Procedure for opening letter of credit and documents required

As we have seen the meaning and steps of the L/C transactions in previous article. Now let’s understand the procedure of opening of L/C and documents required of opening Letter of Credit in the bank.

L/C applicant must be a client of the bank. If a new client comes in for opening L/C, he has to open an account first and then apply for letter of credit.

The applicant first applies for L/C to his bank in the prescribed form. The applicants should attach all the required documents to the L/C application. The bank officer checks the form along with all documents and prepares the L/C. Unique L/C number is put on the L/C document. L/C is prepared in instrumental format. After that L/C is dispatched by through postage mail or telex or SWIFT.

Following is the list of the documents generally required for opening the L/C in the bank:

1) Proforma invoice / purchase order- certified copy

2) L/C application form dully filled and signed

3) Particular of insurance (except CIF)

4) Board resolution – stating the L/C facility and the amount of L/C, for corporation OR photo copy of partnership deed and partner consent letter OR request letter in case of proprietary firm – as applicable

5) FEMA Declaration in prescribed form

6) Import Export Code certificate (IEC)

7) Counter indemnity for 0.10% of the L/C value equivalent to rupee (on stamp paper / franking)

8) Margin money as per the understanding between the importer and his bank. Generally 10% to 25% of L/C amount is considered as margin money. The amounts of the margin are given by way of Fixed Deposit. The margin money is depends upon the creditworthiness of the applicant. For a new customer bank may ask for 100% of L/C amount as margin money.

9) Import license in case of restricted items of import

10)  Any other documents as per the request of the bank


  1. Moges K. says

    Lc procedures are complex. Accounting transactions when 100 percent margin of L/C is requested in advance by the issuing bank as well as the actual payment to the confirming bank then to the seller requires a clear transaction which is not at this time not clear for me. Would any sample transaction that makes me full understand the procedure?
    Addis Ababa /Ethiopia

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