Procedure For Opening Letter Of Credit In India

The LC application will be received on the prescribed format (AD 004), supported by required documents, as discussed in Chapter 20.4  The concerned officer will verify / ensure verification of the signature on the application. No rubber stamp / initials are to be put on the stamped LC application form which is a security document  A Process note will be prepared indicating particulars of applicant, beneficiary, limit, outstanding under LC/ PAD a/c., commodity, overdue / devolvement, etc., to ensure that the present request is within the sanctioned limits - Annexure.21(1)  The Forex In-charge will scrutinize the application, verify all the particulars, record his recommendation on the process note and place the papers to the Branch Manager or officer of Scale IV rank. The in-charge should ensure that the earlier overdue / devolvement are highlighted and drawn to the attention of the Branch Manager  After obtaining approval from the Branch Manager, the LC is controlled in Finacle by invoking Menu ‘ODCM’ and all the details like, Expiry date, Amount, Tolerance, Payment terms, Beneficiary, Purchase Order / Indent, Description of goods, Port of loading / discharge, etc., are indicated  Required margin as per sanction is to be taken from the Applicant before opening LC  Controlling the LC in Finacle is required to be verified by an Officer. On verification the system will pass the following entries : i) Dr. Customers liability for acceptances of, LCs (Foreign) (at BC selling rate) Cr. Liability for acceptance of LC (Foreign) ii) Dr. CD/CC/A/c Cr. Income A/c commission on Imp LC Cr. Exp. A/c. Telegram (Swift charges) 5  Necessary vouchers are required to be printed or manually prepared and duly signed by the Authorised signatories  Draft of LC should be prepared in Swift MT700. For formatting of LC, please refer to detailed guidelines on formatting given under Para 21.2.  The charges are to be collected upfront on the day of opening of LC. No refund is permissible as per FEDAI guidelines.  The entire set should be scrutinized by the Forex In-charge, confirm debit of margin / charges, draft LC prepared in the Swift, counter sign on LC documents / SWIFT messages / control voucher and release for transmission. Process note along with a copy of transmitted LC and all papers submitted by the applicant will be kept in a seperate folder. Every opening of LC and amendments will be carried out only if it is recorded on the process note and duly counter signed by the FEX In-charge and approved by the Branch In-charge.
i) CHANGES IN INSTRUCTIONS After the application has been scrutinized from all angles if the branch feels that the applicant's instructions are not consistent or suitable it must ask the applicant for revised instructions. ii) CHOICE OF ADVISING BANK / CONFIRMING BANK Normally, branches do not advise the import LC directly to beneficiaries. LCs are advised through their correspondent banks in the country of the beneficiary. The applicant can select correspondent bank through whom LC is to be advised. If the Letter of Credit needs confirmation, the branch must advise the Letter of Credit through a bank with which we have credit confirmation lines. If the bank has no credit confirmation lines, it must request IBD, Central Office to set up confirmation lines and make necessary arrangements for confirmation of letter of credit. Letter of Credit should not be opened till the branch is sure of confirmation of its Letter of Credit by the bank concerned or unless otherwise instructed by the L/C opener. In any case, clear cut instructions as mentioned below are to be given to the advising bank.  LC to be advised without adding its confirmation.  LC to be advised after adding its confirmation.  Authorised to add confirmation if required by the beneficiary. iii) TRANSMISSION OF LETTER OF CREDIT LCs are transmitted through Swift to the Advising Bank.