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Letter of Credit

Trade freely using ICICI Bank Letter of Credit

  • Fast and Hassel free

    Fast and Hassel free

  • Apply digitally through TOL

    Apply digitally through TOL

  • Competitive rates

    Competitive rates

  • Extensive global network

    Extensive global network

Letter of Credit
What is a Letter of Credit?

What is a Letter of Credit?

A Letter of Credit (LC) is a financial instrument used in international trade to provide payment security. It guarantees that the seller will receive payment from the buyer, as long as the seller fulfills the agreed-upon terms and conditions. LCs help mitigate risks for both parties involved in the transaction. It can be issued against a pledge of securities or cash. Banks typically collect a fee, i.e., a percentage of the size/amount of the letter of credit.

 Importance of Letter of Credit

Importance of Letter of Credit

Nature of international trade includes factors such as distance, different laws in each country and the lack of personal contact during international trade, letters of credit make a reliable payment mechanism. The ‘International Chamber of Commerce Uniform Customs and Practice for Documentary Credits’ oversees letters of credit used in international transactions.

Basics on Letter of Credit

  • Parties to LC
    Letter of credit

  • Types of
    Letter of credit

  • Importance of LC
    to Importers

  • Importance of
    LC to Exporters

  • Collateral required
    for LC

Parties to Letter of Credit

  • Applicant (importer) requests the bank to issue the LC.
  • Issuing bank (importer’s bank which issues the LC [also known as the Opening banker of LC]).
  • Beneficiary (exporter).

Types of Letter of credit

  1. Following are major categories of LC:
  2. Sight LC
  3. Revocable/Irrevocable LC
  4. Confirmed LC
  5. Back-to-Back LC
  6. Transferable LC

Importance of Letter of Credit to an Importer

A Letter of Credit (LC) offers assurance that the payment will only be made when the exporter meets the specified terms and conditions. This mitigates the risk of non-performance or delivery issues, ensuring the importer receives the goods as agreed and protects their financial interests.

Importance of letter of credit to an Exporter

A Letter of Credit ensures that the exporter will receive payment for goods or services once they comply with the terms and conditions of the LC. This reduces payment risks, enhances trust, and facilitates smooth international trade transactions.

Collateral requirement in LC

The bank will require collateral depending on the credit arrangement with the applicant or even a fixed deposit as collateral.

Why apply LC through ICICI Bank?

Quick and Seamless process

Quick and Seamless process

Quick turnaround time and seamless process.

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Apply digitally

Apply digitally

Apply for LC digitally through Trade Online (ICICI Bank’s Corporate Internet Banking) and have the convenience of banking from the comfort of home or office.

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Preferential pricing

Preferential pricing

Avail fast and hassle-free LC issuance service at competitive rates.

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Customizable LC

Customizable LC

Get the LC draft provided by the exporter vetted through us or get the LC draft prepared from ICICI Bank and have the LC issued on mutually acceptable payment terms.

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Extensive global network

Extensive global network

Get the advantage of our Correspondent bank relationships and get the LCs advised through your preferred banks with our extensive global network.

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Easy to apply

Document formats for LC issuance against Fixed Deposit:

Read More

Letter of Credit FAQs

How does a Letter of Credit work?

Import How

  • Step 1 - You (the buyer) and the supplier sign a contract stating that payment will be made on the basis of Letter of Credit
  • Step 2 - You approach ICICI Bank to issue a Letter of Credit in supplier’s favour
  • Step 3 - ICICI Bank issues the Letter of Credit, advised by its own branch or correspondent bank in supplier’s country
  • Step 4 - Advising Bank advises Letter of Credit to the supplier
  • Step 5 - The supplier receives the Letter of Credit, sends the shipment of goods and deliver’s documents to its own bank
  • Step 6 - Supplier’s bank sends the documents to ICICI Bank for payment
  • Step 7 - You now pay the amount due to ICICI Bank, and get the documents in turn

Types of Letter of Credit

Sight Letter of Credit The issuing bank makes the payment once the documentation is received in order
Usance Letter of Credit The issuing bank accepts the draft once all documentation received is in order, and agrees to pay on the maturity date
Standby Letter of Credit This is typically used to ensure that the applicant will meet the payment or contractual obligations. A Bank Guarantee can also serve the same purpose.

The ICICI Bank Edge

  • Convenient - Sanctioned and Issued quickly
  • Wide Acceptance - Gloabally accepted by all beneficiaries
  • Multichoice - ICICI Bank Letter of Credit can also be availed against 100% cash margin in the form of Fixed Deposits
  • Competitive pricing