On November 09, 2021, the Reserve Bank of India (RBI) has issued Master Circular – Guarantees and Co-acceptances relating to the conduct of guarantee business by banks.\u00a0This circular shall be applicable to all Scheduled Commercial Banks, excluding Payments Banks and Regional Rural Banks.<\/p>\n
General Guidelines\u00a0<\/strong><\/span><\/p>\n Guidelines relating to conduct of guarantee business<\/strong><\/span><\/p>\n Banks should adopt the following precautions while issuing guarantees on behalf of their customers.<\/p>\n (i) As a rule, banks should avoid giving unsecured guarantees in large amounts and for medium and long-term periods. They should avoid undue concentration of such unsecured guarantee commitments to particular groups of customers and\/or trades.<\/p>\n (ii) Unsecured guarantees on account of any individual constituent should be limited to a reasonable proportion of the bank\u2019s total unsecured guarantees. Guarantees on behalf of an individual should also bear a reasonable proportion to the constituent\u2019s equity.<\/p>\n (iii) In exceptional cases, banks may give deferred payment guarantees on an unsecured basis for modest amounts to first class customers who have entered into deferred payment arrangements in consonance with Government policy.<\/p>\n (iv) Guarantees executed on behalf of any individual constituent, or a group of constituents, should be subject to the prescribed exposure norms.<\/p>\n (v) It is essential to realise that guarantees contain inherent risks and that it would not be in the bank\u2019s interest or in the public interest, generally, to encourage parties to over-extend their commitments and embark upon enterprises solely relying on the easy availability of guarantee facilities.<\/p>\n<\/li>\n<\/ul>\n <\/p>\n
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