KARACHI, July 6: The State Bank has told all banks that after the expiry of the bank guarantee they should evaluate its effectiveness keeping in view its terms and conditions.

The SBP said in a circular to all banks that while evaluating the effectiveness of the bank guarantee they should also see validity period, legal position i.e. whether there is any claim or litigation pending against the said guarantee, etc. The banks should also obtain the legal advice from their legal adviser or counsel.

"In case the issuing bank is fully satisfied that the guarantee has lost its effectiveness in all terms, it should release the security/margin retained by it against the guarantee after obtaining an indemnity bond from the customer and not insist upon the return of the original guarantee from the beneficiary."

"However, while releasing the security/margin to the customer they should simultaneously inform the beneficiary about the release of their liability towards that guarantee."

The SBP has sent the above advice to the banks after it had noticed that the banks usually retained security/margin amount, deposited by their customer against the bank guarantee issued on his behalf even after the expiry of the validity period of the guarantee where no encashment claim from beneficiary is pending.

In normal practice it takes very long time to get original guarantee released from the beneficiary and deposit it back to the issuing bank. The retention of security/margin for such a long period due to above formalities creates unnecessary problems for the customers. Hence the circular.