What is a LIM?
LIM is the short term loan provided by the bank to the importer against the pledge of imported goods. It is used as security, if the importer fails to retire the bill within the stipulated time. Commonly, LIM is provided to that importer who has fund constraint to retire the bill as well as clear the goods from the port authority. The fund is provided to clear the imported merchandise from the port, i.e. The fund is provided to release the goods from the Customs Authority.
How does LIM work?
When the imported merchandise are released from the customs authority, the possession of the goods remains with the Bank i.e. Under bank’s lock & key.
Types of LIM
There are three types of LIM is used by the bank, such as:
- One off LIM
- Forced LIM
- Arranged LIM
One Off LIM:
This facility is extended to the customer when the bank authority finds the customer has adequate working capital to retire the LC documents. Normally this facility is extended for 120 days.
The customers may default on the eve of retirement of LC documents due to financial constraints, and may shows his inability of meeting his obligation. This situation may arise due to insolvency, legal wrangling and other unavoidable circumstances on the domestic or international level. It may also happen when the rate of merchandise falls to the level that may create further losses to the customer if he clear the goods.
However, in this situation, the Bank has to clear the imported goods from the Customs Authority by creating a LIM A/c in the name of an importer, which is known as Forced LIM. The Bank has to calculate the “Landed cost” and determine the value of the imported goods.
Precautionary steps are taken by bank to safeguard the exposure, i.e. Necessary collaterals are obtained so that provided funding could be realized. The tenure of the loan would be up to 120 days and the customer can adjust the amount either in installments or at a time at the expiry of the loan. The imported merchandise are kept under the custodianship of bank’s deputed guards. The customer deposits required amount at the bank’s counter and collect D.O. (Delivery Order). This D.O. Subsequently shown to the deputed officials of the bank and get the delivery of goods.