Performance guarantees are issued by the banks on behalf of a Service Contractor, who has to effectually perform all the conditions of the contract between him and the department/company that awarded the contract. The bank has to discharge the financial liability of the contract agreed in the guarantee, if the contract is partly or fully not performed by the customer. Such type of guarantees issued by the bank is called Performance Guarantee. Some times the terms of the contract may be of highly technical in nature and bank is generally not expected to know the technical aspects of the contract. Therefore the bank assumes only the financial liability of the contract. Since the issuance of performance guarantee is more complicated and risky, before issuing performance guarantees, the bank has to ensure that the customer has sufficient experience in the line of business and he has capacity and means to carry out the obligation under the contract.