What changed
This master circular updates and consolidates all previous instructions on guarantees, co-acceptances, and letters of credit for UCBs up to June 30, 2010. It replaces the earlier master circular dated July 1, 2009. No new policy changes were introduced; it is a compilation of existing guidelines.
What it means for you
UCBs must strictly adhere to the consolidated limits: total guarantees cannot exceed 10% of owned resources (paid-up capital, reserves, deposits), and unsecured guarantees are capped at 25% of owned funds or 25% of total guarantees, whichever is lower. Guarantees beyond 10 years are prohibited. Banks should prioritize secured guarantees and avoid concentration of unsecured commitments.
What you must do
- Review and ensure total outstanding guarantees do not exceed 10% of owned resources (paid-up capital + reserves + deposits).
- Cap unsecured guarantees at 25% of owned funds or 25% of total guarantees, whichever is lower.
- Do not issue guarantees with maturity beyond 10 years; prefer short-term maturities.
- Prefer secured guarantees backed by tangible assets or counter-guarantees from government/PSU/insurance companies.
- Set board-approved limits for unsecured guarantees per customer to avoid concentration.
Who it affects
All Primary (Urban) Co-operative Banks (UCBs), Board of Directors of UCBs, Credit and risk management teams of UCBs
What is the maximum tenure for a guarantee issued by a UCB?
Guarantees should not exceed 10 years in any case; short-term maturities are preferred.
How is the total guarantee volume capped?
Total outstanding guarantees at any time must not exceed 10% of the bank's total owned resources, which include paid-up capital, reserves, and deposits.
Can UCBs issue performance guarantees?
Only scheduled UCBs may issue performance guarantees with due caution; non-scheduled UCBs should provide only financial guarantees.