LC opening

LC opening

   

The procedure for opening L/Cs under Aid/Loan/Grant/Credit etc. is almost same as opening of L/C under cash source. Only the reimbursement procedures of some L/Cs are different and some additional clauses are incorporated in the L/Cs as per provision of agreement/E.Ex. circular.

We describe below some of the reimbursement procedures of L/Cs opened under Aid/Loan/Grant/Credit etc.

Reimbursement Procedure:
This is same as the reimbursement procedure of L/C opened under cash. On negotiation of documents, strictly as per terms of L/C, negotiating bank reimburses by debiting nostro account of the designated bank. Some additional documents along with the shipping documents are to be forward to the designated bank as per terms of the L/C (Some times additional documents are forwarded to Bangladesh Bank/donor agency). Designated bank sends these documents to Bangladesh Bank for getting reimbursement from the donor agency/country.

Commitment Procedure:
In commitment procedure, fund of designated bank is not involved in the transaction. Supplier of goods/services gets payment directly from donor agency/country under the L/C against their commitment to reimburse. Initially L/Cs are opened in inoperative manner, which become operative on receipt of Commitment to Reimburse from the donor agency/country. After opening L/C, designated bank / Bangladesh Bank along with required document requests donor agency/country to issue commitment to reimburse against the L/C. On negotiation of documents complying L/C terms, supplier gets payment directly from the donor agency/country  through negotiation bank against their commitment to Reimburse by submitting specified documents. This commitment is termed differently in different Aid/Loan/Grant/Credit etc. Under IDA Credit it is known as QAR (Qualified Agreement to Reimburse), in Kuwait Investment it is known as QC (Qualified commitment) and son on.

In commitment procedure, two types of L/Cs are opened. One is under project assistance and the other is under non-project commodity assistance. In project assistance, the utilizing agency need not require to make payment against L/Cs opened under Aid/Loan/Grant/Credit at import stage. That is, in project assistance, shipping documents are delivered to the importing agency without any payment (Free of payment).

For non-project commodity assistance, designated bank is required to deposit counterpart founds to specified Government Account maintained with Bangladesh Bank within 03 (three) working days from the date of receipt of shipping documents (clean document). Penalty at prescribed rate is to be imposed to the designated bank for delay depositing counter part fund to Bangladesh Bank. B.C selling rate is applied for depositing counter-part fund of Bangladesh Bank.  

Allowcation/Utilisation:
 Designated bank maintains allocation register to record the L/C opening/Utilisation of fund against the particular Aid/Loan/Grant/Credit etc. In allocation register, the register, the name of the utilization agency, latest L/C opening and expiry dates, loan validity date, total found allocation, particulars of L/Cs opened/amount utilised, balance fund available etc recorded.

Statements:
Regular statements regarding L/C opening/Fund utilisation are required to be submitted to Head Office of designated bank and also to Bangladesh Bank/donor agency as per provision of F.E Circular.

The above procedures for import under Aid/Loan/Grant/Credit etc. are not permanent procedures. Bangladesh Bank may introduce new procedures for import L/C opening against Aid/Loan/Grant/Credit etc. through F.E circulars as per agreement between Government and donor agency/country.

Columns of L/C liability and margin

SL.NO.	L/C NO.
		Amount in F.C.	Amount of liability in Tk.	Dr.	Contra date	Cr	Balance	Initial
1	2	3	4	5	6	7	8	9

Margin (in Tk) with %	Security on Tk.
	Dr.	Contra date	Cr	Balance	Initial	Remarks
10	11	12	13	14	15	16

Checking Point Lapses of L/C before dispatch the L/C as follows:

1. L/C proposal is Processed or not considering the importers means, standing market reputation, 

    and integrity in his business.

2. L/C application form properly fill in or not.

3. The L/C is to be opened complying all terms & conditions of the sanction advice, Import Policy, 

    Exchange control regulations, Bangladesh Bank Circulars, Public Notices of CCI & other 

    Government directives or not.

4. L/C application & agreement form duly stamped of Tk. 150/- as per stamp act enforced in 

    Bangladesh, as it guarantee of payment or not.

5. The margin/cash security is duly realised  before opening of L/C as stipulated in the sanction

    advice / as per business discretionary power / as credit restrictions of margin requirement 

    imposed by Bangladesh Bank or not.

6. In case of import under Aid/Loan/Barter terms & conditions of the relevant Bangladesh Bank

    circular & Public Notice issued by CCI & E is complied with or not.

7. Bank charges i.e.L/C opening commission, P&T, Courier/Telex charge realised entered in the 

    L/C opening register & credited in the bank’s income a/c or not.

8. L/C proposal of the party not showing the detailed address or shown fictitious address than actual.

9. Name of proprietor/Director/Partner of Co. is actual or not.

10. Opening of L/C beyond H.O.Sanction / Limit/ Discretionary Power of Branch.

11. Signature of applicant not verified by bank officials or not.

12. Insurance coverage properly made or not.

13. Credit report of supplier obtained/in case of L/C over Tk.2.00 lac or not.

14.  Less / Excess charge realised as per schedule of foreign transaction.

15. LCAF not properly typed HS Code not mentioned properly.

16. IMP From dully signed sealed by the importer or not.

17. L/C opened against conditional indent / Indentor suspended by B. Bank through Circular /Public Notice

18. Acceptance of applicant absent in invoice / Indent or not.

19. L/C opening charges realised the same day or not.

20. All L/C`S are properly entered in the L/C Opening Register or not.

21. Conversion & rate of exchange (B.C.Selling) to be correctly applied or not.

22. Pre-shipment inspection is compulsory for all imports of goods by private sector & charge –1%  

      of  CFR value of imports is taken properly or not.

23. L.C.A forms & L/C application forms properly recorded and kept in Safe Custody or not.

24. Cutting / Erasing / Alteration, if one are in the L/C Application are authenticated by the Importer or not.

25. Two authorised officers dealing in the exchange department sign L/C whose signatures are already supplied to 

      the correspondents abroad or not.

26. If L/C advised by cable sending message under test got to be authenticated by two officers or not.

 27. PSI form dully filled in or not and has submitted to concern firm with bank forwarding & related papers or not.

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Letter of Credit Related Important Information

Letter of Credit Related Important Information

LIMITATION OFEXPIRY DATE:

In addition to stipulating an expiry date for presentation of documents every credit, which calls for a transport, documents should also stipulate a specified period of time after the date of shipment during which presentation must be made in compliance with the terms and conditions of credit. If no such period of time is stipulated, banks will not accept documents presented to them later than 21 days after the date of shipment. In any event documents must be presented not later than the expiry date of the credit.

Extension of Expiry Date:

If the expiry date of the credit and / or the last day of the period of time for presentation of documents stipulated by the credit on a day a bank to which presentation has to be made is closed for reasons other than by act of gods, riots, civil commotions, insurrection, war etc. The stipulated expiry date and / or the last day of period of time after the date of shipment for presentation of documents, as the case may be, shall be extended to the following day on which such bank is opened.

L/Cs under Aid/Loan/Grant/Credit etc. In Bangladesh, huge quantity of goods is imported against funds provided by different donor agencies/countries (Aid/Loan/Grant/Credit etc). After completion of agreement between the Government of Bangladesh and the donor agency/country, Bangladesh Bank issued F.E. circular giving detail terms and condition including procedure for opening of L/C under the Aid/Loan/Grant/credit etc.

LCAF: The bank will issue LCAF to the importer as per Public Notice issued by CCI & E or as per provision of F.E circular. LCAF must indicate the name of Aid/Loan/Grant/Credit etc. against which it is issued. Whether the LCAF is to be registered with Bangladesh Bank Registration Unit or not, is advised in the concerned F.E circular.

Designated Bank: Bangladesh Bank nominates certain schedule Banks to handle banking transactions of particular Aid/Loan/Grant/Credit etc. and those nominated schedule banks are known as designated banks. All L/C’s under the particular Aid/Loan/Grant/Credit etc. are to be opened through designated banks.

Eligible Commodity and Eligible Country:

Investment Agreement specifies the name of the items to the imported and also name of the countries form where those items will be imported. The items are known as eligible commodities and countries for that particular Aid/Loan/Grant/Credit etc. Bangladesh announces the name of eligible commodities and eligible countries through F.E circular.

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Amendment of letter of Credit

Amendment of letter of Credit

Amendment of L/C means modification or addition/deletion of any point/term of L/C which has already been advised. Question of amendment of L/C arises due to incorporation of terms outside the contract between buyer and seller and also due to emergence of new circumstances. If the beneficiary is unable to comply with any term/condition stipulated in the L/C or require additional clause, he advises importer to request issuing Bank for amendment of the L/C. Bank makes amendment of the L/C within the frame work of existing rules as per written request of the L/C applicant. In irrevocable letter of credit such amendment is effective if all the parties interest involved in the L/C agree to it.

Usually LC is amended for the following requirements:

(a)    Extension of validity of credit.

(b)   Change of price/unit price. L/C value Increase/Decrease.

(c)    Change of documentary requirement.

(d)   Extension of Shipment date

Regarding amendment, the following points are to be note very carefully by the issuing bank.

(a)    Amendment of L/C should be advised through L/C advising bank.

(b)   Instruction of amendment should be complete and precise.

(c)    Partial acceptance of amendment is not effective without agreement of all parties whose interest is involved.

Amendment of L/C means opening of new L/C (in legal sense). Therefore rules and regulation applied for opening of L/C are also applicable for amendment of L/C.

Commission and charges are to be recovered at prescribed/arranged rate for amendment of the L/C before effecting the amendment. Recovery of charges is to be recorded in the L/C file and L/C opening register/amendment register. If the L/C value increase the increasing liability voucher must be passed or L/C value decrease, the decreasing liability voucher must be passed and booth are posted in the liability register in the receptive L/C if amendment is extension of validity of credit

The voucher to be passed:

Dr. Party A/C 

Cr. F.C.C. Charges.

Cr. Handling Charge.

Dr. Party’s A/C

Cr. Income A/C commission, Postage/Telex, VAT (If the L/C value increase)

Cr. F.C.C (if any)

Model of Amendment Register:

Date	L/C No.	Applicant	Commission & Charge	Short Description Amendment	Remarks
1	2	3	4	5	6

Precedes of L/C amendment:

Importer submits a request letter to amend the L/C to the L/C opening Bank.

	(2) Amendment (Type Banks Printed format)

 

Amendment is to be type in the Banks printed format. The copies of the amendment must be dispatched to all concerned as done on dispatching the L/C. Each and every amendment of L/C must be noted be noted in the respective L/C file and copies of each amendment be kept in the L/C file chronologically/ (Date Wise).

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