DEFERRED PAYMENT GUARANTEE
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Principles and Practices of Banking — JAIIB.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
What is a Deferred Payment Guarantee (DPG)?
A Deferred Payment Guarantee is a non-fund-based credit facility issued by a bank guaranteeing payment of installments on behalf of a borrower who has purchased capital goods or equipment on a deferred payment basis.
What is the primary purpose of a Deferred Payment Guarantee in trade finance?
To guarantee installment payments owed by buyer to seller.
Who are the three parties involved in a Deferred Payment Guarantee?
The three parties are the buyer (applicant/borrower), the seller (beneficiary), and the issuing bank that provides the guarantee for deferred installment payments.
In a DPG arrangement, who is the principal debtor responsible for making payments?
The buyer of capital goods is the principal debtor.
What type of transactions does a DPG typically facilitate?
A DPG typically facilitates purchase of capital goods, machinery, and industrial equipment where the buyer cannot pay the full price upfront and repays in installments over an agreed period.
What type of goods are most commonly financed through a Deferred Payment Guarantee?
Capital goods such as machinery and industrial equipment.
How does a Deferred Payment Guarantee differ from a term loan?
A term loan is a fund-based facility where the bank actually disburses funds, whereas a DPG is a non-fund-based contingent liability where the bank only pays if the buyer defaults on the scheduled installments.
How does a DPG obligation arise on a bank's books at the time of issuance?
As a contingent off-balance sheet liability of the bank.
Video classes for this chapter
More chapters in Module B - Lending Operations of Banks
Master the full PPB syllabus
Every chapter of Principles and Practices of Banking — videos, tests, notes and one-liner decks in one place.