When you issue an import Islamic Letter of Credit (Islamic LC) or advise and confirm an export Islamic LC, you would track your liability against the party on behalf of whom you are undertaking a liability. For an import Islamic LC, you would track the exposure against the applicant while for an export Islamic LC that you confirm; you would do so for the issuing bank.
This chapter contains the following sections:
In Oracle FLEXCUBE, credit limit tracking is done using credit lines allotted to a customer. The credit line allotted to the party against whom you want to track your liability, should be indicated while you capture the details of an Islamic LC. In the case of an amendment, from advice of an export Islamic LC to advice and confirm, you can indicate the credit line during the amendment also.
You can specify Central Liability details for an Islamic LC, in the ‘Islamic LC Contract Party details’ screen. To invoke this screen, you have to click on the ‘Parties’ tab from the Contract screen.
The amount that is tracked will be the Islamic LC Liability Amount. It is arrived at as follows:
Liability Amount = Maximum Islamic LC Amount + Liability % of the Islamic LC amount
In the case of an Islamic LC revolving in time, the liability amount will be calculated taking into account all the scheduled reinstatements.
This section contains the following topics:
Every credit-seeking customer of your bank is assigned a credit limit under a Credit Line.
Check against the credit limit tracking option, to indicate that the Islamic LC liability amount should be tracked against the credit limit assigned to the customer. Leave it unchecked to indicate you do not wish to track the Islamic LC liability amount against the credit limit assigned to any of the parties involved in the Islamic LC.
Party Type
You would have already captured the details about the different parties involved in the Islamic LC. For each party type (APP, ABK, ISB, etc.), you would have specified the details of the party.
While specifying credit limit tracking details, you have to just indicate the party type against whom you want to track the credit limit. The party details are picked up by default.
The CIF ID of the Party
When you specify a party type against whose credit limits you wish to track the Islamic LC amount the CIF ID assigned to the party is automatically picked up and displayed.
While maintaining the preferences for the contract, you can specify whether you want to track the limits based on Islamic LC tenor or the Max Draft tenor (Usance period). For this you need to indicate your preference by selecting the appropriate checkbox.
Note
The credit lines are displayed depending upon the preferences specified at the time of creating the line. E.g. Products allowed, branch allowed etc.
For all the contracts, you can change your preference for limits tracking before or after authorization. However every time you change the tenor type you need to select a credit line again. Subsequently, tracking will be done for the new tenor and credit line.
You have to specify the credit line of the party against which the Islamic LC liability amount has to be tracked.
If more than one credit line has been defined for the party, only those credit lines whose restrictions are in line with that of the Islamic LC will be displayed. The restrictions could be one of the following:
In addition, the expiry date of the line should be before the Issue Date of the Islamic LC.
Note
When you enter an Islamic LC for a customer, and choose a line, the cash collateral percentage defined for the customer and line will default. If you have not defined the cash collateral percentage for a customer and a line, the cash collateral percent defined for the product will default to the Islamic LC Contract. You can change this default value to suit the Islamic LC you are processing.