LC Opening Procedure

( BTB LC)

Adnan Zaber Mahmud

LecturerSoutheast University

BTB FLOWCHART

DHAKA BANK

PRIME TEXTILE LTD

RUPALI BANK

VAI MUNNA

GARMENTS

UBL DHAKA

SUPPLIERS BANK

FABRICS SUPPLIER

LC ISSUING BANK/

NEGOTIATING BANK

2 ND BENEFICIARY/

EXPORTER

TRANSFERRING BANK

ZXY Buying SCB DHAKA

AMEX NEWYORK

JC PENNY

FIRST BENEFICIARY

ADVISING BANK

LC ISSUING BANK

BUYER/ APPLICANT

Legal Framework: Import – Export (Control) Act – 1950 (sub section 1 of section 3)

Import Policy Order Export Policy Order

Foreign Exchange Regulation Act (FERA)-1947 Guidelines for Foreign Exchange Transactions

(GFET): Vol – I & Vol - II Directives of NBR

Customs Act – 1969 Pre-shipment Inspection (PSI) Act - 1999

International Rules of ICC UCPDC–600 eUCP–Version 1.1 URC-522 URR-725 ISBP-681 Incoterms 2000

Main Features of Import Policy:

Who can import-  Any Person having Import Registration

Certificate (IRC)  Any Person exempted from having IRC How IRC is obtained- How IRC is renewed- List of banned, restricted & permissible items- How import can be done:         With LC & LCA         Without LC but against LCA         Without LC & LCA (Import permit or

Clearance permit)

Main contents of Import Policy Order (IPO):

Banned items Restricted items Permissible items Restriction of shipment

-Prior to opening of LC-Expiry of the LC

Country of Origin (‘CO’ should be mentioned in package/goods)

Harmonized commodity description & coding system (H.S. code)

Carrying of goods by Bangladesh Flag Vessels Pre-shipment inspection Special conditions for food items CFR/FOB/CIF Insurance cover note.

FEATURES of BTB

Back to Back LCs to be opened against export LCs received by export orient industries under the bonded warehouse system.

Required value addition should be observed (value addition is prescribed in IPO)

For Quota & Non-quota woven garments : 20% Knitted/others (Qouta - price $60/Dozen) : 15% Knitted/others (Non- qouta - price $60/Dozen): 10% Sweater : 20% Kids’ garments : 15%

FEATURES (BTB LC)

BTB LCs may be opened upto 180 days usance. Sight LCs may be opened under EDF. Inland BTB LCs denominated in FC may be opened in

favour of local manufacturer-cum-suppliers. BTB LCs may be opened for import of necessary

inputs against inland BTB LCs. Accepted (Usance) bills against BTB LCs should be

settled at maturity. Cases of failure of export against related LCs should

be reported to NBR & Commissioner of Customs.

REQUIRED PAPERS1. Valid IRC, ERC.2. Valid Trade License from recognized

Trade Body.3. TIN & Income Tax payment certificate.4. VAT registration certificate.5. Valid Bonded Ware House license

(foreign import). 6. Other formalities with concern

regulatory bodies.

PROCEDURES1.Receiving Export/Master LC duly advised/

transferred.2.Scrutiny of Master LC to find out if there is

any adverse clause in the LC, shipment & expiry date, reimbursement clause etc.

3.Receiving application from the client in LC Application Form along with PI duly accepted by the importer.

4.Obtaining credit report of exporter ( upto Tk. 700,000 in case of PI and upto Tk. 1000,000 in case of indent)

5.Approval of proposal / office note for opening BTB LC. Contd…….

Procedures Contd…….

6. Issuance of IMP, LCAF7. Giving entries in LC Opening Register.8. Vouching:Commissions, charges & Liability.9. Transmission of LC.10. Passing liability voucher. 11. Receiving of Shipping documents.12. Lodgment of import bill, intimating

discrepancy.13. Intimation of maturity date in case of deferred

LC.13. Making payment at sight for sight LC (EDF),

payment on due date for deferred LC.14. IMP reporting to Bangladesh Bank.15. Matching Bill of Entries.

ACCOUNTINGLiability Voucher:

Dr. Customer’s liability on BTB L/C Cr. Banker’s liability on BTB L/C

(Applicable rate: B.C Selling rate)

Commission & others charges:

Dr. Customers A/c: Commission + FCC + Postal/ Telex + Misc.

Cr. Income A/c: Commission on L/C foreign

Cr. Income A/c. Postal/ Telex Recoveries Cr. Income A/c: Miscellaneous earnings

(Handling charges, stationery, etc.) Cr. Sundry Deposit A/c: FCC.

Export documents purchase: (Only CM portion is purchased) Dr. FDBP/FBP Account (@ OD sight

export) Cr. CD A/C Cr. Packing Credit/ Others Loan A/C Cr. Income A/C Com Cr. S/D Tax

After realization of Export Proceeds: Dr. General A/C ID, HO (CM

portion- TT Clean & rest portion-OD Sight ) Cr. FC Held ( @ OD Sight Export)

Cr. FBP A/C Cr. I/A Exchange Earning

Payment of BTB: (i) Reversal of acceptance liability: Dr. Banker’s liability on BTB bills Cr. Customer’s liability on BTB bills   (ii) Out of export proceeds settlement in

FC: Dr. Exporters F.C held A/c: Bill value with

usance interest (O.D sight export) Cr. General A/c: On Nostro A/c( OD sight

export)