An inland lc brewing
After the LOU scam is Indian Banking bracing up to inland LC scam. The panic reaction of RBI in banning LOU has forced many of them to inland LC route to sustain the liquidity mismatch to run the business.
Every banker knows inland lc business is mostly accommodation finance only.
And this route is being used to avail finance outside consortium and multiple banking.
And this can be used for diversion of funds, evergreening of NPA etc etc.
Many a banks give this finance in crores without any documentation for the limits sanctioned notionally to accommodate the transaction in system.
They do not insist for transport documents only delivery challan accepted. Even applicable stamp duty is not paid on usance bills.
Example The parties are in Gujarat and transactions also are in Gujarat but LC is issued and advised and discounted in Delhi.
LC is made available with a banker outside their lenders. And discounted bill amount is sent to the parties account by rtgs to the banker as directed by the customer. The documents are not sent by their bankers.
All these things gives an impression that it is only accommodation finance. Even recognised private banks send consignor copy of LR as proof of transport documents. Bankers even agree to amendments that it can be made to the order of beneficiary and not to the bank.
The LR submitted is not of IBA approved transport operator. It do not include their PAN service tax GST registration numbers.
Some times it is discounted to the agent for transactions between buyer and seller. As under lc agent is beneficiary.
It is high time RBI probe the inland LC portfolio of banks.
In the past they have penalised some banks for irregularities but it is still being continued.
We must not forget one of the reason for failure if Centurion bank was their LC financing.
Will the authorities wake up before it is too late. more
Every banker knows inland lc business is mostly accommodation finance only.
And this route is being used to avail finance outside consortium and multiple banking.
And this can be used for diversion of funds, evergreening of NPA etc etc.
Many a banks give this finance in crores without any documentation for the limits sanctioned notionally to accommodate the transaction in system.
They do not insist for transport documents only delivery challan accepted. Even applicable stamp duty is not paid on usance bills.
Example The parties are in Gujarat and transactions also are in Gujarat but LC is issued and advised and discounted in Delhi.
LC is made available with a banker outside their lenders. And discounted bill amount is sent to the parties account by rtgs to the banker as directed by the customer. The documents are not sent by their bankers.
All these things gives an impression that it is only accommodation finance. Even recognised private banks send consignor copy of LR as proof of transport documents. Bankers even agree to amendments that it can be made to the order of beneficiary and not to the bank.
The LR submitted is not of IBA approved transport operator. It do not include their PAN service tax GST registration numbers.
Some times it is discounted to the agent for transactions between buyer and seller. As under lc agent is beneficiary.
It is high time RBI probe the inland LC portfolio of banks.
In the past they have penalised some banks for irregularities but it is still being continued.
We must not forget one of the reason for failure if Centurion bank was their LC financing.
Will the authorities wake up before it is too late. more
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Oct 31
True. Lot of Inland LCs are used for accommodation finance. And unfortunate part is those discounting such Inland LCs generally do not have even basic KYC documents of beneficiary company. And recent closure of lakhs of companies gives enough indications. Unfortunately those who ask for even KYC are treated badly by their own higher ups. more
May 17
Sir
My point was something different. I explain a bit. Company A gets LC limit sanctioned. It has also so many banami holdings controlled by same group .. (real owners). It gets issued LCs in their favour and then get these LCs discounted from different banks. And money is transferred from these benami holdings to LC isduing company. So extra funds are used by companies. more
My point was something different. I explain a bit. Company A gets LC limit sanctioned. It has also so many banami holdings controlled by same group .. (real owners). It gets issued LCs in their favour and then get these LCs discounted from different banks. And money is transferred from these benami holdings to LC isduing company. So extra funds are used by companies. more
May 17
LCs shall not give scope for resulting OVERDRAFT, later non repayment, finally route at times to OVERDUES. more
May 17
This is not correct to say that LCs are allowed to the borrowers without any documentation. Limits for LCs are part of overall limits sanctioned to a unit arrived at as per assessment of their requirements by officers having required expertise thereto after due examination of various information and documents submitted by the applicants as well as carrying out independent queries and limits are sanctioned or rejected by the appropriate authorities as per recommendations of the assessing officers in favour or against thereof. Once the proposals get sanctioned, necessary documentation is done and recommended collateral securities are obtained before releasing any part of the loan. Limits of loans of different categories, such as, working capital (short term), term loans (for land & machinery etc. for longer period), LC, BG etc. as per requirements of the applicants are covered in the assessment and recommendation, which are clearly mentioned under each head in the relative documents, bank's charge over the collateral is created and then the loans are released as per the terms of the sanction. LC limits are sanctioned to discount demand as well as usance bills. While demand bills to be honoured on demand, i.e., immediately (including grace period allowed by the drawers of the bills) on presentation containing documents of transportation of goods are delivered to the drawees on payment only, the usance bills are supposed to be accepted by the drawees on presentation in writing on the 'Hundi" itself as proof of acceptance of the liabilities to honour the bills on due dates. As such, the documents relating to transportation of goods sent to the banks' branches under usance are delivered to the drawees on acceptance of the liabilities without receiving payment, which is as per the terms of sanction and as per the provisions of the Negotiable Instrument Act,1961, though, scope for diversion of funds under such transactions, as claimed in the post, can't be totally ruled out. However, it would not be out of place to mention that all our commercial banks including the private ones are earning their major chunk of revenues under such transactions only. No bank would be viable by only accepting deposits and sanctioning totally secured loans only against thereof and doing some miscellaneous business. Moreover, banking itself is a game of risks. It may be Vijay Mallaya, Nirob Modi, Ckouksey or some body else or loans to our farmers. In fact we do not have on hand information of bank' money being lost every year on account of financing to the agriculturists, as such losses are made good either by the central government or state governments under 'Rin Mafi' (waiver of loans), out of taxes collected from the common man, which is being aimed to political gains rather than to rescue the poor farmers from distress. And there are many many large farmers all over the country, who take bank loans of large amounts for various agricultural activities and become defaulters wilfully and such losses are to be borne by the banks by way of writing off of the debts. more
May 16
LCs are in demand only at the aim of getting prompt timely payment. Accounts of LC users shall be set for vigilance of inevitable over-drafts, the repayment time taken by the LC user. If not, there will be an adverse effect to the Conduct of Account that may result in unpaid overdues . more
May 17
They are allowed and those twisting rules are given promotions. I have documentary proofs. more
May 17
ILC shall be mandated only Industrial Sector for Manufacturing/Processing and Making . ILC not to be allowed in Marketing Field i.e., Shops and Agencies. Otherwise, it will lead to unfair trade/Monopoly besides cause Price Increase too. more
May 16
I agree.Clandestine issue of ILC in most cases are being misused. more
May 17
All these fraudulent transaction are to be examined by the internal Audit and Inspection, else there has to be loss to the Bank. more
May 16
