Page 24 - Banking Finance June 2022

ARTICLE

Bank Guarantee: (definition) Purpose - for genuine business requirement
Bank Guarantee is the commitment given by the issuing Bank Need for BG -Related to normal trade/business
(Guarantor) to the beneficiary. If the claim is made by the
Nature of Bank Guarantee - Financial / Performance
beneficiary within the guarantee period and as per the
Amount of BG - needs to be specific
terms and conditions of the Bank Guarantee, then the Bank
should make the payment without fail and also without any Applicant's financial strength / capacity
delay.
Past record in respect of BGs issued earlier
Bank guarantees can be Inland (which are issued in favour Present outstanding on account of BGs already issued
of Beneficiary within the country) as well as Foreign (which
Margin
are issued in favour of Beneficiary outside the country)
Collateral security offered
Parties to Bank Guarantee
Assessment of Bank
Principal Debtor Underlying Transaction Benificiary
Guarantee:
(Applicant) (Creditor)
There are no prescribed norms for
assessment of Bank Guarantee
requirements, it should be need based.
Need based assessment of Non-Fund Based
facilities shall be done in the same fashion
and care should be taken like Fund Based
Guarantor
limits as these limits also have a financial
(BG issuing Bank)
implication. Requirement of Bank
Guarantee (BG) limits by way of performance / EMD / Bid
Necessity for Bank Guarantee: Bond etc. are supplementary support to business and the

In lieu of security deposit/ earnest money deposits for same should not be factored within the MPBF.
participating in tender
Assessment of limit in case of contractor is explained as under
Mobilizing advance/ advance money before
to have clear understanding.
commencement of the project and for money to be
received in various stages of project implementation.
Particulars Amount
In respect of raw material supplies or for advances by
(Rs. In Lakh)
the buyers
Projected level of tenders for 1000 1000
In respect of due performance of specific contracts by
reviewing period
the borrower and for obtaining full payment of the bills
Success rate 20% 200
Performance guarantee for warranty period on
Percentage of EMD to be furnished 2% (it 20
completion of contract which would enable the suppliers
for participating in tenders required
to realize the proceeds without waiting for warrantee
on 1000)
period to be over
Amount of Bank Guarantee to be 20% (it is 40
To allow unit to draw funds from time to time from the
furnished on successful allotment on 200)
concerned indentors against part execution of contracts
etc. Total Bank Guarantee requirement 60
Appraisal of Bank Guarantee: If at all any existing exposure outstanding same to be added

Nature of the business to limit assessed as above and Bank guarantees getting

24 | 2022 | JUNE | BANKING FINANCE