Question
Which of the following statements are not true regarding
the issuance of a Bank Guarantee (BG)? A. All bank guarantees have an expiry period and expiry date. Â B. Banks are required to maintain capital against non-fund-based facilities like Bank Guarantees. Â C. Banks should comply with Ghosh Committee recommendations while issuing bank guarantees. Â D. Banks are not allowed to issue bank guarantees in favor of other banks and financial institutions.Solution
• Statement A – True o All BGs must have an expiry period and expiry date. RBI guidelines state they generally should not exceed 10 years (though banks may allow longer after assessing ALM impact). • Statement B – True o BGs are non-fund-based facilities, but banks must maintain capital adequacy requirements against such exposures. • Statement C – True o Banks must follow Ghosh Committee recommendations, such as issuing BGs in serially numbered security forms and advising beneficiaries to verify their genuineness. • Statement D – False o Banks can issue BGs in favor of other banks/financial institutions, subject to prudential norms. They are not outright prohibited.
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