SFMS Usage for LC/BG
The Dept. of Financial Services (DFS) has on 17-Jul-2012 mandated use of SFMS by all PSBs (Public Sector Banks) for tranmission of Letters of Credit (LCs) and Bank Guarantees (BGs) w.e.f. 01-Aug-2012. However, this seems to have caught many a PSB unprepared for the task. Everyday tens of thousands of LCs and BGs are issued by PSBs all over the country. The DFS directive seems to be in the right direction to cut the menace of fake LCs/BGs, but, since the directive has been given without redefining the existing processes, use of SMS may not take off in a big way.
The BGs are proposed to be transmitted to the Beneficiary’s Bank and they in turn to print, pay stamp duty and advise to Beneficiary and lateron, recover all these charges from the Issuing Bank. This is a departure from the existing practice, wherein, the BGs are sent directly to the Beneficiary and in case of BGs for competitive bids/auctions Etc., original BG is handed over to the Applicant or submission alongwith bid documents. When Issuing and Advising Banks are in different States, what is the Stamp Duty applicable?. Will such SFMS BGs required to be manually signed (as proof of execution as done in manual BGs) or to be only signed as a matter of authentication? If the SFMS BG is to be stamped at the advising Banks’ location, the State where the Issuing Bank is located is deprived of Revenue? Whether the stipulation of enclosing original BG alongwith bid documents in the competetive bidding process be done away with? whether government will concurrently direct all PSUs to change the bid documents?