LETTER OF CREDIT

IMPORT FINANCE.
• The following are the modes of the import
financing.
• PAD ( PAYMENT AGAINST DOCUMENTS ).
• The import documents are being lodged by
debiting the financing head of PAD of the bank
and payment is remitted to the presenting /
negotiating bank to pay off the liability.
• DR---------------- PAD
• CR---------------- RESPECTIVE NOSTRO ACCOUNT.
• The financing head PAD later is being adjusted
in the following modes of the settlements /
transactions.
• DR----------- Party’s account.
• CR----------- PAD.
• In this way the financing head of the bank is
adjusted.
• FIM ( FINANCE AGAINST IMPORTED MERCHANDISE ).
• The FIM is created on the request of the party /
importer, having the sanctioned valid line of FIM.
• The FIM is created by pledge of the imported
consignment / goods under the LC Sight.
• The finance is created by debiting the FIM head of
account.
• DR---------------- FIM.
• CR---------------- PAD.
• Proper stock report is being held on record.
• The shipping documents are not handed over to the
importer, but forwarded to the bank’s approved
clearing agent for clearance of consignment and
storage.
• The adjustment if FIM may be in partial or fully
according to the request of the party and the goods
are released by the bank accordingly by issuing the
delivery order.
• FATR ( FINANCE AGAINST TRUST
RECEIPT ).
• FATR is created against the specific request
of the importer and the TRUST RECEIPT .
• FATR is created against the LC Sight.
• The original import / shipping documents
are handed over to the importer on
creating FATR , after necessary
endorsement to the shipping documents.
• The importer provides the written
undertaking ( Trust Receipt ) that he will
pay the amount of the documents/ FATR on
maturity date.
• FATR is creating as under:
• DR----------------- FATR.
• CR----------------- PAD.
• Later on maturity date the adjustment will
be made as :
• DR----------------- PARTY’S ACCOUNT.
• CR----------------- FATR.
• All the charges and the up to date mark up
will be debited to the party’s account on
adjustment of the finance.
• FUBA . (FOREIGN USUANCE BILL ACCEPTED).
• The import/shipping documents are handed over to
the importer under DA/USUANCE LC on getting the
acceptance of the documents and proper request
with the undertaking that on maturity date he will
pay to the bank according to the documents value
along with all the related bank charges.
• TR-IB-27 will also be submitted by the importer
which is the legal charge form on the basis of which
bank can move in litigation , if the importer fails to
honour the commitment of the payment on due
date.
• DR---------------- FUBR.
• CR---------------- FUBA.
• FADB ( FINANCE AGAINST DISHOUNER BILL ).
• On maturity date if the importer fails to pay the
amount of the shipping documents under
usance LC then the bank creates FADB by
debiting the financing head to pay off the
liability , because at the time of getting the
acceptance of the documents from the party,
the bank had conveyed the same acceptance
and maturity date of payment to the foreign /
presenting bank.
• On maturity date the LC opening bank is bound
to pay off the liability under the usance LC.
• DR------------------- FADB.
• CR------------------- PAD.
• Later when the party / importer
arranged the funds in his account the
FADB is adjusted by debiting the
party’s account along with all the
bank’s charges and up to date mark
up and overdue commissions etc.
• DR-------------- PARTY ACCOUNT.
• CR-------------- FADB.
 ROLE OF TRADE FACTORY.
• All the trade transactions have been centralized at
trade factory.
• The trade factory is the centralized processing unit of
the bank.
• All the trade related branches forwarded their
requests relating to the trade transactions to trade
factory for processing.
• The procedure as under:
• For example, if the branch wants to forward the
request for opening of LC at the request of the
importer.
• The branch obtains all the required documents
from the party/importer, the signatures of the
importer are being verified by the concerned
branch official on all the documents.
• All the documents are scanned after completing
the formalities and PDF file is made.
• In T-24 system the IBR ( Inter branch request ) is
generated and the ODF file is attached with the
IBR, and later this IBR is authorized by the
branch’s banking service manager.
• The IBR and all the attached documents are
checked by the trade factory , if the IBR and
documents are OK the branch request / IBR is
entertained/ processed.
• If the trade factory found some discrepancies in
the request or found that any rectification is
required to them the query is mailed to the
concerned branch.
• When the request is processed the respective
account of the party is debited to recover the LC
Charges along with the LC Margin, and the LC
liability is created in the system.
• The accounting entries passed in the system as
under:
• DR-------------- PARTY ACCOUNT.
• CR-------------- LC COMISSION.
• CR-------------- SWIFT CHARGES.
• CR-------------- FED,
• CR-------------- LC MARGIN. ETC.
• DR-------------- CUSTOMER LIABILITY LC.
• CR-------------- BANKER LIABILITY LC.
• On receiving the shipping documents against the
already established LC the trade factory
scrutinizes the import documents and inform the
concerned branch about the status of the
documents by forwarding the intimation of the
documents.
• Then further for adjustments of the documents
the branch again generates the IBR and trade
factory process the IBR accordingly.
• In the same way for all the trade transaction the
same procedure is adopted, like creation of the
finances and their adjustments etc.