What changed
This Master Circular updates the previous one dated April 1, 2023, by incorporating all instructions issued up to March 31, 2024. It does not contain any new instructions or guidelines, only consolidates existing ones.
What it means for you
UCBs must continue to follow existing norms on guarantees, co-acceptances, and LCs, including limits on guarantee volume (10% of owned resources) and unsecured guarantees (25% of owned funds or total guarantees, whichever is lower). The circular reinforces caution in issuance, especially for performance guarantees (only scheduled banks can issue them) and deferred payment guarantees.
What you must do
- Review your bank's guarantee portfolio to ensure compliance with the 10% volume cap on total owned resources.
- Monitor unsecured guarantees to stay within the 25% of owned funds or total guarantees limit.
- Ensure only scheduled UCBs issue performance guarantees, and all guarantees have appropriate safeguards.
- Update internal policies to reflect the consolidated instructions, especially for deferred payment guarantees and co-acceptance of bills.
Who it affects
Primary (Urban) Co-operative Banks (UCBs), Bank management and credit departments handling guarantees and LCs, Compliance and risk management teams in UCBs
Does this Master Circular introduce any new rules for UCBs?
No, it only consolidates all existing instructions issued up to March 31, 2024, without adding new guidelines.
What is the maximum tenure for guarantees issued by UCBs?
Guarantees should be short-term and not exceed ten years in any case.
Can all UCBs issue performance guarantees?
Only scheduled UCBs may issue performance guarantees, subject to due caution; non-scheduled UCBs can only issue financial guarantees.