The commercial banks in India were not allowed to extend non-fund based facilities to non-constituents borrowers of the banks in order to prevent frauds, diversion of funds etc. However, the above restriction imposed by RBI vide circular DBOD.Dir.BC.62/13.07.09/2002-03 dated January 24, 2003 created problems to the customers who do not enjoy fund based credit facilities for availing non-fund based limits like Letter of Credits and Letter of Guarantees. In view of obviating above difficulties of such customers, RBI has today notified that Commercial Banks can grant non-fund based facilities including Partial Credit Enhancement (PCE) subject to following conditions.
* Banks shall formulate board approved loan policy to grant of non-fund based credit facilities to the customers who do not avail any fund based facility from any bank in India.
* Before extending the facility banks shall ensure that the borrower is not enjoying credit facility from other banks. A declaration from the customers with regard to any non-fund based credit facilities already enjoyed by him/her to be obtained.
* The instructions/ guidelines on KYC/AML/ CFT applicable to banks, issued by RBI from time to time, shall be adhered to in respect of all such credit facility.
* Credit appraisal of non-fund based limits shall be at the same level of credit appraisal as applicable for fund based limits. Grant of such facilities shall mandatorily be furnished to the RBI authorised Credit Information Companies.
* Banks shall adhere to exposure norms as prescribed by RBI from time to time.
The above relaxation of restriction to issue LC/LG does not relax the prohibition from negotiating unrestricted LCs of non-constituents in terms of para 2.3.9 of RBI’s master circular RBI/2015-16/95 on loans and advances. However, in cases of negotiation of bills restricted to a particular bank and where the beneficiary is not a constituent of the bank, the named negotiating bank has the option to negotiate such LCs but the proceeds are to be remitted to the regular banker of the beneficiary.
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