You open the LC
Against a sanctioned non-fund-based limit, your bank (the issuing bank) opens the import LC in the supplier’s favour, on terms you and the supplier have agreed in the purchase contract.
Import LCs done right — for the buyer, not the bank.
Letters of Credit & Import Finance — For Importers Buying Overseas
An import LC puts your bank’s credit behind your purchase so your overseas supplier ships against a promise, not your balance sheet. But the LC is only half the picture: the FEMA/RBI overlay, IDPMS reporting, and how you use usance and buyer’s/supplier’s credit decide what the import actually costs your cash. We structure the right LC across PSU and private banks, get the wording and documents clean, and walk you through to payment. Part of Finnova’s ₹4,250 Cr+ mobilised across 100+ corporate-finance mandates since 2011.
UCP 600 — RBI/FEMA overlay Lender-agnostic Walked through to payment
Finnova’s corporate-finance track record since 2011, in numbers
₹4,250 Cr+
Capital mobilised across sectorsUCP 600
The rulebook every import LC runs on5
Banking days to examine documentsPSU + Pvt
Multi-bank non-fund-based LC limitsSince 2011
CA / ex-banker, senior on every fileAn import letter of credit is a written undertaking by your bank to pay your overseas supplier a defined sum once the supplier presents documents that comply with the LC terms. It substitutes the bank’s credit for yours, so the supplier ships against the bank’s promise. Import LCs follow UCP 600 (ICC Publication 600, 39 articles, with a maximum of five banking days to examine documents) — but in India RBI and FEMA override UCP 600 on any conflict, and every import LC and remittance is reported in IDPMS. An LC is a non-fund-based limit: it doesn’t advance cash on day one, but it consumes your bank limit and ties up margin. See the full corporate finance & debt syndication practice or the core letter of credit guide.
Finnova Advisory is an advisory firm — we structure the file, the limit and the terms; the bank issues the LC and the lender funds the credit. Margin, charges and pricing are set by the issuing/funding bank, case by case. Rate and ceiling figures here are indicative and dated; we work to the current RBI directions on the day.
The mechanism
How an import LC actually moves — sight and usance
An LC is a documents-against-payment chain. Whether it’s sight or usance only changes when the money moves — not the document discipline.
Supplier ships & presents documents
The supplier ships the goods and presents the LC documents — invoice, bill of lading/airway bill, packing list, insurance, any certificates — to its (negotiating) bank.
Banks examine — 5 banking days
Under UCP 600, the issuing bank has a maximum of five banking days after presentation to examine the documents and decide to honour or refuse. Strict compliance — not “close enough” — is the test.
Sight — pay now
On a sight LC, the bank pays on compliant presentation. You fund the import (almost) immediately — the cleanest option when your cash can carry it.
Usance — pay later
On a usance LC, payment falls due a fixed number of days after sight or after the B/L date (e.g. 90/180 days). The accepted bill can be discounted so the supplier is paid now while you pay at maturity.
IDPMS & evidence of import
Your bank reports the LC and the remittance in IDPMS and follows up for evidence of import (Bill of Entry). FEMA compliance isn’t optional housekeeping — it’s the leg that keeps your import account clean.
The overlay no template tells you about
UCP 600 is the rulebook — FEMA/RBI is the law
UCP 600 is what banks contract to. But for an Indian importer, RBI’s import regulations and FEMA decide what is actually permitted, reported and remittable — and they override UCP 600 on any conflict.
What the overlay controls
Get the trade-finance structure right and the FEMA leg wrong, and the import unwinds at the worst time. We run both legs as one file.
The four things importers get wrong
- Treating UCP 600 as if it overrides FEMA — in India, FEMA/RBI override UCP 600 on conflict.
- Ignoring IDPMS — every import LC and remittance is reported, with evidence-of-import follow-up.
- Confusing an LC (pays on documents) with a bank guarantee (pays on default) — they are not the same instrument.
- Structuring trade-credit tenor against old caps instead of the current RBI directions.
For the instrument itself, see the core letter of credit guide; for the default-side cousin, the bank guarantee page.
The decision that drives your cash
Sight LC vs usance LC vs buyer’s credit — for importers
Same goods, same supplier — three very different effects on your working capital. Here is how they compare on cash, cost and the FEMA leg.
| Route | When it fits | Cash impact | Cost shape | FEMA / RBI leg |
|---|---|---|---|---|
| RouteSight LC | When it fitsYou can fund the import payment on presentation, or want the cleanest supplier relationship. | Cash impactPayment leaves on compliant documents — no credit period for you. | Cost shapeLC opening + negotiation charges; margin per bank policy; no interest tenor. | FEMA / RBI legReported in IDPMS; remittance against evidence of import. |
| RouteUsance LC (with discounting) | When it fitsYou want a credit period (e.g. 90/180 days) but the supplier wants paying now. | Cash impactSupplier discounts the accepted bill and is paid now; you pay at maturity. | Cost shapeLC charges + discounting interest (often foreign-currency, market-linked). | FEMA / RBI legFalls under trade-credit / supplier’s-credit rules; maturity capped to the import operating cycle. |
| RouteBuyer’s credit | When it fitsYou want foreign-currency funding of the import against your bank’s undertaking. | Cash impactOverseas lender pays the supplier; you repay the lender at maturity. | Cost shapeForeign-currency interest (market-linked post-2026) + your bank’s undertaking fee. | FEMA / RBI legUnder RBI’s ECB & Trade-Credit framework; tenor tied to the operating cycle. |
The 2026 change importers should note: the external-commercial-borrowing framework that sits alongside trade credit was liberalised under the FEMA (Borrowing & Lending) First Amendment Regulations 2026 — the automatic-route ceiling is now the higher of USD 1bn or 300% of net worth and the all-in-cost ceiling has been removed, so foreign-currency pricing is market-linked (minimum average maturity still three years). For trade credit specifically, we structure tenor and pricing case by case against the current RBI directions — never against the old USD 750mn / benchmark-plus-500bps caps. To smooth the cash gap on the sales side, pair this with supply chain finance.
Where import LCs actually fail
Document discrepancy risk — and the five-day clock
An LC pays against documents, not goods. A single discrepancy can hold up your shipment — and the bank only has five banking days to call it.
Strict compliance, not “close enough”
Under UCP 600 documents must comply on their face with the LC terms. A wrong goods description, a late shipment, a missing endorsement or an inconsistent figure is a discrepancy — enough for the bank to refuse honour.
The five-banking-day rule
The issuing bank has a maximum of five banking days following presentation to examine the documents and decide to honour or refuse. Miss the wording at LC-opening and you discover the problem here — with goods in transit.
How we de-risk it
We pre-vet the LC wording and the supplier’s document checklist before the LC is opened, so the goods description, Incoterms, shipment window and document list all line up — turning the five-day clock into a formality, not a fire-drill.
How we run an import LC mandate
From purchase order to a supplier paid — and your books clean
The LC mechanics are standardised; where we add value is the limit it draws on, the wording, the cash structure, and the FEMA leg most banks leave to you.
-
Map the import & the cash gap
day 1We read the purchase contract and your operating cycle to decide sight vs usance, and whether buyer’s or supplier’s credit should carry the foreign-currency tenor — sized to the import, not to a default.
-
Set up or use the NFB limit
case-dependentAn import LC draws on your non-fund-based limit. If there’s no headroom, we structure or enhance it across PSU and private banks — the right issuing bank for your supplier’s geography and your pricing.
-
Pre-vet wording & documents
before openingWe lock the goods description, Incoterms, shipment window and document list with the supplier so the presentation clears the five-banking-day examination without a discrepancy.
-
Open, pay, discount & report
to maturityThe bank opens the LC; on usance we arrange discounting so the supplier is paid now; and we keep the IDPMS reporting and evidence-of-import follow-up on track so the import closes clean.
Why Finnova for import finance
We don’t just “open an LC” — we run the whole import leg
A bank issues you an LC; we sit on your side of the table — choosing the route, fixing the wording, structuring the cash, and keeping the FEMA leg clean.
01
Right route, not just any LC
Sight, usance or buyer’s/supplier’s credit — chosen on your operating cycle, your cash and the foreign-currency cost, lender-agnostic.
02
Wording that clears the five-day clock
We pre-vet the LC terms and the document set so a presentation isn’t bounced on a discrepancy with goods in transit.
03
The FEMA leg, not left to you
IDPMS reporting, evidence of import and trade-credit ceilings — run as part of the same file, not as your problem after the fact.
04
Walked through to payment
From PO to supplier-paid — including usance discounting — with the limit and margin worked hard and the import closed out clean.
Consultation
Importing — and want the LC done right?
Tell us the supplier, the goods and your cash position, and we’ll tell you the right route (sight, usance, buyer’s or supplier’s credit), the likely cost, and how to keep the FEMA/IDPMS leg clean. No bank pitch — a straight read from people who run import LCs every week.
Thank you — your enquiry has been submitted
We’ve received your details. A senior member of our team will review them and get back to you within one business day. Everything you’ve shared stays strictly confidential.
FAQ
Import letters of credit, answered
An import LC is your bank’s written undertaking to pay your overseas supplier once the supplier presents documents that comply with the LC terms. It swaps your credit for the bank’s, so the supplier ships against the bank’s promise rather than your balance sheet. Import LCs are governed by UCP 600 (ICC Publication 600), but in India RBI and FEMA rules override UCP 600 wherever they conflict.
Under a sight LC the issuing bank pays your supplier as soon as compliant documents are presented — you fund it (almost) immediately. Under a usance (or deferred/acceptance) LC, payment falls due a fixed number of days after sight or after the bill-of-lading date (say 90 or 180 days), giving you a credit period. A usance LC can be discounted so the supplier is paid now while you pay at maturity.
UCP 600 is the contractual rulebook banks agree to, but it is not Indian law. For an Indian importer, RBI’s import-of-goods regulations and FEMA control what actually matters — permitted import purposes, the bank’s duty to report every import LC and remittance in IDPMS, evidence-of-import follow-up, and trade-credit ceilings. Where UCP 600 and FEMA/RBI conflict, FEMA/RBI prevail.
Both are short-term foreign-currency trade credit for imports. In supplier’s credit, the overseas supplier (or its bank) extends the credit period and is paid via a usance LC discounting; in buyer’s credit, an overseas lender funds your import payment against your bank’s undertaking (an LoU/LoC or guarantee). Both sit under RBI’s ECB & Trade-Credit framework, with a maturity limit tied to the operating cycle for the import.
Yes. Under the FEMA (Borrowing & Lending) First Amendment Regulations 2026, the external-commercial-borrowing framework that sits alongside trade credit was liberalised — the automatic-route ceiling rose to the higher of USD 1bn or 300% of net worth and the all-in-cost ceiling was removed, so pricing is now market-linked (minimum average maturity is still three years). For trade credit specifically, structure the tenor and pricing case by case against the current RBI directions — never against the old USD 750mn / benchmark-plus-500bps caps.
An LC pays only against documents that strictly comply with its terms. If the supplier’s documents have a discrepancy — a wrong description, a late shipment, a missing endorsement — the bank can refuse payment. Under UCP 600 the bank has a maximum of five banking days after presentation to examine documents and decide. We pre-vet the LC wording and the document set so a shipment isn’t held up by an avoidable discrepancy.
No — and confusing the two is costly. A letter of credit is a payment instrument: the bank pays your supplier on presentation of compliant documents in the ordinary course of trade. A bank guarantee pays only on your default. An import LC is how you transact; a BG is a fallback security. Many importers need both — an LC to buy and, separately, a performance or advance BG on the sales side.