What changed
RBI replaced the July 2, 2012 master circular with an updated version incorporating instructions issued up to June 30, 2013. The circular consolidates all existing guidelines on guarantees, co-acceptances, and letters of credit into one document.
What it means for you
Banks now have a single reference for all guarantee-related regulations, reducing ambiguity. The circular reinforces the need for robust internal controls and fraud prevention measures, especially for guarantees on behalf of directors and brokers. It also reiterates restrictions on guarantees for inter-company deposits and NBFC placements.
What you must do
- Review and update internal policies on guarantee issuance to align with the master circular.
- Ensure all guarantee-related staff are trained on the consolidated guidelines, especially fraud prevention measures.
- Verify compliance with restrictions on guarantees for inter-company deposits and NBFC placements.
- Strengthen internal control systems as per Ghosh Committee recommendations.
- Update documentation for guarantees, letters of credit, and co-acceptances to match the model forms in the annex.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Bank guarantee and credit departments, Risk management and compliance teams, Branches handling trade finance and letters of credit
Does this circular apply to Regional Rural Banks?
No, the master circular explicitly excludes Regional Rural Banks (RRBs). It applies only to all other Scheduled Commercial Banks.
What are the key restrictions on guarantees for inter-company deposits?
Banks are restricted from issuing guarantees for inter-company deposits or loans, and also for placement of funds with NBFCs, as detailed in sections 2.4.1 and 2.4.2 of the circular.
What should banks do if a guarantee is invoked?
Banks must make payment promptly upon invocation, as per the terms of the guarantee. The circular provides specific guidelines on payment of invoked guarantees in section 2.5.