The Bank acts as guarantor and will pay an agreed sum if the customer fails or defaults in fulfilling his obligations under the BG
There are two types of bank guarantees i.e. Financial and Non-Financial Bank Guarantees (BG):-
- Financial Guarantees are defined as guarantees issued by the Bank for its customers, favoring a third party under which the Bank agrees to pay the third party if the customer is unable to pay the amount due to the third party.
- Non-Financial Guarantees are broadly classified as performance bond guarantees. Such guarantees are those issued by the Bank for its customers favoring a third party, under which the Bank agrees to indemnify the third party should the customer fail to perform in accordance with the terms and conditions of the specific contract entered into.
All BGs issued must be specific as to the amount and period of liability including claim period.