Non funds based credit facilities are given by banks or financial institutions to their customers, under this there is no outflow of funds from bank and also customer also does not get any cash. Given below are some of the examples of non fund based credit facilities –
- Guarantee – Under this the bank agrees to discharge any liability to the third party in the event of failure by customer to discharge their liabilities. There can be many types of guarantees like performance guarantee, deferred payment guarantee and so on.
- Letter of credit facility – Under this bank agrees to pay to seller of goods on presentation of documents like bill of lading, railway receipt etc…
- Bills co-acceptance
Apart from above many financial institutions provide many other structured products to cater to the needs of various individuals and business houses.