LETTER OF CREDIT SUBMITTED TO:- HARISH MEHTA SUBMITTED BY:- KIRANDEEP KAUR MBA-3RD SEM (458)

INTRODUCTION TO DHANLAXMI BANK Dhanalakshmi Bank was incorporated on 14th November 1927 by a group of public sp irited entrepreneurs at Thrissur, the cultural capital of Kerala with a capital of Rs.11, 000 and 7 employees. It became a Scheduled Commercial Bank in the year 1977. Achievements Serviced business worth Rs. 12,155 crores as on 31 March 2010, comprising deposits worth Rs. 7098 crores and advances worth Rs. 5056 crores. Ea rned a net profit of Rs. 23.30 crores for the financial year ended 31st March 20 10. Put in place the Real Time Gross Settlement (RTGS) and National Electronic F und Transfer (NEFT) systems to facilitate large value payments and settlements o nline in real time, on a transaction-bytransaction basis.

Set up NRI Boutiques (Relationship Centers) across nine locations in Kerala and Tamil Nadu, with plans to open specialized NRI outlets at potential location s with emphasis on impeccable service levels. Dispensed Micro Credit among priva te and public banks in Kerala, the Bank's outstanding under micro credit was Rs. 270.62 crores at the end of March 2009. Attained ISO 9001-2000 certification fo r the Bank's corporate office at Thrissur and industrial finance branch at Kochi .

WAYS TO BANK WITH DHANLAXMI There are four ways through which customers can bank with Dhanlaxmi bank. ATMs In ternet banking. Debit cards. RTGS and NEFT.

LETTER OF CREDIT A letter of credit is basically a document issued by a bank guaranteeing a clien t's ability to pay for goods or services. A bank or finance company issues a let ter of credit on behalf of a buyer, authorizing the seller to obtain payment wit hin a specified timeframe once the terms and conditions outlined in the letter o f 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 th e 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 pos sible.

PURPOSE OF LETTER OF CREDIT In International trade, the buyer and the seller who are located in different co untries may not know each other and hence many times the problem of Buyers Credit worthiness hampers the trade between the buyer and the seller. The main objectiv es of the buyer and the seller in any international trade and contradictory in t erms of Buyer will always try to delay the payment while the seller would like t o receive funds at the earliest. To mitigate this problem, Seller always request Buyer to arrange for a Letter of Credit to be issued by Buyers Bank. Upon issuan ce of Letter of Credit, the Buyers bank replaces its own Creditworthiness to that of the Buyer, it undertakes to reimburse the Seller for the value of the Letter of Credit Irrevocably provided two underline conditions are fulfilled by the Sell er: 1.All the documents stated in the LC are presented; 2.All the terms and cond itions of the LC are complied with

PROCESS OF LETTER OF CREDIT

PARTIES TO AND ASSOCIATED WITH THE LETTER OF CREDIT The various parties involved in letter of credit are:1. 2. 3. 4. 5. Applicant. B eneficiary. Issuing bank. Advising bank. Confirming bank.

ADVANTAGES & DISADVANTAGES OF LETTER OF CREDIT Advantages of Letter of Credit: 1. The beneficiary is assured of payment as long as it complies with the terms and conditions of the letter of credit. The lette r of credit identifies which documents must be presented and the data content of those documents. The credit risk is transferred from the applicant to the issui ng bank. 2. The beneficiary can enjoy the advantage of mitigating the issuing ba nks country risk by requiring that a bank in its own country confirm the letter o f credit. That bank then takes on the country and commercial risk of the issuing bank and protects the beneficiary. 3. The beneficiary minimizes collection time as the letter of credit accelerates payment of the receivables. 4. The benefici arys foreign exchange risk is eliminated with a letter of credit issued in the cu rrency of the beneficiarys country.

Disadvantages of Letter of Credit. 1.Since all the parties involved in Letter of Credit deal with the documents and not with the goods, the risk of Beneficiary not shipping goods as mentioned in the LC is still persists. 2.The Letter of Cre dit as a payment method is costlier than other methods of payment such as Open A ccount or Collection 3.The Beneficiarys documents must comply with the terms and conditions of the Letter of Credit for Issuing Bank to make the payment. 4.The B eneficiary is exposed to the Commercial risk on Issuing Bank, Political risk on the Issuing Banks country and Foreign Exchange Risk in case of Usance Letter of C redits

OBJECTIVES OF To study the credit? What his process.

THE PROJECT concept of LETTER OF CREDIT. What is the purpose and need of letter of is the process of this letter and how many parties are involved in t By availing this facility what are the benefits and drawbacks.

RESEARCH METHODOLOGY RESEARCH: Systematized effort to gain any branch of knowledge. In simple words the search for knowledge through objective and systematic method of finding solutio n to a problem is research. Research Methodology is an art of scientific investi gation or one can say it is a careful investigation or enquiry specifically thro ugh search for new facts in any branch of knowledge.

DATA COLLECTION: DATA SOURCE: The report consist data from the secondary source gathering through books, Journ als and websites. OBJECTIVES OF RESEARCH METHODOLOGY The purpose of research is to discover the an swers to the questions through the application of scientific procedures. The mai n aim of the research is to find out the truth which is hidden and which has not been discovered as yet

FINDINGS OF THE STUDY 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 lette r of credit on behalf of a buyer, authorizing the seller to obtain payment withi n a specified timeframe once the terms and conditions outlined in the letter of credit are met. LC consists of four parties and the whole process contains lots o f time and money value. It deals with lots of legal formalities and paper work. Th e Letter of Credit as a payment method is costlier than other methods of payment such as Open Account or Collection

This letter relief the seller in regard to payment of delivered goods. As internat ional trade becomes more and more rationalized, the use of commercials has dimin ished; but the use of the standby has enjoyed something of a boom, for it accomp lishes much that security interests, surety ship arrangements, and other credit enhancing devices accomplish and does it with significantly lower transaction co sts. The rules that govern letter of credit transactions(UCP 500) have been under review for the past three years and an updated set of rules (UCP 600) is introd uced on 1July 2007

LIMITATIONS OF THE STUDY Paucity of time and resources was the major constraints. Whole report considered t he secondary research and some aspects cannot be judged because of non presence of primary data. For exporter the letter of credit has presented difficulties in meeting the compliance requirements necessary for the payment to be triggered. Th e analyses of problems concerning the strict compliance lead to the result that still today, about 100 years after letters of credit became a common method to p ay, problems exist. There are some points which are not included because of less information provided by the bank.

SUGGESTIONS Letter of credit is very old and traditional way of financing the trade, which no w a days is not as popular as the factoring is, so banks should follow some ways to promote it. UCP 600 Rules should be practiced by banks to improve the conditi ons of letter of credit. The analyses of problems concerning the strict complianc e lead to the result that still today, about 100 years after letters of credit b ecame a common method to pay, problems exist. Because the term strict compliance have different interpretation in different countries. The term strict compliance s hould be clearly defined.

CONCLUSION After analyzing the whole data it has been concluded that LETTER OF CREDIT is a pr omise to pay. Banks issue letters of credit as a way to ensure sellers that they will get paid as long as they do what they've agreed to do. Letters of credit a re common in international trade because the bank acts as an uninterested party between buyer and seller. For example, importers and exporters might use letters of credit to protect themselves. In addition, communication can be difficult ac ross thousands of miles and different time zones. Letter of credit includes four parties i.e. buyer and seller of goods, buyers bank and sellers bank. This way of financing is very costlier and includes lots of formalities. The rules that gov ern letter of credit transactions(UCP 500) have been under review for the past t hree years and an updated set of rules (UCP 600) is introduced on 1July 2007