LETTER OF CREDIT

SUBMITTED TO:- HARISH MEHTA SUBMITTED BY:- KIRANDEEP KAUR MBA-3RD SEM (458)

12.155 crores as on 31 March 2010. 7098 crores and advances worth Rs.  Earned a net profit of Rs.30 crores for the financial year ended 31st March 2010. It became a Scheduled Commercial Bank in the year 1977.  Put in place the Real Time Gross Settlement (RTGS) and National Electronic Fund Transfer (NEFT) systems to facilitate large value payments and settlements online in real time. Achievements  Serviced business worth Rs. comprising deposits worth Rs. on a transaction-bytransaction basis. . 23.11. 5056 crores.INTRODUCTION TO DHANLAXMI BANK Dhanalakshmi Bank was incorporated on 14th November 1927 by a group of public spirited entrepreneurs at Thrissur. the cultural capital of Kerala with a capital of Rs. 000 and 7 employees.

. the Bank's outstanding under micro credit was Rs. Set up NRI Boutiques (Relationship Centers) across nine locations in Kerala and Tamil Nadu. with plans to open specialized NRI outlets at potential locations with emphasis on impeccable service levels.62 crores at the end of March 2009.  Dispensed Micro Credit among private and public banks in Kerala.  Attained ISO 9001-2000 certification for the Bank's corporate office at Thrissur and industrial finance branch at Kochi. 270.

RTGS and NEFT. ATMs  Internet banking. .WAYS TO BANK WITH DHANLAXMI There are four ways through which customers can bank with Dhanlaxmi bank. Debit cards.

. It is useful when the buyer is not well known and when exchange restrictions exist or are possible. A letter of credit provides the seller with the greatest degree of safety when extending credit. authorizing the seller to obtain payment within a specified timeframe once the terms and conditions outlined in the letter of credit are met. A bank or finance company issues a letter of credit on behalf of a buyer. while at the same time reducing payment delays.LETTER OF CREDIT A letter of credit is basically a document issued by a bank guaranteeing a client's ability to pay for goods or services. The letter of credit acts like an insurance contract for both the buyer and seller and practically eliminates the credit risk for both parties.

PURPOSE OF LETTER OF CREDIT In International trade.All the documents stated in the LC are presented. the Buyer¶s bank replaces its own Creditworthiness to that of the Buyer. it undertakes to reimburse the Seller for the value of the Letter of Credit ³Irrevocably´ provided two underline conditions are fulfilled by the Seller: 1. 2. Upon issuance of Letter of Credit. The main objectives of the buyer and the seller in any international trade and contradictory in terms of Buyer will always try to delay the payment while the seller would like to receive funds at the earliest. Seller always request Buyer to arrange for a Letter of Credit to be issued by Buyer¶s Bank. To mitigate this problem. the buyer and the seller who are located in different countries may not know each other and hence many times the problem of Buyer¶s Creditworthiness hampers the trade between the buyer and the seller.All the terms and conditions of the LC are complied with .

PROCESS OF LETTER OF CREDIT .

2. Applicant. 3.PARTIES TO AND ASSOCIATED WITH THE LETTER OF CREDIT The various parties involved in letter of credit are:1. Confirming bank. Advising bank. . 4. Issuing bank. 5. Beneficiary.

That bank then takes on the country and commercial risk of the issuing bank and protects the beneficiary. The beneficiary is assured of payment as long as it complies with the terms and conditions of the letter of credit. The beneficiary minimizes collection time as the letter of credit accelerates payment of the receivables. The beneficiary can enjoy the advantage of mitigating the issuing bank¶s country risk by requiring that a bank in its own country confirm the letter of credit. The letter of credit identifies which documents must be presented and the data content of those documents. 2. 3. 4.ADVANTAGES & DISADVANTAGES OF LETTER OF CREDIT Advantages of Letter of Credit: 1. The beneficiary¶s foreign exchange risk is eliminated with a letter of credit issued in the currency of the beneficiary¶s country. The credit risk is transferred from the applicant to the issuing bank. .

Disadvantages of Letter of Credit.The Letter of Credit as a payment method is costlier than other methods of payment such as Open Account or Collection 3.The Beneficiary is exposed to the Commercial risk on Issuing Bank.The Beneficiary¶s documents must comply with the terms and conditions of the Letter of Credit for Issuing Bank to make the payment. 4. Political risk on the Issuing Bank¶s country and Foreign Exchange Risk in case of Usance Letter of Credits . 1.Since all the parties involved in Letter of Credit deal with the documents and not with the goods. the risk of Beneficiary not shipping goods as mentioned in the LC is still persists. 2.

OBJECTIVES OF THE PROJECT ‡To study the concept of ³LETTER OF CREDIT´. ‡What is the purpose and need of letter of credit? ‡What is the process of this letter and how many parties are involved in this process. . ‡By availing this facility what are the benefits and drawbacks.

Research Methodology is an art of scientific investigation or one can say it is a careful investigation or enquiry specifically through search for new facts in any branch of knowledge. In simple words the search for knowledge through objective and systematic method of finding solution to a problem is research.RESEARCH METHODOLOGY RESEARCH: ³Systematized effort to gain any branch of knowledge´. .

The main aim of the research is to find out the truth which is hidden and which has not been discovered as yet . OBJECTIVES OF RESEARCH METHODOLOGY The purpose of research is to discover the answers to the questions through the application of scientific procedures.DATA COLLECTION: DATA SOURCE: The report consist data from the secondary source gathering through books. Journals and websites.

authorizing the seller to obtain payment within a specified timeframe once the terms and conditions outlined in the letter of credit are met. ‡The Letter of Credit as a payment method is costlier than other methods of payment such as Open Account or Collection . ‡It deals with lots of legal formalities and paper work.FINDINGS OF THE STUDY ‡A letter of credit is basically a document issued by a bank guaranteeing a client's ability to pay for goods or services. ‡LC consists of four parties and the whole process contains lots of time and money value. ‡A bank or finance company issues a letter of credit on behalf of a buyer.

‡This letter relief the seller in regard to payment of delivered goods. ‡As international trade becomes more and more rationalized. and other credit enhancing devices accomplish and does it with significantly lower transaction costs. for it accomplishes much that security interests. but the use of the standby has enjoyed something of a boom. surety ship arrangements. ‡The rules that govern letter of credit transactions(UCP 500) have been under review for the past three years and an updated set of rules (UCP 600) is introduced on 1July 2007 . the use of commercials has diminished.

about 100 years after letters of credit became a common method to pay. problems exist.LIMITATIONS OF THE STUDY ‡Paucity of time and resources was the major constraints. ‡There are some points which are not included because of less information provided by the bank. ‡The analyses of problems concerning the strict compliance lead to the result that still today. . ‡ ‡For exporter the letter of credit has presented difficulties in meeting the compliance requirements necessary for the payment to be triggered. ‡Whole report considered the secondary research and some aspects cannot be judged because of non presence of primary data.

. ‡The term µstrict compliance¶ should be clearly defined. about 100 years after letters of credit became a common method to pay. ‡The analyses of problems concerning the strict compliance lead to the result that still today.SUGGESTIONS ‡Letter of credit is very old and traditional way of financing the trade. ‡UCP 600 Rules should be practiced by banks to improve the conditions of letter of credit. problems exist. so banks should follow some ways to promote it. which now a days is not as popular as the factoring is. Because the term strict compliance have different interpretation in different countries.

e. communication can be difficult across thousands of miles and different time zones. The rules that govern letter of credit transactions(UCP 500) have been under review for the past three years and an updated set of rules (UCP 600) is introduced on 1July 2007 . Banks issue letters of credit as a way to ensure sellers that they will get paid as long as they do what they've agreed to do. Letters of credit are common in international trade because the bank acts as an uninterested party between buyer and seller. For example. This way of financing is very costlier and includes lots of formalities. In addition. importers and exporters might use letters of credit to protect themselves.CONCLUSION After analyzing the whole data it has been concluded that ³LETTER OF CREDIT´ is a promise to pay. Letter of credit includes four parties i. buyers¶ bank and sellers¶ bank. buyer and seller of goods.

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