Master Circular on Guarantees and Co-acceptances: Key Updates

What changed

This Master Circular replaces the November 9, 2021 version, consolidating all instructions issued up to March 31, 2022. No new policy changes were introduced; it is a compilation of existing guidelines on guarantees, co-acceptances, and letters of credit.

What it means for you

Banks must continue to treat guarantees as contingent liabilities and manage them prudently. The 10-year maturity cap remains, with an exception for project loans beyond 10 years, requiring careful ALM assessment. Compliance with fraud prevention measures and norms for unsecured advances is mandatory.

What banks were required to do at the time

• Review and update internal policies to align with the consolidated guidelines on guarantees and co-acceptances.
• Ensure all guarantee issuances comply with the 10-year maturity cap, except for long-term project loans where ALM impact must be assessed.
• Strengthen internal controls and fraud prevention measures as per Ghosh Committee recommendations.
• Verify that guarantees on behalf of directors, stockbrokers, and for NBFC placements follow prescribed restrictions.

Who it affects

All Scheduled Commercial Banks (excluding Payments Banks and RRBs), Bank guarantee and credit departments, Risk management and compliance teams, Branches issuing performance and financial guarantees