Recently, SBI has launched e-Bank Guarantee (e-BG) facility in association with NeSL
Electronic Bank Guarantee: e-BG consists of BG application, preview and confirmation in digital steps.
State Bank of India Recently announced the launch of Electronic Bank Guarantee (e-BG) facility. This is not the first time that paperless bank guarantee facility has been announced by a bank. Last year, HDFC Bank became the first bank in the country to issue e-BG in partnership with National e-Governance Services Limited (NESL).
As the name suggests, it is an electronic version of the bank guarantee that exists in our financial ecosystem.
Bank guarantees are very common when it comes to use by business entities.
What is Bank Guarantee (BG)?
A bank guarantee is a commitment made by the issuing bank to pay the beneficiary (albeit at the behest of the bank’s constituents).
In simple words, it is a promise made by a bank or any other financial institution that if a borrower fails to repay the loan, the bank or financial institution will compensate for the loss.
The original creditor gets assurance from the bank through a bank guarantee.
According to BankBazaarBank Guarantee is a contract between 3 different parties and these include:
Applicant (the party who requests the bank guarantee from the bank and borrows from the creditor)
– Beneficiary (the party that receives the partial guarantee)
Bank (the party that has agreed to sign and assure payment in case the applicant fails to repay the loan)
What is Electronic Bank Guarantee (e-BG)?
An electronic bank guarantee (e-BG) does away with the physical documentation usually associated with issuing a BG.
This reduces the turn-around time of BG issuance and delivery to the beneficiary to a few minutes from the industry average of 3-4 working days.
Step into e-BG
The digital steps in e-BG include BG application, preview and confirmation, paperless e-stamping, e-signature, hosting of final electronic BG on NESL portal and intimation of final BG to the beneficiary. Beneficiary can view the final digital BG on NESL portal immediately after it is released. Such e-BG eliminates the need for separate authentication from the BG issuing bank.
NESL is the central repository for e-BG. NeSL is a Central Government company, registered with the Insolvency and Bankruptcy Board of India (IBBI) under the aegis of the Insolvency and Bankruptcy Code, 2016 (IBC). The company has been established by leading banks and public institutions.
Why are banks starting the e-BG facility?
Soon after HDFC Bank announced the facility in 2022, a few more banks announced the system, the latest being SBI. But, why are banks opting for such a facility?
There are several factors that have been enumerated as benefits of the e-BG facility. NESL lists some of the benefits of implementing e-BG.
- Reduce latency during issue and during invocation
- Bank improves customer service
- Cost Reduction
- Notification for any change in status to be issued by NESL and subsequently
- Ease of verification, access, search, trail/history
- Initiate invocation request/discharge letter electronically
- Convenience and flexibility of the digital process for the customer
- fraud reduction
- stamp duty enforcement
Is e-BG different from Digital Document Execution (DDE) facility of NESL?
The e-BG process is run on DDE platform of NESL which is a product agnostic platform. eBG is just another product on the same platform. DDE platform is already being used by around 27 Banks/NBFCs for digital contracts Execution of various types of banking products.
How is the NeSL eBG model different from digital stamping?
The NESL process is an end-to-end digital one where the BG document itself, not just the stamp issuance process, is in digital form. NESL acts as a central repository for verification and access by all concerned parties i.e. beneficiary, applicant and issuing bank.
Can existing paper BG be converted to e-BG?
No. A paper BG shall remain in force until it is canceled and re-issued as an e-BG.
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