A Fronting Fee Letter of Credit is utilized in trade finance scenarios where a bank acts as a fronting institution for issuing a Letter of Credit, typically when the applicant's primary bank lacks direct presence or capabilities in certain markets. This document, governed by Indian banking laws and regulations, outlines the compensation structure for the fronting bank's services. It becomes necessary when companies engage in international trade requiring Letters of Credit but need to work through a fronting bank arrangement. The document specifies fee calculations, payment schedules, and terms of the fronting service, ensuring compliance with RBI guidelines, FEMA regulations, and international banking practices under UCP 600. It serves as a critical component in international trade documentation, particularly in cases involving Indian entities engaged in cross-border transactions.
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1. Letter Header: Bank's letterhead, date, reference number, and addressee details
2. Subject Line: Clear identification of the document as a Fronting Fee Letter related to specific LC
3. Reference to Main LC: Details of the primary Letter of Credit including LC number, date, amount, and beneficiary
4. Fee Structure: Detailed breakdown of the fronting fee calculation, rate, and payment terms
5. Payment Instructions: Specific instructions for payment of the fronting fee including account details
6. Duration and Validity: Period for which the fee arrangement is valid and any renewal terms
7. Authorizations: Required approvals and acknowledgments from relevant parties
8. Signature Block: Authorized signatory details and space for signatures
1. Additional Services: Details of any additional banking services being provided beyond standard LC fronting
2. Currency Conversion: Include when the LC and fronting fee are in different currencies
3. Regulatory Compliance: Specific section on compliance requirements when dealing with high-risk jurisdictions or special regulatory requirements
4. Amendment Procedures: Include when there's likelihood of future amendments to the LC affecting the fee structure
5. Force Majeure: Include when dealing with cross-border transactions with higher risk jurisdictions
1. Fee Calculation Schedule: Detailed breakdown of how the fronting fee is calculated including any variables or tiers
2. Original LC Terms: Copy or summary of the main LC terms relevant to the fronting arrangement
3. Bank Authorization Documents: Copies of relevant banking authorizations and compliance documents
4. Payment Schedule: If fee payment is structured in installments or multiple phases
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Treasury
International Trade Operations
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Finance Director
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Trade Operations Manager
Credit Manager
Compliance Officer
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Financial Controller
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