• Bank loan - finance

    BANK LOAN / FINANCE

    Bank Loan / Finance / Credit / Advance

    Lending money is one of the two major activities of any Bank. Banks accept deposit from public for safe-keeping and pay interest to them. They then lend this money to earn interest on this money.

    A bank can lend out only a certain proportion of its deposits, since some part of deposits have to be statutorily maintained as Cash Reserve Ratio (CRR) – deposits with Reserve Bank of India and an additional part has to be used for making investment in prescribed securities (Statutory Liquidity Ratio or SLR requirement).

    Banks have the option of having more cash reserves than CRR requirement and invest more in SLR securities than they are required to. Further, banks also have the option to invest in non-SLR securities.

    We shall study about this article further, in detail, in our next post.

    Keep reading!!

  • bank guarantee

    BANK GUARANTEES

    Definition

    Bank Guarantee is a contract between a bank as guarantor and a beneficiary in which the bank commits itself to pay a certain sum under certain, specified conditions.

    A Bank Guarantee is an instrument issued by the bank in which the Bank agrees to pay a specific amount of money to the beneficiary of the BG, in the event of non-performance of underlying commitment by the applicant of the BG.

    Thus, a demand guarantee is one in which the bank agrees to pay against the simple written demand of the beneficiary.

     

    We shall study about this article further, in detail, in our next post.

     

    Keep reading!!

  • standby-credit

    STAND-BY LETTER OF CREDIT

    A Standby Letter of Credit (SBLC) is a written obligation of an issuing bank to pay a defined sum of money to a beneficiary on behalf of their customer in the event that their customer fails to fulfil a contractual commitment to the beneficiary.  It is important to note that regardless of any disputes between its customer and the beneficiary the bank is obliged to pay upon first demand.

    Did you know that – “Standby L/cs originated in the United States as it was not possible to issue BGs there. This was because the banking legislation in U.S. forbids banks to assume guarantee obligations on behalf of their clients. To circumvent this rule, the U.S. banks created the SBLC.”!!!

     

  • bank-garantee

    Bank Guarantee (BG)

    A Bank Guarantee is an instrument issued by the Bank in which the Bank agrees to pay a specific amount of money to the beneficiary of the BG, in the event of non-performance of underlying commitment by the applicant of the BG.

    There are 3 parties to a BG viz. The Guarantor – The bank that issues the BG, The Applicant – on whose behalf the BG issued, The Beneficiary – who is the recipient in whose favour the BG is issued. A BG is payable on first demand and such demand is raised by the beneficiary immediately on breach of contract by the applicant.

    There are mainly 2 types of BGs, viz. Financial BGs and Performance BGs.  Of late, another financial instrument namely Standby Letter of Credit (SBLC), has gained prominence and is being used as an alternative to BGs across the world.

    Did you know that – “A bank guarantee is always issued with an intention that it should never get invoked and should always remain unutilised”!!!

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