Pad

PAD, LIM & LTR Maintenance of PAD, LIM & LTR

What is PAD?

PAD is a kind of Post Shipment Import Trade Finance given by the Bank to the Importer. After receiving the concerned negotiated bill from the Negotiating Bank, the Issuing Bank has to check the documents very carefully within a stipulated time (within 3 days). If the bank founds those without any discrepant, the bill has to be lodged and debit PAD A/C, which is the direct liability of the Importer.

Accounting:

Dr. PAD A/C Cr. SBG A/C (HO, ID). And Dr. Acceptance of Constituents Liability A/C for L/C Cr. Constituents Liability for Acceptance A/C for L/C [i.e. Contingent Liability, at the time of issuing L/C, now being reversed]

After debiting the PAD A/C bank has to inform the Importer & also to advise him to ‘Retire the bill’ within a stipulated time (within 30 days or the date of arrival of the consignment whichever is earlier).

02. LIM (Loan against imported merchandise):

LIM is the short-term loan to the Importer, if he fails to retire the bill within the stipulated time. In LIM, after releasing the goods from the Customs authority, the possession of the goods remains with the Bank i.e. under bank’s lock & key. Purpose: To release the imported merchandise from the Customs authority.

at the time of opening L/C LIM

Types of LIM

(When the Importer requests the Bank ) Forced LIM (When the importer does not retire the bill)

Accounting: Dr. LIM A/C ( In the name of Importer) Cr. PAD A/C (Contd. at next page)

Page # 02

after lodgement

03. Forced Lim:

When the importer does not come to the Bank for retiring the Bill, Bank has to clear the imported goods from the Customs authority under bank’s authority by creating a Lim A/C in the name of the importer, which is known as Forced Lim. Before creating Forced Lim, bank has to calculate 1. 2.

The ‘Landed cost’ and determine Determine the value of the imported goods. 04. Procedure under LIM: Calculate landed cost,

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Obtain approval (GM & above) through ‘Office Note’. Besides other information the office note must contains the followings; A.

i. ii. iii. iv. v. vi. vii. viii. ix.

L/C no.---------------------Date----------Value of L/C--------Invoice Value ( Bill of Exchange value)-----------------Customs duty ___________________________________ Sales Tax ___________________________________ VAT ___________________________________ Development Surcharge____________________________ C&F Agent Bill ___________________________________ Interest ( From date of Negotiation)_________________ Others (app) _________________________________ B. x. Margin (at the time opening the L/C)_______________ xi. More Margin ( for landed cost, min.25%) ___________ C.

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xii. Banks Assets ( A-B)

After getting approval issue a sanctioning advise to the importer, which must contain the following terms [besides other terms (if any)];

a)

LIM Limit b) Purpose c) Rate of Int. d) Period

e) Mode of payment f) Security

g) Insurance

: : Clearance of Consignment from the port, imported under L/C No.___________Dt.____ : : Max. 30days from the date of approval for commercial goods Max. 60days from the date of approval for industrial raw materials. : : 1)Letter of undertaking & authority to clear & sell of goods 2) Other sufficient tangible securities : Comprehensive Insurance Policy to be obtained in joint name. :

h) Other conditions All the formalities regarding creation of Lim should be strictly followed

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Obtain ‘Letter of undertaking & authority to clear & sell of goods’ from the Importer Entry in LIM Register Obtain Insurance Policy Send the documents after proper endorsement, certification (where necessary) to our designated Branch (near the concerned customs office Branch) with forwarding. Survey the goods before taking delivery. Clear the goods through Banks approved C&F agent. Pledge the goods through Pledge letter.

05. Disposal under LIM:

1. 2.

By importers payment in lumsum in due time If fail, at his request, by part payment

3. 4.

Through Importers CC facility (if any) If Importer completely fails, by auction. The auction committee will be formed as per HO Circular NO.ID: FOB: CIRCULAR: 83:7 dated 06/10/1983. 06. Other precautionary Measures: If an importer becomes DEFAULTER, bank has to take undernoted precautionary measures;

No further limit will be sanctioned against the DEFAULTER Discourage for opening a new L/C

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07. What is LTR? Like Lim, LTR is ‘Post Shipment Import Trade finance’ given by the Bank to the Importer. Difference is, in Lim, the possession of the released goods remains under bank’s control but in LTR, the Goods remains with the Importer. But he is holding the goods not as their owner but as an agent for the Bank.

Securities: 1. ‘The Letter of Trust Receipt’. 2. Other sufficient Securities. In the Trust Letter the importer acknowledges that the goods are held by him in trust for the Bank and agrees to make over the sale proceeds to the Bank. However, in practice, Trust Receipt does not secure the position of the bank to a significant extent. So, bank does not allow LTR generally. Accounting: Dr. LTR A/C Cr. PAD A/C (Contd. at next page) Page # 04

Ref. 01. 02. 03. 04. 05. 06.

HO CIRCULAR NO. 2086 DATED 03/06/1997 HO CIRCULAR NO. 1842 DATED 12/10/1994 HO CIRCULAR NO. 1756 DATED 14/02/1994 HO ID CIRCULAR NO. 192 DATED 11/03/86 ID:FBO:CIRCULAR NO. 83:7 DATED 06/10/1983 A TEXT BOOK ON FOREIGN EXCHANGE BY L.R.CHOWDHURY