Master Circular on Guarantees and Co-acceptances 2023

What changed

This circular consolidates previous instructions on guarantees and co-acceptances issued up to March 31, 2023, replacing the 2022 master circular. It now explicitly permits banks to issue guarantees with maturities exceeding 10 years for long-term project loans, provided they assess the Asset Liability Management (ALM) impact.

What it means for you

Banks can now support longer-duration project loans with guarantees beyond the previous 10-year cap, but must carefully manage ALM risks. The circular reinforces existing norms on unsecured advances, fraud prevention, and restrictions on guarantees for NBFC fund placements. Compliance with FEMA and prudential norms remains mandatory.

What banks were required to do at the time

• Review and update internal guarantee policies to align with the consolidated circular, especially for guarantees exceeding 10 years.
• Assess ALM impact before issuing any guarantee with maturity beyond 10 years for project loans.
• Ensure all guarantee issuance follows the prescribed norms for unsecured advances, fraud precautions, and director-related guarantees.
• Verify compliance with restrictions on guarantees for placing funds with NBFCs or non-bank entities.
• Train staff on the updated guidelines, including the model bank guarantee bond format in Annex 1.

Who it affects

All Scheduled Commercial Banks (excluding Payments Banks and RRBs), Bank guarantee and co-acceptance departments, Credit and risk management teams, Compliance and ALM teams