Major Rules and Regulations Relating to Letter to Credit (L/C) in Nepal

Following arrangement have been effected to the existing L/C operation of commercial banks.

-Commercial banks are not allowed to make L/C payment and conduct any other L/C related activities on the basis of transport document issued to the importers by the transporters before the opening date of L/C or the date of revision made in the L/C amount.

-Commercial banks are required to send details of L/C documents separately to foreign exchange Dept. of NRB on a monthly basis for transport document received after 45 days of its issuance.

-In case of custom duty payable on imported goods is less then 10% deposits held at the NRB, commercial banks are required to pay necessary amount by cheque for the customs clearance and rest of the deposits be kept as margin. In case of L/C opened by the industries themselves government securities and NRB bonds are made eligible for their placing as deposits if acceptable to the commercial banks.

-While commercial banks return deposit amount to the importers after receiving the foreign exchange control (F.E.C) form no. 4 form the customs receipt after attesting it on the basis of the original copy.

-One copy of F.E.C. form no. 3 to be submitted to the NRB by the commercial bank are required to sent also to the particular customs point mentioned in the L/C.

-In order to bring uniformity in the F.E.C. form No. 4 issued by the commercial banks and need to be verified by the customs office, commercial banks are required to use such from prated in the security pager with in three months period of the issuance of the circular. Nepal Banker's association is to coordinate this task.

-Importers are required to deal through the bank account of the related firm or company held at commercial bank while operating L/C related transactions with those banks. Bank officials are required to verify and certify the signatures of the authorized person of the firm or company at his/her presence at the time of opening the account in the name of the firm or company.

-Copies of necessary document required for opening L/C should be verified in every fiscal year by the bank officials on the basis of their original copies.

-Copies of the following document required for opening L/C should be verified in very fiscal year by the bank officials on the basis of their original Copy;
a. Renewed firm registration or company registration certificate.
b. Renewed income tax registration certificate.
c. Citizenship of the authorized person.

-When the firm of company dealing with the L/C transaction in the bank ought to delegate authority to any body for such deals, the authorized proprietor, director or the executive director should personally attend and sign the agreement. Such attested copies of the actual identification or citizenship certificate should be provided to the bank. But in the case of government owned corporation or public ltd. company only the authority paper given by the authorized person would sufficient and might not attract above provision.

- While delegating the authority as per the rule of above clause, the letter of commitment for sharing the whole responsibility of the activities of the person receiving authority should be obtained from the person granting granting authority.

-Along with the L/C application, a written commitment should be obtained from the individual, firm or company giving guarantee and made responsible of misuse of foreign exchange and revenue leakage caused by not importing the particular goods maintained in the L/C opened on the basis of the guarantee.

-Commercial bank are required to submit all the detailed list of documents of L/C opened with cash margin of 50% or more to the NRB with 7 day after end of the month.

-Imports or payments for imports from India though for the third country is prohibited.

-To verify the validity of the F.E.C. form no. 4 issued by them; the bank must provide the sample of the latest signatures of banks officials to the custom office.

-While certifying the F.E.C. firm no. 4 and other documents, the bank officials should use the name and signatures as placed in the samples.

-While dispatching the F.E.C. from no. 4 to the concerned customs office commercial banks should also send to attested copies of the following documents:
a. Copy of the L/C (including the amendment )
b. Commercial invoice
c. Transport document
d. Certificate of origin
e. Packing list

-Similarly, attested copies of the related document for the imports from India, payable in convertible currencies should be sent to the customs office.

-Goods imported from India thought L/C payment in convertible currencies all allowed to be released from the customs office only when the F.E.C. form no.4 is submitted on the other hand, goods imported from India though L/C payable in Indian currency are allowed to be released only when the transport document endorsed by the concerned banks is submitted. But, in the case of imports under bonded warehouse, goods imported through the L/C payable in Indian currency are allowed to be relaxed even if transport documents endorsed by the concerned bank is not submitted.

-The procedures to be followed while issuing and returning the F.EC. form no.4
a. sealed mark is used in every transfer for the documents between the banks and custom office.
b. While banks issue the F.E.C. form no. 4 separate files for different customs points are maintained and the serial numbers be arranged from the series of these files.
c. For verifying and dispatching the F.E.C. form no. 4 every customs office should maintain the serial number accordingly.
d. Customs office are required to send a copy of the records thus maintained according to the provision of above clause 'c' to the concerned bank branched every fortnightly.
e. Bank should compare and verify the records (the serial no and account) maintained by itself, if these records are found not matching, the bank should inform the NRB promptly.

- Commercial banks should issue F.E.C. form no. 4 only whole amount equivalent to the price of the imported goods if they are to issue F.E.C. form no. 4 on the basis of the copy documents. Similarly banks are allowed to issue payment orders for the exports only on the basis of the authorized documents received from the bank of the exporters. In case of Sanest bills this restriction is not applicable.
-Opening L/C with red clause is prohibited.
-Certified of origin for the imported goods should be issued from the authorized offices such as chamber of commerce, Government office. In importer consent certificate of origin issued by exporter is also accepted.

-For other firm other then the companies, opening of L/C is prohibited when due obligation of the L/C payment exceeds the limit of 20 times the capital maintained in their registration certificates.

-The Performa invoice of sale contract should include;
a. Name of brand of goods and also the model number if it exists,
b. Name of producers country,
c. Harmonic code no. ,
d. Unit price,
e. Quantity,
f. total value,

-If banks are dealing L/C related transactions with firm for the first time, the banks are required to have extensive knowledge on the commercial status and experiences of the firm, its office location and credibility of its shareholders.

-Banks are required to conduct internal of their L/C transactions branches and send the audit repot to the NRB in every six months.

-Banks are required to deal only through the panel members agents constituted for releasing goods from the Indian port.

-NRB reserves the right to reserve the directive if they are obstructed.

-As the decision of NRB in 2056-57 NRB reconcile in the provision of non opening of import L/C with red clause as follows.
a. In the case of conduct internal of their L/C can be opened in the condition all expenses are paid by the balance of importers changeable foreign currency account, but whether the goods/service is imported as the payment should be compulsory monitored by the bank and if the goods/service is not imported the banks should compulsory inform to NRB.
b. In case of Indian currency's advance payment through import L/C can be opened under the current condition in rules.
Import L/C can't be opened in the poppy seed without agreement of commerce ministry;
Importers can make imports goods/services from third country without opening import L/C for maximum limit of USD50000 under Advance Payment or Draft.

For more update regarding rugulation of import facility pls visit http://fxm.nrb.org.np/fxmcirculars.php (NRB Forign Exchange Management official site).