What changed
This master circular updates and consolidates all prior guidelines on guarantees, co-acceptances, and letters of credit for UCBs issued up to March 31, 2022. It replaces the earlier master circular dated November 2, 2021. No new policy changes were introduced; it is a compilation exercise.
What it means for you
UCBs must ensure their guarantee portfolio stays within the prescribed limits: total guarantees not exceeding 10% of owned resources (paid-up capital + reserves + deposits) and unsecured guarantees capped at 25% of owned funds or 25% of total guarantees, whichever is lower. Guarantees beyond 10 years are prohibited. Banks should prefer secured guarantees and avoid concentration in unsecured commitments.
What you must do
- Review outstanding guarantees to ensure total obligations are within 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.
- Do not issue guarantees with maturity exceeding 10 years; prefer short-term maturities.
- Ensure board-approved limits for unsecured guarantees per individual constituent are in place.
- Prefer secured guarantees backed by tangible assets or counter-guarantees from government or eligible institutions.
Who it affects
All Primary (Urban) Co-operative Banks (UCBs), Board of Directors of UCBs, Credit and risk management teams at UCBs
What is the maximum tenure for a guarantee issued by a UCB?
Guarantees should be short-term and in no case exceed 10 years from the date of issuance.
How is the total guarantee volume limit calculated?
Total outstanding guarantees must not exceed 10% of the bank's total owned resources, which include paid-up capital, reserves, and deposits.
Can UCBs issue performance guarantees?
Only scheduled UCBs may issue performance guarantees, and that too with due caution. Non-scheduled UCBs are restricted to financial guarantees only.