As per the Reserve Bank of India (RBI) guidelines on the conduct of guarantee business, banks are advised to issue guarantees with shorter maturities to minimize risk. Under these norms, what is the maximum normal maturity period permitted for a bank guarantee, beyond which special approval and policy measures are required?​

Correct option is C

According to RBI’s guidelines for banks on issuing guarantees, the normal maximum maturity for any bank guarantee should not exceed 10 years.
However, if a bank extends long-term project loans with a repayment period exceeding 10 years, it may also issue guarantees of similar duration beyond 10 years, provided that:

• The impact on the bank’s Asset-Liability Management (ALM) is carefully assessed.

• The bank has a Board-approved policy permitting such long-term guarantees.

This framework ensures that banks manage contingent liabilities prudently, maintain financial stability, and avoid excessive long-term exposure.