¨ ¨It is an instrument by which a bank undertakes to make payment to a seller on production of documents drawn in accordance with the terms of the credit ¨
¨The letter of credit is governed by the provisions of UCPDC – 600. It is 6th edition, first in 1933.
Parties to Letter of Credit
¨Applicant : The buyer of goods
¨Issuing Bank : Buyer’s bank
¨Advising Bank : To whom LC is sent for onward transmission to the seller
¨Beneficiary : The party to whom, the LC is addressed i.e. seller
¨Negotiating Bank : The bank to whom the beneficiary will present the documents
¨Reimbursing Bank : Third bank, which repays/settles the funds at request of issuing bank
¨Confirming Bank : The bank, which undertake the responsibility of issuing bank on his failure
Types of Letter of Credits
¨Documents against Payment LC : Where payment is made against documents ( D/P LC )
¨Documents against Acceptance LC : Where payment is made on maturity date ( D/A LC )
¨Irrevocable LC : ¨ Issuing bank can amend/cancel LC with the consent of beneficiary (Seller)
Revocable LC : Issuing bank can amend/cancel LC without the consent of beneficiary (Seller)
¨With Recourse : ¨Where the beneficiary holds himself liable to the holder of the bill, if dishonoured.
¨Without Recourse : ¨Where the beneficiary does not hold himself liable, if the bill is dishonoured.
Types of Letter of Credit (Contd.)
¨Red Clause LC :Where the LC permit the negotiating bank to grant of packing credit to the beneficiary at issuing bank’s responsibility ¨
¨Green Clause LC :LC permits the advance for storage of goods in addition to pre-shipment advance ¨
¨Stand by LC : It is similar to performance bond or guarantee. The beneficiary can submit the claim along with requisite documents to issuing bank ¨
¨Revolving LC : The amount of drawing made under LC would be reinstated and made available to the beneficiary again ¨Standby Letter of Credit : ¨As per RBI guidelines, such LC can be issued as a document of promise in respect of non performance situation specially as a substitution of guarantee. While opening standby LC Banks observe International Standby Practices 98. ¨
¨Red Clause LC :Where the LC permit the negotiating bank to grant of packing credit to the beneficiary at issuing bank’s responsibility ¨
¨Green Clause LC : LC permits the advance for storage of goods in addition to pre-shipment advance ¨
¨Stand by LC : It is similar to performance bond or guarantee. The beneficiary can submit the claim along with requisite documents to issuing bank ¨
¨Revolving LC :The amount of drawing made under LC would be reinstated and made available to the beneficiary again
¨Standby Letter of Credit : ¨As per RBI guidelines, such LC can be issued as a document of promise in respect of non performance situation specially as a substitution of guarantee. While opening standby LC Banks observe International Standby Practices 98. ¨
Be continue…..
