LC Charges & LC Discounting Rates in India: What You'll Actually Pay

There is no single “LC rate” in India. The cost of a letter of credit is a stack of separate charges — an opening/issuance commission billed per quarter on the LC value, plus usance/acceptance commission if it is a deferred-payment LC, plus negotiation, amendment, SWIFT and handling fees — and then, only if you discount a usance LC for early cash, a discounting rate that is set case-by-case on the strength of the accepting bank’s credit, not off a public tariff. Anyone quoting you “the LC charge is X%” is either simplifying or selling. What you actually pay depends on your credit profile, the instrument’s tenor, the bank issuing it, and — for discounting — whose acceptance is being financed.

This guide unpacks each layer of that cost stack, shows where the discounting rate comes from, and gives you a charge-component table so you can read your own LC quote line by line. For the mechanics of the instrument itself, see our letter of credit page; if you are buying goods on an import LC, our LC for importers page covers the trade-finance side, both under our corporate finance and debt syndication practice. Get the structure right and the cost stack shrinks; get it wrong and you pay commission on a limit you never needed.

The LC cost stack, layer by layer

An LC is a non-fund-based (NFB) facility, so it carries commission, not interest — until the moment you discount it, at which point a fund-based cost (the discounting rate) enters. Reading a quote means separating the recurring commission from the one-time transaction fees.

• Opening / issuance commission — the headline charge. The issuing bank bills a commission on the LC amount, conventionally per quarter (or part-quarter) for the validity of the credit. This is where most of your cost sits, and it is the most negotiable line, driven by your overall relationship and credit standing.
• Usance / acceptance commission — an additional commission where the LC is a usance (deferred-payment) credit rather than a sight LC, compensating the bank for carrying the deferred liability over the credit period.
• Negotiation commission — charged on the export/seller side when the negotiating bank examines and pays against documents.
• Amendment fees — every change to a live LC (value, validity, shipment date, terms) attracts a flat fee, and an enhancement of value re-triggers commission on the increased amount.
• SWIFT / transmission and handling charges — flat per-message costs for issuing and amending over the banking network, plus document-handling fees.
• Confirmation charges — where a second bank adds its confirmation (common in cross-border deals), that bank charges separately for taking on the issuing bank’s risk.

The discipline an ex-banker brings is sizing the LC limit to actual procurement need and choosing sight versus usance deliberately — because every avoidable quarter of validity and every unnecessary amendment is real commission leaving your account.

The discounting rate: why there is no fixed number

Here is the part that confuses borrowers. A usance LC says the buyer’s bank will pay the seller at a future date — say 90 days after acceptance. The seller often does not want to wait. LC discounting (also called bill discounting under LC, or bill negotiation) lets the seller present the accepted bill to a bank and receive the money now, less a discount.

The discounting rate is not a tariff — it is priced case by case on three things: the tenor of the usance bill, the credit standing of the bank that has accepted the bill (because the financing bank is taking that acceptor’s risk, not the seller’s), and prevailing money-market conditions. A bill accepted by a strong bank discounts finer; a weaker acceptor or a longer tenor widens the rate. Because corporate facilities in India are largely on MCLR-linked pricing (the externally benchmarked, repo-linked EBLR regime is mandatory only for retail and MSE/MSME floating loans since 1 October 2019, not for general corporate credit), discounting is typically benched off the bank’s MCLR plus a spread for the specific bill — auction-and-relationship driven, not posted.

One number to anchor on: SBI’s one-year MCLR sits around 7.9–8.85% (indicative, June 2026), against a repo rate of 5.25%. A discounting rate is built above the relevant MCLR tenor, with the spread set by the acceptor’s credit — so two LCs of identical value can discount at visibly different rates.

Charge components at a glance

Charge structure indicative and dated June 2026; exact tariffs vary by bank, instrument and borrower and are confirmed only in your sanction letter — never a promise.

The pattern to read off the table: the commission lines recur with the life of the LC, the transaction fees are one-time per event, and the discounting rate is a different animal entirely — a fund-based cost that only appears when you convert a future-dated acceptance into cash today.

Where the cost is actually won or lost

Three structuring decisions move your real LC cost far more than haggling over the headline commission rate:

• Sight vs usance. A usance LC adds acceptance commission and opens the door to discounting cost. If your working-capital cycle does not need the deferral, a sight LC is cleaner and cheaper.
• Limit sizing. Commission accrues on the sanctioned LC limit and its validity. An oversized NFB limit, or validity padded “to be safe,” is pure leakage. Size it to procurement reality.
• Whose acceptance gets discounted. Because the discounting rate prices the acceptor’s credit, routing a usance bill through a stronger accepting bank can shave the rate — a point most buyers never realise is negotiable.

These are exactly the trade-offs that decide whether an import or a domestic-trade LC is structured efficiently — and they sit alongside the rest of your fund-based and non-fund-based lines, which is why they should be negotiated as one arrangement, not bolted on instrument by instrument.

Why the right structure needs a banker who reads the whole file

Pricing an LC is not picking a number off a rate card. It is deciding sight versus usance, sizing the limit and validity, choosing the issuing and (if needed) confirming bank, and — where discounting is in play — routing the bill so the acceptor’s credit works in your favour. Each of those interacts with your working-capital limits and your overall banking relationship.

That is the work we do at Finnova Advisory — CA-led and lender-agnostic, with ₹4,250 Cr+ mobilised across 100+ corporate-finance mandates since 2011, active across PSU banks, private banks, NBFCs and SEBI-registered AIFs. We structure the non-fund-based file, negotiate the commission and discounting terms against the right-fit lender, and walk it through to issuance — the right instrument, on the right terms, walked through to the counter. If an import order or a domestic-trade LC is forcing the question, our corporate finance team sizes and prices it correctly the first time, and our LC for importers page covers the buyer-side mechanics. Note that an LC is a payment instrument — it pays on compliant documents — and is not interchangeable with a bank guarantee, which pays on default; getting that distinction right is the first step to pricing either correctly.

Key takeaways

• There is no single LC rate — the cost is a stack: issuance commission (per quarter on value), usance/acceptance, negotiation, amendment, SWIFT and confirmation charges.
• An LC is non-fund-based, so it carries commission, not interest — until you discount a usance LC, when a fund-based discounting rate enters.
• The discounting rate is case-driven: tenor + the accepting bank’s credit + market, benched off MCLR (indicative SBI 1-yr ~7.9–8.85%, June 2026), not a public tariff.
• Real cost is won on structure — sight vs usance, right-sized limit and validity, and whose acceptance gets discounted.
• Corporate credit in India is largely MCLR-linked; the repo-linked EBLR regime is mandatory only for retail and MSE/MSME floating loans, not general corporate LC pricing.

FAQ

What is the LC charge in India — is there a single rate? No. The cost of a letter of credit is a stack of separate charges: an opening/issuance commission billed per quarter on the LC value, plus usance/acceptance commission on a deferred-payment LC, plus one-time negotiation, amendment, SWIFT and (if applicable) confirmation fees. The headline commission is the largest and most negotiable line, driven by your credit profile and banking relationship — there is no fixed universal rate.

What is LC discounting and how is the discounting rate set? LC discounting lets the seller of a usance (deferred-payment) LC receive the money now instead of at the bill’s maturity, less a discount. The discounting rate is set case by case — on the bill’s tenor, the credit standing of the bank that accepted the bill, and money-market conditions — typically benched off the bank’s MCLR plus a spread. It is not published on a tariff sheet.

Why does the discounting rate depend on the accepting bank rather than the seller? Because when a bank discounts a bill drawn under a usance LC, it is taking on the risk of the bank that accepted the bill, which is obligated to pay at maturity — not the seller’s risk. A bill accepted by a strong bank therefore discounts at a finer rate than one accepted by a weaker institution, all else equal.

Is a sight LC cheaper than a usance LC? Generally yes, on total cost. A sight LC pays on presentation of compliant documents and avoids both the usance/acceptance commission and any subsequent discounting cost. A usance LC adds those layers in exchange for deferred payment. If your working-capital cycle does not need the deferral, a sight LC is usually the cleaner, cheaper structure.

Does an LC charge interest? No — an LC is a non-fund-based facility and carries commission, not interest, while it is live. Interest-style cost (the discounting rate) only enters when a usance LC is discounted to release cash before maturity. That is the moment a non-fund-based instrument crosses into fund-based cost.

How can I reduce my LC costs? Size the LC limit and validity to actual procurement need rather than padding “to be safe,” choose sight over usance where deferral isn’t needed, minimise amendments (each one is a fee, and a value increase re-triggers commission), and — where discounting applies — route the bill through a stronger accepting bank to tighten the rate. These structuring choices move cost far more than haggling over the headline commission.