Letter of Credit confirmation Cover

Transfer Cover

When a bank in India adds its confirmation to a foreign Letter of Credit, it binds itself to honor the drafts drawn by the beneficiary of the Letter of Credit without any recourse to him provided such drafts are drawn strictly in accordance with the terms of the Letter of Credit. The confirming bank will suffer a loss if the foreign bank fails to reimburse it with the amount paid to the exporter.

This may happen due to the insolvency or default of the opening bank or due to certain political risks such as war, transfer delays or moratorium, which may delay or prevent the transfer of funds to the bank in India. The Transfer Cover seeks to safeguard banks in India against losses arising out of such risks.

Transfer Cover is issued, at the option of the bank to cover either political risks alone, or both political and commercial risks. Loss due to political risks is covered up to 90% and loss due to commercial risks up to 75%.

What are the applicable premium rates?

The premium rates depend on the country of export and the tenor of L/C.