1. This document provides an overview of banks and the banking system in Nepal. It defines banks as financial institutions that accept deposits and lend money.
2. It discusses the history of banking, tracing it back to temples in ancient Greece and the first bank being established in Venice, Italy in 1157. Goldsmiths and landlords served as early bankers in Nepal.
3. The first steps toward a modern banking system in Nepal included the establishment of the Tejarath Adda in the 19th century and the Nepal Bank Limited in 1937, with the Nepal Rastra Bank being established in 1956 to regulate commercial banks and banking.
1. This document provides an overview of banks and the banking system in Nepal. It defines banks as financial institutions that accept deposits and lend money.
2. It discusses the history of banking, tracing it back to temples in ancient Greece and the first bank being established in Venice, Italy in 1157. Goldsmiths and landlords served as early bankers in Nepal.
3. The first steps toward a modern banking system in Nepal included the establishment of the Tejarath Adda in the 19th century and the Nepal Bank Limited in 1937, with the Nepal Rastra Bank being established in 1956 to regulate commercial banks and banking.
1. This document provides an overview of banks and the banking system in Nepal. It defines banks as financial institutions that accept deposits and lend money.
2. It discusses the history of banking, tracing it back to temples in ancient Greece and the first bank being established in Venice, Italy in 1157. Goldsmiths and landlords served as early bankers in Nepal.
3. The first steps toward a modern banking system in Nepal included the establishment of the Tejarath Adda in the 19th century and the Nepal Bank Limited in 1937, with the Nepal Rastra Bank being established in 1956 to regulate commercial banks and banking.
1. This document provides an overview of banks and the banking system in Nepal. It defines banks as financial institutions that accept deposits and lend money.
2. It discusses the history of banking, tracing it back to temples in ancient Greece and the first bank being established in Venice, Italy in 1157. Goldsmiths and landlords served as early bankers in Nepal.
3. The first steps toward a modern banking system in Nepal included the establishment of the Tejarath Adda in the 19th century and the Nepal Bank Limited in 1937, with the Nepal Rastra Bank being established in 1956 to regulate commercial banks and banking.
The key takeaways are that banks play an important role in economic development by mobilizing savings and allocating capital, and commercial banks in particular direct development by financing trade and industry. Banks draw community savings into the organized sector and allocate capital according to country priorities.
The main functions of banks according to the text are that they accept deposits, lend money, facilitate exchange, and provide a wide range of financial services like credit, savings, and payments.
The text states that commercial banks can play a vital role in directing economic development over time by financing the requirements of trade and industry in a country. They draw community savings into the organized sector and allocate capital according to country development priorities and plans.
1
An internship report on Letter Of Credit
Prepared by: Dhiraj Shrestha Batch 2060-2064 Chapter I Introduction
1.1. Definition of Bank Bank accepts deposits and lends it to people who require money in the form of cash. Therefore it deals with money. -According to Crowther The bankers people to offer his own in exchange, thereby create money. - Sayers defined the bank as Ordinary banking business consists of changing cash for bank deposit and bank deposit for cash; transferring bank deposit from one person or corporation to another; giving bank deposits in exchange for bill of exchange, government bond, the secured or unsecured promises of businessmen to repayment. Bank should be differentiated from other financial institution as they cannot create credit through they accept deposits. According to us Law, any institution offering deposit to withdrawal on demand and making loans of a commercial or business nature is a bank. Therefore summarizing the above, banks are those financial institutions that offers the widest range of financial services especially credit, saving and payments and perform the widest range of financial functions of any business firm in the economy. This multiplicity of bank services and functions had led to banks being labeled financial supermarkets and to such familiar advertising slogans. 1
According to White Horace in last Bank is a manufacturer of credit and a machine of facilitating exchange. 2
1 Shakespeare Vaidya: Banking Management 2 White Horace: Money And Banking 2 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 1.2 Background of fieldwork study Financial institutions play an important role in accelerating development of the country. These institutions mobilize savings & make investment in different enterprises of the national economy that consequently provide opportunities and help developing the society and country as a whole. Thus, the development of the commercial banks or financial institutions has become one of the bases for measuring the level of economic development of a nation. Commercial banks can also play a vital role directing the economys development overtime by financing the requirements of trade and industry in the country. They draw the community's scattered savings into organized sector and allocate among the different economic activities according to the priorities laid down by planning authorities in the country. In any economic development plan, capital occupies a position of strategic importance. No economic development of sizeable magnitude is possible unless there is an adequate degree of capital formation. A very important characteristic of an underdeveloped economy is deficiency of capital formation that is the result of insufficient savings made by the community. In the underdeveloped countries, not only is the capital stock extremely small but also the current rate of capital formation is also very low. The serious capital deficiency in underdeveloped countries is reflected in the small amount of capital equipment per worker and in limited knowledge of training and of scientific advancement. There are serious handicaps in economic development where the banks can play a vital role. Therefore, the commercial banks are the purveyor of finance for the whole economy of the country. Such commercial banks or financial institutions are the custodian and distributor of liquid capital, which is the lifeblood of the commercial and industrial activities. In the overall development of the banking system in Nepal, the Tejarath Adda may be regarded as the father of modern banking institutions and for a quite a long time it tendered a good service to governments servants as well as to the general public. But the concept of modern financial institutions in Nepal was introduced only after the establishment of Nepal Bank Limited in 1937 under the Nepal Bank act 1936 during the 3 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 Prime Minister Juddha Samser Jung Bahadur Rana. Before the credit needs of the people for commercial and other purpose were met mostly from the unorganized market of the private moneylenders. Nepal Bank Limited as a modern banking help to fulfill the demand and need of people and to remove all the inconveniences prevailing during the past time.
1.3 History of Bank There is no unanimity among the economist about the origin of the word Banking. The term bank derives from the Latin Bancus which refers to the bench on which the banker would keep his money & its records. Some persons trace its origin to the French word Banque & Italian words Banca which means a bench for keeping, lending & exchanging of money or coins in the market place by moneylenders & moneychangers. The first bank called the Bank of Venice was established in Venice, Italy in 1157 to finance the monarch in his warns. Following establishment of the bank were the Bank of Barcelona (1401), Bank of Genoa (1401), Bank of Amsterdam (1609), Bank of Hindustan (1770). According to Alfred Marshal in Greece temples of Delphi & other safer places acted as store house for the precious metal before the day of coinage, & private purpose at interest, though they paid none themselves. History tells that it was the merchant banker who first involved the system of banking. The next stage was the goldsmith in the growth of banking. The business of goldsmith was such that he had to take deposits such as bullion, money & ornaments for the security from theft. This makes possible to goldsmiths to change something for taking care of the money & bullion. On the other hand, on the evidence of receiving valuables, he used to issue a receipts to the depositors, it because like a modern cheque, on a medium of exchange & a means of payment.
4 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 1.4 Development of Banking System in Nepal In the contest of Nepal like in other countries, the goldsmiths & landlords were the ancient bankers. The Nepalese people were highly exploited by Sahu Mahajan by charging higher interest rate, compound interest rate & even by manipulating the principal amount. In the 14 th century King Jayasthiti Malla divided people into castes based on their occupation in society. According to the division the Tankadhariclass was the one responsible for dealing with money. So people used to borrow from Tankadhariat that time. Only in 1989 B.S. was Taksar for scientific& systematic mint established but there was no institutional transaction for lending & depositing. The introducing of Tegarath Adda during the tenure of the Prifafame Minister Ronoddip Sing (1993B.S.) was the first step towards the institutional development of banking in Nepal but it did not work like the bank of today. It was just for government staff& was used to provide loan against security of gold& silver for the general public. The established of Udhyog Parishad (1993B.S.) proposed the company Act & Nepal bank Act. Under the company act, Biratnagar Jute Mill was established. The first commercial bank Nepal Bank Limited was established on 30 th Kartik 1994B.S.under the Nepal bank Acts started to perform proper banking activities. King Tribhuvan inaugurated it. In order to facilitate all part of the country with banking facilities & to develop monetary policy as well as to have proper control over Commercial bank & Banking sectors the Nepal Rastra Bank Act 2012, was formulated & Nepal Rastra Bank was established on 14 th Baishakh 2014B.S. under the act (2012). From 2016B.S. Nepal Rastra Bank issued Nepali Currency & eliminated the duo monetary system (Nepali & Indian currency). Likewise, Rastriya Banijya Bank under the full ownership of government was established on 10 th Magh 2022 B.S. as per Rastriya Banijya Bank act 2012. In this way the banking field gradually developed. Nowadays bank have a rule to promote equitable development so that for every two branches opened in town area, one branch must be opened in a rural area. 5 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 1.5 Concept of Commercial Bank In general Bank refers to commercial bank. Commercial banks are the heart of the financial system. They hold deposits of many persons, government establishment & business unit. They make fund available through their lending &investing activities to borrowers, individuals, business firm, and government unit. In doing so they assist both the flow of goods& services from the producers to consumers& the financial activities of the government. They dispense the large portion of medium through which monetary policy is affected. This shows consequential role in the smooth functioning of economy. According to the America Institute of Banking definition Commercial bank is a corporation which accepts demand deposit subject to check& makes short term loan to business enterprise regarding of the scope of its other services. 3 In the Nepalese Contest, the Nepal Commercial bank act 2031B.S. defines A commercial bank is one which exchange money& deposit money; accepts deposits; grant loan& perform commercial banking function. 4
Summarizing the above it can be known that commercial banks play the most important role in Modern economic organization. Their business mainly consists of receiving deposit, giving loan &financing the trade of a country. They provide short-term credit i.e. lend money for short period. This is their special feature.
1.6 Introduction of Commercial Banks in Nepal
Before globalization and financial liberalization, in the mid 1980s, only two commercial banks namely Nepal Bank Limited and Rastriya Banijya Bank were in operation. The financial liberalization paves the way for the establishment of private sector banks including the foreign joint ventures. As a result, as of now seventeen commercial banks are in operation. Out of seventeen commercial banks, nine banks
3 Principle of Bank Operation, USA pp345 3 Commercial Bank Act 2031
6 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 were established in joint venture. However, at present there are six joint venture banks, after withdrawal of foreign investment in three banks. Rastriya Banijya Bank is fully owned by the HMG of Nepal, while in case of Nepal Bank Limited, HMG of Nepal remains the signal largest shareholder. Remaining ten banks are fully owned by Nepalese investors The listed names of the commercial banks operating in the current Nepalese Economy with their establishment dates and collation of head office are as follows:
Table1.1 : List of commercial Banks
S.No Name of the commercial bank Establishment year (in B.S) Head office 1 Nepal Bank Ltd 1994-07-30 Kathmandu 2 Rastriya Banijya Bank 2022-10-10 Kathmandu 3 NABIL Bank Ltd. (formally known as Nepal Arab Bank Ltd) 2041-03-29 Kathmandu 4 Nepal Investment Bank Ltd.(formally known as Nepal Indosuez Bank) 2042-11-16 Kathmandu 5 Standard Chartered Bank Ltd. (formally known as Grindlays Bank Ltd.) 2043-10-16 Kathmandu 6 Himalayan Bank Ltd. 2049-10-05 Kathmandu 7 Nepal SBI Bank Ltd 2050-03-23 Kathmandu 8 Nepal Bangladesh Bank Ltd 2050-02-23 Kathmandu 9 Everest Bank Ltd 2051-07-01 Kathmandu 10 Bank of Kathmandu Ltd. 2051-11-28 Kathmandu 11 Nepal Credit and Commerce Bank Ltd (formally known as Nepal Bank of Ceylon) 2053-06-28 Siddhartha Nagar 12 ini bank Ltd 2055-04-01 Narayangadh 13 Nepal Industrial and Commercial Bank Ltd 2055-04-05 Biratnagar 14 Machhapuchhre Bank Ltd 2057 Pokhara 15 Kumari Bank Ltd 2057-12-21 Kathmandu 16 Laxmi Bank Ltd 2058-06-11 Birgunj 17 Siddhartha Bank Ltd 2058-06-12 Kathmandu
7 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 Nepals first commercial bank, the Nepal Bank Limited, was established in 1994 B.S. the government owned 51 percent of the shares in the bank and controlled its operations to a large extent. Nepal bank Limited has headquartered in Kathmandu and had branches in other parts of the country. Nepal Rastriya bank was created in 2013 B.S. as the central bank. Its function was to supervise commercial banks and to guide the basic monetary policy of the nation. Its major aims were to regulate the issues of paper money, secure countrywide circulation of Nepalese currency and achieve stability in its exchange rates; mobilize capital for economic development and for trade and industry growth; develop the banking system in the country, thereby ensuring the existence of banking facilities; and maintain the economic interest of the general public. NRB also was to oversee foreign exchange rates and foreign exchange reserves. The major objective of the commercial bank is to earn profit. For this purpose, they are investing on different sectors of the economy. They collect the funds through the public and create credit as per the rule. It aims at providing loans to industrial and commercial sectors for the financial welfare of the citizens of Nepal.
1.7 Function of Commercial Bank To accept deposits of persons and institutions under current account, saving account and fixed account. To grant loans against the security of property. To purchase and sell bills. To transfer money between places and persons.
8 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 1.8 Introduction of Kumari Bank Limited (General Profile) Kumari Bank Limited, came into existence as part of the Nepal Rastra Banks liberalization of the Nepalese Banking Industry by starting its banking operations from Chaitra 21, 2057 B.S (April 03, 2001).KBL is credited to be the first private sector bank in Nepal with the largest capital investment of Rs 500 millions. Kumari Bank Limited is also the first National Level Bank managed by Nepali Management with highest capital base. Out of the Bank s authorized capital of NPR 1 billion, 750M have been paid up and of which 70 % is contributed from promoters and remaining from public.. At present, the bank is running its operations from its head office situated at Putalisadak. Kumari Bank Ltd has been providing wide - range of modern banking services through 8 points of representations located in various urban and semi urban part of the country, 5 outside and 3 inside the valley. The bank is pioneer in providing some of the latest / lucrative banking services like E-Banking and SMS banking services in Nepal. The bank always focus on building sound technology driven internal system to cater the changing needs of the customers that enhance high comfort and value. The adoption of modern Globus Software, developed by Temenos NV, Switzerland and arrangement of centralized data base system enables customer to make highly secured transactions in any branch regardless of having account with particular branch. Similarly the bank has been providing 365 days banking facilities, extended banking hours till 7 PM in the evening, utility bill payment services, inward and outward remittance services, and various other banking services.
9 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 KBL took the initiative of establishing itself when the country was going through major economic and financial crises. KBL stands in the market with a vision to be a world class Nepalese Bank and to be a leading financial institution of the country. Its goal is to create its own niche in the market and get recognition as the preferred organization among its customers, shareholders, regulatory authorities and all its stakeholders. Within 6 years of excellence in banking, the bank has been able to get recognition as an innovative and fast growing institution striving to enhance customer value and satisfaction by backing transparent business practice, professional management, corporate governance and total quality management as the organizational mission. So far KBL have been able to associate their customers with banking products like internet banking and auto facilities which has helped them to meet their objectives of adapting modern technologies and coming up with innovative banking products. The sources of these achievements rely on their organizational values of good teamwork and high professionalism. The bank has been established with the objectives of providing a complete one stop banking solution backed by state-of-art and creating and creating value to valued customers. The key focus of the bank is always center on serving unfulfilled needs of all classes of customers located in various parts of the country by offering modern and competitive banking products and services in their door step. The bank always prioritizes the priorities of the valued customers.
10 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 The Banks business philosophy is We Do It
Capital Structure:
Authorized Capital Rs. 1,000,000,000.00 Issued & Paid-Up Capital Rs. 750,000,000.00
Mission / Vision Mission:
Provide world class service to our customers at a higher satisfaction level. Practice total quality management and embrace good governance. Optimize our assets to achieve sound business growth.
Vision:
We are customer oriented. Client is always our first priority. Employees have direct input and control over work processes. Employees are treated equitably, with respect and good faith. We are transparent in our dealings and conduct
11 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 Values: Teamwork Driven Initiative Adaptable to changes Professional Always striving to improve quality of service. Cost conscious High ethical standards Compliance
1.8.1 KBL Innovations: 1.8.1.2 Internet Banking: The first ever commercial bank in the country to provide 'Internet Banking service" to its customers. This service has allowed the bank to streamline the services it offers to customers. It allows customers the flexibility to take control of banking activities via the internet. Further it has enabled our core customers to transact with us from any corner of the world and made their job simpler.
1.8.1.2 Mobile Banking: We take the pride to be the first bank in the history of Nepal to start a mobile banking service. The bank has facilitated this service to our customers with the sole objective of 12 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 being an additional channel with a crucial role of responding to their enquiries and transactional information via SMS messaging.
1.8.1.3 Auto sweep: A revolutionary concept for the first time in Nepal with a growth option to the checking account holder of transferring their excess balance to Time/Call deposit account. 1.8.2 Products And Services Offered: 1.8.2.1. Personal Banking: 1.8.2.1.1. Deposit: A. Saving B. Fixed C. Liquid D. Super Saving i. Advantage plus Saving Account ii. Saving Plus 1.8.2.1.2 Loan: A. Vehicle B. Home C. Consumer Product Financing D. Golf Loan E. Education F. Travel 13 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064
1.8.2.1.3 Lockers: 1.8.2.1.4 Remittances: A. Managers Cheque B. Demand Draft C. Telex Transfer D. Travel Cheque 1.8.2.2. Business Banking: 1.8.2.2.1 Deposits: A. Checking Account B. Business Account C. Time Deposits D. Call Deposits 1.8.2.2.2 Loans: A. Working Capital Financing B. Term Loan C. Short Term Loan D. Hire Purchase E. Bill Discounting F. Loan Syndication
14 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 1.8.2.2.3 Foreign Trade: A. Letter Of Credit B. Forward Contract C. Bank Guarantee D. Cash Management E. Clearing
1.8.2.2.4 Salary Management 1.8.2.2.5 Bulk Cash: 1.8.2.2.6 Remittance: A. Managers Cheque B. Demand Draft C. Telex Transfer D. Travel Cheque
1.8.2.3. Consumer Banking: A. Evening Banking: B. Weekend Banking
1.8.2.4. E- Banking: A. Internet Banking B. Mobile Banking C. Utility Bill Payment 15 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064
1.9 Introduction of Kumari Bank Limited, Branch Office, Biratnagar Kumari Bank Limited, Branch office at Biratnagar was established on 30 th November 2003. It is located on the rental building of Morang Merchant Association at Goswara road, Biratnagar-9. The building is two stored, i.e. ground floor and first floor. Operating department is situated on the ground floor and loan and marketing department on the first floor. All together there are twelve staffs for the administration, two for assistant helper and two guards who are performing there best for the success of the bank. All the staffs are well qualified. The office of the bank is divided into three sections i.e. front office, bills department and loan department. As the bank is technologically which all the transaction are operated systematically. All the works are computerized which helps to provide quality services to the customers. The banks is facilitated with anywhere branch system to enable the customer to do their transaction from any branch. The office of the bank is well decorated and the furniture and fixtures are pleasing.
1.9.1. Present Business Area of Biratnagar KBL: There are altogether 8 departments of KBL that cover the different business area of the Kumari Bank. The concerned department looks after their own area of providing services and their inter-organization operations of banks: 1. Customer Service Department (CSD): CSD exists for the well-being of customers which is the main aim of every bank. It looks after the customer problems and their suggestions. It provides the general services to the customers like opening of an account, information disbursement, process of doing different 16 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 transactions, statement display, seeing and account balance, ATM card issue, e- banking forms, cheque issue for all the account, etc. 2. Remittance Department: It is a term of transferring an amount of money through banking channel. The responsibility of this department is to look the remittance services of the bank. Providing the services of remittance, inside or outside of the country has to be done by this department. Tasks that are performed in remittance are as such, fax transfer, pay order, draft, swift, and other services like Western Union Money Transfer, Express Money Transfer, IME, etc. But the final work is done from the head office. 3. Cash Department: The function of this department is to maintain the proper reserve of the cash in the bank to save from the illiquidity position of the bank. Disbursement and collection of the cash is also done by this department. 4. Administration Department: This department looks general service such as procurement, vehicle maintenance, repair/maintenance of office machines/renovations, Stock maintenance, etc. 5. Credit Department: The responsibility of this department is to provide loans to the private and deprived sectors. Before providing loans to borrowers it conducts various studies and based on the study it decides whether to provide loan or not. The information about their borrowers is obtained from marketing department. 6. Account Department: The function of this department is to maintain the whole accounts of the bank on day-to-day basis. Proper maintain of the account of the individual customers have to made so as to increase efficiency and decrease the errors. 17 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 7. Loan Department: This department is solely responsible for providing loans and advance to the customers. It takes the decision of sanctioning loans, continue look after the use of loan by the customer so that the customer will be able to put the loan on the productive sector; and can pay back the loan to the bank. 8. Foreign Trade: It looks after the foreign trade activities of the bank. It includes the activities like Letter of Credit, Forward Contract, Bank Guarantee, Cash Management, Clearing.
1.9.2 The goals and objectives of Kumari Bank Limited To facilitate the reliable, prompt and high standard of banking services adopting the latest version banking technologies in compliance with the need and demand of the market. To develop life-long relationship with clients and achieve profitability through customer oriented services and customer satisfaction. To widespread its branch net work in different part of the countries covering at least one branch on all developing regions facilitating large number of clients as far as possible. To support possible cooperation for the upliftment in the economic development of the country. To play an important role in facilitating Indo-Nepal trade this is growing rapidly with the help of ICICI bank of India. To provide a whole range of International Banking services to facilitate Nepals 18 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 trade and tourism. To participate in the emerging industrial scenario in Nepal. To provide meaningful support to develop the banking in Nepal by collaborating with ADB/N and NIDC.
1.9.3 Future plan of Kumari Bank Limited Kumari Bank aims to position itself as a unique bank with differentiated services state of art infrastructure, international quality management backed by superior international banking software. KBL aim to cover all the segments of the economy with a special focus on the growing technologies, we commit to deliver a wide range of services in the retail sector including Automated Teller machines, Debit / Card etc in the upcoming days. KBL also aim to expand their services by providing ample investment opportunities in foreign currency, Offshore Banking Services, Fund management of Non Residential Nepalese and issuance of financial papers. Keeping in view of the increasing demand for KBL services KBL will expand their branch network at different part of the country.
1.9.4 SWOT Analysis of Kumari Bank Limited SWOT means the strength, weakness, opportunities and threats. We know that to every organization there is strength, weakness, opportunities and threats. Strength and weakness are the internal factor to the organization where as opportunities and threats are the external factor. The strength of one organization might be the weakness of other organization and similarly for threats and opportunities differ according to their policy. 19 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 However the SWOT analyses of Kumari bank are as follows:
S- Strength The strength of Kumari bank are as follows: 1) It has been able to capture a considerable share of business in Nepal. 2) It has a strong culture that makes the employees believe in hard work, building good relation, proper communication and perfection in their respective department. 3) The employees of Kumari are highly motivated and self-driven. They are highly competent and trained as well. 4) Kumari is highly customer driven. It has taken a proactive stance towards providing customers with complete solution. 5) Kumari bank is one of the first bank in Nepal to bring the e-banking facilities for the first time in Nepal. 6) Kumari have updated Modern Technology with the help of which if has been able to provide various exclusive services, which are provided by only few other banks in Nepal. These services include" Any Branch Banking Services" through which all their branches are inter-connected. 7) Better schemes, strategies and facilities are provided by the bank to the customer that makes it superior in the eyes of its customer. For e.g. a customer can open an account in NPR 1000 which thus encourages even to poor people also to open an account.
8) Kumari has been constantly coming up with new services and product lines such as ATM/ Debit Card facilities, Electricity Bill payment facility and Mobile bill payment 20 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 facility. The whole idea of focusing on customers with such intensity has given the bank a formidable place in the market. 9) Quick service to the customer is one of the greatest strength of Kumari for e.g. if the customer comes for loan or opening account, then the customer gets the facility within a day after the whole procedure is completed.
W- Weakness: The weaknesses of Kumari Bank Limited are as follows: 1) High cost of deposit. 2) High interest rate in lending as in comparison with the other bank. 3) It lacks the number of branches that it operates through out the country due to which it could not reach to the customer. 4) KBL has very few banking experiences since it has only become 6 years till now. 5) KBL also faces lack of experience in staffs because of having more young staffs and employees. 6) Though facilities of ATM and Debit card have been provided to customers, KBL has not been able to provide specialized products and services as compare to other banks. 7) It also lacks the services like credit cards and online banking.
8) Due to the lack of specific service and facilities KBL has not been able to attract and retain clients who have desire for such services and facilities.
21 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 O-Opportunities KBL has various opportunities that can help, attract and retain many new clients. Listed below are the opportunities for KBL: 1) First opportunity for the bank is that it has a large potential to capture new market by taking advantage of weak competitors. 2) KBL can introduce new schemes targeting not only to general public but specifically targeting the student segment business bachelor for and deprived sector and even can introduce a scheme for house wifes by potentially segmenting the markets. 3) There is high opportunity of opening more branches and expand its network so that it can satisfy the needs of its existing customers as well as potential ones. 4) KBL has also an opportunity to use more advanced technology so that it can satisfy the needs and desires of its customers more easily. It can provide specialized product and services to its clients with the help of advanced technologies. 5) Another opportunity for KBL is to add value to its current customers and attract more customers by online banking, credit cards, insurance skills etc. 6) Urbanization is bringing more opportunities for increments in loan such home loan, personal loan, educational loan etc. and also provides better facilities such as LC, remittance, ABBS etc. 7) Since now Nepal has become a member of globalization so it should try to globalize its banking services to the other country too. 8) New business prospects hydro power projects, tourism, forestry.
22 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 T-Threat KBL currently faces the threats of: 1. Firstly, the threat of instable government policies and internal security crisis are affecting the Nepalese economy negatively, which has the direct influence on the financial sector. 2. The rules and regulation related to the banking industries are not stable which is also one of the threats that the banking industry in Nepal is facing a lot. 3. Maoist insurgency has caused political instability in the country, which affects the banking industry as a whole. Due to the Maoist insurgency only, commercial could not diversify its activities through opening new branches in various areas of the country. 4. New emerging commercials banks can also bring threat for existing commercial banks due to the commendable level of enthusiasm and innovation. 6. Unable to judge and implement the new opportunities ion time by the existing banks might get converted into threats in case if new emerging or the competing institutions come with that opportunity.
23 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 CHAPTER TWO
INTRODUCTION TO THE STUDY ON LETTER OF CREDIT (L.C)
2.1 Introduction This chapter deals with the specialization topic of the internship report, i.e. Letter of credit that had been done on the Kumari Bank Limited. The conceptual reviews of the letter of credit are dealt first, and then dealing are made on the types, parties involved, procedures of letter of credit. Eventually, the objectives, limitations and mythology of the study have been described.
2.2. Introduction of letter of credit Goods can be bought and sold with payment of value in various forms like ready cash, cash against delivery of goods, cash against documents, cash against acceptance of bills of exchange, mail or telegraphic transfer, and the like. When however an international sale transaction is contemplated, the seller does not desire to commit to sell or manufacture the goods or having done so to give up control over them, unless he is certain to be paid on fulfilling his terms of the contract. Similarly the buyer wants to exchange the price only when he has the contracted goods or at least they are out of the possession and control of the seller. A conflict of interest thus arises. Difference in currency and applicable laws, uncertainty of political situation in the countries of the buyer and seller and ignorance about the other party merely aggravates the conflict. It is here that Letter of Credit comes to the rescue of the parties and promotes international trade.
24 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 Letters of Credit are a time-tested instrument of international trade. They have been used effectively to expand markets for goods and services and to facilitate a variety of financial transactions, either as a method of payment or as a credit enhancement, within as well as across the borders of sovereign states. A Letter of Credit (LC) or a Documentary Letter of Credit (DC) is a conditional written undertaking issued by a Bank (i.e. the DC Issuing Bank) at the request and in accordance with the instruction of and for the account of the buyer (i.e. the Applicant) to pay the Beneficiary at sight or a determinable future date(s) up to a stated sum of money against presentation of stipulated drafts and/or documents provided that the terms and conditions of the DC are complied with. The Letter of Credit arrangement usually satisfies the sellers desire for cash and the importers desire for credit. This financial instrument serves the interest of both parties independently. The Letter of Credit offers a unique and universally used method of achieving a commercially acceptable undertaking by providing for payment to be made against complying documents that represent the goods and making possible the transfer of title to those goods. The Letter of Credit is the safest and most convenient means of paying for exports among all other methods of payments existing.
2.3 Features of Letter Of Credit i) It is a conditional undertaking subject to compliance with stipulated terms and conditions. ii) It is an undertaking by the bank. iii) It is an undertaking in favor of a party. 25 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 iv) It is an undertaking to make payment. v) It is an undertaking given to the third party.
2.4. TYPES OF LETTERS OF CREDIT Letters of Credit are classified into various types depending upon the nature and the functions of the credit. Some of them are discussed below:
2.4.1. Revocable Letter of Credit A Revocable Letter of Credit is the one which can be amended, revoked or cancelled without the Beneficiarys consent and even without prior notice to the Beneficiary. A revocable Letter of Credit gives maximum flexibility to the buyer and exposes the seller to a certain degree of risk. Since UCP does not support a revocable LC, the Bank will also discourage issuance of such LCs. However if a customer approaches for a revocable LC with proper justifications in support of the situation, such LC can be issued upon prior approval of CEO.
2.4.2. Irrevocable Letter of Credit An Irrevocable Letter of Credit is converse of Revocable Letter of Credit that can not be amended, revoked or cancelled without the express consent of all the parties concerned thereto, particularly that of the beneficiary. This Credit gives a definite undertaking that Issuing Bank will effect payment provided that the beneficiary complies with the terms and conditions stipulated in the credit. 26 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064
2.4.3. Sight Letter of Credit A Letter of Credit under which payment of the drafts and/or documents drawn under the Letter of Credit is made immediately upon receipt of such drafts and/or documents is called Sight Letter of Credit.
2.4.4. Time or Usance Letter of Credit When a credit calls for drawing of drafts at a stated Usance (tenor) period requiring acceptance and/or payment by the drawee at the end of such tenor or Usance period, its known as Usance or Time Letter of Credit.
2.4.5. Deferred Payment Letter of Credit A Deferred Payment Letter of Credit generally calls for the presentation of specified documents and provides for payment to be made to the beneficiary a stipulated number of days after presentation of such documents, or after the date of shipment or some other stipulated date(s). A draft is usually not required under a Deferred Payment LC. In this type of LC, banks will issue and deliver to the seller-beneficiary a deferred payment letter of undertaking when compliant documents are tendered.
2.4.6. Confirmed Letter of Credit A confirmed Letter of Credit is an irrevocable LC in which a second bank confirms the authenticity of issuing bank with an undertaking to take on payment obligation in addition to that of issuing bank. 27 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 A prior consent/approval has to be obtained from TD regarding LC advising bank and the confirming bank to be used in a confirmed LC.
2.4.7. Unconfirmed Letter of Credit A Letter of Credit which bears the obligation of the issuing bank only is known as Unconfirmed Letter of Credit.
2.4.8. Revolving Letter of Credit If an Applicant and a Beneficiary agree to ship goods on a continuing basis, it may be more efficient and cost-effective if the Applicant establishes one Documentary Letter of Credit for all shipments, rather than one Documentary Letter of Credit for each shipment. A special Documentary Letter of Credit for handling multiple shipments, renewable over an extended period of time, is a Revolving Letter of Credit. A Revolving Letter of Credit may operate automatically or by amendment and can be either cumulative or non-cumulative. Example: An applicant expects to purchase approximately USD 120,000 in merchandise from the same supplier during the next year. Each shipment is not to exceed USD 10,000. Each USD 10,000 shipment covers the purchase of 500 units. The applicant has the following options:
2.4.8.1. Automatic The Applicant may arrange for a Letter of Credit for a one-year term in the amount say USD 10,000 providing that the amount available under the Credit is reinstated for future 28 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 drawings in an aggregate amount not to exceed USD 120,000. If the Letter of Credit reinstates the amount automatically upon each shipment, the total amount of the banks exposure is USD 120,000. Automatic Revolving LCs should be discouraged to the extent possible by the Bank. However if a customer approaches for such LCs with proper justifications supporting the situation, specific approval will be required from Credit prior to issuance of LC.
2.4.8.2 By Amendment This procedure operates the same as above except that availability is reinstated only upon specific authorization and amendment to the Letter of Credit. If the credit revolves by amendment, the exposure is USD 10,000 upon issuance because the bank must approve each amendment. Given the above example, the applicant expects to purchase 500 units at a cost of USD 10,000 per month, for a one-year period (a total of 6,000 units for USD 120,000). The transaction could be structured as follows:
2.4.8.3 Cumulative The applicant may request an LC to permit the quantity and value of the goods not shipped within any month to be carried forward and added to the quantity and value for the following month. For example, if the beneficiary shipped only 400 units for USD 8,000 in January, when the credit revolved in February the beneficiary could ship 600 units for USD 12,000 (i.e. the February shipment of 500 units plus the 100 units not 29 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 shipped in January). The banks exposure is USD 120,000 because all shipments could be deferred to the last month of the credit. Cumulative Revolving LCs should be discouraged to the extent possible by the Bank. However if a customer approaches for such LCs with proper justifications, specific approval will be required from Credit prior to issuance of LC.
2.4.8.4 Non-Cumulative An LC is a Non-Cumulative Revolving LC if it clearly specifies its non-cumulative or if no indication as regards the type of revolving is specified in it. As such amounts not utilized in any period may not be carried forward to succeeding periods.
2.4.9. Advance Payment Letter of Credit This type of Letter of Credit contains a clause which permits the Beneficiary to receive certain funds in advance of presenting commercial documents evidencing the shipment of goods. When a Beneficiary must create special order merchandise for which there may be no other buyer, a Beneficiary may instruct an Applicant to request that the Issuing Bank issue an Advance Payment Letter of Credit.
2.4.10. Red Clause Letter of Credit A Red Clause Letter of Credit is a Credit with a special condition incorporated into it that enables the beneficiary to obtain pre-finance from a bank (as nominated by the issuing bank) as an advance before presentation of documents. 30 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 The Red Clause in the credit enables the seller to draw up to 100% of the credit amount as a pre-shipment finance to produce/manufacture or arrange merchandise as desired by the buyer prior to shipments. The documents are tendered to the bank after shipment is made. This clause is called Red Clause because historically, the term was usually printed or typed in red ink.
2.4.11. Green Clause Letter of Credit An LC which permits advance to the Beneficiary for the purpose of goods storage facilities at the port in addition to the pre-shipment payment to the beneficiary before presentation of the documents.
2.4.12. Transferable Letter of Credit A Transferable Letter of Credit is an LC under which the beneficiary (first beneficiary) has the right to give instructions to the bank which is authorized by the issuing bank to effect payment, accept drafts or negotiate documents to make the credit available in whole or in part to one or more second beneficiaries.
2.4.13. Back-to-Back Letter of Credit On occasions a Beneficiary of a non-transferable LC seeks to use it as a basis for requiring a bank to issue a second, parallel irrevocable LC in favor of the manufacturer or supplier of those goods needed for shipment under first LC. In this case, the Beneficiary of the first LC (generally a broker or a middleman) will become Applicant of the second LC utilizing the first as a source of payment to the issuer of the second 31 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 LC. So an LC issued with the backing or strength of another LC is called Back-to-Back Letter of Credit. The LC playing the source of payment to Back-to-Back LC is said to be Master LC. As per prevalent NRB regulations, Back-to-Back LCs can be issued for the import of fabrics to be used as raw materials by Nepalese readymade garment industries provided that such industry has received an irrevocable LC in its favor from an overseas buyer for the purpose of importing readymade garments produced by such industry. Further payment of raw material fabrics under a Back-to-Back LC can be made up to maximum of 50% of FOB value of the readymade garments to be exported by such industry.
Fig. 2.1 Back To Back Letter Of Credit
Advising Bank in sellers country/opening bank for countervailing Countervailing credit Opening Bank in Buyers Country Original buyer Actual supplier Intermediary Commission agent Sub-Contract Contract 32 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 2.4.14. Straight Letter of Credit In case of a Straight LC, the undertaking of the Issuing Bank extends directly to the named Beneficiary only. If a bank or other intermediary gives value to the Beneficiary and forwards documents to the Issuing Bank, it does so at its own risk and acquires no rights of its own against the Issuing Bank. Nepalese banks are not allowed to issue Straight LCs abroad as per NRB directives. All banks are required to route their abroad LCs abroad through their respective correspondent banks only.
2.4.15. Stand-by Letter of Credit
The standby Credit is a Letter of Credit or similar arrangement, which represents an obligation on the part of the Issuing Bank to the Beneficiary to:
i. Repay money borrowed by the Applicant, or advanced to or for the account of the applicant; ii. Make payment on account of any indebtedness undertaken by the Applicant; or iii. Make payment on account of any default by the Applicant in the performance of an obligation.
The Standby Letter of Credit is a guarantee declaration in the broadest sense. It is used mainly in USA because American Banks are prevented by law from providing guarantee to secure advances made to US nationals or companies resident abroad.
33 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 2.5. RULES AND REGULATIONS TO BE FOLLOWED WHILE HANDLING LETTERS OF CREDIT 2.5.1. Uniform Customs and Practice for Documentary Credits (UCPDC) In the course of time, a number of practices, expressions and terms have evolved between banks dealing with Letters of Credit. To ensure uniformity of interpretation in international trade, the International Chamber of Commerce (ICC), Paris, France have worked out the Uniform Customs and Practice for Documentary Credits. These have been revised and brought up to date several times in the past. They are now applied by the Banks in nearly all countries. The version currently in use is the UCP500 (w.e.f. January 1, 2004) which is to be replaced by the UCP600 which is the latest in the line of revisions and is to come into force from July 1, 2007. The new UCP 600 updates and consolidates the UCP 500. 2.5.2. Directives/Circulars issued by Nepal Rastra Bank, Foreign Exchange Management Department Nepal Rastra Bank, being the central bank of the country has issued several directives relating to Letters of Credit in order for a smooth operation of Letter of credit transactions and to put a check over the irregularities in foreign exchange transactions. All banks in Nepal are bound to adhere to these directives.
2.5.3. Laws, Acts and Specific Provisions Made by Government Ministries, Departments, etc. Some Government Ministries and Departments have imposed restrictions on import of several items like health hazardous items (narcotic drugs, liquors containing more than 34 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 60% alcohol), arms and explosive items (other than licensed by the Government of Nepal), Communication equipments (voice carriers), wireless, walkie-talkie and equipment of similar features (other than licensed by the Government of Nepal), etc. Similarly some items require prior approval, for example approval from Internal Revenue Department is required for import of alcohol. Likewise prior approval is required from Ministry of Commerce in respect of quantity for the import of Poppy Seed whereas approval of Ministry of Population and Environment is a must for old/used cloths, metal and plastic scraps and second hand equipments for non-industrial imports. Moreover approval from the Ministry of Finance, Department of Commerce is required to change customs entry point in a Letter of Credit whereas Nepal Ready Garment Association, Nepal Wool and Carpet Development Board, Ministry of Health, Department of Drug Administration have also got some provisions for imports through Letters of Credit. Sometimes regulations are also promulgated by the Government through Nepal Gazettes. At the same time some Acts (eg, Industrial Enterprise Act, Company Act, etc) also need to be referred to for correct interpretations of terms included in such regulations or directives.
2.5.5. Uniform Rules for Bank-to-Bank Reimbursements Under Documentary Credits (URR) The Uniform Rules for Bank-to-Bank Reimbursements under Documentary Credits (URR) are the rules that govern all the Reimbursements Authorizations that are issued 35 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 under Letters of Credit. The version currently in use is the URR, ICC Publication No. 525. They are binding on all parties thereto, unless otherwise expressly stated in the Reimbursement Authorizations.
2.5.6. International Standard Banking Practice (ISBP) International Standard Banking Practice (ISBP) is a set of guidelines documented to draw down international standard banking practices for the examination of documents presented under Letters of Credit. The practices set out in this publication are consistent with the UCP. This document does not amend UCP; rather it explains how the practices articulated in the UCP are to be applied by documentary practitioners. So all LC staffs need to be familiar with the practices articulated in the ISBP for correct interpretation of the articles drawn down in the UCP.
2.5.7. ICC Uniform Rules for Collection (URC) With a view to maintaining uniformity in transactions relating to collections, ICC have developed a set of rules that is called Uniform Rules for Collection (URC). The version currently in force is the URC, 1995 Revision, ICC Publication No. 522. LC staffs are required to be familiar with several provisions articulated in this publication of ICC.
2.5.8. INCOTERMS By the 1920s, commercial traders had developed a set of trade terms to describe their rights and liabilities with regard to the sale and transport of goods. These trade terms 36 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 consisted of short abbreviations for lengthy contract provisions. Unfortunately, there was no uniform interpretation of them in all countries, and therefore misunderstandings often arose in cross-border transactions. To improve this aspect of international trade and to make it as clear as possible, the ICC developed INCOTERMS (International Commercial Terms), which is a set of uniform rules for the interpretation of international commercial terms that exactly define the costs, risks and obligations of both buyers and sellers in international transactions. First published in 1936, these rules have been periodically revised to account for changing modes of transport and documents delivery. The current version is Incoterms 2000 and has been preceded by six versions. INCOTERMS can be quite useful, but their use has limitations. If you use them incorrectly, your contract may be ambiguous, if not impossible to perform. So it is important for LC staffs to understand the scope and purpose of INCOTERMS when and why you might use them before you rely on them to define such important terms as mode of delivery, customs clearance, transfer of risks, and passage of title during the course of transit.
2.5.9. Other Internal and External Policies and Laws as they may come into picture during the course of Letters of Credit Transactions So it is the responsibility of all the staff working in LC department to ensure that they are fairly aware of the changes in the abovementioned rules and regulations as well as enactment or promulgation of any new laws that may have direct impact over Letters of Credit transactions and that they are duly complied with at all times. 37 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 2.6. Parties involved in L.C i. Applicant A party who applies to the bank to open L.C for the benefit of the exporter. Applicant is an importer, whether it can be an individual, a company, association or institution.
ii.Beneficiary Beneficiary is a seller or exporter of merchandize for whom the letter of credit is issued. He requests the importer to benefit him from letter of credit facility that means to give him a bank guarantee by opening letter of credit.
iii.Issuing Bank It is the importers bank that opens letter of credit in the request of the importer or applicant.
iv.Advising Bank The responsibility of Advising Bank is to authenticate the L.C and any amendments thereto and advice the same to the beneficiary within reasonable timeframe. Advising bank does not have other liability other than establishing authenticity to the beneficiary. However, if the authenticity could not be established, they are responsible to intimate this duty to the beneficiary. Advising bank may be the negotiating bank also.
38 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 v. Confirming Bank The confirming bank will have the same liability as that of the issuing bank towards the negotiating bank or the beneficiary if the issuing bank fails to discharge their obligation towards them. However, confirming bank is not liable against the unconfirmed amendments. The confirming bank holds the right to claim the issuing bank for any values as per the L.C terms and any unrecovered charges.
vi.Negotiating Bank If the beneficiary presents the documents to a bank for negotiation, the bank authorized to negotiate in the credit negotiates the documents fulfilling all the terms, the bank got right to claim the payment from the issuing bank.
vii.Reimbursement Bank The reimbursement bank act on the instructions from the issuing bank. Once authorized to reimburse, they can honor the claims received from the claiming bank. Once the claim is honored, they will have a good claim on the issuing banks instructions in this regard. In such case, the issuing bank will be responsible to pay the claiming bank the claimed amount as per the L.C terms along with the interest, for the delayed period, if any.
2.7. Benefits of Letter of Credit To the Beneficiaries: They will have a relief of payment collection, as the payment will be available 39 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 with their bank. They will get the financial assistance. Exchange risk is covered. They will get the immediate payment. They have a guarantee of Payment after they ship out the goods as per the terms agreed with the buyers as per the L.C and present the documents to the bank.
To the Applicant: They do not have to make the immediate payment. Exchange risk is coved. They are assured that their goods are delivered at the fight time. They can get the delivery of the goods after they make payment to their bank. They can first check the documents to ensure that the goods are exactly of the same specifications as per their agreements or not and then only pay the amount. They do not have to pay the amount of the goods directly to the exporter they can just pay to the bank and the bank would pay to the beneficiary.
2.8. Procedure in Letter of Credit transaction The movement of documents, money and goods between beneficiary and importer are shown in the figure 2.2. This makes clear to understand about the process involved in the L.C
40 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064
The different steps involved in the letter of credit are enumerated as under: 1. Contract between the buyer and seller 2. Applying for the letter of credit with the bank 3. Advising the documents to the beneficiary 4. Scrutiny of the documents 5. Payment of the goods
Step 1: Contract between the buyer and the seller When the transaction takes place between two countries, then the trade is said to be foreign trade. The buyer of a country orders merchandise from another country. The 41 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 seller accepts the order. But the seller wants to obtain the guarantee for dispatching the goods. Therefore, the parties undergo contract directly or through some mediator. The contracts terms and condition should be within the legal framework or guidelines of central bank of the concerned country.
Step 2: Applying for opening letter of credit with the bank After the contract between the buyer and seller, the buyer approaches the bank for the issue of letter of credit to importer merchandise to the benefit of the seller. The applicant must make an application before a letter of credit is actually issued. The buyer fills up the form and submits the application form along with other documents. The bank check all the documents and ensure whether it comply with the terms and conditions. After checking all the documents and ensuring the creditworthiness of the applicant, the bank accepts the application. After the acceptance of the application, a contractual relation between the application and the bank issuing the credit is established. The agreement creates clear obligation undertaken by the applicant towards the bank. It also contains the details for the payment made under the credit.
These processes for applying letter of credit are discussed below. These processes are also summarized in the figure no.2.3.
42 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064
Figure No.2.3. The process involved for applying the letter of credit
Application form: KBL has its own prescribed form of application that should be duly filled by the party. The important items that should be mentioned on the application form of letter of credit are: 1. L.C number, date of issue and L.C amount. A buyer approached the bank The buyer fills up the application form Submit the application form along with the other documents Application Checking Creditworthiness of the applicant are assessed Acceptance of the application A buyer approached the bank A buyer approached the bank 43 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 2. Details of the applicant firm name and address 3. Name and address of the beneficiary 4. Name and address of advising, confirming, negotiating and reimbursing banks, if any 5. Details of item, quality, price and total amount of the items to be imported 6. Latest shipment date and latest negotiation date 7. Declaration custom point 8. Payment procedure sight or usance or deferred 9. Means of transport 10. L.C should contain price of the items, insurance, price term, packing and weight list, certificate of origin, etc 11. Margin, security deposit and commission.
Applicant forms not only give the bank legal protection through the agreement which is printed on the bank but also give customer guidance on the points which usually need to be included in a credit.
Submitting the other documents Along with the application form, the customer shoukd also provide the following documents: 1. Pro-forma invoice or contract paper: A pro forma invoice is provided by the seller prior to the shipment of merchandise, informing the buyer of the kinds and quantities of goods to sent, 44 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 their value, and important specifications including weight and size. Pro-forma invoice is a form of quotation by the seller to potential buyer. It contains: Name of the buyer and seller Name , brand and model of the merchandise Unit price Quantity Harmonic code number International Commercial term, the terms of sales like freight charge, insurance, etc Country of origin certificate ( of goods) The buyer requires a pro-forma invoice for his record purpose since this forms the basis of the Trade Association. 2. Income tax registration certificate 3. Firms or companys registration certificate 4. Citizenship certificate of authorized person 5. B.B.N. Form No. 3 ( in case of convertible foreign exchange L.C)
Checking the content of documents Receiving documents is not sufficient. The content of documents should also be thoroughly checked. Here are furnished contents of documents to be reviewed while checking L.C application.
45 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 1. Is the application in the approves format? 2. Are all the mandatory terms filled up? 3. Are all the additions and alterations duly authorized? 4. Does the signature verify? 5. Are the documents to be called marked clearly? 6. Is the firm duly registered under the concerned government agency? 7. Is the registration certificate renewed from time to time? 8. Does the application need license? 9. Does the pro forma invoice indicate suppliers name, country of origin, description of goods, quantity, unit price and harmonic code no. ? 10. Is the board resolution precise in respect of authority? 11. Is the board resolution duly attested?
Checklist for import from India against convertible foreign exchange 1. Is the applicant an industrial unit? 2. Does merchandise correspond with eligible listed items? 3. Does it match with harmonic code no. of the listed items? 4. Does the pro forma invoice indicate that beneficiary is registered as manufacturing company in India?
Checklist for import from India against convertible foreign exchange by Readymade Garments Industries. 1. Have you received recommendation from Garment Association of Nepal 46 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 (GAN)? 2. Does pro forma invoice indicate import-export (i.e. IE code) of export?
Letter of credit, Usance L.C 1. Is the applicant an industrial unit? 2. Is it raw material or machineries?
Terms and conditions of letter of credit Letter of credit is a conditional undertaking of payment being subject to compliance of the terms and conditions of the credit. Primarily, the agreement between buyer and seller is the terms and conditions of L.C. In order to place appropriate terms and conditions, the buyer should refer the agreement and instruct the bank accordingly. An L.C operative instructions should incorporate widely acceptable terms that are defined by various International Chamber of Commerce (ICCI) rules. Besides, L.C opening bank may also incorporate terms and conditions representing central banks directives as well as its own policy. Some of the essential terms and conditions of L.C are presented here under
a. Delivery terms/ credit terms Representing and expressing entire sales contract Delivery of Credit Terms stand in abbreviated form. For example, CIF, CFR (C & F), C & I, FOB, EX-WORKS etc. these are the terms that represent specific obligation of buyer and seller while moving goods 47 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 from one place to another. These terms are defined under INCOTERMS 1990 and subsequent revision of 2000.
b. Credit available with Letter of credit should categorically mention the terms that suggest availability of the credit in the beneficiarys country. Normally, freely negotiable credit is available with any bank in the beneficiarys country. UCPDC article no. 42 (a) states that place for presentation of document should be mentioned in all credits.
c. Available by In accordance to UCPDC article no. 10 and L.C should indicate whether it is available by sight payment or by negotiation. This term is very important as it shows type of trade, defines payment method and can provide credit to seller. Without such indication, neither L.C is issued nor accepted.
d. Partial shipment L.C should mention whether partial shipment is allowed or not. In the absence of such indication it is deemed to be shipment is allowed. Partial shipment clause is based on beneficiarys ability to supply goods. Applicant may have to borne additional cost of partial shipment.
48 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 e. Transshipment Transshipment implies transfer of consignment from a means of transportation to another during the course of transportation. Transportation is the need of geographical variety. However, breakable, perishable and liquid consignments are normally not allowed for transportation.
f. Latest shipment date/ earlier shipment date Applicant can protect himself against possible loss business by the user of L.C Seasonal goods are tome sensitive. Goods arrived after the appropriate season may become wastage. Restriction I shipment date allows the beneficiary to work in time-bound effort. Restriction may either be in earlier date or latest date of shipment. Defaulting beneficiary cannot pass on the payment obligation to the applicant.
g. L.C Expiry date/ last negotiation date L.C transaction is the buyers agreement to make payment to seller through his bank provided that the seller surrenders the documents of title of goods. The documents that are called for the presentation should be handed over to the applicant through the issuing bank before the arrival of consignment at port. Consignment lying at port waiting for clearance is an additional cost burden. Buyer, therefore, protects its position by fixing a expiry date or negotiation date. Expiry date is the time limit for seller within documents should be surrendered.
49 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 h. Document presentation period Document presentation period always corresponds with the L.C described that document to be presented within days but within the validity of credit. The period for presentation of documents is allowed looking into gap between shipment date and L.C expiry date. This is the clause representing surrender of documents which ensures receiving of documents by the applicant in time.
i. Allowance in credit amount, quality, unit price Unless otherwise indicated in L.C, allowance in amount, quality and unit price upto 10% is permitted. However, it is suggested to indicate allowance of tolerance in the L.C itself.
2.9. Opening of Letter of Credit From the banks point of view, L.C opening is a function of creating liability on behalf of the client because the clients default, in whatsoever manner, may not excuse the bank from its binding obligation of payment. While opening L.C bank must ensure creditability of the customer. Bank examines whether the importer is enjoying the credit facilities with other banks, if found, it ascertain the reasons for his approaching to the bank for opening letter of credit and also takes further steps to make reference to his existence bankers with whom he is enjoying credit facilities. It is suggested that proper assessment, in terms of states, profitability, net means, track record etc. has to be carried out. 50 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 Especially, L.C is the transaction of foreign exchange defection possibility is high. Therefore, various directives are associated in this transaction. The directives related to opening of L.C are the most important because it opens door for possible deflection. Therefore, the L.C opening bank should comply all the directives. In case of doubt, circulars issued by NRB may be referred. L.C opening and amendment request must be scrutinized on the basis is: a. Banks internal policy b. Regulatory aspects (NRB Directives) c. International practices (i.e. application of various guiding rules) When the issuing bank is satisfied, then the applicant is approves for the letter of credit. After the acceptance of application, a contractual relation between the customer and the bank issuing the credit is established. The agreement create clear obligation undertaken by the customer towards the bank. It also contains details for the payment made under the credit. Credit is issued on the bank standard format in four copies. First copy for beneficiary, second for the advising bank, third copy for the office record and fourth for the customer.
Step 3: Advising the document to the beneficiary L.C is advised to the beneficiary through the correspondence bank where the beneficiary is established. The correspondent bank informs the beneficiary or the agency bank about the issuance of letter of credit. The media for the transit of L.C document can be any one of the following form: 51 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 i. Courier ii. Telex iii. SWIFT
Generally KBL use either courier or SWIFT medium to transmit the document of L.C to the correspondent bank.
Step 4: Dispatching the goods and the documents Beneficiary, within the terms and conditions of letter of credit, dispatch the items and handover all the documents to the correspondent bank. The documents that must be prepared by the beneficiary are as:
i. Invoice bills: The main use of invoice bills is to check whether the proper merchandise is shipped at an agreed price. Further, the form and the contents of the invoice enable the actual goods to be checked against the underlying commercial contract.
ii. Bill of lading: A bill of lading is a formal receipt given by the ship owners or their authorized agents stating that the goods mentioned therein, quality, description etc., are shipped to a specified date and vessel and are delivered to the person mentioned therein or to his order after payment of all dues of the shipping company. There are three main functions of bill of exchange: 52 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 a. It is evidence of contract of affreightment. b. It is a receipt for the goods. c. It is a document of title of goods.
iii.Packing and weight list: It is document certifying the weight of the goods. It is given by the exporter, which may at times be countersigned by an independence agency. Generally, it gives the weight of each article or bunch of articles. This certificate is generally required in case of bulk goods like iron ore, food items, etc.
iv.Certificate of origin: This certifies the country where the goods have been produced or growth of goods, is generally issued by a Chamber of commerce. In some countries the customs law requires to be produced before clearance of goods and assessment of duty. The implications of such a specifications in the law may be economic or political. Country of origin of goods to be stated in the certificate of origin.
v.Insurance document: This document specifies the transit insurance is to be covered by the beneficiary.
iv. Certificate of analysis and quality This report indicates the inner composition, quality, technical composition and intricate nature of the goods broadly described in the invoice. In certain types of goods like 53 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 chemical, food articles, clothes etc., this certificate is generally called for so that the good exported conform to the desired quality /standard/analysis.
v. Bill of exchange: A bill of exchange is also referred to as draft of hundi. Nil of exchange performs the following five basic functions: a. Means of collecting payment. b. Means for demanding payment. c. Means for extending credit. d. It is promise of payment. e. It is receipt for payment. Bill of exchange can be Sight Bill of Exchange or Usance Bill of Exchange. Terms and conditions necessary for preparing documents by the beneficiary are: a. Documents bearing the data before the L.C are not allowed. b. All charges inside and outside Nepal are on the account of beneficiary/applicant depends upon the agreement or the contract. c. Negotiating bank should mail all documents to KBL through courier upon negotiation. d. KBLs L.C number and date to be mentioned in all documents required under this L.C
54 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 Step 5: Scrutiny of Documents The correspondent bank advises the document from the beneficiary. Then the correspondent bank scrutinizes the documents. After scrutinizing the documents, correspondent bank endorses Bills of Exchange in the name of Issuing bank and forward all the documents including payment instruction to the issuing bank. The same document is thoroughly scrutinized by the issuing bank to ascertain whether or not it is compliance with credit. In case of any discrepancies, correspondent bank and customer are informed immediately within 7days following the day of receipt of the documents pointing out the discrepancies. If the information is not given to the negotiating bank it will be assumed that the issuing bank has accepted the document. Scrutiny of document presented under Letter of Credit is a crucial and sensitive function of bank in entire credit operations, particularly for the issuing bank and the confirming bank. Decision to make payment or not against the documents presented will depend solely on the result of this scrutiny. Hence, the person scrutinizing the documents must be vigilant and give his undivided attention to the matter. He should have complete and comprehensive information and knowledge of the conditions of the relative credit, provisions of UCPDC and their implications. Before scrutiny of individuals documents presented, an overall scrutiny of documents with reference to the general conditions of the credit and the basis necessities of documents should be verified. A person responsible should check whether: - All the documents are submitted in the requisite of copied or not. - Documents are issued by the persons specified or required to issue or not. - Documents, where necessary and stipulated, are dated or not. If they are dated, 55 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 the dates should be consistent with the terms of L.C or otherwise. - Documents, where necessary and stipulated, are manually signed. - Material alterations or additions on documents are properly authenticated. - The requisite and stipulated documents are originals or marked as originals and appear to be signed. - All documents, on the face appear to be in compliance with the terms and conditions of the credit. - Shipment is effected within the time stipulation or not. It is an installment credit whether the requisite quality is shipped within the stipulated schedule. - Any partial shipment is effected. If so whether it was permissible under L.C. - Documents are presented at the place of expiry stipulated - Documents are presented within the expiry date (validity) of the credit or not. If documents are presented to the nominated bank on an extended validity dare in terms of provisions of Art. 44 (a) of UCPDC, the nominated bank should confirm to that effect as per provision of Art. 44 (c). - Documents are presented within the time stipulations indicated in the L.C or the provisions of UCPDC Art. 42 and 43.
Apart from the general scrutiny of the documents, individual documents like Bills of Exchange, Invoice and Bill of Lading must also be checked carefully.
56 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 Bill of Exchange/ Draft - It should bear a date - It should be drawn by beneficiary or any other person authorized in this regard. - It should be signed by the drawer. - It should be drawn by the applicant or any other specified drawee. - It should be drawn for the specific amount and should be consistent with the terms of the drawing permitted in the credit. - It should be drawn payable to a specified payee and proper endorsed. - It should be payable at tenor specified in the credit. - Where stipulated, it must indicate that it is drawn under the credit of the bank concerned. - It should, unless otherwise specified, be drawn in the same currency as invoice or L.C. Invoice: - The beneficiary makes it out to other authorized person as stipulated in the L.C. - It should unless otherwise specified be made out in the name of the applicant. - It need not be signed. - Description of goods specified must correspond with the description in the L.C. - Quantity of goods, unit prices, delivery terms etc. must correspondent with the L.C terms and be consistent with other relative documents. - It should be drawn in the same currency as L.C unless otherwise specified. - It should not include any charges, which are not permitted by L.C as per stipulations of L.C; the gross value of invoice should not exceed the credit 57 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 amount. - It should show deduction towards advance payment made, agency commission payable etc. as applicable. - Arithmetic calculation should be accurate. - Final amount of invoice or the percentage of drawings should preferably correspond with the draft amount. - If partial shipments are effected, amount of drawings should preferably correspond to proportionate quantities shipped (where only quantity is mentioned without unit prices etc.) - Invoice being a document of contents, the details stated therein must correspond or be consistent with details appearing on all other documents. - It must certify to facts like origin of goods etc. as stipulated in the L.C - If invoice is issued for an amount in excess of the amount permitted by credit (where not specifically prohibited by terms of L.C (when not specifically prohibited by terms of L.C) as per Act. 37 (b) of UCPDC the drawings should not exceed amount of credit. Bill of Lading - Be issued by name carrier of his agent. - Bear a distinct number. - Indicate the place of issuance. - Indicate the date of issuance. - Be signed by named carrier or his agent. - Indicate the name of consignor. 58 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 - Indicate the name of consignee. - Indicate brief description of goods being carried. - Indicate port of Lading or taking in charge (in case of Marine Bill of Lading, it must show or indicate a definite port of loading and in other cases it can be shown as an intended port). - Be presented in full set of original (full set comprises two or more originals issued to consignor of goods, all of which are marked as ORIGINALS and signed. The number of copies of originals issued is indicated on the Bill of Lading itself) - Meet all other stipulations of the credit. - Must indicate whether Freight Prepaid or Freight Payable
Step 6: Payment of the goods The correspondent bank makes the payment as per terms and conditions of to the beneficiary. Since, Nepal is a landlocked country whose only access to the sea is via India, relations with India are critical to business prospects. Thus, goods in Nepal arrive through the Calcutta port. Then after the payment of the goods by the applicant to the issuing bank, the bank transfers the ownership of the goods to the applicant. Applicant, then, authorizes any clearing agents at Calcutta to clear goods and forward it to custom office. Then applicant releases goods from custom office through two copies of BBN No. 4 that is issued and duly signed and stamped by the bank. 59 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 In the case of trading firms at the retirement of documents from the Indian port, 10% security will be obtained which will be issued in the form of cheque to customs office at the time of issuing BBN Form No. 4 for the clearance of goods from the custom. In the case of industries, only 2% security will be obtained at the time of document retirement from the port. This 2% security can be issued in the form of cheque to custom office along with BBN Form No. 4 if cheque is not issued to customs and after the return of attached of one BBN Form No. 4 received along with Pragyapan Patra and the receipt of 2% security will be refunded to the party.
Issuing bank, on the other hand, makes the payment to the corresponding bank as per payment instruction provided immediately after the applicant releases goods by making payment to the issuing bank.
2.10. Letter of credit and incoterms: International chamber of commerce has developed trade terms in a set with responsibilities of buyer and seller. The official publication of those trade terms is known as INCOTERM. The purpose of incoterms has been clarified as a means of international rules for the interpretation of most commonly used trade terms in foreign trade thereby avoiding or at least reducing the uncertainties of different interpretation of such terms in different countries. The latest revision (incoterms 2000) groups the trade terms in four categories denoted by the first letter.
60 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 Table no. 2.1 Group Incoterms Interpretation C CFR Cost of Freight - Named port of destination - Seller delivers when the goods pass the ships rail the port of shipment Seller has to bear cost and risk up to the delivery but all the risk, loss or damages and any additional cost liable after the deliver are transferred to buyer
CIF Cost, Insurance and Freight - Named port of destination - Seller delivers when the goods pass the ships rail in the port of shipment - Seller has to bear cost and risk up to the delivery but all the risk, loss or damages and any additional cost liable after the deliver are transferred to buyer - Seller is required to procure insurance at his cost to cover buyers risk of loss or damages to the goods during the carriage - Seller is required to clear the goods for export
CPT Carriage Paid to
- Named place of destination - Seller delivers the goods t6o the carrier nominated by him and pays the cost of carriage necessary to bring the goods to the named destination - Buyer bears all risk and any other cost occurring after delivery of goods - Seller is required to clear the goods for export CIP Carriage and Insurance paid to
- Named place of destination - Seller delivers the goods to the carrier nominated by him and pays the cost of carriage necessary to bring the goods to the named destination - Buyer bears all risk and any other cost occurring after delivery of goods - Seller is required to procure insurance at his cost5 to cover buyers risk of loss or damages to the foods during the carriage - seller is required to clear the foods for export D DAF Delivered at Frontier
- named place - Seller delivers when the goods are placed t the disposal of the buyer on the arriving means o transport not unloaded, cleared for export, but not cleared for import at the named point or place at the frontier, but before the custom point of the adjoining country.
61 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 DES Delivered Ex- ship
- named port of destination - seller delivers when the goods are placed at the disposal of buyer on board the ship not cleared for import at the named port destination - seller has to bear all cost and risk involved to bring the goods to the named port of destination before discharging
DEQ Delivered Ex-quay
- named port of destination - seller delivers when the goods are placed at the disposal of buyer not cleared for import on the quay at the named place of destination - seller has to bear all cost and risk involved to bring the goods to the named port of destination and discharging the goods on the quay - buyer is required to clear all import formalities (a change from previous incoterms)
DDU Delivered Duty Unpaid
- named place of destination - seller delivers foods to the buyer, not cleared for import, and not unloaded from any arriving means of transport at the named place of destination - Seller has to bear all costs and risk involved to bring the goods thereto other than, where applicable, any duty for import in the country of destination. Such duty has to be bear by buyer
DDP delivered duty paid - named place of destination - seller delivers goods to the buyer, cleared for import, and not unloaded from any arriving means of transport at the named place of destination - seller has to bear all costs and risk involved to bring the goods thereto including, where applicable, any duty for import in the country of destination E
EXW Ex-works - named place - Seller delivers the goods, cleared for export to the carrier nominated by the buyer at the named place. If delivery occurs at the sellers premises, the seller is responsible for loading and if not, seller is not responsible for unloading. - Delivery can be to named person, where sellers obligation finishes 62 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 F
FCA Free Carrier - Named places - Seller delivers the foods, cleared for export, to the carrier nominated by the buyer at the named place. If delivery occurs at the sellers premises, the seller is not responsible for unloading. - Delivery can be to a named person, where sellers obligation finishes.
FAS Free Alongside Ship - Named port of shipment - Seller delivers when the goods are placed alongside the vessel at the named port of shipment - Buyer has to bear all r4isk and cost from that moment - Goods are to be cleared by seller for export ( a change from previous incoterms)
FOB Free on Board - Named port of shipment - Seller delivers when the goods pass the ships rail at the named port of shipment - Buyer has to bear all risk and cost from that point - Seller is required to clear the goods for export - Applicable for inland waterway and sea transport
2.11. Liability of the issuing bank Article 9 of UCP 500 clearly details the liability of issuing banks. It states that an irrevocable credit constitutes a definite undertaking of the issuing bank, provided that the stipulated documents are presented to the nominated bank or the issuing bank and that the terms and conditions of the credit are complied with: 1. If the credit provides for sight payment , to pay at sight. 2. If the credit provides for deferred payment, to pay on the maturity date(s) determinable in accordance with the stipulations of the credit. 3. If the credit provides for acceptance: a. By the issuing bank--- to accept draft(s) drawn by the beneficiary on the 63 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 issuing bank and pay them at maturity, or b. By another drawee bank to accept and pay to maturity draft(s) drawn by the beneficiary on the issuing bank in the event the drawee bank stipulated in the credit does not accept draft(s) drawn on it, or to pay such draft accepted but not paid by such drawee at maturity. 4. If the credit provides for negotiation to pay without recourse to drawers and/ or bonafide holders, draft(s) drawn by the beneficiary and/or documents presented under the credit. A credit should not be issued available by draft(s) on the applicant. If the credit nevertheless calls for draft(s) on the applicant, banks will considers such draft(s) as an additional documents.
2.12. L.C. Operating: Financing The buyer has to pay when the goods are delivered and many need financing to do so. Similarly, there are times when the sellers many need to be financed, too, in order to purchase the goods that are to be shipped.
Financing the buyer on a sight letter of credit A usance bill is an indication that the seller has agreed to give the buyer some credit. Documents are released and the buyer takes delivery of the goods upon accepting the draft. The buyer then sells the goods and repays the bank. It must be noted that the bank is obliged to make payment even though the buyer may default.
64 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 Financing the seller on a sight letter of credit In a sight letter of credit, the seller usually draws a sight either on the buyer or the issuing bank, or whoever is named in the credit. Along with the draft, he submits all the documents called for in the credit and request his bank to negotiate the document and pay him immediately. If the documents are in conformity with the credit, the bank may agree to make immediately payment to the seller. In due course it will obtain payment from the issuing bank after negotiating the document.
Financing the seller on a usance letter of credit In regard to usance letter of credit, the seller can either wait to be paid in maturity or request his bank to negotiate the draft and purchase it. In this case, the negotiating bank will be reimbursed upon the maturity of the draft. Lets us review the more common methods of financing:
1. Packing loans Packing loans are loans advanced to sellers to purchase goods and pay for services required in order to fulfill orders. In many countries packing loans are available to concessional rates in order to encourage exports.
2. Overdraft An overdraft is an account maintained by an account that fluctuates and is usually in credit with the bank being the lender. 65 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 Overdraft facilities are given to customers for working capital purposes; to purchase goods, to pay wages, etc, and the proceeds of sales are usually deposited in these accounts. Importers are not normally given overdrafts unless it is for a short period. Instead, credit is normally given to them by trust receipts and bankers acceptances. On the other hand, sellers are given overdraft to enable them to purchase raw materials and meet the cost of manufactures.
3. Term loan Term loan are normally given by the banks for financing large transactions, like the purchase of fixed assets by a company. These are repayable over a number of years. Term loan are not normally given for the purchase of items that are traded or bought for resale, i.e. for working capital requirements.
4. Trust receipt (TR) loan Trust receipts are normally used to finance imports. A trust receipt is a document executed by a customer to a bank when the bank releases the documents of the title to him. This enables his to sell the goods and repay the bank through the proceeds of the sale. A trust receipt thus: Acknowledges receipt of the documents. Holds the goods as trustees to the bank. Agrees to pay the proceeds of the sale. 66 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 Agrees to insure and warehouse the goods. Authorizes the bank to recover proceeds of sale from third parties. Undertakes to keep the transaction separate.
It must be noted that when a trust receipt is executed, the properly or title to the goods will rest with the bank. The bank permits the buyer to take delivery in order to sell the goods and repay the bank on receipt of dues. Buyers normally executes trust receipts on imports under sight credits. In the case of a sight credit payment has to be made on presentation or sighting of the documents. The client, not wishing to tie his own funds, the importer could execute a trust deed to have the goods released. Trust receipts are normally not executed for usance credits as in such cases the buyer is already given credit by the seller. There is, therefore, no need to execute a trust deed. On receiving the trust receipt properly executed, the bank releases the document of title to the buyer. The buyer then takes delivery of the goods from the shipping company by presenting the bill of lading. After selling the goods, the buyer uses the proceeds to settle the amount due to the bank. Generally, KBL provides 85% to 90% of the total value as trust receipt loan charging 9% to 11.5% for the industry, 9% to 11.75% for the trading firms and 8.50% to 9% for the corporate or multinationals. These rates are for the maximum of 120 days. Incase any TR loan is not adjusted within the stipulated time, 1% higher rate of interest will be charged from the period of delay.
67 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 2.13 Nepal Rastra Bank Reporting i) Upon issuance/ amendment of L.C, copy of each BBN Form No. 3 should be sent to NRB, Custom Office and bank should retain one copy for office record. ii) Report in corporating details of L.C issued should electronically be reported to NRB on daily basis. iii) At the time of retirement of documents BBN Form No. 4 should be prepared in quadruplicate for distribution as follows. First two copies to importer for submission to custom office for clearance of goods of which one copy will be returned to the bank by the custom duly certified, after clearance of the goods. The copy is to be sent to NRB. Fourth copy is to be retained by the bank.
iv) In case of non return of certified copies of BBN Form No. 4 within four months from the data of retirement of the documents and non payment of cheques within stipulated time period, should be intimidated to NRB within seven days after the expiry of such period. v) While filling the forms to NRB, the same should given serial number and separate dispatched number. vi) Details of L.C opened on 50% cash margin or above should be reported to NRB within seven days from the end of the month. vii) In terms of export credits if amount realized is less then document value by USD 500 or above then the details of export should be reported to NRB. 68 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064
2.14. Problems to be faced in Opening L/C Procedures of opening L/C is very complicated process. So to fulfill this process the involved parties have to face many problems. The problem that has to be faced by opening banks and customer are as follows: 1. NRBs some of the rules and regulations do not have authority to use even their own foreign currency as they wish. They have to follow the limits prescribed by NRB while opening L/C for any client. 2. Employees of commercial banks involved in L/C transaction have to be responsible if anything goes wrong in the transaction. But employees of commence department and taxation department from where people get import license and income tax clearance certificate respectively to open L/C , do not have to be responsible. 3. Sometimes the client of the bank may turn out to be fraud. In such cases bank has to face lots of problems. If all the documents arrive but the client do not come to take the documents, in that case, the bank has to pay money to the exporter although the foods will be under the bank control. If the goods which it has by any means. 4. If the client of the bank is found to be missing foreign currency then the reputation of the bank will go down and it has to be responsible for it.
69 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 2.15. General Remarks 1. L/C is a separate transaction from sale of goods. Compliance of letter of credit terms and condition is the basis for payment by the bank and not the compliance of terms of the sale of good contract. 2. L/C is only an offshoot of original contract for sale of goods. 3. The Issuing Bank has following options to secure its interest in letter of credit transactions: a. Asking the opener to provide 100% cash margin before the issue of letter of credit. b. Asking the opener to provide some percentage of cash as a margin and rest by collateral. c. Merchandise covered by bills of lading. d. Performance undertaking from a reliable party or bank on behalf of the opener. 4 Negotiating bank has following options to secure its interest against the payment in exchange of documents: a. Ask for collateral covering the amount paid for bills. b. Ask for a promissory note to be signed by the beneficiary and an undertaking to payback with interest in incase issuing bank or the party rejects the documents. c. Ask for a performance undertaking from a reliable party or bank on behalf of the beneficiary. 70 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 5. Payment under a Letter of credit is independent of performance of contract. Payment is due from the bank the moment the exporter complies with the terms of LC. Bank is not legally responsible for quality and quality and quantity of goods. LC is a contract for transaction of documents and not of goods. Any breach of contract between the parties must be taken up separately and bank must not be dragged in to the dispute. 6. Letter of Credit involves multi-layer contract. Contract at each layer is independent of contract at other layer. Seller cannot take advantage of contract between the buyer and the opening bank or of contract between opening bank and negotiating bank. Similarly buyer cannot take advantage of the contract between opening bank and the negotiating bank or of the contract between negotiating bank and the supplier. a. Contract between the opener and opening bank. b. Contract between the opening bank and advising/negotiating/confirming bank. c. . Contract between negotiating bank and beneficiary. 7. Letter of credit must be as precisely word as possible. It should avoid unnecessary details.
2.16. Objectives of the study The main objective of the study is to gain some knowledge regarding letter of credit. Thus, the specific objectives of the study are as follows: i) To learn the basic knowledge regarding the procedures, rules and regulations of L.C ii) To have the practical knowledge about the opening of the L.C and how the 71 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 dealings take place. iii) To analyze the effect of dealing with L.C on the banking system and the economy as a whole. iv) To know how much commission is earned by the bank. v) To analyze which type of L.C brings more profit to the respective bank on the basis of subjective judgment. vi) To know which type of L.C is issued more frequently in the bank. vii) To evaluate the trends in the number of L.C issued.
Apart from the specific objectives of the study, there are some general objectives of this study, which are as follows: i) To understand the actual working environment of an organization. ii) To gain the knowledge of the financial system of KBL, as it is the part of the specialization course of the internee. iii) To know the effectiveness of the customer services that are provided by the KBL. iv) To identify the market competition faced by the KBL from the other commercial banks in the same region. v) To develop the interpersonal communication skills while interacting with the people in an organization. vi) To gain the meaningful insight on how the banks plays an important role in the functioning of the economy.
72 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 2.17. Rationale of the study The study of Kumari Bank Limited is done as being part of BBA course. The study was helpful to have a practical knowledge on banking. The study was helpful in making addition to the existing knowledge in the field of business education. It will also be helpful in the future profession as knowledge on banking is gained from the internship programmed.
2.18. Limitations of the Study This study has been suffered from the following limitations. i) The sufficient information about the history of KBL is not available. ii) The findings in the study cannot be regarded as conclusive. The findings are based on the observation and some facts and figures. Other basis of the study are from the interaction with the banks staffs. iii) The scope of the proposed area of study is limited to KBL, Biratnagar. This study focuses on the process of opening and creating the letter of credit. iv) Due to the banks regulations, sufficient financial data was not available. The study is thus limited to whatever data were available to the internee.
2.19. Scheme of the study The present study is composed of four different chapters. The first chapter outlines the introduction of the organization, that is of KBL, its objectives, services provided to its customers. The second chapter focused on revive of subject matter,i.e., of Letter of Credit that introduces the rules, procedures of Letter of Credit and, parties involved in 73 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 Letter of Credit. In this chapter, objectives have been spell out, the need and methodology of the study had been highlighted. Data presentation and analysis are presented in third chapter. In this, data presented, analyzed and interpreted and major findings have been drawn. The last chapter of the study irradiates conclusion and recommendations.
2.20. Methodology The several methods of collecting the data are known as methodology. Most of the datas had been collected through informal questionnaires from the concerned bank officials, as their management committee did not allow some of the statements. This study is concerned with the liquidity analysis of NBL. Other sources of data had been publications of NBL and some publications of Nepal Rastra Bank. Basically, the methodology has been divided into 2 parties namely; they are primary data and secondary data. 2.20.1 Research This fieldwork is based on letter of credit of Nepal Bank Limited. This fieldwork wants to show only about transaction of letter of credit of NBL. So that, this fieldwork has not going to show any new research factor for this topic. This research only based on traditional way of L/C. 2.20.2 Sampling Developing of commercial bank Nepal has many commercial banks are activated their operation under this field. Till this year many commercial banks have been established, some names of commercial banks are as follows:- 74 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 1. Nepal Bank limited (1994 B.S.) 2. Rastriya Banijya Bank (2022B.S.) 3. Nabil Bank Limited (2041 B.S.) 4. Nepal Investment Bank (2042B.S) 5. Standard Chartered Bank (2043B.S) 6. Himalayan Bank Limited (2049B.S) 7. Nepal SBI Bank Limited (2050 B.S.) 8. Nepal Bangladesh Bank (2050B.S.) 9. Everest Bank Limited (2051 B.S.) 10. Bank of Katmandu (2051B.S.) 11. Nepal Credit And Commerce Bank (2053B.s) 12. Nepal Industrial And Commercial; Bank (2055B.S) 13. Lumbini Bank (2055B.S) 14. Machhapuchhre Bank (2057B.S) 15. Kumari Bank (2057B.S) 16. Laxmi Bank Limited etc 17. Siddhartha Bank (20549B.S)
2.20.3 Type and Source of Data 2.20.3.1 Primary Data Collection Method The data, which is generally collected by the investigator or researcher by himself/herself, is known as primary data. So observation, survey and questionnaires refer to primary data. Primary data take much time to collect and fit exactly as per 75 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 requirement for the research. The essential information for the study was collected through different method of primary source like: a. Through observation b. Through questionnaire c. Through direct interviews d. Through telephone 2.20.3.2 Secondary Data Collection Method The data, which is already collected and used by someone, is known as secondary data. Secondary data are the data that have been gathered not for the immediate study but for some other purpose. Secondary data can be obtained from either private or public sources. It is collected indirectly. The advantages of secondary data are that they are low in cost and do not require much time to collect. However, it has disadvantages such as the data may not fit exactly as per requirement for the research problem as defined in the study. The secondary data would be used to study in this field work are: a. Different publication of KBL. b. Different publication of NRB, Research and publication department, banking operation department. c. Different publication from Ministry of Finance. d. Other publication i.e. Newspaper and magazines.
76 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 2.20.4 Tools used in this Study For complete this fieldwork I have used many useful tools for this fieldwork. Some tools are used in this study are as follows: Table illustration Figure illustration Mathematical illustration Mean Standard Deviation Coefficient of Variance Straight line Method Trend line Method
2.20.5. Design of the study This study have been conducted with a view to understand the various terms and conditions of L.C and also to provide various information on L.C such as number of L.C issued, total imports done through L.C, total commission earned by the bank by providing the facilities of L.C. Hence, to collect the data and fulfill the proposed objectives and designs for the study have been designated and descriptive study.
2.20.6. Data processing procedure The collected data are presented and refined for the purpose of the study. The raw data are processed by construction of tables for proper analysis and interpretation of data.
77 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 2.20.7. Analysis method This study seeks to explore the letter of credit with particular reference to KBL. To fulfill the objectives, descriptive analysis techniques was followed.
78 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 Chapter Three Presentation and Analysis of Data 3.1 Collected Data from L/C Business The following data were collected from its L/C in business five years 2059/2060, 2060/61, 2061/62, 2062/63, 2063/64. . Table 3.1 No of L/C & total amount collected for the period 2059/60 to 2063/64 S.N Fiscal Year No of L/C open Amt of L/C % amt of L/C 1 2059/2060 100 350,075,000 7.1 2 2060/61 280 916,560,000 18.6 3 2061/62 310 992,940,000 20.1 4 2062/63 400 1,145,700,000 23.2 5 2063/64 510 1,527,600,000 31 Total 1600 4,932,875,000 100 NOTE: Fiscal year starts from Shrawan 1 st and end 31 st Ashad
In fiscal year 2059/2060, 2060/61, 2061/62, 2062/63, 2063/64 the total number of L/C open was 1600 and amount collected from L/C was Rs 4,932,875,000. The maximum number of L/C were open in fiscal year 2063/2064 i.e. 510 and minimum number of L/C were open in fiscal year 2059/60 i.e. 100. 79 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 The average number of L/C open in these days is Rs 320. Note: Total number of L/C opened in five years Average number of L/C opened = Total number of years
1600 = 5
= 320
Total amount of L/C collected in five fiscal year was 4,932,875,000 which are shown in Table no 2.1. The maximum amount is collected fiscal year 2063/64 which is Rs.1, 527,600,000 and minimum amount is collected in fiscal year 2059/60 which is Rs. 350,075,000. Note: average amount is collected in five year
Total amount collected in five years Average amount collected in five year = Total number of years
4,932,875,000 = 5
= 986,575,000
80 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 The average amount collected from L/C is Rs.986,575,000 per year during five year. The above table/table no. 2.1 can be representing and analyzed by the following diagram. No of L/C opened in last years 2059/2060 to 2063/2064 Kumari Bank Limited. Note:
Total amount collected in five years Average amount collected from per L/C = Total number of L/C opened in five years
4,932,875,000 = 1600
= 3,083,046.88
Similarly, Rs 986,575,000 is collected from per L/C during the last years. It is remarkable that Bank has given effective service in L/C transaction.
81 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 Figure 3.1.
Fiscal year
According to the diagram the simple bar diagram indicates the no. of L/C opened in different fiscal year 2059/2060 to 2063/2064. The diagram shows the maximum no of L/C opened in the year 2063/2064 i.e.510 and the minimum no. of L/C opened in the year 2059/2060 i.e. 100. It shows the L/C transaction of Kumari Bank Limited Office dawn last year and the favorable year is 2063/2064. Amount of L/C opened in the last year 2059/2060 to 2063/2064, KBL Office Present by this pie chart diagram in difference five years in percentage.
82 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064
Figure 3.2.
The diagram indicates that highest amount collected for the year 2063/2064 is Rs.1,527,600,000 and the lowest amount indicates for the 2059/2060 which in percentage is only 7% from the opening L/C. It is huge differences the highest and lowest amount collected. Thus, according to this diagram L/C business of KBL Office better year is 2063/2064 in which amount collected is Rs.1,527,600,000. But the year 2059/2060 is not good for L/C business of this Bank in which only Rs350,075,000 amount is collected. The data shows that it is not equal in every year for collecting amount. The data may fluctuate due to fluctuation of the economy and industrial sector is also affected. The changes in the foreign exchange rates and American dollar also affects the collection.
83 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 3.2. Mathematical Analysis The calculation of standard deviation of coefficient of variance of total L/C transaction of KBL can be done in this way: TABLE NO. 3.2. (In Millions) Year X(Amount of L/C) X - Mean (X-Mean) 2
Here, X = 4930 N = 5 Where, X = Amount of L/C N = no of years
Therefore, Mean = X N = 4930 5 84 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 = 1171.6
Solution: S.D = (X Mean) 2
N = 727394 5 = 145479 Therefore S.D = 381.42
Coefficient of Variance (C.V) = S.D X 100 Mean = 381.42 X 100 986 = 99.54
Using the straight line Method, As we know, Let the straight line trend be Y = a + bx.. (i)
85 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 Table no. 3.3.
3.3. Trends analysis by least square method (In Millions) S.N Y Total Y X X 2 XY Trend value 1 2059/2060 350 -2 4 -700 469.4 2 2060/2061 916 -1 1 -916 727.7 3 2061/2062 992 0 0 0 986 4 2062/2063 1145 1 1 1145 1244.3 5 2063/2064 1527 2 4 3054 1502.6 Y = 4930 X = 0 X 2 = 10 XY=2583 Solution: Since X = 0 So, a = Y N = 4930 5 = 986 Similarly, b = XY X 2
= 2583 10 = 258.3 Trend line, Since, X = -2, Y = a + bx = 986 + 258.3(-2) = 469.4 X = -1, Y = a + bx = 986 + 258.3(-1) 86 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 = 727.7 X = 0, Y = a + bx = 986 + 258.3(0) = 986 X = 1, Y = a + bx = 986 + 258.3 (1) = 1244.3 X = 2 Y = a + bx = 986 + 258.3(2) = 1502.6
Trend line Figure 3.3
87 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064
3.3. Commission earned from L/C
By providing the facility of L/C or acting as a guarantor, the bank charges commission. KBL has been earning commission by providing the facility of opening letter of credits to its customers. The total commission earned by KBL through opening letter of credit for the past five years are tabulated in the table no. 2.2. The table also shows the percentage changes in total commission during those five years.
Table No. 3.4. Percentage Change in Total Commission earned By opening L/C
Rs. In million Year Total Commission Percentage Change 2059/60 35 - 2060/61 91 160 2061/62 99 8.19 2062/63 114 15.15 2063/64 152 33.33
From the table no. 2.2, it can be observed that total commission from opening L/C is being increasing yearly. However, percentage-increasing rate of total commission is being increasing only after the fiscal year 2060/61. It is seen that the percentage change in the commission has change by a huge percent in the fiscal year 2059/60 i.e 160% , but there after the commission has been increasing in the increasing order.. In the fiscal year 2063/64 the percentage increase is 33.33%, which was 15.15% in the previous year. This increase in percentage may be due to the fact that in the fiscal year 2063/64, the overall economic scene of the country in the year remained encouraging.
88 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 The increasing and decreasing rate of the total commission from L/C may also be due to the intense competition during the year. Numbers of commercial banks are opened each year. Thus this creates competition among the commercial banks.
89 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 Chapter Four Summary, conclusion & Recommendation 4.1 Summary Banks are the most important institutions for accelerating economic growth in the country. It is quite true that a strong financial institution is quite need in the development like our country. Nepal because all the economic condition is based on the financial institution and the development of the country depends upon the activity participation of the bank in the different activity in the country. The KBL one of the commercial Bank in the country is providing the related function since in 2057 B.S. The bank has successfully collected a large amount of stardom saving through the next work of 8 branches in the country. In the beginning, KBL has an authorized capital of Rs. one thousand million and paid up capital Rs. Seven hundred fifty million. This study deals with the causes and effort of decrease and increase in the export of L/C. The average no. of L/C opened for last five years for 2059/060 to 2063/064 is around 320, which is no so satisfactory. The total amount of L/C collected in year 2063/2064 is 986,575,000 and L/C collected has been increase by 7.8% compare to previous year 2062/2063 collection of 23.2%. It can be observed that total commission from opening L/C is being increasing yearly. However, percentage-increasing rate of total commission is being increasing only after the fiscal year 2060/61. It is seen that the percentage change in the commission has change by a huge percent in the fiscal year 2059/60 i.e. 160%, but there after the 90 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 commission has been increasing in the increasing order. In the fiscal year 2063/64 the percentage increase is 33.33%, which was 15.15% in the previous year. This increase in percentage may be due to the fact that in the fiscal year 2063/64, the overall economic scene of the country in the year remained encouraging. This study limited only the L/Cs transaction of KBL, banking office. It doesnt deal with financial position and lending by other bank. It is design to show the L/C position of KBL. This study is concern of six economic years 2059, 2060, 2061, 2062, 2063, 2064. This data are collected from KBL. Thus it can be send that KBL has to play more active role to attract more customers to open L/C. So, it should improve and give more facilities, with any party one to open it.
4.2. Conclusion The economic history of many countries revels that growth of financial infrastructure is the prerequisite for the economic development of a country. Thus, it is important that there must be systematic and excellent banking procedures to direct the economy to move on a profitable direction. Due to this fact, Nepalese commercial banks have started to recognize the importance of sophisticated or high technology for improving the customer service, productivity, and operational efficiency of bank. KBL, which was established as a commercial bank in Nepal. Is well known of the importance of the systematic banking procedure. KBL believes that the high quality customer service is a perquisite for the progress of the bank on sustained basis. KBL for better customer service aims to identify customer oriented services through the adoption of the policy of healthy competition and proactive results and to fulfill the needs of its valued clients. 91 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 The bank is fully computerized which helps to provide speedy and quality services to its customers. The main theme or motto i.e., The Name You Can Bank Upon itself clears that the main objectives of KBL is providing an excellent services to the customers. KBL aims at providing banking services to the different sectors of industry, projects and services, thus, helping in the developing of the trade and commerce. It has been providing credit to agricultural sector, manufacture and construction sector, trading, services and other. It is also promoting the international trade by opening letter of credit, through foreign exchange facility and SWIFT facility. These functions of KBL surely help in the development of import and export business. KBL pools together the savings of the community and arrange for their productive use. It supplies the financial needs of modern business by various means. It accepts deposits from the public on the condition that they are repayable on demand or in short notice. It provides loans at minimum rates than any other banks do and also renders services like collection of bills and cheques, safe keeping of the valuables, financial advising, etc. to its customers. KBL branch office, Biratnagar has only limited number of employees, i.e. 11 employees. And this made the internee notice that the management seems to be operating systematically. Each department is headed by a department incharge , who keeps all the activities of the department under control. Thus, the branch manager is not headed with lots of problems and works. All the staffs of the bank are well qualified for their job. Furthermore, the bank has been providing training to its staffs to improve their skills and efficiency. The internee observed that all the staffs of the bank were very cooperative and friendly with its customers. The bank holds monthly staff 92 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 meeting that has helped in improving the customer services thereby increasing the efficiency of the staffs. I t was also observed that bank was at its best able to retain existing customers and attract the new ones. Although the bank has several plus sides, it is not free of the negative aspects, which are summed up in the following:
- There is no separate marketing department in the Biratnagar branch. - There is no credit card system. - No a facility of the ATM. - Staff welfare is not providing up to the satisfaction level of the staffs.
Apart from these limitations, KBL is regarded as the best among the banks, which can provide the most attractive facilities to its customers. Thus, we can conclude that KBL with its professional and excellent management an with its innovation and dynamic teams will contribute more in the development of banking industry as well as the development of the country in the near future, fulfilling its mission and objectives.
4.3. Recommendation The bank can be succeeding to earn more profit if it succeeds to issue more loan and advances. So bank should make attempt to utilize funds in different areas possible for investing funds. Bank should provide more attention to the priority and industrial scheme to contribute to the national economic development. 93 An internship report on Letter Of Credit Prepared by: Dhiraj Shrestha Batch 2060-2064 It should attract more customers by providing different service and facilities to collect more negotiation. There should be sound co-ordination between NRB and other commercial banks. So as to deliver credit and other supporting service smoothly. It is more necessary to supervise and control the banking transactions. Employees are not so trained. They do not have good attitude toward the costumers. Employee should be selected not by force. Staff should be selected according to their qualification and ability. And also training should be provided to them. Employees should be placed in right places according to their capacity and willing towards work. The bank should give more emphasize in computer system so that they can provide better service to the costumers in short period. Keeping in mind, the down falling economy, special emendations should be made in L/C policies & regulations helping industries and firms increase export.