Granting Finance and Non-Fund Based Limits Essay Example for Free

Granting Finance and Non-Fund Based Limits EssayFor the purpose of granting finance, blasphemes are lending by way of fund base limits as well as non fund based limits. The following are treated as fund based limitsa) Lock and key type against of pledge of goodsb) Open factory type pledge or open key advance against hypothecation of goodsc) Advance against hypothecation of goodsd) Advance against appropriate debtse) Advance against bills.The following are considered as non fund based limits granted by the banks to the publicLetter of acknowledgement and bank guaranteesBanks normally to a lower placetake a proper appraisal of the financial standing and requirement of the customer for non fund based facilities as in the casing of fund based ones. This is because though the bank in the case of non funded facility, commits itself to pay only in the event of non-payment by or non performance of the customer, the possibility of the given non-funded credit facility resolving i nto historical or funded credit facility on the customers default or non performance cannot be ruled out.Letter of creditA letter of credit is a written undertaking given by a bank on behalf of its customer who is a buyer, to the supplied, promising to pay a certain sum of bills provided the supplier complies with the terms and conditions embodied in the letter of credit. A letter of credit is required where the supplier of goods and services deals with unknown parties or otherwise feels the indigence to safeguard his interest. In such circumstances he stipulates in his sales contract with the buyer that the goods will be supplied and payment made only under a banks letter of credit. Under a banks letter of credit a conditional commitment to make the payment is made by the bank which gives an self-confidence to the supplier that he will receive the necessary payment provided he does what the buyer requires him to do, within the time period specified in that regard.Whereas in the case of fund based limits, the banks deal with goods, in the case of letter of impute, they deal with documents and not in goods and the transactions are executed only on the undercoat of the documents. The letter of credit is an autonomous transaction quite distinct from the sale and purchase on which it may be based. The bank issuing the letter of credit has to make up its mind within a reasonable time on receipt of the documents whether to accept or reject them. Normally the letter of credits issued the banks are governed by the Uniform customs and practice for documentary credits of the International Chamber of Commerce situated at Paris.Referencehttp//classof1.com/homework-help/finance-homework-help/