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