Trade Finance & Letter of Credit
TRADE FINANCE & LETTER OF CREDIT (LC) AUDIT CHECKLIST
Bank: {{client_name}} · Branch: {{branch_name}} (Urban) · Period: {{period_end}}
Purpose: to test the branch's documentary trade-finance operations — LC issuance, advising, negotiation and bank guarantee (BG) business — for compliance with UCPDC/UCP 600 conventions, FEMA/RBI trade regulations, and the bank's own sanction and exposure-tracking discipline. A letter of credit is the issuing bank's own payment undertaking against compliant documents; a bank guarantee is a contingent undertaking triggered only on the beneficiary's invocation and default by the principal — the two carry different risk-weight, margin and documentation requirements and should never be tested interchangeably.
A. LC Issuance & Sanction Controls
- LC issued only within a sanctioned non-fund-based limit, with margin collected per sanction terms and credit-committee approval on record for the tenor and value.
- Applicant's underlying trade transaction (purchase order / contract) verified before issuance — no LC issued as an accommodation facility without genuine trade backing.
- LC format and tenor consistent with UCP 600 (2007 revision) unless the LC expressly states otherwise; SWIFT MT700 field data agrees with the sanctioned terms.
- Import LC: end-use verification and Bill of Entry follow-up tracked to closure; overdue/unretired import bills escalated per RBI trade-credit norms.
B. Document Examination & Discrepancy Handling (UCP 600)
- Presented documents examined strictly on their face for compliance with LC terms within the UCP 600 five-banking-day examination period — no reliance on the underlying goods/contract.
- Discrepant documents: discrepancy notice issued to the presenting bank within the prescribed period, applicant's waiver obtained and documented before honouring a discrepant presentation.
- Refusal notice (where documents are rejected) states every discrepancy in one notice — no piecemeal or repeated discrepancy citation, consistent with UCP 600 Article 16.
C. Bank Guarantee (BG) Testing
- BG format (performance / financial / bid-bond, as applicable) matches the sanctioned facility; claim period and expiry date correctly diarised for follow-up and reversal.
- Invocation, where received, tested for compliance with the guarantee's own conditions (unconditional/on-demand vs. conditional) before honouring — no requirement to verify the underlying default where the BG is unconditional.
- Counter-guarantee / co-obligant arrangements (where the branch has issued on the strength of another bank's counter-guarantee) confirmed and confirmatory advice on file.
D. Exposure, Limit Utilisation & Test Sample
| LC/BG reference | Type (Import LC / Export LC / BG) | Sanctioned limit (₹) | Utilised / outstanding (₹) | Discrepancy / observation |
|---|
| {{tf_1_ref}} | {{tf_1_type}} | {{tf_1_limit}} | {{tf_1_outstanding}} | |
| {{tf_2_ref}} | {{tf_2_type}} | {{tf_2_limit}} | {{tf_2_outstanding}} | |
| {{tf_3_ref}} | {{tf_3_type}} | {{tf_3_limit}} | {{tf_3_outstanding}} | |
| {{tf_4_ref}} | {{tf_4_type}} | {{tf_4_limit}} | {{tf_4_outstanding}} | |
| {{tf_5_ref}} | {{tf_5_type}} | {{tf_5_limit}} | {{tf_5_outstanding}} | |
| {{tf_6_ref}} | {{tf_6_type}} | {{tf_6_limit}} | {{tf_6_outstanding}} | |
Overall conclusion on trade finance operations: ____________________________________________
Prepared by: ____________________ Reviewed by: ____________________
Date: 31 July 2026
