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 you must do
- 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
Does this circular introduce any new restrictions on guarantee maturity?
No, it retains the existing rule that guarantees should normally not exceed 10 years, except for project loans beyond 10 years, where banks must evaluate ALM implications.
Are Payments Banks and RRBs covered under this circular?
No, the circular explicitly excludes Payments Banks and Regional Rural Banks from its application.
What should banks do to prevent fraud in guarantee business?
Banks must follow the precautions outlined in the circular, including Ghosh Committee recommendations, internal control systems, and specific measures for issuing guarantees.