The Hindu Business Line : Some LCs not honoured

The Letter of Credit or LC, the document that for centuries has assured an exporter of payment once goods are loaded on a ship but yet to arrive with the buyer, has fallen victim to the credit crunch caused by the recent meltdown of the global economy. Reports have it that several Indian banks have started refusing to honour LCs, in the fear that the consignments are no longer worth enough to cover the sum guaranteed. In some cases, where the importers in foreign countries refused to take the delivery of the consignments, it is reported that the Indian exporters, particularly those exporting iron ore to China, have been asked to refund the money by the banks. Worst hit are those who sent iron ore in containers. Banks will argue in their defence that in the present situation they could not take risks for bad loans. In another incident, a major steel company that loaded consignments for exports in one Indian port had to unload the same in the next Indian port as the overseas buyer cancelled the order. There have been reports of stop shipments in mid-sea or of diversion of shipments from one port to another. Clearly, the crisis is serious and the impact truly global as the scale of the fallout on the shipping industry mirrors this fact.

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