Project Report Abhinav

Summer Internship Project Report On LETTER OF CREDIT In INDIAN OIL CORPORATION LTD.
Submitted towards the Partial Fulfillment Of Masters in Business Administration (Shri Siddhi Vinayak Institute Of Management)
ACADEMIC SESSION 2011-2013 Under the kind guidance of
Company Guide Mr. A. P. Sharma Chief Finance Manager Refineries Headquarters (PJ-PDRP) Indian Oil Corporation Ltd.
Submitted By Abhinav Singh SSVIM, Bareilly
SHRI SIDDHI VINAYAK INSTITUTE OF MANAGEMENT
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Student Declaration
I, Abhinav Singh to the best of my knowledge & belief, hereby declare that the project report Entitled: Letter Of Credit is the result of my own work in the fulfillment of academic requirement. The training is done in Indian Oil Corporation Limited (IOCL) [Refineries Headquarters, New Delhi State Office] for a period of two months commencing from 25.06.2010 to 31.08.2010. This project work is submitted to Shri Siddhi Vinayak Institute Of Management, Bareilly as well as in Indian Oil Corporation Limited [Refineries Headquarters, New Delhi State Office]. It is not to be used copied or edited by any person. Written order has to be taken from appropriate authority for that.
Abhinav Singh MBA (Finance) Shri Siddhi Vinayak Institute Of Management
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ACKNOWLEDGEMENT
I would like to take this opportunity to express my gratitude towards all those who have in various ways helped me in the completion of this project. I take this opportunity to extend my sincere thanks to my project guide Mr. A.P. Sharma, (Chief Finance Manager), IOCL, (Refineries Headquarters) and Mr. Siddhartha Jain (Accounts Officer) &Mr. Kushal Bansal (Accounts Officer) in guiding me to complete the project. Special thanks also to all my graduate friends, especially group member; Abhinav for sharing the literature and invaluable assistance. Not forgetting to thank my peers who have always been there. I would also like to convey my thanks to my college faculty, Mr. Abhijeet Das And finally I wish to express my love and gratitude to my beloved family; for their understanding & endless love through the duration of my internship.
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Table of Contents
SR.NO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
PARTICULARS PREFACE EXECUTIVE SUMMARY OBJECTIVES OF STUDY OIL INDUSTRY OVERVIEW OIL INDUSTRY STRUCTURE COMPANY PROFILE MANAGEMENT OF IOC ORGANISATIONAL STRUCTURE OF IOCL BUSINESS OF IOCL BUSINESS CHART OF IOCL INTRODUCTION OF IOCL FINANCIAL DETAILS OF IOCL LETTER OF CREDIT ANNEXURE BIBLIOGRAPHY
PAGE NO. 5 6 7 10 11 13 16 28 29 35 36 46 49 96 100

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PREFACE
In the broader sense training is necessary to make the students of Professional Institutions familiar with industrial environment .This not only helps Professionals to speedily accommodate themselves in industries but also to have Better usage of their studies. To be dynamic, strategic and work aggressively they need to know the policies, procedures and trends going in the present industrial environment apart from their studies The training fulfils all these needs. Whether it is the question of demonstrating a modernized procedure, step by step to an old production handor guiding a new division head through the intricacies of preparing his own budget, the responsible supervisor or manager must make the trainee learn and communicate. In todays era of globalization and competition, coping up with technological advancement, which is undergoing evolution at a very fast rate, holds the key to the survival and growth of any organization. Installing technology, well-equipped facilities or going for modification in the existing ones are the means to attain better performance efficiency and hence further the value addition. Indian oil, the largest commercial enterprise of India (by sales turnover) is Indias sole representative in fortunes prestigious listing of worlds 500 largest corporations, ranked 116th for the year 2008. To maintain strategic edge in the market place, Indian oil has given importance to Letter of Credit because they are extremely important for contacting with the outside world for making payments to the vendors from whom you have purchased materials i.e. importing of materials and issuing them L/C, they sometimes also pose difficulties.
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EXECUTIVE SUMMARY
I had the opportunity to take up the Internship Project at Indian Oil Corporation Limited. During the project I had the privilege of being guided by Mr. A.P.Sharma, Senior Finance Manager of Paradip Refinery Project (PDRP) in Finance department. My project is study of letter of credit in Indian Oil Corporation limited (Refineries Division). The study was conducted at the Finance department of Indian Oil corporation Limited under Project Finance Department. The project was of 8 weeks duration. During the project interviewed the staff and executive and read the files on Letter Of Credit and made Amendments. The objective of my internship was the knowledge of sale under letter of credit of Indian Oil Corporation. A study of letter of credit deals with studying and understanding the Letter of credit, different fields of letter of credit and different types of L/C charges namely L/C Advising charges, L/C Amendment charges and discrepancy charges and calculating saving potential and making recommendations. A letter of credit (LC) is a binding document that a buyer can request from his bank in order to guarantee that the payment for goods will be transferred to the seller. Basically, a letter of credit gives the seller reassurance that he will receive the payment for the goods.
By studying the LC I came to know It reduces the credit risk of company It even reduces the payment delays It increase the liquidity position of company Some suggestions for the company are The prices should be less to re-establish the market. Company should put more efforts to improve its liquidity position.
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OBJECTIVES OF THE STUDY
To get an exposure of the actual working environment within a multi-national. To thoroughly understand Letter of credit and various aspects related to banking at Indian Oil. To study and analyze all the details of Letter of credit (LC) facility provided by SBI and various other banks. To know about all the documents required while opening LC. To make necessary amendments in the Letter of credit as per the requirements of Applicant and Beneficiary. To check all the documents required for making payments to the beneficiary.
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COMPANY PROFILE
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OIL INDUSTRY OVERVIEW

Background After the Indian Independence, the Oil Industry in India was a very small one in size and Oil was produced mainly from Assam and the total amount of Oil production was not more than 250,000 tons per year. This small amount of production made the oil experts from different countries predict the future of the oil industry as a dull one and also doubted India's ability to search for new oil reserves. But the Government of India declared the Oil industry in India as the core sector industry under the Industrial Policy Resolution bill in the year 1954, which helped the Oil Industry in India vastly. Oil exploration and production in India is done by companies like NOC or National Oil Corporation, ONGC or Oil and Natural Gas Corporation and OIL who are actually the oil companies in India that are owned by the government under the Industrial Policy Rule. The National Oil Corporation during the 1970s used to produce and supply more than 70 percent of the domestic need for the petroleum but by the end of this amount dropped to near about 35 percent. This was because the demand on the one hand was increasing at a good rate and the production was declining in a steady rate. Oil Industry in India during the year 20042005 fulfilled most of demand through importing oil from multiple oil producing countries. The Oil Industry in India itself produced nearly 35 million metric tons of Oil from the year 2001 to 2005. The Import that is done by the Oil Industry in India comes mostly from the Middle East Asia. The Oil that is produced by the Oil Industry in India provides more than 35 percent of the energy that is primarily consumed by the people of India. This amount is expected to grow further with both economic and overall growth in terms of production as well as percentage. The demand for oil is predicted to go higher and higher with every passing decade and is expected to reach an amount of nearly 250 million metric ton by the year 2024.
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OIL INDUSTRY STRUCTURE
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OIL INDUSTRY DYNAMICS

At present, there are four PSUs namely, IOC, HPC, BPC and IBP (subsidiary of IOC) marketing oil products in the country. In addition, certain private players like Reliance, Essar and Shell have also in marketing rights for transportation fuels. Their marketing presence today, however, is not significant and is limited to about 1370 outlets out of total retail outlet strength of about 29,380. Some additional players like ONGC, who have also been granted marketing rights for transportation fuels, are in the process of setting up retail outlets to integrate across the entire hydrocarbon value chain. The company wise market share in sales is tabled below: It is evident that the share of the private sector in meeting total consumption of refined petroleum products presently stands at around 15%. This proportion is however, expected to grow significantly in the coming years.
Table 1: Retail Market Share
Table 2: Market Share of Different Companies
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INTRODUCTION In order to ensure greater efficiency and smooth working in the petroleum sector, Government of India decided to merge the refineries and the distribution activities. The Indian Refineries and Indian Oil Company were combined to form the giant Indian Oil Corporation (IOCL) on 1st September 1964, with its registered office at Bombay. In 1967, the pipeline division of the corporation was merged with the refineries division. Research &Development of Indian Oil Came into Existence in 1972. In October 1981 Assam Oil Company was nationalized and has been amalgamated with IOCL as Assam Oil Division (AOD).
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Figure 1: Formation of Indian Oil Corporation Limited
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Beginning in 1959 as Indian Oil Company Ltd., Indian Oil Corporation Ltd. was formed in 1964 with the merger of Indian Refineries Ltd.(established 1958). Indian Oil and its subsidiaries account for 49% petroleum products market share, 40.4% refining capacity and 69% downstream sector pipelines capacity in India. As the flagship national oil company in the downstream sector, Indian Oil reaches precious petroleum products to millions of people everyday through a country wide network of about 34,000sales points. They are backed for supplies by 166 bulk storage terminals and depots, 101 aviation fuel stations and 89 Indane (LP Gas) bottling plants. About 7,100 bulk consumer pumps are also in operation for the convenience of large consumers, ensuring products and inventory at their doorstep.Indian Oil operates the largest and the widest network of petrol & diesel stations in the country, numbering over 17,600. It reaches Indane cooking gas to the doorsteps of over 50 million households in nearly 2,700 markets through a network of about 5,000 Indane distributors. Indian Oils ISO-9002 certified Aviation Service commands over 62% market share in aviation fuel business, meeting the fuel needs of domestic and international flag carriers, private air linesand the Indian Defense Services. The Corporation also enjoys a dominant share of the bulk consumer business, including that of railways, state transport undertakings, and industrial, agricultural and marine sectors.
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Management of Indian Oil Corporation
Board of directors
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LOCATION
Registered Office: Indian Oil Bhavan G-9, Ali Yavar Jung Marg, Bandra (East), Mumbai-400051 Corporate Office: 3079/3, Sadiq Nagar, J B Tito Marg, New Delhi-110049
Refineries Division Head Office: SCOPE Complex, Core-2 Institutional Area, Lodhi Road New Delhi -110003 Barauni Refinery: P.O. Barauni Oil Refinery, Dist. Begusarai, Bihar -861114 Gujarat Refinery: P.O. Jawahar Nagar, Dist. Vadodara, Gujarat-391 320 Guwahati Refinery: P.O. Noonmati,Guwhati Assam 781020 Haldia Refinery: P.O. Haldia Refinery Dist. Midnapur, West Bengal-721 606
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Mathura Refinery: P.O. Mathura Refinery, Mathura, Uttar Pradesh-281 005 Panipat Refinery: P.O. Panipat Refinery, Panipat, Haryana-132140 Bongaigaon Refinery: P.O. Dhaligaon Dist. Chirang, Assam-783385
Marketing Division Head Office: G-9, Ali Yavar Jung Marg, Bandra (East), Mumbai -400051 Northern Region: Indian Oil Bhavan, 1, AurobindoMarg, Yusuf Sarai New Delhi -110016 Eastern Region: Indian Oil Bhavan, 2, Gariahat Road, South (Dhakuria) Kolkata -700068 Western Region: 254-C, Dr. Annie Besant Road, Worli Colony, Mumbai-400025 Southern Region: Indian Oil Bhavan 139, Nungambakkam High Road Bangalore, Karnataka R&D Centre
R&D Centre: Sector 13 Faridabad -121 007(Haryana)

Pipelines Division Head Office: A-1 UdyogMarg, Sector-1, Noida-201301 Northern Region: P.O. Panipat Refinery Panipat, Haryana-132140 Western Region: P.O. Box1007, Bedipara, Morvi Road, Gauridad, Rajkot-360003 Southern Region: 139, Nungambakkam High Road Chennai 600034
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Assam Oil Division Assam Oil Division: P.O. Digboi -768171(Assam)
IBP Division IBP Division: 34-A, Nirmal Chandra Street, Kolkata - 700 013 Business Group(Cryogenics) Sewri Terminal II, Sewri (East), Mumbai - 400 015 Business Group(Cryogenics)A-4, MIDC, Ambad, Nasik - 422 010
Group Companies Chennai Petroleum Corp Ltd.: 536, Anna Salai, Teynampet, Chennai - 600 018 IndianOil Technologies Ltd: SCOPE Complex, Core-2 7, Institutional Area, Lodhi Road, New Delhi-110003 IndianOil (Mauritius) Ltd.: Mer Rouge Port Louis Maruritius IOC Middle East FZE: LOB 14209, Jebel Ali Free Zone, P.O.Box: 261338 Lanka IOC PLC: Lanka IOC Head Office Level 20, West Tower, World Trade Center, Echelon Square, Colombo 01 Sri Lanka
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SALIENT FEATURES
Indias Most Trusted Fuel Pump Brand (ET. Brand Equity-AC Nielson Survey 2007) Indias largest commercial enterprise with leading market shares in downstreamsegment of oil business. Highest ranked Indian corporate in Fortunes list of worlds 500 largest Companies (2008::116th) 20th largest petroleum company in the world- Fortune Global500 Local Currency Rating of A1+(short-term) & LAA+(long-term) from ICRA Indias No.1 corporate in annual listing of Business Standards (BS 10000),Business India(BI Superior 100) &Economic Time (ET 500).
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VISION, MISSION AND VALUES

VISION A major diversified, trans-national, integrated energy company, with national leadership and a strong environment conscience, playing a national role in oil security & public distribution.
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MISSION To achieve international standards of excellence in all aspects of energy and diversified business with focus on customer delight through value of products and services, and cost reduction. To maximize creation of wealth, value and satisfaction for the stakeholders. To attain leadership in developing, adopting and assimilating state-of-the-art technology for competitive advantage. To provide technology and services through sustained Research and Development. To foster a culture of participation and innovation for employee growth and contribution. To cultivate high standards of business ethics and Total Quality Management for a strong corporate identity and brand equity. To help enrich the quality of life of the community and preserve ecological balance and heritage through a strong environment conscience.
VALUES
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OBJECTIVES & OBLIGATIONS OF IOCL

Objectives: To serve the national interests in oil and related sectors in accordance and consistent with Government policies. To ensure maintenance of continuous and smooth supplies of petroleum products by way of crude oil refining, transportation marketing activities and to provide appropriate eassistance to consumers to conserve and use petroleum products efficiently. To enhance the country's self-sufficiency in crude oil refining and build expertise inlaying of crude oil and petroleum product pipelines. To further enhance marketing infrastructure and reseller network for providing assured\ service to customers throughout the country. To create a strong research and development base in refinery processes, product formulations, pipeline transportation and alternative fuels with a view to minimizing/eliminating imports and to have next generation products. To optimize utilization of refining capacity and maximize distillate yield and grosses refining margin. To maximize utilization of the existing facilities for improving efficiency and increasing productivity. To minimize fuel consumption and hydrocarbon loss in refineries and stock loss in marketing operations to effect energy conservation. To earn a reasonable rate of return on investment. To avail of all viable opportunities, both national and global, arising out of the Government of Indias policy of liberalization and reforms. To achieve higher growth through mergers, acquisitions, integration and diversification by harnessing new business opportunities in oil exploration production, petro chemicals, natural gas and downstream opportunities overseas. To inculcate strong core values among the employees and continuously update skill sets for full exploitation of the new business opportunities. To develop operational synergies with subsidiaries and joint ventures and continuously engaged across the hydrocarbon value chain for the benefit of society at large.
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Financial Objectives: To ensure adequate return on the capital employed and maintain a reasonable annual dividend on equity capital. To ensure maximum economy in expenditure. To manage and operate all facilities in an efficient manner so as to generate adequate internal resources to meet revenue cost and requirements for project investment, without budgetary support. To develop long-term corporate plans to provide for adequate growth of the Corporations business. To reduce the cost of production of petroleum products by means of systematic cost control measures and thereby sustain market leadership through cost competitiveness. To complete all planned projects within the scheduled time and approved cost. Obligations: Towards customers and dealer: - To provide prompt, courteous and efficient service and quality products at competitive prices. Towards suppliers: - To ensure prompt dealings with integrity, impartiality and courtesy and help promote ancillary industries. Towards employees: - To develop their capabilities and facilitate their advancement through appropriate training and career planning. To have fair dealings with recognized representatives of employees in pursuance of healthy industrial relations practices and sound personnel policies. Towards community: - To develop techno-economically viable and environment-friendly products. To maintain the highest standards in respect of safety, environment protection and occupational health at all production units. Towards Defence Services: - To maintain adequate supplies to Defence and other Para-military services during normal as well as emergency situations.
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MARKETS
Indian Oil has one of the largest petroleum marketing and distribution networks in Asia, with over 34,000 marketing touch points. Its ubiquitous petrol/diesel stations are located across different terrains and regions of the Indian subcontinent. From the icy heights of the Himalayas to the sun-soaked shores of Kerala, from Kutch on India's western tip to Kohima in the verdant North East, Indian Oil is truly 'in every heart, in every part'. Indian Oil's vast marketing infrastructure of petrol/diesel stations, Indane (LPG) distributorships, SERVO lubricants & greases outlets and large volume consumer pumps are backed by bulk storage terminals and installations, inland depots, aviation fuel stations, LPG bottling plants and lube blending plants amongst others. The countrywide marketing operations are coordinated by16 State Offices and over 100 decentralized administrative offices. Several landmark surveys continue to rate Indian Oil as the dominant energy brand in the country and an enduring symbol for high quality petroleum products and services. The heritage and iconic association that the brand invokes has been built over four decades of commitment to uninterrupted supply line of petroleum products to every part of the country, and unique products that cater not only to the functional requirements but also the aspirational needs of millions of customers. Indian Oil has been adjudged India's No. 1 brand by UK-based Brand Finance, an independent consultancy that deals with valuation of brands. It was also listed as India's 'Most Trusted Brand' in the 'Gasoline' category in a Readers' Digest - AC Nielsen survey. In addition, Indian Oil topped. The Hindu Business lines "India's Most Valuable Brands" list. However, the value of the Indian Oil brand is not just limited to its commercial role as an energy provider but straddles the entire value chain of gamut of exploration & production, refining, transportation & marketing, petrochemicals & natural gas and downstream marketing operations abroad. Indian Oil is a national brand owned by over a billion Indians and that is a priceless value.
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ORGANIZATION STRUCTURE OF IOCL:
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BUSINESS OF IOCL
REFINING: Born from the vision of achieving self-reliance in oil refining and marketing for the nation, Indian Oil has gathered a luminous legacy of more than 100 years of accumulated experiences in all areas of petroleum refining by taking into its fold, the Digboi Refinery commissioned in 1901.Indian Oil controls 10 of Indias 20 refineries. The group refining capacity is 60.2 million metric tons per annum (MMTPA) or 1.2 million barrels per day -the largest share among refining companies in India. It accounts for 33.8% share of national refining capacity. The strength of Indian Oil springs from its experience of operating the largest number of refineries in India and adapting to a variety of refining processes along the way. The basket of technologies, which are in operation in Indian Oil refineries include: Atmospheric/Vacuum Distillation; Distillate FCC/Reside FCC; Hydro cracking; Catalytic Reforming, Hydrogen Generation; Delayed Coking; Lube Processing Units; Tiebreaking; Meraux Treatment; Hydro-Desulphurization of Kerosene and Gasoil streams; Sulphur recovery; Dew axing, Wax Hydro finishing; Coke Calcining, etc. The Corporation has commissioned several grass root refineries and modern process units. Procedures for commissioning and start-up of individual units and the refinery have been welllaid out and enshrined in various customized operating manuals, which are continually updated. Indian Oil refineries have an ambitious growth plan with an outlay of about Rs. 55,000 crore for capacity augmentation, de-bottlenecking, bottom up gradation and quality up gradation. Major projects under implementation include a 15 MMTPA grassroots refinery at Paradip, Orissa, Naphtha Cracker and Polymer Complex at Panipat. Panipat Refinery expansion from 12MMTPA to 15 MMTPA, among others. In addition, petrol quality up gradation projects are under implementation at Panipat, Mathura,Barauni, Guwahati and Digboi refineries proposed to be completed by the end of 2009.On the environment front, all Indian Oil refineries fully comply with the statutory requirements.Several Clean Development Mechanism projects have also been initiated. To address concernson safety at the work place, a number of steps were taken during the year, resulting in reduction of the frequency of accidents. Innovative strategies and knowledge-sharing are the tools available for converting challengesinto opportunities for sustained organizational growth. With strategies and plans for severalvalueadded projects in place, IndianOil refineries will continue to play a leading role in thedownstream hydrocarbon sector for meeting the rising energy needs of our country.
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IOCL Refineries Headquarters (Finance)

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Management Structure
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PIPELINES:
Indian Oil Corporation Ltd. operates a network of 10329 km long crude oil and petroleum product pipelines with a capacity of 71.60 million metric tons per annum. Cross-country pipelines are globally recognized as the safest, cost-effective, energy-efficient and environment friendly mode for transportation of crude oil and petroleum products. During the year 2008-09 Indian Oils crude oil pipelines registered the through put of 38.46 million metric tonnes. Corporations largest crude oil handling facility at Vadinar marked the berthing of 4000th tanker since inception. The terminal operates two offshore Single Point Mooring (SPM) systems, to feed Koyali, Mathura and Panipat refineries. Raising efficiency and emerging as the least-cost supplier, Indian Oil has added the 330-kmParadip-Haldia crude oil pipeline (PHCPL) to its bustling pipeline network during the year. The PHCPL system has a Single Point Mooring installed 20-km off the Paradip coast. With this, it is now able to pump crude oil from Very Large Crude Carriers to the tank-farm set up onshore and onward to Haldia through the pipeline. The Pipeline has replaced the earlier system of receipt of crude oil at Haldia port through smaller tankers.
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On the west coast, the Mundra-Panipat pipeline is being further augmented to transport an additional 3 Million Metric Tonne Per Annum (MMTPA) of crude oil to Panipat Refinery, under expansion from 12 to 15 MMTPA. Additional requirement of crude oil for Koyali, Mathura and Panipat refineries is planned to be met by de-bottlenecking and augmenting Salaya-Mathura Pipeline system.Indian Oils product pipelines, connecting its refineries directly to highconsumption centres,achieved a throughput of 20.92 million tonnes during 2008-09. IndianOil has now joined theselect group of companies in India which owns and operates LPG pipelines by building its firstsuch cross-country facility linking Panipat with Jalandhar. Apart from providing better logistics,this pipeline can transport 700,000 tonnes of LPG from Kohand near Panipat refinery toIndianOils bottling plants at Jalandhar and Nabha in Punjab. The pipeline will alsosimultaneously to meet the requirement of LPG at Una and Baddi in Himachal Pradesh and atJammu and Leh in J&K. Two pipelines linking the major airports of India have been commissioned during the year to transport Aviation Turbine Fuel to these airports. The 36 km long pipeline from existing Devangonthi terminal to New Bengaluru International Airport, Devanhalli, Bengaluru was commissioned in October 2008. The 95 km long ATF pipeline from CPCL to Chennai AFS was commissioned in December 2008.In its continuous efforts of expanding the network Indian Oil is implementing 290 km long product pipeline from Chennai to Bengaluru to facilitate cost effective positioning of products at consumption centre located in and around Bengaluru and to strengthen product positioning capabilities of CPCL Refinery. Indian Oil is also implementing a 217 km long branch pipeline from Koyali-Sanganer Pipeline at Viramgam to existing scrapper station at Churwa along withuse of a 14 km long existing pipeline from Churwa to Kandla. One of the major product pipelines currently under execution is 290 km long Chennai-Bengaluru Pipeline. A 21-km spur line from Mathura to Bharatpur and a 94-km branch line to Hazira on the Koyali - Dahej pipeline are also under implementation. A grassroots terminal facility is being setup at Ratlam to feed the local markets. A 118-km pipeline is being laid from Bijwasan to Panipat for transporting Naphtha from Mathura Refinery to the upcoming Naphtha Cracker unit at Panipat.IndianOil sees gas pipelines as a major growth area in the future. The gas market in India isexpanding fast, thanks to enhanced availability of the product from indigenous sources and through imports. The Corporation will commission its first regassified LNG pipeline from Dadrito Panipat (132 km) to synchronise with the completion of the first phase of the power plantcoming up under the Naphtha Cracker project at Panipat.IndianOil has translated the expertise of its personnel in pipeline operations into a businessopportunity, by offering training and consultancy to several Indian and overseas companies.Currently, the Corporation is imparting training for personnel of the Greater Nile Petroleum Company, Sudan.
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MARKETING Reaching out to a Billion Hearts IndianOil has one of the largest petroleum marketing and distribution networks in Asia, withover 35,000 marketing touch points. Its ubiquitous petrol/diesel stations are located acrossdifferent terrains and regions of the Indian sub-continent. From the icy heights of the Himalayasto the sunsoaked shores of Kerala, from Kutch on India's western tip to Kohima in the verdant North East, IndianOil is truly 'in every heart, in every part'. IndianOil's vast marketinginfrastructure of petrol/diesel stations, Indane (LPG) distributorships, SERVO lubricants &greases outlets and large volume consumer pumps are backed by bulk storage terminals andinstallations, inland depots, aviation fuel stations, LPG bottling plants and lube blending plantsamongst others. The countrywide marketing operations are coordinated by 16 StateOffices and over 100 decentralised administrative offices. Several l and mark surveys continue to rate IndianOil as the dominant energy brand in thecountry and an enduring symbol for high quality petroleum products and services. The heritageand iconic association that the brand invokes has been built over four decades of commitment touninterrupted supply line of petroleum products to every part of the country, and unique productsthat cater not only to the functional requirements but also the aspirational needs of millions ofcustomers. IndianOil has been adjudged India's No. 1 brand by UK-based Brand Finance, an independentconsultancy that deals with valuation of brands. It was also listed as India's 'Most Trusted Brand'in the 'Gasoline' category in a Readers' Digest - AC Nielsen survey. In addition, IndianOil toppedThe Hindu Business lines "India's Most Valuable Brands" list. However, the value of the IndianOil brand is not just limited to its commercial role as an energy provider but straddles theentire value chain of gamut of exploration & production, refining, transportation & marketing,petrochemicals & natural gas and downstream marketing operations abroad. IndianOil is anational brand owned by over a billion Indians and that is a priceless value.
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BUSINESS CHART OF IOCL IOCL has its presence in all spheres of downstream operations.
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Introduction to IOCL
INDIAN OIL: INDIAS DOWNSTREAM MAJOR: Indian Oil Corporation is an Indian public-sector petroleum company. It isIndias largest commercial enterprise, ranking 116th on the Fortune Global 500listing (2008). It began operation in 1959 as Indian Oil Company Ltd. TheIndian Oil Corporation was formed in 1964, with the merger of IndianRefineries Ltd. Indian Oil and its subsidiaries account for a 47% share in thepetroleum products market, 40% share in refining capacity and 67% downstreamsector pipelines capacity in India. The Indian Oil Group of companies owns andoperates 10 of India's 19 refineries with a combined refining capacity of 60.2million metric tonnes per annum (MMTPA, .i.e. 1.2 million barrels per day). These include two refineries of subsidiary Chennai Petroleum Corporation Ltd.(CPCL) and one of Bongaigaon Refinery and Petrochemicals Limited (BRPL).From a fledgling company with a net worth of just Rs. 45.18 crore and sales of1.38 million tonnes valued at Rs. 78 crore in the year 1965, Indian Oil has sincegrown over 3000 times with a sales turnover of Rs. 285,337 crore, the highestever for an Indian company, and a net profit of Rs. 2,950 crore for 2008-09. Set up with the mandate of achieving self-sufficiency in refining and marketingoperations for a nascent nation set on the path of economic growth andprosperity, Indian Oil today accounts for nearly half of Indias petroleumconsumption, reaching precious petroleum products to millions of people everyday through a countrywide network of around 35,000 sales points. They arebacked for supplies by 167 bulk storage terminals and depots, 101 aviation fuelstations and 89 Indane LPG bottling plants. For the year 2008-09, Indian Oilsold 62.6 million tonnes of petroleum products, including 1.7 million tonnes ofnatural gas. The Corporation's cross-country network of crude oil and product pipelines,spanning about 9,300 km and the largest in the country, meets the vital energyneeds of the consumers in an efficient, economical and environment-friendlymanner.Indian Oil is investing Rs. 43,393 crore (US $10.8 billion) during the period2007-12 in augmentation of refining and pipeline capacities, expansion ofmarketing infrastructure and product quality up gradation as well as inintegration and diversification projects.As the flagship national oil company in the downstream sector, Indian Oilreaches precious petroleum products to millions of people every day through acountrywide network of about 35,000 sales points. They are backed for suppliesby 166 bulk storage terminals and depots, 101 aviation fuel stations and 89Indane (LPGas) bottling plants. About 7,100 bulk consumer pumps are also inoperation for the convenience of large consumers, ensuring products andinventory at their doorstep. Indian Oil operates the largest and the widest network of petrol & diesel stationsin the country, numbering over 17,600. It reaches Indane cooking gas to thedoorsteps of over 50 million households in nearly 2,700 markets through anetwork of about 5,000 Indane distributors. Indian Oils ISO-9002 certified Aviation Service commands over 62% marketshare in aviation fuel business, meeting the fuel needs of domestic andinternational flag carriers, private airlines
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and the Indian Defence Services. TheCorporation also enjoys a dominant share of the bulk consumer business,including that of railways, state transport undertakings, and industrial,agricultural and marine sectors.To safeguard the interest of the valuable customers, interventions like retailautomation, vehicle tracking and marker systems have been introduced to ensurequality and quantity of petroleum products.Indian Oil has set up subsidiaries in Sri Lanka, Mauritius and the United ArabEmirates (UAE), and is simultaneously scouting for new opportunities in theenergy markets of Asia and Africa.Lanka IOC Ltd. operates about 150 petrol & diesel stations in Sri Lanka, and hasa very efficient lube marketing network. Its oil terminal at Trincomalee is alsoSri Lanka's largest petroleum storage facility. Lanka IOC commissioned an18,000 tonnes per annum capacity lubricants blending plant and a state-of-theartfuel and lubricants testing laboratory at Trincomalee during 2007-08 besidescommencing bunkering business. Indian Oil (Mauritius) Ltd. has an overall market share of nearly 20% andcommands a 32% market share in aviation fuelling business, apart from itsbunkering business. It operates a modern petroleum bulk storage terminal at MerRouge port, besides 13 petrol & diesel stations. In addition to the ongoingexpansion of retail network, IOML has commissioned the first ISO9001product-testing laboratory in Mauritius.The Corporation's UAE subsidiary, IOC Middle East FZE, which overseesbusiness expansion in the Middle East, has commenced blending SERVOlubricants and marketing petroleum products and lubricants in the Middle East,Africa and CIS countries.
INDIAN OIL - A NATIONAL BRAND

IndianOil has been adjudged India's No. 1 brand by UK-based Brand Finance,an independent consultancy that deals with valuation of brands. It was also listedas India's 'Most Trusted Brand' in the 'Gasoline' category in a Readers' Digest -AC Nielsen survey. In addition, IndianOil topped The Hindu Business lines"India's Most Valuable Brands" list.However, the value of the IndianOil brand is not just limited to its commercialrole as an energy provider but straddles the entire value chain of gamut ofexploration & production, refining, transportation & marketing, petrochemicals& natural gas and downstream marketing operations abroad. IndianOil is anational brand owned by over a billion Indians and that is a priceless value. Due to innovative initiatives, strong brand communications and salespromotion campaigns conducted during the year, Indian Oil's branded fuels -XTRAPREMIUM petrol and XTRAMILE diesel - maintained their firmleadership status, with a market share of 48.6% and 59.6% respectively amongbranded fuels in the market. XTRAPREMIUM and XTRAMILE are nowavailable at 6,446 and 9,256 retail outlets of Indian Oil respectively. Indian Oil is a heritage and iconic brand at one level and a contemporary, globalbrand at another level. While quality, reliability and service remains the corebenefits to our customers, our stringent checks are built into operating systems,at every level ensuring the trust of over a billion Indians over the last fourdecades.
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IOC- Products
Indian Oil is not only the largest commercial enterprise in the country it is theflagship corporate of the Indian Nation. Besides having a dominant marketshare, Indian Oil is widely recognized as Indias dominant energy brand andcustomers perceive Indian Oil as a reliable symbol for high quality products andservices. Benchmarking Quality, Quantity and Service to world-class standards is aphilosophy that Indian Oil adheres to so as to ensure that customers get a trulyglobal experience in India. Our continued emphasis is on providing fuelmanagement solutions to customers who can then benefit from our expertise inefficient sourcing and least cost supplies keeping in mind their usage patternsand inventory management.Indian Oil is a heritage and iconic brand at one level and a contemporary, globalbrand at another level. While quality, reliability and service remains the corebenefits to our customers, our stringent checks are built into operating systems,at every level ensuring the trust of over a billion Indians over the last fourdecades. The Retail Brand template of IOC consists of XtraCare (Urban), Swagat(Highway) and KisanSeva Kendras (Rural). These brands are widelyrecognized as pioneering brands in the petroleum retail segment. Indian Oilsleadership extends to its energy brands - Indane LPG, SERVO Lubricants, Autogas LPG, XtraPremium Branded Petrol, XtraMile Branded Diesel, XtraPowerFleet Card, Indian Oil Aviation and XtraRewards cash customer loyaltyprogramme.
IOCL PRODUCTS IN THE MARKET

SERVO Indian Oil's SERVO range of lubricants reigns as the undisputed market leader in the Indian lubricants market. Known for its cutting-edge technology and highqualityproducts, SERVO backed by Indian Oil's pioneering R&D, extensiveblending and distribution network, sustained brand enhancement and newgeneration packaging is a one-stop shop for complete lubrication solutions in theautomotive, industrial and marine segments.In the retailing segment, besides Indian Oil petrol stations, SERVO range oflubricants is available through a network of SERVO press stations, bazaaroutlets and thousands of auto spare parts shops across the country. The SERVOrange includes over 500 lubricants and 1200 formulations encompassing literallyevery lubricant requirement. The SERVO press is a one-stop shop for quick, easy and convenient auto care,providing customers with a refreshing experience. The SERVO press stationshave facilities for oil change, tyre/battery checkups, A/C service, vacuumcleaning, perfuming, and upholstery cleaning, polishing and laminationinstallation too.
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INDANE LPG GAS

Indaneis today one of the largest packed-LPG brands in the world. Indian Oilpioneered the launch of LPG in India in the 1970s and transformed the lives ofmillions of people with the introduction of the clean, efficient and safe cookingfuel. LPG also led to a substantial improvement in the health of women in ruralareas by replacing smoky and unhealthy chullahs with Indane. It is today a fuelsynonymous with safety, reliability and convenience. Indian Oils Indane LPGgas is used in 40 million homes as cooking fuel and commands over48% marketshare in India.
INDIAN OIL AVIATION SERVICES

Indian Oil Aviation Service is a leading aviation fuel solution provider in Indiaand the mostpreferred supplier of jet fuel to major international and domesticairlines. Between one sunrise and the next, Indian Oil Aviation Service refuelsover 1500 flights from the bustling metros to the remote airports linking thevast Indian landscape, from the icy heights of Leh (the highest airport in theworld at 10,682 ft) to the distant islands of Andaman & Nicobar.Indian Oil Aviation services have a market share of 65% with a network of 101Aviation Fuel Stations (AFS) meets complete aviation fuel requirement of theDefense services.
AUTO GAS
AutoGas (LPG) is a clean, high octane, abundant and eco-friendly fuel. It isobtained from natural gas through fractionation and from crude oil throughrefining. It is a mixture of petroleum gases like propane and butane. The higherenergy content in this fuel results in a 10% reduction of CO2 emission ascompared to MS.
XTRAPREMIUM PETROL
XTRAPREMIUM Petrol is Indias leading branded petrol boosted with newgeneration multifunctional additives known as friction busters that preventscombustion chamber deposits. XTRAPREMIUM is custom designed to deliverhigher mileage, more power, and better pick up, faster acceleration, enhancedengine cleanliness and lower emissions.
XTRAMILE SUPER DIESEL

Indian Oils XTRAMILE Super Diesel, the leader in the branded diesel segmentis blended with world-class Multi Functional Fuel Additives (MFA).Commercial vehicle owners choose XTRAMILE because they see a clear valuebenefit in terms of superior mileage, lower maintenance costs and improvedengine protection. A growing section of customers who own diesel automobiles,both in the lifestyle and passenger category, prefer XTRAMILE as a fuel forits added and enhanced performance. XTRAMILE has brought in a huge savingsin the high mileage commercial vehicle segment. Transport fleets that operate alarge number of trucks crisscrossing the country are using XTRAMILE to notonly obtain a higher mileage but also for low maintenance costs.
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XTRAPOWER FLEET CARD

The XTRAPOWER Fleet Card program is a complete smart card-based fleetmanagement solution for fleet operators and Corporate for cashless purchase offuel & lubes from designated retail outlets of Indian Oil through flexible prepaidand credit facilities. The fleet card program also offers an exciting rewards program and uniquebenefits like personal accident insurance cover and vehicle tracking facilities. Injust under two years of its launch, Indian Oils XTRAPOWER Fleet Card hasemerged as the largest fleet card in the country with the widest retail outletcoverage.
SUPERIOR KEROSENE OIL

Kerosene is distillate fractions of crude oil in the boiling range of 150-250C. They are treated mainly for reducing aromatic content to increasetheir smoke point (height of a smokeless flame) and hydro fining to reducesulphur content and to improve odour, colour& burning qualities (charvalue). Kerosene is used as a domestic fuel for heating / lighting and also formanufacture of insecticides/herbicides/fungicides to control pest, weeds andfungi. Since kerosene is less volatile than gasoline, increase in itsevaporation rate in domestic burners is achieved by increasing surface areaof the oil to be burned and by increasing its temperature. The two types ofburners which achieve this fall into two categories namely vaporizers &atomizers.
XTRA CARE
The launch of Xtra Care was the culmination of a series of plans in retaildesign, product and service up gradation, capability training, automation,loyalty programme, retail site management techniques all benchmark toglobal standards. While the industry standard is to take samples on aquarterly basis, Indian Oil has moved several steps ahead by introducingfortnightly random sampling with specific importance given to ResearchOctane Number (RON) sampling which is truly the definitive test for qualityand quantity. So far over 400 Xtra care retail outlets have been set up, around1500 Xtra Care retail outlets will be ready soon.
XTRAREWARDS LOYALTY PROGRAM

Indian Oil XTRAREWARDS is India's first on-line rewards program thatseeks to inculcate the habit of redeeming points. The loyalty programrewards customers paying by cash, credit and debit cards.Each transaction is confirmed on-line through a charge slip and customerscan earn points on fuel/lube purchases at participating Indian Oil RetailOutlets. Additional points can also be earned outside the Indian Oil network,covering prominent FMCG, Food, Automobile, Travel, Entertainment,Apparel and Hospitality sectors.
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IOC Services
Indian Oil provides a wide range of marketing services and consultancy in fuel handling, distribution, storage and fuel/lube technical services. With aformidable bank of technical and engineering talent, Indian Oil is fullyequipped to handle small to large-scale infrastructural projects in thepetroleum downstream sector anywhere in the country. Our project teamshave independently or jointly as a consortium, have set up depots, terminals,pipelines, aviation fuel stations, filling plants, LPG bottling plants, amongstothers. Indian Oils fuel management system to bulk customers offercustomized solutions that deliver least cost supplies keeping in mind usagepatterns and inventory levels. A wide network of lubricant and fuel testinglaboratories are available at major installations which is further backed bysector-wise expertise in the core sectors of power, steel, fertilizer, gas plants,textile mills, etc. Cutting edge systems and processes are designed aroundone simple belief-to provide valuable customers with an unbeatable edge intheir business. Indian Oils supply and distribution network is strategicallylocated across the country linked through a customized supply chain systembacked by front offices located in conceivably every single town ofconsequence.The wide network of services offered by Indian Oil, Marketing Division iswell maintained, which includes; commercial/reticulated LPG; total fuelmanagement/ consumer pumps; Indian Oil Aviation Service; LPG Business(non-fuel alliances); loyalty programs; retail business (non-fuel alliances)and SERVO technical services.
IOC Brands:
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SWOT Analysis for IOCL

External environment Opportunity: The IOCL has much opportunity in the present market conditions. This isbecause the petroleum products have become a need for everyone and stillcontains a lot of scope for customization. The various opportunities are listedbelow. Since the company has the maximum number of outlets and also the maximumnumber of refineries in India, it can very easily go for extension at any point oftime, and can introduce any new products, which will get support from its hugemarket network. The company can make the buying process easier for the customers, byimplying many more schemes in the range of XTRAPOWER Fleet Card ANDXTRAREWARD. The company can think over the issue to build its own pipelines, so that it willbe an independent player and it will also support its aviation fuel supply. Company has a great scope in E&P. It is already involved in E&P but only in avery limited scale.
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Threats: Since the company is the market leader in the field, so have maximum threatsfrom the other players and many other issues. The lists of threats are givenbelow. The foreign players with more advanced technology are the biggest threatfor the company. The crude oil supply is also a big issue in front of the company, because thecompany cannot fix its price and so, some time had operated in loss also.It is the biggest problem because the maximum part of their crude is beenimported. In future the market will welcome more private players, which will eat upits market share. If the Govt. Policies allow the private players to set their own price, the privateplayer can seriously harm the market share of IOCL.
Internal environment Strengths: IOC controls 10 refineries, by virtue of which it has a total share of around40% of Indias overall refining capacity. IOC has also acquired equity stakes inCPCL and BRPL, and in 2001, these refineries became subsidiaries of IOC. 58% of IOCs refining capacity is located in the Northern and Western regions,which are high demand and high growth areas Although its refineries are located the interior of the country and not near themajor ports IOC has a very strong distribution network by virtue of having ashare of 48% in the countrys product pipelines. The total capacity of theseproduct pipelines is 49.79 MMT. IOC also acquired management control of the marketing company IBP, therebystrengthening its position in these activities. It also has a dominant share in allsegments in terms marketing infrastructure. Its network includes 19830 retailoutlets, 8000 LPG distributors, and 6492 kerosene/LDO dealers. By virtue of entering into extensive joint venture agreements, and of its owninitiative as well, the company has a presence in various other related activitiessuch as petroleum storage, pipelines, lube additives, exploration,petrochemicals, gas, training and consultancy, etc. The company has already entered overseas markets such as Sri Lanka,Maldives, and Oman and is presently considering entering Turkey through a JV.The company is in talks with Caliak of Turkey to set up a 10 million TPA grassroot refinery with an investment of $2 billion and establish retail business. IOCis also weighing the possibility of entering Indonesia.IOC has also startedexploring the overseas markets for increasing its scope of operations. Itsinterests include
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downstream activities in Sri Lanka, Maldives, Oman, andNepal; interest in the lubes business in Maldives, Dubai, Bangladesh, Sri Lanka,etc; among others. Weakness: The company is the market leader in the industry, but still it had manyweaknesses. The list is given below. The major weakness for the company is the R&D. The company starts workingon it. The petrochemical product development technology is another weakness forthe company. The technological drawback, as compared to some major foreign player isanother weakness for the company.
COMPETITORS
Indian Oil has been ranked at 2nd position amongst the top 50 most valuable brands of India, assessed by global brand valuation firm, London-head quartered Brand Finance. Much of this comes from the sheer scale and strength Indian Oil commands in its sector. It stands tall amongst giants like Tata Consultancy Services, Tata Motors, Wipro Technologies, and state petroleum companies BPCL&HPCL. Indian Oil had also a place of pride in this coveted list of year 200607. Indian Oil Corporation has two major domestic competitors, Bharat Petroleum and Hindustan Petroleum. Both are state-controlled, like Indian Oil Corporation. There are two private competitors, Reliance Petroleum and Essar Oil.
FINANCIAL HIGHLIGHTS
IndianOils gross turnover (inclusive of excise duty) for the year 2009-10 touched Rs.2,71,074 crore. The Profit after Tax was Rs 10,221 crore.For the year 2009-10, the companys Earnings Per Share (EPS) stands at Rs 42.10 ascompared to Rs. 12.15 for 2008-09. The total net under recovery on account of priceunderrealization on PDS Kerosene and domestic LPG in the financial year 2009-10,is Rs. 3,159 crore. This is in comparison with a net under-realization of Rs.Nilcrore in2008-09.
For the year 2009-10, IndianOil has accounted for cash compensation of Rs 15,172crore, out of which Rs. 7,100 crore has been received during the year. In addition, thecompany has been granted discount of Rs 7,548 crore received from upstreamcompanies, as per the under recovery sharing mechanism.The Board of Directors has recommended a dividend of Rs 13 per share. The Gross Refining Margin for April-March 2010 is USD 4.47 per barrel as comparedto USD 3.69 per barrel during the previous year.
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FINANCIAL DETAILS OF IOCL

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Balance sheet
Mar ' 12 Mar ' 11 Mar ' 10
(Rs crore)
Mar ' 09 Mar ' 08
Sources of funds
Owner's fund Equity share capital Share application money Preference share capital Reserves & surplus 2,427.95 55,448.75 2,427.95 52,904.37 2,427.95 48,124.88 1,192.37 21.60 42,789.29 1,192.37 39,893.88
Loan funds
Secured loans Unsecured loans Total 13,045.97 57,277.96 1,28,200.63 20,379.65 32,354.22 1,08,066.19 18,292.45 26,273.80 95,119.08 17,565.13 27,406.93 88,975.32 6,415.78 29,107.39 76,609.42
Uses of funds
Fixed assets Gross block Less : revaluation reserve Less : accumulated depreciation Net block Capital work-in-progress Investments 99,455.46 39,336.13 60,119.33 13,434.77 18,678.46 92,696.69 34,509.29 58,187.40 12,620.44 19,544.76 71,780.60 30,199.53 41,581.07 21,268.63 22,370.25 62,104.64 27,326.19 34,778.45 18,186.05 32,232.13 56,731.50 23,959.68 32,771.82 9,170.22 21,535.78
Net current assets

Current assets, loans & advances Less : current liabilities & provisions Total net current assets Miscellaneous expenses not written Total 1,17,627.19 81,659.12 35,968.07 1,28,200.63 84,903.08 67,204.64 17,698.44 15.15 1,08,066.19 60,971.48 51,090.52 9,880.96 18.17 95,119.08 45,234.47 41,493.74 3,740.73 37.96 88,975.32 53,506.07 40,499.06 13,007.01 124.59 76,609.42
Notes:
Book value of unquoted investments Market value of quoted investments Contingent liabilities Number of equity sharesoutstanding (Lacs) 14,899.91 23,238.21 28,085.59 24279.52 19,544.76 25,141.06 31,505.33 24279.52 22,370.25 23,844.00 25,715.07 24279.52 29,527.27 15,318.66 26,317.31 11923.74 18,682.05 21,437.75 25,574.96 11923.74
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Profit loss account
(Rs crore)
Mar ' 12
Mar ' 11
Mar ' 10
Mar ' 09
Mar ' 08
Income
Operating income
4,38,829.68
3,31,134.85
2,69,438.08
3,07,123.99
2,47,359.24
Expenses
Material consumed Manufacturing expenses Personnel expenses Selling expenses Adminstrative expenses Expenses capitalised Cost of sales Operating profit Other recurring income Adjusted PBDIT Financial expenses Depreciation Other write offs Adjusted PBT Tax charges Adjusted PAT Non recurring items Other non cash adjustments Reported net profit Earnigs before appropriation Equity dividend Preference dividend Dividend tax Retained earnings
3,91,533.39 5,267.68 4,980.06 4,321.11 14,283.79 4,20,386.03 18,443.65 3,198.02 21,641.67 5,590.54 4,867.79 11,183.34 -200.34 11,383.68 -7,707.82 278.76 3,954.62 3,954.62 1,213.98 194.43 2,546.21
2,94,834.04 3,518.60 6,429.58 12,250.68 2,436.16 -945.24 3,18,523.82 12,611.03 3,224.73 15,835.76 2,702.14 4,546.67 132.04 8,454.91 1,297.71 7,157.20 330.21 -41.93 7,445.48 7,445.48 2,306.55 358.70 4,780.23
2,35,668.52 1,755.28 5,723.96 10,488.13 1,824.74 -1,121.28 2,54,339.35 15,098.73 3,320.35 18,419.08 1,572.35 3,227.14 133.98 13,485.61 3,097.87 10,387.74 -130.67 -36.52 10,220.55 15,525.63 3,156.34 508.83 11,860.46
2,75,383.54 1,500.51 5,686.96 9,684.04 1,888.60 -544.01 2,93,599.64 13,524.35 2,709.59 16,233.94 4,020.98 2,881.71 317.64 9,013.61 1,364.71 7,648.90 -5,615.51 915.26 2,948.65 8,254.63 910.48 154.74 7,189.41
2,21,256.55 1,558.14 2,894.86 8,753.07 2,004.30 -403.58 2,36,063.34 11,295.90 2,422.73 13,718.63 1,589.73 2,709.70 236.53 9,182.67 3,104.54 6,078.13 705.81 178.64 6,962.58 6,962.58 655.81 76.48 6,230.29
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Cash flow
Mar ' 12 Profit before tax Net cashflow-operating activity Net cash used in investing activity Netcash used in fin. activity Net inc/dec in cash and equivlnt Cash and equivalnt begin of year Cash and equivalnt end of year 3,754.31 -2,762.38 -12,246.29 14,021.93 -986.74 1,294.42 307.68 Mar ' 11 9,095.86 5,681.20 -7,217.99 1,516.11 -20.68 1,315.11 1,294.43 Mar ' 10 14,106.09 -464.70 4,676.10 -3,694.23 517.17 798.02 1,315.19
(Rs crore)
Mar ' 09 4,328.59 -23,156.96 19,177.91 3,950.40 -28.65 826.67 798.02 Mar ' 08 10,080.40 -9,382.79 4,376.55 4,904.70 -101.54 925.97 824.43
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LETTER OF CREDIT
The English name letter of credit derives from the French word accreditif, a power to do something, which in turn is derivative of the Latin word accreditivus, meaning trust. A letter of credit is basically a document issued by a bank guaranteeing a client's ability to pay for goods or services. A bank or finance company issues a letter of credit on behalf of a buyer, authorizing the seller to obtain payment within a specified timeframe once the terms and conditions outlined in the letter of credit are met. The letter of credit acts like an insurance contract for both the buyer and seller and practically eliminates the credit risk for both parties, while at the same time reducing payment delays. A letter of credit provides the seller with the greatest degree of safety when extending credit. It is useful when the buyer is not well known and when exchange restrictions exist or are possible. The LC can also be the source of payment for a transaction, meaning that a will get paid by redeeming the letter of credit. Letters of credit are used primarily in international trade transactions of significant value, for deals between a supplier in one country and a customer in another. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or canceled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if any. In executing a transaction, letters of credit incorporate functions common Traveler's cheques.
FROM ABOVE WE CAN CONCLUDE LETTER OF CREDIT IS A letter of credit is a document issued mostly by financial institutions which usually provides an irrevocable payment undertaking to a beneficiary against complying documents as stated in the credit. Once the beneficiary or a presenting bank acting on his behalf, makes a presentation to the issuing bank or confirming bank, if any, within the expiry date of L/C, comprising documents Page 50
complying with the terms and conditions of the L/C, the applicable UCP. Andinternational standard banking practices. The issuing bank or confirming bank, if any, is obliged to honor irrespective of any instructions from the applicants to the contrary.
After a contract s concluded between buyer and seller, buyer bank supplies a letter of credit to the seller. Seller consigns goods to a carrier in exchange for a bill of lading.
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Seller provide bill of lading to a bank in exchange for payment. Sellers bank exchanges bill of lading for payment from a buyers bank. Buyers bank exchange bill of lading for payment from buyer.
Buyer provides bill of lading to a carrier and takes delivery of goods.
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Elements of a Letter of Credit

A payment undertaking given by a bank (issuing bank) On behalf of a buyer (applicant) To pay a seller (beneficiary) for a given amount of money On presentation of specified documents representing the supply of goods Within specified time limits Documents must conform to terms and conditions set out in the letter of credit Documents to be presented at a specified place
PARTIES TO AND ASSOCIATED WITH THE LETTER OF CREDIT

Applicant
The applicant is the party who requests and instructs the issuing bank to open a letter of credit in favor of the beneficiary. The applicant usually is the importer or the buyer of goods and/or services. The applicant can also be another party acting on behalf of the importer, such as a confirming house. The confirming house is equivalent to a buying office, it acts as an intermediary between buyer and seller, and it can be located in a third country or in the sellers country. Beneficiary The beneficiary is entitled to payment as long as he can provide the documentary evidence required by the letter of credit. The letter of credit is a distinct and separate transaction from the contract on which it is based. All parties deal in documents and not in goods. The issuing bank is not liable for performance of the underlying contract between the customer and beneficiary. The issuing bank's obligation to the buyer, is to examine all documents to insure that they meet all the terms and conditions of the credit. Upon requesting demand for payment the beneficiary warrants that all conditions of the
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agreement have been complied with. If the beneficiary (seller) conforms to the letter of credit, the seller must be paid by the bank. Issuing Bank The issuing bank's liability to pay and to be reimbursed from its customer becomes absolute upon the completion of the terms and conditions of the letter of credit. Under the provisions of the Uniform Customs and Practice for Documentary Credits, the bank is given a reasonable amount of time after receipt of the documents to honor the draft.The issuing banks' role is to provide a guarantee to the seller that if compliant documents are presented, the bank will pay the seller the amount due and to examine the documents, and only pay if these documents comply with the terms and conditions set out in the letter of credit. Typically the documents requested will include a commercial invoice, a transport document such as a bill of lading or airway bill and an insurance document; but there are many others. Letters of credit deal in documents, not goods. Advising Bank An advising bank, usually a foreign correspondent bank of the issuing bank will advise the beneficiary. Generally, the beneficiary would want to use a local bank to insure that the letter of credit is valid. In addition, the advising bank would be responsible for sending the documents to the issuing bank. The advising bank has no other obligation under the letter of credit. If the issuing bank does not pay the beneficiary, the advising bank is not obligated to pay. Confirming Bank The correspondent bank may confirm the letter of credit for the beneficiary. At the request of the issuing bank, the correspondent obligates itself to insure payment under the letter of credit. The confirming bank would not confirm the credit until it evaluated the country and bank where the letter of credit originates. The confirming bank is usually the advising bank. Page 54
TYPES OF LETTER OF CREDIT

1.) Commercial and stand by L/C: Commercial letters of credit are used primarily to facilitate foreign trade. The commercial letter of credit is the primary payment mechanism for a transaction. It is a contractual agreement between banks, known as the issuing bank, on behalf of one of its customers, authorizing another bank, known as the advising or confirming bank, to make payment to the beneficiary. The issuing bank, on the request of its customer, opens the letter of credit. The issuing bank makes a commitment to honor drawings made under the credit. The beneficiary is normally the provider of goods and/or services. Essentially, the issuing bank replaces the bank's customer as the payee. The standby letter of credit serves a different function. The standby letter of credit serves as a secondary payment mechanism. The bank will issue the credit on behalf of a customer to provide assurances of his ability to perform under the terms of a contract. A bank will issue a standby letter of credit on behalf of a customer to provide assurances of his ability to perform under the terms of a contract between the beneficiaries. The parties involved with the transaction do not expect that the letter of credit will ever be drawn upon. The standby letter of credit assures the beneficiary of the performance of the customer's obligation. The beneficiary is able to draw under the credit by presenting a draft, copies of invoices, with evidence that the customer has not performed its obligation. The bank is obligated to make payment if the documents presented comply with the terms of the letter of credit. They are issued by banks to stand behind monetary obligations, to insure the refund of advance payment, to support performance and bid obligations, and to insure the completion of a sales contract. The credit has an expiration date. The standby letter of credit is often used to guarantee performance or to strengthen the credit worthiness of a customer. In the above example, the letter of credit is issued by the bank and held by the supplier. The customer is provided open account terms. If payments are made in accordance with the suppliers' terms, the letter of credit would not be drawn on. The seller pursues the customer for payment directly. If the customer is unable to pay, the seller presents a draft and copies of invoices to the bank for payment. 2).Revocable or irrevocable letter of credit: Letters of credit may be either revocable or irrevocable. A revocable letter of credit may be revoked or modified for any reason, at any time Page 55
by the issuing bank without notification. A revocable letter of credit cannot be confirmed. Once the documents have been presented and meet the terms and conditions in the letter of credit, and the draft is honored, the letter of credit cannot be revoked. The revocable letter of credit is not a commonly used instrument. If a letter of credit is revocable it would be referenced on its face. The irrevocable letter of credit may not be revoked or amended without the agreement of the issuing bank, the confirming bank, and the beneficiary. An irrevocable letter of credit from the issuing bank insures the beneficiary that if the required documents are presented and the terms and conditions are complied with, payment will be made. If a letter of credit is irrevocable it is referenced on its face.
Cases
United Commercial Bank V/s Bank of India and others1,
The Honble Supreme Court of India: That, It is only in exceptional cases that the courts will interfere with the machinery of irrevocable obligations assumed by banks. They are the life-blood of international commerce. Such obligations are regarded as collateral to the underlying rights and obligations between the merchants at either end of the banking chain. Except possibly in clear cases of fraud of which the banks have notice, the courts will leave the merchants to settle their disputes under the contracts by litigation or arbitration as available to them or stipulated in the contracts. The courts are not concerned with their difficulties to enforce such claims; these are risks which the merchants take the machinery and commitments of banks are on a different level. They must be allowed to be honoured, free from interference by the courts. Otherwise trust in international commerce could be irreparably damaged. SvenskaHandelsbanken, Appellant v. M/s. Indian Charge Chrome and others, Respondents2
1 2
A.I.R. 1981 SC 1426 A.I.R. 1994 SC 626
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Under the terms agreed to between the parties, there is no scope of injunction. The High Court proceeded on the basis that this was not an injunction sought against the bank but against the appellant. But the net effect of the injunction is to restrain the bank from performing the bank guarantee. That cannot be done. One cannot do indirectly what one is not free to do directly. The respondent was not to suffer any injustice which was irretrievable. The respondent can sue the appellant for damages. There cannot be any basis in the case for apprehension that irretrievable damage would be caused, if any. Unique Alliance Industries, V/s Anupama Agencies3
TheHonble Court observed, The grant of temporary injunction, as noticed above, is purely a discretionary exercise of power by the Court. This power has to be exercised by the Court fairly and suitably. It can refuse temporary injunction against a Bank if the Court feels that issuing of such injunction will result in gross injustice to the Bank or the public at large. In certain case public interest assumes much importance at the realms of granting or issuing the temporary injunction in the case of banking institutions. Itek Corporation v. The First National Bank of Boston etc.4
TheHonble Supreme Court observed It will be noticed that this judgment is on peculiar facts of its own and the situation created after the Iranian Revolution and the American Government cancelled the export license in relation to Iran as it related to high technology. The court was of the view that even if claim for damages is decreed by the American courts situation in Iran was such that the decree will not be executable in Iran. It was on these facts that the court felt that it was a case where the plaintiff had demonstrated that it has no adequate remedy at law and the allegations of irreparable harm are not speculative but genuine and immediate and the plaintiff would suffer irreparable harm if the requested relief is not granted. 3) Sight or usance letter of credit: All letters of credit require the beneficiary to present a draft and specified documents in order to receive payment. A draft is a written order by which
3 4
I (1995) BC 127 (DB), 566 Federal Supplement 1210
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the party creating it, orders another party to pay money to a third party. A draft is also called a bill of exchange. There are two types of drafts: sight and time. A sight draft is payable as soon as it is presented for payment. The bank is allowed a reasonable time to review the documents before making payment. A time draft is not payable until the lapse of a particular time period stated on the draft. The bank is required to accept the draft as soon as the documents comply with credit terms. The issuing bank has a reasonable time to examine those documents. The issuing bank is obligated to accept drafts and pay them at maturity. A Letter of credit is known as a Sight letter of credit if it involves payment to the seller against a Sight Draft. On the other hand, if the payment is made against a Usance Draft, then it is known as Usance letter of credit. 4)Transferable:An irrevocable letter of credit may also be transferable. With a transferable letter of credit, the exporter can transfer all or part of his rights to another party. Transferable letters of credit are often used when the exporter is the importer's agent or a middleman between supplier and importer, and not the actual supplier of merchandise. With a transferable letter of credit, the exporter uses the credit standing of the issuing bank and avoids having to borrow or use his own funds to buy goods from a supplier. Hence, it is a viable pre-export financing vehicle. Before transfer can be made, the exporter must contact, in writing, the bank handling the disbursement of funds - the transferring bank. Transferable letters of credit can only be transferred based on the terms and conditions specified in the original credit, with certain exceptions. Therefore, it may be difficult to achieve flexibility and confidentiality with this finance method. The transferring bank, whether it has confirmed the letter of credit or not, is only obligated to affect the transfer to the extent and in the manner expressly specified in the letter of credit. Transferable letters of credit involve specific risks. When a bank opens a transferable letter of credit for a buyer, neither party can be certain of who will be the ultimate supplier. Both parties must rely upon the importer's assessment of the exporter's reputation and ability to perform. To reduce overall risk and prevent the shipment of substandard goods, an independent certificate of inspection can be required in the documentation. For simplicity's sake, many banks prefer single transfer and discourage multiple transfers, but will do multiple transfers if conditions are right. Partial transfers can also be made to one or
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several suppliers if the terms of the original letter of credit allow for partial shipments. The processing of this type of letter of credit can become complicated and tricky, requiring logistics coordination and the highest level of precision. Incomplete and/or ambiguous information on the transferable letter of credit almost always leads to problems. Furthermore, the beneficiary of the transferable letter of credit must be available throughout the entire negotiation process to assist the transferring bank.
Benefits of Letter of Credit

The letter of credit is the safest, most secure and most convenient settlement method for international transactions. There are a number of advantages both for the seller/exporter and the buyer/importer.
Benefits to SellersBenefits to Buyers

Assures the security of payment from an international bank once the terms of the letter of credit are met. Seller can determine when payment will be satisfied and ship the goods accordingly. Bank bears the responsibility of oversight. Buyer may get better terms and prices. Seller does not have to open an account and grant payment terms to buyer. Credit risk is nearly eliminated. The risk of exchange control created with payment delays is greatly reduced. Provides seller easier access to financing once the letter of credit has been issued. Once the bank confirms the letter of credit, political and economic risk and questions regarding the buyer's ability to pay are eliminated. The confirming bank is obliged No cash is tied up in the process. Buyer does not have to pay cash up front to a foreign seller before receiving the documents of title to the goods purchased. This is particularly helpful when the buyer is unfamiliar with local suppliers and laws. Protects the buyer since the bank only pays when the supplier complies with the specific terms and conditions and produces the documents required by the buyer. Facilitates financing--for example, creating bankers acceptances. Buyer can confirm that the merchandise is shipped on or before the required date. It is safer to deal with bank than to prepay.
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to pay, even if the buyer goes bankrupt, provided the terms of the letter of credit are met.
The buyer can build safeguards into the letter of credit, including inspection of the goods and quality control, and set production and delivery times.
Conclusion
Letter of credit means when a bank or finance company issues a document on behalf of an buyer, authorizing the seller to obtain payment within a specified timeframe once the terms and conditions outlined in the letter of credit are met. An irrevocable letter of credit has a definite implication. It is a mechanism of great importance in international trade. The legal frame work that governs the letter of credit has seen many cases in which fraud of company comes up in the court it is very difficult to prove the breach lies in part of the parties. It is only in exceptional cases that the courts will interfere with the machinery of irrevocable obligations assumed by banks. Except possibly in clear cases of fraud of which the banks have notice, the courts will leave the merchants to settle their disputes under the contracts by litigation or arbitration as available to them or stipulated in the contracts.
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DIFFERENT FIELDS OF LETTER OF CREDIT

FROM :( NAME & ADDRESS OF OPENING BANK ) This clause contains details of bank which has opened the Letter of Credit, and it works on the behalf of the buyer of goods. The opening bank plays the first step in the whole process of letter of credit. TO :( NAME & ADDRESS OF ADVISING BANK ) This clause shows the details of bank which plays the foremost role in the process of letter of credit. The advising bank belongs to the country of seller. It plays the role of middleman between the seller and the opening bank. TYPE OF L/C :IRREVOCABLE This clause shows the type of L/C in which it is being made. Various types of L/Cs are Revocable, Irrevocable, Commercial, Negotiable etc. L/C Number : The clause shows a particular number for L/C and every L/C has different number so that difference can be judged between different L/Cs. DATE OF ISSUE : This clause shows that date on which the opening bank has issued the L/C. DT. & PLACE OF EXPIRY : __________________________________IN INDIA This shows about the date and the place in India where the L/C will get expired, means that financial institution where the L/C is send by the opening bank. NAME & ADDRESS OF THE: APPLICANT It contains detail about the buyer of the goods. It gives complete address of the buyer.
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NAME & ADDRESS OF THE:
BENEFICIARY It shows details of the seller of goods, like sellers name, address, country to which he belongs. AMOUNT OF CREDIT IN : US DOLLARS /EURO/ANY OTHER FREELY EXCHANGEABLE CURRENCY (IN FIGURES & WORDS) It shows the currency in which the deal is been made, the code for that currency as well as the amount of the goods. PERCENTAGE CREDIT : AS PER CONTRACT AMOUNT TOLERANCE Sometimes the amount in the letter of the credit and the exact amount of the goods does not match. There can be a difference between the both. So a specific percentage of amounts of goods specified in L/C is given as a tolerance and the exact amount of goods can be in between the minimum and maximum tolerated limits. CREDIT AVAILABLE WITH: This part shows the details of that party from where the amount can be reimburses by the seller. This states either a specified bank in India or any bank in India. USANCE OF THE DRAFTS : This clause shows whether the draft is payable at sight or at any date in future.
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DRAFTS TO BE DRAWN ON: It tells about the party which acts as a drawee. Generally the opening bank acts as a drawee. PARTIAL SHIPMENT : AS PER CONTRACT This clause contains details whether the shipment of goods is allowed through one shipment or the goods can be sending through various shipments. TRANSHIPMENT : AS PER CONTRACT Transshipment means when the goods are send SHIPMENT FROM : It tells about that place from where goods are send by the seller. SHIPMENT TO : Its that place where the goods are sending by the seller. And generally its that country where the buyer lives. LATEST SHIPMENT DATE : Its that date till which the goods should reach to the buyer. After that date, its the choice of the buyer whether he accepts the goods or not. DESCRIPTION OF GOODS : Description of Materials Size ( in mm) and Quantity (in MT) Specification Tolerance Quantity Quantity Tolerance Price per MT (in USD/Euro/any other freely exchangeable currency)
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DOCUMENTS REQUIRED : 1.
Commercial Invoice:Commercial invoice is an important and basic export document.

It is also known as a 'Document of Contents' as it contains all the information required for the preparation of other documents. It is actually a seller's bill of merchandise. Itis prepared by the exporter after the execution of export order giving details about the goods shipped. It is essential that the invoice is prepared in the name of the buyer or the consignee mentioned in the letter of credit. It is a prima facie evidence of the contract of sale or purchase and therefore, must be prepared strictly in accordance with the contract of sale. Contents of Commercial Invoice Name and address of the exporter. Name and address of the consignee. Name and the number of Vessel or Flight. Name of the port of loading. Name of the port of discharge and final destination. Invoice number and date. Exporter's reference number. Buyer's reference number and date. Name of the country of origin of goods. Name of the country of final destination. Terms of delivery and payment. Marks and container number. Number and packing description. Description of goods giving details of quantity, rate and total amount in terms of internationally accepted price quotation. Signature of the exporter with date.
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Significance of Commercial Invoice It is the basic document useful in preparation of various other shipping documents. It is used in various export formalities such as quality and pre-Shipment inspection excise and customs procedures etc. It is also useful in negotiation of documents for collection and claim of incentives. It is useful for accounting purposes to both exporters as well as importers.
2. Inspection Certificate:The certificate is issued by the inspection authority such as the

export inspection agency. This certificate states that the goods have been inspected before shipment, and that they confirm to accepted quality standards. 3. Marine insurance policy: Goods in transit are subject to risk of loss of goods arising due to fire on ship, perils of sea, theft etc. marine insurance protects losses incidental to voyages and in land transportation.Marine insurance policy is one of the most important document used as collateral security because it protects the interest of all those who have insurable interest at the time of loss. The exporter is bound to insure the goods in case of CIF quotation, but he can also insure the goods in case of FOB contract, at the request of the importer, but the premium payment will be made by the exporter. There are different types of policies such as Specific Policy:This policy is taken to cover different risks for a single shipment. For a regular exporter, this policy is not advisable as he will have to take a separate policy every time a shipment is made, so this policy is taken when exports are in frequent. Floating Policy: This is taken to cover all shipments for some months. There is no time limit, but there is a limit on the value of goods and once this value is crossed by several shipments, then it has to be renewed. Open Policy: This policy remains in force until cancelled by either party i.e. insurance company or the exporter.
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Open Cover Policy: This policy is generally issued for 12 months period, for all shipments to one or more destinations. The open cover may specify the maximum value of consignment that may be sent per ship and if the value exceeded, the insurance company must be informed by the exporter.
Insurance Premium: Differs upon product to product and a number of such other factors, such as, distance of voyage, type and condition of packing, etc. Premium for air consignments are lowered as compared to consignments by sea.
4.
Consular Invoice:Consular invoice is a document required mainly by the Latin

American countries like Kenya, Uganda, Tanzania, Mauritius, New Zealand, Myanmar, Iraq, Australia, Fiji, Cyprus, Nigeria, Ghana, Guinea, Zanzibar, etc. This invoice is the most important document, which needs to be submitted for certification to the Embassy of the importing country concerned. The main purpose of the consular invoice is to enable the authorities of the importing country to collect accurate information about the volume, value, quality, grade, source, etc., of the goods imported for the purpose of assessing import duties and also for statistical purposes.In order to obtain consular invoice, the exporter is required to submit three copies of invoice to the Consulate of the importing country concerned. The Consulate of the importing country certifies them in return for fees. One copy of the invoice is given to the exporter while the other two are dispatched to the customs office of the importer's country for the calculation of the import duty. The exporter negotiates a copy of the consular invoice to the importer along with other shipping documents. Significance of Consular Invoice for the Exporter It facilitates quick clearance of goods from the customs in exporter's as well as importer's country. Certification' of goods by the Consulate of the importing country indicator that the importer has fulfilled all procedural and licensing formalities for import of goods. It also assures the exporter of the payment from the importing country
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Significance of Consular Invoice for the Importer It facilitates quick clearance of goods from the customs at the port destination and therefore, the importer gets quick delivery of goods. The importer is assured that the goods imported are not banned for imported in his country. Significance of Consular Invoice for the Customs Office It makes the task of the customs authorities easy. It facilitates quick calculation of duties as the value of goods as determine by the Consulate is considered for the purpose.
5. Certificate of Origin:The importers in several countries require a certificate of origin

without which clearance to import is refused. The certificate of origin states that the goods exported are originally manufactured in the country whose name is mentioned in the certificate. Certificate of origin is required when: The goods produced in a particular country are subject to preferential tariff rates in the foreign market at the time importation. The goods produced in a particular country are banned for import in the foreign market. Types of the Certificate of Origin (a) Non-preferential Certificate of Origin: - Non-preferential certificate of origin is required in general by all countries for clearance of goods by the importer, on which no preferential tariff is given. It is issued by: The authorised Chamber of Commerce of the exporting country. Trade Association. Of the exporting country.
(b) Certificate of Origin for availing Concessions under GSP :- Certificate of origin required for availing of concessions under Generalised System of Preferences (GSP) extended by
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certain, countries such as France, Germany, Italy, BENELUX countries, UK, Australia; Japan, USA, etc. This certificate can be obtained from specialised agencies, namely; (c) Export Inspection Agencies. Jt. Director General of Foreign Trade.. Commodity Boards and their regional offices. Development Commissioner, Handicrafts. Textile Committees for textile products. Marine Products Export Development Authority for marine products. Development Commissioners of EPZs Certificate for availing Concessions under Commonwealth Preferences
(CWP):Certificate of origin for the purpose of Commonwealth Preference is also known as 'Combined Certificate of Origin and Value'. It is required by two member countries, i.e. Canada and New Zealand of the Commonwealth. For concession under Commonwealth preferences, the certificates or origin have to be submitted in special forms obtainable, from the High Commission of the country concerned. (d) Certificate for availing Concessions under other Systems of Preference:- Certificate of origin is also required for tariff concessions. under the Global System of Trade Preferences (GSTP), Bangkok Agreement(BA) and SAARC Preferential Trading Arrangement (SAPTA) under which India grants and receives tariff concessions On imports and exports. Export Inspection Council (EIC) is the sole authority to print blank Certificates of Origin under BA, SAARC and SAPTA which can be issued by such agencies as EPCs, DCs of EPZs, EIC, APEDA, MPEDA, FIEO, etc... Contents of Certificate of Origin Name and logo of chamber of commerce. Name and address of the exporter. Name and address of the consignee. Name and the number of Vessel of Flight Page 68
Name of the port of loading. Name of the port of discharge and place of delivery. Marks and container number. Packing and container description. Total number of containers and packages. Description of goods in terms of quantity. Signature and initials of the concerned officer of the issuing authority. Seal of the issuing authority. Significance of the Certificate of Origin Certificate of origin is required for availing of concessions under Generalised System of Preferences (GSP) as well as under Commonwealth Preferences (CWP). It is to be submitted to the customs for the assessment of duty clearance of goods with concessional duty. It is required when the goods produced in a particular country are banned for import in the foreign market. It helps the buyer in adhering to the import regulations of the country. Sometimes, in order to ensures that goods bought from some other country have not been reshipped by a seller, a certificate of origin IS required.
6. Bill of Lading:The bill of lading is a document issued by the shipping company or its
agent acknowledging the receipt of goods on board the vessel, and undertaking to deliver the goods in the like order and condition as received, to the consignee or his order, provided the freight and other charges as specified in the bill have been duly paid. It is also a document of title to the goods and as such, is freely transferable by endorsement and delivery. Bill of Lading serves three main purposes: As a document of title to the goods; Page 69
As a receipt from the shipping company; and As a contract for the transportation of goods. Types of Bill of Lading
Clean Bill of Lading: - A bill of lading acknowledging receipt of the goods apparently in good order and condition and without any qualification is termed as a clean bill of lading. Claused Bill of Lading: - A bill of lading qualified with certain adversere marks such as, "goods insufficiently packed in accordance with the Carriage of Goods by Sea Act," is termed as a claused bill of lading.
Transhipment or Through Bill of Lading: - When the carrier uses other transport facilities, such as rail, road, or another steamship company in addition to his own, the carrier issues a through or transhipment bill of lading.
Stale Bill of Lading: - A bill of lading that has been held too long before it is passed on to a bank for negotiation or to the consignee is called a stale bill of lading. Freight Paid Bill of Lading: - When freight is paid at the time of shipment or in advance, the bill of landing is marked, freight paid. Such bill of lading is known as freight bill of lading.
Freight Collect Bill of lading :- When the freight is not paid and is to be collected from the consignee on the arrival of the goods, the bill of lading is marked, freight collect and is known as freight collect bill of lading. Contents of Bill of Lading
Name and logo of the shipping line. Name and address of the shipper. Name and the number of vessel. Name of the port of loading. Name of the port of discharge and place of delivery. Marks and container number. Packing and container description. Page 70
Total number of containers and packages, Description of goods in terms of quantity. Container status and seal number. Gross weight in kg. and volume in terms of cubic meters. Amount of freight paid or payable. Shipping bill number and date. Signature and initials of the Chief Officer. . Significance of Bill of Lading for Exporters
It is a contract between the shipper and the shipping company for carriage of the goods to the port of destination. It is an acknowledgement indicating that the goods mentioned in the document have been received on board for the Purpose of shipment. A clean bill of lading certifies that the goods received on board the ship are in order and good condition. It is useful for claiming incentives offered by the government to exporters The exporter can claim damages from the shipping company if the goods are lost or damaged after the issue of a clean bill of lading. Significance of Bill of Lading for Importers
It acts as a document of title to goods, which is transferable endorsement and delivery. The exporter sends the bill of lading to the bank of the importer so as to enable him to take the delivery of goods. The exporter can give an advance intimation to the foreign buyer about the shipment of goods by sending him a non-negotiable copy of bill of lading Significance of Bill of Lading for Shipping Company
It is useful to the shipping company for collection of transport charges from the importer, if not collected from the exporter.
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7. Airway Bill:An airway bill, also called an air consignment note, is a receipt issued by an
airline for the carriage of goods. As each shipping company has its own bill of lading, so each airline has its own airway bill.Airway Bill or Air Consignment Note is not treated as a document of title and is not issued in negotiable form. Contents of Airway Bill Name of the airport of departure and destination. The names and addresses of the consignor, consignee and the first carrier. Marks and container number. Packing and container description. Total number of containers and packages. Description of goods in terms of quantity. Container status and seal number. Amount of freight paid or payable. Signature and initials of the issuing carrier or his agent.
Importance of Airway Bill: It is a contract between the airlines or his agent to carry goods to the destination. It is the document of instructions for the airline handling staff. It acts as a customs declaration form. Since, it contains details about freight it also represents freight bill. 8. Shipment Advice to Importer:- After the shipment of goods, the exporter intimates the importer about the shipment of goods giving him details about the date of shipment, the name of the vessel, the destination, etc. He should also send one copy of non-negotiable bill of lading to the importer. 9. Packing List: The exporter prepares the packing list to facilitate the buyer to check the shipment. It contains the detailed description of the goods packed in each case, their gross and net weight, etc. The difference between a packing note and a packing list is that the
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packing note contains the particulars of the contents of an individual pack, while the packing list is a consolidated statement of the contents of a number of cases or packs. 10. Bill of Exchange: The instrument is used in receiving payment from the importer. The importer may prefer Bill of Exchange to LC as it does not involve blocking of funds. A bill of exchange is drawn by the exporter on the importer, to make payment on demand at sight or after a certain period of time. B/E is a means to collect payment. B/E is a means to demand payment. B/E is a means to extent the credit. B/E is a means to promise the payment. B/E is an official acknowledgement of receipt of payment. Financial documents perform the function of obtaining the finance collection of payment etc. 2 sets. Each one bearing the exclusion clause making the other part of the draft invalid. Sight B/E. Usance B/E. It is known as draft. Immediate payment Sight draft. There are two copies of draft. Each one bears reference to the other part A&B. when any one of the draft is paid, the second draft becomes null and void. Parties to bill of exchange 1. The drawer: The exporter / person who draws the bill. 2. The drawee: The importer / person on whom the bill is drawn for payment. 3. The payee: The person to whom payment is made, generally, the exporter / supplier of the goods.
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Auxiliary Documents: These documents generally form the basic documents based on which the commercial and or regulatory documents are prepared. These documents also do not have any fixed formats and the number of such documents will wary according to individual requirements. 1. Proforma Invoice: The starting point of the export contract is in the form of offer made by the exporter to the foreign customer. The offer made by the exporter is in the form of a proforma invoice. It is a quotation given as a reply to an inquiry. It normally forms the basis of all trade transactions. Contents of Proforma Invoice Name and address of the exporter. Name and address of the importer. Mode of transportation, such as Sea or Air or Multimodal transport. Name of the port of loading. Name of the port of discharge and final destination. Provisional invoice number and date. Exporter's reference number. Buyer's reference number and date. Name of the country of origin of goods. Name of the country of final destination. Marks and container number. . Number and packing description. Description of goods giving details of quantity, rate and total amount in terms of internationally accepted price quotation. Signature of the exporter with date.
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Importance of Proforma Invoice It forms the basis of all trade transactions. It may be useful for the importer in obtaining import licence or foreign exchange.
2.Intimation for Inspection: Whenever the consignment requires the pre-shipment inspection, necessary application is to be made to the concerned inspection agency for conducting the inspection and issue of certificate thereof. 3.Declaration of Insurance: Where the contract terms require that the insurance to be covered by the exporter, the shipper has to give details of the shipment to the insurance company for necessary insurance cover. The detailed declaration will cover: Name of the shipper \ exporter. Name & address of buyer. Details of goods such as packages, quantity, value in foreign currency as well as in Indian Rs. Etc. Name of the Vessel \ Aircraft. Value for which insurance to be covered.
4. Application of the Certificate Origin: In case the exporter has to obtain Certificate of Origin from the concerned authorities, an application has to be made to the concerned authority with required documents. While the simple invoice copy will do for getting C\O from the chamber of commerce, in respect of obtained the same from the office of the Textile Committee or Export Promotion Council, the documents requirement are different. 5. Mate's Receipt: Mate's receipt is a receipt issued by the Commanding Officer of the ship when the cargo is loaded on the ship. The mate's receipt is a prima facie evidence that goods are loaded in the vessel. The mate's receipt is first handed over to the Port Trust Authorities. After making payment of all port dues, the exporter or his agent collects the mate's receipt from the Port Trust Authorities. The mate's receipt is freely transferable. It must be handed over to the shipping company in order to get the bill of lading. Bill of lading is prepared on the basis of the mate's receipt.
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Types of Mate's Receipts Clean Mate's Receipt: - The Commanding Officer of the ship issues a clean mate's receipt, if he is satisfied that the goods are packed properly and there is no defect in the packing of the cargo or package. Qualified Mate's Receipt: - The Commanding Officer of the ship issues qualified mate's receipt, when the goods are not packed properly and the shipping company does not take any responsibility of damage. to the goods during transit. Contents of Mate's Receipt Name and logo of the shipping line. Name and address of the shipper. Name and the number of vessel. Name of the port of loading. Name of the port of discharge and place of delivery. Marks and container number. Packing and container description. Total number of containers and packages. Description of goods in terms of quantity. Container status and seal number. Gross weight in kg. and volume in terms of cubic meters. Shipping bill number and date. Signature and initials of the Chief Officer.
Significance of Mate's Receipt It is an acknowledgement of goods received for export on board the ship. It is a transferable document. It must be handed over to the shipping company in order to get the bill of lading. Bill of lading, which is the title of goods, is prepared on the basis of the mate's receipt.
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It enables the exporter to clear port trust dues to the Port Trust Authorities.
Obtaining Mate's Receipt The goods are then loaded on board the ship for which the Mate or the Captain of the ship issues Mate's Receipt to the Port Superintendent.
6. Shipping order: it is issued by the Shipping/Conference Line intimating the exporter about the reservation of space for shipment of cargo which the exporter intends to ship. Details of the vessel, poet of the shipment, and the date on which the goods are to be shipped are mentioned. This order enables the exporter to make necessary arrangements for customs clearance and loading of the goods.
7. Shipping Instructions: at the pre-shipment stage, when the documents are to sent to the CHA for customs clearance, necessary instructions are to be give with relevance to: The export promotion scheme under which goods are to be exported. Name of the specific vessel on which the goods are to be loaded. If goods are to be FCL or LCL. If freight amount are to be paid / collected. If shipment are covered under A.R.E.-1 procedure. Instructions for obtaining Bill of Lading etc.
8. Bank letter for negotiation of documents: at the post shipment stage, the exporter has to submit the documents to a bank for negotiation or discounting or collection for forwarding the same to the customer and also for realization of export proceeds. The bank letter is the set of instruction for the bank as to how to handle the documents by them and by the bank at the buyers country which may include: Name and address of the buyer. Details of various documents being sent and the number of the copies thereof. Name and address of the buyers bank if available. Page 77
If the documents are sent L/C or on open terms. If the proceeds are to adjusted against any pre-shipment packing credit loan. If the bill amount is to be adjusted against any forward exchange cover. In case of credit bill who has to bear the interest, either exporter or if the same is to be collected from the buyer. Instructions in case non-acceptance/non-payment by the buyer.
Regulatory Document: Regulatory pre-shipment export documents are prescribed by the different government departments and bodies in order to comply with various rules and regulations under the relevant laws governing export trade such as export inspection, foreign exchange regulation, ex port trade control, customs, etc. Out of 9 regulatory documents four have been standardised and aligned. These are shipping bill or bill of export, exchange control declaration (GR from), export application dock challan or port trust copy of shipping bill and receipt for payment of port charges. 1. Shipping Bill: Shipping bill is the main customs document, required by the customs authorities for granting permission for the shipment of goods. The cargo is moved inside the dock area only after the shipping bill is duly stamped, i.e. certified by the customs. Shipping bill is normally prepared in five copies : Customs copy. Drawback copy. Export promotion copy. Port trust copy. Exporter's copy.
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Types of Shipping Bill Based on the incentives offered by the government, customs authorities have introduced three types of shipping bills: Drawback Shipping Bill: - Drawback shipping bill is useful for claiming the customs drawback against goods exported. Dutiable Shipping Bill Dutiable shipping bill is required for goods which are subject to export duty. Duty-free Shipping Bill: - Duty-free shipping bill is useful for exporting goods on which there is no export duty. In order to facilitate easy recognition and quick processing, following colors have been provided to different kinds of shipping bills : Types of goods Drawback shipping bill Dutiable shipping bill Duty-Free shipping bill Contents of Shipping Bill Name and address of the exporter. Name and address of the importer. Name of the vessel, master or agents and flag. Name of the port at which goods are to be discharged. Country of final destination. Details about packages, description of goods, marks and numbers, quantity and details of each case. FOB price and real value of goods as defined in the Sea Customs Act. Whether Indian or foreign merchandise to be re-exported. Total number of packages with total weight and value. Page 79 By Sea Green Yellow White By Air Green Pink Pink
Significance of Shipping Bill a) Shipping bill is the main customs document, required by the customs authorities for granting permission for the shipment of goods. b) The cargo is moved inside the dock area only after the shipping bill is duly stamped, i.e. certified by the customs. c) Duly endorsed shipping bill is also necessary for the collection of export incentives offered by the government. d) It is useful to the Customs Appraiser while determining the actual value of goods exported. 2. A.R.E. 1 form (Central excise): this form ARE-1 is prescribed under Central Excise rules for export of goods. In case goods meant for export are cleared directly from the premises of a manufacturer, the exporter can avail the facility of exemption from payment of terminal excise duty. The goods may be cleared for export either under claim for rebate of duty paid or under bond without payment of duty. In both the events the goods are to be cleared under form A.R.E-1 which will show the details of the goods being exported, the relevant duty involved and if the duty is paid or goods being cleared under bond, details of goods being sealed either by the exporter or Central Excise officials etc. 3. Exchange Control declaration Form (GR/PP/SOFTEX): under the exchange control regulations all exporters must declare the details of shipment for monitoring by the Reserve Bank of India. For this purpose, RBI has prescribed different forms for different types of shipments like GRI, PP forms etc. These declaration forms must be presented to the customs officials at the time of passing of export documentation. Under the EDI processing of shipping bill in the customs, these forms have been dispensed with and a new form SDF has to be submitted to the customs in the place of above forms. 4. Export Application: this is the application to be made to the customs officials before shipment of goods. The prescribed form of the application is the Shipping Bill/Bill of Export. Different types are required for shipment like ex-bond, duty free goods, and Page 80
dutiable goods and for export under different export promotion schemes such as claims for duty drawback etc. 5. Vehicle Ticket/Cart Ticket/Gate Pass etc.: before the goods are being taken inside the port for loading, necessary permission has to be obtained for moving the vehicle into the customs area. This permission is granted by the Port Trust Authority. This document will contain the detail of the export cargo, name and address of the shippers, lorry number, marks and number of the packages, drivers licence details etc. 6. Bank Certificate of Realisation: this is the form prescribed under the Foreign Trade Policy, wherein the negotiating bank declares the fob value of exports and for the date of realisation of the export proceeds. This certificate is required fore obtaining the benefit under various schemes and this value of fob is reckoned as fob value of exports. Other Document: Black List Certificate: it certifies that the ship/aircraft carrying the cargo has not touched the particular country on its journey or that the goods are not from the particular country. This is required by certain nations who have strained political and economical relations with the so called Black Listed Countries. Language Certificate: Importers in the European Community require a language certificate along with the GSP certificate in respect of handloom cotton fabrics classifiable under NAMEX code 55.09. Generally four copies of language certificate are prepared by the concerned authority who issues GSP certificate. Three copies are handed over to the exporter. A copy is sent along with the other documents for realization of export proceeds. Freight Payment Certificate: in most of the cases, the B/L or AWB will mention the transportation and other related charges. However if the exporter does not want these details to be disclosed to the buyer, the shipping company may issue a separate certificate for payment of the freight charges instead of
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declaring on the main transport documents. This document showing the freight payment is called the freight certificate. Insurance Premium Certificate: this is the certificate issued by the Insurance Company as acknowledgement of the amount of premium paid for the insurance cover. This certificate is required by the bank for arriving at the fob value of the goods to be declared in the bank certificate of realisation. Combined Certificate of Origin and Value: this certificate is required by the Commonwealth Countries. This certificate is printed in a special way by the Commonwealth Countries. This certificate should contain special details as to the origin and value of goods, which are useful for determining import duty. All other details are generally the same as that of Commercial Invoice, such as name of the exporter and the importer, quality and quantity of the goods etc. Customs Invoice: this is required by the countries like Canada, USA for imposing preferential tariff rates. Legalized Invoice: this is required by the certain Latin American Countries like Mexico. It is just like consular invoice, which requires certification from Consulate or authorized mission, stationed in the exporters country. Special Provision under Uniform Customs and practice for Documentary Credit for Commercial Invoice. Article-37: Commercial Invoice o Must appear on their face to be issued by the beneficiary named in the credit. o Must be made out in the name of the applicant. o Need not be signed UCP-500,
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Banks may refuse Commercial Invoice issued for amounts in excess of the amount permitted by the credit except otherwise stated.
The description of the goods in the commercial invoice must correspond with the description of the credit. In all other documents the goods may be described in the General in general terms not inconsistent with description in the credit. In all documents goods may be described in general terms not inconsistent with the Description of the goods in the credit.
Pre-Shipment Documents: Shipping bill. Export order/Sales contract/Purchase order. Letter of Credit Commercial invoice. Packing list. Certificate of origin. Guaranteed Remittance (G.R/SDF/PP/SOFTEX),or SDF. Certificate of Inspection. Various declarations required as per custom procedure.
Exchange Control Declaration Form: all exports to which the requirement of declaration apply must be declared on appropriate forms as indicated below unless the consignment is of samples and of No Commercial Value GR FORM: to be completed in duplicate for exports otherwise than by post including export of software in physical form i.e. magnetic tape/discs and paper media. SDF FORM: to be completed in duplicate and appended to the Shipping Bill for export declare to the customs offices notified by the Central Government which have introduced EDI system for processing Shipping Bill. PP FORM: to be completed in duplicate for export by post. Page 83
SOFTX: to be completed in triplicate for export of software otherwise than in the physical form i.e. magnetic tapes/discs and paper media.
Letter of Credit Documents

There are many important points in a letter of credit transaction that need to be taken care of professionally. However, documentation is much more important than any other part of the letter of credit transactions. This importance stems its power from the letter of credit structure. Letters of credit transactions are related to the documents only. Let us consider ourselves as an exporter and assume that we have just shipped our order. What we have to do in order to prove that this shipment has been made. Of course, we must supply a relevant transport document. Let us consider also that the shipment term was CIF Inco terms 2000, which obligate us to arrange the insurance for the shipment. Again, we must supply an insurance document, as it is demanded in the L/C in order to fulfill our responsibility. The importance of the documentation is stated in UCP 600 article 5 as follows: Banks deal with documents and not with goods, services or performance to which the documents may relate. In addition, every condition stated on the letter of credit form must be connected to a document. This point is also clearly indicated in UCP 600 article 14. If a credit contains a condition without stipulating the document to indicate compliance with the condition, banks will deem such condition as not stated and will disregard it.
Documents most frequently used in letters of credit transactions Transport Documents: Transport Document Covering at Least Two Different Modes of Transport (multimodal or combined transport document) Bill of Lading Non-Negotiable Sea Waybill Charter Party Bill of Lading Air Transport Document Road, Rail or Inland Waterway Transport Documents Insurance Documents: Insurance Policy Insurance Certificate Open Cover Financial Documents: Bill of exchange (Draft)
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Commercial Documents: Commercial Invoice Packing List; Weight List Inspection Certificate Certificate of Analysis Official Documents: Certificate of Origin Health Certificate Consular Invoice, Legalized Invoice
Availability of Letters of Credit

In documentary credit terminology, availability refers to the availability of the documents in exchange for the payment of the amount stated in the letter of credit. UCP 600 defines four availability options; A credit must state whether it is available by sight payment, deferred payment, acceptance or negotiation. (UCP 600 - Article 6- b)
Sight Payment: Sight payment refers to the payment which is made as soon as the complying presentation is seen by the issuing bank or the bank nominated in the letter of credit. The nominated bank fulfills its payment obligation with recourse basis. Nominated bank can demand the amounts paid to the beneficiary back in case of documents are found noncomplying by the issuing bank. Nominated bank's payment obligation is not strict as the issuing or the confirming bank's payment obligation. UCP 600 states that a nominated bank is not obligated to accept the nomination directed to itself unless nominated bank inform its acceptance of nomination expressly to the beneficiary. Even in this situation UCP 600 assumes non payment by the nominated bank and describe the roles of the issuing and confirming banks. Deferred Payment: Deferred payment refers to the payment which is made after a period of time that is specified also in the letter of credit. The payment period is usually determined as specific number of days after the date of presentation or the date of the transport document. Bill of exchange or draft is not required under deferred payment.
Acceptance:
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Acceptance refers to acceptance of a bill of exchange which is drawn on the bank mentioned in the letter of credit to be presented with the other required documents and payment at the maturity.
Negotiation: Let us check the definition of the negotiation from the UCP 600 in order to understand the term more clearly. Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank. (UCP 600 - Article 2) As can be seen from the above definition any letter of credit which is available by negotiation could be issued in a way so that a draft may or may not be required. Also the payment of the letter of credit may or may not be at sight. If the nominated bank advance or agreeing to advance funds to the beneficiary before it receives reimbursement from the issuing bank the negotiation condition is fulfilled. This can happen in two ways. First possibility is, in a letter of credit which is available by sight payment when the nominated bank reimburses the beneficiary before it receives funds from the issuing bank. Second possibility is, in a letter of credit which is available by acceptance of time draft when the nominated bank reimburses the beneficiary before the maturity date of the bill of exchange. When issuing a documentary credit via swift message banks show the availability of a documentary credit in Field 41a.
MT 700 Issue of a Documentary Credit Field 41a: Available With ... By...

BY ACCEPTANCE BY DEF PAYMENT BY MIXED PYMT BY NEGOTIATION BY PAYMENT
Payment means payment at sight. Mixed payment is not directly covered under UCP 600.
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Confirmation and Confirmed Letter of Credit

As we have discussed earlier there are some risk factors exist for each party in a letter of credit transaction. When we look at the risk issue from the beneficiaries' perspective, we will observe two main risk factors that beneficiaries must bear ; the country and the insolvency risk of the issuing bank. Confirmation can be seen as a security mechanism which works in favor of the beneficiaries that eliminates these two risk factors. Let us look at the definitions of confirmation and confirming bank from the UCP 600; "Confirmation means a definite undertaking of the confirming bank, in addition to that of the issuing bank, to honor or negotiate a complying presentation." "Confirming bank means the bank that adds its confirmation to a credit upon the issuing bank's authorization or request." As can be seen on the above definitions confirming bank adds its undertaking to the letter of credit in addition to that of the issuing bank. In this way beneficiaries receive a second payment guarantee from another bank. Insolvency risk of the issuing bank is eliminated by addition of this second payment guarantee to the letter of credit. Mostly confirming banks and the beneficiaries are located in the same country and when this is the case the country risk of the issuing bank is eliminated as a bank which locates in the same country with the beneficiary adds its undertaking to the letter of credit in addition to that of the issuing bank.
Confirmed Letter of Credit After discussing the benefits of the confirmation in a letter of credit transaction, let us examine the points that need to be taking into consideration regarding the confirmed letters of credit.

Only irrevocable letters of credit can be confirmed. During the issuance phase of a letter of credit, the issuing bank should "authorize or request" the potential confirming bank to add its confirmation to the letter of credit.
No bank can be forced to add its confirmation to any letter of credit. If a bank is authorized or requested by the issuing bank to confirm a credit but is not prepared to do so, it must inform the issuing bank without delay and may advise the credit without confirmation. (UCP 600 article 8 ii-d)
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Confirming a letter of credit does not mean that confirming bank is obligated to confirm any subsequent amendment or amendments.
A confirming bank is irrevocably bound to honor or negotiate as of the time it adds its confirmation to the letter of credit. (UCP 600 article 8 ii-b )
Risks in Letters of Credit

Although letters of credit are a balanced payment method in terms of risk issues for both exporters and importers, each letters of credit party bears some amount of risk. As we have explained before letters of credit transactions are handled by banks. This responsibility makes the banks one of the parties that bears risks in a letter of credit transaction. Risks in letters of credit can be discussed under four groups; general risks in letters of credit, risks to the applicant, risks to the beneficiary and risks to the banks. General Risks in Letters of Credit: Country Risk: (Political Risk) The first risk factor that can be mentioned in the general risks group is the country risk or the political risk. Let us assume that we are an exporter located in a country X and we have a customer from the country Y. Our customer, which is from the country Y, opened a L/C in favor of us. We have checked the L/C conditions and they seem workable. We have produced and shipped the order as per the L/C and transmit the required documents to the issuing bank before the expiry date. The issuing bank found our presentation complying and informed us that they will be honoring our payment claim at the maturity date. However, before the maturity date due Country Y has changed its export regime, which makes it impossible for the issuing bank to honor our presentation. This illustrative is a good example of a country risks. Other examples of country risks are mass riots, civil war, boycott, sovereign risk and transfer risk. Fraud Risk: As we have described before all conditions stated in a letter of credit must be connected to a document, otherwise banks will disregard such a condition. In addition, banks deal with only documents but not goods, services or performance to which the documents may relate. This feature of the letters of credit is the source of the fraud risk at the same time. As an example, a beneficiary of a certain letter of credit transaction can prepare fake documents, which looks complying on their face, to make the presentation to the issuing bank. As the documents are complying on their face, the issuing bank may honor the presentation and in this case, the applicant must pay to the issuing bank for the goods it will never be receiving. Beneficiaries of L/Cs bear also fraud risks. This happens if an applicant issues a counterfeit letter of credit. In this case, the beneficiary never receives its payment for the goods it has shipped.
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Risks to the Applicant: In a letter of credit transaction, main risk factors for the applicants are non-delivery, goods received with inferior quality, exchange rate risk and the issuing bank's bankruptcy risk. Risks to the Beneficiary: In a letter of credit transaction, main risk factors for the beneficiaries are unable to comply with letter of credit conditions, counterfeit L/C, issuing bank's failure risk and issuing bank's country risk. Risks to the Banks: Every bank in a L/C transaction bears risks more or less. The risk amount increases as responsibility of the bank increases.
UCP 600
UCP 600 is the latest version of the rules that govern letters of credit transactions worldwide. UCP 600 is prepared by International Chamber of Commerces (ICC) Commission on Banking Technique and Practice. Its full name is 2007 Revision of Uniform Customs and Practice for Documentary Credits, UCP 600, and (ICC Publication No. 600). The ICC Commission on Banking Technique and Practice approved UCP 600 on 25 October 2006. The rules have been effective since 1 July 2007. UCP 500 was the rules that had been in implementation before UCP 600. There are several significant differences exist between UCP 600 and UCP 500. Some of these differences are as follows;

The number of articles reduced from 49 to 39 in UCP 600; In order to reach a standard meaning of terms used in the rules and prevent unnecessary repetitions two new articles have been added to the UCP 600. These newly added articles are Article 2 Definitions and Article 3 Interpretations. These articles bring more clarity and precision in the rules; A definitive description of negotiation as purchase of drafts of documents; New provisions, which allow for the discounting of deferred payment credits; The replacement of the phrase reasonable time for acceptance or refusal of documents by a maximum period of five banking days.
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History of UCP First uniform rules published by ICC in 1933. Revised versions were issued in 1951, 1962, 1974, 1983 and 1993. 1933 Uniform Customs and Practice for Commercial Documentary Credits 1951 Revision - Uniform Customs and Practice for Commercial Documentary Credits 1962 Revision - Uniform Customs and Practice for Documentary Credits 1974 Revision Uniform Customs and Practice for Documentary Credits 1983 Revision Uniform Customs and Practice for Documentary Credits 1993 Revision Uniform Customs and Practice for Documentary Credits Currently majority of letters of credit issued everyday is subject to latest version of the UCP. This widely acceptance is the key sign that shows the importance of the UCP, which are the most successful private rules for trade ever developed. E-UCP Almost all of the presentations are being made in paper or traditional format still in today's letters of credit environment. However, as telecommunication technology is expanding its borders, it is highly expected that in the very near future traditional processes will be substituted with the electronic paperless transactions. In order to establish set of rules that governs electronic presentations the ICC Banking Commission established a Working Group consisting of experts in the UCP, electronic trade, legal issues and related industries, such as transport, to prepare the appropriate rules for electronic and mixed presentations. Supplement to the Uniform Customs and Practice for Documentary Credits for Electronic Presentation or "e-UCP" is the result of the efforts of this committee. The e-UCP is not a revision of the UCP. The UCP will continue to provide the industry with rules for paper letters of credit for many years. The e-UCP is a supplement to the UCP that, when used in conjunction with the UCP, will provide the necessary rules for the presentation of the electronic equivalents of paper documents under letters of credit.
UCP 500 v/s UCP 600
Comparison is a simple, basic but efficient, and a common sense way to learn new things. There seems no exception to the study of UCP600. From comparison we may see the difference. From the difference we need know the underlying reasons. With those reasons, we will have deeper understanding of UCP600. With such good understanding, we may apply UCP600 correctly, certainly and efficiently so as to facilitate our trade settlement and banking financing. Here, I would like to focus on some big points of differences between UCP500 and UCP600 that deserve our high attention.
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1.
The brand new definition: honor new but needless
UCP500 has no definitions, while UCP600 has. However, some definitions like Advising Bank, Applicant, Beneficiary, Issuing Bank and so on have the same meaning as in UCP500. So, as a matter of fact, those definitions are not new -, they just are lined up on the stage of UCP from behind. But the definition of honor is brand new. It never appeared in UCP500. But what is the purpose of establishing such a new definition. It seems not quite clear, at least to me. In my understanding, the definition only introduces a new word honor, and demonstrates what kinds of payment may be deemed as honor. It lists three kinds: sight payment under sight payment credit; promise against documents together with payment at maturity under deferred payment credit; acceptance (promise against bills of exchange) together with payment at maturity under acceptance credit. It seems payment under negotiation credit is not an honor, whether by negotiating bank or issuing bank. However, according to the definition of negotiation, negotiation need not be confined to negotiation credit. Any purchase by the nominated bank may be deemed as negotiation. And any payment by the issuing bank at sight or at maturity may not be considered as negotiation. But what is called the issuing banks payment under negotiation credit, as it is also not to be called as honor? Further, I wonder what is the real purpose and meaning of such classification. To make the rules concise? If so, I do not think it meaningful. To make the nomination from the issuing bank more explicit, e.g., the nomination of the issuing bank under deferred payment credit and acceptance credit is a combination of two acts: both promise and payment at maturity? It seems not, because according to UCP600 Art.12 (b) such nomination also includes prepayment before maturity. So there is really a question, why do we need honor in UCP? 2. Negotiation may be constituted in the credits other than the negotiation credit?
UCP500 stipulates only the bank that is authorized by the issuing bank to negotiate may negotiate. That means that negotiation may only be constituted under a negotiation credit that is a credit available with negotiation. However, the definition of negotiation in UCP600 is the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank. There is no restriction whether the credit is a negotiation credit or not. When reviewing the process of the revision, we may find that in the draft 3s art.1-19, the definition of negotiation includes a qualifier that the credit should be available by negotiation. However, in the later revision drafts, such qualifier was deleted. According to the current definition, the prepayment of a nominated bank may be deemed as negotiation. And according to the definition of nominated bank, a bank with which the credit is available is a nominated bank. It follows that an issuing bank may be a nominated bank when a credit stipulates that it is available with the issuing bank by acceptance. If such issuing bank prepays, it negotiates. However, in UCP600 we always find that an issuing bank honors. Additionally, according to art.12 (b) of UCP600, under an acceptance or deferred payment credit there is a nomination from the issuing bank to allow the nominated bank to prepay or purchase their promised undertaking. It signifies an acceptance or deferred payment credit may be also a negotiation credit. If so, why not UCP600 simply states that prepayment or purchase by the nominated bank is allowed under the credit, because then negotiation credit will be not needed any more.
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3. A separate undertaking of issuing/confirming bank to reimburse nominated bank UCP600 explicitly stipulates that the issuing/confirming bank has a separate undertaking to the nominated bank other than that to the beneficiary. So it may be understood that when a credit stipulates a nominated bank it contains two undertakings: one is to the beneficiary, the other to the nominated bank. The two are independent from each other.
4. Advising bank has an obligation to accurately advise the terms and conditions of the credit received The beneficiary will applaud for such revision, which brings more reasonableness and more fairness into UCP600, and is also the result of standard letter of credit practice. And it is consistent with sub-rule 2.05(a) (ii) of ISP98 and 5-107(c) of UCC revised.
5. The nominated bank is allowed to prepay or purchase its promised undertaking. UCP600 adds a stipulation that a nomination by an issuing bank for a nominated bank to accept a draft or incur a deferred payment undertaking includes an authorization for the nominated bank to prepay or purchase a draft accepted or a deferred payment undertaking incurred by the nominated bank. Such wording added may remove the impediment brought by those cases (e.g. the Santander Case and Emirates Bank Int'l PJSC v. Credit Lyonnais (Suisse) S.A.) to discounting before maturity. With this revision the controversial issue regarding the nominated banks prepayment under acceptance or deferred payment credit may be settled well under UCP600. The job is done well, in my view, and definitely welcomed by bankers and traders and judges, because it is reflecting sound commercial sense and the current prevailing banking and trade practice in the practical commercial world.
6. Different addresses of beneficiary and applicant are allowed unless they are part of consignee information in bills of lading The claim for different addresses of the beneficiary and the applicant has been always the banks refusal reason, although it does not matter with the underlying transaction and the identification of the beneficiary and the applicant. ICC discourages such minimal discrepancy as refusal reason, as it should be taken on board by banks that letter of credit should be applied as a payment tool. This revision will kill some banks malpractice of focusing on the minor difference of the address of the beneficiary or the applicant among documents. But there are two exceptions mentioned in UCP600: one is indication of a different country from that of credit, the other is indication of different addresses in consignee or notify party field in bills of lading. Another point that merits attention is if the credit specifically requires indication in a document
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of the beneficiary or applicants address stipulated in the credit, the address shown in that document should be the same as on the credit. 7.The requirement for reasonable time is replaced with a fixed period of five banking days Under UCP500 when the credit lacks agreement both in express terms and implied terms for determination of the time of refusal, the reasonableness test is inevitable and requires a flexible interpretation and application in individual cases, which cause complexity and uncertainty in banking practice. In light of this crux, UCP600 is specifically designed to avoid reasonableness test by removing the wording reasonable time and instead stipulating a fixed period of time as 5 banking days for bankers examination and refusal of documents. However, in a DCI interview, Ole Malmqvist, member of drafting group for UCP600, addressed his concerns that replacing reasonable time with the fixed period of time five banking days will make banks use five banking days in all cases, which will mean that the time in fact is not reduced from seven to five banking days but increased from a reasonable time to five banking days. N.D. George in his article also recognizes this problem and optimistically considers that such banks will soon be identified and not be chosen by the beneficiary for L/C business. However in any event, in my view, it may probably be the disadvantage, but a minor when with the advantages brought by this new stipulation. 8. Refusal notice Two points should be paid attention to: 1) UCP600 clearly stipulates that refusal notice must state that the bank is refusing to negotiate or honor, whilst UCP500 implies such requirement. UCP600 allows refusal notice to state that the issuing bank is holding the documents until it receives a waiver from the applicant and agrees to accept it, or receives further instructions from the presenter prior to agreeing to accept a waiver, whilst under UCP500 it is not allowed because from perspective of law such conditional statement cannot bind the beneficiary because it is only a unilateral modification of UCP Article d(ii) imposed only by the issuing bank but unaccepted by the beneficiary. Now UCP600 proposes such conditional statement to the beneficiary, and consequently makes it not unilateral.
2)
However, the beneficiary should bear in mind that, given that the documents belong to the beneficiary as long as he has not been paid for them,whether the disposal clause discussed above is incorporated into the credit or stated in UCP, it may introduce a possibility of depriving the beneficiary of his alternative of selling goods to a third party, as it is not uncommon that upon receipt of refusal notice the beneficiary may choose a new buyer considering high demurrage, a rising market for the goods or the nature of the goods (e.g. perishables). So, allowing and accepting the new stipulation discussed above in UCP, the beneficiary or presenter will automatically waive his right of disposal of the refused documents so long as the issuing bank waives the discrepancies and honors the said documents. It follows that, in this connection, the incorporation of the clause into UCP or the credit seems unfair and disadvantageous to the
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presenter or the beneficiary. Therefore, the beneficiary or presenter should fully cognize the effect and result of the incorporation of such clause to protect him properly. 9. The multimodal transport is given more importance It seems that ICC has realized the increasing popularity of multimodal transport in the international trade nowadays. So it changed the position and order of the transport stipulations by moving the stipulations for multimodal transport to first place in UCP600. So in my opinions, it is advisable that bankers should acquire more knowledge of the multimodal transport so as to bring more certainty into the process of examining multimodal transport document and deeper understanding of relative UCP stipulations. 10. On board notation in case of place of receipt different from port of loading According to UCP600, if the field port of loading in the bills of lading presented indicated clearly the port of loading stipulated in the credit, even if the place of receipt indicates a place other than that port, the on board notation need not include the port of loading stipulated in the credit and the name of the vessel on which the goods have been loaded. 11. Masters name need not be indicated When an agent for the master signs the bills of lading, the masters name need not be indicated. It just follows the current transport practice which was well explained by T.O.Lee, a worldfamous LC expert, as follows: Unsurprisingly, at the time the bills of lading are signed by a local agent of the master the name of the master is often not known. That is one reason why I believe that in the case of a bill of lading signed by an agent of the master it is not necessary to give the name of the master. This change would enable the harmonization of trade practice for small- and medium-sized carriers, particularly in the Far East. In that connection, I believe ISBP paragraphs 76(c), 103(b) and 123(c) have to be revised for the same reason. Legally speaking, the agent is signing in the capacity of the master, and not for a specific person. Therefore, in my view, giving the capacity of the "principal" as a master is sufficient, and there is no need to give the name of the person. The agent receives his authorization from the carrier's head office as part of the standard terms and conditions, not directly from the master himself. At times the agent and master may not even have the opportunity to meet; the one who looks after the crew may not be the one who signs the bills of lading.(For more details, please log on www.tolee.com) 12. The issuing date and the actual flight date of AWB UCP600 states that AWB must indicate issuing date. When there is a special notation regarding the dispatch date/flight date, such a date in the notation will be deemed as shipment date regardless of whether the credit requires the AWB presented show such dispatch date/flight date. The former requirement is new. But UCP600 states no such requirement for other transport documents, especially for bills of lading. The latter one overrules UCP500 art 27(a) (iii) and ICC previous opinions (R135 and R170).
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13. Insurance documents may be signed by the proxy of the insurer or underwriter. It is the result of ICC Official Opinion Document TA550 following the insurance practice. 14. An insurance document may contain reference to any exclusion clause.
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ANNEXURE
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FORMAT FOR LETTER OF CREDIT(FOB)

FROM :( NAME * & ADDRESS OF OPENING BANK )
TO :( NAME & ADDRESS OF ADVISING BANK ) (For Shipments from Haldia ) STATE BANK OF INDIA OVERSEAS BRANCH KOLKATA SWIFT CODE SBININBB106 (For Shipments from Vizag ) STATE BANK OF INDIA OVERSEAS BRANCH VIZAG SWIFT CODE SBININBB123 40A 20 31C 31D 50 TYPE OF L/C L/C Number DATE OF ISSUE :IRREVOCABLE : :
DT. & PLACE OF EXPIRY : __________________________________IN INDIA NAME & ADDRESS OF THE: APPLICANT NAME & ADDRESS OF THE: Steel Authority of India Limited, BENEFICIARY Central Marketing Organization, IspatBhawan 40 J.N.Road, Kolkatta-700071, India AMOUNT OF CREDIT IN : US DOLLARS /EURO/ANY OTHER FREELY EXCHANGEABLE CURRENCY (IN FIGURES & WORDS) PERCENTAGE CREDIT AMOUNT TOLERANCE : AS PER CONTRACT
59
32B
39A
41A
CREDIT AVAILABLE WITH: INDIA CREDIT AVAILABLE BY : DRAFTS DRAFTS TO BE DRAWN ON: PARTIAL SHIPMENT TRANSHIPMENT : :
STATE BANK OF INDIA, KOLKATA/VIZAG and or ANY BANK IN NEGOTIATION : AT SIGHT
42C 42A 43P 43T
AS PER CONTRACT AS PER CONTRACT
44A 44B 44C 45A
SHIPMENT FROM SHIPMENT TO :
LATEST DATE OF SHIPMENT : DESCRIPTION OF GOODS : a) Description of Materials b) Size ( in mm) (except for Pig Iron) and Quantity (in MT) c) Specification d) Tolerance (except for Pig Iron)
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e) f) g)
Quantity Quantity Tolerance Price per MT (in USD/Euro/any other freely exchangeable currency)
_________________________________________________________________________________________ * L/C to be opened with First Class International Bank having Correspondent relationship with State Bank Of India. Name of the Banks can be obtained by the buyer from SAIL 46A DOCUMENTS REQUIRED 1. :
Beneficiarys Commercial Invoice - one original plus two signed copies covering materials shipped. Invoices will be raised on the basis of (THEORETICAL/ ACTUAL/ DRAFT SURVEY) WEIGHT.
2. Full set 3/3 original on board ocean or charter party Bills of Lading (CONGEN) issued to the order of the Shipper notifying applicant and blank endorsed marked Stowed under deck further more marked freight prepaid/freight payable as per charter party/ freight to pay evidencing shipment from __________ Port, India to ________ Port in ________ . Bills of Lading (CONGEN) with remarks Materials partly rust stained/ rusty edges/ wet before shipment/ rust stained/ some rusty edges and/or unprotected cargo and/or said to be and/or said to weigh and/or stored in open area prior to loading are acceptable. 3. Works Test Certificate in duplicate issued by the Steel Plant (s) of the beneficiary and confirming that the materials are as per contracted specification. 4. Pre- shipment Inspection certificate issued by M/s ., (herein after referred to as) certifying the following: (a) The materials were inspected prior to loading at the load port and that the markings were as per General Terms and Conditions for Export(FOB) between beneficiary and the opener. (b) Quantity loaded on board the vessel. (c) The materials were loaded on board the vessel without apparent damage and were found to be in good order and condition. That the loading was done under their supervision , and were properly lashed and secured (except for pig iron) inside the hatches / holds of the vessel. Remarks such as materials partly rust stained/ rusty edges/ wet before shipment/ rust stained/ some rusty edges and/or stored in open area prior to loading and/or unprotected cargo appearing on Pre-shipment inspection certificate are acceptable. 5. Beneficiarys packing list (except for pig iron) indicating details of the materials shipped - 3 copies. 6. Certificate of origin. 7. Copy of Telex/e-mail or Fax from Steel Authority of India Limited, ________ / KOLKATA/ NEW DELHI addressed to the openers FAX No. __________ within FIVE working days after the on board Bill of Lading (CONGEN) date advising the name of the vessel, Bill of Lading (CONGEN) number and date, materials and quantity, destination ports in __________ (Country). 47A ADDITIONAL CONDITIONS : 1. Ocean freight is payable by the openers over and above the value of this Letter of Credit. 2. Marine Insurance to be covered by the opener. 3. In the event of (a) the failure of the opener to nominate a suitable vessel within 21 days, including lay days , from the date of beneficiarys Notice of Readiness of cargo (herein after referred to as NOR) OR (b) the vessel nominated by the opener and accepted by the beneficiary failing to arrive at __________ port within 21 days including lay days from the date of NOR for reasons other than Force Majeure as defined under Clause 10 of the said contract OR (c) the vessel (nominated by the opener and accepted by the beneficiary) being found unsuitable after its arrival at _______ Port as certified by independent marine surveyors, this credit is payable at sight at your counters in Kolkata/Vizag against presentation of beneficiarys draft drawn on ourselves for 100 per cent value of invoice accompanied by the following documents: a) Beneficiary's commercial invoice in duplicate. b) Copy of Beneficiarys Notice of Readiness, c) One copy of Works Test Certificate issued by the Steel Plant (s) of the beneficiary. d) Certificate issued by M/S ..............., certifying that the materials were inspected at the storage yard of the beneficiary at ______ (Place) and that the markings are as per requirement of the said contract and that the materials are in good condition and further that the materials and quantity as per the Commercial Invoice are ready for shipment. Remarks such as materials partly rust stained/ rusty edges/ wet before shipment/ rust stained/ some rusty edges and/or stored in open area prior to loading and/or unprotected cargo appearing in the Pre-Shipment Inspection Certificate are acceptable.
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e) Beneficiarys declaration that suitable vessel has not been nominated by the opener within 21 days including lay days from the date of NOR OR that the vessel nominated by the opener and accepted by the beneficiary failed to arrive at ________ Port within the agreed lay days for reasons other than Force Majeure as defined in Clause No. 10 of the General Terms and conditions for export of FOB contract OR that the vessel (nominated by the opener and accepted by the beneficiary) being found unsuitable after its arrival as certified by the independent Marine Surveyors (copy of certificate of Marine Surveyors to be presented in such an event) as the case may be. f) Beneficiarys declaration that (i) the materials as mentioned in the commercial invoice will be held in custody by the beneficiary at the risk and responsibility of the opener at the storage yard of the beneficiary at Haldia/Vizag Port. (ii) the materials will be covered by tarpaulin at the cost of the opener. (iii) the Materials shall be held by the beneficiary free of ground rent for a period of 15 days from the date of expiry of Sellers NOR (against documents negotiated under this clause) and for storage extending beyond 15 days from the date of expiry of Sellers NOR the cost of holding the materials (ground rent) calculated at the rate of USD 1.00 per metric tonne for every week(s) (7 days) or part thereof shall be paid by the opener to the beneficiary till the date of acceptance of vessels NOR, when the vessel finally calls at the loadport. (iv) Opener/Buyer to ensure that payment towards Ground Rent and/or Tarpaulin cost is remitted and remittance instruction duly forwarded by SWIFT message, before actual shipment, against the debit invoice. (v) Upon nomination of suitable vessel within reasonable time by the opener for taking delivery of the materials for which payment has been realized by the beneficiary as aforesaid and subject to such vessel arriving at Haldia/Vizag Port within the agreed lay days, the beneficiary shall at his cost deliver FOB (Stowed) as per terms of the said contract the materials for which payment has been realized by the beneficiary as aforesaid. 4. Any amendment to the letter of credit without the prior written consent of the beneficiary shall not be taken cognizance of, under this letter of credit.
71B
CHARGES: All Bank charges incurred outside India including payment Cable charges, reimbursement charges, etc. shall be borne and paid for by the opener. All Bank charges incurred in India shall be borne and paid for by the beneficiary. PERIOD FOR PRESENTATION : Within 21 days from the date of B/L.
48
49
CONFIRMATION INSTRUCTIONS: Paying Bankmay add their confirmation to this Letter of Credit at the request and expense of the beneficiary and such confirmation shall also apply to any amendment (s) to this credit.
78
REIMBURSEMENT INSTRUCTIONS: Upon presentation of documents complying in all respects to Letter of Credit terms, the negotiating bank is authorised to claim on us by tested telex certifying that all terms and conditions have been complied with and that the relative documents have been forwarded to us by Registered Airmail/ Courier. We undertake to remit within two working days after receipt by us of your tested telex/swift claim in US Dollars/Euro/any other freely exchangeable currency in accordance with your instructions. This Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision) International Chamber of Commerce Brochure No. 500. This telex/swift may be treated as the operative instrument. All apparent spelling mistakes/mistakes in LC documents, which do not alter meaning/ specification/ description/ Quantity/ value of goods are acceptable and will not count as a discrepancy.
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BIBLIOGRAPHY
Page 100
Website
WWW.IOCL.IN WWW.GOOGLE.IN
Books
Documentary Letter of Credit
Author: R R Beedu
Letters Of Credit: A View Of Type Design

Author: Walter Tracy s
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Summer Internship Project Report On LETTER OF CREDIT In INDIAN OIL CORPORATION LTD.

ACADEMIC SESSION 2011-2013 Under the kind guidance of

Submitted By Abhinav Singh SSVIM, Bareilly

SHRI SIDDHI VINAYAK INSTITUTE OF MANAGEMENT

Abhinav Singh MBA (Finance) Shri Siddhi Vinayak Institute Of Management

SHRI SIDDHI VINAYAK INSTITUTE OF MANAGEMENT

SHRI SIDDHI VINAYAK INSTITUTE OF MANAGEMENT

PAGE NO. 5 6 7 10 11 13 16 28 29 35 36 46 49 96 100

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OBJECTIVES OF THE STUDY

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OIL INDUSTRY OVERVIEW

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OIL INDUSTRY STRUCTURE

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OIL INDUSTRY DYNAMICS

Table 1: Retail Market Share

Table 2: Market Share of Different Companies

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Figure 1: Formation of Indian Oil Corporation Limited

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Management of Indian Oil Corporation

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R&D Centre: Sector 13 Faridabad -121 007(Haryana)

Assam Oil Division Assam Oil Division: P.O. Digboi -768171(Assam)

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VISION, MISSION AND VALUES

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OBJECTIVES & OBLIGATIONS OF IOCL

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ORGANIZATION STRUCTURE OF IOCL:

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IOCL Refineries Headquarters (Finance)

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INDIAN OIL - A NATIONAL BRAND

IOCL PRODUCTS IN THE MARKET

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INDANE LPG GAS

INDIAN OIL AVIATION SERVICES

XTRAMILE SUPER DIESEL

XTRAPOWER FLEET CARD

SUPERIOR KEROSENE OIL

XTRAREWARDS LOYALTY PROGRAM

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SWOT Analysis for IOCL

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