Legal Question in Banking Law in India

Re: revolving bank guarantee

A bank guarantee is the obligation of the bank to pay a party to the agreement (a recipient of a guarantee) compensation to the extent of the amount indicated in the guarantee if the other party to the agreement (applicant) does not perform its contractual duties. The bank cannot guarantee the recipient of the guarantee that the latter's counterparty will perform its obligations, but can only guarantee the payment to the extent of the guarantee amount. Bank guarantees give the recipient the security that if the operation indicated in the agreement is not performed for any reason, the recipient shall be entitled to monetary compensation.

Advantages of guarantee:

The customer has the opportunity to delay payments and thus, increase the amount of available circulating assets.

The customer will be able to reduce the purchase price of the goods because the risk of the supplier decreases.

According to risk, guarantees are divided as follows:

Payment Guarantee

For exporters, it is essential to reduce the payment risk of buyers. For that purpose, a payment guarantee that guarantees the seller (exporter) payment for goods if the buyer has not fulfilled its payment obligations by the due date. The amount of a payment guarantee is usually the value of the goods and the due to which a certain number of days for making a claim have been added is the term of validity.

Tender Guarantee

The aim of a tender guarantee is to guarantee compensation to the extent of a guarantee amount to the recipient of the guarantee if the applicant of the guarantee refuses to conclude an agreement on the tender that it has made and that has been approved by the recipient, withdraws its tender before the deadline or fails to present a functionality guarantee to the recipient after conclusion of the agreement.

Advance Payment Guarantee

An advance payment guarantee guarantees that an advance payment made to the applicant of the guarantee to the extent of a guarantee amount is returned to the recipient if the applicant of the guarantee fails to perform its contractual obligations (for example, does not deliver goods after receipt of the advance payment). The amount of an advance payment guarantee is the amount of the advance payment and the expiry date is usually the date of receipt of goods or provision of the service or other date or a certain number of days as of the due date.

Performance Guarantee

The aim of a performance guarantee is to guarantee compensation for the recipient of the guarantee if the counterparty does not perform its contractual obligations (for example, delivery of goods, performance of work, provision of services, etc.).

Guarantee for Warranty Obligations

It guarantees compensation to the recipient of a guarantee if any defects appear in delivered goods, constructions, etc.

Bill of Exchange

A bill of exchange guarantees the recipient of a payment under the bill of exchange,

Re: revolving bank guarantee

Revolving bank guarantee is like a C.C.Limit. Once the guarantee of one contract is extinguished, the same guarantee may be utilized for next transaction; and so on and so forth.

Other guarantees are valid only for specific transactions.

For RBI rules and regulations, and other part of your question, you may refer to a good work on Banking Law and Practice.

Re: revolving bank guarantee

contact a banking lawyer

Re: revolving bank guarantee

Hello.

Good Evening

Bank Guarantee - A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank will cover it. A bank guarantee enables the customer (debtor) to acquire goods, buy equipment, or draw down loans, and thereby expand business activity.

Letter Of Credit - A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. Letters of credit are often used in international transactions to ensure that payment will be received. Due to the nature of international dealings including factors such as distance, differing laws in each country and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade. The bank also acts on behalf of the buyer (holder of letter of credit) by ensuring that the supplier will not be paid until the bank receives a confirmation that the goods have been shipped.

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RDLC Revolving Documentary Letter of Credit - Documentary letters of credit can be either Revocable or Irrevocable, although the first is extremely rare. Irrevocable letters of credit can be Confirmed or Not Confirmed. Each type of credit has advantages and disadvantages for the buyer and for the seller, which this information will review below. Charges for each type will also vary. However, the more the banks assume risk by guaranteeing payment, the more they will charge for providing the service.

Documentary Revocable Letter of Credit

Revocable credits may be modified or even canceled by the buyer without notice to the seller. Therefore, they are generally unacceptable to the seller.

Documentary Irrevocable Letter of Credit

This is the most common form of credit used in international trade. Irrevocable credits may not be modified or canceled by the buyer. The buyer's issuing bank must follow through with payment to the seller so long as the seller complies with the conditions listed in the letter of credit. Changes in the credit must be approved by both the buyer and the seller. If the documentary letter of credit does not mention whether it is revocable or irrevocable, it automatically defaults to irrevocable. See Credit Administration, Sample Procedure for Administration of a Documentary Irrevocable Letters of Credit for a systematic procedure for establishing an irrevocable letter of credit.

Revolving Letter of Credit

With a Revolving Letter of Credit, the issuing bank restores the credit to its original amount once it has been used or drawn down. Usually, these arrangements limit the number of times the buyer may draw down its line over a predetermined period.

Re: revolving bank guarantee

consult your banker.