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PAD, LIM & LTR

Maintenance of PAD, LIM & LTR

What is PAD?

PAD is a kind of Post Shipment Import Trade Finance given by the Bank to the
Importer. After receiving the concerned negotiated bill from the Negotiating
Bank, the Issuing Bank has to check the documents very carefully within a
stipulated time (within 3 days). If the bank founds those without any
discrepant, the bill has to be lodged and debit PAD A/C, which is the direct
liability of the Importer.

Accounting:

Dr. PAD A/C


Cr. SBG A/C (HO, ID).
And
Dr. Acceptance of Constituents Liability A/C for L/C
Cr. Constituents Liability for Acceptance A/C for L/C [i.e. Contingent
Liability, at the time of issuing L/C, now being reversed]

After debiting the PAD A/C bank has to inform the Importer & also to advise
him to Retire the bill within a stipulated time (within 30 days or the date
of arrival of the consignment whichever is earlier).

02. LIM (Loan against imported merchandise):

LIM is the short-term loan to the Importer, if he fails to retire the bill
within the stipulated time. In LIM, after releasing the goods from the Customs
authority, the possession of the goods remains with the Bank i.e. under
banks lock & key.
Purpose: To release the imported merchandise from the Customs authority.

at the time of opening L/C


LIM

Types of LIM

(When the Importer requests the Bank )


Forced LIM
(When the importer does not retire the bill)

Accounting:
Dr. LIM A/C ( In the name of Importer)
Cr. PAD A/C
(Contd. at next page)

Page # 02

after lodgement

03. Forced Lim:

When the importer does not come to the Bank for retiring the Bill, Bank
has to clear the imported goods from the Customs authority under banks
authority by creating a Lim A/C in the name of the importer, which is known
as Forced Lim. Before creating Forced Lim, bank has to calculate
1.
2.

The Landed cost and determine


Determine the value of the imported goods.
04. Procedure under LIM:
Calculate landed cost,

Obtain approval (GM & above) through Office Note. Besides other
information the office note must contains the followings;
A.

i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.

L/C no.---------------------Date----------Value of L/C--------Invoice Value ( Bill of Exchange value)-----------------Customs duty


___________________________________
Sales Tax
___________________________________
VAT
___________________________________
Development Surcharge____________________________
C&F Agent Bill
___________________________________
Interest ( From date of Negotiation)_________________
Others (app) _________________________________
B.
x. Margin (at the time opening the L/C)_______________
xi. More Margin ( for landed cost, min.25%) ___________
C.

xii. Banks Assets ( A-B)

After getting approval issue a sanctioning advise to the importer, which


must contain the following terms [besides other terms (if any)];

a)

LIM Limit
b) Purpose
c) Rate of Int.
d) Period

e) Mode of
payment
f) Security

g) Insurance

:
: Clearance of Consignment from the port,
imported under L/C No.___________Dt.____
:
: Max. 30days from the date of approval for
commercial goods
Max. 60days from the date of approval for
industrial raw materials.
:
: 1)Letter of undertaking & authority to clear &
sell of goods
2) Other sufficient tangible securities
: Comprehensive Insurance Policy to be
obtained in joint name.
:

h) Other
conditions
All the formalities regarding creation of Lim should be strictly
followed

Page # 03

Obtain Letter of undertaking & authority to clear & sell of goods from the Importer
Entry in LIM Register
Obtain Insurance Policy
Send the documents after proper endorsement, certification (where necessary) to our
designated Branch (near the concerned customs office Branch) with forwarding.
Survey the goods before taking delivery.
Clear the goods through Banks approved C&F agent.
Pledge the goods through Pledge letter.

05. Disposal under LIM:

1.
2.

By importers payment in lumsum in due time


If fail, at his request, by part payment

3.
4.

Through Importers CC facility (if any)


If Importer completely fails, by auction. The auction committee will be formed as per HO
Circular NO.ID: FOB: CIRCULAR: 83:7 dated 06/10/1983.
06. Other precautionary Measures:
If an importer becomes DEFAULTER, bank has to take undernoted precautionary measures;

No further limit will be sanctioned against the DEFAULTER


Discourage for opening a new L/C

07. What is LTR?


Like Lim, LTR is Post Shipment Import Trade finance given by the Bank to the Importer.
Difference is, in Lim, the possession of the released goods remains under banks control but in
LTR, the Goods remains with the Importer. But he is holding the goods not as their owner but as
an agent for the Bank.

Securities: 1. The Letter of Trust Receipt.


2. Other sufficient Securities.
In the Trust Letter the importer acknowledges that the goods are held by him in trust for
the Bank and agrees to make over the sale proceeds to the Bank. However, in practice, Trust
Receipt does not secure the position of the bank to a significant extent. So, bank does not allow
LTR generally.
Accounting:
Dr. LTR A/C
Cr. PAD A/C
(Contd. at next page)
Page # 04

Ref.
01.
02.
03.
04.
05.
06.

HO CIRCULAR NO. 2086 DATED 03/06/1997


HO CIRCULAR NO. 1842 DATED 12/10/1994
HO CIRCULAR NO. 1756 DATED 14/02/1994
HO ID CIRCULAR NO. 192 DATED 11/03/86
ID:FBO:CIRCULAR NO. 83:7 DATED 06/10/1983
A TEXT BOOK ON FOREIGN EXCHANGE BY L.R.CHOWDHURY