Start learning 50% faster. Sign in now
If a bank is called upon to honor its obligations under a guarantee or Letter of Credit (L/C) on behalf of directors, it means that the principal debtor has defaulted in discharging their liability, and the bank is required to fulfill its obligations stated in the guarantee or L/C. However, the prescribed circular highlights that if such a situation arises, where the bank is called upon to honor its obligations, it may be deemed to be in violation of Section 20 of the Banking Regulation Act, 1949. Section 20 of the Banking Regulation Act, 1949 imposes restrictions on loans and advances to directors and firms in which they hold substantial interest. By extending guarantees or opening L/Cs on behalf of directors, the bank may potentially expose itself to the risk of becoming a creditor to the principal debtor and deviating from the provisions of Section 20. Therefore, the bank must take appropriate steps to ensure that the liabilities arising from such guarantees or L/Cs do not devolve on the bank, it should be ensured that: (a) adequate and effective arrangements have been made to the satisfaction of the bank that the commitments would be met by the openers of L/Cs, or acceptors, or guarantors out of their own resources, (b) the bank will not be called upon to grant any loan or advance to meet the liability consequent upon the invocation of guarantee, and (c) no liability would devolve on the bank on account of L/Cs/ acceptances. Failing to do so may lead to the bank being considered in violation of the provisions of Section 20.
Statement: As per data provided by the education department, as many as 8,604 posts of Hindi teachers in primary schools and 1,500 in high schoo...
Statement : According to the latest issue of the medical journal Lancet, Multidrug Resistant-Tuberculosis (MDR-TB), a version of the disease where pat...
Statement: A 16-year-old boy drowned in a lake when he went for a swim along with his friends.
Courses of actions:
I. Coaching for ...
Statement : There are multiple cases where businesses have saved millions of rupees by making smaller changes in their processes. And energy-efficien...
Statement: While the workers laying cables underground in ABC locality, a main pipe supplying water to the houses burst and the locality was flooded....
Statement: Malnutrition isn’t just about acute starvation and often, healthy-looking people are malnourished too, because their diet does not inclu...
The increasing amount of NPA in public sector banks is causing trouble for RBI and India’s GDP as well.
Which of the following course of action...
Statement: Malnutrition isn’t just about acute starvation and often, healthy-looking people are malnourished too, because their diet does not in...
Statement: Militants are now attacking the police in several states of India in a bid to demoralize them and to choke the intelligence network.
Statement : Many students in rural areas fail to complete their primary education due to a lack of basic facilities in schools.
Courses of ...