Pre close of LC payment?

Question

We are importer of paper and most of our business is on LC. We have ask our banker to pre close the part payment of our LC as the rupee was in favourable price. But our banker refuse to pre close stating that RBI guideline doesn't permit to pre close the LC. We are confuse why we cannot pre close our LC payment. Please provide the detail for the same.

Answer 1

Mr Karan,

At the outset, let me clarify that this site is designed by a group of Senior Banking Professionals to assist Bank Customers at large to provide guidance for resolution of any query / complaint / grievance in respect of financial services.  This site does not belong to any Bank or a Regulator, which may please be noted.

As regards pre-payment of import bills received under Letter of Credit, Banks may accept pre-payment of import bills subject to RBI guidelines in this regard. An extract of pre-payment guidelines issued by RBI is reproduced for your information. These guidelines are part of RBI Circular AP (Dir Series) Circular no. 9 dated 24th August 2000.

"In case of pre-payment of usance import bills, remittances may be made only after reducing the proportionate interest for the un-expired portion of usance at the rate, according to the contract, at which the interest has been claimed for the usance period or the prime rate or LIBOR of the currency in which the goods have been invoiced , whichever is applicable. Where interest is not separately claimed, remittances may be allowed after deducting the proportionate interest for the un-expired portion of usance at the prevailing 'prime' rate/ LIBOR of the currency of invoice."

Trust it satisfies your query. In case Bank is not accepting your request, you may escalate the issue to the nodal officer - grievances whose coordinates (contact) would be available on the Bank's website. If you do not get satisfactory response from nodal officer within a reasonable period, you may take up the matter with Exchange Control depth of RBI for resolution.

Regards

Deepak