What changed
This is an annual consolidation circular that updates and replaces the previous master circular dated April 1, 2022. It incorporates all instructions issued up to March 31, 2023, without introducing new policy changes. The annex lists the specific circulars that have been consolidated.
What it means for you
UCBs must continue to operate within the existing prudential limits on guarantee issuance, including the 10% cap on total guarantees relative to owned resources and the 25% sub-limit on unsecured guarantees. Banks need to ensure their guarantee portfolios comply with these ceilings and that all non-fund based exposures are properly monitored. The circular reinforces the need for secured guarantees and short-term maturities to manage risk.
What you must do
- Review your bank's total outstanding guarantees to ensure they do not exceed 10% of total owned resources (paid-up capital + reserves + deposits).
- Check that unsecured guarantees are within 25% of owned funds or 25% of total guarantees, whichever is lower, and avoid concentration on any single customer or trade.
- Ensure no guarantee has a maturity beyond 10 years, and prefer short-term guarantees.
- Verify that all deferred payment guarantees are backed by adequate tangible security or counter-guarantees from eligible entities.
- Update your internal policies and reporting systems to reflect the consolidated instructions and maintain compliance with the master circular.
Who it affects
Primary (Urban) Co-operative Banks (UCBs), Board of Directors of UCBs, Credit and risk management teams at UCBs, Compliance officers at UCBs
What is the maximum maturity allowed for guarantees issued by UCBs?
Guarantees should be short-term and must not exceed 10 years in any case.
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.
What is the limit on unsecured guarantees for a UCB?
Unsecured guarantees outstanding at any time must not exceed 25% of the bank's owned funds (paid-up capital + reserves) or 25% of total guarantees, whichever is less.