1 CHAPTER 1 INTRODUCTION 2 Bank Guarantee

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CHAPTER 1

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INTRODUCTION

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Bank Guarantee (BG) is an understanding between 3 parties viz. the bank, the recipient (gathering to
whom the assurance is given) and the candidate (party who looks for the bank ensure from the bank).
As it were, if the indebted person neglects to settle an obligation, the bank covers it. A bank ensure
empowers the client, or account holder, to get merchandise, purchase hardware or draw down
credits, and accordingly extend business movement. BG is issued by the put money on the receipt of
the demand from the “candidate” for the “assurance sum” towards some reason/fundamental
exchange towards the “recipient”. On the off chance that the bank i.e. “the underwriter” gets the
“claim” from the recipient, it brings about “BG conjuring”. On account of remote BG, aside from
these 3 parties, there is additionally a “Reporter bank”. On the off chance that a bank does not have a
branch in some remote nation, it issues BG in that nation through its “journalist bank”. The bank
does all the required due steadiness, money related and business investigation before issuing the
assurance.

FEATURES OF A VALID GUARANTEE

? The period until which the assurance holds is unmistakably indicated.
? The guarantee is constantly issued for a particular sum.
? The reason for the guarantee is plainly expressed.
? The guarantee is substantial for a particularly characterized period
? The grace period permitted to authorize ensure rights is additionally expressed in the
guarantee.
? Guarantee obviously expresses the occasions under which it can be upheld.

It is critical that assurance can be upheld in view of terms of the agreement (i.e. guarantee
agreement) existing between the bank and the recipient. For the most part, recipients do
express a condition to be incorporated for charging punitive enthusiasm for the instance of
deferred instalment. Subsequently, it is fundamental for the bank to be wary while finishing
the arrangement and content of the agreement (the assurance understanding). While marking
the same, the arrangement of corrective intrigue and provisos connected to postponements
and default are to be deliberately noted.

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TYPES OF BANK GUARANTEES

? FINANCIAL GUARANTEE
Here, the bank ensures that the recipient will meet the monetary commitment and on the off
chance that he falls flat, the bank as an underwriter will undoubtedly pay.

? PERFORMANCE GUARANTEE
Here the guarantee issued is for regarding a specific undertaking and culmination of the
same in the recommended/settled upon way as expressed in the certification archive.

? ADVANCE PAYMENT GUARANTEE
This guarantee assures that the propel sum would be returned, on the off chance that the
understanding for which the progress is given does not get satisfied.

? PAYMENT GUARANTEE / LOAN GUARANTEE
The guarantee is for assuring the instalment/credit reimbursement. On the off chance that,
the gathering neglects to do as such, an underwriter will undoubtedly pay for the benefit of
the defaulting borrower.

? BID BOND GUARANTEE
As a piece of the offering procedure, this guarantee assures that the bidder would attempt the
agreement he has offered for, on the terms the offering is finished.

? FOREIGN BANK GUARANTEE
At the point when a guarantee is issued for an outside recipient, it is called foreign BG.

? DEFERRED PAYMENT GUARANTEE
At the point when the bank guarantees some conceded instalment, the guarantee is named as
Deferred Payment Guarantee. For instance, an organization buys a machine using a loan premise
with terms of instalment being 6 equal instalments. For this situation, since the instalment is
conceded to a later period, creditor looks for conceded instalment guarantee for a confirmation that
the instalment would contact him in the given time period.

? SHIPPING GUARANTEE
This guarantee shields the delivery organization from a wide range of loss, on the off chance that the
client does not pay. This report causes the client to claim products.

? GUARANTEE FOR WARRANTY OBLIGATION OR WARRANTY
BOND
This is an affirmation that the merchandise requested would be conveyed as concurred.

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BANK GUARANTEE LIMITS

On the off chance that some organization or firm has normal necessity of BGs in their course of
business, banks likewise give an office of settling “BG Limit” for that organization/firm after
BG appraisal in light of their reputation, money related position, security offered by the
organization, edge and budgetary position of the business. For instance: If a little organization
manages Government Departments or Public Sector Units, the general necessity of BG happens.
In such case, getting a BG constrain is gainful; this implies the bank now and again can issue
BGs to the candidate with as far as possible being the endorsed “BG Limit Amount”. BG limits
are delegated “Non-Fund Based” points of confinement.

WHY ARE BANK GUARANTEES IMPORTANT?

Significance of bank guarantee is reflected in the below mentioned points:

? Adds to Creditworthiness: BGs mirror the certainty of the bank in your
business and in a roundabout way guarantee soundness of your business.

? Assessment of Business: For the situation of outside transactions or transactions with
Government associations, the remote party or a Government Undertaking is compelled
and can’t evaluate the soundness of every single candidate to a task. In such cases, BGs
go about as a confided in instrument to survey soundness and reliability of
organizations applying for ventures.

? The Confidence of Performance: When new parties relate in the business and are
doubting the execution of the organization undertaking the task, performance
guarantees help in diminishing the danger of the recipient.

? Risk Reduction: Advance payment guarantees go about as an assurance cover
wherein the purchaser can recuperate the propel sum paid to the merchant if a dealer
neglects to convey the products or administrations. This secures against any likely
misfortune that a gathering can experience the ill effects of another vender.

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CHAPTER 2

INDUSTRY PROFILE

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The oil and gas part is among the six core businesses in India and assumes a noteworthy part in
impacting basic leadership for the various vital areas of the economy.

In 1997– 98, the New Exploration Licensing Policy (NELP) was imagined to fill the consistently
expanding hole between India’s gas request and supply. India’s financial development is firmly
identified with vitality request; hence the requirement for oil and gas is anticipated to develop all
the more, subsequently making the division very favourable for venture.

The Government of India has received a few approaches to satisfy the expanding request. The
administration has permitted 100 percent Foreign Direct Investment (FDI) in numerous portions
of the division, including petrol, oil based goods, and refineries, among others. Today, it pulls in
both household and outside venture, as authenticated by the nearness of Reliance Industries Ltd
(RIL) and Cairn India.

Market Size

India is relied upon to be one of the largest contributors of non-OECD oil utilization
development universally. Oil imports climbed forcefully year-on-year by 27.89 for every penny
to US$ 9.29 billion in October 2017. India’s oil utilization grew 8.3 for every penny year-on-
year to 212.7 million tons in 2016, as against the worldwide development of 1.5 for each
penny, subsequently making it the third-biggest oil devouring country on the planet.

India is the fourth-biggest Liquefied Natural Gas (LNG) shipper after Japan, South Korea and
China, and records for 5.8 for every penny of the aggregate worldwide exchange. Household
LNG request is required to develop at a CAGR of 16.89 for every penny to 306.54 MMSCMD
by 2021 from 64 MMSCMD in 2015.

The nation’s gas production is relied upon to contact 90 Billion Cubic Meters (BCM) in 2040
from 21.3 BCM in 2017-2018 (Apr-Nov). Gas pipeline framework in the nation remained at
16,470 km in September 2017.

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Investment

As indicated by information discharged by the Department of Industrial Policy and Promotion
(DIPP), the oil and flammable gas part pulled in FDI worth US$ 6.86 billion between April 2000
and September 2017.

Following are a portion of the real ventures and improvements in the oil and gas part:

? World’s biggest oil exporter Saudi Aramco is intending to put resources into refineries
and petrochemicals in India as it hopes to go into a key association with the nation.
? Foreign financial specialists will have chances to put resources into ventures worth
US$ 300 billion in India, as the nation hopes to cut dependence on oil imports by 10
for every penny by 2022, as per Mr Dharmendra Pradhan, Minister of Petroleum and
Natural Gas, Government of India.

? During the reciprocal gathering held in Tokyo between Mr Dharmendra Pradhan,
Minister of Petroleum and Natural Gas, Government of India and Mr Hiroshige Seko,
Minister of Economy, Trade, and Industry of Japan, marked a reminder of collaboration
on building up a fluid, adaptable and worldwide melted flammable gas (LNG) showcase
by investigating joint participation in the regions of sourcing, swapping and enhancement
of LNG sources.

? State-claimed Oil and Natural Gas Corporation (ONGC) has thought of the new plan to
expand the raw petroleum creation by 4 million tons and to twofold its flammable gas
generation by 2020 to check the nation’s import reliance by 10 percent. The organization
will raise its unrefined petroleum creation from 22.6 million tons in 2017-2018 to 26.42
million tons in 2021-2022.

Government Initiatives

A portion of the real initiatives taken by the Government of India to promote oil and gas sector are:

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? State-run oil firms are arranging ventures worth Rs 723 crore (US$ 111.30 million) in
Uttar Pradesh to enhance the melted oil gas (LPG) framework in an offer to advance
clean vitality and create work, as indicated by Mr Dharmendra Pradhan, Minister of
Petroleum and Natural Gas, Government of India.

? A gas trade is arranged to bring market-driven valuing in the vitality market of India
and the proposition for the same is prepared to be taken to the Union Cabinet, as
indicated by Mr Dharmendra Pradhan, Minister of Petroleum and Natural Gas,
Government of India.

? The Oil Ministry intends to set up bio-CNG (packed gaseous petrol) plants and
associated foundation at a cost of Rs 7,000 crore (US$ 1.10 billion) to advance the
utilization of clean fuel.

Road Ahead

India’s oil demand is relied upon to develop at a CAGR of 3.6 for every penny to 458
Million Tons of Oil Equivalent (MTOE) by 2040, while interest for vitality will dramatically
increase by 2040 as economy will develop to in excess of five times its present size, as
expressed by Mr Dharmendra Pradhan, Minister of State for Petroleum and Natural Gas.

Gas creation will probably contact 90 Billion Cubic Meters (BCM) by 2040, subject to
change in accordance with the present recipe that decides the value paid to residential
makers, while interest for petroleum gas will develop at a CAGR of 4.6 for each penny to
contact 149 MTOE.
After the fruition of specific activities which are embraced by different refineries, the
Refining Capacity of India is relied upon to achieve 256.55 MMTPA by 2019-20.

The interest for oil based goods is assessed to achieve 244,960 MT by 2021-22, up from
186,209 MT in 2016, and the interest for petroleum gas is relied upon to achieve 606
MMSCMD by 2021-22 as against a request of 473 MMSCMD in 2016-17. Conversion scale
Used: INR 1 = US$ 0.015 as on January 4, 2018.

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CHAPTER 3

COMPANY PROFILE

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IOCL (Indian Oil Corporation) was framed in 1964 as the aftereffect of merger of Indian Oil
Company Ltd. (Estd. 1959) and Indian Refineries Ltd. (Estd. 1958). Indian Oil Corporation Ltd. is
presently India’s biggest organization by deals with a turnover of Rs. 2441 329 600, and benefit of
Rs. 25 994 000 for monetary 2009. Indian Oil Corporation Ltd. is the most elevated positioned
Indian organization in the esteemed Fortune ‘Worldwide 500’. It is positioned at 109th position in
2010. It is likewise the twentieth biggest oil organization on the planet. Indian Oil and its
auxiliaries today represents 49% oil based commodities piece of the pie in India. Indian Oil
aggregate has sold 59.29mn tons of Petroleum including 1.74mn tons of flammable gas in the
household advertise and traded 3.33mn tons in the year 2008-09.

VISION OF IOCL
A major diversified, transnational, integrated energy company, with national leadership and a
strong environment conscience, playing a national role in oil security ; public distribution.

MISSION OF IOCL
IOCL has the following mission:

? To achieve international standards of excellence in all aspects of energy and diversified
business with focus on customer delight through value of products and services and cost
reduction.

? To maximize creation of wealth, value and satisfaction for the stakeholders.

? To attain leadership in developing, adopting and assimilating state-of- the-art
technology for competitive advantage.

? To provide technology and services through sustained Research and Development.

? To foster a culture of participation and innovation for employee growth and
contribution.

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? To cultivate high standards of business ethics and Total Quality Management for a
strong corporate identity and brand equity.

? To help enrich the quality of life of the community and preserve ecological balance and
heritage through a strong environment conscience.

OBJECTIVES OF INDIAN OIL

IOCL has defined its objectives for succeeding in its mission. These objectives are:
? To serve the national interests in oil and related segments in understanding and
predictable with Government arrangements.
? To guarantee upkeep of ceaseless and smooth supplies of oil based commodities by
method for raw petroleum refining, transportation and promoting exercises and to give
suitable help to customers to monitor and utilize oil based goods proficiently.

? To improve the nation’s independence in raw petroleum refining and fabricate
aptitude in laying of unrefined petroleum and oil based commodity pipelines.

? To additionally improve promoting foundation and affiliate organize for giving
guaranteed administration to clients all through the nation.

? To make a solid research and improvement base in refinery forms, item
definitions, pipeline transportation and elective energizes with a view to
limiting/dispensing with imports and to have cutting edge items.

? To improve usage of refining limit and boost distillate yield and gross refining
edge.

? To expand usage of the current offices for enhancing effectiveness and expanding
efficiency.

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? To limit fuel utilization and hydrocarbon misfortune in refineries and stock
misfortune in showcasing tasks to impact vitality preservation.

? To win a sensible rate of degree of profitability.

PRODUCTS OFFERED BY IOCL

Indian Oil isn’t just the biggest business venture in the nation it is the lead corporate of the
Indian Nation. Other than having an overwhelming piece of the pie, Indian Oil is generally
perceived as India’s prevailing vitality brand and clients see Indian Oil as a solid image for
excellent items and administrations. Significant Products of IOCL are:

Auto LPG Greases & Lubricants
Aviation Turbine Fuel Marine Fuels
Bitumen MS Gasoline
High Speed Diesel Petrochemicals
Industrial Fuels Crude Oil
Liquefied Petroleum Gas Superior Kerosene Oil

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CHAPTER 4

OBJECTIVES OF THE

STUDY

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Indian Oil Corporation supplies items like lubes, LPG chambers, Hi-Speed Diesel (HSD), Motor
Spirit (MS) and so forth. The organization takes care of two sorts of clients, specifically cash
clients and credit clients. Cash clients are ones that take supplies and pay in cash. The credit
clients are given credit for the items provided thinking about a couple of elements.

This project tries to assess the arrangement of getting Bank Guarantees at Indian Oil
Corporation. The credit clients are given credit with a reinforcement of a bank guarantee. The
bank gives a guarantee of a paying a specific measure of the client’s expected on the off chance
that the client defaults. The client and Indian Oil signs a MOU amongst them and they arrange a
level of guarantee taking in the wake of thinking about numerous factors ,that the client’s bank
needs to give before taking supplies.

This project assesses the most critical components for asking a bank guarantee from the client
which is the insurance for Indian Oil. This task checks the major contributing components and
proposes how this procedure can be made more powerful for both Indian Oil and the clients.

The venture discovers the major contributing elements for this assessment of rate offer of Bank
Guarantee that should be secured from the client as insurance.

Thinking about the guarantees that has been gotten from existing clients an investigation has
been directed. Taking the variables for the examination a factor analysis is led with a specific
end goal to locate the contributing components. The factors that are utilized for the examination
is checked for relationship between them. This gives us a thought regarding the connection
between the factors. A regression test is done keeping in mind the end goal to discover the
commitment of the factors and the rate change in as far as possible concerning the adjustment in
factors.

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CHAPTER 5

PROJECT DESIGN
AND METHODOLOGY

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Indian Oil Corporation supplies items like lubes, LPG cylinders, Hi-Speed Diesel (HSD),
Motor Spirit (MS) and so forth. The organization has two kinds of clients, specifically cash
clients and credit clients. Cash clients are ones that take supplies and pay in cash. The credit
clients are given credit for the items provided mulling over a couple of elements.

The goal is to assess the arrangement of acquiring Bank Guarantees at Indian Oil Corporation.
The clients are given credit with a reinforcement of a bank guarantee. The bank gives a
guarantee of a paying a specific measure of the client’s expected on the off chance that the
client defaults. The client and Indian Oil signs a MOU amongst them and they arrange a level
of guarantee taking in the wake of thinking about numerous factors ,that the client’s bank needs
to give before taking supplies.

This task assesses the most critical components for asking a bank guarantee from the client
which is the security for Indian Oil. This undertaking checks the major contributing variables
and recommends how this procedure can be made more successful for both Indian Oil and the
clients.

The contributing factors considered for the study are as follows:

? Credit Rating of the company.

? Share of Products obtained.

? Outstanding Balance.

? Type of the product itself.

? Previous record of Guarantee issued.

Once the amount of bank guarantee is fixed, the customers are given credit terms.

Credit Terms: These are the duration that is decided upon by both parties during which Indian
Oil will not charge any interest. The customer takes supplies on credit and gets credit days
mentioned in the Credit terms. If the customer pays back within the duration mentioned then

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there is no interest charged. If the customer fails to pay back on time then an interest is applied
at the rate of 8.25%.

The customers look forward to payout this amount as this affects their ability to take supplies in
credit as well in the future. If they have a large outstanding due, the chances of getting credit
drops drastically.

The project was designed by noting down the possible contributing factors for giving credit. The
various variables were measured for all parties. The variables were shortlisted to the few main
contributors. The variables have been measured and tabulated.

METHODOLOGY

The variables in use are taken and a series of tests are conducted and analysed. The
tests conducted are listed below:

? Factor Analysis.
? Correlation.
? Regression Testing.
? Descriptive Statistics.
? Trend Analysis using E-views Software

Factor Analysis:

This test is led by taking every one of the factors. The test helps in deciding the factors that are
significant supporters of the test. The test is directed to assess the measure of guarantee that is
taken in light of the elements.

Correlation:

Correlation is any use of expansive class of factual connections including reliance, however in
like manner use it frequently alludes to how close two factors are to having a direct association
with each other. A correlation coefficient is an approach to put an incentive to the relationship.

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Correlation coefficients have an estimation of between – 1 and 1. A “0” implies there is no
connection between the factors by any stretch of the imagination, while – 1 or 1 implies that there
is an immaculate negative or positive connection (negative or positive relationship here alludes
to the kind of chart the relationship will deliver).

This furnishes us with the possibility of the reliance of factors on each other. In the event that
there is connection then the information taken for the test regards test.

Regression:

Regression analysis is an arrangement of measurable procedures for assessing the connections
among factors. It incorporates numerous procedures for displaying and dissecting a few
factors, when the emphasis is on the connection between a dependent variable and at least one
independent factor (or ‘indicators’). All the more particularly, regression causes one see how
the run of the mill estimation of the dependent variable changes when any of the independent
factors is differed, while the other independent factors are held settled.

For this test, Bank Guarantees have been taken as a dependent variable. Whatever remains of
the factors have been taken as independent factors, to check the reliance of the dependent with
the independent factors.

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CHAPTER 6

DATA ANALYSIS

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The data has been analysed and the following graphs have been drawn up with respect to various
variables.

Product Categorisation:

Product Count
1 126
2 200
3 88
4 918
Grand Total 1332

1. NFR 2. Lubes 3. LPG 4.Consumer

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Interpretation:

? IOCL is a supplier of various products. The products are categorised into four product
categories namely Non Fuel Retail (NFR), Lubes, LPG and Consumer products.
Majorly producing consumer products.
? The skewness, represented by kurtosis, is clocking around 2.92. This means a clear
case of platykurtic distribution indicating the suitability for low risk investments.
? Normality test shows no sign of fat tails. It’s purely Gaussian in nature. However, JB
Test statistics prove that the intensity is weak.
? This model is sustainable and accurate to a certain extent as AIC, SC and HQ criteria
are formed to be range bound between 1.12-1.32. Hence, prediction of product is
possible with high degree of robustness.
? Forecast in this model shows RMSE, MAE, MAPE and Theil conditions to be proper
and in order. This shows the model is robust in nature.
? The ACF showcases a gradual drop whereas the PACF shows an avalanche
breakdown. This is a classic case of the model following a moving average model.

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Credit Rating Categorisation:
Ratings Count
1 37
2 50
3 108
4 851
5 286
Grand Total 1332

1. B 2. BB 3. A 4. AA 5. AAA

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Interpretation:

? IOCL provides to customers while checking the credit ratings of the companies. The
credit ratings have been categorised as mentioned above. Affecting the share of the
supplies, the rating is in direct proportionality with the supply of goods. Majority of
the companies have over average ratings.
? The skewness, represented by kurtosis, is clocking around 6.32. This means a clear
case of leptokurtic distribution.
? JB Test statistics prove that the intensity is high as the value stands over 1000.
? Prediction of credit rating is not possible with high degree of robustness due to the
low values of AIC, Schwarz and HQ criterion.
? Forecast in this model shows RMSE, MAE and Theil conditions to be proper and in
order. However, MAPE is out of order. This shows the model is robust in nature.
? The ACF showcases a gradual drop whereas the PACF shows an avalanche
breakdown. This is a classic case of the model following a moving average model.

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Share Rating Categorisation:

Share Ratings Count
1 12
2 213
3 626
4 462
5 19
Grand Total 1332
1. Less than 20% 2. 20% – 40% 3. 40% – 60%
4. 60% – 80% 5.More than 80%

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Interpretation:
? IOCL provides to customers while checking the share of the products taken by the
companies. The share ratings have been categorised as mentioned above. Majority of
the companies take about half of their share from IOCL.
? The skewness, represented by kurtosis, is clocking around 2.65. This means a clear
case of platykurtic distribution.
? JB Test statistics prove that the intensity is low as the value is low.
? Prediction of credit rating is possible with high degree of robustness due to the low
values of AIC, Schwarz and HQ criterion.
? Forecast in this model shows RMSE, MAE, MAPE and Theil conditions to be proper
and in order. This shows the model is robust in nature.
? The ACF showcases a gradual drop whereas the PACF shows an avalanche
breakdown. This is a classic case of the model following a moving average model.

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Balance Codes Categorisation:

Balance Code Count
1 1
2 12
3 1316
4 1
5 2
Grand Total 1332

1. Less than -30000000 2. Between -30000000 ; -10000000 3. Between –
1000000 ; =30000000 5
10000000; x x

x

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