The State Bank on Tuesday took notice that banks retain security amount deposited by the customers against the bank guarantee even after the expiry of the validity period.
The SBP issued a circular saying that it has been brought to our notice that the banks usually retain security/margin amount, deposited by their customers against the bank guarantee issued on his behalf, even after the expiry of the validity period of the guarantee and where no encashment claim from beneficiary is pending.
In normal practice, it takes very long time to get original guarantee released from the beneficiary and deposits it back to the issuing bank, said the circular.
The retention of security or margin for such a long period due to above formalities creates unnecessary problems for the customers by blocking their security or margin.
In order to overcome such difficulties it is advised that the banks, after the expiry period of the bank guarantee, should evaluate its effectiveness keeping in view its terms and conditions.
It should check the validity period, legal position ie whether there is any claim or litigation pending against the said guarantee etc, as well as obtain the legal advice from their legal advisor/counsel, it said.
In case the issuing bank is fully satisfied that the guarantee has lost its effectiveness in all terms, it should release the security/margin retained by it against the guarantee after obtaining an indemnity bond from the customer and not insist upon the return of the original guarantee from the beneficiary.
However, while releasing the security or margin to the customer they should simultaneously inform the beneficiary about the release of their liability towards that guarantee.