Master Circular on Guarantees and Co-acceptances

What changed

This Master Circular replaces the July 1, 2015 version, consolidating all instructions issued up to November 8, 2021. No new policy changes were introduced; it merely updates and compiles existing circulars into a single reference document.

What it means for you

Banks must ensure their guarantee and co-acceptance policies align with the consolidated norms, particularly the 10-year maturity limit and the emphasis on financial over performance guarantees. The circular reinforces existing fraud prevention and internal control requirements, impacting how banks assess contingent liabilities and manage asset-liability mismatches for long-duration guarantees.

What banks were required to do at the time

• Review and update internal guarantee policies to comply with the consolidated guidelines, especially the 10-year maturity cap and exceptions for project loans.
• Strengthen fraud prevention measures as per Ghosh Committee recommendations and internal control systems outlined in the circular.
• Ensure all guarantee issuance procedures include proper documentation, security norms, and compliance with FEMA regulations.
• Train staff on the consolidated guidelines, particularly for performance guarantees, co-acceptances, and letters of credit.

Who it affects

All Scheduled Commercial Banks (excluding Payments Banks and RRBs), Bank guarantee and credit departments, Risk management and compliance teams, Branches handling trade finance and project loans