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Revocable LC can be amended or cancelled at any moment by the issuing bank without the consent of any other party, as long as the LC has not been drawn or documents taken up.
Irrevocable LC which holds a commitment by the issuing bank to pay or reimburse the negotiating bank, provided conditions of the LC are complied with.
Irrevocable LC cannot be amended or cancelled without the consent of all parties concerned.
The irrevocable LC is an unconditional undertaking by the issuing bank to make payment on submission of documents conforming to the terms and conditions of the LC. All LCs issued, unless and otherwise specified, are irrevocable Letter of Credits.
Irrevocable confirmed LC is an L/c which has been confirmed by a bank, other than the issuing a bank, usually situated in the country of the exporter, thereby taking an additional undertaking to pay on receipt of documents conforming to the terms & conditions of the LC
The Conforming Bank can be advising Bank, which on receipt of request from the issuing bank takes this additional responsibility.
Transferrable LC is available for transfer in full or in part, in favour of any party other than beneficiary, by the advising bank at the request of the issuing bank.
Red Clause LC enables the beneficiary to avail pre-shipment credit from the nominated/advising bank. The LC bears a clause in “RED Letter” authorizing the nominated bank to grant advance to the beneficiary, prior to shipment of goods, payment of which is guaranteed by the Opening Bank, in case of nay default or failure of the beneficiary to submit shipment documents.
Back to Back LC: when an exporter arranges to issue an LC in favour of Local supplier to procure goods on the strength of export LC received in his favour, it is known as Back to Back LC.
Bill of exchange is drawn by the Beneficiary on the LC issuing Bank.
Invoice is a commercial Document and is a basic necessity of trade documents. It is being prepared by the Beneficiary
Bill of Lading is a transport document evidencing movement of goods from the port of acceptance to port of destination. It is a receipt issued by the ship owner or its authorized agent.
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RBI and DGFT RBI controls Foreign Exchange and DGFT (Directorate General of Foreign Trade) controls Foreign Trade.
DGFT functions under direct control of Ministry of Commerce and Industry. It regulates Imports and Exports through EXIM Policy.
RBI regulates Forex Reserves, Finances Export trade and Regulates exchange control.
Diamond Dollar account can be opened by traders dealing in Rough and Polished diamond or Diamond studded Jewellary with the following conditions:
With track record of 2 years.
Average Export turnover of 3 crore or above during preceding 3 licensing years.
An exporter can have maximum 5 Diamond Dollar accounts.
EEFC Exchange Earners Foreign Currency accounts can be opened by exporters. 100% export proceeds can be credited in the account which do not earn interest but this amount is repatriable outside India for imports (Current Account transactions).
Pre-shipment Finance or Packing Credit
Packing credit has the following features:
Calculation of FOB value of order/LC amount or Domestic cost of production (whichever is lower).
IEC allotted by DGFT.
Exporter should not be on the “Caution List” of RBI.
He should not be under “Specific Approval list” of ECGC.
There must be valid Export order or LC.
Account should be KYC compliance.
Liquidation of Pre-shipment credit
Out of proceeds of the bill.
Out of negotiation of export documents.
Out of balances held in EEFC account
Out of proceeds of Post Shipment credit.
Concessional rate of interest is allowed on Packing Credit up to 270 days. Previously, the period was 180 days. Running facility can also be allowed to good customers.
Post Shipment Finance
Post shipment finance is made available to exporters on the following conditions:
IEC accompanied by prescribed declaration on GR/PP/Softex/SDF form must be submitted.
Documents must be submitted by exporter within 21 days of shipment.
Payment must be made in approved manner within 6 months.
Normal Transit Period is 25 days.
The margin is NIL normally. But in any case, it should not exceed 10% if LC is there otherwise it can be up to 25%.
Types of Post Shipment Finance:
Export Bills Purchased for sights bills and Discounting for Usance bills.
Export bills negotiation.
Crystallization of Overdue Bills
Consequent upon non-realization, Conversion of Foreign Exchange liability into Rupees is called crystallization. It is done on 30th day after notional due date at prevailing TT selling rate or Original Bill Buying Rate (Whichever is higher).
DA Bills
Notional due date is calculated in DA Bill by adding normal period of transit say 25 days in the Usance period. 30th day is taken from notional due date.
DP Bills
30th day after Normal Transit Period. If 30th day happens to be holiday or Saturday, liability will be crystallized on the following working day.
Import Finance Importer can avail finance from banks/FIs in the shape of :
Letter of Credit
Import Loans against Pledge/Hypothecation of stocks.
Trade Credit – Supplier Credit or Buyer Credit
Trade Credit If the Import proceeds are not remitted, within 6 months, it is treated as Trade Credit up to the period less than 3 years. For period 3 years and above, the credit is called ECB (External Commercial Borrowings).
Suppliers’ Credit
It is credit extended by Overseas suppliers to Importer normally beyond 6 months up to period of 3 years.
Up to 1 year for Current Account Transactions
Up to 3 years for Capital Account Transactions
Monetary Limit is USD 20 million per transaction.
Buyers’ Credit
It is credit arranged by Importer from Banks/Fis outside countries. Banks can approve proposals of Buyers’ Credit with period of Maturity:
Up to 1 year for Current Account Transactions
Up to 3 years for Capital Account Transactions
Monetary Limit is USD 20 million per transaction.
Crystallization of Foreign Currency Liability into INR
In case the importer fails to make payment,
crystallization of Foreign Exchange liability into Indian Rupees is done on 10th day at TT selling
Rate.
In case of Retirement of Import Bill
The crystallization is done at current Bill Selling Rate or Contracted Bill Selling Rate (Whichever
is higher).
DP Bill: On 10th Day from date of receipt of Import Bill.
DA Bill: On Actual Due Date.
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