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.
Terms and Conditions
- 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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