SUBJECT: INTERNATIONAL BANKING

SUBMITTED BY: M.AKBAR KHAN

SUBMITTED TO: SIR MUMTAZ HASSAN
SEMESTER: MCOM- 3 (WEEKEND)
SECTION: BATCH-3 REGULAR
SEAT NO: 30414026
CAMPUS: FUUAST - GULSHAN CAMPUS
DATE: 07/DECEMBER/2021
 LETTER OF CREDIT
.A Letter of Credit is a contractual commitment by the foreign buyer's bank to pay once the exporter
Ships the goods and presents the required documentation .A letter of credit or documentary credit is a
commitment by a bank on behalf of the buyer (applicant/importer) to pay the seller
(beneficiary/exporter) a specified sum in the agreed currency, provided that the seller submits the
required documents by a pre-determined dead line. In short, it is the agreement between buyer and the
seller.

ROLE OF BANK IN LETTER OF CREDIT

Banks play a crucial role in letters of credit transactions. They start and end the L/C operations. They
also decide either refusal of the documents or acceptance of the presentation. Without banks we
Cannot talk about any L/C transactions. Different types of banks exist in a letter of credit transaction
and each of them are functioning various roles according to the authorizations granted to them , which
are as follows:

1. Opening letter of credit form

2. Issuing bank

3. Beneficiary bank

4. Import/export parties

5. Document required

6. Discrepancies

7. Maturity payment

8. Retirement of letter of credit

 1. OPENING LETTER OF CREDIT:
The importer arranges for the issuing bank to open an LC in favor of the exporter. The issuing bank
transmits the LC to the nominated bank, which forwards it to the exporter. The exporter forwards the
goods and documents to a freight forwarder.You can approach relevant bank to open a Letter of
credit. The Trade officer at bank helps you in filling up necessary application to open an LC. Since the
LC is opened on the basis of your purchase contract, a copy purchase order / export contract has to be
produced with along with other required documents like master data of vendor, importer and exporter
details,etc

2. ISSUING BANK:

Issuing Bank is the bank who opens letter of credit. Letter of credit is created by
issuing bank who takes responsibility to pay amount on receipt of documents
from supplier of goods (beneficiary under LC). Beneficiary is one of the main
parties under letter of credit. The LC is opened on Beneficiary party's favour.

3. BENEFICIARY BANK:

Beneficiary is the technical name of the seller of the goods and services.
Issuing bank issues the letter of credit in favor of the beneficiary, against a
complying presentation, the beneficiary will be eligible to receive payment from
the issuing bank under both commercial and standby letter of credit.

4. IMPORT/EXPORT PARTIES:

There are four parties involved in the letter of credit or documentary credit which are

➢ Importer

➢ Exporter

➢ Issuing bank

➢ Advising bank (confirming bank)

505 DOCUMENT REQUIRED:

The most and commonly required document require in the further process of letter
of credit or documentary credit are as under:

➢ Bill of lading

➢ Commercial invoice

➢ Airway bill

➢ Insurance certificate

➢ Certificate of origin

➢ Packing list

➢ Certificate of inspection

6. DISCREPANCIES

In the process of letter of credit, discrepancies arises when documents presented under a letter of
credit do not conform the terms of the credit generally in error, omission related to the documents
constitutes the discrepancies . The bank will refuse to pay against document unless the applicant
(buyer) agrees to amend to credit or otherwise waive objections to payment under credit. The time
period given to resolve this discrepancies is 05 days.

7. AMENDMENTS IN LETTER OF CREDIT

An amendment to an LC signifies any change made to the terms of an LC after it has been
authorised. An amendment can be made at any time after an LC has been authorised and before
its expiry date. You as the advising bank have received instructions from the issuing bank to
amend an LC advised by you.
 8 RETIREMENT OF LETTER OF CREDIT

Retirement of L/C or retirement of Import Documents means After shipping

the goods, the overseas supplier prepares the necessary documents as per
the terms of contract and letter of credit and hands them over to his bank for
their onward negotiation to importer in the manner as specified in the L/C. and
the process of letter of credit is completed.

CONCLUSION
So, LC is the commitment or undertaking by a bank on behalf of importer to the
Exporter about the payment of certain amount subject to the fulfillment of certain
Documentary condition. In this process we can see that both importers and exporters
Are highly protected. And bank has a significant involvement. Only the adverse
Impact may occur if the documents are not accepted by the importer if any
Completed seen by importer.

THANK YOU

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