Unblocking Indian trade

Trade finance, technology

Unblocking Indian trade

March 2020

When banks support Indian importers and exporters, central bank regulation specifies various documentary procedures. These can inadvertently delay the movement of the goods in and out of the country, despite digitalisation efforts so far. flow reports on an award-winning solution

In recent years, the Indian government has been increasingly focused on developing digital initiatives and improving the ease of doing business in India in order to raise the country’s standing worldwide. Digitalisation will also be key to the country achieving its US$5trn GDP by 2024 target and contributing to help reduce an estimated global US$1.5trn trade finance gap. At the centre of all this is the digitalisation of import-export documentation verification – a necessary and complex obstacle.

 

A paper-heavy process

Compared with other leading Asian economies, India embraced its digital revolution at a relatively late stage, the government only making major pushes for digitalisation in the past decade. This is no different for trade finance, where banks’ processes for handling transactions have traditionally been paper-intensive in nature and a highly regulated area under the Reserve Bank of India (RBI) guidelines and the 1999 Foreign Exchange Management Act.

Even if the trade transaction takes place on open account, the importer or exporter still must go to the bank to submit the necessary documents and ensure regulatory compliance. Meanwhile, banks acting both as an enabler and a gatekeeper, are required to ensure the veracity of these documents and then submit them to the RBI. In paper format, this verification can take up to 15 days. It became clear that a digital alternative could help expedite the entire process, though the question of how to develop such a solution remained.

“Because of these burdensome requirements, unique to the country’s regulatory framework, we saw the need to develop an appropriate solution to simplify and streamline processes for both the clients and the bank,” says Bhuvaneshwari Karthik, India Trade Product Head at Deutsche Bank.

Umgang Argwal

Umang Agarwal

Trade Finance and Lending Product Manager
Clarissa Dann

Bhuvaneshwari (Veena) Karthik

India Trade Product Head

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In an effort to improve connectivity for banks, the RBI developed the Export Data Processing and Monitoring System (EDPMS). Launched in 2014 it streamlines the flow of export data, capturing information relating to shipping bills issued by customs and enabling banks to report realisation and settlement of these shipping bills against inward remittance received by their clients. This, in turn, enhances the tracking and monitoring mechanism of cross-border trade and reduces the associated paper flow.

On the import side, meanwhile, the RBI also launched the Internal Data Processing and Monitoring System (IDPMS) in October 2016, designed to facilitate data processing for the settlement and effective monitoring of import transactions. Combined, the two systems expedite and digitise the verification of exports and imports.

Under the system, the banks download the shipping bills or softex forms issued by export agencies such as customs, special economic zones (SEZs) and Software Technology Parks of India (STPIs) for export from India and Bill of Entry issued by ports for Imports into India. This data is then matched with the data on inward remittance of export proceeds from the exporting company and allows the banks to track the status of each consignment exported with all instruments and also enables exporters to claim benefits faster. An equivalent process is in place for importers to allow only legitimate outward remittances from India. While cited as an example of improved foreign trade operations done by India and a contributor to the country’s improved score in the World Bank’s Ease of Doing Business index (India rose 14 places to 63rd out of 190 nations in the 2020 index), it puts responsibility on the banks – importers and exporters do not have access to the system.

 

Caution list issues

Another problem was that the export data would not always be up to date. The RBI has warned banks that those exporters and importers whose data is not captured on the system with any shipping bill open against them for more than two years will be put on a “Caution List”, denying them packing credit (so incurring more delays) and making it impossible to negotiate instruments that are not supported by letters of credit. In all the operational inefficiencies inadvertently created have led to delays in getting banking documentation through, leading to demurrage costs. The problem has been compounded by data inaccuracies resulting in erroneous caution listing, leading to more delays.

A solution that allows information to be submitted in a digital format by the bank and its clients on the same platform, in order to streamline the whole transaction process, was called for – especially in a climate where corporate treasurers and finance directors are turning to their banks for solutions that future proof their businesses.

“Deutsche Bank handles approximately 200,000 such transactions annually, each requiring five to 10 pages of documentation,” says Umang Agarwal, Trade Finance and Lending Product Manager, Deutsche Bank. “Given our market position in India, servicing the amount and types of clients that we do, we stepped in quite early to develop our own solution – TradePay – to the benefit of all parties involved.”

 

We saw the need to develop an appropriate solution to simplify and streamline processes

Bhuvaneshwari Karthik, India Trade Product Head at Deutsche Bank

End-to-end solution

If a shipping bill against a company remains open for more than two years on the EDPMS system…the company runs the risk of being caution listed
Umang Agarwal, Trade Finance and Lending Product Manager, Deutsche Bank

Deutsche Bank launched TradePay in 2017 as the first paperless solution for handling open account import and export flows in India, which was recognised with the BankTech Award at the BFSI Summit and Awards in February 2020. TradePay uses IDPMS and EDPMS to verify payments using client data available on the system, eliminating the need for the client to share physical documentation. Having all necessary information and communication available in one platform – no communication outside the system is required once uploaded to TradePay – helps speed up the verification and validation process significantly.

The data is enriched by the client for regulatory requirements, validated by Deutsche Bank and converted to a payment-ready state whereby clients can book foreign exchange (FX) contracts directly through the system. The payment authorisation can then be done directly via TradePay or through the importer’s Enterprise Resource Planning (ERP) system. Clients can also use other Deutsche Bank products such as Autobahn and FX4Cash for their FX rates in conjunction with TradePay.

 “Everything moves forward so quickly nowadays, it is much easier for clients to be able to add and scan documents, monitor regulatory data and provide authorised instructions for further processing on one consolidated platform,” explains Karthik.

The visibility provided to exporters and importers through the use of TradePay also provides an early warning to clients should they be at risk of being caution listed for not making the necessary efforts to realise the export or import agreement.

“If a shipping bill against a company remains open for more than two years on the EDPMS system, and without any extension granted from the bank or the RBI, the company runs the risk of being caution listed,” says Agarwal. “This means they would be unable to trade in the absence of a guarantee such as a letter of credit. TradePay provides additional visibility to exporters and importers to avoid such scenarios from arising.”

 

Rolling on out

The TradePay journey from idea to implementation started in 2016, a year before its launch, with the central focus of offering a flexible approach for each client, which is quite unique in the industry and something clients recognise the solution for. The development differed slightly from import to export, with export regulations distinguishing between goods, services and software – likely a move to discourage or closely monitor intellectual property leaving the country – requiring a versatile and adaptable system and approach.

The digitised workflow solution is today used by some of the country’s main exporters to help reduce complexities and delays in the supply chain, enhance controls and transparency of payments and increase the speed of settlement while concurrently meeting the necessary regulatory requirements. The end-to-end solution was developed in collaboration with multiple technology partners and existing clients, ensuring their needs were fulfilled across implementation, on-boarding and ongoing use of the system.

In addition, the automated single platform has also enabled unprecedented efficiencies across Deutsche Bank’s operations team, significantly reducing the turn-around-time (TAT) for the bank in processing and settling cross-border remittances, all while cutting out manual tasks for the client.

Valuable data analytics are generated by TradePay, and for this reason Deutsche Bank has added a dedicated module for exports handling open account flows, which was developed in three phases with the final phase live in September 2019.

Agarwal and Karthik confirm that the TradePay solution could be rolled out to other jurisdictions with similarly complex regulatory and paper-intensive frameworks, its flexibility allowing adaptation to the differing regulatory requirements and client segments.

Deutsche Bank clients can access TradePay by contacting their relationship manager in India

 

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