Bank Guarantee and Liability of the Banker

Author : VS Warrier

Bank guarantees as well as Letters of credit are common features of commercial transactions today. A bank guarantee and a letter of credit are similar in many ways but they’re two different things. Bank Guarantee is a guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank will cover it. Letters of credit ensure that a transaction proceeds as planned, while bank guarantees reduce the loss if the transaction doesn’t go as planned.

A bank guarantee, like a line of credit, guarantees a sum of money to a beneficiary. Unlike a line of credit, the sum is only paid if the opposing party does not fulfill the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to nonperformance by the other party in a contract. Continue reading “Bank Guarantee and Liability of the Banker”