Fund based credit facilities are those where, upon sanction, there is an actual outflow of funds from the bank to the borrower, whereas non-fund. based facilities are those, at the time of sanction which do not involve such outflow of the bank’s funds.

III Non-Fund and Fee Based Business for Banks Various Forms of Non-Fund and Fee Based Business of Banks – Remittance, RTGS / NEFT, Locker, Collection of Utility Bills, Collection of Bills, Letter of Credit, Bank Guarantee etc.

Non fund based lending, where the lending bank does not commit any physical outflow of funds. The funds position of the lending bank remains intact. The non-funding based lending can be maid in two forms: 1) Bank Guarantees. 2) Letter of Credit.

Letter of credit is a legal document issued by a buyer’s bank that upon presentation of required documents payment would be made. Chinatrust Commercial Bank can extend Import financing through Letters of Credit, which are well accepted globally and are supported by a strong trade finance set-up. …

Non-fund based lending versus fund based lending In banking language, the non-funding advances are called Contingent Liability of the banks. The Fund based lending is direct form of loans on which actual cash is given to the borrower by the bank. Such loan is backed by primary and / or a collateral security.

What is Corporate Credit Channel NON-FUND BASED LIMITS? We issue Bank Guarantees on behalf of our customers guaranteeing their performance and also financial obligations.

The Non-Fund based Credit Facilities are nature of promises made by Banks in favour of a third party to provide monetary compensation on behalf of their clients, where the lending bank does not commit any physical outflow of funds.

1. Santioned limit is the amount of facility granted to borrower. This is the UPPER limit the borrower can draw from the Bank. In case of a loan, the sanctioned limit would mean the maximum number of capital expenditure he can make.

Bank Guarantee or letter of guarantee is a fee-based credit facility extended by the banks to their customers. The guarantees issued by banks for above purpose is called financial guarantee wherein the banks undertake to pay the guaranteed amount during a specified period on demand from the beneficiary.

A letter of credit, or “credit letter” is a letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make a payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.

We can compute the LG or LC limit required to the company by dividing the annual consumption of raw material to be purchased against LC or LG and same is divided by 12 and multiplied by total time. (i.e.Monthly purchases ×total time) .

Bank Guarantee Charges Based on the type of the BG, fees are generally charged on a quarterly basis on the BG value of 0.75% or 0.50% during the BG validity period. Apart from this, the bank may also charge the application processing fee, documentation fee, and handling fee.

Period of the guarantee is minimum 6 months to 3 years. Some times, it is allowed up to 10 years. upto the validity period of the BG only irrespective of the case, original BG is returned to the issuing banks or not. After expiry the BG has no value .

2. Ideally, the bank guarantee should not have an expiry date. If however the guarantee provider or their bank insists on an expiry date, it should be a minimum of three (3) months from the expiry date of the contract. Many American banks will only issue bank guarantees for a maximum period of one (1) year.