M/s. XYZ Ltd. is maintaining a Current Account for few years with ABC Bank, maintaining an average balance of ₹ 20 Lakh. The company never asked for a credit facility. Now, the company needs a Performance Guarantee of ₹

Issue of Bank Guarantee is a credit decision and involves the study of viability of the unit on whose behalf the Bank Guarantee is issued. As such, the firm may be asked to submit the proposal and the same be appraised as done in case of fund-based credit facilities. Even in the Bank Guarantee limit, the Bank has to assess the viability of the unit / activity. Since the past experience of the borrower is satisfactory, the same to be done on priority basis. The viability study, in case of Bank Guarantee, would involve the study of capacity and ability of the unit to execute and complete their contract as per the terms of the Bank Guarantee. This will minimize the risk of invoking of the Bank Guarantee by the beneficiary. The Contract obtained is of high value and it is important to examine whether the firm has competence and capacity to successfully execute the contract. The post track record has to be examined. As the non-fund bank guarantee can become fund based and the Bank will have to part with fund in case of invocation. The Bank has also to take into view other aspects like Margin, Collateral Security, Third Party Guarantee, etc. If appraisal be found viable, Bank Guarantee be sanctioned.