Off balance sheet Items

• Off-balance sheet exposures refer to activities that are

effectively assets or liabilities of a company but do not appear
on the company’s balance sheet. The off-balance sheet
exposures in banking activities refers to securitisationactivities that
do not involve loans and deposits but generate fee income to
the banks. 
• Off-balance sheet exposures refer to activities that are effectively assets or liabilities of a company but do not
appear on the company’s balance sheet. The off-balance sheet exposures in banking activities refers to activities
that do not involve loans and deposits but generate fee income to the banks.  For e.g. Loans
given to borrowers and securitisation
• Securitisation enables banks to remove loans from balance
sheets and transfer the credit risk associated with those loans.
The former i.e. loans are indicated on asset side of the balance
sheet whereas securitised loans are represented off the
balance sheet.
 may get converted into an asset or liability at a later
date, depending upon the happening of the event.
• The non-fund based facilities like
– Issuance of letter of guarantee
– letter of credit
– deferred payment guarantee
– letter of comfort
– Investments of clients held by an investment company etc.
which are contingent in nature are some of the examples off
-balance sheet exposures of the banks.
 Off Balance sheet items
• Guarantees
– The issue of guarantee does not result in outlay of
funds but liability arises only when the customer
fails to perform the act for which the guarantee was
provided.
• Performance Guarantees
– Issued by bank in respect of performance of a contract.
– Example- guarantee in lie of tender money or security deposit
• Financial Guarantees
– Issued by bank in respect of completion of a contract
– Example- Bank guarantee for supply of goods on creditbasis
• Deferred payment guarantee
– Normally arise in the case of machinery or other capital
equipment.
– The manufacturer supplies the machinery against a cash
payment (say10%) and gets accepted bills for the balance
amount by the purchaser’s bank .
– The seller of the machinery gets guarantees issued
• Letter of Credit
– An undertaking given by the buyer’s bank on behalf of the buyer
to the seller, stipulating that if specified documents are
presented within an stipulated date, the bank establishing the
credit will pay the amount of the bill drawn in terms of such LC
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