This document provides information on bank guarantees and letters of credit. It defines bank guarantees and letters of credit, describes their types and processes. Bank guarantees are used to ensure payment in case of non-performance, while letters of credit facilitate international trade by providing secure payment. The document also outlines the benefits, charges, required documents and assessments for bank guarantees and letters of credit.
2. Bank Guarantee
Definition
Process Flow
Types of Bank Guarantee
Benefits
Bank Charges
Documents Required
BG Assessment
3. Letter of Credit
Definition
Types of Letter of Credit
Process Flow
LC Discounting
Hedging
Benefits
Common Reason for LC failure
Documents Required
Assessment of LC
4. An assurance by the bank ensuring that the
liabilities of a debtor will be met
Ensure payment to beneficiary in case of
non-performance by applicant
Aim at preventing frauds and helping banks
serve genuine customers
Facilitates more confidence to do the
business
Issued for a period till the execution of a
contract
5.
6. Performance guarantee
Fix the financial liability upon the banker in the
event of failure in performance
Advance payment guarantee
Provides security to importer if exporter does not
deliver under the terms and conditions
Deferred payment guarantee
Customers make payment in certain installments
and on specified dates
Foreign bank guarantee
Issued in foreign currency to beneficiary
outside the country for overseas obligations
7. Reduces many business transactions risks
Reliable security instrument in both
international and domestic trade
Provides immediate funds to the business in
the form of payment guarantees
Gives ample time to make payments in case
of deferred payment guarantees
Provides better negotiable terms and
conditions to the buyer and seller
8. Limit Based BG:
Working Capital Finance is required
1% fees charged
FD based BG
For foreign BG you have to 110% margin
For Inland BG you have to keep 100 %margin
5500 is the minimum fees charged on BG
9. Address Proof
Identity Proof
Business Proof
Last 3 years P&L and BS(duly signed by CA)
Last 1 year Bank Statement of the firm
If existing loan, detailed document of the
same
Individual IT Returns of the
individual/partners/directors for the last 3
years
SEBI formalities in case of listed companies
10. Sr .No. Particulars Amount
A Value of contracts expected to be bid 1000.00
B EMD Guarantee (generally 3% to 5% of A), Here we
will assume 5%
50.00
C Expected value of the new contract (25% of A), It
may vary from company to company
250.00
D Performance Guarantee (Normally 10% of C) 25.00
E Advance Payment / Security Deposit Guarantee (5%
of C),This may vary from project to project.
12.50
F Fresh Guarantees required (B+C+D+E) 337.50
G Existing bank guarantees (Assumption) 100.00
H Guarantees expiring during the year 25.00
I Guarantees requirement (F+G-I) 412.50
J Total guarantees limits required 412.50
11.
12. An arrangement where by bank at customer’s
request undertakes to pay his creditor
Used worldwide for settlement of trade
between exporter and importer
Sophisticated and popular method of
payment
13.
14. Revocable L.C
Can be cancelled at any time by any party
without consent
Irrevocable L.C
Cannot be cancelled at any time without advising
the seller
Sight L.C
Documents are released to creditor on payment
Usance L.C
Documents are handed over on commitment on
payment at a future date(available to 180 days)
17. Opens door to international trade by provide
secure payment
Bank substitutes to buyer
Bank Expertise is made available to help
complete trade transactions completely
Payment for the goods shipped can be remitted
to your own bank or bank of your own choice
Payment will be made to seller when T&C of the
L.C are compiled with
Importer can control shipping dates for the goods
being purchased
18. Time Lines
Shipment fails
Documents on time
Expiry of LC
Discrepancy Within LC
Compliance with Documents & Conditions
19. Commercial Invoice
Transport Documents
Bill of Lading
Air bill
Insurance Documents
Inspection Certificates
Certificate of origin
20. Assessment of LC Rs in Mn Rs in Mn
Total Purchase A 100
Purchase under LC (x%) B=A*X% 60
Period under LC (Y days) Y 30 days
Lead Time under LC in
Case of offsite
Z 90 days
LC Requirement C=(B*(Y+Z)/365) 19.73