A Letter of Credit (LC) is an authoritative report that is given by the bank that goes about as a permanent assurance in making installment to a recipient. At the point when an individual neglects to play out the necessary commitments, the bank pays. In this article, we take a gander at the different sorts of letter of credit accessible in India.

Types of Letters of Credit

There are four kinds of Letters of Credit and they are given underneath.

  • A Revocable letter of credit
  • An Irreversible letter of credit
  • A Backup letter of credit
  • Revolving letter of credit

Revocable Letter of Credit

As the name proposes, letter of credit can be disavowed by the responsible bank without the understanding of the recipient.

Unalterable Letter of Credit

In the event that a candidate applies for an obligation credit scrip/release of EO against an affirmed irreversible letter of credit (or bill of trade that is genuinely co-acknowledged/avalised/ensured by a bank), this is affirmed and guaranteed by exporter’s bank in an important Bank Certificate of Export and Realization, installment of fare continues will be considered to have been figured it out. For Status Holders, unavoidable letter of credit will get the job done.

Backup Letter of Credit

Assurance of Payment: If the recipient isn’t paid from its client, it would then be able to request the installment from the Bank by sending the duplicate of the receipt that was not paid and the supporting documentation.

Revolving Letter of Credit

This is executed when there are customary shipments of a similar product between the provider and the client. The said methodology kills the need to give a Letter of Credit for each individual exchange.

Safety measures to be taken

  • The bank that concedes the Letter of Credit must be a standard financier of the opener and ought to likewise be known to the recipient.

The Overseas Letter of Credit ought to consistently be exhorted through an Indian Bank; ideally it ought to be affirmed.

  • The individual needs to check the bank charges, regardless of whether to openers account or to the recipients account. For the most part, the purchaser and the merchant needs to pay the bank charges in the separate nations that incorporate the LC affirmation charges. The Letter of Credit needs to specify the costs that are because of the candidate and which by virtue of the recipient.
  • The individual needs to check if the cargo is paid ahead of time or to pay as indicated by the agreement.

Parties to Documentary Credit

  • Business/exchange parties – purchaser/dealer, candidate/recipient and so forth
  • Banks – The banks that issue LC, exhorting bank, LC affirming bank, repaying bank and so forth
  • Related Parties – Shipping/Air Lines, Insurance Companies, Forwarders and so on

Issuing Bank

Purchasers/Importers brokers who communicate the Credit Instructions to the recipients investors who are the dealers/exporters financiers.

Advising Bank

The informing bank prompts the Letter regarding Credit to the recipient. The bank additionally goes about as a journalist to the responsible bank. Likewise, the bank could possibly offer to arrange records, acknowledge paying the recipient for the responsible bank.

Confirming Bank

Regularly, the Advising and the Confirming bank can be something very similar. Thusly, the affirming bank adds and gives an endeavor to pay the recipient, for the responsible bank gave the archives are introduced to arrangement are in adjustment to the Letter of Credit.

Negotiating Bank

The arranging bank on Negotiation of Export of reports according to the Letter of Credit pays the worth promptly with the allowance of revenue or toward the finish of development date without the derivation of premium, whichever the case might be.

Credit Options

Sight: The installment will quickly be made powerful by introducing the bill of exchange.

Usance: The installment will be affected on the Pre-assigned day from the date of acknowledgment of bill of exchange.

Deferred Payment: The installment will be affected in portions as per the agreement/letter of credit at foreordained spans.

Acceptance Credit: This is made accessible by the acknowledgment of the draft that is drawn by the exporter named bank.

In the event that the credit is unsubstantiated, the acknowledgment for installment of such drafts is generally stayed away from by the banks.

Injunction on Payment

A candidate can stop the installment through LC giving bank, through Court Injunction and the records that are haggled as far as the Letter of Credit.


There are three sorts of solicitations. They are Commercial Invoice, Customs Invoice and Consular Invoice/Legalized Invoice.

Commerce Invoice: Invoices that are given as far as the agreement/Letter of Credit.

Commerce Invoice: This is given in a particular arrangement for fares to the USA and Canada.

Consular Invoice/Legalized Invoice: This is given which is guaranteed by the Consulate of the Importing Country.