Page 25 - Banking Finance June 2022

ARTICLE

expired/ returned during the review period shall be deducted applicant and beneficiary
so that total Bank Guarantee eligibility could be assessed.
It is therefore obligation on the part of the Bank to pay
to beneficiary without delay and demur the amount of
The above example is pertaining to contractor, who required
BG on its invocation in accordance with the terms and
regular Bank Guarantee limit to meet business requirement.
conditions of the guarantee deeds
In few cases the requirement of Bank guarantee is only
It is not necessary for the beneficiary to satisfy the Bank
supplementary to business such as Bank guarantee may
about the default or the amount of actual loss suffered
require to obtain licenses, furnish to customers to get rebate
by him
on custom duty on achieving certain level of exports, to
meet a disputed liability with sales tax/ customs/ court in
such situations Bankers to sanctioned limit on need based. Co-acceptance of Bills: (definition)
Facilities of co-acceptance of bills and deferred payment
In recent past availing Bank guarantee for procuring raw guarantees are generally required for acquiring plant and
material from supplier has become regular trend under such machinery technically. These are taken as a substitute of
circumstances Bankers to thorough study on business model term loan which requires detailed appraisal of the
of the business so that at any point of time there shall not borrower's needs and financial position as required in a
be any double finance extended to borrower by way of Bank sanction of term loan proposal. The effect of such facility is
guarantee and fund based Cash credit as the bank that once the bank co-accepts the bill it becomes
guarantee serves in get the raw material from their whole commitment of the bank guaranteeing payment to
sale dealer to extend of the Bank guarantee furnished. beneficiaries. So the banker needs to be very careful in
granting such facilities as banks undertake to pay on co-
To meet long term requirement Banks may sanction accepted bills despite funds position of the clients. RBI
Deferred Payment Guarantee (DPG) in lieu of term loan and guidelines being as under:
same procedure followed as we are sanctioning a term loan. i. Detailed appraisal of the customer's requirement be
completed and the bank needs to fully satisfy about
genuineness of the need of the customer.
Precautions:
Should not be opened ended (auto renewal) ii. Genuine trade bill of bona fide transaction only should
be co-accepted. House bill/accommodation bill drawn
Should stipulate maximum liability - crystallized liability
on good concerns needs to be abided.
on invocation
iii. Co-acceptance facilities will normally not be sanctioned
Should not contain onerous clauses
to the customers enjoying credit limit with other banks.
Ensure customer's ability to reimburse - available
margin/ collateral security
Other Bank customer - ask why?
Performance guarantee - assess capacity of customer,
means to carry out contract, experience in line of
activity
Guarantee liability to have reasonable relation to equity
of borrower
Counter guarantee by authorized person

Invocation of Bank Guarantee:
The Bank liability under BG is absolute and independent
and exclusive of any other contract entered into by the

BANKING FINANCE | JUNE | 2022 | 25