Estimate opening commission, margin collateral requirement, SWIFT transmission charges, and usance interest for Inland/Import LCs and Financial/Performance BGs.
Trade Finance Instruments Explained
Banks charge multiple fee components when providing financial guarantees and credit backing:
LC / BG Commission: Typically 0.25% to 0.75% per quarter (1.0% to 3.0% annualized) based on credit rating.
Cash Margin / 100% FD Collateral: Banks freeze 10% to 25% (or 100% for non-funded) as fixed deposit collateral.
Advising & SWIFT Charges: Fixed transmission and handling charges (₹1,500 to ₹5,000).
Formula
Commission = Instrument Value × (Annual Commission Rate / 365) × Tenure in Days Cash Margin FD = Instrument Value × Margin % Total Upfront Cost = Commission + SWIFT Charges + (GST @ 18% on fees)
Frequently Asked Questions
A Sight LC requires payment immediately upon presentation of compliant shipping documents. A Usance LC allows deferred credit payment terms (e.g. 60, 90, or 180 days) after document acceptance.
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Yes! The cash margin deposited with the bank is held as a Fixed Deposit (FD) and earns regular bank deposit interest (currently ~6.5% to 7.2% p.a.).
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