ACCOUNTING SESSION - INLAND BILLS (SIGHT / USANCE) DISCOUNTED (1) Debit Inland Bills Discounted / Purchased account

Credit Interest (Inland Sight / Usance bills) account - NLC Credit Commission (Inland Sight / Usance Bills NLC) account Credit P&T Charges (Trade Finance) account Credit Client's current account OR Issue a DD 1 Bankers Cheque for non-customers (at the lime of discounting an inland bill sight / usance -NLC)

(2) Credit Inland Bills Discounted / purchased account

Debit Client's current account Credit Overdue Interest (Inland Sight / Usance Bills) account - NLC (at the time of dishonour of discounted inland sight / usance bill-NLC)

(3) Debit Client current account

Credit Interest (Inland Sight / Usance Bills) account - NLC (on account of recovery of 'additional interest for increase in tenor of the bill)

(4) Debit Interest (Inland Sight / Usance Bills) account - NLC Credit Client current account (on account of refund of interest for decrease in tenor of the bill) (5) Debit Inland Bills Discounted / purchased account (for the increased amount) Credit Interest (Inland sight / usance Bills) account - NLC Credit Commission (Inland Sight / Usance Bills NLC) account (for the new amount) Credit P&T charges (Trade Finance) account (if applicable) Credit Client's current account (with tile net amount) (on account of increase in the bill amount) (6) Debit Interest (Inland Sight / Usance Bills ) account - NLC Credit Inland Bills Discounted / Purchased account (for the decreased amount) Credit P&T charges (Trade Finance) account Debit Client's current account (7) Debit Interest (Inland Sight / Usance Bills) account - NLC Credit Client current account (8) Debit Client current account:Credit Overdue Interest (Inland Sight / Usance Bills) account NLC 1.EOD / MIS REPORTS - INLAND BILLS (SIGHT / USANCE) DISCOUNTED S. No. 1. Name of Report Purpose Periodicity Forward Copy of Report to the following officials Brn. Mgr & Mgr Ops

Inland Bills Discounted Summary

Summary of each bill discounted including drawer, drawee, amt.,intr. rate, intr. income and maturity

Daily

2.

Income from Inland Bills Discounted

Summery of revenue earned Monthly from the Product. Including interst income, overdue interst income, commission and P&T charges recovered Monitor maturity dates for both Daily (Using DP and DA bills falling due the Tickler within next 7 days Report)

Brn. Mgr & Mgr Ops

3.

Due date for Realisation of Discounted Bills

Mgr Ops & Asst.. Mgr (Trade Finance)

4.

Bills Past Maturity Date

Monitor discounted bills not relised by due date. Also review drawer-wise delay

Weekly

Brn. Mgr & Mgr Ops

5.

Inland Bills Discounted(Customerwise)

Review the outstanding liability Monthly position &and income earned per customer Daily

Brn. Mgr & Mgr Ops

6.

Limit Excess Approved - Monitor each transaction Inland Bills Discounted approves where the customer limit was exceeded

Brn. Mgr

7.

Limit Excess Approved - Track transactions per Monthly per Customer customer where credit limit was exceeded

Brn. Mgr & Mgr Ops

Checks for Bills Discounting Business 1. Documents to be Presented with Bill of Exchange:The following documents should be received
from the drawer along with a request letter for discounting a trade bill: Bill of exchange / demand draft - Lorry.receipt (LR) or Railway Receipt (RR) - Packinp- details - Copy of the invoice - Transit insurance policy, if instructed by the buyer

2. Scrutiny of Documents:The bills should be examined in order to see that they are prima facie in order
and are property.drawn and duly endorsed in favour of the bank - Date stamp should be impressed on the covering letter of the bills as well as on the transport documents - IBA has advised that the bank should affix the date stamp on the RR received for collection

3.Preparing and Serving Intimation to Drawee's Bank:A forwarding letter to realise outward bills
should be prepared for each bill lodged with all the required documents. If there are special instructions of the drawer, such as allowing rebates on the bill if paid within a specified period, such instructions of the drawer should be clearly indicated in the forwarding letter. In addition, the name of the collecting bank and the name & details of the drawee should be included in the letter. The mode of remittance should also be communicated. Appropriate endorsements in favour of the collecting bank should be made authorising them to receive the payment / deliver the documents as agents for collection. Where the bill is payable after a certain number of days from date of bill then the due date is computed at the time of lodging the bill. In case of D/A bills where the due date is linked to the date of acceptance, then date of acceptance is to be subsequently intimated by the collecting bank as well as the due date of the bill.

4. Drawer-s Instructions Received Subsequent to Sending the Bill for Collection:A letter should he sent to the collecting bank to inform about the revised / amended set of lnstructions.: 5.Non-Payment / Non - Acceptance of Bills:Where a non-payment / non-acceptance advice is
received from the collecting bank in respect of a bill sent for collection then the drawer should be informed of the dishonour and disposal instructions should be sought from him.On receipt of the disposal instructons. the same should be communicated to the collecting bank.In case of dishonour and return of the bill of exchange. the amount should be recovered from the drawer along with penal interest.

6.Drawee Not Available for Presentation of Bill:If an intimation is received from the collecting bank
informing the drawee is not available for presentation of the bill, this fact should be communicated to the drawer immediately. Drawer's instructions should be communicated to the collecting bank.

7. Realization of Proceeds:When the proceeds are received by means of a cheque / DD etc. tile
instrument should be scrutinized to ensure that it is in order and that all instructions communicated to the collecting bank have been complied with.In case of payment received by DD/ cheque the instruments should be sent for local clearing on the same day. The proceeds should be credited only when the instrument has

been realized through clearing. The liability entry should he reversed.If the correspondent bank had collected overdue interest on the bill or deducted their commission from the proceeds of the bill..

8. Return of documents:If the documents are returned unpaid our handling charges, postal / courier
registration charges and other out-of-pocket expenses should be recovered from the drawer. besides the bill amount and penal interest thereon. After recovering our charges only, the unpaid bill / draft should be returned to the drawer.Where the unpaid bills are accompanied by LR, apart from re-endorsing the LR in favour of drawer. 'Not honoured - hence returned' should be added to the LR copy and only then returned to the drawer.

9. Noting / Protest for Non-Acceptance or Non-Payment of Bills:When a promissory note or a bill

of exchange has been dishonored by non-acceptance or non-payment the dishonored bill will be handed over to the Notary Public, a government official, appointed for such purpose. The notary will represent the bill to the drawee for acceptance or payment, as the case may be. If the drawee of the bill still refuses to pay or accept the bill, the Notary will record the fact of dishonour. The dishonour will be noted by the notary public upon the instrument or upon a paper attached thereto, or partly upon each.

Discounting of Bills - Deriving of Discounted Value of Bills

The formula, as advised by RBI is reproduced below, for deriving the discounted value of the bill corresponding to an effective rate of interest. F D = -----------------------------------------IxN I + --------------------100 x 365 D- Discounted value of the bill (Rs.) F- Face value of the bill (Rs.) I - Effective interest rate percent per annum N- Usance period in number of days: including the standard transit period of 10 days. When discounting a bill. the amount of discount has to be deducted at the time the bill is discounted. Recover of interest by the Bank at the end of the usance period would not be in order.

2.INLAND BILLS SENT ON COLLECTION

An inland bill sent outward for collection is a bill of exchange / draft drawn payable on demand or a certain number of days after sight at an outstation place and lodged for collection with the bank. The proceeds of such instruments are credited / remitted to the drawer after realisation of the same.

Stages in the Outward Collection Process 1. Receipt of Documents:On receipt of documents from the drawer, it is the responsibility of the bank to carefully study the instructions of the drawer and strictly follow the same. The detail of the instructions from the drawer w.r.t. the drawee, maturity. amount. delivery of documents. collection charges and protest should be scrutinised as per the Uniform Rules for Collection. 2. Forwarding Documents to Collecting Bank 3. Receipt of Payment from Collecting Bank:Collections calling. for payment should be settled as soon as the payment is received from the collecting bank. 4. Return of Documents:The documents should be returned back to the drawer only after the commission etc. has been recovered S. No. Name of Report Purpopse Periodicity
Forward Copy of Report to the

following officials

1. 2.

Income from Inland Tabulate income flows inland bills sent on bills sent on collection collection and P&T charges recovered Outstanding Inland Monitor payments by Drawee's Bank, for bills sent on collection imland bills presented on collection, which are currently outstanding past due-date. Inland bills sent on collection due for payment

Monthly Weekly

Brn. Mgr & Mgr Ops Brn. Mgr & Mgr Ops

3.

Identify inland bills sent on collection falling Daily (Using Brn. Mgr & Mgr due for payment within the next 7days - to Tickler Register) Ops remind the Deawee's Bank Weekly Manager (Ops)

4.

DA Inland bills sent on Monitor DA inland bills sent on collection Collection - Due Date where due date has not been Register communicated by the Drawee's Bank - 1 weeks after dispatch of documents

5. 6

Bills sent on collection Moniror drawer-wise bills sent on collection Monthly and Dishonoured but dishonoured Inland bills on Collection Busness Customer-wise Monitor customer-wise export bills sent on collection and income earned Monthly

Mgr. Ops Ben. Mgr & Mgr. Ops

Inland Bills (Sight / Usance) Negotiated under Letter of Credit

Banks, representing the beneficiary, can associate with the letters of credit in various capacities such as Advising Bank, Confirming Bank, bank nominated for effecting settlement under LC, transferring bank or reimbursing bank.

Advising of Inland Letters of Credit:Bank receives letters of credit for advising from correspondents as
well as non-correspondent banks. All letters of credit are to be advised promptly to the beneficiaries after checking the apparent authenticity of the LC. As a further step. the bank must review the terms of the LC and advise the beneficiary in the matter.

Advising of Amendments to Letters of CreditBefore advising the amendment to the LC ensure that
the original LC has been advised by the bank also. The advising bank must review the provisions of the LC to ensure that no inconsistency arises in the LC on account of the amendment.

Adding Confirmation to Letters of Credit:In case of confirmation, the bank not only advises the credit
but adds its guarantee to the undertaking given by the Issuing Bank.

Transfer of LCs:Beneficiaries of LC may often approach the banks concerned for transfer of LC in favour
of one or more beneficiaries. Hence, banks effecting transfer must fully be aware of UCPDC provisions in this regard

Negotiation of Documents under Letter of Credit:Negotiation refers to giving value for documents
presented under LC.The negotiating bank. is required to pay the beneficiary on submission of the necessary documents, as detailed in the LC. Documents tendered under the LC must be in conformity with the terms and conditions contained in the LC.

S. Name of Report No.

1. 2. LC Advised & Confirmed

Purpose
Summarise the LC advised and confirmed transactions

Periodicity
Daily

Forward Copy of Report to the following officials

Brn. Mgr & Mgr Ops Brn. Mgr & Mgr Ops

Amendment Report Summarise the advised transactions where Daily either value of LC has increased or decreased

3.

Income from LC advisinpnegotiating

Tabulate revenue flows from various activities Monthly including, advising, amending and confirming commission, bill negotiating commission, interest & overdue interest income and P&T charges recovered Monthly

Brn. Mgr & Mgr Ops

4.

Bills submittedsubmitted - compare with total liability LC against advised & wise Review documents confirmed LCs Outstanding Monitor payments Issuin Bank, for bills Documents under presented under LC which are currently LC outstanding past due-date.

Brn. Mgr & Mgr Ops Brn. Mgr & Mgr Ops

5.

Monthly

6.

DP / DA negotiated Identify negotiated bills falling due for payment Daily(Using Brn. Mgr & Mgr bills due for within the next 3 days - to remind the Issuing Tickler Report) Ops payment Bank

FOREIGN CURRENCY BILLS (SIGHT / USANCE) NEGOTIATED UNDER LETTERS OF CREDIT

UCP defines a documentary letter of credit as any arrangement whereby a bank (Issuing Bank) acting at the request and in accordance with the instructions of a customer (applicant) is to make payment to or to the order of a third party (beneficiary) or is to pay, accept or negotiate bills of exchange drawn by the beneficiary or authorises such payments to be made or such drafts to be paid, accepted or negotiated by another bank against stipulated documents, provided that the terms and conditions of the LC are complied with.

Advising of Export Letters of Credit: The bank, must review the terms of the LC with respect to
prevailing regulations including UCPDC, Exchange Control and Trade Policy and advise the beneficiary regarding the fact whether the terms of the LC are workable or that they need to be amended.

Adding Confirmation to Letters of Credit:A confirmation of an irrevocable credit constitutes a definite

undertaking on part of the confirming bank, in addition to that of the Issuing Bank, provided the documents are .presented to the confirming bank and that the tenns and conditions of the credit are complied with: - if the credit provides for sight payment - to pay at sight - if the credit provides for deferred payment - to pay on maturity date(s) - if credit provides for negotiation - to negotiate without recourse to the drawer

Transfer of LCs: Beneficiaries of LC may often approach the banks concerned for transfer of LC in favour
of one or more beneficiaries. Hence. banks effecting transfer must fully be aware of UCPDC provisions in this regard and also the Exchange Control Regulations.

Crystallisation:In the event of non-realization of an export bill negotiated within 30 days from the expiry of
transit period (in case of sight bills) and 30 days after due date in case of usance period, the liability on the foreign currency bill is crystallized in to Indian Rupees. The foreign currency amount of the bill is converted at TT selling rate and debited to Overdue Export Bills account

S. No. 1. 2.

Name of Report LC Advised & Confirmed

Purpose Summarise the LC advised and confirmed transactions

Periodicity Daily Daily

Forward Copy of Report to the following officials

Brn. Mgr & Mgr Ops Brn. Mgr & Mgr Ops Brn. Mgr & Mgr Ops

Amendment Report Summarise the LC advised transactions where either value of LC has increased or decreased Income from LC advising & negotiating business Export Bills submitted against

3.

Tabulate revenue flows from various Monthly activities including, advising, amending and confirming commission, bill negotiating commission, interest & overdue interest income and P&T charges recovered submitted - compare with total liability LC - Monthly wise

4.

Brn. Mgr & Mgr Ops

advised & confirmed LCs 5. Outstanding Documents under LC Monitor payments Issuing Bank, for bills presented under LC which are currently outstanding past due-date. Monthly Brn. Mgr & Mgr Ops

6.

Export DP / DA Identify negotiated bills falling due for Daily(Using Brn. Mgr & Mgr negotiated bills due payment within the next 7 days - to remind Tickler Report) Ops for payment the Issuing Bank