Tuesday, January 12, 2016

Non-Fund Based Facility to Non-constituent Borrowers of Bank

It has now been decided that Scheduled Commercial Banks can grant non-fund based facilities like Letter of Credits (LCs), Bank Guarantees including Partial Credit Enhancement (PCE) to those customers, who do not avail any fund based facility from any bank in India, subject to the following conditions:

a) Board Approved Policy

Banks shall formulate a comprehensive Board approved loan policy for grant of non-fund based facility to non constituent borrowers.

b) Verification of Customer credentials

Banks shall ensure that the borrower has not availed any fund based facility from any other bank in India and also obtain a declaration about the non- fund based credit facilities already enjoyed by them from other banks.

c) Credit Appraisal and due-diligence

Banks shall undertake the same level of credit appraisal as fund based facilities.

d) Compliance with (KYC) Norms / (AML) Standards / (CFT) / PMLA, 2002

The guidelines on KYC/AML/ CFT, shall be adhered to.

e) Submission of Credit Information to CICs

Credit information of such facilities shall be mandatorily furnished to the Credit Information Companies.

f) Exposure Norms

Banks shall adhere to the exposure norms.

Banks are, however, prohibited from negotiating unrestricted LCs of non-constituents. In cases where negotiation of bills drawn under LC is restricted to a particular bank and the beneficiary of the LC is not a constituent of that bank, the bank shall have the option to negotiate such LCs, subject to the condition that the proceeds are remitted to the regular banker of the beneficiary.

Based on RBI Circular dt 07/01/16. Please visit www.rbi.org.in for any further clarification if required…..       Poppy