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    Fund and Non Fund Limit

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    Krupa Mochi
    This document discusses non-fund based credit facilities provided by banks. It describes three main categories of non-fund based facilities: letters of credit, guarantees, and co-acceptance of bills/deferred payment guarantees. These facilities are sanctioned alongside other fund-based credit limits. RBI guidelines state that banks should only open letters of credit and issue guarantees for existing customers who have credit facilities and the financial ability to retire bills drawn. Financial guarantees will only be issued if the bank is satisfied the customer can reimburse it, and performance guarantees only for experienced customers likely to fulfill contract obligations.

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    Fund and Non Fund Limit

    Uploaded by

    Krupa Mochi
    57 views2 pages
    This document discusses non-fund based credit facilities provided by banks. It describes three main categories of non-fund based facilities: letters of credit, guarantees, and co-acceptance of bills/deferred payment guarantees. These facilities are sanctioned alongside other fund-based credit limits. RBI guidelines state that banks should only open letters of credit and issue guarantees for existing customers who have credit facilities and the financial ability to retire bills drawn. Financial guarantees will only be issued if the bank is satisfied the customer can reimburse it, and performance guarantees only for experienced customers likely to fulfill contract obligations.

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    This document discusses non-fund based credit facilities provided by banks. It describes three main categories of non-fund based facilities: letters of credit, guarantees, and co-acceptance of bills/deferred payment guarantees. These facilities are sanctioned alongside other fund-based credit limits. RBI guidelines state that banks should only open letters of credit and issue guarantees for existing customers who have credit facilities and the financial ability to retire bills drawn. Financial guarantees will only be issued if the bank is satisfied the customer can reimburse it, and performance guarantees only for experienced customers likely to fulfill contract obligations.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    57 views2 pages

    Fund and Non Fund Limit

    Uploaded by

    Krupa Mochi
    This document discusses non-fund based credit facilities provided by banks. It describes three main categories of non-fund based facilities: letters of credit, guarantees, and co-acceptance of bills/deferred payment guarantees. These facilities are sanctioned alongside other fund-based credit limits. RBI guidelines state that banks should only open letters of credit and issue guarantees for existing customers who have credit facilities and the financial ability to retire bills drawn. Financial guarantees will only be issued if the bank is satisfied the customer can reimburse it, and performance guarantees only for experienced customers likely to fulfill contract obligations.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    NON-FUND BASED FACILITIES

    The credit facilities given by the banks where actual bank funds are not involved are termedas 'non-
    fund based facilities'. These facilities are divided in three broad categories as under:

    Letters of credit

    Guarantees

    Co-acceptance of-bills/deferred payment guarantees.Units for the above facilities are also
    simultaneously sanctioned by banks while sanctioningother fund based credit limits.Facilities for co-
    acceptance of bills/deferred payment guarantees are generally required foracquiring plant and
    machinery and may, technically be taken as a substitute for term loanwhich would require detailed
    appraisal of the borrower's needs and financial position in thesame manner as in case of any other
    term loan proposal. The co-acceptance limits may alsobe sanctioned under IDBI's Bill Rediscounting
    Scheme which has been discussed in detail inchapter 5.
    RBI GUIDEUNES ON NON-FUND BASED FACIUTIES
    Reserve Bank of India has also issued detailed guidelines to commercial banks in respect of non-fund
    based credit facilities. Some of the important points to be kept in view in thisregard are discussed
    below:
    Letters of Credit

    Bank should normally open letters of credit for their own customers who enjoy creditfacilities with
    them Customers maintaining current account only and not enjoying anycredit limits should not be
    granted L/C facilities except in cases where no other creditfacility is needed by the customer.

    The request of such customer for sanctioning and opening of letter of credit should beproperly
    scrutinised to establish the genuine need of the customer. The customer maybe, required to submit a
    complete loan proposal Including financial statements to satisfythe bank about his, needs and also his

    financial resources, to mire the bills drawn under

    Where a customer enjoys

    credit facilities with some other bank, the reasons for hisapproaching the bank for sanctioning L/C
    limits have to be clearly stated. The bankopening L/C on behalf of such customer should invariably
    make a reference to the,existing banker of the customer.

    In all cases of opening of letters of credit, the bank has to ensure that the customer isable to retire the
    bills drawn under L/C as per the financial arrangement alreadyfinalised.
    Guarantees

    The conditions relating to obligant being a customer of the bank enjoying credit facilitiesas discussed
    in case of letters of credit are equally applicable for guarantees also. Infact, guarantee facilities also
    cannot be sanctioned in isolation.
    Financial guarantees will be issued by the banks only if they are satisfied that thecustomer will be in a
    position to reimburse the bank in case the guarantee is invokedand the bank is required to make
    the payment in terms of guarantee.

    Performance guarantee will be issued by the banks only on behalf of those customerswith whom the
    bank has sufficient experience and is satisfied that the customer has thenecessary experience and
    means to perform the obligations under the contract and isnot likely to commit any default.

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