RBI cautions SBI against guaranteeing future NCD issues

Concerned that big banks like SBI guaranteeing debenture issues by corporate entities may send wrong signals to the market, the RBI has has put a blanket ban on the banks giving such guarantees and has sought a strict compliance on its directive.     

Clarifying that a direction has been in place for quite some time from the Reserve Bank that banks can not guarantee non-covertible debenture or bonds issue by corporate entities, an official at the central bank said that "certain violations" have been noticed recently.     

To make things clearer, RBI had to again issue a notification to all the commercial banks in the country in this regard, the official added.     

Days before RBI's notification, where it said that "certain banks" were issuing guarantees on behalf of corporate entities in respect of their issuance of non-convertible debentures (NCD), the country's top public sector bank SBI guaranteed a Rs 4,200-crore NCD issue of Tata Motors.     

Asked if RBI would ask SBI to withdraw this guarantee, the official said that as far SBI guarantee to Tata Motors' NCDs is concerned, the central bank would excercise "regulatory forbearance."