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