NSE: 

Letter of Credit (LC)

Letter of Credit (LC)

A letter of credit is a document issued by bank that guarantees payment for goods or services when the seller provides acceptable documentation. A letter of credit generally has three participants. First, the beneficiary, the person or company who will be paid. Next, the buyer or applicant of the goods or services. Finally, the issuing bank, the institution issuing the letter of credit. 

  • Features
  • Eligibility
  • Security
  • A letter of credit is a written instrument issued by a banker ( opening or applicant's bank) at the request of the buyer ( opener or applicant ) in favour of seller (Beneficiary), undertaking to honour drafts drawn by the seller in accordance with the terms and conditions specified in the letter of credit.
  • Suitable for Mid / Large corporates having turnover of Rs. 500Crores and above OR minimum exposure ( Funded + Non Funded) of Rs.25 Crores
  • Eligible limit is minimum Rs.10 Crores.
  • Period for Inland LC is upto 180 days for Import LC is upto 360 days
  • All Corporates having turnover of Rs.500 Crores and above.
  • Guarantees issued on behalf of Joint stock companies should be supported by appropriate resolution of the Board of the directors of the company.
Primary
  • Hypothecation / extension of Hypothecation charge over the underlying current assets.
 
Collateral
  • Second charge on fixed assets and or hypothecation of machinery / assets.
  • Additional tangible security such as immovable properties / bank deposits etc. 
  • Cash margin by way of Fixed deposits
Others
  • Personal guarantee of proprietors / partners / promoters
  • Corporate guarantee