Banks to not provide guarantee for issuance of bonds or debt instruments
Banks in India have been issuing guarantees on behalf of corporate entities in respect of non-convertible debentures issued by such entities.
Reserve Bank of India in its notification dated May 29, 2009 has clarified that the extant instructions apply only to loans and not to bonds or debt instruments. Guarantees by the banking system for a corporate bond or any debt instrument not only have significant systemic implications but also impede the development of a genuine corporate debt market.
Banks are advised to strictly comply with the extant regulations and in particular, not to provide guarantees or equivalent commitments for issuance of bonds or debt instruments of any kind.
RBI Guidelines on issue of guarantees by banks... click here
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