Master Circular – Guarantees and Co-acceptances
This circular outlines guidelines for banks on guarantees and co-acceptances, replacing previous instructions.
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 maintain norms for unsecured advances and guarantees, exercise precautions when issuing guarantees, and implement measures to prevent fraud.
Specific Guidelines:
– Banks should have internal control systems in place and ensure that guarantees are not issued on behalf of their directors.
– The Bank Guarantee Scheme of the Government of India should be followed.
– Guarantees for share and stock brokers/commodity brokers require irrevocable payment commitments – financial guarantees.
– Personal guarantees of promoters, directors, and shareholders of borrowing concerns should be obtained, except in certain cases where guarantees are not necessary.
The circular aims to ensure that banks conduct their guarantee business in a prudent and transparent manner, minimizing risks and preventing fraud.
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