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Debt Funding Primer Vipul Thaker Oct 2010 - copy

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This primer was shared by Vipul Thaker (CEO, Haribhakti) as a part of the TiE Investor Forum series on raising Debt Capital for Growth.

This primer was shared by Vipul Thaker (CEO, Haribhakti) as a part of the TiE Investor Forum series on raising Debt Capital for Growth.

Published in Business , Economy & Finance
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  • 1. Prime on Debt Fun er D nding Vario Debt Fundi Opt ous ing tions Pr rovided By Ban d nks rivatisation of Nation After Pr n nalised Ban nks, emerg gence of p private sec ctor in Ban nking Industry and prese y ence of For reign Banks in India, has increa s ased the ar reas of Fun nding for bank and for consumer it has given a competit ks c t tive options to choose a right ba e anker for fulfilling fundin requirem ng ments. Today there are different ty d ypes of ban such as Nationalis nks s sed Banks, Private Ba anks, Foreign Banks, Co-operative Banks, Sch hedule Ban nks, Nonban nking finan Companies, nce who are funding to different categories and secto such as Corporate Micro, S e o t s ors s es, Small and Med dium Enterp prise, Cotta Industr Agricultural sector Individuals. age ry, r, Funding options offered by di ifferent typ of Bank to differe categor pes ks ent ries and sec ctors are liste below. ed Fund Base F 1. Working Capital & Overdra aft. 2. Term Loan 3. Facto oring 4. Special Funding Options for Smal Medium Enterprise (With s g ll some selected Banks) 5. Expor rters Loan.                            
  • 2. 6. Agriculture loan n. 7. Proje Finances ect 8. Business Loans. Non N Fund Base B 1. Bank Guarantee es. 2. Lette of Credits ers 3. Collection of Bil on behal of Custom lls lf mers. Brief d descript tion of F Fund Bas Optio se ons: 1. Wo orking Ca apital & O Overdraft: :- These are the mos popular financing o st option. It is meant to meet the working needs s o like the purchase of raw m e e material, p payment o wages a of and other administra ative expense financin invento es, ng ories, mana aging internal cash-flows, sup pporting su upply chains, funding production and mark p keting oper rations. Mo banks provide t ost these against collaterals. Companie who borr es row from b banks are subjected to the discip o pline ntenance of proper accounts and regula repayme of main o ar ents of lo oans. They are subjecte to perio ed odical mon nitoring through a re eporting st tructure of financial and f other statements and also thr a rough analy of cash flows rout through the banks ysis h ted h s.                            
  • 3. 2. Te erm Loan: :- Term loa are ma ans ainly funded for Capex (Procure a d x assets). These loans a term ba are ased, which m vary fr may rom three t ten year The am to rs. mount, the tenure and interest r d rates may var dependi ry ing upon the risk pro ofile of th company Term lo he y. oans are ei ither asset-ba acked or cash-flow b backed. In the case o asset-ba of acked term loans, le m ender institutions seek assets of the company as collate y erals while issuing loa ans. In the case of cash-flow backe loans, ba ed anks carefu scrutini the balance sheet of a company ully ize ts to study its cash-flow capabil y lity. 3. Factoring A financ cing method in which a business owner sel accounts receivable at a disc s lls s count to a third-party fu One of the oldest for unding sour to raise capital O rce rms of busi iness financin factorin is the c ng, ng cash-manag gement to of choi ool ice for ma any companies. Factorin is very common in certain ind ng dustries, wh here long re eceivables are part of the f business cycle. s In facto oring, the client (you) makes a sale, de elivers the product or service and e generate an invoice. The fac es ctor (the fu unding sour rce) buys th right to collect on that he invoice by agreeing to pay yo the invoi g ou ice's face v value less a discount-- -typically 2 to 6 percent. The facto pays 75 p or percent to 80 percent of the fac value im ce mmediately and y forwards the remainder (less the discount) when y your custom pays mer In India some sele ected banks or their N s NBFCs offe these pro er oducts the days. ese                            
  • 4. 4. Special Fun nding Opt tions for S Small Med dium Ente erprise (S SME) After in ncorporatio of MSM on MED Act 2006 whic is mon ch nitored by Developm y ment Commiss sioner of Micro, Smal & Medium Enterpris some selected ba M ll m se anks have c come up with some spec cial funding options w which suits for the p s purpose of Micro, Sma & all Medium Enterprise .The brief descriptio of the pr e f on roducts are as below. e 1) A Arogyadham Loan :- To mee the financial requi et irements f setting up of new Nursing Home/Hos for w spital including Patholog gical Labor ratory, Exp pansion/renovation/m ion of existing modernizati Nursing Home/ Hospital inc H cluding Pa athological Laborator ry, Purcha ase of med dical diagnost equipments as also office e tic equipments viz. com s, mputers, ai condition ir ners, office furniture, Purchase of ambu ulance etc and to meet w c working ca apital requirem ments. All enti ities, i.e. MSMEs, E Enterprises other tha individuals like Proprietors an ship, Partners ship firms, Private Limited C , Companies and Trust engaged in provi ts d iding medical/pathologic diagnos cal stic service to the S es Society and with tur d rnover upto Rs. o 150/- cr rores. Note:-T The Promot ters should have req d quisite qualification i any bran of med in nch dical science from a re ecognized University and should have m y minimum 2 years of w work experie ence 2) V Vidyastali Loan:- To mee the financial requi et irements f setting up the institutions which incl for ludes construc ction of bu uilding, pu urchase of equipment etc. for the new set up as also t                            
  • 5. renovati of the existing facilities, pu ion urchase of i instrument for imparting educa ts ation training to the stud dents. Educatio onal instit tutions, Sc chools, Colleges and other ed d ducation b bodies run nning educatio activitie on es 3) T Technology Upgrada y ation Fun Scheme (TUFS) For Text nd e tile And J Jute In ndustries:- nder Techn Loans un nology Up-g gradation F Fund Schem launched by Gover me rnment of India as per g guidelines received f from time to time fr rom Ministr of Texti ry iles. Banks are s nodal ag gency for determining eligibility and releas g sing of subs sidy for the cases financed by the b bank under the scheme. To prov vide encour ragement t textile industrial units for t to taking up technology up- y gradatio and to modernize their production facilities. on e The scheme envisage 5% T e es interest reimburse ement (4 p percentage for spinning industry of the n y) normal inte erest charged by the bank on the loans availed by the units from the bank f underta for aking technolo ogy up-gra adation/modernization New un n. nits set up with tech p hnology as per s guidelines of the scheme would also be eligible fo the abov benefit, or, 15% Credit s e or ve Linked C Capital Sub bsidy for Sm mall Scale Sector and 20% for P d Power-loom Sector, or 5% m r, interest reimburse ement plus 10% capita subsidy for specified process al sing machin nery, technica textiles machinery, garmentin machine and for CAD, CAM, Design Stu al m , ng ery , udio, etc. The scheme also provide 25% capi e a es ital subsidy on purcha of new machinery and y ase y equipme ents for the pre-loom and post- m -loom oper rations, handlooms/up-gradation of ns handlooms and tes sting and qu uality contr equipme rol ents for handloom pro oduction un nits                            
  • 6. 4) C Credit Link Capita Subsidy Scheme ( ked al y (CLCSS) Fo SSI Unit or ts Credit L Linked Capi ital Subsidy Scheme l y launched b Governm by ment of Ind to facili dia itate Technology Upgrad Tiny and SS units in t specifie product sub-sectors. dation of T SI the ed ts/ Banks ar the Noda Agencies appointed by Govern re al s d nment of In ndia. To faci ilitate Tec Upgradation of Tiny and SSI units in the spec chnology U n y cified products s/sub-secto as notif ors fied by Gov of India by providing 15% cap vt. pital subsidy for y inductio of proven technolog on gies approv under t scheme viz. leath and lea ved the e, her ather products including footwear and garm s g r ments; foo process od sing (includ ding ice-cr ream manufac cturing); In nformation and Techn nology (Har rdware); dr rugs and ph harmaceuticals; auto pa arts and co omponents; electronic industry particularly relating to design and ; c measuring; glass and ceramic items in a ncluding tiles, dyes a and interm mediaries, t toys; tyres; hand tools; bicycle pa arts; foundries ferrou and cast iron; and stone indu us t ustry (includin Marble Mining Indu ng M ustry). 5) C Composite Loans Granted for Fixed capital in d nvestment and / or w working ca apital requirement. S Small Enterpri ises (Manuf facturing S Sector) including artisans, villag and cot ge ttage indus strial units an Micro Enterprises in Small Enterprises Sector, a nd E s and micro/small (ser rvice sector) E Enterprise engaged in industrial activity n 6) C Collateral Free Loans Under Guarante Scheme Of Cred Guaran ee e dit ntee Fund Trust For Micro And Sma Enterp F t all prises To provide collate eral free loans upto R 100/- la to Micr & Small Enterprises, as Rs. acs ro defined under MSM Act, 20 MED 006. ctor as well as in Ser All Micro and Sma Enterprises - both in Manufacturing Sec all rvice Sector - as defined under MSM Act, 20 d MED 006.                            
  • 7. 7) SME Short Term Loa ans To meet temporar shortfall / mismat ry l tch in liqui idity, for m meeting ge enuine busi iness ments only. requirem . Small & Medium Enter Micro, S rprises as p Regulat per tory definit tion and all other ent tities with annual sales turnover of Rs. 1/- crore to Rs. 150/- crores. Other Eligib - bility Criteria Satisfacto credit rating for t last three years L a: ory the Latest Bala ance Sheet etc. should b availabl Satisfac be le. ctory financ cial performance in t terms of sa ales / turn nover and pro ofits. Negative varian nce, if any should n y, not be mo ore than 10%.Satisfac ctory dealings with the Bank for at least three years. s B e 8) SME Medium Term L Loans To augm rking capital gap and to help in improvem ment enterprise’s wor n ment of cur rrent ratio an also for meeting g nd genuine bu usiness requ uirements. The facili will also be ity available for rep payment o secured and unse of ecured Lo oans of ot ther banks or s institutions, but no for any p ot purpose, wh hich is not related to the enterp prises activi ity. Micro, S Small & Medium Enter rprises as p Regulat per tory definit tion and all other ent tities with ann nual sales turnover of Rs. 1/- cr t f rore to Rs. 150/- cror res. Other E Eligible Criteria :-Satisfa actory cred rating fo the last three yea Latest B dit or ars Balance She etc. sh eet hould lable. Total Debt-equity ratio sh be avail hould not b higher t be than 4.5:1 and total T Term Liability and equ y uity ratio should no be mo ot ore than 3 3:1.Satisfac ctory financial perform mance in ter rms of Sale es/turnover and profit Negativ variance, if any, sh r ts. ve hould not be more than 10%.Average DSCR should not be less than 1.7 R s 75:1Satisfac ctory dealings with the Bank for at least Three Years s B                            
  • 8. 9) SME Gold Card C To prov vide hassle free on th spot ass he sistance to take care of borrow o e wers’ emer rgent requirem ments and tie up te emporary m mismatch in liquidity arising o y out of delayed payment by buyers tax paym s, ment, execu ution of bul orders, e lk etc. SME Gol Card env ld visages pro ovision of a additional l limit of 10% of the as % ssessed elig gible bank fin nance for Working C Capital to Micro, Sm mall & Me edium Ente erprises as per Regulato definiti and all other ent ory ion l terprises with annual sales turnover of Rs. 1/- crore to Rs. 150/ crores, on request along wi o /- t ith regular applicatio for Wor r on rking Capital limits to meet emerg m gent requir rements. O Other Eligib Criteria Accounts in ble a:- Standard Category for last 2 years, wit credit r d y th rating of -4 and abov and enjo 4 ve oying working capital limits of Rs 25/- Lak and ab s. khs bove. Accounts having sole ban nking arrangem ment with our bank/p proposed to be finance under So Banking arrangem o ed ole g ment. 10) Sche eme for Financing E Energy Effi iciency Pr rojects Financin SMEs fo acquisition of equipments, s ng or services an adopting measures for nd g s enhance ement of en nergy effici iency/conservation of energy. f SME units financed by bank as also oth units d d her desirous of shifting th heir accoun to nt Bank of Baroda. 11) Over rdraft Against Land and Build ding To provide hassle free c credit to SME borr rowers to meet w working ca apital ments/augm requirem ment long t term margin requirem ments.                            
  • 9. All Ente erprises, i.e Micro, Sm & Med e. mall dium Enterp prises, as d defined und MSMED Act, der 2006, an other en nd ntities with annual sal turnove of Rs. 1/- crore to R 150/- cr les er - Rs. rores exclusiv vely bankin with our bank/new borrowe desirous of having sole ban ng w ers nking arrangem ment with our bank. 12) SME Loan Pack k To provi hassle free credit for workin capital (fund base and non- ide t ng ed -fund based as d) also long term req quirements, taking int account nature of business, c , to cyclical tre ends, cash flo projections, peak time requ ow k uirements and any e eventuality of unfore eseen spurt in the busine ess. All Ente erprises, i.e Micro, Sm & Med e. mall dium Enterp prises, as d defined und MSMED Act, der 2006, an other en nd ntities with annual sal turnove of Rs. 1/- crore to R 150/- cr les er - Rs. rores exclusiv vely bankin with our bank/new borrowe desirous of having sole ban ng w ers nking arrangem ment with our bank. 13) Loan Under Interest S ns Subsidy E Eligibility Certificat Scheme of te e Khadi & Village Indu K mmission (KVIC-ISEC ustries Com C) To finan institut nce tional finan ncing agencies for lending to Khadi & Vill lage Indust tries, Institutional financ cing agencies – Khadi & Village In ndustries C Commission, State Kha & adi Village Industries Boards, Reg B gistered Ins stitutions, C Co-operativ Societies ve s                            
  • 10. 14) STAR CHANNEL CREDIT R a. Drawee Bill Finance for Supplie B ers b. Drawee Bill Finance or Overdra facility B e aft for Deale ers Sponsoring Corporate can be a Manu e e ufacturing Unit, or a Whole esale Dealer/D Distributor of goods r rated ‘AA’ and above Facilities to Supplie and Dea e. s ers alers would b extended based on the refer be n rral of the Sponsoring Corporat Though due e te. weightage shall be given to the recom e mmendation of the Sp n ponsoring C Corporate, Bank shall tak a decisio based on merits in each case. ke on n . 15) Ener Efficiency Proje rgy ects For acqu uiring/adop pting Energ Saving Eq gy quipment a Energy Conservation Measure and es. Saving o energy costs should be at lea 150% of cost of ser on c d ast rvicing the proposed t term loan. Un should possess en nits nergy audit report (to be obtain at thei cost initi t o ned ir ially) issued b energy consultant/auditor acc by c credited by Bureau of Energy Ef y fficiency, P PCRA etc. or m must have carried out similar ass c t signment fo other reputed companies. or 16) Natio onal Equit Fund ty To meet gap in pre t escribed mi inimum pro omoters' contribution and/or in e equity Small entrepreneu for setting up ne project in tiny / small scale sector and urs ew ts tation of potentially v rehabilit viable sick SSI units irrespective of the loc e cation. Existing tiny and small sca industri units an service enterprise [tiny ent d ale ial nd es terprises w would include all industr rial units and service industries (except R Road Transp port Operators) satisfyin the inv ng vestment ceiling pr rescribed for tiny enterprises underta s] aking                            
  • 11. expansio modern on, nization, t technology up-gradati ion and diversificatio can also be on o consider irrespective of the location. red e 17) Aksh Urja Sh hya hops Akshay Urja Shops are reta outlets which wou sell an service all Renew s ail uld nd wable Energy D Devices and Systems including S Solar Energ Products The netw gy s. work of Ak kshay Urja Sho would cover all the distric of the country. T ops cts The Ministry of New and Renewable Energy (MNRE) w provide support t the shop in term of soft l y will e to ps ms loans through banks an monthly recurring grant & incentive for first two year of nd y g e rs operatio on. Private Entreprene eurs, Reput NGOs a Manufacturer’s As ted and ssociations are eligible for e opening AUSs. The applicant for open e ning a shop will cont p tact the co oncerned S State Nodal A Agency (SNA) and sub bmit propo osal for Ak kshay Urja Shops in the prescr ribed format. Incentives would be available only afte sanction of Akshay Urja Shop by s e e er y MNRE/SNA. 18) Priya adarshini Yojana nomic activ For econ vities like i) Purchase of equipm ment, machi inery, vehicle, furnitu / ure fixtures etc. for ca apital inves stment and working c d capital needs ii) Agric culture & A Allied activitie iii) Educa es ation Loan Women entreprene eurs, wome enterpri en ises where women en ntrepreneur hold not less rs t than 51% of the fin % nancial hold ding                            
  • 12. 19) Solar Water He r eaters Any end e user r such as Indi ividuals, institution ns, non- comme ercial ations/commercial org organiza ganizations (hotels, hospitals etc s c). Water Heate with bo Flat Plate or Evacuated Tu Solar W ers oth ubular Collectors (of any f size). 20) Aksh Urja Sh hya hops a) Eligib borrow would be new or existing Micro and Small Enterprises ( ble wer d (both Manufac cturing and Services) to which c d een provide by the Bank credit facility has be ed without any collateral security and/o third pa or ntees. Collateral Security arty guaran would m mean any asset othe than business asse b) Und the Cre er et. der edit Guara antee Scheme, the CGT , TMSE enco ourages composite credit being extende to a si ed ingle borrowe by a Member Lend er ding Institut tion of the CGTMSE. However c e credit facil lities extende by a Bank for a unit already a ed t assisted by State/Natio onal Level Institutions are s eligible for Guaran ntee Cover under the scheme. Joint financing by tw comme r e wo ercial Banks to a single borrower shall not be eligible f guarantee cover. J o b e for Joint Finan ncing with SID would however b eligible for guaran DBI be ntee cover. c). All ty . ypes of firm / ms compani or othe legally co ies er onstituted bodies, ind dividual bor rrowers, sm businesses. mall Group le ending thro ough SHGs n eligible not e a) Both Term Loan and Working Capital (bo fund ba m d oth ased and n non-fund ba ased) can be covered. b) Where th borrowe is enjoyi several distinct credit facili b he er ing l ities, one or more out of the sam can be covered u me upto the El ligible Amo ount (prese ently Rs.100 l lakhs) prov vided collat teral securi and 3rd party gua ity d arantee are NOT obta e ained in such a account/s.                            
  • 13. 5. Ex xporters Loan. Banks provides different typ pes of Loa to Expo ans orters in Lo ocal and Fo oreign curr rency ent, Post-sh such as Pre-shipme hipment Pa acking Credit. 1) P shipme Pre ent Pre ship pment finan is sanct nce tioned to ex xporters be efore shipm ment for fol llowing • Procure Raw material w • Carryout ma C anufacturin process ng • Provide a se ecure wareh house for G Goods & Raw materials w • Process & pa the goo ack ods • Ship the goo to buye ods er • Meet other financial co of busin M f ost ness. 2) P Post shipm ment Post Shipme ent financ is sanct ce ales receivable after the tioned for export sa shipmen of goods to the d nt date of re ealisation o Export proceeds, Post shipm of ment finance is provided against ev d vidence of shipment o goods. of 3) P Packing Cr redit. PACK KING CREDIT is any l loan or advance gran nted or an other credit ny provided by a bank t an expo y to orter for f financing the purchas processing, se, manufacturi or pack m ing king of goo prior to shipment, on the ba of lette of ods o , asis er credit opened in his f favor or in favor of some othe person, by an over n er rseas buyer or a confirmed and irrevo ocable orde for the e er export of g goods from the m                            
  • 14. producing country or any other evidence of an ord for exp c r der port from that country hav ving been placed on the expo orter or some other person, un nless odgment of export ord lo f ders or lett of credit with the bank has b ter been waived d. 6. Ag griculture loan. e Agriculture sector in India is considere as prior s ed rity sector for fundin .Some b ng banks provide special fun nding options which ar listed be re elow. 1) Agriclinics & A c Agribusiness Agriclin are env nics visaged to p provide exp pert service and advice to farmers on crop es pping practice technolo dissemination, crop protection from pests and di es, ogy iseases, ma arket trends a prices of various crops in th market and also cl and he linical serv vices for an nimal etc. which would enha health e ance produ uctivity of c crops/anim mals. Agribu usiness centres: Agribusi iness centr are env res visaged to p provide inp supply, farm equipments on hire put and othe farm ser er rvices. heme is open to A The sch o Agriculture Graduates s/Graduate in subjects allied to es d agricultu like ho ure orticulture, animal husbandry, forestry, d , erinary, poultry dairy, vete farming piscicultur and othe allied act re er tivities. 2) Cold Storage. Funding is provided for Cold s d storage of a agricultural products.                            
  • 15. The adv vances ma ade to ind dividuals, group of individuals coopera s, ative socie eties, propriet tary/ partnership conc cerns and joint sector companies for cold s r storage unit ts 3) Comp posite Cash credit Scheme. h ertake improved practices of cro producti with Ba To enab the farm to unde ble mer op ion ank’s credit a assistance and increas farm pr a se roduction a and produc ctivity. b) T provide the To e farmer a opportunity to ear a fair ret an rn turn on sea asonal inves stment in t farm on the the n one han and to meet a pa of the domestic requireme nd art ents of the family du e uring storage period till better pric prevail in the mar ces rket, on the other. c) To provide the e e farmer a fully liquid savings m module by allowing to earn inte o erest on cre edit balances in the com mposite cash credit acc h count when he is cash rich. n h a)Individual farm mers, registered partn nership firm compan ms, nies, regist tered arming co-operative societies o fa owning agri icultural la and, registered tenan / nts sh hare cropp pers with r recorded ri ights are e eligible for availing c r crop financ ce.b) Only farmer engaged in product O rs tion of crops and pro oduce suita able for sto orage in the cold storage / warehouse godown / regulated market ya are elig n e ard gible fo finance against sto or orage recei ipts. c) The farmers w have a e who availed of crop lo oans from the Bank fo raising t concerned crop in that seas are elig t or the n son gible fo finance under prod or u duce marketing loan sc cheme. 4) Poult Develop try pment Financin can be considered f the foll ng c for lowing type of poultr schemes. Establishm es ry ment of small poultry (la l ayer or bro oiler) units of 200 to 5 birds as subsidiary occupatio by 500 s y on the farm mers and ag gricultural labourers. Individual registered partnershi firms lim ip mited                            
  • 16. compani ies and registered co-operati r ive societi ies having necessary trained and y technica personn al nel and management experts for runnin followin comme t ng ng ercial poultry units. dividual far 1. Ind rmers/agric cultural lab bourers who are exper o rienced/tra ained in poultry manageme n ent are t taking up poultry f farming as a subsid s diary occupation.2. Individual registere partnership firms, limited co ed ompanies, e etc., are eligible for bank credit for large poultry units. These uni should have its rained/ tec tr chnically qu ualified per rsonnel for running th unit he 7. Pr roject Finance: The fina cture, industrial projects and public serv ancing of long-term infrastruc vices based upon a non-recourse or limited re ecourse fin nancial stru ucture wher project debt re and equ uity used to finance th project are paid back from the cashflow generate by o he w ed the proj ject. Projec financing is a loan structure t ct g that relies primarily o the proj on ject's cash flo for rep ow payment, w with the p project's as ssets, right and int ts, terests hel as ld seconda security or collater ary y ral. 8. Business Loa ans: Business loans are available to self employed profession s e nals, firms Traders and s, corporat tions, to meet their operating expenses finance capital e m r g s, expenditure (or e acquisition of fixed assets) to d owards star rting or exp panding a business.                            
  • 17. 1) Professio ) onal Loan ns. Profes ssional loan are provided to sel employed profession like Doc ns lf d nal ctors, ered Accountants, Inte Charte erior Decora ators, Archi itects, Com mpany Secre etary, etc to meet their operating e o r expense, finance and ca apital expen nditure. 2) Trade Lo ) oans. Trad loans ar provided to trader business de re d rs/ smen, so a to help t as them eith open a new busine or opera her ess ate/expand an existin one. d ng 3) Mortgage Loans. ) e Banks provide lo s oan against mortgage of property on an attractive rat of y te intere est. Business smen, self e employed professionals, salaried c customers ar all re eligible to apply for the loan It enables the borrow to apply for loan ag n. s wer y gainst a fixed asset. 4) Real Esta Loans ) ate s. Few selected ban give real estate loan to builders/real esta develope of s nks l ns ate ers repute Banks en e. nter into Ag greements w with Builde ers/Promoters/Develope ers.of real estate for pr e roviding Real Estate Loans.                            
  • 18. Brief d descript tion Non Fund B n Base. Banks al provide for Fundin option w lso e ng where actual funds ar not evolved. Below are re w some of the types of non fund Base activ d vity. 1. B Bank Guar rantees :- - It is a type of service provided by Bank to Cus t o stomer where banks Gu uarantees to Pay o th liability of its Custom he o mer, if custo omer fails to pay. In other words bank Guaran o ntees his customer liability . 2. Letters of Credit :- o A letter fro a bank guaranteei that a buyer's pay om ing yment to a seller will be re eceived on time and for the co n orrect amo ount. In the event tha the buy is e at yer unable to make payme on the purchase, the bank will be req m ent quired to c cover th full or re he emaining a amount of t purchas the se. 3. Collectio of Bills on beha of Cust on s alf tomers :- It is a type of service provided by bank in which Ban act as an agent o its t nks of customers and collects local and outstation dues. a s