Letter of credit and bank guarantee



What is the difference between the Letter of Credit and Bank Guarantee?

 

Step by Step procedure to get the Letter of Credit and Bank Guarantee?


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CA - Final

A Letter of credit (LC) in simple terms, is a guarantee given by the buyer's bank to the supplier or his bank situated in the same country or a foreign country. Usually LC limit is part of one's CC limit. For eg. if you have a CC limit of 10 lakhs with your bank that may include LC limit of say 2 lakhs. Your bank will issue LC for maximum of 2 lakhs. It is nothing but a overdraft facility extended by the bank.

Whereas Bank guarantee (BG) involves actaul deposit of money or given on the basis of a FD. BG can be understood as a deposit, but the guarantee of which is taken by the bank after considering deposited monetary security by you. BG is generally given for tender purposes or any govt benefits as a security deposit.

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Thank you Ajit Hegde Sir

 
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