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.

1. Submitted by
Anil Nandyala (B11005)
Ankita Singh (B11007)
Sumit Khandelwal (B11048)

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

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

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

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)

15.  Seller discount’s the bill
DISCOUNTING:
Duration
Interest rates

16.  Forwards or Future contracts
 Options

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