Bank Guarantee to finance the student loan @ HEC

Well this blog has become more of a place for me to scribble, than to practice and improve writing skills šŸ˜¦

Nevertheless, the next September intake is due to arrive at HEC in a few months! I am sure they would have several questions on their mind! So after Satyendra messaged me with one such question, I quickly got onto this post (especially since not many have dealt with this aspect and I had been thinking of writing this for the past three months. Thanks Satyendra for the nudge)

Intended Audience: Candidates from India who want to take a student loan from France.

Others, read on if you find any similarities with the system in your country, else feel free to drop out mid-way.

Disclaimer: I did attempt this thing. Got the guarantee issued from India. But, finally backed as by the time I learnt all the aspects of this, I ran out of steam and time!!

Why take the student loan from a French Bank (say BNP Paribas)?

  • They offer a rate of only 3% as opposed to the likes of 14% APR in India!
  • A maximum tenure of 10 years with a maximum moratorium period of 3 years, as opposed to a maximum tenure of 7 years in India

What does BNP Paribas (Jouy-en-Josas) need to process this?

  1. A guarantee from a French resident that you wonā€™t run away. And if you do, the guarantor will pay up! OR
  2. A guarantee from a Bank in India that will pay up(again) if you run away and default on your payments to BNP. If the loan is intended for 5 years, the guarantee shouldĀ  be for 5 years (not lesser)Ā [Edit: June 28, 2012: The guarantee is sent as a SWIFT message and has a format defined by BNP Paribas. You need to get in touch with BNP Paribas, France and procure the sample format to be forwarded to the Bank in India. Check the HEC website financing section for contacts details]

Beware: The process moves very slowly in Jouy. Especially since the BNP branch we deal with is in Jouy-en-Josas (which is quite small) while the international Bank guarantee (BG) is received at a head office somewhere in Paris. Yes you should be prepared to know that email travels slower than snail-mail!

I have no clue how option 1 works! I have tried option 2, and thatā€™s what I will elaborate on

Which Banks in India can help you ? What is the product?

What do you need to ask the bank for? Ā An ā€œInternational bank guaranteeā€

Stressing on the ā€˜Internationalā€™ is essential as it changes the rules of the game. Be prepared, you would be surprised to know that barely any managers know the concept of ā€œInternational Bank Guaranteeā€

Which banks in India do this? I tried this with: ICICI, HDFC Bank, SBI, Indian Bank, Bank of India etc etc. I got positive responses from SBI, ICICI, HDFC Bank.Ā Chances improve if this is done in major cities (I would make that Metros + Bangalore + Hyderabad)

What do the Indian Banks ask in return?

To issue the International BG they would need collateral in either of two forms below:

  1. In full cash (in the form of Fixed Deposits)!! They must be crazy! But it is what it is!
  2. In cash + property (Almost impossible to get because of the ā€œInternationalā€ thing)

Now the math! (Put in your own numbers, this is just an example)

  • Desired Loan Amount: 30000 Euros
  • Exchange Rate: INR 70/-
  • Equivalent Guarantee Amount in INR: 21 Lakhs
  • Duration of BG: (say) 10 years
  • Collateral: Banks usually ask for at-least 110% collateral cash collateral. Say 120% here.

Caveat 1:Ā The wonderful trend between the Euro and INR has screwed this up, and banks now ask for higher % collateral to cover their risk. (I had negotiated a 120% when banks said 130%)

Caveat 2: The first caveat also makes banks say, that they need higher collateral % since the BG is locked for several years, and they wouldnā€™t know which direction the Euro would move! To this, I would say: ā€œLock my FD for those many years, and let the interest accumulateā€, in case of an unfavorable movement, your risk is covered to some extentā€.

Ok now, the costs!

The Commissions / Fees

  • Banks usually charge about 2 to 3% per annum of the amount of guarantee.
  • At 2%, here, the fee would be (2% of 21 Lakhs) x 10 (the no. of years) = 4.2Lakhs
  • SBI charges 1/4th the commission % if collateral is full cash. So letā€™s make this 1.05L

Caveat 3: Ask the bank to issue the BG for shorter duration (say 1 yr or 18 months) on a renewable basis. The approval process for shorter duration BG is a lot simpler and moves faster as against a 10 year BG request. Advantage of doing that, upfront collateral % can be negotiated downward, but subject to annual revision depending on exchange rate. Also, the upfront fee maybe locked up as an FD and the bank can be told to break this up each period to get their commission and re-issue the BG.

So BNP Paris still gets an annual BG with a commitment to renew the BG for 10 years. You earn interest on the 4.2L as an extra bonus.

Total Money to be put in the FD: (21 x 1.2) + 1.05L = 26.25L!

If I had this money, why don’t I pay the school right away?

Well thatā€™s your choice, but hereā€™s the spicy twist to the tale:

This 26.25Lakh fetches you an interest ~ 9% p.a (as of June) in India in a fixed deposit instrument. You pay the commission at 0.5% and an interest to BNP of 3%. Net you earn 5.5% on this huge amount. (Keep in mind taxes and TDS to fine tune).

In my opinion, it is a good option to use, but bear in mind the RISK: Exchange Rate! It has played a big spoil sport in the recent past. So do the math right and if you have additional resources to put in in case the exchange rate becomes moreĀ unfavorable.

Why didnā€™t I do it eventually?

I had paid the commission for only one year, and BNP refused to accept that guarantee for the loan of 7 years. By the end of it, I had run out of energy to do this.Ā I was working with SBI (Indiranagar, Bangalore). And yes, set your expectations straight,Ā SBI is faster than BNP is!

Have others done it before? Yes there are people who have done this!

Now, it is clearly your call!

Please do share with others if you manage to pull-it-off! In fact, try pooling in multiple candidates together in the same city, gives you more bargaining power with the bank!

All the best!

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“Veni, vidi, vici” (I came, I saw, I conquered) – reportedly written by Julius Caesar in 47 BC as a comment on his short war with Pharnaces II of Pontus in the city of Zela. There was something that reminded me of this when I met Jean-Christophe Prunet, Managing Director, Rohde & Schwarz.

I had the opportunity to meet him courtesy the TEC On-Campus program in HEC. It wasn’t particularly this exact statement; I’ll present the right variation in shortly.

Let me first elaborate on this abstract idea of ā€˜TEC OnCampusā€™. The ā€˜TEC OnCampusā€™ program draws its inspiration from vistage.com (formerly known as TEC – The Executive Committee). To quote vistage – “It’s a fact of business today: Everyone’s working so hard there may be no time to step back and think, bounce ideas off your peers, or get wise counsel from an experienced mentor”

In short: Sharing with peers and being coached by a mentor from the industry. The program started off on an unconventional note – knowing our peers as we never knew them before. A realization dawned upon each of us: We all have had our share of happy and sad moments!

Our mentor in this journey is Bernard Bismuth, an industry stalwart in France, a successful entrepreneur since his early days. And thanks to Bernard and HEC, we have the privilege of sharing the lunch table with several achievers from the business arena.

Now, rewinding to Julius Caesar let me present a more appropriate analogy: “venit, audit, vicit” (he came, he listened, he conquered)

Yes, Jean-Christophe is an advocate of listening skills. He spent half a day with us, sharing his journey through life. And what came out most dominant was ‘the importance of listening’.

What I now share below are all takeaways from our discussion and interactions with Jean-Christophe. I am in no way an expert in this field.

Needless to say, listening to what others have to say has multi-fold benefits. We gain more knowledge than we already have. A discussion on a topic most familiar to us can also unravel something new for this. This is because of the exposure we get to ‘another perspective’. The more we listen and absorb, the more we’re prepared to form an opinion. A leader is expected to be a ‘know-it-all’ person. The best way for a leader to reach that stage is to garner diverse information and knowledge by listening to others. With the huge wealth of information at his disposal, a leader is therefore also better prepared to take on unanticipated challenges.

Jean-Christophe’s focus on ‘listening skills’ was particularly interesting because of the varying influences listening can have.

Listening skills impact decision making. He believes that one should be a 100% sure about the rationale of a decision (that can be easily achieved by keeping the ears and mind open to ideas). On the other hand, no-decision is better than an unsure-decision. In such cases, it often happens that the situation unravels itself in the days to come. This span can be better used to study the emerging trend and get additional clarity setting the path of the decision making process. Gut-feeling could also play a significant role sometimes. However, a strong gut-feel will only be strong-enough once one has enough knowledge in the domain under discussion. Decision making must also meet certain guidelines

Decision making process within an organization needs to be competence based than relationship based. This also sends a clear message within the organization about the expectations of the management. The fairness of this approach is often appreciated. This leads to how organizations behave when it comes to ā€˜peopleā€™ ā€“ what does the manager and the engineer bridge the gap?

People Management! The buzzword these days is more than a mere buzz! It defines how we influence our teams. An interesting insights shared was – a manager should prioritize his meeting-commitments with a technician in the firm, over his unscheduled meeting with the immediate boss. Seems unbelievable at first – my boss is the first person to please! BUT, I’ll have several occasions to attend my bossā€™s unscheduled needs and meetings, but the technician in my company deserves to be given undivided attention when promised. This helps strengthen relationships. People realize that we value our team equally, if not more than the boss’s orders (Thatā€™s too crudely put, but I hope the message is clear?)

Detecting Potential in people: the ability to figure out what a person is capable of. Someone not doing his job right is not essentially incapable. He might just be the right guy in the wrong place. To enable people to advance in their career needs us to be open-minded and alert. There are situations when your choice of a candidate for a job may not seem right to several (including the candidate himself), but if we are confident that the person can pull off the task with his under-utilized skills, then we must give him a chance.

So what’s the ‘Next Step’ like ? Often in our careers we are faced with dilemmas about the ‘next step’. When an opportunity presents itself, a lack of experience in the new role but the belief in our ability will help us move ahead. While faith in our own capabilities will be a core driver, the knowledge gained by listening will be the true navigator.

A final word of advice from Jean-Christophe ā€“ ā€œYou must try your hands at sales, at least once. Being a leader in the company, you are the first sales person. Understanding the pulse of customer expectations and behaviour will prove mighty useful in the leadership positionā€

It was a fabulous day of interaction. Each of us had several takeaways from this. A person so high up the ladder also finds time to travel and enjoy what nature has to offer. He is a photography enthusiast and has an amazing collection of images at http://bit.ly/w4SwQb

Our day in pictures :Ā http://on.fb.me/xSdRbb

How much is enough ?

This is a question I’ve seeked an answer to from multiple sources. To clarify the question itself first, I’m referring to the cash requirement stated by French consulate authorities for the student visa processing to go smoothly.

(Again, this stems from my ongoing process of applying for a student visa for studying at HEC, Paris)

So firstly, how much is enough ?

There are two parts to this. First the student is travelling alone (the majority case) and second is where the student is moving alongwith a dependent partner.

You need to show funds for
1. Tuition Fees
2. Living expenditures (Self)
3. Living expenditures (Dependents if they are travelling with you)

For a student travelling alone the amount deemed required for the living expenditure of self is set at is 537 Euros/month for the duration of the course. (12 months in case of the HEC MBA, as four months are supposed to be paid internship)

If you are travelling with dependents (in my case I will be accompanied by my wife and 2 year old daughter), the above requirement is void.Ā Instead, what I’ve been told is “You have to justify that you can provide for your family in France, you should at least meet the amount of 1 070,76 ā‚¬/months which is the amout of the minimum wage determined for 2011”

Now the next aspect, what are the acceptable forms of proof of funds ?

Essentially anything with liquidity is acceptable.

  • Several candidates may apply for loan for part or entire amount. A sanction letter from the financial institution stating the amount provided as loan will act as one financial proof.
  • Savings Bank Balance: This is by far the best possible proof of source of funds. High liquidity makes this as the most preferred ( I do not know of any requirement of holding certain amount of cash for a pre-set period)
  • Fixed Deposits: Yet another easily accessible liquid source of funds.
  • PF: Some (like me) would intend to withdraw the hard earned provident fund. Well a PF statement showing the balance in your PF should suffice. This is usually not up to date when it is a government PF; I intend to furnish a letter from my company stating the current estimated PF balance. (will update this info once I’ve processed my visa docs).
  • PPF: PPF passbook statements should also be a good source to indicate source of funds.
  • Any other liquid assets like Equity/MF investments should also suffice…

In the case where we show funds from anyone-but-self, we need to furnish a plain paper declaration from the person, stating that he/she will be sponsoring our education and we must provide the essential documentary evidence supporting it.

That’s it. This was a good revision for me, before I prepare for my visa interview. Hoping this proves useful to others seeking info.

Its a distant hazy future..

After having worked in the technology domain for close to eight years, its time for a change. I have been contemplating this for some time now, only in the past 2 years did this decision get some more shape. Time to add another educational qualication for the resume, time to move on beyond the graduation.

One rescheduling for the GMAT date and three applications later, here I am preparing to move to my new alma-mater, the HEC School of Management, Paris. The journey in the future promises a roller coaster ride. Do I manage to stay on the car or will the external forces be too much to handle? Am betting on the former than the latter.

Its the start of November now and in 2 more months, accompanied by fellow MBA candidates, I shall be trudging along into the vast green lush campus of HEC. Some of us have already met in-person before, some are e-friends – thanks to the social media rage.

The wisdom of my decision is challenged With the global economic condition not being in a pretty state. Adding to it, is the exceptional state of the Euro zone of nations. What will happen at the end of it (or at the new beginning of it) is not known.

During our graduation days, lots of classmates moved to the US to pursue their MS. A few seniors also advised then, that the recession (which started in 2000) would eventually be over by the time the MS is done with. As with any patterns (like those of the stock market as well) the current scenario seems to be ‘oversold territory’ (tech chart jargon). I believe, thats the only positive. The world has to come out of the ‘oversold’ and the seniors’ advice would be right yet again.

Do I want to do this..?

I’ve been contemplating this for over a year..! Not sure what stopped me from doing this. Want to start now. Don’t ask why, but.. its an unusual day for me to start but its 1/11/11 today, guess not bad for a 1st blog.

Am just confused about what I should write about… I guess I would blog about varied things.. sometimes about the tech world, sometimes something about photography, sometimes (more often for now I guess) about my preparations towards moving to HEC Paris for a 16 month MBA (believe me, anyone who’s been through this already, knows there’s a lot one can share, yet leave out much to be desired)
So the next one might have anything among these…