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Bank guarantee (BG) is used to strengthen and/or secure an obligation under a commercial contract. Customers can apply to the Bank to issue BG in favour of a Beneficiary. After examining and approving the application, the bank executes an agreement with the customer with the required terms and conditions. The bank will then issue the guarantee.
Bank issues BG on behalf of the customers for various purposes. BG are of two types - (1) Financial guarantee and (2) Performance guarantee.
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Financial guarantee
Some examples of financial guarantees are:
- BG issued in lieu of earnest money/security deposit specified to be deposited while contractors bid for a tender in favour of Government Departments and others.
- BG issued in favour of Customs Department in respect of payment of customs duty by the customer.
- Guarantees for obtaining advance payment
- Guarantees issued in favour of IATA/Airlines for providing air tickets to travel agents.
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- Guarantees issued in favour of Electricity Boards and Power Utilities, Water Boards etc guaranteeing payment of electricity/water bills.
- Guarantees issued for releasing retention money.
- Guarantees issued in favour of nominated Banks for selling gold to Jewelers on credit.
- Guarantees issued in favour of Customs/Excise/Sales Tax for deferring payment of duties.
- Guarantees/ Comfort letters issued in favour of lenders of buyer’s credit/ suppliers credit.
- Guarantees issued in favour of Banks/ FIs guaranteeing repayment of loans.
- Guarantees issued to Stock Exchanges on behalf of stockbrokers for margin money.
- Guarantees issued under EPCG Scheme for customs duty exemptions.
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A performance guarantee
A performance guarantee is one by which the
- due performance of a contract undertaken by a customer in favour of Govt. bodies and others for supply of materials, construction of building etc.
- due performance of an equipment/project after completion for a specific period.
BGs normally do not have a maturity of more than 10 years.
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Rates & Charges
Please refer rates & charges page |