A business example
A fictional contractor gives a customer a ₹5 lakh performance guarantee issued by its bank.
Underlying work
The contractor must perform the agreed project obligations.
Bank undertaking
The guarantee states its amount, beneficiary and invocation terms.
Potential claim
A claim is assessed against the guarantee's actual wording and applicable law.
What this shows
The guarantee is not a ₹5 lakh advance paid to the contractor. Its terms determine the bank undertaking and the claim process.
What it is often confused with
A bank guarantee is not cash paid to the customer and does not erase the underlying contract duties.
What to look at in your business
Read the invocation conditions, amount, expiry and claim provisions.
Context and further reading
RBI: guarantees and co-acceptances. This reference supports the terminology; use the linked guide for applicability and operative requirements.
Kosha.Services · Updated 2 October 2026