Issuing LCs which donot ask for insurance document?

[ajoy]

Dear All,

What precautions/ practices do you follow when you have to issue an LC which doesnot require submission of any insurance documents ?

Or how do you ensure that the goods are appropriately insured?

This would be typically where insurance is arrnaged by Buyer?

Cheers

Ajoy

[ldt5205]

Is it necessary for the issuing bank to satisfy itself that insurance has been arrnaged by Buyer when the incoterms is FOB?

[ajoy]

Hi

Let us say :

The goods are lost in transit and there is no Insurance or the insuarance policy does not provide adequate cover in amount or insurance policy is not available with bank or cannot be claimed against ie. is not assigned correctly.

In this situation if the if Applicant is unable to pay or refuses to pay and IB recieves credit compliant docs IB has to pay from its own pocket.

Trade finance is cheaper for banks than other kinds of finance (less provisioning required). As the goods can be siezed by bank and sold easily ( at least much more easier than financing against other security like say a house)... we only need a properly endorsed BL or properly consigned AWB.

But in the absence of proper insurance and loss in transit the above is redundant.

Hence my original question.

Please help throw some light on practice in the banking industry in light of above....

( Hope I am not sounding paranoid )

Cheers

Ajoy

[shahriar]

dear ajoy,

as per our banking practice, if the insurance in not on beneficiary's account, the applicant must submit a insurance policy or at least cover note issued in favor of the issuing bank at the time of issuing the LC. yes, i have faced situation where the goods were lost in transit. thank to Allah, we were properly insured!!

[ajoy]

Thanks Shahriyar,

In the banks I have worked some branches follow the same practice. But in other branches /countries of the same bank they didnot.

Personaly, I think we should follow the process you say. Of course we can make exceptions based on criterion like - risk associated with a particular client, country etc as long as their is a dcumented process for exceptions and an audit trail.

I know that banks in India , some banks in Singapore etc follow this. In fact one bank bank goes to the extent of asking for a 100 % cash margin for certain clients when Cover notes are not available. But then again my last bank didnot even insist on full set negotiable BL in the US and I know that one bank I worked with did not follow the practice regarding insurance in their Japan branch.

Hence looking for input on this practice from everyone on the forum.

Cheers