Master Circular on Guarantees and Co-acceptances (2010)

What changed

This master circular updates the previous version dated July 1, 2009, by incorporating all instructions issued up to June 30, 2010. It consolidates guidelines on guarantee business, including norms for unsecured advances and guarantees, precautions against fraud, and restrictions on inter-company and NBFC-related guarantees. The circular also includes updated references to FEMA regulations for guarantees on exports and foreign transactions.

What it means for you

Banks must ensure their guarantee and co-acceptance policies align with the consolidated instructions, particularly on risk assessment and fraud prevention. The circular reinforces the need for robust internal controls and adherence to exposure norms for unsecured guarantees. Lenders should review their contingent liability portfolios to maintain soundness, as these off-balance sheet items carry risk weights.

What banks were required to do at the time

• Review and update internal policies on guarantees and co-acceptances to match the master circular's guidelines.
• Ensure all guarantee issuances comply with the prescribed norms for unsecured advances and fraud prevention measures.
• Train staff on FEMA-related guarantee regulations for export and foreign transactions.
• Strengthen internal control systems as per Ghosh Committee recommendations to avert fraud.
• Monitor invoked guarantees and ensure timely payment as per RBI directives.

Who it affects

All scheduled commercial banks (excluding RRBs), Bank guarantee and credit departments, Compliance and risk management teams, Branches handling export and foreign exchange guarantees