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Letter of Credit and bank guarantee

Letter of Credit and bank guarantee

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Published by maharjan_sojan

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Published by: maharjan_sojan on Apr 01, 2011
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01/31/2015

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Letter of Credit
A Letter of Credit, simply defined, is a written instrument issued by a bank at the request of its customer,the Importer (Buyer), whereby the bank promises to pay the Exporter (Beneficiary) for goods or services,provided that the Exporter presents all documents called for, exactly as stipulated in the Letter of Credit,and meet all other terms and conditions set out in the letter of Credit. A Letter of Credit is also commonlyreferred to as a Documentary Credit.A "Letter of Credit" is used as an instrument for settlement of payment arising out of commercialtransactions like sales/purchases in national/international trade. We issue every types of LC as per therequirement of our customers. The common types are as under:
 1.
 
Sight LC
 2.
 
Time/Usance LC
 3.
 
Differed/Mixed Payment LC
 4.
 
Revolving LC
 5.
 
Confirmed LC
 6.
 
Transferable LC
 7.
 
Back to Back LC
 8.
 
Advance Payment LC
 
Documents required for issuing a Letter of Credit-
Before issuing a LC, you will require to have approved credit limits sanctioned by the bank. Moreover,imports and exports transactions that involve foreign currencies are subject to Central Bank (NRB)'sforeign exchange regulations and other International rules like UCPDC 600, URR etc. We will require youto submit the following documents along with the LC Application form for issuing a Letter of Credit:
y
Proforma Invoice/Sales contract/Indent containing at least-
 
o
Harmonic code (in eight digits) of the goods to be imported,
 
o
Country of Origin
o
Delivery and Payment terms and various other details like rate, quantity, total value,shipment country etc. (wherever applicable)
 
o
Bi.Bi.Ni. Form No. 3 (Mandatory as per NRB)
 
y
Other documents required are-
 
o
PAN Certificate
 
o
Firm/Company Registration Certificate
 
o
Board minute (if applicable)
 
There are various other NRB provisions regarding import/export of goods from India and other thirdcountries. We will help you to know these provisions so as to make you feel at ease while conductingimport/export business.
 
Bank
Gu
a
r
an
tee
Banks guarantees are written obligations of the issuing bank (MBNL) to pay a sum on to a beneficiary onbehalf of its customers in the event that the customers themselves do not pay the beneficiary. Throughsuch guarantee letters, MBNL undertakes responsibilities to provide fund (guarantee amount), following adefault by you of your contractual or other obligations.
 
Letters of Guarantee can be in the form of Bank Guarantees, Performance Bonds, Bid Bonds, ShippingGuarantees, Advance Payment Guarantees, Counter uarantees etc.
 
 
F
eatures and Benefits
 
y
Secure customers entering into bids, sales contracts, and tenders.
 
y
Fulfillment of contracts with counterparties, based on the guarantee terms.
 
T
ransaction Mechanism
 
y
MBNL issues, amends, extends, and liquidates guarantees, all based on customer's requests.
 
We issue every type of guarantees as per your requirements. The most commonly used guarantees areas under:
 
1. Bid Bond (tender bond)
 
Its purpose is to secure any claims by the party inviting the tender on the tenderer in the event of withdrawal of the bid before its expiry date or if the bid is modified unilaterally. It is also used if thetenderer, upon being awarded the contract, refuses to sign the contract or provide further guarantees onrequest.
 
For issuance of bid bonds, customers need credit line from the bank.
 
. Performance Bond Guarantee
 
As the name implies, performance bonds are a means of guaranteeing the performance of a company tolive up to what it is promising to do. This also applies to any subcontractors or material suppliers thatcompany may employ. All parties must adhere to certain cost, time, and quality criteria based on whatthey've been contracted to produce.This guarantee is asked for by the beneficiary once it has elected a party to perform a certain task. Incase the terms and conditions are violated by the customer, the beneficiary will invoke the guarantee andwill obtain compensation for his loss.
3
. Advance Payment Guarantees
 
Some contracts require that some percentage of Advance payment be made against the contractawarded. In such cases the Buyer or the employer may seek an advance payment guarantee from thebank with an undertaking to pay the guaranteed sum to the buyer if the contractor has failed to complywith the terms and conditions of the contract.
 
4
. Counter Guarantee
 
For foreign bidders, who intend to participate in tenders or intend to enter into a contract in a project of Nepal must submit a guarantee acceptable to the beneficiary. In that case, the foreign party obtains aguarantee from the bank (acceptable to MBNL) in favor of MBNL, which in turn will issue a guarantee onbehalf of the foreign party.
 

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