Thursday, September 15, 2011

What is Irrevocable Letter of Credit (L.C) what type of documents are required for submitting Letter of Credit Application

Irrevocable Letter of Credit 

A Letter of Credit (LC) is a document issued by your bank that essentially acts as an irrevocable guarantee of payment to a beneficiary. This means that if you do not perform your obligations, your bank pays. The letter of credit can also be the source of repayment of the transaction meaning that the exporter will get paid with the redemption of the letter of credit.

or

A letter of credit, valid for a stated period of time, that may be cancelled or amended only by agreement of all parties to the credit.  The issuing bank waives its right to revoke a letter of credit prior to the expiration date, unless the consent of the beneficiary is obtained.  Fitch, Thomas P., Barron's Business Guides Dictionary of Banking Terms, 3rd Edition, ©1997, page 250.  As with any letter of credit, the wording of this letter is dictated by the ICC rules for Uniform Customs and Practice for Documentary Credits (1993 revised).
or
Irrevocable Letter of Credit cannot be cancelled. This seller is assured of payment for his supply of goods/services provided all terms and conditions of L/C are conformed to. This mode of payment is generally used in international trade transactions.

As the payment against this Irrevocable Letter of Credit is guaranteed by the issuing bank and the holder of this Irrevocable Letter of Credit (seller) can borrow short term finance from any other bank or lending institution at a very low rate of interest and within a very short time.

Irrevocable LC : Documents 

The borrower and/or the guarantors have to provide the following documents to the banks or the lending institutions while submitting Irrevocable Letter of Credit Application. Certain documents may be demanded by the bank or the lending institutions in post sanction phase or on periodical basis.
  • Address Proof : Latest Electricity/Telephone Bill or Receipt of Maintenance Charges or Valid Passport or Voter’s Identity Card or Purchase/Lease Deed/ Leave & License Agreement of Residence or Office Premises.
  • Identity Proof : Valid Passport, PAN Card, Voter’s Card, Any other photo identification issued by Government Agencies.
  • Business Proof : VAT/CST Registration No. or MIDC Agreement or SSI Permanent Registration Certificate or Warehouse Receipts or Shop & Establishment Act Certificate or Copy of Lease Agreement along with the latest Rent paid Receipt.
  • Business Profile on Company’s Letterhead.
  • Partnership deed in case of partnership firms.
  • Certificate of incorporation, Date of Commencement of Business and Memorandum of Title Deeds, Form 32 in for Addition or Deletion of Directors in case of companies.
  • Last three years Trading, Profit & Loss A/c. and Balance Sheets (duly signed by a Chartered Accountant wherever applicable).
  • Last one years’ Bank statement of the Firm.
  • If existing loan, then sanctioning letter and repayment schedule of the same.
  • Firm/Company’s PAN Cards.
  • Individual Income Tax Returns of the Individual/Partners/Directors for last three years.
  • Last one years’ Bank statement of Individuals, Partners, Directors .
  • SEBI formalities in case of listed companies.
  • Share Holding pattern of Directors duly certified by a Chartered Accountant.
  • List of the Existing Directors of the company from the Registrar of the Companies.



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