The RBI has asked the banks to lay down a clear-cut bill discounting policy and said service sector bills are not eligible for rediscounting. The policy, subject to approval from their respective boards, should be consistent with the banks policy of sanctioning of working capital limits, RBI said in a notification to all scheduled commercial banks.
The procedure for board approval should include banks core operating process from the time the bills were tendered till these were realised, it said. The new guidelines also supercede earlier norms issued in July 27, 1992.
Banks may sanction working capital limit as also bills limit to borrowers after proper appraisal of their credit needs and in accordance with the loan policy as approved by the board, it said after considering the recommendations of the KR Ramamoorthy panel on Discounting of Bills by banks.
The apex bank said, Banks may exercise their commercial judgment in discounting of bills of services sector. However, they should ensure that actual services are rendered and accommodation bills are not discounted.
Further, providing finance against discounting of services sector bills may be treated as unsecured advance, subject to condition that 20 per cent of a banks unsecured guarantees and outstanding unsecured advances do not exceed 15 per cent of its total advances.
Bill rediscounts should be restricted to usance bills held by other banks and banks should not rediscount bills earlier discounted by non-banking financial companies except in respect of bills arising from sale of light commercial vehicles and two three wheelers.
RBI said banks should open letters of credit (LCs) and purchase, discount or negotiate bills under LCs only in respect of genuine commercial and trade transactions of borrowers who have been sanctioned regular credit facilities.
While purchasing, discounting, negotiating bills under LCs or otherwise, banks should establish genuineness of underlying transactions, it said.
Banks should not open LCs and purchase, discount, negotiate bills bearing the without recourse clause as it deprives the negotiating bank of its right to recourse against the drawer under the Negotiable Instruments Act.