Background Image

How does a bank guarantee work?

Home  /  Bank Guarantee  /  How does a bank guarantee work?

How does a bank guarantee work?

How does a bank guarantee work?

How does a bank guarantee work?

How does a bank guarantee work?


It can be explained in three steps:

1.A bank guarantee is needed when the applicant and beneficiary enter into the agreement.
2.Applicant approaches a bank for issuing a bank guarantee in favor of beneficiary.
3.The approached bank issued the bank guarantee.

So, the bank guarantee is the comfort, provided by the bank to the beneficiary for losses or damages if a client fails to conform as per the agreement. Issuance of the BG is a secure transaction as the client mortgages the properties and cash in the form of FDR for issuing of the same. The bank will not give guarantee without securing itself.
For Example, a client in USA does not accept a bank guarantee from an Indian Bank. What will an Indian supplier do if he does not have an account in reputed foreign Bank?
The client will approach an Indian bank for BG. The Indian bank will then approach a reputed foreign bank for counter BG. The foreign bank will issue a BG in favor of the client on behalf of the Indian Bank

Leave a Reply

Your email address will not be published. Required fields are marked *