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Deferred Payment Guarantee: Melbin Maria Noble S3, Mba

The document discusses deferred payment guarantees (DPG). A DPG is a guarantee that protects a business seller who allows the buyer to defer paying part of the sale price over an agreed period of time. It guarantees the seller will receive the full deferred payment amount regardless of whether the business succeeds under the new owner. DPGs are arranged through the surety market rather than as insurance and provide contractual security between commercial parties. The Reserve Bank of India provides guidelines for banks issuing guarantees, including limits on amounts, maturities, collateral requirements, and safeguards to prevent fraud.

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304 views

Deferred Payment Guarantee: Melbin Maria Noble S3, Mba

The document discusses deferred payment guarantees (DPG). A DPG is a guarantee that protects a business seller who allows the buyer to defer paying part of the sale price over an agreed period of time. It guarantees the seller will receive the full deferred payment amount regardless of whether the business succeeds under the new owner. DPGs are arranged through the surety market rather than as insurance and provide contractual security between commercial parties. The Reserve Bank of India provides guidelines for banks issuing guarantees, including limits on amounts, maturities, collateral requirements, and safeguards to prevent fraud.

Uploaded by

melbinmarianoble
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Deferred Payment

Guarantee

Submitted by,
Melbin Maria Noble
S3, MBA
Definition

The DPG is set up primarily to protect the


Seller of a business who has been
required by the Buyer to agree a deferred
consideration on completion, whereby
the Buyer defers paying some of the sale
price over an agreed period of time.
Payment Guarantee
 A payment guarantee is a type of financial
commitment that requires the debtor to repay the debt
in accordance with the terms and conditions that apply
to the original debt agreement.

 Payment guarantees mitigate credit or country risk


when selling on an open account basis.

 They are often used to cover the non-payment of debts


arising under a transaction or over a period of time.
What is DPG
 It is arranged in the surety market and so is not subject to
the restrictive exclusions and conditions associated with
Deferred Consideration Insurance.

 The DPG acts as a guarantee, not an insurance policy,


which provides contract comfort between two commercial
parties.

 The DPG provides a guarantee to the Seller that he will


receive the full deferred amount, whether the new owner of
the business succeeds or not, providing financial security
for the seller.
RBI Guidelines
 As a general rule, banks may provide only financial
guarantees and not performance guarantees.

 It would be desirable for PCBs to confine their


guarantees to relatively short-term maturities.
Guarantees should not be issued for periods exceeding
ten years in any case.

 The total volume of guarantee obligations outstanding


at any time may not exceed 10 per cent of the total
owned resources of the bank comprising paid up
capital, reserves and deposits.
RBI Guidelines
 Banks should preferably issue secured guarantees. A secured
guarantee means a guarantee made on the security of assets
(including cash margin), the market value of which will not at
any time be less than the amount of the contingent liability on the
guarantee.

 Banks should avoid undue concentration of unsecured guarantee


commitments to particular groups of customers and/or trades.

 Banks, which intend issuing deferred payment guarantees in


respect of their borrowers for acquisition of capital assets should
ensure that the total credit facilities including the proposed
deferred payment guarantees do not exceed the prescribed
exposure ceilings
Safeguards in Issuance of Guarantees

 The bank guarantees should be issued in security forms


serially numbered to prevent issuance of fake
guarantees.

 Guarantees above a particular cut off point, as may be


decided by each bank, should be issued under two
signatures in triplicate, one copy each for the branch,
beneficiary and Controlling Office/Head Office.

 The guarantees should not normally be allowed to the


customers who do not enjoy credit facilities with the
banks but only maintain current accounts.
Safeguards in Issuance of Guarantees

 Where the customers enjoy credit facilities with other


banks, the reasons for their approaching the bank for
extending the guarantees should be ascertained and
invariably, a reference should be made to their existing
bankers with whom they are enjoying credit facilities.

 Banks, when approached to issue guarantees in favour


of other banks for grant of credit facilities by another
bank, should examine thoroughly the reasons for
approaching another bank for grant of credit facilities
and satisfy themselves of the need for doing so.
References
 www.rbi.org.in
 www.smbcgroup.com
 www.projectexports.com
 www.wisegeek.com
 www.wikipedia.com
Thank You

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