 10772.71 5846.02
Foreign Currency 613.45 -
Monetary Item
Translation Difference
Account
Current Assets, Loans
& Advances
Inventories 7 123035.89 112963.31
Sundry Debtors 8 61982.23 61737.59
Cash & Bank Balances 9 12436.82 2762.59
Loans & Advances 10 76909.96 64374.47
Less :Current
Liabilities & Provisions
Current Liabilities 11 136870.02 124432.08
Provisions 12 2770.70 1931.31
139640.72 126363.39
Total 1074720.68 754019.53
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PROFIT AND LOSS A/C OF BHSUHAN FOR THE YEAR 2008-09
Scheduled 31ST MAR 31ST MAR
year 2009 2008
INCOME
Sales of Products 539531.51 464479.69
Less: Excise Duty 45207.07 494324.44 46744.26 417735.43
Export Incentives 1423.54 2793.75
Other Income 13 1805.57 5196.22
TOTAL INCOME 497553.55 425725.40
EXPENDITURE
Manufacturing & Other 14 392822.19 336994.14
Expenses
Profit Before Interest, 104731.36 88731.26
Depreciation and Tax
Interest & Financial Charges 15 25212.14 13697.35
Profit Before Depreciation 79519.22 75033.91
Depreciation 23440.67 21141.06
Profit Before Tax 56078.55 53892.85
Accman Institute of Management, Greater Noida
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Less: Income Tax
- Current Tax 5315.00 6150.00
- MAT Credit Available for - (2070.00)
Set Off
- MAT Credit Utilized 3525.00 -
- Deferred Tax 4958.10 7325.13
- Fringe Benefits Tax 150.00 13948.10 115.00 11520.13
Profit After Tax 42130.45 42372.72
Profit Brought Forward from 18405.03 1749.55
Previous Year
Profit Available For 60535.48 44122.27
Appropriation
APPROPRIATIONS
Proposed Dividend 1061.79 1061.79
Provision For Dividend Tax 180.45 180.45
Transfer to debenture 1975 1975
redemption reserve
Release from Debenture - 1975.00 (7500.00) (5525.00)
Redemption Reserve
Transferred to General 50000.00 30000.00
Reserve
Balance Carried Forward to 7318.24 18405.03
Balance Sheet
60535.48 44122.27
Basic Earnings Per Share 99.20 99.77
(Rs.)
Diluted Earnings Per Share 99.20 99.77
(Rs.)
Nominal Value of Share 10.00 10.00
(Rs.)
Significant Accounting 16
Policies
Notes on Accounts 17
Accman Institute of Management, Greater Noida
61. 61
BANK COLLECTION CHARGES FINDING
HDFC BANK
HDFC BANK COLLECTION CHARGES FOR THE MONTH OF MARCH-2010
LOCATION COLLECTION RATE COLLECTION CHARGES
GWALIOR 1,30,978 0.00005 6.55
MANDI GOBIND GARH 18,85,325 0.00004 75.41
ALLAHABAD 62,24,235 0.00005 311.21
BANGLORE 4,83,34,694.5 0.00003 1450.04
JAIPUR 2,51,08,593 0.00004 1004.34
CHANDIGARH 37,57,674 0.00004 150.31
INDORE 2,24,65,047 0.00003 673.95
PUNE 20,79,976 0.00004 83.20
LUDHIANA 4,08,77,808 0.00005 2043.89
ALIGARH 1,52,82,113 0.00005 764.11
SRINAGAR 2,04,91,736 0.00005 1024.59
KANPUR 26,43,22,809 0.00004 10572.91
MUZZAFARNAGAR 52,87,931 0.00005 264.40
TIRUPATI 1,02,78,045 0.00005 513.90
MADRAS 9,51,932 0.00002 19.04
HALDWANI 54,20,590 0.00005 271.03
47,28,99,486.5 19228.88
HDHC BANK-CMS CHEQUE RETURN FOR THE MONTH OF MARCH 2010
Location Amount Charge Interest Total
MUZZARFARNAGAR 5,98,042 100 - 100
Accman Institute of Management, Greater Noida
