What are the Duties and Responsibilities of Issuing Bank and Advising Bank in a Letter of Credit

Duties and Responsibilities of Issuing Bank in a Letter of Credit

(i) The issuing bank is primarily responsible for payment under the credit to the beneficiary. This is already dealt with in detail under ‘Revocable/Irrevocable Credits’.

(ii) Credits and any amendments thereto issued by the bank must be complete  and clear. In order to guard against confusion and misunderstanding, the issuing bank should discourage any attempt to include excessive details in the credit or in any amendment thereto.

(iii) The issuing bank should nominate the bank which is authorized to pay or to accept drafts or to negotiate, unless the credit allows negotiation by any bank.

By nominating a bank, or by allowing for negotiation by any bank, or by authorizing or requesting a bank to add its confirmation, the issuing bank authorizes such bank to pay, accept drafts or negotiate, as the case may be, against documents which appear on their face to be in accordance with the terms and conditions of the credit, and undertakes to reimburse such bank” [(Article 10 (d)].

iv) if a bank uses the services of an advising bank to have the credit advised  to the beneficiary, it must also use the services of the same bank for advising any amendments [Article] 11b.

(v) Upon receipt of the documents, the issuing bank must determine, on the basis of the documents alone, whether or not they appear on their face not to be in accordance with the terms and conditions of the credit. If the documents appear their face not to be in compliance with the terms and conditions of the credit, the issuing bank may refuse to take up the documents [Article 14 (b)].

The issuing shall have a reasonable time not exceeding seven banking days following the of receipt of the documents to examine the documents and to determine whether to take up or to refuse documents and inform the party from which it received the documents accordingly [Article 13 (b)].

(vi) If the issuing bank determines that the documents appear on their face to be in compliance with the terms and conditions of the credit, it may in its le judgement approach the applicant for a waiver of discrepancies. This does however, extend the period of seven days available for scrutiny and communicating the decision [Article 14 (c)].

vii) If the issuing bank decides to refuse the documents, it must give notice that effect without delay by telecommunication or, if that is not possible, by expeditious means, without delay but not later than the close of the seventh banking day following the day of receipt of documents. Such notice shall be given to the bank from which it received the documents, or to the beneficiary, if it received  the documents directly from him. Such notice must state the discrepancies in respect of which the issuing bank refuses the documents and must also state whether it is holding the documents at the disposal of, or is returning them to the presenter.

The issuing bank shall then be entitled to claim from the remitting bank refund of any reimbursement which may have been made to that bank [Article 14 d]

(viii) If the issuing bank fails to act in accordance with the above provisions and/or fails to hold the documents at the disposal of, or to return them to the presenter. the issuing bank shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the credit [Article 14 (e)].

(ix) If the remitting bank draws the attention of the issuing bank to any discrepancies in the documents or advises the issuing bank that it has paid, incurred a deferred payment undertaking, accepted or negotiated under reserve or against an indemnity in respect of such discrepancies, the issuing bank shall not be thereby relieved from any of its obligations. Such reserve or indemnity concerns only the relations between the remitting bank and the party towards whom the reserve was made, or from whom, or on whose behalf, the indemnity was obtained ( Article 14 f))

(B) Advising Bank:

(i) A credit may be advised to a beneficiary through another bank (the advising bank) without engagement on the part of the advising bank but the bank shall take reasonable care to check the apparent authenticity of the credit which it ad-vises. If the advising bank cannot establish such apparent authenticity it must in-form, without delay, the bank from which the instructions appear to have been received that it has been unable to establish the authenticity of the credit and if it elects nonetheless to advise the credit it must inform the beneficiary that it has not been able to establish the authenticity of the credit (Article 7).

(ii) If the bank elects not to advise the credit, it must inform the issuing bank without delay (Article 7).