Letters of Credit

product term

Letters of Credit enable businesses to offer secure payment terms to suppliers while ensuring the prompt delivery of the goods and services.

Regular LC limits can be established by the bank after normal credit appraisal, risk assessment and security analysis. Due consideration has to be taken of the nature of the goods being imported, country risk and exporter’s credit report amongst others.

All goods under any LC must be consigned to the bank for the account of the customer (usual terminology bank / notify x, the customer).

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Bank Guarantees

product term

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
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