Master Circular – Guarantees and Co-acceptances
This circular outlines the guidelines and norms for banks to follow while issuing guarantees and co-acceptances.
General Guidelines: Banks should ensure that guarantees are issued in accordance with the Banking Regulation Act, 1949, and the Reserve Bank of India Act, 1934.
Conduct of Guarantee Business: Banks should have in place a comprehensive policy for issuing guarantees, including norms for unsecured advances and guarantees, precautions for issuing guarantees, and measures to prevent frauds.
Specific Guidelines:
– Banks should have internal control systems in place to monitor and review guarantee business.
– Guarantees on behalf of banks’ directors should be subject to specific approval procedures.
– Banks should follow the Bank Guarantee Scheme of the Government of India.
– Guarantees on behalf of share and stock brokers/commodity brokers should be issued with caution and subject to specific conditions.
– Personal guarantees of promoters, directors, and other managerial personnel of borrowing concerns should be obtained in certain cases.
Exceptions: Guarantees may not be necessary in certain cases, such as for loans to individuals or small businesses.
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