RBI/2005-06/154
DBOD No. Dir.BC. 32/13.03.00/2005-06
September 05, 2005
Chief Executives of all Scheduled Commercial Banks
(Excluding RRBs)
Dear Sir,
Master Circular - Guarantees and
Co-acceptances
Please refer to the Master
Circular DBOD.No.Dir.BC.18/ 13.03.00/2004-05 dated July 23, 2004 consolidating
instructions/ guidelines issued to banks till June 30, 2004 on matters relating
to issue of Guarantees and Co-acceptances by banks. The Master Circular has
been suitably updated by incorporating instructions issued on the subject upto
June 30, 2005 and has also been placed on the RBI website (http://www.rbi.org.in).
2. It may be noted that
all the instructions contained in circulars listed in the Appendix
have been consolidated.
Yours faithfully,
(Amarendra Mohan)
Chief General Manager
Master Circular - Guarantees and
Co-acceptances
1. General
An important criterion for judging
the soundness of a banking institution is the size and character, not only of
its assets portfolio but also, of its contingent liability commitments such
as guarantees, letters of credit etc. As a part of business, banks issue guarantees
on behalf of their customers for various purposes. The guarantees executed by
banks comprise both performance guarantees and financial guarantees. The guarantees
are structured according to the terms of agreement, viz., security, maturity
and purpose.
With the introduction of risk weights
for both on-Balance Sheet and off-Balance Sheet exposures the banks have become
more risk sensitive resulting in structuring of their business exposures
in a more prudent manner.
2. Guidelines relating to the conduct of guarantee business
2.1 General Guidelines
The banks should comply with the
following general guidelines in the conduct of their guarantee business:
As regards the purpose of the guarantee,
as a general rule, the banks should confine themselves to the provision of financial
guarantees and exercise due caution with regard to performance guarantee business.
As regards maturity, as a rule,
banks should guarantee shorter maturities and leave longer maturities to be
guaranteed by other institutions. No bank guarantee should normally have a maturity
of more than 10 years.
2.2 Norms for unsecured advances
& guarantees
Until June 17, 2004, banks were
required to limit their commitments by way of unsecured guarantees in such a
manner that 20 percent of a bank’s outstanding unsecured guarantees plus the
total of its outstanding unsecured advances should not exceed 15 percent of
its total outstanding advances. In order to provide further flexibility to banks
on their loan policies, the extant limit on unsecured exposure of banks has
been withdrawn and banks’ Boards may fix their own policy on their unsecured
exposures. "Unsecured exposure" is defined as an exposure where the
realisable value of the security, as assessed by the bank/ approved valuers/
Reserve Bank’s inspecting officers, is not more than 10 per cent, ab-initio,
of the outstanding exposure. Exposure shall include all funded and non-funded
exposures (including underwriting and similar commitments). ‘Security’ will
mean tangible security properly charged to the bank and will not include intangible
securities like guarantees, comfort letters etc. Banks will have to make an
additional provision of 10 per cent, i.e., a total provision of 20 per cent
of the outstanding advances in the substandard category to cover expected loss
on unsecured exposures. Provision at the level of 100 per cent for unsecured
exposures in the doubtful and loss categories will continue as hitherto. All
exemptions allowed for computation of unsecured advances will stand withdrawn.
2.3 Precautions for issuing
guarantees
Banks should adopt the following
precautions while issuing guarantees on behalf of their customers.
i. As a rule, banks should avoid giving unsecured guarantees in large amounts
and for medium and long term period. They should avoid undue concentration of
such unsecured guarantee commitments to particular groups of customers and/or
trades.
ii.Unsecured guarantees on account of any individual constituent should be limited
to a reasonable proportion of the bank’s total unsecured guarantees. Guarantees
on behalf of individual should also bear a reasonable proportion to constituent’s
equity.
iii.In exceptional cases, banks may give deferred payment guarantees on an unsecured
basis for modest amounts to first class customers who have entered into deferred
payment arrangements in consonance with Government policy.
iv.Guarantees executed on behalf of any individual constituent, or a group of
constituents, should be subject to prescribed exposure norms.
It is essential to realise that
guarantees contain inherent risks and that it would not be in the bank’s interest
or in the public interest generally to encourage parties to over-extend their
commitments and embark upon enterprises solely relying on the easy availability
of guarantee facilities.
2.4 Precautions for Averting
Frauds
While issuing guarantees on behalf
of customers, the following safeguards should be observed by the banks:
i. At the time of issuing financial guarantees, banks should be satisfied
that the customer would be in a position to reimburse the bank in case the bank
is required to make the payment under the guarantee.
ii.In the case of performance guarantee, banks should exercise due caution
and have sufficient experience with the customer to satisfy themselves that
the customer has the necessary experience, capacity and means to perform the
obligations under the contract and is not likely to commit any default.
iii.Banks should normally refrain from issuing guarantees on behalf of customers
who do not enjoy credit facilities with them.
2.5 Ghosh Committee Recommendations
Banks should implement the following
recommendations made by the High Level Committee (Chaired by Shri A. Ghosh,
the then Dy. Governor of RBI):
i.In order to prevent unaccounted
issue of guarantees, as well as fake guarantees, as suggested by IBA, bank guarantees
may be issued in serially numbered security forms.
ii.Guarantees above a particular cut-off point decided by the bank should be
issued under two signatures, in triplicate, one copy each for the branch, beneficiary
and controlling office/head office.
iii. It should be binding on the part of the beneficiary to seek confirmation
of the controlling office/head office as well, for which a specific stipulation
be incorporated in the guarantee itself.
2.6 Internal Control Systems
Bank guarantees issued for Rs.
10,000/- and above should be signed by two officials jointly. A lower cut-off
point depending upon the size and category of branches may be prescribed by
banks, where considered necessary. Such a system will reduce the scope for malpractices/losses
arising from the wrong perception/judgement or lack of honesty/ integrity on
the part of a single signatory. Banks should evolve suitable systems and procedures,
keeping in view the spirit of these instructions and allow deviation from the
two signatures discipline only in exceptional circumstances. The responsibility
for ensuring the adequacy and effectiveness of the systems and procedures for
preventing perpetration of frauds and malpractices by their officials would,
in such cases, rest on the top managements of the banks. In case, exceptions
are made for affixing of only one signature on the instruments, banks should
devise a system for subjecting such instruments to special scrutiny by the auditors
or inspectors at the time of internal inspection of branches.
2.7 Guarantees on behalf of
Banks' Directors
Section 20 of the Banking Regulation
Act, 1949 prohibits banks from granting loans or advances to any of their directors
or any firm or company in which any of their directors is a partner or guarantor.
However, certain facilities which,
inter alia, include issue of guarantees are not regarded as 'loan and
advances' within the meaning of Section 20 of the Act, ibid.
In this regard, it is pertinent
to note with particular reference to banks giving guarantees on behalf of their
directors, that in the event of the principal debtor committing default in discharging
his liability and the bank being called upon to honour its obligation under
the guarantee, the relationship between the bank and the director could become
one of creditor and debtor. Further, directors would also be able to evade the
provisions of Section 20 by borrowing from a third party against the guarantee
given by the bank. These types of transactions are likely to defeat the very
purpose of enacting Section 20, if the banks do not take appropriate steps to
ensure that the liabilities thereunder do not devolve on them.
In view of the above, banks should,
while extending non-fund based facilities such as guarantees, etc. on behalf
of directors and the companies/firms in which the director is interested, ensure
that :
i. adequate and effective arrangements
have been made to the satisfaction of the bank that the commitments would be
met out of their own resources by the party on whose behalf guarantee was issued,
and
ii. the bank will not be called
upon to grant any loan or advances to meet the liability consequent upon the
invocation of guarantee.
In case, such contingencies arise
as at (ii) above, the bank will be deemed to be a party to the violation of
the provisions of Section 20 of the Banking Regulation Act, 1949.
2.8 Bank Guarantee Scheme of
Government of India
The Bank Guarantee Scheme formulated
by the Government of India for the issuance of bank guarantees in favour of
Central Government Departments, in lieu of security deposits, etc. by contractors,
has been modified from time to time. Under the scheme, it is open to Government
Departments to accept freely guarantees, etc. from all scheduled commercial
banks.
Banks should adopt the Model Form
of Bank Guarantee Bond given in Annexure. The Government of India have
advised all the Government departments/Public Sector Undertakings, etc. to accept
bank guarantees in the Model Bond and to ensure that alterations/additions to
the clauses whenever considered necessary are not one-sided and are made in
agreement with the guaranteeing bank. Banks should mention in the guarantee
bonds and their correspondence with the various State Governments, the names
of the beneficiary departments and the purposes for which the guarantees are
executed. This is necessary to facilitate prompt identification of the guarantees
with the concerned departments. In regard to the guarantees furnished by the
banks in favour of Government Departments in the name of the President of India,
any correspondence thereon should be exchanged with the concerned ministries/
departments and not with the President of India. In respect of guarantees issued
in favour of Directorate General of Supplies and Disposal, the following aspects
should be kept in view:
- In order to speed up the process of verification
of the genuineness of the bank guarantee, the name, designation and code numbers
of the officer/officers signing the guarantees should be incorporated under
the signature(s) of officials signing the bank guarantee.
- The beneficiary of the bank guarantee should
also be advised to invariably obtain the confirmation of the concerned banks
about the genuineness of the guarantee issued by them as a measure of safety.
- The initial period of the bank guarantee issued
by banks as a means of security in Directorate General of Supplies and Disposal
contract administration would be for a period of six months beyond the original
delivery period. Banks may incorporate a suitable clause in their bank guarantee
providing automatic extension of the validity period of the guarantee by 6
months, and also obtain suitable undertaking from the customer at the time
of establishing the guarantee to avoid any possible complication later.
- A clause would be incorporated by Directorate
General of Supplies and Disposal in the tender forms of Directorate General
of Supplies and Disposal 229 (Instruction to the tenderers) to the effect
that whenever a firm fails to supply the stores within the delivery period
of the contract wherein bank guarantee has been furnished, the request for
extension for delivery period will automatically be taken as an agreement
for getting the bank guarantee extended. Banks should make similar provisions
in the bank guarantees for automatic extension of the guarantee period.
- The bank guarantee as a means of security in
Directorate General of Supplies and Disposal contract administration and extension
letters thereof would be on non-judicial stamp papers.
2.9 Guarantees on Behalf of
Share and Stock Brokers
Banks may issue guarantees on behalf
of share and stock brokers in favour of stock exchanges in lieu of security
deposit to the extent it is acceptable in the form of bank guarantee as laid
down by stock exchanges. Banks may also issue guarantees in lieu of margin requirements
as per stock exchange regulations. The banks have further been advised that
they should obtain a minimum margin of 50 percent while issuing such guarantees.
A minimum cash margin of 25 per cent (within the above margin of 50 per cent)
should be maintained in respect of such guarantees issued by banks. The above
margin of 50 per cent will apply to all fresh guarantees issued. The existing
guarantees issued may continue at the earlier margins until they come up for
renewal. The banks should assess the requirement of each applicant borrower
and observe usual and necessary safeguards including the exposure ceilings.
2.10 Guidelines relating to
obtaining of personal guarantees of directors and other managerial personnel
of borrowing concerns
Personal guarantees of directors
The banks could take personal guarantees
of directors for the credit facilities, etc. granted to the corporates, public
or private, only, when absolutely warranted after a careful examination of the
circumstances of the case and not as a matter of course. In order to identify
the circumstances under which the guarantee may or may not be considered necessary,
the banks could follow the following broad considerations:
A. Where guarantees need not
be considered necessary
Ordinarily, in the case of public
limited companies, when the lending institutions are satisfied about the management,
its stake in the concern, economic viability of the proposal and the financial
position and capacity for cash generation, no personal guarantee need be insisted
upon. In fact, in the case of widely owned public limited companies, which may
be rated as first class and satisfying the above conditions, guarantees may
not be necessary even if the advances are unsecured. Also, in the case of companies,
whether private or public, which are under professional management, guarantees
may not be insisted upon from persons who are connected with the management
solely by virtue of their professional/technical qualifications and not consequent
upon any significant share holding in the company concerned.
Where the lending institutions
are not so convinced about the aspects of loan proposals mentioned above, they
should seek to stipulate conditions to make the proposals acceptable without
such guarantees. In some cases, more stringent forms of financial discipline
like restrictions on distribution of dividends, further expansion, aggregate
borrowings, creation of further charge on assets and stipulation of maintenance
of minimum net working capital may be necessary. Also, the parity between owned
funds and capital investment and the overall debt-equity ratio may have to be
taken into account.
B. Where guarantees may be considered
helpful
Personal guarantees of directors
may be helpful in respect of companies, whether private or public, where shares
are held closely by a person or connected persons or a group (not being professionals
or Government), irrespective of other factors, such as financial condition,
security available, etc. The exception being in respect of companies where,
by court or statutory order, the management of the company is vested in a person
or persons, whether called directors or by any other name, who are not required
to be elected by the shareholders. Where personal guarantee is considered necessary,
the guarantee should preferably be that of the principal members of the group
holding shares in the borrowing company rather than that of the director/managerial
personnel functioning as director or in any managerial capacity.
Even if a company is not closely
held there may be justification for a personal guarantee of directors to ensure
continuity of management. Thus, a lending institution could make a loan to a
company whose management is considered good. Subsequently, a different group,
could acquire control of the company, which could lead the lending institution
to have well-founded fears that the management has changed for the worse and
that the funds lent to the company are in jeopardy. One way by which lending
institutions could protect themselves in such circumstances is to obtain guarantees
of the directors and thus to ensure either the continuity of the management
or that the changes in management take place with their knowledge. Even where
personal guarantees are waived it may be necessary to obtain an undertaking
from the borrowing company that no change in the management would be made without
the consent of the lending institution. Similarly, during the formative stages
of a company, it may be in the interest of the company, as well as the lending
institution, to obtain guarantees to ensure continuity of management.
Personal guarantees of directors
may be helpful with regard to public limited companies other than those which
may be rated as first class, where the advance is on an unsecured basis.
There may be public limited companies,
whose financial position and/or capacity for cash generation is not satisfactory
even though the relevant advances are secured. In such cases personal guarantees
are useful.
Cases where there is likely to
be considerable delay in the creation of a charge on assets, guarantee may be
taken, where deemed necessary, to cover the interim period between the disbursement
of loan and the creation of the charge on assets.
The guarantee of parent companies
may be obtained in the case of subsidiaries whose own financial condition is
not considered satisfactory.
Personal guarantees are relevant
where the balance sheet or financial statement of a company disclosed interlocking
of funds between the company and other concerns owned or managed by a group.
C. Worth of the guarantors,
payment of guarantee, commission, etc.
Where personal guarantees of directors
are warranted they should bear reasonable proportion to the estimated worth
of the person. The system of obtaining guarantees should not be used by the
directors and other managerial personnel as a source of income from the company.
The banks should obtain an undertaking from the borrowing company as well as
the guarantors that no consideration whether by way of commission, brokerage
fees or any other form would be paid by the former or received by the latter
directly or indirectly. This requirement should be incorporated in the bank's
terms and conditions for sanctioning of credit limits. During the periodic inspections,
the bank's inspectors should verify that this stipulation has been complied
with. There may, however, be exceptional cases where payment of remuneration
may be permitted e.g. where assisted concerns are not doing well and the existing
guarantors are no longer connected with the management but continuance of their
guarantees is considered essential because the new management's guarantee is
either not available or is found inadequate and payment of remuneration to guarantors
by way of guarantee commission, allowed.
D. Personal guarantees in the
case of sick units
As the personal guarantees of promoters/directors
generally instil greater accountability and responsibility on their part and
prompt the managements to conduct the running of the assisted units on sound
and healthy lines and to ensure financial discipline, the banks, may in their
discretion, obtain guarantees from directors (excluding the nominee directors)
and other managerial personnel in their individual capacities. In case, for
any reasons, a guarantee is not considered expedient by the bank at the time
of sanctioning the advance, an undertaking should be obtained from the individual
directors and a covenant should invariably be incorporated in the loan agreement
that in case the borrowing unit show cash losses or adverse current ratio or
diversion of fund, the directors should be under an obligation to execute guarantees
in their individual capacities, if required by the banks. The banks may also
obtain guarantees at their discretion from parent/holding company when credit
facilities are extended to borrowing units in the same Group.
2.11 Guarantees of State Government
The guidelines laid down in paragraph
2.10 above for taking personal guarantees of directors and other managerial
personnel should also be followed in respect of proposal of State Government
undertakings/projects and guarantees may not be insisted upon unless absolutely
warranted. In other words, banks could obtain guarantees of State Governments
on merits and only in circumstances absolutely necessary after thorough examination
of the circumstances of each case and not as matter of course.
3. Guarantees governed by regulations
issued under Foreign Exchange Management (Guarantees) Regulations
3.1 Bid bonds and performance bonds or guarantees
for exports
In terms of Notification
No.FEMA.8/2000-RB dated May 3, 2000, authorised dealers have the permission
to give performance bond or guarantee in favour of overseas buyers on account
of bona fide exports from India.
Prior approval of RBI should be
obtained by the authorised dealers for issue of performance bonds/guarantees
in respect of caution-listed exporters. Before issuing any such guarantees,
they should satisfy themselves with the bona fides of the applicant and
his capacity to perform the contract and also that the value of the bid/guarantee
as a percentage of the value of the contract/tender is reasonable and according
to the normal practice in international trade and that the terms of the contract
are in accordance with the Foreign Exchange Management regulations.
Authorised dealers, may also, subject
to what has been stated above, issue counter-guarantees in favour of their branches/
correspondents abroad in cover of guarantees required to be issued by the latter
on behalf of Indian exporters in cases where guarantees of only resident banks
are acceptable to overseas buyers in accordance with local laws/regulations.
If and when the bond/guarantee
is invoked, authorised dealers may make payments due thereunder to non-resident
beneficiaries but a report should be sent to RBI where the amount of the remittance
exceeds US$ 5,000 or its equivalent.
3.2 Issue of Bank Guarantee in Favour of Foreign Airlines/IATA
In terms of Regulation 4 of Foreign
Exchange Management ( Guarantees) Regulations , 2000 notified by Notification
no. FEMA.8/2000-RB dated May 3, 2000, AD banks are allowed to give guarantees
in certain cases as stated therein. Indian agents of foreign airline companies
who are members of International Air Transport Association (IATA), are required
to furnish bank guarantees in favour of the foreign airline companies/IATA,
in connection with their ticketing business. As this is a standard requirement
in this business, Authorised Dealers in their ordinary course of business, with
effect from October 16, 2004, can issue guarantees in favour of the foreign
airline companies/IATA on behalf of Indian agents of foreign airline companies,
who are members of International Air Transport Association (IATA), in connection
with their ticketing business. In case of invocation of the guarantee, the authorised
dealer bank should send a detailed report to the Chief General Manager, Foreign
Exchange Department, External Payments Division, Reserve Bank of India, Central
Office, Mumbai – 400 001 explaining the circumstances leading to the invocation
of the guarantee.
3.3 Other Stipulations
With a view to boost exports, banks
should adopt a flexible approach in the matter of obtaining cover and earmarking
of assets/credit limits, drawing power, while issuing bid bonds and performance
guarantees for export purposes. Banks may, however, safeguard their interests
by obtaining an Export Performance Guarantee of ECGC, wherever considered necessary.
Export Credit & Guarantee Corporation
(ECGC) would provide 90 percent cover for bid bonds, provided the banks give
an undertaking not to insist on cash margins.
The banks may not, therefore, ask
for any cash margin in respect of bid bonds and guarantees which are counter-guaranteed
by ECGC.
In other cases, where such counter-guarantees
of ECGC are not available, for whatever reasons, the banks may stipulate a reasonable
cash margin only where it is considered absolutely necessary, as they satisfy
themselves generally about the capacity and financial position of the exporter
while issuing such bid bonds/guarantees.
Banks may consider sanctioning
separate limits for issue of bid bonds. Within the limits so sanctioned, bid
bonds against individual contracts may be issued, subject to usual considerations.
As per FEDAI Rules, the banks may
refund 50 percent of the commission received by them on the bid bonds which
are cancelled due to non-acceptance of tender.
3.4 Unconditional Guarantees in
favour of Overseas Employers/ Importers on behalf of Indian Exporters
While agreeing to give unconditional
guarantee in favour of overseas employers/importers on behalf of Indian Exporters,
the banks should obtain an undertaking from the exporter to the effect that
when the guarantee is invoked, the bank would be entitled to make payment notwithstanding
any dispute between the exporter and the importer. Although, such an undertaking
may not prevent the exporter from approaching the Court for an injunction order,
it might weigh with the Court in taking a view whether injunction order should
be issued.
Banks may, while issuing guarantees
in future, keep the above points in view and incorporate suitable clauses in
the agreement in consultation with their legal advisers. This is considered
desirable as non-honouring of guarantees on invocation might prompt overseas
banks not to accept guarantees of Indian banks, thus hampering the country's
export promotion effort.
3.5 Certain Precautions in case
of Project Exports
Banks are aware that the Working
Group mechanism has been evolved for the purpose of giving package approvals
in principle at pre-bid/post-bid stages for high value overseas project exports.
The role of the Working Group is mainly regulatory in nature, but the responsibility
of project appraisal and that of monitoring the project lies solely on the sponsor
bank.
As the Working Group approvals
are based on the recommendations of the sponsor banks, the latter should examine
the project proposals thoroughly with regard to the capacity of the contractor/
sub-contractors, protective clauses in the contracts, adequacy of security,
credit ratings of the overseas sub-contractors, if any, etc.
Therefore, the need for a careful
assessment of financial and technical demands involved in the proposals vis-à-vis
the capability of the contractors (including sub-contractors) as well as the
overseas employers can hardly be under-rated to the financing of any domestic
projects. In fact, the export projects should be given more attention in view
of their high values and the possibilities of foreign exchange losses in case
of failure apart from damage to the image of Indian entrepreneurs.
While bid bonds and performance
guarantees cannot be avoided, it is to be considered whether guarantees should
be given by the banks in all cases of overseas borrowings for financing overseas
projects. Such guarantees should not be executed as a matter of course merely
because of the participation of Exim Bank and availability of counter-guarantee
of ECGC. Appropriate arrangements should also be made for post-award follow-up
and monitoring of the contracts.
3.6 Review of Banks’ Procedures
Banks may review the position regarding
delegation of powers and their procedures, and take such action as may be necessary
with a view to expediting decision on export proposals. They may also consider
designating a specified branch, equipped with adequately qualified and trained
staff, in each important Centre to deal expeditiously with all export credit
proposals at the Centre.
3.7 Other Guarantees regulated
by Foreign Exchange Management Rules
Issue of following types of guarantees
are governed by the Foreign Exchange Management Regulations:
i.Minor Guarantees
ii.Bank Guarantees - Import under Foreign Loans/Credits
iii.Guarantees for Non-Residents
For operative instructions, a reference
may be made to notification issued under FEMA.8/ 2000 dated May 3, 2000 cited
above as well as to the guidelines issued by the Foreign Exchange Department
in its Master Circular No.7/2004-05 dated July 1, 2004 and No.8/2004-05 dated
July 1, 2004 relating to Imports and Exports, respectively. However, for ease
of reference, instructions/guidelines in regard to issue of these guarantees
are reproduced hereunder:
3.7.1 Minor guarantees
Authorised dealers may freely give
on behalf of their customers and overseas branches and correspondents, guarantees
in the ordinary course of business in respect of missing or defective documents,
authenticity of signatures and for other similar purposes.
3.7.2 Bank guarantees - Import
under foreign loans/credits
i) Issue of guarantees
in favour of foreign lenders or suppliers (in the case of Supplier’s Credits)
requires approval of RBI. While granting approval for raising the foreign currency
loan/credit, RBI will grant the required permission to the concerned authorised
dealer. In the event of invocation of the guarantee, the concerned authorised
dealer may make the necessary remittance without reference to RBI. A report
should, however, be sent to RBI giving full details citing reference to the
approval for furnishing the guarantee. A copy of the claim received from the
overseas party should be enclosed with such report.
(ii) Banks are not permitted to issue guarantees/ standby letters of credit
or letters of comfort in favour of overseas lenders relating to External Commercial
Borrowing (ECB). Applications for providing guarantees/ standby letters of credit
or letters of comfort by banks relating to ECD in the case of SMEs may be considered
on merit subject to prudential norms.
3.7.3. Trade Credits for imports into India – Issue
of Guarantees - Delegation of powers
Credit extended for imports directly
by the overseas supplier, bank and financial institution for original maturity
of less than three years is hereinafter referred to as ‘trade credit’ for imports.
Depending on the source of finance, such trade credit will include suppliers’
credit or buyers’ credit. It may be noted that buyers’ credit and suppliers’
credit for three years and above come under the category of External Commercial
Borrowings (ECB) which are governed by ECB guidelines issued vide A. P. (DIR
Series) Circular No. 60 dated January 31, 2004 and modified from time to time.
ADs can approve trade credits
for imports into India up to USD 20 million per import transaction for import
of all items (permissible under the EXIM Policy) with a maturity period (from
the date of shipment) up to one year. For import of capital goods, ADs may approve
trade credits up to USD 20 million per import transaction with a maturity period
of more than one year and less than three years. No roll-over/extension will
be permitted by the AD beyond the permissible period.
General permission has been granted
to Authorised Dealers with effect from November 1, 2004, to issue guarantees/Letter
of Undertaking(LoU)/ Letter of Comfort (LoC) in favour of overseas supplier,
bank and financial institution, up to USD 20 million per transaction for a period
up to one year for import of all non-capital goods permissible under Foreign
Trade Policy (except gold) and up to three years for import of capital goods,
subject to prudential guidelines issued by Reserve Bank from time to time. The
period of such guarantees/LoUs/LoCs has to be co-terminus with the period of
credit reckoned from the date of shipment.
As regards reporting arrangements,
AD banks are required to furnish data on issuance of guarantees/LoUs/LoCs by
all its branches, in a consolidated statement, at quarterly intervals (format
in Annexure II) to the Chief General Manager, Foreign Exchange
Department, ECB Division, Reserve Bank of India, Central Office Building, 10th
floor, Fort, Mumbai – 400 001 from December 2004 onwards so as to reach the department not later than 10th
of the following month.
3.7.4 Loans abroad against securities
provided in India
Giving of guarantees by banks in
India to banks and others outside India for the purpose of grant of loans or
overdrafts abroad is prohibited.
3.7.5 Guarantees for non-residents
Reserve Bank has granted general
permission to authorised dealers vide its Notification No. FEMA/8/ 2000 dated
3rd May 2000 to give guarantees in favour of persons resident in
India in respect of any debt or other obligation or liability of a person resident
outside India, subject to such instructions as may be issued by RBI from time
to time.
Authorised dealers may accordingly
give on behalf of their overseas branches/ correspondents or a bank of international
repute guarantees/performance bonds in favour of residents of India in connection
with genuine transactions involving debt, liability or obligation of non-residents,
provided the bond/ guarantee is covered by a counter-guarantee of the overseas
Head Office/branch/ correspondent or a bank of international repute.
Authorised dealers should ensure
that counter-guarantees are properly evaluated and their own guarantees against
such guarantees are not issued in routine manner. Before issuing a guarantee
against the counter-guarantee from an overseas Head Office/branch/ correspondent/bank
of international repute, authorised dealers should satisfy themselves that the
obligations under the counter-guarantee, when invoked, would be honoured by
the overseas bank promptly. If the authorised dealer desires to issue guarantee
with the condition that payment will be made, provided reimbursement has been
received from the overseas bank which had issued the counter-guarantee, this
fact should be made clearly known to the beneficiary in the guarantee document
itself.
Authorised dealers may make rupee
payments to the resident beneficiaries immediately when the guarantee is invoked
and simultaneously arrange to obtain the reimbursement from the overseas bank
concerned, which had issued the counter-guarantee.
Cases where payments are not received
by the authorised dealers when the guarantees of overseas banks are invoked,
should be reported to RBI indicating the steps being taken by the bank to recover
the amount due under the guarantee.
Authorised dealers may issue guarantees
in favour of overseas organisations issuing travellers cheques in respect of
blank travellers cheques stocked for sale by them or on behalf of their constituents
who are full-fledged money changers holding valid licences from Reserve Bank,
subject to suitable counter-guarantee being obtained from the latter. In the
event of the guarantee being invoked, authorised dealers may effect remittance
but should send a separate report thereon furnishing full details to the Chief
General Manager, Foreign Exchange Department, (Forex Markets Division), Reserve
Bank of India, Central Office, Mumbai - 400 001.
4. Restrictions on guarantees
of inter-company deposits/loans
Banks should not execute guarantees
covering inter-company deposits/loans thereby guaranteeing refund of deposits/loans
accepted by NBFC/firms from other NBFC/firms.
4.1 Restriction on guarantees
for placement of funds with NBFCs
These instructions would cover
all types of deposits/loans irrespective of their source, including deposits/loans
received by NBFCs from trusts and other institutions. Guarantees should not
be issued for the purpose of indirectly enabling the placement of deposits with
NBFCs.
4.2 Restrictions on Inter-Institutional
Guarantees
4.2.1 The banks should
not execute guarantees covering inter-company deposits/loans. Guarantees should
not also be issued for the purpose of indirectly enabling the placement of deposits
with non-banking institutions. This stipulation will apply to all types of deposits/loans
irrespective of their source, e.g. deposits/loans received by non-banking companies
from trusts and other institutions.
4.2.2 The transactions
of the following type are in the nature of guarantees executed by banks in respect
of funds made available by one non-banking to another non-banking company and
the banks should therefore, desist from such practices: -
A seller drew bills, normally of
120 to 180 days usance, on the buyer which were accepted by the buyer and co-accepted
by his banker. The bills were discounted by the seller with the accommodating
company which retained the bills till the due date. The bank which gave co-acceptance
invariably earmarked funds for the liability under the bills against the drawing
power in respect of stocks held in the cash credit account of its client, the
buyer, or
The accommodating company kept
deposits for a specific period with the bank's borrowers under a guarantee executed
by the bank. In such a case also the bank earmarked the amount against drawing
power available in the cash credit account.
4.2.3 Banks may issue
guarantees favouring other banks/FIs/other lending agencies for the loans
extended by the latter, subject to strict compliance with the following
conditions.
i.The Board of Directors should
reckon the integrity/robustness of the bank’s risk management systems and accordingly
put in place a well-laid out policy in this regard.
The Board approved policy should, among others,
address the following issues:
a.Prudential limits, linked to
bank’s Tier I capital, up to which guarantees favouring other banks/FIs/other
lending agencies may be issued.
b.Nature and extent of security and margins
c.Delegation of powers
d.Reporting system
e.Periodical reviews
ii.The guarantee shall be extended
only in respect of borrower constituents and to enable them to avail of additional
credit facility from other banks/FIs/lending agencies
iii.The guaranteeing bank shall assume a funded exposure of at least 10% of
the exposure guaranteed.
iv.Banks should not extend guarantees or letters of comfort in favour of overseas
lenders including those assignable to overseas lenders, except for the relaxations
permitted under FEMA.
v.The guarantee issued by the bank will be an exposure on the borrowing entity
on whose behalf the guarantee has been issued and will attract appropriate risk
weight as per the extant guidelines.
vi.Banks should ensure compliance with the recommendations of the Ghosh Committee
and other internal requirements relating to issue of guarantees to obviate the
possibility of frauds in this area.
Lending Banks
Banks extending credit facilities
against the guarantees issued by other banks/FIs should ensure strict compliance
with the following conditions:
i.The exposure assumed by the bank
against the guarantee of another bank/FI will be deemed as an exposure on the
guaranteeing bank/FI and will attract appropriate risk weight as per the extant
guidelines.
ii.Exposures assumed by way of credit facilities extended against the guarantees
issued by other banks should be reckoned within the inter bank exposure limits
prescribed by the Board of Directors. Since the exposure assumed by the bank
against the guarantee of another bank/FI will be for a fairly longer term than
those assumed on account of inter bank dealings in the money market, foreign
exchange market and securities market, Board of Directors should fix an appropriate
sub-limit for the longer term exposures since these exposures attract greater
risk.
iii.Banks should monitor the exposure assumed on the guaranteeing bank/FI, on
a continuous basis and ensure strict compliance with the prudential limits/sub
limits prescribed by the Board for banks and the prudential single borrower
limits prescribed by RBI for FIs.
iv.Banks should comply with the recommendations of the Ghosh Committee and other
internal requirements relating to acceptance of guarantees of other banks to
obviate the possibility of frauds in this area.
4.2.4 Exceptions
In regard to rehabilitation of
sick/weak industrial units, in exceptional cases, where banks are unable to
participate in rehabilitation packages on account of temporary liquidity constraints,
the concerned banks could provide guarantees in favour of the banks which take
up their additional share. Such guarantees will remain extant until such time
the banks providing additional finance against guarantees are re-compensated.
In respect of infrastructure projects,
banks may issue guarantees favouring other lending institutions, provided the
bank issuing the guarantee takes a funded share in the project at least to the
extent of 5 percent of the project cost and undertakes normal credit appraisal,
monitoring and follow up of the project.
In cases of Sellers Line of Credit
Scheme (SLCS) operated by Industrial Development Bank of India Ltd. and all
India financial institutions like SIDBI, PFC, etc for sale of machinery, the
primary credit is provided by the seller’s bank to the seller through bills
drawn on the buyer and seller’s bank has no access to the security covered by
the transaction which remains with the buyer. As such, buyer’s banks are permitted
to extend guarantee/co-acceptance facility for the bills drawn under seller’s
line of credit.
Similarly guarantees can be issued
in favour of HUDCO/State Housing Boards and similar bodies/ organisations for
the loans granted by them to private borrowers who are unable to offer clear
and marketable title to property, provided banks are otherwise satisfied with
the capacity of the borrowers to adequately service such loans.
Banks may sanction issuance of
guarantees on behalf of their constituents, favouring Development Agencies/Boards
like Indian Renewable Energy Development Agency, National Horticulture Board,
etc., for obtaining soft loans and/or other forms of development assistance.
4.2.5 Infrastructure projects
Keeping in view the special features
of lending to infrastructure projects viz., high degree of appraisal skills
on the part of lenders and availability of resources of a maturity matching
with the project period, banks have been given discretion in the matter of issuance
of guarantees favouring other lending agencies, in respect of infrastructure
projects alone, subject to the following conditions:
(i) The bank issuing the guarantee
takes a funded share in the project at least to the extent of 5 percent of the
project cost and undertakes normal credit appraisal, monitoring and follow-up
of the project.
(ii) The guarantor bank has a satisfactory record in compliance with the
prudential regulations, such as, capital adequacy, credit exposure, norms relating
to income recognition, asset classification and provisioning, etc.
5. Payment of invoked guarantees
5.1 Where guarantees
are invoked, payment should be made to the beneficiaries without delay and demur.
An appropriate procedure for ensuring such immediate honouring of guarantees
should be laid down so that there is no delay on the pretext that legal advice
or approval of higher authorities is being obtained.
5.2 Delays on the part
of banks in honouring the guarantees when invoked tend to erode the value of
the bank guarantees, the sanctity of the scheme of guarantees and image of banks.
It also provides an opportunity to the parties to take recourse to courts and
obtain injunction orders. In the case of guarantees in favour of Government
departments, this not only delays the revenue collection efforts but also give
an erroneous impression that banks are actively in collusion with the parties,
which tarnish the image of the banking system.
There should be an effective system
to process the guarantee business to ensure that the persons on whose behalf
the guarantees are issued will be in a position to perform their obligations
in the case of performance guarantees and honour their commitments out of their
own resources as and when needed in the case of financial guarantees.
5.3 The top management
of the banks should bestow their personal attention to the need to put in place
a proper mechanism for making payments in respect of invoked guarantees promptly
so that no room is given for such complaints. When complaints are made, particularly
by the Government departments for not honouring the guarantees issued, the top
management of the bank, including its Chief Executive Officer, should personally
look into such complaints.
In this regard, the Delhi High
Court has made adverse remarks against certain banks in not promptly honouring
the commitment of guarantees when invoked. It has been observed that a bank
guarantee is a contract between the beneficiary and the bank. When the beneficiary
invokes the bank guarantee and a letter invoking the same is sent in terms of
the bank guarantee, it is obligatory on the bank to make payment to the beneficiary.
5.4 The Supreme Court
had observed [U.P. Co-operative Federation Private Ltd. versus Singh Consultants
and Engineers Private Ltd. (1988 IC SSC 174)] that the commitments of the banks
must be honoured free from interference by the courts.
The relevant extract from the judgement
of the Supreme Court in a case is as under:
'We are, therefore, of the opinion
that the correct position of law is that commitment of banks must be honoured
free from interference by the courts and it is only in exceptional cases, that
is, to say, in case of fraud or any case where irretrievable injustice would
be done if bank guarantee is allowed to be encashed the court should interfere'.
5.5 In order to avoid
such situations, it is absolutely essential for banks to appraise the proposals
for guarantees also with the same diligence as in the case of fund based limits
and obtain adequate cover by way of margin so as to prevent the constituents
to develop a tendency of defaulting in payments when invoked guarantees are
honoured by the banks.
5.6 In the interest of
the smooth working of the Bank Guarantee Scheme, it is essential to ensure that
there is no discontentment on the part of the Government departments regarding
its working. Banks are required to ensure that the guarantees issued by them
are honoured without delay and hesitation when they are invoked by the Government
departments in accordance with the terms and conditions of the guarantee deed,
unless there is a Court order restraining the banks.
Any decision not to honour the
obligation under the guarantee invoked may be taken after careful consideration
at a fairly senior level and only in the circumstances where the bank is satisfied
that any such payment to the beneficiary would not be deemed a rightful payment
in accordance with the terms and conditions of the guarantee under the Indian
Contract Act.
The Chief Executive Officers of
banks should assume personal responsibility for such complaints received from
Government departments. Sufficient powers should be delegated to the line functionaries
so that delay on account of reference to higher authorities for payment under
the guarantee does not occur.
Banks should also introduce an
appropriate procedure for ensuring immediate honouring of guarantees so that
there is no delay on the pretext that legal advice or approval of higher authorities
is being obtained.
For any non-payment of guarantee
in time, staff accountability should be fixed and stern disciplinary action
including award of major penalty such as dismissal, should be taken against
the delinquent officials at all levels.
Where banks have executed bank
guarantees in favour of Customs and Central Excise authorities to cover differential
duty amounts in connection with interim orders issued by High Courts, the guarantee
amount should be released immediately when they are invoked on vacation of the
stay orders by Courts. Banks should not hold back the amount on the pretext
that it would affect their liquidity position.
5.7 There have also been
complaints by Ministry of Finance that some of the departments such as Department
of Revenue, Government of India are finding it difficult to execute judgements
delivered by various Courts in their favour as banks do not honour their guarantees,
unless certified copies of the Court judgements are made available to them.
In this regard, the banks may follow the following procedure:
Where the bank is a party to the
proceedings initiated by Government for enforcement of the bank guarantee and
the case is decided in favour of the Government by the Court, banks should not
insist on production of certified copy of the judgement as the judgement/order
is pronounced in open Court in presence of the parties/their counsels and the
judgement is known to the bank.
In case the bank is not a party
to the proceedings, a signed copy of the minutes of the order certified by the
Registrar/Deputy or Assistant Registrar of the High Court or the ordinary copy
of the judgement/order of the High Court duly attested to be true copy by Government
Counsel should be sufficient for honouring the obligation under guarantee, unless
the guarantor bank decides to file any appeal against the order of the High
Court.
Banks should honour the guarantees
issued by them as and when they are invoked in accordance with the terms and
conditions of the guarantee deeds. In case of any disputes such honouring can
be done under protest, if necessary, and the matters of dispute pursued separately.
The Government, on their part,
have advised the various Government departments, etc. that the invocation of
guarantees should be done after careful consideration at a senior-level that
a default has occurred in accordance with the terms and conditions of the guarantees
and as provided in the guarantee deed.
Non-compliance of the instructions
in regard to honouring commitments under invoked guarantees will be viewed by
Reserve Bank very seriously and Reserve Bank will be constrained to take deterrent
action against the banks.
6. Co-acceptance of bills
6.1 General
Reserve Bank has observed that
some banks co-accept bills of their customers and also discount bills co-accepted
by other banks in a casual manner. These bills subsequently turn out to be accommodation
bills drawn by groups of sister concerns on each other where no genuine trade
transaction takes place. Banks, while discounting such bills, appear to ignore
this important aspect presumably because of the co-acceptance given by other
banks. The bills on maturity are not honoured by the drawees and the banks which
co-accept the bills have to make payment of these bills and they find it difficult
to recover the amount from the drawers/drawees of bills. The banks also discount
bills for sizeable amounts which are co-accepted by certain Urban Co-operative
Banks. On maturity, the bills are not honoured and the co-operative banks, which
co-accept the bills, also find it difficult to make the payment. The financial
position and capacity of the co-accepting bank to honour the bills, in the event
of need, is not being gone into. Cases have also been observed where the particulars
regarding co-acceptance of bills are not recorded in the bank's books with the
result the extent thereof cannot be verified during inspections and the Head
Office becomes aware of the co-acceptance only when a claim is received from
the discounting bank.
6.2 Safeguards
In the light of the above, banks
should keep in view the following safeguards:
i. While sanctioning co-acceptance
limits to their customers, the need therefor should be ascertained and such
limits should be extended only to those customers who enjoyed other limits with
the bank.
ii. Only genuine trade bills should be co-accepted and the banks should ensure
that the goods covered by bills co-accepted are actually received in the stock
accounts of the borrowers.
iii. The valuation of the goods as mentioned in the accompanying invoice should
be verified to see that there is no over-valuation of stocks.
iv. The banks should not extend their co-acceptance to house bills/accommodation
bills drawn by group concerns on one another.
v. The banks discounting such bills co-accepted by other banks should also ensure
that the bills are not accommodation bills and that the co-accepting bank has
the capacity to redeem the obligation in case of need.
vi. Bank-wise limits should be fixed, taking into consideration the size of
each bank for discounting bills co-accepted by other banks and the relative
powers of the officials of the other banks should be got registered with the
discounting banks.
vii. Care should be taken to see that the co-acceptance liability of any bank
is not disproportionate to its known resources position.
viii. A system of obtaining periodical confirmation of the liability of co-accepting
banks in regard to the outstanding bills should be introduced.
ix. Proper records of the bills co-accepted for each customer should be maintained
so that the commitments for each customer and the total commitments at a branch
can be readily ascertained and these should be scrutinised by Internal Inspectors
and commented upon in their reports.
x. It is also desirable for the discounting bank to advise the Head Office/Controlling
Office of the bank, which has co-accepted the bills, whenever such transactions
appear to be disproportionate or large.
xi. Proper periodical returns may be prescribed so that the Branch Managers
report such co-acceptance commitments entered into by them to the Controlling
Offices.
Such returns should also reveal the position of bills that have become overdue
and which the bank had to meet under the co-acceptance obligation. This will
enable the Controlling Offices to monitor such co-acceptances furnished by the
branches and take suitable action in time, in difficult cases.
xii. Co-acceptances in respect of bills for
Rs.10,000/- and above should be signed by two officials jointly, deviation being
allowed only in exceptional cases, e.g. non-availability of two officials at
a branch.
xiii. Before discounting/purchasing bills co-accepted by other banks for Rs.
2 lakh and above from a single party the bank should obtain written confirmation
of the concerned Controlling (Regional/ Divisional/ Zonal) Office of the accepting
bank and a record of the same should be kept.
xiv. When the value of total bills discounted/purchased (which have been co-accepted
by other banks) exceed Rs. 20 lakh for a single borrower/group of borrowers,
prior approval of the Head Office of the co-accepting bank must be obtained
by the discounting bank in writing.
6.3 In addition to the
above safeguards to be observed by banks in co-accepting the bills, it must
be noted that the banks are precluded from co-accepting bills drawn under Buyers
Line of Credit Schemes introduced by Industrial Development Bank of India Ltd.
and all India financial institutions like SIDBI, Power Finance Corporation Ltd.
(PFC), etc. Similarly, banks should not co-accept bills drawn by NBFCs. In addition,
banks are advised not to extend co-acceptance on behalf of their buyers/constituents
under the SIDBI Scheme.
6.4 However, banks may
co-accept bills drawn under the Sellers Line of Credit Schemes for Bill Discounting
operated by Industrial Development Bank of India Ltd. 2 and all India
financial institutions like SIDBI, PFC, etc. without any limit, subject to buyer’s
capability to pay and the compliance with the exposure norms prescribed by the
bank for individual/ group borrowers.
6.5 There have been instances
where branches of banks open L/Cs on behalf of their constituents and also co-accept
the bills drawn under such L/Cs. Legally, if a bank co-accepts a bill drawn
under its own L/C, the bill so co-accepted becomes an independent document and
the special rules applicable to commercial credits do not apply to such bill
and the bill is exclusively governed by the law relating to Bills of Exchange
i.e. Negotiable Instruments Act. The negotiating bank of such a bill is not
under any obligation to check the particulars of the bill with reference to
the terms of the L/C. This practice is, therefore, superfluous and defeats the
purpose of issuing L/C. The discounting banks should first ascertain from co-accepting
banks, the reason for such co-acceptance of bills drawn under its own L/C and
only after satisfying themselves of genuineness of such transaction, they may
consider discounting such bills.
6.6 It should be ensured
that the branch officials strictly adhere to the above referred instructions
at the time of co-acceptance of bills. It would be advisable to determine clear
accountability in this respect and officials found to be not complying with
the instructions must be dealt with sternly.
7. Precautions to be taken in the case of Letters
of Credit
7.1. The banks should not
extend any non-fund based facilities or additional/ad-hoc credit facilities
to parties who are not their regular constituents nor should they discount bills
drawn under LCs or otherwise for beneficiaries who are not their regular clients.
In the case of LCs for import of goods, the banks should be very vigilant while
making payment to the overseas suppliers on the basis of shipping documents.
They should exercise precaution and care in comparing the clients. The payments
should be released to the foreign parties only after ensuing that the documents
are strictly in conformity with the terms of the LCs. There have been many irregularities
in the conduct of LC business such as the LC transactions not being recorded
in the books of the branch by officials issuing them, the amount of LCs being
much in excess of the powers vested in the officials, fraudulent issue of LCs
involving a conspiracy/collusion between the beneficiary and the constituent.
In such cases, the banks should take action against the concerned officials
as well as the constituent on whose behalf the LCs were opened and the beneficiary
of LCs, if a criminal conspiracy is involved.
7.2 Settlement of claims under Letters of Credits(LCs)
In case the bills drawn under LCs
are not honoured, it would adversely affect the character of LCs and the relative
bills as an accepted means of payment. This could also affect the creditability
of the entire payment mechanism through banks and affect the image of the banks.
The banks should, therefore, honour their commitments under LCs and make payments
promptly.
Annexure I
Master Circular
GUARANTEES & CO-ACCEPTANCES
Revised Model Form of Bank Guarantee
Bond
(Vide paragraph 2.8)
GUARANTEE BOND
1. In consideration of the President
of India (hereinafter called 'the Government') having agreed to exempt _______________________________
[hereinafter called 'the said Contractor(s)'] from the demand, under the terms
and conditions of an Agreement dated ___________ made between _______________________________________________
and___________________________________for_____________ (hereinafter called 'the
said Agreement'), of security deposit for the due fulfilment by the said Contractor(s)
of the terms and conditions contained in the said Agreement, on production of
a bank Guarantee for Rs. __________ (Rupees______________________________________
Only) We, ______________________________________________________________, (hereinafter
referred (indicate the name of the bank) to as 'the Bank') at the request of
_________________________________________________ [contractor(s)] do hereby
undertake to pay to the Government an amount not exceeding Rs. ______________
against any loss or damage caused to or suffered or would be caused to or suffered
by the Government by reason of any breach by the said Contractor(s) of any of
the terms or conditions contained in the said Agreement.
2. We _______________________________________________________
(indicate the name of the bank) do hereby undertake to pay the amounts due and
payable under this guarantee without any demur, merely on a demand from the
Government stating that the amount claimed is due by way of loss or damage caused
to or would be caused to or suffered by the Government by reason of breach by
the said contractor(s) of any of the terms or conditions contained in the said
Agreement or by reason of the contractor(s)' failure to perform the said Agreement.
Any such demand made on the bank shall be conclusive as regards the amount due
and payable by the Bank under this guarantee. However, our liability under this
guarantee shall be restricted to an amount not exceeding Rs. _______________.
3. We undertake to pay to the Government
any money so demanded notwithstanding any dispute or disputes raised by the
contractor(s)/supplier(s) in any suit or proceeding pending before any Court
or Tribunal relating thereto our liability under this present being absolute
and unequivocal.
The payment so made by us under
this bond shall be a valid discharge of our liability for payment thereunder
and the contractor(s)/supplier(s) shall have no claim against us for making
such payment.
4. We,_____________________________________________________________
(indicate the name of bank) further agree that the guarantee herein contained
shall remain in full force and effect during the period that would be taken
for the performance of the said Agreement and that it shall continue to be enforceable
till all the dues of the Government under or by virtue of the said Agreement
have been fully paid and its claims satisfied or discharged or till__________________________________
Office/ Department/Ministry of________________________________ certifies that
the terms and conditions of the said Agreement have been fully and properly
carried out by the said contractor(s) and accordingly discharges this guarantee.
Unless a demand or claim under this guarantee is made on us in writing on or
before the ___________________________________________ we shall be discharged
from all liability under this guarantee thereafter.
5. We, _______________________________________________
(indicate the name of bank) further agree with the Government that the Government
shall have the fullest liberty without our consent and without affecting in
any manner our obligations hereunder to vary any of the terms and conditions
of the said Agreement or to extend time of performance by the said contractor(s)
from time to time or to postpone for any time or from time to time any of the
powers exercisable by the Government against the said Contractor(s) and to forbear
or enforce any of the terms and conditions relating to the said agreement and
we shall not be relieved from our liability by reason of any such variation,
or extension being granted to the said Contractor(s) or for any forbearance,
act or omission on the part of the Government or any indulgence by the Government
to the said Contractor(s) or by any such matter or thing whatsoever which under
the law relating to sureties would, but for this provision, have effect of so
relieving us.
6. This guarantee will not be discharged
due to the change in the constitution of the Bank or the Contractor(s)/Supplier(s).
7. We, ________________________________________
(indicate the name of bank) lastly undertake not to revoke this guarantee during
its currency except with the previous consent of the Government in writing.
8. Dated the ____________ day of
___________ _____ for ______________________________ (indicate the name of the
Bank).
Annexure II
Annex to A. P. DIR Series Circular
No. 24 dated November 1, 2004
Guarantees / Letter of Undertaking
/ Letter of Comfort issued / invoked by ADs
As on quarter ended ……………….
Name of the AD :
|
|
Contact Person:
|
Address :
|
|
Tel:
|
e-mail:
|
|
Fax:
|
(USD million)
On behalf of Residents
|
Guarantees / Letter of Undertaking
/ Letter of Comfort
|
Issued
|
Buyer’s Credit
|
Supplier’s Credit
|
Trade Credits (less than 3 years)
- Up to one year
- Above one year and less than three years
**
** (Limited to Import of Capital Goods)
|
|
|
1
Place:-----------------------
|
|
|
Signature of the Authorised
Signatory
|
Date: -----------------------
|
[ Stamp]
|
|
|
Appendix
Master Circular
GUARANTEES AND CO-ACCEPTANCES
List of Circulars issued subsequent
to the previous Master Circular
1.
|
A.P.(DIR Series) Circular
No.
|
24
|
01.11.2004
|
2.
|
A.P. (DIR Series) Circular
No.
|
17
|
16.10.2004
|
3.
|
DBOD.Dir.BC. No.
|
18/13.03.00/2004-05
|
23.07.2004
|
|