An important 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 its 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 agreement, viz., security, maturity, and purpose.
The Reserve Bank of India ("RBI") has issued an updated master circular on guarantees and co-acceptances ("Master Circular") vide notification dated 9th November 2021. The Master Circular consolidates the instructions of RBI relating to the conduct of guarantee business by banks.
Banks are now required to adhere to the updated Master Circular in the conduct of their guarantee business.
https://rbi.org.in/Scripts/NotificationUser.aspx?Id=12189&Mode=0
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