Lesson No. 12- Discussion on BGs

After 2 days Manager of PCL again called on Ms Mona Kumari Jha,BM when our young friend Sandeep was also sitting. He looked towards the Manager with a dismay, thinking what new things he is seeking.In a moment Manager informed; we are in a need of a Larson and Toubro earth mover costing Rs 220 lacs. We do not desire to avail Term loan; L and T has agreed to supply the machinery on credit period of 4 EYI of Rs50 lac.+ intt @12%.on payment of advance amount of Rs20 lac.Their other condition is that ,they wanted a word from bank ,hence I am here.
Sandeep questioned him it means L. T. wants an assurance for payment. Madam quipped right and added, the present liability of PCL(Rs200 lacs) is deferred into 4 yearly instalments of Rs50 lacs each ( + comp. interest on 200lac for 1year, on 150 lacs for 2 years and so on.....). Sandeep again intervened, it means PCL wanted that their deferred(postponed) liabilities be assured or guaranteed by us. Now Madam added you are right, such an assurance or acceptance that our Client will fulfill his deferred liabilities on due date is achieved by issuing a Guarantee ,called as a Deferred Payment Guarantee (DPG).
Generally 4 Usance Bills of P+Intt are drawn by L and T(Machinery Manufacturer) on PCL(Purchaser) they are accepted by PCL (by writing Accepted) and Co-accepted by bank and sent back to L and T.
PCL are happy that they got the asset for an investment of Rs20 lac. Land T are also happy that their Mach is sold out. Sandeep asked what benefits to L and T as their funds are blocked. Madam with a smile explained, L and T now approach their Bank say BOI ,who will discount the Bills and pay them Rs200lac Less interest @12% for remaining period. BOI can go toRBI or Money Market and can rediscount these bills or can held them on maturity.
Tilak Rd branch will collect money from PCL and pay the bills on due dates. But bank has to honour the bills. Madam thus for us it is a proposal just like a TL, she agreed.
The Machine will be under our Hypothecation. We also may take some deposits. We will get handling charges for bills+commission on BG+appraisal charges.
****** Now reply Q's raised by Sandeep,
1 What sort/Type of Asset it was for L and T.
2 What type of Asset it was in the hands of Pandit Co L. ***

$$ Give ANSWER to Sandeep. $$$

Thus we have discussed all the Three heads of BGs 
1Financial BG 
In lieu of money or its equivalent- earnest money deposit,security deposits, deposits in court,excise disputed claim amount,advance release of funds,release or supply of goods,mobilization advance etc.
2 Performance BG
When we guarantee performance of our client about quality of goods or work, supply of quantity ie numbers ,time performances etc. Since we can't perform all these there is a always a Compensation clause and thus performance of client is converted to financial obligation.
3 DPG
We undertake that our client will pay on due dates if not we will pay .

We will conclude in next lesson the other aspects and other types of BGs.

Ans the Q's.

Thank u.