What changed
This master circular updates and consolidates all previous instructions on guarantees, co‑acceptances, and letters of credit for UCBs issued up to June 30 2012, building on the earlier master circular dated July 1 2011.
What it means for you
UCBs must strictly adhere to the revised limits: total guarantee outstandings 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, and performance guarantees are allowed only for scheduled UCBs with due caution. These rules aim to contain risk and protect the bank's financial health.
What you must do
- Review and ensure total guarantee outstandings 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, and avoid concentration on any single group.
- Restrict guarantee maturity to a maximum of 10 years; prefer short-term maturities.
- Issue only financial guarantees as a rule; scheduled UCBs may issue performance guarantees with due caution.
- Ensure secured guarantees are backed by adequate tangible assets or counter-guarantees from government/PSU/insurance companies.
Who it affects
All Primary (Urban) Co-operative Banks (UCBs), Scheduled UCBs issuing performance guarantees, Bank boards setting unsecured guarantee limits
What is the maximum maturity allowed for guarantees issued by UCBs?
Guarantees should be short-term and must not exceed 10 years in any case.
Can UCBs issue performance guarantees?
As a general rule, only financial guarantees are allowed. However, scheduled UCBs may issue performance guarantees with due caution.
What is the limit on unsecured guarantees for a UCB?
Unsecured guarantees outstanding at any time must not exceed 25% of the bank's owned funds (paid-up capital + reserves) or 25% of total guarantees, whichever is lower.