What changed
RBI issued a revised Master Circular (DoR.STR.REC 07/09.27.000/2025-26) that consolidates all instructions on guarantees, co-acceptances, and letters of credit for UCBs issued up to March 31, 2025. The circular explicitly states it contains no new instructions or guidelines, only a compilation of existing ones.
What it means for you
For UCBs, this circular simplifies compliance by providing a single reference document for all non-fund based facility rules. Key existing limits remain unchanged: total guarantees outstanding capped at 10% of owned resources (paid-up capital + reserves + deposits), and unsecured guarantees limited to 25% of owned funds or 25% of total guarantees, whichever is lower. Banks must continue to adhere to these thresholds and ensure their guarantee portfolios are within prescribed limits.
What you must do
- Review your bank's current guarantee, co-acceptance, and LC portfolios against the consolidated limits in this master circular.
- Ensure total outstanding guarantees do not exceed 10% of owned resources (paid-up capital + reserves + deposits).
- Verify that unsecured guarantees are within 25% of owned funds or 25% of total guarantees, whichever is lower.
- Update internal policies and training materials to reference this new master circular as the single source of truth.
- Confirm that all guarantee issuances comply with the maturity cap of 10 years and the distinction between financial and performance guarantees.
Who it affects
Primary (Urban) Co-operative Banks (UCBs), Risk management and compliance teams at UCBs, Board of Directors of UCBs, Credit officers handling non-fund based facilities
Does this master circular introduce any new restrictions on guarantees for UCBs?
No, this circular is purely a consolidation of all existing instructions issued up to March 31, 2025. It does not contain any new guidelines or changes to existing rules.
What is the maximum tenure for guarantees issued by UCBs under this circular?
Guarantees should generally be short-term and must not exceed 10 years in any case, as per the existing guidelines reiterated in this master circular.
Are UCBs allowed to issue performance guarantees?
Only scheduled UCBs may issue performance guarantees, subject to due caution. Non-scheduled UCBs are restricted to financial guarantees only, as per the existing rules.