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RBI says no to bank guarantees for bonds

The Reserve Bank of India said it had asked banks not to provide guarantees or commitments for issues of bonds or debt instruments by companies. debt instruments by companies.Under existing rules, banks are only allowed to issue guarantees for loans taken out by corporates, it said.
Reuters | By HT Correspondent, Mumbai
UPDATED ON MAY 31, 2009 11:42 PM IST

The Reserve Bank of India said it had asked banks not to provide guarantees or commitments for issues of bonds or debt instruments by companies.

Under existing rules, banks are only allowed to issue guarantees for loans taken out by corporates, it said.

“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,” the Reserve Bank of India said in a statement.

Earlier in May, top lender State Bank of India guaranteed a Rs 42-billion bond issue by Tata Motors, boosting demand and helping it price the bonds competitively, despite the possibility of a ratings downgrade.

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