Bank guarantee opening process in India, it is very important topic. Because very small group of people know about bank guarantee process in India, bank guarantee release procedure , bank guarantee RBI guidelines , bank guarantee charges ,bank guarantee procedure , how to calculate bank guarantee limit , documents required for bank guarantee.
In this article we will explain you all the details about all your question and query.
It is a Banking Instrument from a bank during which the Bank would fulfill the obligations of the debtor if the debtor fails to try to to so. Bank guarantees is thus a mechanism wherein a 3rd party performs a due-diligence and accepts responsibility on behalf of the debtor – for a consideration.
Types of Bank Guarantee
There are different types of Bank Guarantees as follows and each is used for a specific type of transactions:
1. Performance Guarantee
Performance guarantee is employed as collateral in transactions involving a buyer and a seller. A performance guarantee is often invoked if the client incurs cost and therefore the seller doesn’t deliver goods or services as promised within the contract. To invoke a performance guarantee, the beneficiary requires to declare in writing that the vendor failed to fulfil his or her contractual obligations properly or on time.
2. Bid Bond Guarantee
Bid bond guarantees are typically employed in tenders to confirm that the winning bidder undertakes the contract as per the terms of their winning bid. just in case a winning bidder doesn’t perform the tender requirements as stipulated, then the tender issuer can invoke the bank guarantee and fully or partially forfeiture the quantity. Therefore, bid bonds are mainly to make sure that the winning bidder performs as per the tender terms after winning the tender.
3. Financial Guarantee
A financial guarantee is an undertaking from a bank to require responsibility for one more company’s obligation if that company doesn’t meet its responsibility. The bank provides financial guarantees mostly between two or more related parties, i.e., a partner company providing a financial guarantee to a other partner company.
4. Advance Payment Guarantee
An advance payment guarantee is employed to safeguard the advance payment made by a buyer to a seller. just in case the vendor fails to deliver goods or services as per the terms and conditions of a trade transaction, then the customer can invoke the advance payment guarantee to recover a full or partial advance payment made to the vendor. Advance payment guarantees are employed in international trade transactions and domestic transactions wherein large advance payments are made to a vendor.
5. Foreign Bank Guarantee
International trade uses an overseas bank guarantee. The bank issues a distant bank guarantees for the good thing about an overseas beneficiary.
6. Deferred Payment Guarantee
Deferred payment guarantees are used when one party during a transaction undertakes to form payment of fixed amount at corresponding times within the future. In case, the debtor is unable to pay, then the payment guarantee are often invoked to say the money.
Bank Guarantee Procedure or How to get Bank Guarantee in India from Bank
Banks in India issue bank guarantee reciprocally for a guarantee fee. before providing a bank guarantee, the banker will undertake diligence of the bank guarantee applicant and should also request for collateral security. To process a bank guarantee application, it requires a number of the subsequent documents:
1. Request Letter and Counter Indemnity cum Memorandum referring to charge over fixed deposit duly stamped (Franking as per respective State Stamp Act).
2. Bank Guarantee text.
3. Board Resolution form Pvt or Ltd if its proprietor/ Partnership Firm then, Bank Needs Consent Letter.
Documents Required for a Bank Guarantee
- A Dully application form as per Bank application Form.
- A bank guarantee letter.
- A Stamp paper (as per the State Stamp Act , India)
- A resolution passed by the board of members in case of a Pvt/Ltd.
- A Consent Letter in case of Proprietor / Partnership Firm.
How much do banks charge for a bank guarantee in India ?
Bank Guarantee Charges are supported the sort of the BG, fees are generally charged on a quarterly basis on the BG value of 0.75% or 0.50% during the BG validity period. aside from this, the bank might also charge the applying processing fee, documentation fee, and handling fee.
Very Important , if you are making Bank Guarantee against Cash deposit in the bank account then no problem at all but if you are making Bank Guarantee against collateral / Property then you have to do expense on Search , Legal and Valuation.
What is the minimum and maximum period of bank guarantee?
Basis the Judgement, banks may now should prescribe a minimum period of 12 months for a beneficiary to approach a court/tribunal and not a minimum claim period of 12 months for creating a claim.
Banks apprehended that they might not limit their liabilities under the guarantees to a specified period, which meant that banks had to treat in their books their liability under the bank guarantee to the govt as outstanding till the limitation period of 30 years, under the Limitation Act, 1963 (Limitation Act).
Can any bank issue bank guarantee?
(i) As a general conditions or rule, banks may provide only financial guarantees but not a performance guarantees.
(ii) However, the scheduled banks may issue performance guarantees on behalf of their constituents subject to exercising due caution within the matter.
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