SYLLABUS FOR VIVA

BANKING:-
1.Banker and Customer Relations
2.Types of Accounts,
3.Various Services rendered by the bank,
4.rights and duties of a banker,
5.bank guarantees and letter of credit
1.Banker and Customer Relations

Before we take up relationship that exists between a banker and his customer,
let us understand the definitions of the term banker and customer. The definition
of the business of banking and a large number of activities permissible for
banks are given in the Banking Regulation Act 1949.The relationship between a
banker and his customer depends upon the nature of service provided by a
banker.

Meaning of Banker

As per H.L. Hart a Banker is one who in the ordinary course of his business,
honors cheques drawn upon him by persons from and for whom he receives
money on current accounts. As indicated by Section 3 of the Negotiable
Instruments Act, 1881, Banker includes any person acting as a banker.

As per Section 5(b) (b) "banking" means the accepting, for the purpose of
lending or investment, of deposits of money from the public, repayable on
demand or otherwise, and withdrawal by cheque, draft, order or otherwise;

5 (c) "banking company" means any company which transacts the business of
banking1 [in India]; Explanation, Any company which is engaged in the
manufacture of goods or carries on any trade and which accepts deposits of
money from the public merely for the purpose of financing its business as such
manufacturer or trader shall not be deemed to transact the business of banking
within the meaning of this clause;

Definition of Customer

The term customer of a bank is not defined by law. Ordinarily, a person who
has an account in a bank is considered its customer. Banking experts and legal
judgment in the past, however, used to qualify this statement by laying
emphasis on the period for which such account had actually been maintained
with the bank.

According to Sir John Paget’s view ―to constitute a customer there must be
some recognizable course or habit of dealing in the nature of regular banking
business. This definition of a customer of a bank lays emphasis on the duration
of the dealing between the banker and the customer and is, therefore, called the
duration theory. According to this view point, a person does not become a
customer of the banker on the opening of an account; he must have been
accustomed to deal with the banker before he is designated as a customer.

The “Duration Theory” was exploded by Mr. Justice Bailhache in Ladbroke v.

Todd who observed that the relation of banker and customer begins as soon as
the firstr cheque is paid in and accepted for collection and not merely when it is
paid.. The same was confirmed in Commissioner of Taxation v. English
Scottish and Australian Bank. In conclusion frequency of transitions is not
essential to constitute a person as a customer, but it is true to say that his
position must by such that transactions are likely to become frequent.

Relationship between Banker and Customer

The general relationship between banker and customer is that of debtors and
creditors according to the state of the customer‘s account i.e. whether the
balance in the account is credit or debit, but there are certain additional
obligations to be borne in mind and these distinguish the relationship form that
of the normal debtors and creditors. In addition to his primary functions, a
banker renders a number of services to his customer. Bankers also act as an
agent or trustee of his customer if the latter entrusts the former with agency or
trust work. In such cases, the banker acts as a debtor, agent and a trustee
simultaneously but in relation to the specified business.
Relationship as Debtors and Creditors.

On the opening of the account the banker assumes the position of a debtor. He is
not a depository or trustee of the customer‘s money because the money handed
over to the banker becomes a debt due from him to the customer. A depository
accepts something for safe custody on the condition that it will not be opened or
replaced by similar commodity. A banker does not accept the depositor money
on such condition. The money deposited by the customer with the banker is, in
legal terms lent by the customer to the banker, who makes use of the same
according to his discretion. The creditor has the right to demand back his money
from the banker, and the banker is under an obligation to repay the debt as and
when he is required to do so.
Since the introduction of the deposit insurance in India in 1962, the element of
risk to the depositor is minimized as the Deposit Insurance And Credit
Guarantee Corporation undertakes to insure the deposits up to a specified
amount. Bankers ‘relationship with the customer is reversed as soon as the
customer‘s account is overdrawn. Banker becomes creditors of the customer
who has taken a loan from the banker and continues in that capacity till the loan
is repaid. As the loans and advances granted by a banker are usually secured by
the tangible assets of the borrower, the banker becomes a secured creditor of his
customer.
2.Types of Accounts

Accounting is a process of recording, classifying and summarizing financial

transactions in a significant manner and interpreting results thereof. Accounting
is both science and art. For every type of entity, whether it is large in size or
small in size, it is very important to have a proper system of accounting for
proper management of an entity’s business operations. An accountant must have
a good understanding of the terms used in accounting and types of accounts. An
account is the systematic presentation of all the transactions related to a
particular head. An account shows the summarized records of transactions
related to a concerned person or thing. For Example: when the entity deals with
various suppliers and customers, each of the suppliers and customers will be a
separate account.
An account may be related to things which can be tangible as well as intangible.
For example – land, building, furniture, etc. are things. An account is expressed
in a statement form. It has two sides. The left-hand side of an account is called a
Debit side whereas right-hand side is called as Credit side. The debit is denoted
as ‘Dr’ and credit is denoted as ‘Cr’.

Current Account (Current Deposit):

The Current Account facilitates commercial and industrial undertakings
(Companies, Firms etc.) and public bodies and authorities in attending to their
numerous and frequent transactions. Deposits and issue of cheques are
continuous processes and bank's role is appreciable. No interest is payable by
the Bank under this account, as per R.B.I. regulations, but Banks may levy
incidental charges. The obligations on the bank is onerous in respect of current
accounts as customers cheques are to be answered as long as there are. Funds to
their credit. Further the bank should keep sufficient funds to meet such cheques
. In Fixed Deposit, the Bank may be aware of the maximum the customer may
demand, but in respect of Current Account, the bank should make available
large funds to meet all emergent demands.

Fixed Deposit:
The bank is a debtor to the depositor in fixed deposits. This is so even after the
expiry of the date of maturity. The legal relations of depositor-bank are that of
creditor-debtor in fixed deposits. The relations continue even after the F.D.
receipt matures and until it is paid up or discharged. The bank in order to
accommodate the depositor may allow withdrawal subject to R.B.I, directives
(regarding interests) but F.D.R. is to be discharged by the depositor. This affects
the cash-reserves of the Bank. After due date, interest is payable as per R.B.I,
directives, if the F.D.R. is renewed. The F.D.R. issued by the Bank is not
negotiable. But it can be assigned. The F.D.R. is not a negotiable instrument.
This was so held in Abdul Rahaman V, Central Bank. An assignment may be
made with due notice to the Bank. The Bank should obtain a .letter of authority
from the depositor for making payment, in such cases. The F.D.R: is a debt or
an actionable claim and hence a gift of it may be made by making an instrument
of transfer..
If an F.D.R. is lost the Bank may issue a duplicate or make the payment on
maturity to the depositor by obtaining an indemnity bond in either case. Under a
garnishee order the F.D.R. may be attached if there was a real "debt" of the
judgment-debtor. The Income-tax Assessment officer (or T.R.O.) may issue a
notice to the Bank demanding payment or attachment of F.D.R. If the notice is
received before maturity of F.D., the bank is bound to make payment to the
Department on date of maturity of the F.D. The F.D.s may be made payable to
"either or survivor" or Former or survivor. In such a case the appointment of a
nominee is not necessary.

S. B. Accounts: (Saving Bank Account)

The Banks had not evinced much interest in S.B. Accounts earlier, but when
banking services became extensive and savings started becoming a movement
among people, banks found this to be a paying business Further it fosters
savings habit. The S.B. account holder, should leave a fixed minimum as
balance in his account and may withdraw by cheques or withdrawal forms.
Cheques payable to the customer are sent for collection. These deposits earn
interest as per Bank regulations. Banks provide special services and also
privileges of safety vaults etc. to such account holders, to have good customer-
bank relations. From the Banker's stand point maintenance of these accounts
does not involve much expenditure and hence less expensive. Closing of
Account or Stoppage of Operation:
The customer - banker relation is not only that of a creditor - debtor and hence
contractual, but it is also statutory in view of the Negotiable Instruments Act
and other statutes. As such there are well-defined principles in regard to closing
of Accounts or 'stoppage of operation by the Bank. The Bank may close or stop
operation of an account on the following grounds : (i) customer's notice to close
the account; (ii) customer's death; (iii) customer's insanity; (iv) customer's
insolvency; (v) Garnishee order from Court; (vi) Assignment of Credit balance
and notice thereof by customer. Every customer has a right to close his Account
and the reasons may be varied. It may be in respect of Bank's services, rate of
interest, incidental charges, lack of facilities, and lack of confidence in the Bank
etc. Similarly the bank may close the account if the customer is "undesirable" or
is convicted of forgery etc.

(i) Notice necessary : The customer may give notice to close his account, but he
is not bound to do so. But so far as the Bank is concerned adequate notice
should be given. It was held in the "snowball" scheme case i.e. Prosperity Lid,
V Lloyd Bank Lid., that as the scheme had spread world-wide and bank had full
knowledge of the wide spectrum of operations, a month's notice given to the
company was inadequate and amounted to violation of contract by the Bank.
Closing an account by the Bank without notice is invalid and against the
Banking Code. Generally, one month's notice suffices.
(ii) Customer's death : The death of a customer and notice or knowledge thereof
is sufficient for the Bank to close the account, in UBI V Devi, the Supreme
Court held that notice to one branch is not a constructive notice to all other
branches.
(iii) Customer's insanity: The general presumption by the Bank is that the
customer 8s sane unless there is conclusive proof of his insanity and based on
this if there is notice of Insanity the Bank may stop operation of the account
(Young V Toynbee).
(iv) Insolvency: In the case of individual customer, on notice of insolvency the
Bank should stop the operation of the Account and should not honour cheques
etc. In the case of a company (private and public) when the winding-up
proceedings start and the Liquidator is appointed, the Bank should transfer the
balance in the account to the Liquidator.
(v) Gurnishee Order : On receipt of the order of the civil court, the Bank should
take steps, as per the order. If an amount is specified, such amount is to be
earmarked for the purpose and the balance may be subject to honour customer's
cheque. If the entire account is to be garnished the Bank may do so and stop all
further payments.
(vi) Assignments: The assignee gets a right and hence, when the Bank receives
notice of the assignment (transfer), the assignor (customer) will have no right to
the balance in his account, and the Bank is justified in closing the account.

Precautions to be taken by the Bank before opening an account:

(i) Proper introduction of the customer is essential. The manager should'verify
whether the new customer is a person with integrity and reputation to be'a
"desirable customer", to open the Account. This is to prevent any fraud,
(ii) The bank manager may make enquiries from references given by the
customer or banks about the status of the customer. He should make 'reasonable
enquiry' as is necessary in the circumstances, to convince himself that the
person is bonafide customer. He need not act like a master detective and put the
new customer to serious cross examination.
(iii) The manager should not act negligently in making enquiries; if proper
enquiries are made, he gets protection under Sn.131 of the Negotiable
Instruments Act.
3.Duties of Banker
1. Secrecy:
It is the duty of banker to keep all the information and transaction about his
customer secret, otherwise the customer can sue for any loss due to this reason.
Exception:
1. Disclosure compulsion under law
2. Disclosure in the interest of public
3. Disclosure in the interest of bank
4. Disclosure under bankers enquiry
5. Disclosure under consent of customer
2. Obligation Honourr to Cheque:
When a banker has to make payments on behalf of his customer, he must act in
conformity with the instructions of the customer. That is obligation hounar to
cheque.
Conditions to honour cheque:
1. Sufficient balance
2. Presentation within working hour
3. Presentation within reasonable time
4. Presentment at appropriate bank
5. Signature of Customer
6. Correctness of amount in words and figures
7. Proper application of fund
8. Death, insolvency of customers
3. Collections: While collecting bills, salaries, dividends etc., a banker must
take due care so as to protect the interest of the customer.
4. Trustee: While acting as a trustee, a banker must act in accordance with the
terms and conditions contained in the Trust Deed.
5. Purchase and Sale of Securities: In case of the purchase and sale of
securities on behalf of his customer, it is the duty of a banker to obey the
instruction of the customer.
6. Opening Letter of Credit: The opening banker must comply strictly with
the terms and conditions laid down in the application form for opening a letter
of credit. If the banker is negligent then he will have no right to claim any
indemnity from the customer.
7. Safe Deposits: It is the duty of a banker to take care of the safe deposits as a
man of ordinary prudence would do in case of his own articles in similar
conditions.
8. Dealing in Foreign Exchange: A banker must follow strictly the Exchange
Control regulations and instructions of the State Bank while dealing in foreign
exchange.
4.Rights of a Banker
1. Right of Compound Interest:
A banker has a right to charge compound interest on overdrafts, calculated on
half yearly balances. It may change due to agreement made between the banker
and the customer.
2. Right to Claim Charges:
A bank has a right to claim bank charges and commission as compensation for
the services provided. The services include collection of cheques, bills of
exchange and dividends etc.
3. Right of Lien:
A bank has a lien on the goods and securities of the customer to retain until he
pays his dues. The bank can sell after giving proper notice. The bank has no lien
on custody deposits and trust funds.
4. Right to Adjust Debit Balance:
It is the legal Tight of the bank to set off or adjust the debit balance against the
credit balance of the same borrower.
5. Right to charge interest Every bank in India has the right to charge interest on
the loans and advances sanctioned to customers. Interest is usually charged
monthly, quarterly, semiannually or annually.
6. Right to levy commission and service charges
Along with interest, banks also have the right to levy a commission and service
charges for the services rendered. The service rendered by the bank might be
SMS notification service, retail banking and so on. Banks can also debit these
charges from the customer's bank account.
7. Right of Lien
Another important right enjoyed by banks is the Right of Lien. Banks have the
right to keep goods and securities belonging to the debtor as a security, until the
loan is repaid by the debtor. Banks have only the right to maintain the security
of the debtor and not to sell.
8. The Right of Set-off
The banker has the right to set off customer accounts. Banks can merge a couple
of accounts which are in the name of the customer and set off the debit balance
in one account with the credit balance in the other, provided the funds belong to
the customer.
9. Right of Appropriation
Let us consider that a customer has taken many loans from the bank and he
deposits some money in the bank without any instructions. If that amount is not
sufficient to discharge all loans, the bank has the right to appropriate the amount
deposited to any loan, even to a time-barred debt. But the customer should be
informed on the same.
10. Right to Close the Account
If the customer’s account is not properly maintained, banks have all the right to
close the account by sending a notice to the customer. Bankers have no right to
close the account, without sending a written notice.
5.Various Services rendered by the bank

The range of services offered differs from bank to bank , depending mainly on
the size and type of bankers , but the acceptance of deposits from the public and
provision of credit form the mainstay of the banking business.
The services rendered by commercial banks may be classified into
1) General services to Depositors and Borrowers 
2) Ancillary services 
3) Special Banking Services 
4) General Utility Services for all

1.General services ( Services to depositors and borrowers )

Banks open various types of deposit accounts and render the following services
to the depositors and borrowers
1) opening and maintaining various types of account, such as current account ,
savings account , fixed deposit account
2) Collection of cheques , demand drafts , bills of exchange , promissory notes ,
hundis , inland , inland and foreign documentary and clear bills.
Purchase and sale of local and foreign currency.
Purchase and sale of securities certificate , shares , bonds , debentures , foreign
letters of credit ,depository .
Issuing of bank guarantees
Carrying out the standing instructions for the payment of insurance , premium ,
subscriptions , certain taxes and gifts remittances.
Granting of advances by means of cash credit , overdraft and loan accounts
Providing remittance facilities such as bank drafts , mail and telegraphic
transfers , electronic transfer.

2.Ancillary service
Safe custody of deeds and securities
Safe deposit vault
Collection of interest on securities / debentures and dividend on shares ,
collection of pension bills.
Executors and trustees
Personal tax assistance ; preparing Income Tax, Sales Tax , Wealth Tax returns
Investment Facilities – Underwriting , Guidance to Investment , Guidance as to
new issues , Stock Exchange assistance.
Credit transfers
Executors and Trustees

All the services provided by banks can be broadly divided into two categories.
The first one is primary services which consist of accepting demand deposits
and lending money to its customers as per their requirement. Apart from their
daily primary activities, banks provide many other supporting services; these
are called ancillary services. Let us look at a few important services of them.

Remittance services
It means a transfer of funds from one branch of a bank to another branch of the
same bank or a different bank.
One can make local remittances through Bankers Cheque (BC) and remit funds
from one centre to another through Demand drafts (DD), Telegraphic Transfer
(TT), Mail Transfer (MT), National Electronic Fund Transfer (NEFT) and Real
Time Gross Settlement (RTGS) at specified service charges.
The customer shall fill in full particulars regarding the remittance; such aso
Nature of the remittance i.e. by filling in DD/TT/MT etc.
Name and address of the beneficiary.
Name of the branch to which the remittance is to be made.
Name, address, an account number of the remitter/customer if required.

Custodial Services
This facility is popularly known as Safe Deposit Locker.
It is extended to the customers to enable them to keep their valuables/important
documents in a specially designed locker. A prescribed rental is charged on
them.
Lockers can be hired by individuals (not minors), firms, limited companies,
specified associations and societies.
Lockers can be rented for a minimum period of one year.
There are four different types of lockers i.e. small, medium, large and extra
large with varying rentals.
Nomination facility is available to an individual hirer.
In a case of overdue rents bank can charge a penalty.

Forex Services
When a person travels to different countries or wants to buy any foreign
merchandises, then they require foreign currencies.
Bank provide these currencies to its customers.
All transactions are done over the counter and only authorised bank branches
can perform these functions.
When a person earns or receives foreign currencies from abroad, he can also
send them to banks.
These foreign exchange transactions are done according to the rules and
regulations of the central banks of respective countries.
In India, all the transactions are subjected to the regulations of Foreign
Exchange Management Act (FEMA), 1999.
Card Services

Primarily the card services were introduced for convenience and safety purposes
but nowadays it has become the most popular payment mode among people.
The bank issues customers two basic types of cards those are credit cards and
debit cards.
With the help of a credit card, the card holder can obtain either goods or
services from merchant establishment where such arrangement exists. Then a
bill is sent to the cardholder indicating the dues that he/she has to pay within a
period of 30-40 days. It carries a fixed interest.
Debit cards are same as credit cards. The only difference is that a number of
dues for each transaction is debited to card holder’s account as each transaction
is notified.

E- Banking services
Nowadays it is the most popular method of doing banking operation where you
don’t need to be physically present in the bank branch for performing any
function/operation.
It is also known as online banking or internet banking.
One can do a number of activities by just sitting in front of one’s computer
screen or smart phone. Such as- Transfer of funds from one account to another
in the same bank or different banks, Keep surplus funds in a fixed deposit
account, Online shopping etc.
The only thing he/she needs to do is to access his/her virtual account with the
help of the ID and PASSWORD, provided by the bank. E-Banking Services

Insurance services
Banks deliver a wide range of insurance of insurance products that covers the
risk of almost every aspect of a human life, such as- Life, Health, Valuable
assets like Personal vehicles, Debit and credit cards etc.
It is also known as Bancassurance in which a bank and an insurance company
form a partnership.
The insurance company sales its different products to the bank's client base.
This partnership is profitable for both companies. Banks can earn additional
revenue by selling the products and the insurance company can expand its
customer base.
Example- ICICI Prudential, Bajaj Allianz etc.
Some banks also offer Investment services for their corporate customers. It is
also known as Portfolio services. They guide their clients especially about how
to invest adequately or raise financial capital for their business. Any individual
customer can also avail this kind of services from their respective bank
6.bank guarantees and letter of credit
A bank guarantee and a letter of credit are both promises from a financial
institution that a borrower will be able to repay a debt to another party, no
matter the debtor's financial circumstances. While different, both bank
guarantees and letters of credit assure the third party that if the borrowing party
can't repay what it owes, the financial institution will step in on behalf of the
borrower.
By providing financial backing for the borrowing party (often at the request of
the other one), these promises serve to reduce risk factors, encouraging the
transaction to proceed. But they work in slightly different ways and in different
situations.
Letters of credit are especially important in international trade due to the
distance involved, the potentially differing laws in the countries of the
businesses involved, and the difficulty of the parties meeting in person.1 While
letters of credit are primarily used in global transactions, bank guarantees are
often used in real estate contracts and infrastructure projects

Bank Guarantee
Bank guarantees represent a more significant contractual obligation for banks
than letters of credit do. A bank guarantee, like a letter of credit, guarantees a
sum of money to a beneficiary. The bank only pays that amount if the opposing
party does not fulfill the obligations outlined by the contract. The guarantee can
be used to essentially insure a buyer or seller from loss or damage due to
nonperformance by the other party in a contra
Bank guarantees protect both parties in a contractual agreement from credit risk.
For instance, a construction company and its cement supplier may enter into a
contract to build a mall. Both parties may have to issue bank guarantees to
prove their financial bona fides and capability. In a case where the supplier fails
to deliver cement within a specified time, the construction company would
notify the bank, which then pays the company the amount specified in the bank
guarantee.

Types of Bank Guarantees

Bank guarantees are just like any other kind of financial instrument—they can
take on various forms. The letters of guarantee help parties involved in large
transactions rest assured that they will be paid.
Banks can issue guarantees as direct guarantees between the bank and a
domestic or foreign business entity. Banks will issue indirect guarantees when
the subject of the guarantee is a government agency or another public entity.

The most common kinds of guarantees include:

 Shipping guarantees: This kind of guarantee is given to the carrier for a
shipment that arrives before any documents are received.4
 Loan guarantees: An institution that issues a loan guarantee pledges to
take on the financial obligation if the borrower defaults.5
 Advanced payment guarantees: This guarantee acts to back up a
contract's performance. Basically, this guarantee is a form of collateral
to reimburse advance payment should the seller not supply the goods
specified in the contract.6
 Confirmed payment guarantees: With this irrevocable obligation, a
specific amount is paid by the bank to a beneficiary on behalf of the client
by a certain date
Letter of Credit
Sometimes referred to as documentary credit, a letter of credit acts as
a promissory note from a financial institution—usually a bank or credit union. It
guarantees a buyer's payment to a seller or a borrower's payment to a lender will
be received on time and for the full amount. It also states that if the buyer can't
make a payment on the purchase, the bank will cover the full or remaining
amount owed.8
A letter of credit represents an obligation taken on by a bank to make a payment
once certain criteria are met. After these terms are completed and confirmed, the
bank will transfer the funds. The letter of credit ensures the payment will be
made as long as the services are performed. The letter of credit basically
substitutes the bank's credit for that of its client, ensuring correct and timely
payment.8
For example, say a U.S. wholesaler receives an order from a new client, a
Canadian company. Because the wholesaler has no way of knowing whether
this new client can fulfill its payment obligations, it requests a letter of credit is
provided in the purchasing contract.
The purchasing company applies for a letter of credit at a bank where it already
has funds or a line of credit (LOC). The bank issuing the letter of credit holds
payment on behalf of the buyer until it receives confirmation that the goods in
the transaction have been shipped. After the goods have been shipped, the bank
would pay the wholesaler their due as long as the terms of the sales contract are
met, such as delivery before a certain time or confirmation from the buyer that
the goods were received undamaged

Types of Letters of Credit

Just like bank guarantees, letters of credit also vary based on the need for them.
The following are some of the most commonly used letters of credit:
 An irrevocable letter of credit ensures the buyer is obligated to the
seller.10
 A confirmed letter of credit comes from a second bank, which
guarantees the letter when the first one has questionable credit. The
confirming bank ensures payment in the event the company or issuing
bank default on their obligations.10
  An import letter of credit allows importers to make payments
immediately by providing them with a short-term cash advance.11
 An export letter of credit lets the buyer's bank know it must pay the
seller, provided all the conditions of the contract are met.12
 A revolving letter of credit lets customers make draws—within limits—
during a certain time period

Special Considerations
Both bank guarantees and letters of credit work to reduce the risk in a business
agreement or deal. Parties are more likely to agree to the transaction because
they have less liability when a letter of credit or bank guarantee is active. These
agreements are particularly important and useful in what would otherwise be
risky transactions, such as certain real estate and international trade contracts.
Banks thoroughly screen clients interested in one of these documents. After the
bank determines that the applicant is creditworthy and has a reasonable risk, a
monetary limit is placed on the agreement. The bank agrees to be obligated up
to, but not exceeding, the limit. This protects the bank by providing a specific
threshold of risk.14
Another key difference between bank guarantees and letters of credit lies in the
parties that use them. Bank guarantees are normally used by contractors who
bid on large projects. By providing a bank guarantee, the contractor provides
proof of its financial credibility. In essence, the guarantee assures the entity
behind the project it is financially stable enough to take it on from beginning to
end.2 Letters of credit, on the other hand, are commonly used by companies that
regularly import and export goods.9
Do I Have to Have an Account to Get a Letter of Credit From a Bank?
You don't necessarily have to be a client of the bank or financial institution that
supplies your letter of credit. However, you will have to apply for the letter of
credit. Since the bank is essentially vouching for your ability to pay your debt,
they will need to know that you are capable of fulfilling your agreement. While
you can apply to any institution that supplies letters of credit, you may find
more success working with an institution where you already have a relationship.
When Would I Need a Bank Guarantee?
Bank guarantees are typically used by contractors to insure large projects such
as construction projects.
Do I Have to Pay for a Letter of Credit or Bank Guarantee?
Yes. Financial institutions charge a percentage of the total insured by a letter of
credit. This can range from 0.75–1.5% of the total. Bank guarantees can cost
anywhere from 0.5% to 1.5% of the total amount.
The Bottom Line
Letters of credit and bank guarantees may be necessary for large projects and
international business deals. Your bank may offer this service for a fee. If they
don't, they should be able to guide your to a commercial bank that can help.