RBI Issues the Master Circular on Guarantees and Co-Acceptances

On 01st April 2023, the Reserve Bank of India issued a Master Circular in regard to the Guarantees and Co-Acceptances.

The Circular consolidates the instructions issued by the Reserve Bank of India in relation to the conduct of guarantee of business by banks.

The Circular states that an essential criterion for judging the soundness of a banking institution is the size and character, not only of its assets portfolio but also of its contingent liability commitments such as guarantees, letters of credit, etc. As a part of business, banks issue guarantees on behalf of their customers for various purposes. The guarantees executed by banks comprise both performance guarantees and financial guarantees. The guarantees are structured according to the terms of the agreement, viz., security, maturity, and purpose. Banks should comply with the following guidelines in the conduct of their guarantee business.