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f. No onerous clause detrimental to the interest of the Bank shall be incorporated in the Letter
of Credit.
PRECAUTIONS TO BE OBSERVED WHILE OPENING LETTERS OF CREDIT
a. The commodity for which the LC is being opened should be consistent with the known
trade practice of the borrower.
b. Opening of LCs for commodities which have hitherto been not dealt by the customer
should be with the consent of the respective sanctioning authority only.
c. Verification of underlying commercial transactions such as sale/purchase contract, the
quantity and value of transaction, payment terms, the mode of transport, etc.
d. Details of the beneficiary of the LC must be ascertained such as
i. In case of frequent LCs being opened in favour of single beneficiary or in case of large
value LC, CR from the beneficiarys banker/CIBIL report should be obtained.
ii. Whether the beneficiary is regularly dealing in the items for which LC is being opened
iii. Whether the beneficiary is related to the opener or its subsidiary/front company.
iv. LCs in favour of sister concerns should not be normally opened by the Branches and
wherever the same are required to be opened for genuine trade transactions, necessary
approval should be obtained from the respective sanctioning authority.
v. In case LC facility is sanctioned under delegated powers of Branch Incumbent, approval
for opening LC favouring sister concern should be obtained from Regional Office.
e. The entire cycle from opening of LC by Bank to the negotiation of the bills by the
beneficiarys banker and advising of the due date by our Bank should have a reasonable time
lag. Special attention should be paid so as to have time for the execution of the intermediate
stages between opening of the LC and negotiation of documents so as to ensure the
genuineness of the transaction in all such cases.
f. In case of DA LCs, the cash flow of the transaction must be studied closely. The LC opener
gets sufficient time to process/sell the goods and realize the sale proceeds thereof. As such, it
must be ensured that sufficient funds are available for retirement of bills on the due date
without devolving on the Bank. This could be either by way of
i. Banking arrangement for fund based working capital facilities duly assessed and sanctioned
either from our Bank or other bank.
ii. Build up of margin by progressively depositing sale proceeds regularly in their accounts
with us.
- Where a customer enjoys working capital credit facilities with some other bank, the reasons
for his approaching the bank for sanctioning L/C limits have to be clearly stated. A reference
to the existing banker of the customer should invariably be made.
- The request of customer for sanctioning and opening of letter of credit should be properly
scrutinised to establish the genuine need of the customer. The customer may be, required to
submit a complete loan proposal including financial statements to satisfy our bank about his
needs and also his financial resources, to ensure retirement of bills on the due date.
- Branches must satisfy themselves about retirement of bills received under LC by stipulating
adequate margin or by a back up support of the credit facility approved in their favour.
Liquidity aspect of resources available for retirement of bills must be kept in mind.
- LCs should not be issued for amounts out of proportion to the borrowers' genuine
requirements. These may be opened only after ensuring that the borrowers have made
adequate arrangements for retiring the bills received under LCs out of their own resources or
from the existing borrowing arrangements;
- The branches shall obtain an undertaking from the borrower(s) that in respect of
transactions relating to the import LCs, the borrower will undertake to bear exchange
fluctuations risk, if any, and will arrange for necessary forward cover, whenever called upon
to do so by the bank.
- The branches shall obtain an undertaking from the borrower(s) to comply with all the
exchange / import trade control regulations of RBI in respect of the imports under the import
LC limit.
- LCs should be issued under joint signatures of the Banks authorised officials in the
approved format only.
PRECAUTIONS FOR OPENING REVOLVING LC
a. In case of Revolving LC, reinstatement clause be suitably worded and in no case it should
be automatic.
b. No revolving LC be issued without re-instatement clause.
c. The reinstatement should only be permitted after a written confirmation from LC opening
branch is received and liability against bills already negotiated is cleared by the applicant.
BANK GUARANTEE
MONITORING OF PERFORMANCE BANK GUARANTEESISSUED BY THE
BRANCHES ON BEHALF OF OUR BORROWERS/CLIENTS
Purpose of issuing Performance Bank Guarantees
a. Performance Bank Guarantees are issued guaranteeing due performance of contract or
obligation of the Borrower under the contract. In the event of non-performance of obligation
in terms of contract the bank assumes monetary liability upto the amount specified in the
Guarantee. Some of the purposes for which Bank Guarantees are issued are:
authority.
c. Periodic exchange of information as prescribed for Consortium
Banking / Multiple Banking should be ensured
In case the Banka. The utilization of funds by the borrower should be tracked along
Guarantee
is
forwith the billing for the work done by them.
Mobilisation advance b. Quarterly progress reports should be obtained from the Borrower
Issuance of further
The sanctioning authority shall decide on this based on the
guarantees on behalf of
circumstances and gravity of each case
the client