Closing Bank Guarantee facility and provide Counter BG

First understand the terminology and technical terms.

1)Guarantee limit has to be sanctioned by Bank.

2)The Bank obtains a Counter guarantee and issues bank guarantee in the name of third party with a specific amount and specific date from which the BG can not be enforced in absence of claim.

3)If original bank guarantee issued by Bank to the third party is directly returned to the bank without making any claim and stating that the obligtion with contractor obligations ended.

4)Once the original bank guarantee with a covering letter is received by the Bank, the bank has to immediately reverse the entry in their books and round off the number.

This the practice prescribed by RBI, which is applicable to all commercial banks in India.

If you mean to state that BG entry is outstanding in one bank, and the other Bank wanted to take over the account with sanctioned facilities, you have to issue a fresh BG to the party with whom Bank guarantees were given by first Bank and still outstanding in first bank accounts, and get those original bank guarantees issued by the Bank from the beneficiary with such covering schedule.  Once their own bank guarantee is returned with covering schedule, the first Bank can not insist any other thing from you as there is no contingent liability.

At the cost of repetition, seek BG for the same amount, for the same period from second bank, submit it to the concerned, and get the original BG of first bank with covering schedule and then demand the bank to give you a no due certificate.

Thanks for your prompt reply. We are looking forward to a takeover of bank guarantee facilities from one bank to another. We are doing business of civil contracts with various govt organisations (and semi- govt.) whereby we have submitted them Bank Guarantees (BGs) issued by our existing bank X. Bank X is a scheduled Co-operative Bank, who has sanctioned us a bank Guarantee facility. We have availed BGs for submission to various beneficiaries- govt organisations (within the frame of available sanction). Some of our clients- govt organisations do not accept BGs issued by Scheduled Co-operative banks due to their internal norms/ guidelines. Hence, our existing bank X was generally approaching a Nationalised Bank for the BG issuance. This caused lots of trouble such as high BG commission payment and delay in availing the BG. However, now various BGs (including those issued by bank X and some by Nationalised banks through bank X) are valid for a period ranging up to maximum 11 years (as per the requirement of that particular beneficiary). We decided to close down the availed BG facility with bank X to avoid the inconvenience caused to us and also because other bank Y is ready to provide BGs at lower BG commissions. Bank Y is a Scheduled Commercial bank, which is acceptable by our clients- govt organisation for BG. Bank Y has sanctioned us the BG facility as per our requirement and agreed to provide a Counter BG to Bank X for the maximum period of presently valid/ outstanding BGs. Bank Y has enlisted all the BGs presently valid (issued by/ through bank X) and issued a Counter BG for the total amount of valid BGs for the maximum BG validity period Plus 1 month additional as Claim period. Now, Bank X is resisting our application for closure of BG facility by demanding 100% deposits against all BGs valid beyond 3 years from now; whereas bank Y is ready with Counter BG of the complete BGs outstanding. Bank Y has quoted �RBI Master Circular on Guarantees and Co-Acceptances DBR. No. Dir. BC.11/13.03.00/2015-16 dated July 01, 2015 Para No. 2.4.2 regarding Restrictions on Inter-Institutional Guarantees� to support their stand over provision of Counter BG to a bank. Bank X is stating that there is no directive making acceptance of Counter BG a necessary aspect for their bank. Alternately, Bank X has suggested the replacement of their BGs with freshly issued BGs of Bank Y directly with the respective beneficiary- govt organisations. This procedure may not be acceptable to certain beneficiary considering that BG is part of our agreement with that govt organisation. Secondly, this will require spending for payment towards BG commission (now to bank Y), stamp duty over the BG amount and also deposition of a margin security deposit (for the time being, till we receive our margin security from Bank X). Bank Y has conveyed that although they can issue a Counter BG to Bank X, they cannot issue unsecured BGs directly to our clients on our behalf. Hence the procedure of replacing the BGs directly with the beneficiary is not acceptable to us. Presently, it is already been nearly 2 months from our first request to bank X for closure of bank Guarantee facility. We have requested bank X to accept the Counter BG for the complete amount of outstanding BGs and simultaneously release our marginal deposits (for appropriate deposition further, with bank Y) and finally, release of our collateral security- property mortgage (for appropriate deposition with bank Y). Bank X is not willing to accept Counter BG and we are helpless because our requirement of fresh BGs is held up. This is causing losses to us due to delay in the transition from one bank to another. Please provide valuable tips in the matter.