Sample Bank Letter Of Guarantee: Fill & Download for Free

SOURCES AND INSTRUMENTS FOR FINANCIAL TRADE1. Sources of trade finance2. Instruments of trade finance3. Impediments/Challenges in accessing trade financeFinancing trade is different than regular bank lending. It includes innovative financial products and services that assist importers and exporters fulfill their financing needs. Trade Finance is a source of working capital for many traders in need of credit lines to purchase, process or manufacture products for sale in the future. These financial instruments can be important for individual traders and firms trading internationally, because it can shape competitiveness on their terms of trade contracts. As a market expands so is the need for financing instruments that facilitate transactions across borders.Any nation that does not have access to financial instruments can be considered blocked from trade. Importers or exporters not having access to trade finance, have limited opportunities to offer competitive terms to their vendors or buyers such as instruments of credit and payment assurance. Exporters will also have difficulties penetrating a market, because importer may prefer to buy on open account, or on deferred terms, the exporter may not be in position to accept/offer such terms if trade finance is unavailable.Commercial Banks are the main source of trade finance.1. Provide pre-export financing (Term Loans)2. Help in the collection process3. Issue and confirm letters of credit4. Book acceptance and discounting drafts5. Offer fee-based services such as credit and country information on buyers.6. Taking foreign exchange risks (spot, forward, swap and so on)7. Taking market risks (options, futures)8. Discounting documents under letters of credit9. Advance under red clause letters of credit10. Structured FinanceFor example a supplier can offer credit to a buyer by releasing goods against bills of exchange, by which a seller can pay at a specified future date.Specialized trading institutions purchase from exporters receivables without recourse at a discounted rate to allow them access to financing before maturity of the bill. In this case the receivable becomes a tradable securityGovernments and other institutions like World Bank, regional bank, community bank can be good source of trade finance especially in less developed economies where financial markets and money markets are not easily available.Such financial facilitation include:1. Establish scheme of guarantees to support exporters2. Establish floating line of credit to support imports for and exports from specific sectors3. Establish guarantees schemes for small companies or micro group4. Support trade facilitation policies, e.g. tax deferral for export/import on extended termsSources of Trade Finance: Government and other related institutions1. Letters of Credit (Documentary Credit)2. Bank Guarantees3. Pre and Post shipment finance loan facilities4. Buyers and Sellers credit5. Bills Acceptance6. Structured Finance7. Leasing8. Factoring and Forfeiting9. Counter-tradeA Letter of Credit is a document issued by a bank (issuing bank) stating its commitment to pay a seller (beneficiary) a stated amount of money on behalf of a buyer so long as the seller presents specific documents and conditions.Letters of Credit can be issued as “Revocable” or “Irrevocable” form and are either “Unconfirmed” or “Confirmed”, payable at “Sight” or at a deferred period “Use”Letters of Credit can also be special types, namely: Revolving letters of credit, Standby Letter of Credit (SBLC), Red Clause letters of credit, Transferable letter of credit, and Back-to-back letters of credit.Letters of credit issued against L/C facility allows importer to delay payments to exporter, thus easing cash flow problems and interest expenses. It allows supplier to access credit against presentation of documents at the counters of negotiating bank without waiting for goods to reach the buyer. It allows buyer to obtain credit terms from a seller under active period or differed L/C terms whereby the bank books acceptance for payment of bills to be made at future agreed date (maturity date).Supplier can discount documents and obtain credit before due date.Red clause Letters of credit allows exporter to obtain pre-export advance paymentA Letter of guarantee is a written promise issued by the Bank to compensate the beneficiary (third party, local or foreign) in the event that the obligor (customer) fails to honor its obligations in accordance with the terms and conditions of the guarantee/agreement/contract. Types include Bid, Custom, Payment, Performance, Advance payment, Government export guarantees etc.Advance payment guarantee allows its beneficiary to access advance payments to facilitate procurement or production of goods for delivery to the intended partyCustom Bonds allow a buyer or seller to postpone payment of tax until the goods are soldCustoms Bonds for Temporary Transit facilitates movement of goods on transit or sent abroad for a trade fair, or goods, which are imported with intention of re-exportation without paying related custom duties.Structured finance refers to transferring risks in trade financing from parties less able to bear those risks to those better equipped to bear them in a manner that ensures automatic reimbursement of advances from the underlying assets.Some examples of structured finance include:1. Inventory/Ware house financing2. Receivable financingLeasingFactoring and forfeiting are both forms of receivables discountingA specialized financial firm pays up-front for the amounts due to them by their customers.While forfeiting is mostly used for international transactions, factoring is mostly used for domestic trade. Factoring is the assignment to a third party receivables from its customers for a discounted factor (fee) in different ways:Advance-based factoringMaturity-based factoringCollection-based factoringForfeiting is a term generally used to denote the purchase of obligations falling due at some future date, from deliveries of goods and services-mostly export transactions-without recourse to any previous holder of the obligation.In a forfeiting transaction, an exporter/seller remits guaranteed debt, which results from a sale on credit, to a forfeiting company.The forfeiting company pays a seller up-front for the face value of the debt minus a discounted factor.The debt has to be enhanced through guarantee from a bank or other financially strong institution.Once the debt has been accepted by the forfeit er, the exporter is no longer liable for a failure of the buyer to pay-the forfeit er, except where there was fraudulent transaction.Counter-trade involves the exchange of goods and/or services as a condition of purchase, or as financing of purchases as in bartering.Under such arrangements valued goods are exchanged at an agreed value without cash or credit terms.This method of trade is particularly valuable in markets where there is a shortage of foreign exchange reserves, where the currency is not freely convertible, or where there is difficulty in obtaining export credit. It is method for a range of reciprocal or compensatory trade mechanisms including barter, compensation, counter-purchase, buyback- offset, switch trading and tolling.

“I have no time to come to India [to help you in the investigations]. I have a business to run” (Feb ‘19, when CBI asked him to come down to India)This man, like Vijay Mallya, will do just anything to prevent extradition!These two fugitives have two things in common - both have a pathological fear of Indian prisons and both have tons of money to engage high-ticket ace attorneys anywhere in the world!He has 2 weeks to appeal against the Home Secretary’s extradition order and he will do it.Like in any democracy, UK laws are complex, complicated and move at snail’s pace.We have to wait & see if & when he actually lands in India and what happens to him then. If & when he actually ends up in an Indian court, I would not wonder if he manages to get bail.Vijay Mallya’s lawyers pleaded, Indian jails are unhygienic and disease-ridden, THEREFORE my client would prefer to rot in an English jail. Funny, he wants a 5 Star hotel treatment as prisoner. So must be the case with Nirav Modi.That said, I am not quite sure some of our politicians and some (current and former) Punjab Bank officials will be greatly pleased with his arrival, they should want him stay where he is.The last thing they want is, Nirav Modi standing in a court and sing like a canary! The reason is, just nobody can pull off scams worth 1000s of crores without powerful friends at high places.The ScamIn nutshell, a branch of PNB liberally issues loans to NM to the tune of 11.5 K Cr. The mechanism was, he was sanctioned loans in rupees locally and he drew the amount in foreign exchange from Indian banks’ branches abroad. PNB would issue Letter of Understanding for each tranche (LoU is like a demand draft) which guarantees the foreign paying bank that PNB India branch would pay that money.For each tranche, the local branch was supposed to take an affidavit (with obligations like collateral/mortgage) binding NM with the obligation to service the loan. But the bank neglected to collect the affidavits.Also, a retired DGM of PNB was overzealous in issuing LoUs to NM during the fag end of his career, sometimes during bank holidays too. Now, NM defaulted on the loans. Since the amount is quite big, the whole issue has become news. There seem to be quite many violations of banking rules, giving the idea that the whole thing is a big scam with many players.The Method (of money transfer)Nirav Modi took loans from the PNB in India to be paid at Indian banks’ foreign branches. The method of approval was, Letter of Undertaking. The Indian branch issues an LoU which is effectively a Demand Draft. On strength of LoU the foreign branch releases the exact amount in foreign exchange with the Indian (issuing) branch standing guarantee. Now, the Indian branch is supposed to take affidavits from the lonee for each & every LoU issued (i.e. for each tranche of loan sanctioned).The Violation(s)the Indian branch neglected to take affidavits. A former DGM of the bank is under investigation for issuing LoUs with unusual frenzy (just before he was to retire) and neglecting to take affidavits. There are more involved with this DGM.This scan had been going on since 2011.Every bank branch undergoes audits every year.Banks are under the control/authority of the RBI.The amount of each tranche of loan ran into hundreds of crores.The Question MarksDid the RBI conduct the audits?What happened to PNB’s internal audits especially when the loan amounts were large in size?I myself took a loan from another bank and some defect got discovered within one year and the bank recovered the difference from me.Audits samples are random BUT loans of large amounts can not be left for random sampling.It had been going on since 2011. How come it came to light after 7 years i.e. at least 14 internal audits within the bank?A couple of petty officials in that branch admitted to taking gifts from Nirav Modi, one guy took a diamond ring and another, a necklace (If I remember it right). Surely, a couple of minor bank officers can’t run an elaborate scam running into thousands of crores.The government then blamed “weak banking procedures”. This, I doubt very very strongly. Banking is an old profession, its procedures are rugged & time-tested. Can someone rip off 1000s of crores just like that? Can a few bank officials dare let that happen? They dare not!The conclusion is, this scam must have involved many people from across many entities. I would leave it to you to draw your own conclusion.How the bank’s internal audits failed to catch the fraudThe job of auditing is not just toting up numbers and checking & cross-checking. An auditor is supposed to have sound knowledge of procedures. I can not stress this enough.In case of PNB, the fault seems to lie in the fact that the gross violations in procedures were either not noticed at all (due to auditors’ ignorance) or such were deliberately underplayed even if noticed or were hidden from the purview of an audit.It is true that candidate cases for audit are selected on random sampling basis. Still, NM loans being high amount loans (each in 100s of crores), it is difficult to understand how such were COMPLETELY skipped in audits. That is, the bank officials presented only some chillar (lose coin change) cases like housing/vehicle loans only while hiding all the big-ticket loans?In a proper audit, the auditors are given the entire list of the portfolio of cases/projects/products (i.e. candidates cases for audit) and the auditing team selects from each of different categories. What this means, an auditing team knows only what it is told. It can not know what is hidden on purpose.Third, this scam had been going on since 2011. That means, at least 14 internal audits within the same branch and some more other types of audits (including perhaps RBI audits). Yet, none of NM’s many loans figured in any of the so many audits. WHY?Now, you can question reasonably, were all those many auditors over so many years of audits were fools? Or the auditors were presented with only chosen cases by the PNB branch in question (skipping all these questionable loans)?

The export procedure for exporting textile fabrics from India is as follows:Having a bank account and a PAN numberApplying for and obtaining Importer-Exporter code (EIC) number at www.dgft . go . inObtaining Registration cum Membership Certificate (RCMC)Ensuring that your product does not count in the prohibited listSelection of markets and target buyersSampling and pricingCovering risk through ECGC (Export Credit Guarantee Corporation Ltd.)Production, packaging, marketing and pricing of your productFulfilling custom requirementsSubmission of important documents like Bill of Exchange, LoC, invoice letter of origin, etc.You can find and interact with the importers of your textile fabrics through interactions in trade fairs, buyers seller meets, exhibitions, B2B Portals and web browsing. Creating multilingual website with all the details like product catalogue, price, payment terms and other related information would also serve the purpose. EPCs, Indian Missions abroad and other overseas chambers are also helpful in the same.