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Foreign Guarantees (Guarantees favoring Non-Resident Beneficiaries)

Foreign Guarantees (Guarantees favoring Non-Resident Beneficiaries). A.D. Banks have general permission from RBI to issue Bid Bonds, performance Bonds in favour of Overseas buyers.(excepting on behalf of caution listed exporters)

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Foreign Guarantees (Guarantees favoring Non-Resident Beneficiaries)

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  1. Foreign Guarantees (Guarantees favoring Non-Resident Beneficiaries) Ashit Hegde

  2. A.D. Banks have general permission from RBI to issue Bid Bonds, performance Bonds in favour of Overseas buyers.(excepting on behalf of caution listed exporters) • Banks may also issue counter –guarantees favouring their branches/ correspondents abroad in cover of guarantees issued by the latter on behalf of Indian exporters. Ashit Hegde

  3. Banks can issue guarantees in favour of • Foreign airlines /IATA on behalf of Indian Agents • Non-Resident service providers up to USD 500,000/- • For PSUs the amt is limited to USD 100,000/- • Invocation of guarantees All invocations should be reported to RBI Mumbai in detail. Where guarantees are invoked payment should be made without delay and demur. Ashit Hegde

  4. Guarantees for advance payments - • Guarantees are also issued to enable exporters to receive advances against export orders. • RBI has noticed that large advances are received by exporters with small turnover. • It appears interest rate arbitrage is being resorted to. It is also noticed that guarantees are issued for par values whereas amount of advance received are discounted values. • It is also likely that money thus received is used for purposes not permitted under ECB/ Trade credit discipline. Ashit Hegde

  5. Guarantees for ECBs - • Banks are not permitted to issue guarantees/standby LCs/LOUs/LOCs in favour of Lenders. • However, for SMEs and Textile companies RBI may consider allowing such guarantees under ‘’Approval Route “ for specified purposes. • Guarantees for raising finance abroad - • Banks or their branches abroad cannot issue guarantee on behalf of JV/WOS/WOSDS of Indian companies for the purpose of raising finance from other entities. Ashit Hegde

  6. Guarantees for Trade credits - • Banks can issue guarantees/LOUs/LOCs up to USD 20 Million for trade credits by Overseas suppliers/ Overseas banks up to one year for import of non-capital goods. • For import of capital goods guarantees can be issued up to 3 years. • Reporting - Issuance of all guarantees LOCs/LOUs have to be reported to RBI Mumbai for the bank as a whole at Quarterly intervals. Ashit Hegde

  7. Bank Guarantees (Domestic) The RBI guidelines stipulate that a minimum margin of 50 percent (with min. 25 percent cash margin) should be obtained while issuing guarantees in favour of • Stock Exchanges (NSE , BSE, etc) • Commodity Exchanges (NCDEX, MCX, NMCELL) Such guarantees are normally issued on behalf of stock/commodity brokers. Ashit Hegde

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