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A standby letter of credit (SBLC) is a type of LC that is used when there is a contingent upon the performance of the buyer.
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Standby Letter of Credit (SBLC) can be used as a: • Reassure your buyer or seller of payment with a Banker’s Standby Letter of Credit (SBLC). • In the event that you fail to fulfil your contractual obligations, we will honour payment to your beneficiaries upon receipt of a claim that complies with the guarantee terms.
1. Payment Guarantee – This protects the beneficiary in the event that the applicant fails to honour the payment under their contract • 2. Bid Bond – This enables the applicant (bidder) to use credit to support the bid, and can also be used to insure the buyer that the contract will be met • 3. Performance Bond – Some bidding contracts require the successful bidder to provide a performance guarantee to protect against a default • 4. Financial Guarantee – This helps the applicant’s overseas subsidiaries obtain financing or credit facilities from banks
The Guarantee can be issued by us or by our overseas Branches/correspondents, according to the guarantee format provided by the applicant • Guarantees issued in favour of beneficiaries must be for a specific amount, expiry date and claim period • Guarantees should not be assigned to other parties • Guarantees are subject to Indian law and the jurisdiction of the Indian courts
Basics of Standby Letter of Credit (SBLC) • Applicant: The applicant in a LC transaction is usually the buyer or importer of goods. The applicant of the LC has to make payment if documents, as per the conditions of the LC are delivered to the Bank. • Beneficiary: The beneficiary is the party to whom the LC is addressed, i.e., the seller or exporter. The beneficiary would receive payment from the nominated bank against submission of documents as per the LC condition.
Issuing Bank: The issuing bank is the Banker to the importer or buyer which lends its guarantee or credit to the transaction. The issuing bank is liable for payment once the documents as per the conditions of the LC are received by it from the Negotiating Bank. • Negotiating Bank: The Negotiating Bank is the beneficiary’s bank. Beneficiary in a LC transactions would be the seller or exporter. The negotiating bank would claim payment from the issuing bank or the opening bank.
TYPE OF LETTER OF CREDIT • Confirmed LC: A confirmed LC is a type of letter of credit in which the advising bank at the request of the issuing bank adds confirmation that payment will be made. The confirming bank’s liability is similar to the issuing bank. The confirming bank has to honor the payment if tendered by the beneficiary. • Transferable LC: If a LC can be transferred by the beneficiary in whole or in part to a second beneficiary (usually a supplier to the seller) then the LC is a transferable LC. The 2nd beneficiary however, cannot transfer the LC further.
Back to Back LC: In a back to back LC, a 2nd LC is opened by the original beneficiary in favor of the 2nd beneficiary against the security of the original LC. A back to back LC is usually opened for suppliers. • Standby LC: A standby LC is similar to performance bond or guarantee, but issued in the form of a LC. The beneficiary of a standby LC can submit a claim by means of documentary evidence, as stipulated in the LC document.
