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Well explained👍. If possible, please explain with the practical example/case study. Like what documents are required in a set of documents with images and what are the terms of conditions?
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Good. Just to add that the buyers bank will collect cash margin or cash collateral against the issuance of lc to safe guard against any contingency arising at payment stage.
Right. With pre-existing LC limit the margin percentage depends on the terms of sanction. In case of walk in customer its usually 110% of LC value including LC tolerance.
"Madam, sorry, I have a question. Does the seller's bank send the original documents to the buyer's bank or scanned copies? If they send the originals, through which channel are they sent? If they send scanned copies, through which channel, and are scanned copies accepted by the buyer and customs?"
Sir, is it necessary to have that much balance or credit to transfer any type of LC or SBLC or Back to Back LC, from my account to others account in the domestic or international trade?
Sorry for the late reply. There should not be any hard and fast rule that you need to have 100% balance in your account to transfer a LC. But that will depend on individual bank guidelines.
Hello mam Very nice video and I have joined as QA in Trade finance project trying to learn its basics.I have a doubt mam , so based upon conract between seller and buyer first seller sends Documentry collections and then buyer send LC ? which takes place first?? Can you please clarify
Hi Archana, documentary collections and documentary credit(LC) are two separate payment methods. In a contract involving LC, both parties first agree on the main conditions to be included in the LC by drafting the sample LC. Then the importer instructs his bank to issue the actual LC. Please go through both the Documentary collection video and the LC Basics video to get the detailed idea.
How about, for any reason, if the shipment received is not matching with the submitted documents by the seller or exporter after payment being released?
One doubt Mam....on exporter' side. If the bill submitted by the exporter has some discrepancies..what the bank will do.??? Should the bank still negotiate it under LC or under nonLC??
In most cases practically if the discrepancy is something that cannot be rectified..its discounted as nonLc..its a practice followed in many Indian banks
Yes, LC is always applied by importer. LC payment is done by the LC issuing bank, which in turn takes the payment from the importer. Tenor means the number of days the importer gets to pay the lc bill.
@@ShuddhDesiBanking payment by issuing bank is done from credit limit given by the same bank ? What if afterwards issuing bank is not able to recover from importer .?
@@AJ-ll9kz yes the payment is done from the non fund based limit enjoyed by the importer. A percentage of lc amount is kept as margin by the bank which acts as security. But that practically does not guarantee payment by importer. If importer fails to pay ultimately its called 'lc devolvement' . It is a sort of npa and bank will follow its due course of action for recovery. Hope this clears your doubts.
@Bankers 🏦 Cafe sir , I am selling onion from Maharashtra to Bengal Buyer is giving 50% advance and 50% after reaching to his home. He is telling me to sign agreement that we both will have to give some security Can inland LC work in two states
@@ShuddhDesiBanking mam, My confusion is still not clear. kindly clarify the same in light of Article 6(b) of UCPDC which says that A credit must state whether it is available by sight payment, deferred payment, acceptance or negotiation.
You are getting confused by the definitions of the various terms you mentioned. Sight payment - payment at sight by LC issuing bank, it does not mean that any kind of advance has to be made deferred payment - payment after x number of days without any supporting Bill of Exchange Acceptance - payment after x number of days with a supporting bill of exchange Negotiation - advance of the LC receivable amount UCP 600 Article 2 defines negotiation as ' purchase by the nominated bank of drafts ...., BY ADVANCING OR AGREEING TO ADVANCE FUNDS TO THE BENEFICIARY ON OR BEFORE THE BANKING DAY ON WHICH REIMBURSEMENT IS DUE TO THE NOMINATED BANK' So, ANY advance before the actual maturity date of the LC bill is negotiation. It may be sight bill or usance bill. Hope this clears your doubt.
@@ShuddhDesiBanking Mam, my doubt is related to defination of Negotiation which says "purchase of draft". Purchase is of sight bills and not usance bills(UB are discounted). Then doesn't it mean that Negotiation is of sight bill only? Kindly clarify. Regards.
@@jyotijoshi7369 Have you ever worked in trade finance? If yes, then you should be knowing the accounting entries happening in a bank while a bill negotiation. There are two types of accounts that can get debited in a bill negotiation. BE(LC) account and FCSB(LC) account. BE(LC) stands for Bill of exchange under LC i.e for usance bills, FCSB(LC) stands for Foreign currency sight bill account under LC. Both fall under bank negotiation accounts. Purchase & discounting are usually used to denote non LC bills, whereas the word negotiation is used for LC bills. For further clarification please refer Gary Collyer books who is regarded as the godfather of trade finance rules.
We have one Question on Calculation on LC Limit. Annual Imports 2200 Lacs ,Fixed Cost Rs 70 Lacs ,Insurance 30 Lacs,Custom Duty Rs 200 Lacs ,Lead Time 2 months,Usance months Please Calculate No of LC required, LC Frequency and LC Limit. Please give solution
