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Revolving - Inland Letter of Credit (Business Law)

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This query is : Resolved


Author : Mahesh Kakade

Posted On 28 January 2011 at 17:53

Inland letter of credit opened by the SBI chennai for an amount of Rs. 8crs. Negotiating bank is SBI Pune.
The LC opening bank had put the conditions that the LC will be reinstated within seven days after receipt of advice from the negotiating bank for the value stated therin confirming that the document have been negotiated complying all terms and conditions of the LC as per approved billing breakup.

I need clarification for following points....
1. Can the negotiating bank have a right to ask for reinstatment of value of LC as per the condition putten by LC op. bank
if not what is regular course of LC




Expert : malipeddi jaggarao

Posted On 29 January 2011 at 11:11

Inland Letter of Credit will be opened by the Banker of Buyer of the goods/services. It is a sort of guarantee by the Buyer's Bank to the Seller/his Bank that if the invoice and other documents are drawn as per the terms of Letter of Credit evidence despatch of the goods adhering to all the conditions enlisted in the LC, the opening Bank (Buyer's Bank) will reimburse the amount to the Seller's nominated Bank (Negotiating Bank). The LC can be opened as a one time measure or on revolving basis depending upon the arrangement between the buyer and his (opening) Bank. In case of Revolving LC, for every purchase/instalment of purchase, the buyer need not open fresh LC (which is cost)and instead he can request his Banker to opened Revolving LC. In case of Revolving LC, once the negotiating Bank certifies that it has negotiated the bills (in general terms paid the amount to the seller) of the seller (beneficiary) and confirms that he has submitted all the documents including invoice (evidencing transport of goods to the seller) and advices the amount to the opening Bank, the opening Bank will restore such utilized limit against the LC. That means the seller/his banker (negotiating Bank) can again undertake the bills of the seller as aforesaid. This is called restoration of utilised amount in the Revolving LC.

It is not the right of the negotiating Bank. It is the advice. Unless such advice is received by the opening bank (buyer's bank), and the utilised amount is restored by it (which will be duly advised to the seller/beneficiary and his banker/negotiating bank, fresh documents can not be taken for negotiation to give effect of revolving nature.
In the entire process no bank is dealing with the goods. The Banks deal with the documents and documents should be drawn in accordance with the terms of the LC (as originally intimated by the seller to his banker). Hope this is clear to you now.



Author : Mahesh Kakade

Posted On 29 January 2011 at 16:25

Sir, Thank you very much for your reply, which made easy to understand the process of LC.
I want little more clarification i.e.
Details of Revolving LC
1. LC maximum limit is 25crs
2. Revolving Amount is 8 crs
3. Expiry date is 2nd Feb 2012 (12 months)
4. Opening Bank is SBI Chennai
5. Negotiating Bank is SBI Pune.
6. Every Month Bills of Rs. 3 crs. (Approx)
7. No. of Presentation every month will be 4 Nos.
8. Business - Project Business

I deposit the bill (sight draft) along with all the documents as per LC terms (Invoice, Delivery Challan, Lorry Receipt) of Rs. 2.5 crs for negotiation and my bank (negotiating bank) credit the said amount in sight draft immediately to my account after certifying that there is no discrepancy in the documents, Now I want to understand following points.
1. The Negotiating Bank will forward the advise along with the set of documents to Op. Bank for reimbursement of the said amount, how many days normally op. Bank takes to reimburse the amount to Negotiation bank?
2. After reimbursement of Rs. 2.5crs to negotiating bank is my limit again reinstated to Rs. 8crs or is there condition that after complete withdrawal of Rs.8 Crs (8 - 2.5 = 5.5) against LC then only another 8crs available or after reimbursement of amount (2.5crs) to negotiating bank by Op. Bank my limit will always remain 8crs till the date of expiry of the LC.?
3. If the above mentioned condition putten (LC reinstate) by the LC Op. Bank, is this conditional LC or clean LC? What will be impact for regular transaction.


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