What changed
RBI replaced the July 1, 2010 Master Circular with an updated version incorporating instructions issued up to June 30, 2011. The circular consolidates all prior guidelines on guarantees and co-acceptances into one document, ensuring banks have a single reference point. No new policy changes were introduced; it is a compilation exercise.
What it means for you
Banks must now refer to this single Master Circular for all rules on guarantees and co-acceptances, replacing earlier fragmented circulars. The circular reinforces existing norms on unsecured advances, fraud prevention, and restrictions on guarantees for inter-company deposits and NBFC placements. Compliance with these consolidated instructions is mandatory under the Banking Regulation Act, 1949.
What you must do
- Review and update internal policies on guarantees and co-acceptances to align with the consolidated Master Circular.
- Ensure all guarantee issuance procedures comply with the norms for unsecured advances and fraud prevention outlined in the circular.
- Train staff on the updated guidelines, especially sections on guarantees for directors, stockbrokers, and export-related guarantees.
- Monitor contingent liability exposures (guarantees, LCs) and apply appropriate risk weights as per off-balance sheet norms.
- Verify that co-acceptance of bills and letter of credit practices adhere to the safeguards specified in the circular.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Bank guarantee and trade finance departments, Credit and risk management teams, Compliance and audit functions, Branches handling export guarantees and letters of credit
Does this Master Circular introduce any new requirements for issuing guarantees?
No, it consolidates existing instructions issued up to June 30, 2011. Banks should continue following the same norms for unsecured advances, fraud prevention, and restrictions on guarantees for inter-company deposits and NBFC placements.
Are Regional Rural Banks (RRBs) covered under this circular?
No, the circular explicitly excludes RRBs. It applies only to all Scheduled Commercial Banks.
What are the key precautions banks must take when issuing guarantees?
Banks must follow norms for unsecured advances, implement fraud prevention measures as per Ghosh Committee recommendations, maintain internal control systems, and adhere to restrictions on guarantees for directors, stockbrokers, and inter-company deposits.