Bank Guarantees and

Trade Finance

Bank Guarantees
A Bank guarantee is a promise from a bank that
the liabilities of a debtor will be met in the
event that you fail to fulfill your contractual
obligations.

ICICI Bank's Bank Guarantees
Honour payment to your beneficiaries upon
receipt of a claim
Provides Bank Guarantees in foreign currency
for approved purposes as defined under FEMA.

How does a Bank Guarantee work?

Types of Bank Guarantee

Performance Guarantee
Bid Bond Guarantee
Financial Guarantee
Advance Payment Guarantee
Deferred Payment Guarantee

 What is a 'Performance Bond'

A bond issued to one party of a contract as a
guarantee against the failure of the other party to
meet obligations specified in the contract.
BREAKING DOWN 'Performance Bond'
For example, a contractor may issue a bond to a
client for whom a building is being constructed. If
the contractor fails to construct the building
according to the specifications laid out by the
contract, the client is guaranteed compensation for
any monetary loss.

 A bid bond is issued as part of a

supply bidding process by the
contractor to the project owner, to in
hopes guarantee that the winning
bidder will undertake the contract
under the terms at which they bid.

 What is FINANCIAL GUARANTEE?

A bond that gets timely payment to
the holder of debt. It cannot be
cancelled. It guarantees repayment.
Another party may pay if the party
borrowing goes into default.

advance payment guarantee:

Definition
Guarantee supplied by a party receiving an
advance payment to the party advancing
the payment. It provides that the advanced
sum will be returned if the agreement under
which the advance was made cannot be
fulfilled.

Deferred Payment Guarantee

The bank at request of customer issues such Bank Guarantee
when he purchases goods or machineries from a creditor on the
terms of payment after a specified time in lump sum or in
installments. The creditor requires such deferred payment terms
to be guaranteed by the bankers of the principal debtor. Such a
Bank Guarantee contain an undertaking by the banker that that
deferred payment shall be made by the principal debtor, failing
which the banker shall pay the amount to the creditor.
These types of guarantees normally arise in the case of
purchases of machinery or such capital equipment by industries
or other party/ies. The manufacturer or its agent applies the
machinery against cash payment say 10% to 15% & obtains
accepted bills for the balance amount by purchasers banker for
deferred period say 3 to 5 years

 Example:
The ICICI Bank edge
Extensive Validity - Valid for a maximum of
10 years & Maximum tenor of guarantee is
18 months
Competitively priced
Worldwide Acceptance - Globally accepted
by all beneficiaries
Ease - Bank Guarantee in INR as well as
foreign currency

Trade Finance
In its simplest form, anexporterrequires
animporterto prepay for goods shipped.
The importer naturally wants to reduce
risk by asking the exporter to document
that the goods have been shipped. The
importers bank assists by providing
aletter of creditto the exporter (or the
exporter's bank) providing for payment
upon presentation of certain documents,
such as abill of lading

 Trade finance is used when financing is required by

buyers and sellers to assist them with the trade cycle
funding gap. Buyers and sellers also can also choose
to use trade finance as a form ofrisk mitigation.
For this to be effective the financier requires:

- Control of the use of funds, control of the
goods and the source of repayment
- Visibility and monitoring over the trade cycle
through the transaction
- Security over the goods and receivables