Chapter 3 :EXPORT LETTERS OF CREDIT GENERAL

1. This Chapter deals with the letters of credit opened by importers in the foreign countries in favour of Indian exporters and the documents tendered by the exporters under letters of credit to the bank for the purpose of negotiation. Branches will be guided by the general provision and definitions contained in the Uniform Customs and Practice for Documentary Credits (UCPDC) which is a set of standard rules governing Letters of Credit codified by ICC. (currently ICC Broucher No. 500). Besides these instructions, branches should also keep in mind the prevailing FEMA regulations relating to exports, Foreign Trade Policy, provisions of Uniform Rules for Reimbursement (URR), ICC Publication No. 525, FEDAI Rules etc. while dealing with the export letters of credit and documents under the same. 2. The overseas bank, while opening a credit in favour of an Indian exporter will normally adopt one of the following methods: (a) It may send its own credit typed ready for handing over to the beneficiary through a correspondent bank. Such credits are called Hand-on Credits. It may instruct its Indian correspondent by mail or SWIFT to advise the exporter of the issue of credit. Where the credit is advised without the correspondent bank in India adding its confirmation, it is termed as Advised Credit and, in cases of such credits; the advising bank does not assume any liability. Unlike Hand-on Credits, the Indian correspondents will forward to beneficiary an Advised Credits on its own forms. The overseas bank may act as under (a) or (b) above, and request the correspondent bank to add its confirmation. In such cases, the advising bank assumes a definite obligation and such credits are called Confirmed Credits.

(b)

(c)

PROCEDURE FOR AUTHORISED BRANCHES

On receipt of instructions from the foreign correspondent by mail or SWIFT to deliver or advise a credit in favour of the beneficiary, the authorised officials will ensure that the following points have been examined: 1

(a) Credits must be authenticated (including verification of signatures in case of mail), before being advised to the beneficiary, directly or through branches of another bank. (b) The credit must provide clear instructions for reimbursement by the overseas bank in an approved manner, in terms of Uniform Rules for Bank to Bank Reimbursement under Documentary Credits (URR) ICC Broucher No. 525. Where reimbursement under a credit is available in a manner other than that permitted under FEMA, the customer should be advised to get the clause suitably amended. The credit should preferably provide for reimbursement at the time of negotiation itself although there is no compulsory requirement for the reimbursement clause as per UCPDC other than a statement from the issuing bank that they will remit proceeds on receipt of confirming documents. In case the credit does not provide any reimbursement instructions or is available with the issuing bank, the LC issuing bank will normally remit the funds after the receipt of credit confirming documents. An element of risk is involved in case such documents are negotiated and the issuing bank goes into liquidation after receipt of documents. (c) (i) The credit must not contain clauses of the following nature: Negotiating banks certificate that it has satisfied itself by independent checking with shipping companys agents that bills of lading are genuine required. Negotiating banks guarantee in respect of goods required. Negotiating banks certificate regarding checking of technical details of the goods required. Clauses placing onus on the negotiating banks which are inconsistent with the responsibilities usually assumed by banks negotiating under the credits. Vague clauses calling for insurance covering all marine risks, all marine and war risks, all risks, full insurance, or W.P.A. Comprehensive. (All risks Institute cargo clause, do not, however, fall under this category.) Reimbursement available on receipt of documents at the counters of issuing bank. Any other clauses contravening provisions under FEMA or credit not subject to Uniform Customs and Practice for Documentary Credits. 2

(ii) (iii) (iv)

(v)

(vi) (vii)

Difficulties may arise at the time of negotiation of documents under letters of credit containing such clauses. If a credit contains any such clause or similar clause, the credit may be advised to the beneficiary, but the beneficiary should be advised to get the onerous clause/s amended/deleted, in his own interest, to avoid any problem at the time of negotiation. Branches must not add our banks confirmation to credits containing onerous clause/s until such clause/s are amended/ removed and specific prior approval for adding confirmation is obtained from International Banking Division, Head Office. 4. HAND ON CREDITS These credits will be passed on to the beneficiary accompanied by a covering letter typed on form FEX-11. The four copies of the form will be used as under: 1st copy 2nd copy 3rd copy 4th copy covering letter to the beneficiary file copy for authorised branch acknowledgement to the issuing bank accompanies the 1st copy and is to be returned by the beneficiary to the Bank duly signed as an acknowledgement.

Hand on credits received from overseas banks with whom agency arrangements exist should be passed on to the beneficiary after verification of signatures of issuing bank. However for those overseas banks with whom no arrangement exist and message is unauthenticated, it should be passed on to the beneficiary under cover of a letter on banks letter head with the following wording: We enclose an irrevocable credit number ___________ dated __________ for _____________________ issued by________________________________ in your favour without any responsibility or engagement on the part of our bank. We have no arrangement with the issuing bank and, therefore, have not been able to verify the signatures on the letter of credit. The letter of credit should not contain banks stamp, signatures or any other indication involving banks name. Copy of the letter, addressed to the beneficiary, should be endorsed to the issuing bank also. In case of any difficulty, the matter should be referred to International Banking Division, Head Office for instructions. It should be ensured that all letters of credit advised are subject to Uniform Customs and Practice for Documentary Credits. 5. ADVISED CREDITS

Advised credits will be communicated to the beneficiary on form FEX-10 giving full details. Form FEX-10 is in a set of four and copies will be used as under: 1st copy 2nd copy 3rd copy 4th copy original for the beneficiary file copy for authorised branch acknowledgement to the issuing bank acknowledgement to be returned by the beneficiary

It should be ensured that all letters of credit advised are subject to Uniform Customs and Practice for Documentary Credits. 6. STAMP DUTY:

All outgoing Exports letters of credit must be stamped for the amount of stamp duty in force, before they are sent for dispatch or delivered to the beneficiary. The stamps affixed should be defaced with the banks round stamp to prevent their reuse. The amount of stamps affixed should be debited to revenue under the head Expenditure Other Stamps and recovered from beneficiary alongwith other charges. 7. RESTRICTED LETTERS OF CREDIT

Where the export letter of credit is restricted for negotiation to our Bank, branches may advise such credits provided the issuing banks is our correspondent/approved bank . When negotiations are restricted to our Bank, the form FEX-10 or 11, as is the case, must be marked as under: Negotiations under this credit are restricted to Punjab National Bank _____________________ Branch. Note: Restricting negotiations to our Bank does not necessarily mean that we are obliged to negotiate bills drawn thereunder, as in the case of credits confirmed by us. 8. ADDING CONFIRMATION TO A LETTER OF CREDIT

Authorised branches may add our banks confirmation to export credits at the specific request of the LC issuing bank provided: i) ii) the issuing bank is our correspondent/approved bank, and prior permission to add confirmation has been obtained from International Banking Division(IBD), Head Office.

However, pending approval from IBD, branch shall advise the LC to beneficiary, incorporating the following clause on the covering schedule: Please note that we have not added confirmation and shall revert in this connection shortly 4

In case confirmation charges are for account of beneficiary, his consent for the same may also be ascertained simultaneously clearly informing to him that it does not tantamount to our banks consent for adding confirmation for which the matter is under reference to higher authorities for necessary approval. In case of beneficiarys non-acceptance for the same confirmation should not be added and position be intimated to overseas bank. Where the LC opening bank has not requested for adding confirmation to the LCs and the beneficiary has requested us to do so, the beneficiary should be advised that the confirmation will be added only on receipt of request from the LC opening bank. Charges are to be recovered as per bank rules 9. The proposal for adding confirmation shall be referred to International Banking Division, Head Office for consideration of the competent authority on the prescribed format ( See Annexure-I). The confirmation charges are to be recovered from the opening bank/beneficiary in terms of the LC. In case the beneficiary is not our customer, branch may advise the beneficiary giving reference of LC earlier advised as under:
We are prepared to add confirmation to the LC and the same

will be added after receipt of our charges i.e. Rs. ______. Upon receipt of approval from IBD, HO, the beneficiary should be advised suitably in this regard. 10. RECORDS AND ACCOUNTING PROCEDURE

All export credits whether hand on, advised or confirmed, will be recorded in chronological order in the Export Credits Register (FEX-47). Credits advised direct to the beneficiaries by the foreign correspondent are not to be entered in this register. The rupee equivalent in the register should be calculated at the current bills buying rate. A file number in serial order will be given to each credit for identification purposes. A separate file shall be opened for each credit and all related correspondence/advices shall be kept in the file, to be maintained in numerical order. The Officer concerned should examine these files at fortnightly intervals and the files of expired credits should be consigned to the old record after a lapse of three months. No vouchers shall be passed for Hand on Credit or Advised Credits. However, the following entries shall be passed where our bank has added its confirmation: Dr. Export Credits } Cr. Export Credits (Correspondents) At the current buying rate of } exchange for sight bills

On expiry, cancellation or utilization of the credit, the entries passed above at the time of adding confirmation shall be reversed. 11. CHARGES

Charges will be recovered in respect of all credits in terms of bank rules. In cases where advising charges, postage and other expenses are recoverable from the beneficiary, who is not a customer of the branch, the charges should be followed up with the beneficiaries for recoverable amount. For our own customers, recovery of such charges should be made at the time of advising of credits by debiting to their account. Such charges are to be credited to the revenue head Miscellaneous Income on foreign exchange business. 12. DELIVERY/DESPATCH OF CREDITS:

The instructions of issuing bank, if any, in respect of mode of communication must be followed. Two officers, one of whom must be Manager or Deputy Manager, should duly sign the covering schedule. The credit should be delivered to the beneficiary by hand or should be dispatched by Registered AD Post or courier. All advices of credits in favour of local parties must be delivered latest by the day following receipt and their signatures obtained in the Peon Book as an acknowledgement. In case of big cities, the credit should be sent by Registered Post/courier. Branches should ensure that credits are delivered / dispatched to the concerned party at the correct address. If the beneficiarys full address is not indicated in the issuing banks advice, branch shall ensure that our advice does not fall into the hands of another party of similar or identical name. In case of any doubt, instructions must be sought from the issuing bank promptly. Credits in favour of outstation parties should be sent to the beneficiaries by Registered AD Post/approved courier. 13. AMENDMENTS

Amendments to the credits should be advised to the beneficiary on form FEX 14, which is in a set of four, and the copies should be used as in the case of form FEX 10 for advising credits. The amendments in respect of a credit should be scrutinized with the same care as in case of original letter of credit (refer para 3). When the amount of the letter of credit is enhanced through an amendment and where our bank has added its confirmation, a corresponding adjustment must be made in the contra account entries passed at the time of advising the credit. Charges must be recovered at the prescribed rates in terms of bank guidelines. 6

14.

TRANSFERS

A credit should be transferred in accordance with Uniform Customs and Practices for Documentary Credits. A credit can be transferred only if it is expressly designated as transferable by the issuing bank. However, unless this is specifically mentioned, all credits must be regarded as non transferable. The Bank should comply with the beneficiarys written instructions to transfer the credit as a whole or in part, if the text of the credit permits this. Before entertaining any such request, the following points must be kept in view: (a) Transfer can be made on instructions only from the original beneficiary (also called First Beneficiary). It can be transferred once only which means that a transferee (known as Second Beneficiary) is not entitled to ask for a further transfer in favour of another party. Unless otherwise stipulated in the LC, bank charges for transfer of LCs must be paid by the First Beneficiary. Transferring bank can refuse to transfer LC unless such charges are paid. The transfer must be on the terms and conditions specified in the original credit. However, one or more of the following terms can be reduced or curtailed while transferring the credit: i) ii) iii) iv) v) Amount of Credit Unit price Period of validity of LC Period of shipment Last date for presentation of documents.

(b)

(c)

Further, the beneficiary can request/ stipulate for an increased percentage of insurance cover. (d) (e) A credit can be transferred in part, only if part shipments are allowed. The language of the original credit must be strictly followed, and nothing should be added or substituted which might disturb the original terms and conditions. All amendments should be passed on to the original beneficiary, in the absence of any contrary instructions from him.

(f)

15.

FORM FOR TRANSFER OF A DOCUMENTARY CREDIT

Application for the transfer of a documentary credit as a whole must be taken on the form FEX-12. This form includes instructions to the bank to advise future amendments direct to the transferee. Form FEX-12 is to be typed in triplicate and will be used as under: 1st copy 2nd copy the 3 copy
rd

Original to be retained by the bank. This will be sent to the opening bank with a copy of our letter to transferee. This will be retained by the original beneficiary i.e. the transferor

The authorised official will verify the signature of the original beneficiary, and where the original beneficiary is not a customer of the bank, his signatures must be verified by his own bank. An endorsement in the following form should then be made on all the copies of the original credit in the hands of the bank, and be signed by two authorised officers: As per instructions by letter No. _____________ dated ___________________ from __________________________, this credit is wholly transferred in favour of _____________________________ . The original credit with the above endorsement, and a covering letter worded as under, will be sent to the transferee: Reg: Credit No. _______________for ______________opened by ________________________________________ in favour of ________________________________________. We attach herewith advice of the above credit which has been irrevocably transferred to you. 16. Where the credit is to be transferred in part, the authority of the original beneficiary should be obtained on form FEX 13 which is also in triplicate, the copies being disposed of as in the case of form FEX-12. Photocopies of letter of credit should be taken out for each transferee. The amount transferred should be endorsed on the original letter of credit at the back. The photocopy of the letter of credit with endorsement on back for the amount transferred will be marked on the face as under: This is in part transfer of Irrevocable Credit No. _____________ of __________________(name of Bank) dated ________________.

17. Charges for transfer of credit will be levied in terms of bank guidelines. Charges will be recovered for each transfer of credit, part transfers being charged as separate transactions. Charges are to be recovered from transferor unless specified otherwise in the credit. 18. RED CLAUSE CREDITS

A documentary credit containing the so-called Red Clause is in fact an authorization from the opening bank to the advising bank to make advance to the beneficiary for the purpose of financing shipment. In other words, the beneficiary is able to obtain (on the strength of Red Clause credit), a packing credit advance from the advising bank. The proceeds of any bill subsequently negotiated, will be used to adjust the banks advances, which have not been repaid by the time the credit expires. Any request for an advance under a Red Clause credit should be referred to International Banking Division, Head Office for prior approval. Branches should make the advance against Red Clause letters of credit on the basis of a receipt and an undertaking from the beneficiary and/or in compliance with any requirements stipulated by the issuing bank. The amount may be paid to the debit of Suspense Account, which will be adjusted by proceeds of the bill subsequently negotiated or by a remittance from issuing bank, if no bill is negotiated. 19. GREEN CLAUSE CREDITS

A documentary credit containing the so-called Green Clause is in fact just an extension of Red Clause where the opening bank authorizes the advising bank to make advances to the beneficiary not only for the purpose of financing shipment but also towards warehousing and insurance charges. The other provisions of Red Clause credits (Paragraph No.18) will also be applicable to these credits. NEGOTIATION OF DOCUMENTS UNDER LETTERS OF CREDIT 20. GENERAL

Branches may negotiate foreign outward bills under and in conformity with the terms of Letters of Credit of approved banks (list circulated by International Banking Division, H.O. from time to time). It must be ensured that all negotiations are covered by sanction from appropriate authority or are within the vested powers of the Incumbent- in-Charge. In case, where a branch has added confirmation and documents are presented to that branch for negotiation through another bank, the branch may negotiate documents even though beyond their vested powers, as branch would have already obtained approval from International Banking Division, Head Office before adding confirmation to a letter of credit. 9

Branches shall receive documents from their clients for payment or negotiation not only under credits advised through our bank but also under credits advised/established or confirmed by other banks. Branches may also receive documents from other banks for payment or negotiation where Letters of Credit are restricted to our bank for negotiation. Branches should note that restriction of Letters of Credit to our bank does not necessarily mean that we are under obligation to negotiate documents under such Letters of Credit. Documents may, however, be negotiated under such Letters of Credit subject to completion of all formalities as per procedure for negotiation of documents laid down in this chapter. On receipt, all items will be entered in Export Credits-Documents Paid Register FEX-48. The documents must be marked with the banks stamp and bill number from the series allotted for the purpose. Branches should not negotiate any documents unless the beneficiary is enjoying the credit facilities with the branch concerned or Letter of Credit advised through that branch is restricted to them for negotiation, and documents are presented through another bank (also refer Para 44). Documents drawn under Letters of Credit, under which negotiations are restricted to another bank in India, should be accepted only on collection basis (also refer Paras 39 to 43). 21. BILLS RECEIVED AUTHORISATION FROM BRANCHES WITHOUT DIRECT

Authorised branches shall receive bills from sister branches without direct authorization, for examination and approval, as to whether the bills may be negotiated by them. Such documents will be entered in the Export Credits Documents Paid Register FEX-48. For the sake of convenience, separate columns should be allotted by authorised branches in the Export Credits Documents Paid Register, for entering particulars of such bills. 22. SUBMISSION OF DOCUMENTS

The documents must be presented within the time limit stipulated in the Letter of Credit. As per FEMA Regulations, in cases where exporters present documents pertaining to exports after the prescribed period of twenty-one days from date of export, authorised branches may handle them without prior approval of Reserve Bank, provided they are satisfied with the reasons for delay. Accordingly, the documents must be presented for negotiation within the period stipulated in the letter of credit or 21 days, whichever is earlier. In case the documents are tendered after 21 days and negotiation is permitted 10

under letter of credit beyond 21 days, the documents may be negotiated as per terms of credit, provided the Incumbent is satisfied about reasons for the delay, which, may be placed on record. 23. (i) AUTHENTICITY OF LETTERS OF CREDIT LETTERS OF CREDIT ADVISED BY OUR BRANCHES

Branches must ensure that the signatures / authenticity of the credit are verified by the advising branch, before advising the letter of credit to the beneficiary. The signatures of the officer verifying the signature/test should be verified from those available on records. The covering letter of the advising branch must be examined with the same care as the original letter of credit for any clauses such as credits advised without verification of signatures of issuing banks, without any engagement or responsibility on the part of the advising branch, or any other clause affecting our position as negotiating bank. (ii) LETTERS OF CREDIT ADVISED BY ANOTHER BANK

In the case of credits advised by another bank for and on behalf of a foreign bank, it must be ensured that the advising bank has verified authenticity of the credit. The covering letter of the advising bank must be examined with the same care as the original letter of credit for any clauses restricting negotiation to themselves, or advising credit without verification of signatures of issuing bank or without any engagement or responsibility on the part of advising bank, or any other clause affecting our position as negotiating bank. (iii) LETTERS OF CREDIT ADVISED BY FOREIGN BANK DIRECT TO BENEFICIARY Where the credit has been advised direct to beneficiary by a foreign bank and the beneficiary happens to be our customer, the signatures of the foreign bank must be verified with those on record. Where verification of signatures is not possible, bills drawn under credits must not be negotiated. However, a reference may be made preferably by SWIFT, at the cost of beneficiary, to the issuing bank, if requested by beneficiary. 24. EXAMINATION OF LETTER OF CREDIT

(i) Branches should ensure that the letter of credit is that of an approved bank. If the name of the issuing bank does not appear in the list of approved banks, branches should refer the matter to International Banking Division, HO for approval of the bank for the specific case. To expedite, request for approval should be sent by fax.

11

(ii) In case of a revocable letter of credit, branches must ensure that the same has not already been amended or cancelled at the time of negotiation of documents, by getting a confirmation from the issuing bank. (iii) The credit must provide for reimbursement by the overseas bank in an approved manner in accordance with the permitted methods of receipt under FEMA. The credit must provide for reimbursement under the credit at the time of negotiation of documents and not after the documents reach the counters of issuing bank. The date of expiry of the credit should be related to presentation of documents for negotiation in India and not at the foreign centers. (iv) The credit should not contain any clause contravening the provisions of FEMA and should be subject to Uniform Customs and Practice for Documentary Credits. (v) The credit should not contain any clause placing an onus on the negotiating bank not consistent with the responsibilities usually assumed by banks negotiating documents under credits. (Also refer paragraph 3.) 25. CHECKING OF DOCUMENTS

When the authorised branch is satisfied that the credit is genuine and the letter of credit is in accordance with our requirements, the documents will be examined to ensure that they are drawn and presented strictly in accordance with the terms & conditions of the credit. Branches should be guided by the provisions of Uniform Customs and Practice for Documentary Credits, while examining the documents. If the documents do not conform exactly to the credit in all respects, the issuing bank may refuse to reimburse the negotiating bank. It is, therefore, obvious that the checking of documents is a job of responsibility and it must be entrusted to experienced officers only. All documents shall be checked by two officers independently one of whom must be Manager or Deputy Manager, before the negotiation is made. The following important points and provisions of Uniform Customs and Practice for Documentary Credits must be carefully observed: (i) DRAFT/BILL OF EXCHANGE The draft/bill of exchange must be drawn by the beneficiary of the credit /any other person authorised in this regard and properly signed. The draft/bill of exchange should be drawn on the bank/party stipulated in the credit. 12

(ii)

The amount of bill of exchange/draft should be for 100% of invoice value, or if otherwise specified in letter of credit, according to the terms specified. The amount must not exceed the amount available under the credit. The amount in words and figures must agree. The required set of draft/bill of exchange (e.g. first and second of exchange) should be submitted. The tenor of the bill of exchange must be as stipulated in the credit. The draft/bill of exchange must bear the reference to the credit under which it is drawn mentioning the name of the issuing banks branch, credit number, date and such other particulars as required in the letter of credit. The draft/bill of exchange should be drawn or endorsed in favour of the bank. The draft/bill of exchange must bear a date. The draft/bill of exchange must not be dated after the latest date for negotiation permitted under the credit. The draft/bill of exchange should be signed by the drawer. The draft/bill of exchange should be drawn unconditionally and should be free from any extraneous conditions. The draft/bill of exchange should be drawn for a specified amount and should be consistent with the terms of drawing permitted in the credit. The draft/bill of exchange should, unless otherwise specified , be drawn in the same currency as invoice/LC. COMMERCIAL INVOICE The invoice should be addressed to the party mentioned in the credit. The invoice should be made out by the beneficiary or other authorised person(s) as stipulated in the LC . The invoice need not be signed. The required number of copies should be submitted. The invoice should be in the prescribed form and certified/ attested by Chambers of Commerce or the Representative Authority of the Government of the importing country, in the exporting country, wherever required in terms of credit. The goods must be described exactly as in the credit and the terms of sale i.e. f. o. b., c & f, c. i. f. etc., quality, quantity, grade, packing, cost, must be precisely the same as required in the credit. The number of packages shipped, gross and net weights, shipping marks mentioned in invoice must tally with those on the shipping documents. Bill of lading number and date, order number, import licence number and date, if any, should be given on the invoice, wherever required in credit. Particulars must tally with those stated in shipping documents. 13

The amount of the invoice must be within the amount authorised in the letter of credit. The invoice must be dated not later than the expiry date of the credit. Any discount/commission shown in the invoice must be in terms of credit and subject to compliance of FEMA Regulations. The invoice should be drawn in the same currency as LC unless otherwise specified. Arithmetic calculations should be accurate. It should not include any charges, which are not permitted by LC. As per stipulations of LC, the gross value of invoice should not exceed the credit amount.

(iii) INSURANCE DOCUMENTS The documents presented must be that as called for in the credit. A certificate or cover note cannot be accepted unless specifically authorised in the credit. It must be issued only by Insurance Company or underwriters or their agents. It should not be issued by brokers. It must be signed by the issuer. It must bear the date of issuance. It must indicate the name of the assured. It must indicate the mode of conveyance (Air, Sea, Road etc.) and if possible the name of the vessel, voyage number etc. All the risks required to be covered in the credit should have been covered. The value of the insurance policy/certificate must be as per requirements of the credit but in any case not less than invoice value of the goods. Unless otherwise specified, it should be issued for an amount equivalent of 110% of CIF/CIP value of the goods. If such value is not determinable from the documents on their face, it should be for the minimum amount of the negotiation requested for or the amount of invoice value whichever is greater. Insurance policy/certificate must be in the same currency as in the letter of credit but in any case not less than invoice value of the goods and the claims should be payable at the centre stipulated in the credit. The insurance policy/certificate must not be dated later than the date of the bill of lading or date of shipment unless the insurance documents presented establish that the cover is effective at the latest from the date of shipment or dispatch. Insurance policy/certificate should be in negotiable form and should be properly endorsed. The insurance policy must be properly stamped. 14

If the name of the steamer is mentioned in the insurance policy, it must agree with the name given in the bill of lading. The insurance policy/certificate must bear a description of merchandise which conforms to the terms of the credit and allows identification with the other documents presented. If transshipment is to take place, the insurance documents must cover transshipment. (It may be noted that the normal Institute warehouse to warehouse clause covers customary transshipment). If the credit permits shipping on deck and bill of lading indicates shipment of goods on deck, the insurance policy must cover the risk. In case of exports contracted on f.o.b. or c & f terms, it should be ensured that the shipment has been adequately insured against all risks of loss or damage during the entire course of transit and that such insurance cover incorporates Sellers interest clause in the relative policy, permitting claims being paid to exporter in India, in the event of loss/damage to the shipment before ownership of goods passes to the buyer. If it is issued in more than one original, all originals must be submitted (no. of negotiable copies issued are indicated in the insurance policy / certificate). It should be endorsed in blank by the assured, if required as per terms of LC. It should indicate the port of shipment and destination or point of insurance coverage and point of termination of insurance coverage. It should not contain any clause affecting the interest of the assured/assignees.

(iv) BILL OF LADING The complete set of bills of lading i.e. all the original negotiable copies must be submitted unless the credit provides otherwise. It should be noted that a shipping company would deliver the goods against the first presented and correctly endorsed negotiable copy. The bill of lading should have been manually signed. (Signatures by rubber stamp are not acceptable.) Bill of lading should normally be signed by the master of the ship or on his behalf by the authorised agent. The bill of lading must be clean i.e. it should not contain any super imposed clause indicating any defect in the goods or in their packing. Any such mention will render the bill of lading unclean, dirty, foul which is not a good tender under a credit, unless specifically authorised in the credit. The bill of lading must indicate that the goods are shipped on board a named vessel, Received for shipment bills of lading should not be 15

accepted unless specifically provided for in the credit. If received for shipment bill of lading is over-stamped on board, the bill of lading is acceptable, as being on board bill of lading, provided the overstamping is authenticated and dated. The date so indicated should be within the latest date of shipment stipulated under the credit. The date of bill of lading should not be after the stipulated last date of shipment in the credit. It should also not be prior to the date of issuance of letter of credit. The shipping marks in the bill of lading should be identical with those on other documents. The general description of the goods in the bill of lading must be in accordance with that called for in the credit. Number of packages and weight in the bill of lading should be the same as shown in commercial invoice and other documents. Shipper, consignee and to be notified parties in the bill of lading must be in accordance with the stipulations of the credit. Bill of lading must be made out to the order of the party named in the letter of credit. If the goods are being shipped on c.i.f. or c&f basis, the bill of lading must evidence freight paid. Where freight pre-paid bills of lading are required, clauses like freight to be pre-paid or freight pre-payable will not be accepted as constituting evidence of the payment of freight. The port of shipment or the port of destination should be as required in the credit. The bill of lading alongwith other documents must be presented within the time specified in the credit. Bill of lading must; carried. Must indicate whether freight Prepaid or freight Payable. 16 Be issued by a named carrier or his agent. Bear a distinct number. Indicate the place of issuance. Indicate the date of issuance. Indicate the name of consignor. Indicate the name of consignee. Indicate brief description of goods being

Unless specifically authorized in the credit, bills of lading of the following nature should not be accepted: of lading issued by forwarding agent. of lading issued under and subject to the conditions of a of lading covering shipment by sailing vessel. of lading evidencing goods shipped on deck.

Bill Bill charter party. Bill Bill -

Bill of Lading can (unless otherwise prohibited or is inconsistent with other terms of LC) Be a short form or Blank backed B/L. Indicate a place of taking in charge different from the port of loading and/or a place of final destination different from the port of discharge. Indicate that the goods are carried in containers trailers/or LASH barges. Be issued by freight forwarder provided it is issued in his capacity as a carrier or his agent. Contain a notation that the goods may be carried on deck provided it does not specifically state that they are or will be loaded on deck. Indicate that the goods will be transshipped provided the same B/L covers the entire carriage. Be a Freight Payable B/L. Evidence freight prepayment by a stamp or otherwise on B/L to that effect like Freight Prepaid. Bear reference by stamp or otherwise to costs additional to freight charges. Show clauses such as Shippers load and count or said by shipper to contain etc. with reference to goods covered by the B/L. Show shipper as a third party other than beneficiary. Be deemed as Clean on Board if it is an on board B/L without any super imposed clauses or notations expressly declaring the defective condition of the goods and or the packaging. 17

OTHER ASPECTS OF B/L If a B/L is issued as ON Board B/L, it must indicate the name of the carrying vessel. A Charter party B/L need not show the name of carrier. A transport document issued by a freight forwarder can be accepted provided freight forwarder has issued the same in his capacity as a carrier or his agent and all other requirements are met with. A B/L received for shipment can be treated as an On Board B/L if received for shipment B/L is affixed with On Board notation duly signed or initialled and dated by the carrier or his agent. If LC calls for a Marine B/L without specifying whether it should be On Board or Received for shipment, only On Board B/L will be accepted. Date of issue of B/L or On Board notation should be dated prior to the shipment date permitted under LC. Shipping marks, Gross/net weight etc. specified on B/L must correspond to those specified in other documents. AIRWAY BILL OR HOUSE AIRWAY BILL ( HAWB ) It must show the name of the carrier. It must be issued by a named carrier or his agent. It must indicate the place of issuance. It must indicate the date of issuance. It must be signed by a named carrier or his agent (In case of HAWB by the Air Cargo consolidator himself ). It must indicate the name of the consignor. It must indicate the name of the consignee (and not that of the consignor or his order) It must indicate port of loading and discharge. It must give brief description of goods being carried and not inconsistent 18

v.

with other documents. Must comply with all other specific requirements of LC. Must indicate notify parties as stipulated in the LC. It should not be a charter party AWB. It should not be claused.

Unless prohibited by the terms of LC. It can be short form AWB or Blank backed AWB. It can bear reference by stamps or otherwise to cost anything additional to freight charges. It can contain words like said by shipper to contain or shippers load and count etc. It can show the consignor as a third party other than beneficiary. It must show the shipping marks of packages, number of packages, gross weight, net weight etc. It must indicate whether freight is prepaid or payable at destination. In case of HAWB ( if specified) it must show the name of Airlines, Master Airway Bill number, the flight number, consolidators IATA registration number. It should be remembered that unless credit calls for flight date even if flight date is shown on AWB, the date of issue of AWB is considered as date of shipment.

26.

OTHER DOCUMENTS

A letter of credit may call for certain other documents like certificate of origin, packing lists, Health certificate, pre shipment inspection report, weight notes, test reports, warehouse receipts, delivery orders, consular invoice, certificate of quality or of analysis etc. Branches should ensure that all such documents required under the letter of credit have been presented and all the particulars stated therein are correct. If any particular document is required in a specified form, it should have been presented in that form only. Documents required to be attested by organizations specified in the credit should be presented after completion of all the requisite formalities. 19

Whenever such documents are called for under L/C following aspects must be checked in the documents: The documents are presented in requisite number of copies It is issued by the person or authority specified in the credit. If no specific mention is made regarding issuer of the document, banks can accept document issued by any person provided their data content is not inconsistent with any other stipulated document presented. It is dated and signed by the person/authority concerned. Whether they relate to the goods/shipment covered by the documents or not. Whether the document certifies the facts required as per LC or not. Whether the details mentioned in such certificates/documents are consistent with other documents or not. 27. EXPORT DECLARATION FORMS

The export bills should always be accompanied by the appropriate export declaration forms (GR, SDF, PP, SOFTEX etc. The export declaration forms should be carefully scrutinized. Some of the important points are given hereunder: (a) (b) (c) All columns of the Export Declaration Form should have been completed fully and properly by exporters. The number of the duplicate copy should be same as that of the original, which is usually recorded on the bill of lading. All the GR,PP and SOFTEX forms bear specific identification numbers. In case of declarations made on SDF form, the port code number and shipping bill numbers should be cited. The number of the duplicate copy should be same as that of the original, which is usually recorded on the bill of lading. The GR form should also have 10-digit number allotted by customs. Duplicate form should have been duly verified and authenticated by appropriate customs authorities under their stamp. Material alterations or additions should also be authenticated by customs authorities. Exporter should have correctly completed the declaration given in the form. Amount for which the bill is drawn and the invoice is made out should be the same as the value declared on the export declaration form. There should be no violation of FEMA guidelines regarding permitted methods of payment. Under the item analysis of full export value, the break-up of the full export value of goods under f.o.b. value, freight and insurance should be furnished in all cases, irrespective of the terms of the contract.

(d)

(e) (f) (g) (h)

20

(i)

The essential particulars of letter of credit viz. description, quantity and value (including unit price wherever applicable) should tally with the declaration on the export declaration forms. ELECTRONIC DATA INTERCHANGE (EDI) SYSTEM

28.

On account of introduction of Electronic Data Interchange (EDI) system for processing shipping bills etc. by the customs authorities at certain custom offices, the GR form stands replaced by a declaration in form SDF (Statutory Declaration Form). The declaration in form SDF is appended by the exporter in the shipping bill in duplicate while submitting to the customs authorities. The Commissioner of Customs shall hand over to the exporter one copy of such shipping bill marked Exchange Control Copy in which form SDF had been appended for submission to the banks. The branches should accept the Exchange Control (EC) copy of the shipping bill and the form SDF appended thereto alongwith shipping documents. The manner of disposal of SDF form is the same as in case of GR Form. 29. DECLARATION OF SOFTWARE EXPORT

While the export of software in physical form is subject to declaration on usual GR/PP forms, the export of software and all other type of software products/packages are to be declared on SOFTEX form, which comprises of 3 (three) copies marked original, duplicate and triplicate and carries an identical pre-printed serial number. FEMA regulations provide that the entire set of SOFTEX form is to be submitted to the concerned designated official of Ministry of Information Technology, Govt. of India at Software Technology Parks of India (STPI) /Export Processing Zone(EPZ)/Free Trade Zone(FTZ)/Special Economic Zone(SEZ) , for the purpose of valuation /certification together with relevant documents ,not later than 30 days from the date of invoice/the date of last invoice raised in a month as the case may be. The exporter is to submit duplicate copy alongwith supporting document to the bank based on which branches should report the transaction to RBI in form ENC under the cover of appropriate R-Return in the usual manner. Branches should retain the duplicate copy of the form till full export value declared on the form or as certified by the designated officials is realised. Prevalent FEMA regulations provide that even after the realization of export proceeds the duplicate copy of SOFTEX form and Exchange Control copies of shipping bills together with statutory declaration forms shall be retained by authorised dealer. 30. LOSS OF GR FORM/EC COPY OF SHIPPING BILL

In cases where the duplicate copy of the GR form/Exchange Control Copy of the shipping bill to which the form SDF is appended is misplaced, lost by the exporter, branches may accept another copy of duplicate GR form or EC copy of shipping bill together with the SDF as the case may be duly certified by the 21

customs authorities prepared by the exporter for collection/registration of documents. 31. COUNTER SIGNING OF PP FORMS

PP forms will be presented by the exporter to an authorised branch for counter signature. Authorised branch should countersign the PP forms after ensuring that the parcel is being addressed to their branch or correspondent bank in the country of import. The concerned overseas branch or correspondent should be instructed to deliver the parcel to consignee against payment or acceptance of relative bill. Authorised branches may, however, countersign PP forms covering parcels addressed direct to the consignees, provided: a. an irrevocable letter of credit for the full value of the export has been opened in favour of exporter and has been advised through authorised branch concerned; or the full value of the shipment has been received in advance by the exporter through an authorised dealer; or b. the authorised branch is satisfied, on the basis of the standing and track record of the exporter and the arrangements made for realisation of the export proceeds, that he could do so. In such cases, particulars of, advance payment/letter of credit/authorised dealers certification of standing, etc., of the exporter should be furnished on the form under proper authentication. Any alteration in the name and address of consignee on the PP form should also be authenticated by the authorised branch under their stamp and signature 32. PAYMENT OF FREIGHT AND INSURANCE

For letters of credit on terms under which freight would be to the account of overseas buyer, it should be ensured that either the exporter has not paid the freight on exports in India or the actual amount of freight paid has been included in the invoice to be recovered from the overseas buyer in an approved manner. If liability on account of marine insurance of the shipment is to be borne by overseas buyer under letter of credit and insurance is taken by exporter on buyers account, branches should verify that the actual amount of insurance premium paid by exporter has been included in the invoice to be recovered from the buyer in an approved manner. 33. GENERAL INDEMNITY FOR NEGOTIATION OF DOCUMENTS 22

Whenever regular FOBNLC/FOUBNLC limits are sanctioned in favour of a client, general indemnity form (duly stamped) of the bank (FEX 110) should be obtained for the total limit and placed in bank record alongwith other documents related to credit facilities. However, the letter of request enclosed with FEX 110 shall be obtained with each negotiation of documents. 34. DISCREPANCIES IN DOCUMENRTS

On examination of the documents, if any discrepancies are observed, branch should get the same removed. In case the discrepancies cannot be easily got removed, the beneficiary should be requested to arrange with the buyers to get the letter of credit suitably amended. Alternatively, if the beneficiary so desires and at his expense, the branch could advise the opening bank promptly of the irregularities and seek their authority to negotiate the documents notwithstanding the discrepancies. 35. In case of discrepancies, however, which do not render the documents materially defective or which may not be considered so vitally important as to be objected by the issuing bank and which cannot be easily removed, the Branch Manager may use his discretion and negotiate the documents. The Branch Manager must consider each case on its merits and take judicious decision safeguarding the interest of the bank. As the indemnity obtained from the beneficiary is purely an agreement between negotiating bank and the beneficiary, and has nothing to do with issuing bank, it is necessary to consider whether the beneficiary would be in a position to refund the amount paid by the banks in the event of the payment being refused by the issuing bank on account of discrepancies in the documents. 36. In all such cases where documents are negotiated under reserve and indemnity/guarantee is taken from the customer, the limits sanctioned in favour of the customer to the extent of negotiation under reserve, must not be released unless documents have been finally accepted by the opening bank and reserve lifted. If the drawers are unable to offer a satisfactory indemnity/guarantee for discrepant documents, they should be accepted only on collection basis. 37. If a packing credit advance was granted against Letter of Credit, the branch has the option to adjust the same either by negotiating the documents under reserve or making advance against bills sent for collection, subject to sanction of post-shipment credit facility in favour of the beneficiary. Note: The pre-shipment credit is to be converted into post-shipment credit on receipt of shipping documents. 38. All discrepancies observed in the documents negotiated under customers indemnity should be suitably recorded and diarised for follow-up with the issuing bank to ensure payment by them. 23

CREDITS UNDER WHICH NEGOTIATIONS ARE RESTRICTED TO OTHER BANKS 39. Occasionally, branches may receive documents drawn under foreign banks letter of credit under which negotiations are restricted to another bank in India. In such cases, the documents shall be accepted for collection only. The documents should be entered in the Foreign Outward Bills for Collection Register FEX-51 and should be given FOBC serial number from the series allotted for the purpose. After examination, the documents should be forwarded for payment with a covering schedule on form FEX-16 to the bank to which negotiations are restricted under the credit. In case forward contract has been booked against the letter of credit, the negotiating bank should be advised of the same and payment should be obtained in foreign currency by negotiating banks draft/credit to nostro account. 40. In case of packing credit advance allowed to the customer against such letter of credit, the same should be adjusted at the time of sending documents, by making advance against the bill sent for collection to the negotiating bank. 41. On receipt of proceeds, the advance, if any, will be adjusted and balance amount should be paid to the beneficiary by credit to their account after deducting charges in terms of bank rules. 42. In case of discrepancies advised by negotiating bank in the documents, the beneficiary must be asked to remove the discrepancies and in cases where discrepancies cannot be rectified, payment may be accepted from the negotiating bank under Reserve for adjustment of our advance/payment to the beneficiary. In case of known beneficiaries, who are considered good for the amount, payment in part or full may be made under proper sanction, depending upon the nature of discrepancies and the report on the party. The payment to the beneficiary should be released in shape of advance against bill for collection. The amount advanced will be adjusted from the proceeds received under reserve from the negotiating bank. The limits sanctioned in favour of the customer to the extent of payment made under reserve must not be released unless documents have been finally accepted by opening bank and reserve is lifted. 43. A proper record of all payments received under reserve should be maintained. All discrepancies observed in the documents should be recorded in a separate register. The same should be diarised for follow-up with the negotiating bank for lifting of the reserve. 44. DOCUMENTS RECEIVED FROM OTHER BANKS 24

At times documents drawn under letters of credit, which are either confirmed by our bank or are restricted for negotiation to our bank, are presented for negotiation by other banks. In case of discrepancies, the sending bank usually offers its guarantee for discrepancies and asks for payment under reserve. Branches may accept such guarantees, issued by other authorised dealers, after ensuring the same has been signed under authorised signatures of the concerned bank, and the guarantees are specific as to the amount, period and discrepancies in the documents. The details of discrepancies observed in the documents negotiated under guarantee of the sending bank, should be recorded in a separate register. The same should be diarised for follow-up with the issuing bank for their authority to lift the reserve. When the reserve is lifted, the same should be advised to the sending bank. EXCHANGE RATES All bills in foreign currencies drawn under documentary letters of credit should be negotiated at the banks buying rate of exchange for the appropriate usance, ruling on the date of the negotiation unless a forward exchange contract has been booked in which case the contract rate will be applied. 46. INTEREST

Interest for the Notional Transit period plus usance if any, is to be charged separately as per the banks guidelines. In case LC is restricted to us and documents are received for negotiation from other banks, it should be recovered from proceeds before remitting the amount to them. Overdue interest in all cases shall be recovered from the customer in case payment is not received on or before the expiry date of Normal Transit Period in case of demand bills, and on or before the notional due date/ actual due date as the case may be in case of usance bills as per banks guidelines. In case of early realisation of export bill proportionate interest shall be refunded from the date of realisation i.e. value date of credit to nostro account in case of a foreign currency bill, and by debit to Vostro account incase of a Rupee bill, upto the last date of normal transit period in the case of demand bill and upto the notional due date in case of usance bill. Such a refund shall become payable only on receipt of relative credit advice from the concerned PMO. 47. CHARGES

All charges should be recovered in accordance with the bank guidelines as issued from time to time. 25

48.

ENDORSEMENT OF LETTERS OF CREDIT

All negotiations made under any letter of credit must be duly endorsed on the letter of credit under banks stamp and authorised signatures. Letters of credit should normally be retained by the bank in its records for future reference. Nevertheless, if the beneficiary wishes to have the exhausted credit or partly utilized credit handed back to him, this may be done. However, a photocopy of the front and back of the letter of credit should be retained for future reference. It must be ensured that all negotiations under the credit have been duly endorsed before it is handed back to the customer . 49. APPROVAL OF BILLS RECEIVED FROM BRANCHES WITHOUT DIRECT AUTHORISATION

If the documents received from branches without direct authorization are found to be in order, the authorised branch will approve them and will advise the branch without direct authorization that the documents are acceptable by sending them a copy of the Form FEX-16 on which the rate of exchange and the rupee equivalent will be indicated. DISPOSAL OF DOCUMENTS 50. Negotiated bills shall be forwarded to the drawee bank or issuing bank in accordance with the instructions given in the credit. Remittance schedule (Form FEX-16) shall accompany the documents. This form is in a set of six, and will be used as under:Top Copy Second Copy Third Copy Fourth Copy if documents were received through them.) Fifth Copy authorization (If applicable for their own records, indicating approval of documents, exchange rate to be applied and rupee equivalent.) 26 To be sent to the branch without direct To be sent to the opening bank as a covering letter with the original set of documents. To be sent to the opening bank as a covering letter with the duplicate documents. To be sent to the concerned Position Maintaining Office. To be sent to the party presenting the documents (Through the branch without direct authorization,

Sixth Copy

To be retained at the authorised branch as an office record, and placed in the separate file which is maintained for each credit advised through the branch. If the credit was not advised through the branch and no file exits, the sixth copy should be held in a pending file until the foreign correspondent advises us that the documents have been paid.

51. The remittance schedule must be carefully checked by the incharge who will satisfy himself that all the documents have been properly listed, and the reimbursement is claimed without delay strictly in terms of credit. In case of bills relating to branches without direct authorization, expenses incurred by authorised branches should be indicated on copy of the remittance schedule sent to concerned Position Maintaining Office to enable the concerned office to send a credit advice in respect of such charges to the authorised branch. The name of the concerned branch without direct authorization should also be indicated on the remittance schedule to enable the concerned position maintaining office to remit proceeds direct to the concerned branch without direct authorization. 52. Branches must scrupulously follow the instructions given in the credit regarding disposal of documents. In some cases the drafts will be sent to one bank and the documents (original and duplicate) to another bank. In such cases, drafts should be sent to the drawee i.e. reimbursing bank under covering letter on Form FEX-17. A copy of this form should be sent to the concerned Position Maintaining Office . As far as possible reimbursement must be claimed promptly in terms of Uniform Rules for Reimbursement (ICC publication 525). 53. The original set of documents should be dispatched on the date of negotiation by registered airmail / approved courier and duplicate set by the next registered airmail/courier. 54. Branches should keep non-negotiable copies of invoice and bill of lading/Airway Bill/Post Parcel Receipt in records alongwith file copy of remittance schedule for future reference. 55. REPORT TO CONCERNED POSITION MAINTAINING OFFICE While negotiating the export bill the authorised branch shall instruct the foreign bank to credit our foreign currency account i.e Nostro Account. In case the transaction exceeds the amount equivalent of Rs. 2,50,000/-(Rs. two lakh fifty thousand)(prevalent prescribed limit) the branch shall report the necessary particulars of the transaction on the same day through telephone/fax to Position Maintaining Office whose Nostro account is to be 27

credited by the foreign bank. The foreign currency amount shall be communicated both in words and figures to avoid any discrepancy as it involves exchange risk. The exchange rate applicable shall be ascertained/confirmed from the Position Maintaining Office The exchange rate applied shall be mentioned on the third copy of remittance schedule (Form FEX-16), which is sent to Position Maintaining Office irrespective of the amount of the transaction. In case forward contract has been booked for the transaction, the intimation for the utilisation of the contract shall be reported on the same day to the concerned Position Maintaining Office and the intimation to this effect shall be marked in red ink on the third copy of remittance schedule (Form FEX-16) which is sent to Position Maintaining Office giving the details of the forward contract utilised. Cancellation of left over unutilized balance amount if any, shall be done on the same day. In case the foreign currency amount of transaction exceeds the amount of forward contract booked, the excess amount shall be transacted at the prevailing exchange rate. 56. SUBMISSION OF EXPORT DECLARATION FORMS All export declaration forms should be handled by the branch in terms of instructions given in FEMA. The export declaration form alongwith the copy of the invoice etc. shall be retained by the authorised branch and may not be submitted to Reserve bank. The authorised branches should ensure by random check of the relevant duplicate forms by their internal / concurrent auditors to confirm that nonrealisation or short realization allowed, if any, is within the powers delegated to them or has been duly approved by Reserve Bank, wherever necessary. Where a part of export proceeds are credited to EEFC account, the export declaration (duplicate) form may be certified as under : "Proceeds amounting to....... representing......% of the export realisation credited to EEFC account maintained by the exporter with......" 57. ADVICE OF PAYMENT

Authorised branches must make sure that they receive advice of payment in case of sight bills, or acceptance in case of usance, from abroad, within a reasonable period. If no such advice is received within a period of one week from the due date, the branches must take up the matter with the issuing bank promptly. If no satisfactory reply is received, the matter should be referred to International Banking Division, Head Office giving the details to enable them to take up the matter appropriately with the concerned correspondent. 28

In case of Usance Bills, the due date as advised by the drawee bank should be noted in the Export Credit- Documents Paid Register and advised to the concerned Position Maintaining Office . In respect of outstanding bills, the Export Credits-Documents Paid register should be examined by incumbents-incharge at least once a month for taking steps in respect of late receipt of payment advices and follow-up action where payment advices are delayed. 58. DISHONOURED BILLS

When a bill is dishonored by non-acceptance or non-payment owing to discrepancies, the Regional Manager/Zonal Manager should be advised immediately with full details and further instructions in the matter should be sought from them. In the meantime notice of dishonor should be served on all parties liable on the bill including the guarantor, if any. 59. OVERDUE BILLS (NOT REALISED WITHIN PRESCRIBED PERIOD UNDER FEMA REGULATIONS) Under prevalent FEMA Regulations, all export bills must be realized by the exporter within the due date for payment or within six months from the date of export, whichever is earlier. In case of export bills not realized on the due date for payment, branches should take up the matter promptly with the concerned exporter. If the exporter fails to arrange for delivery of the proceeds, within six months or seek extension of time beyond six months the matter should be reported to Reserve bank, stating where ever possible, the reason for the delay in realising the proceeds. The branches should follow up overdue export bills with exporters systematically and vigorously. Any laxity in the follow up of realisation of export proceeds by authorised dealers is viewed seriously by Reserve Bank, which may lead to the invocation of penal provisions under FEMA. All the export bills outstanding beyond six months from the date of export may be reported in XOS statement at the end of June & December every year and the statement shall be submitted in triplicate within 15 days from the close of the relative half year. Where authorised dealer has granted the extension of time, the date upto which extension has been granted may be indicated in the Remarks column. 60. DELINKING OF EXPORT BILLS

I) Foreign currency Export Bills are to be delinked/crystallized into rupee liability on the 30th day after the expiry of the normal transit period in case of unpaid demand bills and on the 30th day after notional due date in case of unpaid usance bills. In case the 30th day happens to be a holiday or Saturday, the export bill shall be delinked/crystallized on the next working day. Where the actual due date is advised by the foreign correspondent after the notional due date has been arrived at, the bill shall be delinked/crystallized on the30th day after the actual due date in the event of non-payment. 29

As such, whenever the intimation about actual due date has been received by the branches, the same is to be informed to concerned Position Maintaining Office . However, export bills may be delinked by the branches before the said period of 30th day with specific understanding and written request from the exporter. For delinking, branches shall apply the current TT selling rate prevailing on the date of delinking or the original bill buying rate whichever is higher ii) The Position Maintaining Office shall not delink the bill unless reported by the concerned branch as it is the responsibility of the branch to report delinking of bills to the Position Maintaining Offices on the due date. If the branch does not report the delinking, Position Maintaining Office shall follow up the same with the concerned branch/RO/ZO. iii) The branches are required to report delinking to the concerned Position Maintaining Office on due date of delinking. The authorised branches, while submitting Managers Monthly Certificate (MMC) of foreign exchange business to International Banking Division, Head Office should confirm that unpaid bills under the head FOBP/FOBNLC have been transferred to Advance against export bills realisable account after the expiry of 30 days from the notional due date implying that relevant bills have been delinked. The unpaid bills transferred to realisable account shall continue to form part of total outstanding under the sanctioned limit of the customer with exchange risk open against him. iv) Failure on the part of the branches to report delinking of the bills on or by the due dates will result in violation of FEDAI guidelines and may also result in possible complaints from customers in case of adverse movements in exchange rates. v) The branches shall report the delinking of the export bills on the due dates to the concerned Position Maintaining Office over telephone/fax and shall recover the delinking charges from the customers immediately upon intimation /receipt of the claim from the Position Maintaining Office , by debiting the same to advance against export bills realisable account to which the amount has already been deposited at the time of delinking of the export bills. Where the total amount has been recovered from the party at the time of delinking and item has been transferred to collection head, it should be ensured that the delinking charges as advised by Position Maintaining Office are recovered immediately from the customer and remitted to concerned Position Maintaining Office .There should be no laxity in remitting delinking charges to concerned Position Maintaining Office as non recovery of these charges in time tantamount to giving undue benefit of the funds to the exporter at the cost of the bank. vi) Position Maintaining Offices upon receipt of reporting from the branches shall delink the bill from the currency position only after ascertaining that no 30

credit entry is outstanding in their nostro accounts on account of the bills to be delinked. In order to help the Position Maintaining Office to link the items outstanding in their accounts for want of matching particulars, the branches shall ensure that any intimation of the payment of a bill received by them is forwarded to Position Maintaining Office promptly. The Position Maintaining Offices shall work out the delinking charges at the time of delinking and claim the same from the branches. The authorised branches shall report delinking as notional sale (on account off reversal of purchase) in their RReturn under inflows and when the payment of the same is received subsequently, it shall be reported in R-Returns as outflows. 61. ISSUE OF EXPORT CERTIFICATE Authorised branches may issue export certificates to the exporters in terms of the Foreign Trade Policy . The certificate is issued in triplicate. The first copy marked 'Original' in bold letters is given to the exporter. 2nd copy marked 'Duplicate' in bold letters is forwarded to Directorate General of Foreign Trade . 3rd copy is kept as office copy by the issuing branch. The export certificate should invariably be issued by authorised branches only and full particulars should be noted in a separate register. The register should have columns for Sr.No., date of issue, bill number, name of exporter and the amount. The remarks "exports certificate issued on ___________________", should invariably be given against the original entry in the respective Export Credits- Documents Paid Register in order to avoid duplicate issuance of certificate. The Authorised Branch should issue only one copy of the original. In case the original is reported lost by the exporter an extra copy of the original may be issued with remarks in RED INK 'TRUE COPY OF THE ORIGINAL REPORTED LOST BY THE EXPORTER''. In case where full proceeds of any bill, for which certificate has been issued, are not received in India, the fact should be promptly reported to the office of the Directorate General of Foreign Trade giving reference of the serial number and date of the certificate. A suitable note should be given in the Export Credits- Documents Paid Register, as also against the entry in the certificates issued register. Whenever Bank Realisation Certificate (BRC) is issued by the branch to the exporter, the BRC data shall be forwarded in the prescribed software to International Banking Division, Head Office through e-mail on daily basis ,for onward submission to DGFT,New Delhi 62. I) ACCOUNTING PROCEDURE FOR OWN BUSINESS

At the time of negotiation of documents, the following entries will be passed: 31

Dr.

-Foreign Outward Bills Negotiated under Letters of Credit (At appropriate bills rate )

Cr. -Party; Cr. - Postage; Cr. -Commission on Foreign Bills (Inward and Outward) (For Rupee Bills) Contra vouchers passed, if any, when the credit was confirmed will be reversed for the amount of negotiation. The proceeds will be received from the correspondent banks, through the concerned Position Maintaining Office at the rates ruling on the day of the negotiation of the bill . Following entries will be passed: Dr.-Concerned Position Maintaining Office Cr. -Foreign Outward Bills Negotiated under Letters of Credit. Cr. -Remuneration in lieu of Foreign Exchange Business It may be noted carefully that short realisation in foreign currency if any on account of foreign bank charges or otherwise, is to be recovered from the exporter at TT selling rate prevailing on the date of credit advice when the shortfall amount is accounted for in the books of concerned Position Maintaining Office. For Rupee bills reimbursement will be obtained by debit to a correspondents Non-Resident Rupee Account in India or by remittances from abroad. Entries will be passed accordingly. The date of realisation of the bill should be marked in Export Credits Documents Paid Register. The date of credit (value date) of amount to our foreign currency account should also be inserted in this Register. ii) FOR BUSINESS RECEIVED FROM BRANCHES WITHOUT DIRECT AUTHORIZATION: Contra account entries passed, if any, when the credit was confirmed will be reversed for the amount of Bill, at the time of approving the bill for negotiation. The following contra entries will be passed: Dr. - Foreign Outward Bills lodged (Branches Negotiations) 32

Cr.

- Foreign Outward Bills for collection- (Correspondents)

On receipt of credit advice from the concerned Position Maintaining Office in respect of expenses incurred by the authorised branch, the amount will be credited to the respective heads. The contra entries passed at the time of approving the documents will also be reversed. PROCEDURE FOR BRANCHES WITHOUT DIRECT AUTHORISATION 63. Bills and documents presented under export letters of credit should be examined in the light of points set out in paragraphs 24 to 32 above. If they appear to be in order the customer should be asked to complete Form FEX 19 and the documents should then be entered in the foreign outwards bills for collection Register- FEX-51 and sent to the nearest authorised branch. 64. If the documents are found to be in accordance with the terms of credit, branch without direct authorization will receive two copies of the remittance Schedule FEX-16, approving the negotiation and containing the details of rupee amount, which may then be paid to the beneficiary. The details should be entered in Export Credits- Documents Paid Register FEX-48. It must be noted that no payment can be made to the customer until documents have been examined and approved by the authorised branch. After the documents have been paid abroad, the branch without direct authorization will receive reimbursement direct from the concerned Position Maintaining Office. 65. If the documents are found to be not in accordance with the terms of the credit, the discrepancies will be advised by the authorised branch to the branch without direct authorization. The branch without direct authorization will decide, keeping in view the nature of discrepancies, whether the documents should be negotiated against indemnity of the drawer ,as per para number 33 of this chapter , depending upon their credit worthiness and means and if the party is considered good for the amount.Instructions in paragraphs 34 to 38 in the heading Documents with discrepancies will also apply to branches without direct authorization. 66. CHARGES

All charges recovered should be in accordance with the bank guidelines issued from time to time. 67. ACCOUNTING PROCEDURE

Branches without direct authorization will pass following contra entries at the time of forwarding documents to the authorized branch. 33

Dr. Foreign Outward Bills lodged rates.

) )at appropriate )

Cr.Foreign Outward Bills for collection

On receipt of approval for negotiation from Authorised Branch i) Reverse contra account entries ii) Dr. Foreign Outward Bills Negotiated under Letters of Credit (at the rate of Exchange advised by the authorised branch) Cr.- Party ) Cr.- Postage ) On receipt of credit Maintaining Office advice from the concerned Position

Dr.- Position Maintaining Office Cr.- Foreign Outward Bills Negotiated Under Letters of Credit Cr.- Remuneration in lieu of Foreign Exchange Business.

34

Annexure-I Punjab National Bank BO: Dated____________ PROPOSAL FOR SEEKING APPROVAL FOR ADDING CONFIRMATION TO LETTER OF CREDIT ISSUED BY CORRESPONDENT/APPROVED BANKS (To be sent by Authorised Branches to International Banking Division, H.O.) 1. 2. 3. Name of the Bank : Nature of Credit LC Details: LC No. Date : : Amount : :

4. 5. 6. 7.

Tenor

Reimbursement Clause

Expiry Date for Negotiation:

Whether LC is available by negotiation/ acceptance/payment in India or outside India. Name & Address of the Beneficiary Dealings with the beneficiary of LC ,whenever beneficiary happens to be our client Any onerous stipulation embodied in the LC which may be detrimental to the interest of the beneficiary: Amount of previous outstanding confirmed credits in respect of this bank. Status of Bank Has the foreign bank requested us to add confirmation

8. 9. 10.

You are requested to accord us permission to add confirmation to this proposal. We have advised/yet to advise the LC to the beneficiary. Please also advise the World Rank and the Country Risk Indicator of this bank to enable us to apply the charges. (INCUMBENT INCHARGE)

35