What changed
This master circular consolidates and updates all prior guidelines on guarantees, co-acceptances, and letters of credit for UCBs issued up to November 1, 2021. It replaces the earlier master circular dated July 1, 2015. No new policy changes were introduced; it is a compilation of existing instructions.
What it means for you
UCBs must adhere to the consolidated limits: total guarantees outstanding 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 should generally be short-term and not exceed 10 years. Scheduled UCBs may issue performance guarantees with caution, while non-scheduled ones are restricted to financial guarantees only.
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 (paid-up capital + reserves) or 25% of total guarantees, whichever is lower.
- Restrict guarantee maturity to a maximum of 10 years; prefer short-term maturities.
- Ensure scheduled UCBs only issue performance guarantees with due caution; non-scheduled UCBs must limit to financial guarantees.
- Maintain adequate security or counter-guarantees for deferred payment guarantees and avoid concentration of unsecured guarantees.
Who it affects
All Primary (Urban) Co-operative Banks (UCBs), Scheduled UCBs issuing performance guarantees, Non-scheduled UCBs
What is the maximum maturity allowed for guarantees issued by UCBs?
Guarantees should not be issued for periods exceeding ten years. UCBs are advised to confine guarantees to relatively short-term maturities.
Can UCBs issue performance guarantees?
Only scheduled UCBs may issue performance guarantees, subject to exercising due caution. Non-scheduled UCBs are restricted to financial guarantees only.
What are the limits on unsecured guarantees for UCBs?
Unsecured guarantees outstanding at any time must not exceed 25% of the bank's owned funds (paid-up capital + reserves) or 25% of the total amount of guarantees, whichever is less.