The deterioration of asset quality, in the recent Financial Stability Report by the Reserve Bank of India has been identified as a major risk for the banks. Considering the scenario, the apex bank has asked the lenders to make sure that the guarantor for a loan is close relative of the borrower.
This step has been taken by the RBI to avoid complication that may arise. There have been cases in which when the guarantee is invoked the third has parties stated that while signing the documents they were under the impression that they were only witnesses.
Such situations create hindrance to the lenders and hence make it difficult to enforce guarantee. To scrap all such possibilities RBI has come up with the solution.