Banks advised to tighten letters of credit sanction norms

The finance ministry wants state-owned banks to follow more stringent norms while issuing bank guarantees or letters of credit to borrowers, concerned that such type offunding results in double financing, which often leads to financial indiscipline among borrowers.  A finance ministry official told ET that the government nominees on the boards of state-run banks have taken up the issue with bank officials, asking them to tighten the rules. In June 2004, the Reserve Bank of India (RBI) had removed all limits on unsecured exposure of banks, which includes bank guarantees, and given bank boards freedom to fix their own policies on such exposures. 

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