14 December, 2010

Mechanism of Foreign Exchange Import

To import, a person should be competent to be an “Importer”. According to Import & Export Control Act, 1950, the Office of Chief Controller of Import and Export provides the registration (IRC) to the importer. After obtaining this, the person has to secure a letter of credit authorization (LCA) form Central Bank. And then a person becomes a qualified importer. He is the person who requests or instructs the opening bank to open an L/C. He is also called opener or applicant of the credit.

Importer’s Application for L/C Limit / Margin:

To have an import L/C limit, an importer submits an application to the issuing Bank furnishing the following information:-

01)    Full particulars of bank account
02)    Nature of business
03)    Required amount of limit
04)    Payment terms and conditions
05)    Goods to be imported
06)    Offered security
07)    Repayment schedule

A credit Officer scrutinizes this application and accordingly prepares a proposal (CLP) and forwards it to the Head Office Credit Committee (HOCC). The Committee, if satisfied, sanctions the limit and returns back to the branch. Thus the importer is entitled for the limit.

The L/C Application:

Bank Limited provides a printed form for opening of L/C to the importer. This form is known as Letter of Credit Application form. A special adhesive stamp is affixed on the form. While opening the stamp is cancelled. Usually the importer expresses his desire to open the L/C quoting the amount of margin in percentage.
The importer gives the following information:-
01)    Full named and address of the importer.
02)    Full named and address of the beneficiary.
03)    Draft amount.
04)    Avaolability of the credit by sight payment acceptance/negotiation/deferred payment.
05)    Time bar within which the documents should be presented.
06)    Sales type (CIF/FOB/C&F)
07)    Brief Specification of commodities, price, quantity, indent no. etc.
08)    Country of origin.
09)    Central Bank registration no.
10)    Import License/LCAF No.
11)    IRC No.
12)    Account No.
13)    Documents required.
14)    Insurance cover note/Policy no., date, amount.
15)    Name and address of Insurance Company.
16)    Whether the partial shipment is allowed or not.
17)    Whether the transshipment is allowed or not.
18)    Last date of shipment.
19)    Last date of negotiation.
20)    Other terms and conditions if any.
21)    Whether the confirmation of hte credit is requested by the beneficiary or not.

The above informations are given along with the following documents—
01)    Proforma Invoice stating description of the goods including quantity, unit price etc.
02)    The Insurance cover note, issuing company and the insurance number.
03)    Four set of IMP Form.

The Letter of Credit Authorization (LCA) Form:
The letter of credit authorization (LCA) form contains the following—
01)    Name and address of the importer.
02)    IRC No. and year of renewal.
03)    Amount of L/C applied for (Both in figure and in word).
04)    Description of item(s) to be imported.
05)    ITC Numbers/HS Code.
06)    Stamp and signature of the Importer with seal.

The Form-IMP contains the followings—
01)    Name and address of hte authorized dealer.
02)    Amount of remittance to be permitted (i.e., L/C amount).
03)    LCA form number, Date, and value in Tk.
04)    Description of goods, quantity.
05)    Invoice value in Foreign Currency (i.e., L/C amount).
06)    Country of Origin.
07)    Port of Shipment.
08)    Name of steamer/airline (i.e., by road/by ship/by Air).
09)    Port of Importation.
10)    Indentor’s name and address.
11)    Indentor’s Registration number with CCI & E and Central Bank.
12)    Full name and address of the Applicant.
13)    Registration number of the Applicant with CCI & E.
14)    Type of LCAF.

Scrutiny of L/C Application:-
The dealing Officer scrutinizes the application in the following manner-
01)    The terms and conditions of the L/C must be complied with UCPDC 500
02)    Exchange Control & Import Trade Regulation.
03)    Eligibility of the goods to be imported.
04)    The L/C must not be opened in favor of the importer.
05)    Radioactivity report in case of food item.
06)    Survey report or certificate in case of old machinery.
07)    Carrying vessel is not of Israel or of Serbia-Montenegro.
08)    Certificate declaring that the item is in operation not more than 5 years in case of car.

Precautions taken by officer before issuing L/C:-
After submission of documentary letter of credit application form, the concerned officer scrutinizes the terms and conditions that mentioned in application. He must check the following things.

01)    Whether the terms and conditions of L/C application are consistent with Exchange control and Import Trade regulation, PCPDC-500
02)    L/C must not be opened in favor of the importer or his agent.
03)    L/C must be signed by the importer agreeing all terms and conditions mentioned in the application.
04)    Indenting registration number
05)    Whether IMP form dully filled and signed
06)    Validity of IRC
07)    Insurance cover note with date of shipment
08)    The HS code of the goods
09)    The Balance of the accounts of the importer
10)    The goods are not from Israel and vessels to be used is not of Israel
11)    The issuing officer will try to keep as much margin as possible

Amendment of Letter of Credit:-
Parties involved in a L/C, particularly the seller and the buyer cannot always satisfy the terms and conditions in full as expected due to some obvious and genuine reasons. In such a situated, the credit should be amended. Issuing Bank transmit the amendment by tested telex to the avising bank. In case of revocable credit, it can be amended or cancelled by the ussing bank at any moment and without prior notice to the beneficiary. But in case of irrevocable letter of credit, it can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank (if any) and the beneficiary. If the L/C is amended, service charge and telex charge is debited from the party account accordingly.

Presentation of the Documents:-
The seller being satisfied with the terms and the conditions of the credit proceeds to dispatch the required goods to the buyer and after that, has to present the documents evidencing dispatch of goods to the negotiating bank on or before the stipulated expiry date of the credit. After receiving all the documents, the negotiating bank then checks the documents against the credit. If the documents are found in order, the bank will pay, accept or negotiate to issuing bank. Issuing bank checks the documents.

The usual documents are –
01)    Commercial Invoice
02)    Bill of Lading
03)    Certificate of origin
04)    Packing list
05)    Shipping advice
06)    Non negotiable copy of bill of lading
07)    Bill of exchange
08)    Pre-shipment Inspection report
09)    Shipment certificate

Examination of Documents:-
The dealing officer checks whether these documents have any discrepancy or not. Here , discrepancy means the dissimilarity of any of the documents with the terms and conditions of L/C.

Dispatching the Import L/C:-
After opening of Import L/C, issuing bank dispatches the L/C. Issuing sends an original copy of the L/C for negotiating and a copy to the advising bank for advising. It also sends reimbursing bank for reimbursement.

Receiving Documents:-
If the beneficiary is being satisfied with the term and conditions of the L/C then dispatch the goods to the buyer. After that dispatch the documents evidence dispatching of goods to the negotiating bank on or before the stipulated expiry date of the L/C.

The documents include:
01)    Commercial invoice
02)    Bill of lading
03)    Bill of Exchange
04)    Shipment Certificate
05)    Pre-shipment Inspection Certificate
06)    Certificate of Origin
07)    Packing List
08)    Weight List
09)    Insurance cover note
10)    Radio Activity Report (applicable for import of foods only)

After receiving all the documents, the negotiating bank then checks the documents against the credit. If the documents are found in order, the bank will sends to the Issuing bank.

Lodgment & Retirement Section:-
Lodgment means retirement of funds. If the documents receiving from the negotiating bank issuing bank also scrutinize the documents. The officer carefully examines the following points:
01)    The invoice should contain quality, quantity, unit price, total value.
02)    The number of copies should exactly meet the requirement of the credit
03)    The shipper must sign all the copies

Bill of lading:-
01)    It must be duly signed and endorsed.
02)    It must state payment of freight. If the invoice price is on C&F basis the bill of lading must be marked “Freight Paid” and freight is payable at destination, “Freight to Pay” is marked on B/L.

Certificate of Origin:-
01)    It should provide evidence of the goods as specified in the credit. It is issued by the chamber of commerce of beneficiary’s country.

Bill of Exchange:-
02)    Is the Bill of Exchange drawn in the language of the credit?
03)    Is the bill of exchange properly prepared according to the credit conditions (on a sight or time basis) and drawn on the specified bank?
04)    Is it properly dated and signed?
05)    Is the amount if figures corresponded exactly with the amount in word?
06)    Does it contain all the prescribed notations and clases?

Any other documents such as weight and measurement certificate, insurance certificate, packing list etc. as stipulated in the credit must be examined before regotiation.

After scrutiny of these documents, if there is any discrepancy in the documents, the officer will promptly advise the importer and the negotiating bank and asks them to rectify these discrepancies. But if there is no discrepancy, then he will prepare some vouchers.

Payment against Documents (PAD):
This is the most sensitive task of the Import Department. The Officials have to be very much careful while making payment. This task constitutes the following—
Date of Payment:-
Usually payment is made within seven days after the documents have been received. If the payment is become deferred, the negotiating bank may claim interest for making delay
Preparing sale memo:
A sale memo is made at B.C rate to the customer. As the T.T & D.D rate is paid to the ID, the difference between these two rates is exchange trading. Finally, an Inter Branch Exchange Trading Credit Advice is sent to ID.
Requisition for the foreign currency:-
For arranging necessary fund for payment, a requisition is sent to the International Department.
Transmission of telex:-
A telex is transmitted to the correspondent bank ensure that payment is being made.
Loan against Imported Merchandise (LIM)
Loan against import merchandise through the bank may be allowed retaining margin prescribed on their landed cost, depending on hte categories and credit restrictions imposed by the Central Bank/head office from time to time. Branches shall also obtain letter of undertaking and indemnity from the clients, before getting goods cleared through LIM account. Clearance of the goods should be taken through Approved Clearing Agent of the Bank.

The following points must be taken to consideration while allowing advance against the security of imported goods.
Storage of imported goods under LIM facility may be allowed for specified time as prescribed by Central Bank/head office of the bank within which period importer should take delivery of the goods against payment, generally part delivery is not allowed from LIM Account. This may however, be allowed only on specific request and consideration, While allowing part delivery , it must be ensured that the landed cost of the merchandise is properly worked out before the goods are delivered to the customers agaisnt proportionate payments. Landed cost of valuable and less valuable items should not be average together. LIM A/c should properly maintain by the bank. Vouchers will be   

If the documents are required to delivered against LATR (Loan Against Trust Receipt). Prior approval is required from Head Office. Documents to be delivered to the Importer through approved C&F agent for clearance of goods from the port and should be stored in the imported factory. This limit is usually given for certain period on the merit of goods & nature of business. Vouchers will be

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