12.1.11 LC Auto Closure Batch
- If the entire LC amount is utilized, the system triggers PCLS event on the expiry of the partial closure days specified. The LC will be closed on the LC closure date.
- If the LC is partially utilized, then the system will fire an event PCLS’ (Partial Closure of LC) and the Limits, Outstanding Liability and the Cash Collateral for the unutilized amount will be released.
For example, an LC of USD 1000 is created.
A Bill of USD 700 is created in Initial stage by linking the above LC.
The system initiates the automatic partial closure process after the expiry of the number of partial closure days specified in ‘Letters of Credit Branch Parameters Maintenance’ screen. As a part of the closure batch (if the new branch level flag is checked), the system releases the limits, OS liability and cash collateral for USD 300 by retaining USD 700 assuming that the Bill to which the LC is linked will be availed at the later stage.
Once PCLS event is fired for an LC contract, system does not allow any operation on the LC other than LC Closure (CLOS). You can reopen the closed LC as existing. While reopening the LCs for which PCLS has fired earlier, the Limits will be tracked, OS Liability and Cash collateral will be increased to the extent of the amount released as part of PCLS. In the above example, Limits will be tracked for USD 300 and the OS Liability and Cash collateral will be increased for USD 300.
After PCLS is fired on the LC contract, if the Bill contract to which the LC is linked is reversed, the Limits, OS Liability and the Cash Collateral will not be released automatically. You have to manually close the LC.
System does not release the linkages to the LC automatically, as part of PCLS firing during batch. This has released manually as part of manual partial closure. The above processes are skipped for the LC contracts under the product for which the ‘Revolving’ is ‘Yes’. System manually handles the generation of MT799.
In case of a partially confirmed export LC contract, the system excludes the bill amount in the initial stage from the confirmed and unconfirmed portions.
For example consider an export LC with the following details:
LC Amount: GBP 10000
Confirmed Amount: GBP 7000
Unconfirmed Amount: GBP 3000
By linking this LC, a bill of GBP 2000 has been created at Initial stage.
During partial closure, the system releases the liability, limits and cash collateral for GBP 8000. The amount of GBP 2000 is retained as the bill to which the LC is linked may be availed at a later stage.
The system passes the following entries on PCLS:
Table 12-5 PCLS
| Dr/ Cr | Account Role Code | Amount Tag | LCY Amount | LCY Amount Description |
|---|---|---|---|---|
| Dr | LC_OCU_OFFSET (Unutilized Credit Offset) | UCNF_LIAB_OS_AMT | 3000 | Unconfirmed LC Amount |
| Cr | LC_OCU (Outstanding Credit Unutilized) | UCNF_LIAB_OS_AMT | 3000 | Unconfirmed LC Amount |
| Dr | LC_CNF_OFF (Confirmation of LC Offset) | CNF_LIAB_OS_AMT | 5000 | Confirmed LC Amount |
| Cr | LC_CNF (Confirmation of LC) | CNF_LIAB_OS_AMT | 5000 | Confirmed LC Amount |
When the bill is booked in the final stage, AVAL event is triggered. The system initially considers the confirmed portion on AVAL event.
The bill amount in initial stage, GBP 2000, will be excluded from the confirmed portion. The remaining GBP 5000 will released. On the unconfirmed portion, the entire amount of GBP 3000 will be released.
Parent topic: Branch Parameters Details