Guarantees
The Reserve Bank of India has outlined guidelines for Urban Co-operative Banks (UCBs) regarding guarantees, co-acceptances, and letters of credit.
Issue of Guarantees: UCBs can issue guarantees for various purposes, including performance, financial, and bid bonds. The maturity period and volume of guarantees should be reasonable and secured by adequate collateral. Unsecured guarantees are also permitted, but with caution. Deferred payment guarantees are allowed for specific purposes.
Safeguards: UCBs must ensure that guarantees are issued with proper authorization, and the beneficiary’s creditworthiness is assessed. They should also maintain a record of guarantees issued and obtain certified copies of judgments in case of disputes.
Co-acceptance of Bills
Irregularities: UCBs should avoid irregularities in co-acceptance of bills, such as accepting bills without proper authorization or exceeding credit limits.
Safeguards: UCBs should verify the authenticity of bills, ensure proper documentation, and maintain a record of co-accepted bills.
Letters of Credit (LCs)
Guidelines: UCBs can grant LCs for various purposes, including import and export of commodities. They should ensure that LCs are issued with proper authorization and the beneficiary’s creditworthiness is assessed.
Safeguards: UCBs should verify the authenticity of LCs, ensure proper documentation, and maintain a record of LCs issued. They should also make immediate payment under LCs and obtain certified copies of judgments in case of disputes.
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Download: Master Circular – Guarantees, Co-Acceptances & Letters of Credit – UCBs