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Synthetic Letter Of Credit for India

Synthetic Letter Of Credit Template for India

A Synthetic Letter of Credit is a specialized financial instrument governed by Indian law that combines traditional letter of credit features with derivative elements. This document establishes the terms and conditions for a structured finance arrangement where the issuing bank provides a payment undertaking subject to specific conditions, while incorporating synthetic elements such as derivative components or alternative payment mechanisms. The document is structured in compliance with Indian banking regulations, particularly the Banking Regulation Act, 1949, FEMA guidelines, and relevant RBI circulars, while also considering international trade practices and UCP 600 principles where applicable.

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What is a Synthetic Letter Of Credit?

A Synthetic Letter of Credit is utilized in complex trade finance transactions where traditional letter of credit structures need to be enhanced with derivative elements or alternative payment mechanisms. This document type is particularly relevant in situations requiring structured finance solutions while maintaining the security of a bank-issued instrument. The document incorporates comprehensive terms covering the synthetic structure, drawing conditions, payment mechanics, and security arrangements, all while ensuring compliance with Indian banking and securities regulations. The synthetic aspect typically involves derivative components, making it subject to additional regulatory oversight under Indian securities laws. This document type is commonly used in large-scale trade transactions, project finance, and complex international trade arrangements where traditional LCs may not fully meet the parties' requirements. The document must comply with the Banking Regulation Act, 1949, FEMA regulations, and RBI guidelines while incorporating relevant international banking practices.

What sections should be included in a Synthetic Letter Of Credit?

1. Parties: Identification of the issuing bank, beneficiary, and applicant

2. Background: Context of the transaction and purpose of the synthetic LC

3. Definitions: Key terms including specific synthetic/derivative terminology

4. LC Amount and Currency: Specification of the credit amount, currency, and any applicable exchange rate mechanisms

5. Term and Validity: Duration of the LC, including issuance and expiry dates

6. Synthetic Structure: Details of the synthetic arrangement, including derivative components and payment mechanisms

7. Drawing Conditions: Specific conditions and documentation required for drawing under the LC

8. Payment Terms: Payment mechanics, including settlement process and timeline

9. Bank's Undertaking: Scope of bank's obligations and commitments

10. Fees and Charges: All applicable fees, charges, and commission structures

11. Events of Default: Circumstances constituting default and consequences

12. Representations and Warranties: Standard and transaction-specific representations by parties

13. Governing Law and Jurisdiction: Applicable law and dispute resolution mechanisms

What sections are optional to include in a Synthetic Letter Of Credit?

1. Additional Security Arrangements: Used when collateral or additional security is required

2. Cross-Border Provisions: Required for international transactions addressing currency conversion and foreign regulations

3. Tax Provisions: Detailed tax implications and responsibilities when significant tax considerations exist

4. Force Majeure: Specific provisions for unforeseen circumstances, particularly relevant in long-term LCs

5. Assignment and Transfer: Include when transferability of the LC is permitted

6. Electronic Documentation: Required when parties agree to use electronic presentation of documents

7. Anti-Money Laundering Compliance: Detailed AML provisions for high-risk transactions or jurisdictions

What schedules should be included in a Synthetic Letter Of Credit?

1. Schedule 1 - Drawing Schedule: Detailed timeline and process for drawings under the LC

2. Schedule 2 - Fee Structure: Detailed breakdown of all fees, charges, and commission calculations

3. Schedule 3 - Required Documents: List and format of all required documents for drawing

4. Schedule 4 - Synthetic Structure Details: Technical details of the synthetic/derivative arrangement

5. Schedule 5 - Payment Mechanics: Detailed payment flows and settlement procedures

6. Appendix A - Form of Drawing Request: Standard format for drawing requests

7. Appendix B - Form of Bank Notices: Standard formats for various notices under the LC

8. Appendix C - Compliance Certificates: Templates for required compliance certificates

Authors

Alex Denne

Head of Growth (Open Source Law) @ Ƶ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

India

Publisher

Ƶ

Document Type

Letter of Credit

Cost

Free to use
Relevant legal definitions












































Clauses




























Relevant Industries

Banking & Financial Services

International Trade

Manufacturing

Import/Export

Commodities Trading

Infrastructure

Energy

Shipping & Logistics

Construction

Wholesale Distribution

Relevant Teams

Legal

Finance

Treasury

Trade Finance

Risk Management

Compliance

Credit

Operations

Corporate Banking

Structured Finance

International Banking

Documentary Credits

Relevant Roles

Trade Finance Manager

Structured Finance Director

Treasury Manager

Chief Financial Officer

Finance Director

Trade Operations Manager

Legal Counsel

Compliance Officer

Credit Risk Manager

Documentary Credits Specialist

Banking Relationship Manager

Trade Finance Officer

Financial Controller

Corporate Finance Manager

International Trade Specialist

Industries








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