 Mumbai:
The Reserve Bank of India (RBI) has permitted commercial
banks to issue guarantees for loans given by other banks
and financial institutions (FIs). Earlier banks were prohibited
from issuing guarantees favouring financial institutions,
other banks and other lending agencies.
In
a circular issued to the chiefs of all commercial banks,
the RBI has permitted them to issue such guarantees, subject
to adherence of conditions laid down, such as ensuring
the integrity and robustness of the bank’s risk management
systems and accordingly put in place a well laid-out policy.
According
to the RBI, the move is “in tune with liberalisation
and deregulation of the banking sector and in view of
the adoption of risk management systems in banks.”
The
RBI has said that a policy in this regard, approved by
the board of directors, should address issues such as
prudential limits linked to bank’s tier-I capital,
up to which guarantees favouring other banks, FIs and
other lending agencies may be issued.
It
should also take into account the nature and extent of
security and margins, delegation of powers, put in place
appropriate reporting systems and have periodical reviews.
The guarantee must be extended only in respect of borrower
constituents, to enable them to avail of additional credit
facility from other banks, FIs and lending agencies.
The
guaranteeing bank should assume a funded exposure of at
least 10 per cent of the exposure guaranteed.
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