Bank Guarantees
Bank Guarantees (BGs), are undertakings issued by banks on behalf of their customers to cover losses that may occur. BGs are increasingly used in contractual agreements for large projects / performance contracts with government / large companies. These include the following-:
Bid bond (tender) guarantee
Performance guarantee
Advance payment guarantee
Retention money / earnest money deposit guarantee
Financial guarantee
The Letter of Guarantee will be issued on behalf of a customer after the credit vetting and approval process as any other credit facility. The appraisal will be aimed at assessing the borrower's ability to complete the project / contract for which the BG is being issued.
All guarantees shall have a fixed expiry date and a limited amount
The bank shall charge a guarantee commission periodically (quarterly, semi-annually, and annually on renewal) as approved
The issuance or acceptance of any kind of guarantee for a customer in favor of a beneficiary located in another country should be made in accordance with the foreign exchange regulations of the country
The customer shall avail suitable counter guarantee / indemnity
Guarantee shall require the bank to pay on first demand
Credit appraisal criteria to be satisfied
Maximum term for a bank guarantee is one year and shall be renewable at the bank's discretion
Guarantees of perpetual nature (open-ended guarantees) shall be issued against 100% cash cover in the same currency, which shall be held by the bank till the beneficiary of the guarantee specifically releases the bank from its guarantee obligations
