e-Bank Guarantee
Sathyamurthy Subramanian
Banking & Payment Professional (SWIFT, RTP, ACH, FEDWIRE, ISO20022, SEPA, TARGET 2), FX treasury management, and trade finance. Trainer in Banking and Soft skills. Registered Independent Director (IICA)
What is the background of bank guarantee?
Bank guarantees fall under section 126 of the Indian Contract Act 1872?i.e., the Contract of guarantee. They are furnished by the promisor from the bank to pay the promise in case of the promisor s default. The bank guarantee?signifies that the lending institution ensures that the liabilities of a debtor are going to be met. In other words, if the debtor fails to fulfil the obligation, the bank will cover it. A bank guarantee allows the customer, or debtor, to acquire goods, purchase equipment or draw down a loan.
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Features of Bank Guarantee
Present System
Bank Guarantees (BG) in India are issued as paper documents by banks, on request from customers (Applicant) and in favour of beneficiaries. The paper BG is stamped as per stamp duty requirement, signed by bank official(s) and then delivered to beneficiary through the customer or collected by beneficiary from the bank’s branch. Issuing bank also sends a notification as SFMS message to the beneficiary’s bank for onward confirmation to the beneficiary. After issuance, a BG goes through various life cycle stages, such as amendments, invocation, cancellation/closure.?
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Frauds
?? There are problem of mismatch of signature and issuance of fraudulent bank guarantee not ruled out.
?? BG content can be manipulated/modified fraudulently: content of BG text is not part of SFMS message and can’t be easily verified by beneficiary from issuing bank.
?? Significant time delay for BG issuance and the receipt by beneficiary
?? Difficulty in verifying BG status (if amended/ invoked etc.) in absence of a central repository.
?? Cost incurred by banks for storage and retrieval of paper BG.
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Electronic Bank Guarantee (e-BG)
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An Electronic Bank Guarantee (e-BG) eliminates the physical documentation usually associated with issuance of BG. It reduces the turn-around time of the BG issuance and delivery to the beneficiary from an industry average of 3-4 working days to a few minutes. The digital steps in an e-BG includes BG application, preview and confirm, paperless e-stamping, e-signing, hosting of the final electronic BG on the NeSL portal and intimation of final BG to the beneficiary.?
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Why are banks opting for e-BG?
Paper-based bank guarantees takes 3-5 days to complete the process of physical pick up from the bank, courier to the beneficiary, stamp it and re-verify it. Besides there was no central repository for bank guarantees until now. With a huge focus on digitalisation, e-BG appears to be an attractive way of substituting paper-based guarantees. The electronic version of guarantee can be processed, stamped, verified and delivered instantly, compared to paper-based process. Moreover, conventional process takes a lot of time compared to the digital process. To obtain e-BG, companies or individuals have to go for text-generation of the BG, e-stamping by NeSl, e signing and hosting of the final e-bg on the NeSl portal. The final e-BG can be viewed by the applicant on the NeSL portal. The digital process not only saves time, but also eliminates fraud or manipulation.
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e Legal framework for eBG
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ü? Insolvency and Bankruptcy Code (2016), the Regulations and Guidelines thereunder. NeSL is an Information Utility registered with the Insolvency and Bankruptcy Board of India under the aegis of the IBC.
ü? IT Act, 2000 and rules thereunder.
ü? Orders issued by various state governments enabling NeSL to facilitate the process of digital e-stamping.
ü? Related article codes for digital stamping enabled by the states.
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Banks’ information stored with NeSL safe and secure.
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ü? NeSL as Information Utility under IBC (2016) is required and mandated to store debt related financial information across all segments of the economy.
ü? This covers fund based and non-fund based (including Guarantees) debt Information, in the form of data and related documents.
ü? NeSL already holds debt information across all bank/NBFCs.
ü? As per IU Regulations, NeSL maintains stringent information access processes for all financial information held by it.
ü? NeSL technology infrastructure is highly secured and scalable, consistent with Regulatory guidelines.
ü? The information security policies, organization, processes and internal controls of NeSL are ISO 27001:2013 certified. NeSL security processes are subjected to period external audits, regulatory inspections, IDRBT cybersecurity drills etc.
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Handling of return of original Bank guarantee
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eBG process through NeSL facilitates beneficiaries to submit request for invocation or any other consents through digitally signed submission in NeSL portal. Beneficiaries and their authorized representatives are required to register with NeSL before submitting such electronic requests. Thus, where such electronic request is received through NeSL, it can be treated as authentic and verifiable.
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New process
In the eBG process, Digital Document Execution (DDE) platform of NeSL is used for issuance, amendments and various life cycles stages of Bank Guarantee. The issuing banks integrates its internal system with the DDE platform of NeSL to enable eBG issuance and subsequent events where stamping is done digitally and execution is done by digital signature of the officials of the issuing bank. NeSL DDE platform is integrated with IGR/ State departments systems for quick procurement of digital stamp certificate and having capability to execute the documents electronically using Aadhaar eSIGN (OTP and Biometric) and DSC (dongle based Digital Signature).
Key Features of eBG
?1)??? Completely digital and eliminates paper
?a)???????????? Digital e-stamping: no need to print stamp paper
?b)???????????? ?BG document embedding digital stamp as a composite electronic (PDF) document: with no restrictions to impose any standardized BG template, beneficiaries and applicants can continue to use the present documentation templates
c)???????????? ?Digitally signed by bank official as permitted under the Information Technology Act: prevents tampering of any part of the document since it will invalidate the signature
?2)??? NeSL as central repository for eBG
?a)??? NeSL serves as the central repository for all eBG: as an Information Utility under IBC, NeSL is authorized and mandated to hold all debt relation information as a central repository of the country.
b)??? ?Any eBG issued is stored centrally in NeSL Information Utility repository apart from storage by the respective issuing banks.
c)??? Any subsequent event of the BG, e.g. amendment, invocation, cancellation/closure are also recorded with NeSL on confirmation from the issuing bank.
?3)??? Ease of transmission and access by all concerned parties
?a)??? All connected parties, i.e. beneficiary, applicant (customer) and the bank have ability to access NeSL platform directly for searching, viewing and downloading eBG, anytime: provides a single version of truth for all stakeholders.
b)??? ?NeSL also sends direct notification to beneficiary and other parties on issuance or change of status for each eBG: thereby eliminating the reliance on SFMS message for the purpose.
c)??? ?Allows beneficiaries, as verified users of NeSL, to issue discharge letter/confirmation or invocation advice through NeSL platform.
?Benefits of eBG for Stakeholders
?NeSL eBG product will bring Ease of Doing Business for all Stakeholder
?Beneficiary
??? Reduce delays
?? Notification from NeSL on issuance and for any subsequent status change
?? Ease of verification, access, search, trail/history
?? Initiate invocation request/ discharge letter electronically
?? Notifications/alerts before expiry (future development)
?? API based automation for eBG access (future development)
?Issuing bank
??? Better customer service
?? Cost reduction
?? Efficient
?Applicant (Customer)
??? Faster cycle
?? Save opportunity cost
?Government/ Regulator
??? Fraud reduction
?? Stamp duty enforcement
?Workflow process of e bank guarantee
Process flow for e-stamp and e-sign for NeSL
Source : https://nesl.co.in/e-bg/