Banks asked to unwind guarantees to FIIsBS Reporter / Mumbai December 15, 2007Foreign institutional investors (FIIs) from now on cannot avail of guarantees (irrevocable payment commitments) from banks for their payment obligations at the stock exchanges.In a circular to banks on capital market exposure, the Reserve Bank of India (RBI) has said entities such as FIIs are not permitted to avail of fund or non-fund based facilities such as irrevocable payment commitments (IPCs) from banks, under the provisions of the Foreign Exchange Management Act (FEMA).Banks have been asked to unwind all such guarantees given on behalf of FIIs within six months starting Friday.RBI said the annual financial Inspection reports of certain banks and an analysis of the consolidated prudential return (CPR) of some banks have revealed that these banks have extended large loans to various mutual funds and have also issued IPCs to stock exchanges on behalf of mutual funds and FIIs. These exposures have, however, not been included by the banks for computation of their capital market exposure, which is capped at 40 per cent of every bank
