Frequently Asked Questions

 LETTER OF CREDIT

1. What is LC margin?

When a bank issues an LC, it asks for collateral or asks the applicant to keep a percentage of the total LC amount with the bank that is worth a fraction of the actual amount of the LC. This percentage is known as the LC margin. In some instances if the applicant/buyer/importer does not have a credit limit the bank may ask to keep 100% of the LC amount as a margin or keep it as a term deposit with the bank.

2.Is the LC at sight safe?

A Sight LC is one of the most secure modes of transaction as the issuing bank and confirming bank act as guarantors to honor the agreement.

3.Can the LC at sight be discounted?

A sight LC require no discount mechanism, as issuing banks or confirming banks must honor demand credits as soon as they determine that the beneficiary presents the documents.

4.What is the expiration date of Sight LC?

The LC at sight is due on the date the beneficiary presents the documents to the bank.

5.Can the LC at Sight/Sight LC be negotiated?

Yes, both sight and usage LCs can be negotiated.

6. Can you confirm the LC at Sight or Sight LC?

Yes,Sight LCs are confirmed by both the issuing bank (buyer’s bank) and the confirming bank (seller’s bank). Both banks have to honor or negotiate the LC, once they receive the documents.

2. USANCE LC

1.What is the meaning of Usance LC?

A Usage or Deferred Letter of Credit; means that even after the buyer has received the goods or services, the buyer gets a grace period to make the payment to the financial institution or the bank, that is, 30, 60, 90 or more days as agreed during the process.

3. STANDBY LC

1.What does SBLC mean?

The standby letter of credit (SBLC) is a type of letter of credit (LC) in which the issuing bank agrees to pay the beneficiary if the applicant does not make the payment.

2.What is SBLC used for?

SBLCs are a type of contingency plan. For other LCs, the bank makes the payment first, and then the applicant pays the bank at a later date. However, when a bank issues an SBLC, it is only obligated to make the payment if the buyer or applicant defaults.

3.Who can issue SBCLs?

Any bank or NBFC can issue an SBLC once they are sure of the creditworthiness of the applicant. This is because the issuing banks or institutions are exposed to the greatest risk in the process.

4.How to get SBLC?

To obtain a standby letter of credit, the buyer must contact a bank and establish their creditworthiness. The bank may request additional guarantees if the risk or amount is too high. Once the buyer meets all conditions and is deemed eligible for credit by the bank, the bank issues an SBLC and charges 1% to 10% of the total amount as an annual fee while the standby letter of credit is valid. valid.

5.Is SBLC safe?

Standby Letters of Credit are highly secure documents that guarantee payment for the goods in the event that the buyer defaults or is unable to pay according to the agreement.

6.How is SBLC used?

An SBLC is used as a security mechanism in a transaction to ensure that both parties honor the agreement.

7.Can SBLC be confirmed?

Yes, an SBLC can be confirmed like a normal letter of credit.

8.Can SBLC be cancelled?

The SBLC is an irrevocable document and therefore cannot be canceled without the consent of all parties involved.

9.Can SBLC be monetized?

Yes, SBLC can be monetized.

10.Can SBLC be transferable?

An SBLC is transferable in the sense that the beneficiary can sell or assign the rights to the proceeds of the SBLC, but the beneficiary remains the only party that can demand payment of the SBLC.

11.Can SBLC be done without advance payment?

Many companies and service providers claim to provide SBLC without upfront payment. However, experts call it a myth and say that there can be no SBLC without any upfront payment as the risk is too high.

12.Can SBLC be discounted?

Yes, an SBLC can be discounted and is often considered a great investment vehicle.