World Liquidity Crunch Affects Trade - Oct 31, 2008

Chennai: Edible oil importers are whipped for cash as overseas banks fall to accept usance letters of credit from Indian importers, which admits them to pay their suppliers over a 120-day period. According to trade sources, overseas banks, which are witnessing a liquidity crunch themselves, are falling to accept usance letters of credit as they are not willing to commit themselves to future payments. Importers normally choose for usance letters of credit, but with the value of the rupee falling sharply in recent weeks.

The overseas banks do not want to commit themselves to such long duration. This means that purchasers here will have to pay their suppliers immediately after shipment that is they will have to opt for a 'sight LC.