What changed
RBI updated its previous master circular dated July 2, 2007 by incorporating all instructions issued up to June 30, 2008 on guarantees and co-acceptances. The circular consolidates existing rules into one document without introducing new requirements.
What it means for you
Banks must now refer to this single master circular for all guidelines on guarantee business, including norms for unsecured advances, fraud prevention, and foreign exchange-related guarantees. It reinforces the need for robust internal controls and risk management in off-balance sheet exposures.
What you must do
- Review and update your bank's internal policies on guarantees and co-acceptances to align with this master circular.
- Ensure all guarantee-related staff are trained on the consolidated guidelines, especially fraud prevention measures.
- Verify compliance with the norms for unsecured advances and guarantees, including those for directors and brokers.
- Check that foreign exchange guarantee procedures adhere to the Foreign Exchange Management (Guarantees) Regulations.
Who it affects
All scheduled commercial banks (excluding RRBs), Credit and risk management departments, Trade finance and guarantee processing teams, Compliance and audit functions
Does this circular introduce any new rules for guarantees?
No, it consolidates all existing instructions issued up to June 30, 2008 into one master circular, replacing the previous version from July 2, 2007.
Are Regional Rural Banks covered by this circular?
No, the circular explicitly excludes Regional Rural Banks (RRBs) from its application.
What key areas are covered in the guidelines?
The circular covers general guidelines, conduct of guarantee business, foreign exchange regulations, restrictions on inter-company deposits/loans, payment of invoked guarantees, co-acceptance of bills, and precautions for letters of credit.