Current Affairs · Banking and Trade Finance
A bank is evaluating a Non-Fund Based credit facility for a client. Which of the following best describes the risk profile and accounting treatment of a Standby Letter of Credit (SBLC) compared to a traditional Financial Bank Guarantee?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1SBLC can only be issued by banks with a Tier-1 capital exceeding 5,000 crore rupees as per RBI Master Directions.
- 2SBLC is recorded on the asset side of the balance sheet immediately upon issuance, unlike a Bank Guarantee.
- 3SBLC acts as a Guaranty of Payment and is treated as a contingent liability, similar to a Bank Guarantee, but governed by UCPDC 600 or ISP 98.✓
- 4SBLC is a primary payment mechanism used in international trade, whereas a Financial Guarantee is a secondary fallback.
Correct answer
SBLC acts as a Guaranty of Payment and is treated as a contingent liability, similar to a Bank Guarantee, but governed by UCPDC 600 or ISP 98.
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