Letter of Credit Forum

I'm in agreement with the opinion of cdcspinoy, below, especially with the opinion that the guarantee should not exceed LC value.

However, to address your specific question, my view is that the indemnity given by the applicant would not only be required to state that the applicant will accept any discrepancy, but also that the applicant waives his right to reject the documents. The latter distinction is important, because an acceptance of a discrepancy in which the invoice overdraws the value of the LC, would imply that whilst the discrepancy is accepted, the disbursement under the LC is limited to the LC value, whereas an acceptance of the documents, would imply that the invoice will be accepted for payment for  whatever value it evidences. A refusal by the applicant to fund the difference (if not already secured by the issuing bank through cash margin) may be considered to be a breach under the terms of the indemnity. But, the bottom line is that this concerns the issuing bank and the applicant only, and the issuing bank has to be careful that it covers itself for such an eventuality, whilst ensuring that it remains mindful of its obligations to the  beneficiary, under the LC, to either pay, or hold the documents at the beneficiary's disposal       

First of all, Banks should not issue Shipping Guarantee in excess of LC amount. Second , Shipping Guarantee Application form must state that all discrepancies must be accepted by the applicant and applicant is undertaking to pay whatever amount is due in lieu of shipping guarantee including charges. In the event that banks allowed issuing the shipping guarantee in excess of the LC value, banks must collect the excess amount in form of a cash margin. That is the reason why, when issuing SGT Applicant must submit copy of Invoice and Bill of Lading or AWB to ensure that amount is not overdrawn.