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 bank’s board-approved policy and that they are aware of the risks involved.
Conduct of Guarantee Business: Banks should maintain a separate account for guarantees, ensure that guarantees are not issued to entities with poor credit history, and have a system in place to monitor and review guarantees.
Norms for Unsecured Advances and Guarantees: Banks should ensure that unsecured advances and guarantees are within the approved limits and that they are properly authorized.
Precautions: Banks should take precautions to avoid frauds, ensure that guarantees are not issued to related parties, and have a system in place to detect and prevent frauds.
Internal Control Systems: Banks should have an effective internal control system in place to monitor and review guarantees.
Specific Guidelines: There are specific guidelines for guarantees issued on behalf of banks’ directors, share and stock brokers, and commodity brokers.
Personal Guarantees: Banks should obtain personal guarantees of directors and other managerial personnel of borrowing concerns, except in cases where it is not necessary.
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