Date: 10 Oct 2019
Situation:
Our client was contemplating to optimise the firms banking costs and sought services under Assure product programme. They were engaged into imports and exports business and had a sizeable expense under financial cost in the financial statements.
Methodology:
We analysed last six months data including the latest sanction letter, Debit advices of Trade transactions, interest charged on forex conversion, account statements and monthly interest calculations in the Cash credit account.
Observations:
- We found that the entire schedule of charges were not mentioned in the sanction letter and hence the charges towards import and export collections were debited at Bank’s standard rates which were quite high in comparison to industry trends.
- The forex conversion charges varied from transaction to transaction and were well above the bank communicated pricing.
- There were regular charges debited on various occasions like check bouncing due to signature mismatch, Bulk transaction charge, cheque book issuance etc.
- The rate of interest charged was in excess of the contracted price by almost 2% during 4 months of the period covered.
Solution offered:
- The matter was taken up with the Bank and the charges were renegotiated. The Bank shared the schedule of charges and basis which we started reviewing the transactional charges on monthly basis.
- There was levy penal interest to the account due to non-compliance of Bank’s sanction terms. The same were taken up for reversal with the bank and a control sheet was put in place to avoid non-compliance in future.
- The firm allocated two staff with a dedicated email id for smooth correspondence with the Bank.
Key take away:
The Bank are large entities and work on a system based approach (with minimal manual intervention) wrt the debit of charges and penalties. Hence borrowers need to have clarity on the various charges and have internal control mechanisms for monitoring.
