Letter of Credit - Most Important Question

LC - Letter of Credit

(Most important question for Expenditure and Stores optional)

·         New initiative in Indian Railways

·         With effect from - 01.04.2018

·          Applicable for supplies/ works, including all service and maintenance contracts

·         letter of credit (LC)  - mode of payment as an option in supply/works contracts to improve transparency and the ease of doing business.

·         Apply for tenders having an estimated value of or above Rs. 10 Lakhs

·         Shall include in tender conditions an option for the contractors to take payment from railways through LC arrangements

·         The incidental costs towards issue and operation of LC shall be borne by the supplier /contractor.

·         SBI - State Bank of India - to assess the value of LC and terms and conditions of LC.

·         The DA - Document of Authorisation will be issued against each bill submitted for payment by supplier/ contractor after exercising laid down checks as per Railway codes and manuals in executive and accounts offices .

·          Accounts Officer responsible for passing claim will issue the DA. issue of they will be captured in IPAS and IREPS to ensure that there is no duplicate payment against the said bill.

·         The introduction of the Letter of Credit (LC) payment method for supply/work contracts will significantly increase transparency and improve the ease of doing business.

·         The Sellers should bear a cost of 0.15 %

oo   How it works:  Flow of Letter of Credit transactions:

1.      SBI issues LC to a Seller

2.      Railways will issue DA - Document of Authorisation to the supplier/contractor for completed work

3.      The supplier /contractor will present the DA to his banker for necessary payment

4.      After release of payment to the supplier/contractor, the banker will send this DA to the Railways' banker (SBI) for release of payment to them

5.      The Railways banker (SBI) will reimburse the supplier/contractor bank, against the original DA issued by railway and the bill of exchange issued by the supplier/ contractor, after verifying the signatures.

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