Banks can grant non-fund based facilities to non-constituent borrowers

Reserve Bank of India (RBI) today said that banks can grant non-fund based facilities including Partial Credit Enhancement (PCE) to those customers, who do not avail any fund based facility from any bank in India.

However, the regulator said that this is subject to conditions including having a board approved policy, verification of customer credentials and credit appraisal and due diligence by banks.

As per a circular by the banking regulator in 2003, RBI had asked banks not to extend any non-fund based facilities to non-constituents borrowers of the banks. The restriction was imposed to prevent frauds, diversion of funds etc. in case bank sanctions 'one-off' transaction facilities without assessment of credit needs of the borrowers on well established credit norms.

RBI said that this led to problems faced by those customers, who require Non-Fund based facilities like Letter of Credits (LCs), Bank Guarantees, but do not avail of any fund-based facility from any bank.