However, in practice, Trust Receipt does not secure the position of the bank to a significant extent. The risks are that—
1. The importer may re-pledge the goods with another bank or person;
2. The importer may sell the goods without remitting the amount into
the
bank;
3. In case of insolvency of the importer, it would be difficult to trace the proceeds
of the goods.
4. Another hazard is if the LTR have made against the restriction items have
imported subject to obtaining special permission
from the concern Government
authorities like drugs, obscene and subversive literatures, firearms, ammunitions and
antiquated items.
Steps taken to mitigate the risks against LTR
1. The bank may not deals with unknown or unrenowned importers in case of large amount of transaction
2. The bank not to allow the finance in case of shortage of importer’s experience, reliability and
reputation
3. The bank may not grant a LTR in case insolvent parties
4. The bank may not allow a LTR in case restriction items by the Government