In banking norms, "With Recourse" and "Without Recourse"

In banking norms, "With Recourse" and "Without Recourse" refer to the level of risk assumed by the bank in issuing a Bank Guarantee (BG) or Letter of Credit (LC).

"STUDY PURPOSE" only

With Recourse BG/LC:

1. The bank has the right to recover from the customer (principal) any amount paid under the BG/LC.

2. The bank can claim reimbursement from the customer for any losses incurred.

3. The customer remains liable for the obligations under the BG/LC.

Without Recourse BG/LC:

1. The bank assumes full liability for the payment or performance obligations.

2. The bank cannot recover from the customer any amount paid under the BG/LC.

3. The customer is not liable for any losses incurred by the bank.

Key differences:

- Risk assumption: With Recourse shifts risk to the customer, while Without Recourse assumes risk with the bank.

- Liability: With Recourse holds the customer liable, while Without Recourse releases the customer from liability.

- Bank's obligation: With Recourse allows the bank to claim reimbursement, while Without Recourse obliges the bank to bear losses.

In general, Without Recourse BG/LC is considered a stronger guarantee, as the bank assumes full liability, providing greater assurance to the beneficiary. However, banks may charge higher fees or require additional collateral for Without Recourse BG/LC due to the increased risk.