Non-Funded Loans are like Letter of Credit, Bank Guarantees in which the fund of the Bank is not directly used; but there is obligation of the Bank to repay the amount in case of default by the client/applicant. In case of default by the client, Bank has to repay the amount converting the non-funded exposure to funded exposure (forced loan).
Non-Funded credit facilities are developed to facilitate the issuance of letter of credit (LC), bank guarantee (BG), telex transfer (T.T) etc. to small, medium and large business enterprises to import/domestic trade purpose in order to avoid immediate cash outflow of the client by assurance to the third party on the behalf of the client.