Irrevocable Reimbursement Undertaking

[Gokul10583]

Dear Friends,

I have a query on IRU provided by the Reimbursing bank to the claiming bank. My understanding is that the Reimbursing bank will provide IRU only on the request of the Issuing bank. The issuing bank will communicate the details of the claiming bank to whom the IRU is to be provided.

My query is - Are there any scenarios where Reimbursing bank provides an IRU without the explicit request of the Issuing bank. if so, how it happen in realtime scenarios and to whom the IRU will be provided

Thanks in advance

Regards
Gokul M

[picant]

Hi Pal,

IRU is normally required as the l/c is not confirmed, so it is the issuing bank that requires its correspondent bank
to issue this undertaking, in the way, that the advisng bank could also confirm the l/c or in any case have a creditworth bank's engagement-probably where it has an account.
As you know, an advising bank, may inform beneficiary for additional services, so all it is possible...
Other comments appreciated
Ciao

[kishorp]

Dear experts plz What is the benefit of undertaking of reimbusing bank to beneficairy

[Navi]

Hi,

Irrecovocable reimbursement undertaking concerns nominated/confirming bank.

When reimbursement authorisation subject to URR, sent to reimbursing bank, that bank is not obliged to honour a reimbursement claim received from claiming bank.

However, if the reimbursing bank issues a reimbursement undertaking, it is irrevocably bound to honour a reimbursement claim as of the time it issues.

[kishorp]

Dear navi thanks for ur comments
Further i want to know if reimbursing bank issue its undertaking and bound to honor then what is the use to get confirm from another bank in the point of beneficiary.
Can u plz give ur comments.

[Navi]

Hi Kishorp,

Reimbursement undertaking is issued by reimbursing bank upon request of issuing bank, in favour of claiming bank (usually confirming bank) to honour that bank's reimbursement claim. So the undertaking is not against beneficiary. From benefciary's side, in my opinion, it is not essential to have such undertaking for his bankers.
However, in practise, banks who are reluctant to confirm an L/C due to country or issuing bank risk, may request such undertaking to eliminate such risks and secure reimbursement.

[kishorp]

Than you so much navi for ur good explanation

[cristiand969]

Banks are generally required by beneficiary to add confirmation to the credit (if the same permits so) especially when the issuing bank is located in a country with a higher risk or the issuing bank has a poor rating .... But in this case it happens that the nominating bank not to have credit limit for taking risk on such issuing bank/country for confirming L/C.
Therefore the nominating bank would like to have the risk moved on another country (generally the country of reimbursing bank) to which it can take such limit. Not to mention that the reimbuseing bank when issuing such IRU is not concerned ultimately about the docs compliance, but only the compliance of the nominating bank claim.
.
As per article 1 of URR 725: In a bank-to-bank reimbursement subject to these rules, the reimbursing bank
acts on the instructions and under the authority of the issuing bank
Furthermore, art 2 states that:
Reimbursement undertaking” means a separate irrevocable undertaking of the reimbursing bank, issued upon the authorization or request of the issuing bank, to the claiming bank named in the reimbursement authorization, to honour that bank’s reimbursement claim, provided the terms and conditions of the reimbursement undertaking have been
complied with.
Therefore it goes that reimbursing bank cannot issue an IRU without the express instruction of the issuing bank.