Skip to main content

FEMA - Regulations on Guarantees

Reserve Bank of India (RBI) had issued regulations governing guarantees under the Foreign Exchange Management Act, 1999 (FEMA).

What is a guarantee?

A guarantee, including a counter-guarantee, means a contract, by whatever name called, to perform the promise, or discharge a debt, obligation or other liability (including a portfolio of debts, obligations or other liabilities), in the event of default by the principal debtor.

Who are the participants in a guarantee transaction?

  • Principal debtor – a person in respect of whose default the guarantee is given.
  • Surety – a person who gives a guarantee.
  • Creditor – a person to whom the guarantee is given.

When can a person resident in India act as surety / principal debtor?

A person resident in India may act as a surety / principal debtor for a guarantee, subject to conditions that –

  • The underlying transaction for which the guarantee is being given or arranged is not prohibited under FEMA guidelines.
  • The surety and the principal debtor are eligible to lend to and borrow from each other, respectively, under the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018. However, this shall not apply to a guarantee –
    • Given by an authorised dealer bank and covered by a counter-guarantee or issued against 100% collateral in the form of a deposit, from a person resident outside India.
    • Given by an agent in India of a shipping or airline company incorporated outside India on behalf of such company in connection with its obligation or liability owed to any statutory or Government authority in India.
    • Where both the surety and the principal debtor are persons resident in India.

When can a person resident in India obtain guarantee as a creditor?

A person resident in India being a creditor may arrange or obtain a guarantee in its favour, subject to the condition that where the principal debtor and surety both are persons resident outside India, the creditor shall ensure that the underlying transaction is not prohibited under FEMA guidelines.

What are the reporting requirements?

Guarantees shall be reported to an authorised dealer bank for onward submission to the RBI –

  • By the surety where he is a person resident in India.
  • By the principal debtor who has arranged the guarantee and where the surety is a person resident outside India.
  • By the creditor where the surety and the principal debtor both are persons resident outside India or where the creditor has arranged the guarantee.

What if there is a delay in reporting?

  • A person resident in India who does not meet its reporting obligations may do such reporting along with Late Submission Fee or make payment of Late Submission Fee where such reporting has been done with a delay.
  • The Late Submission Fee shall be ₹7500 + (0.025% x A x n), rounded up to the nearest hundred, where,
    • “n” is the number of years of delay in submission, rounded-up to the nearest month and expressed up to 2 decimal points.
    • “A” is the amount involved in the delayed reporting in INR.

Which guarantees are exempted from the applicability of these regulations?

The regulations shall not apply to the following –

  • A guarantee undertaken by a branch of an authorised dealer bank outside India or in an International Financial Services Centre (IFSC), unless any of the other parties to the guarantee is a person resident in India.
  • An Irrevocable Payment Commitment (IPC) issued by an authorised dealer in its capacity of a custodian bank, where the principal debtor is a registered Foreign Portfolio Investor and the creditor is an authorised central counterparty in India.
  • A guarantee given in accordance with the Foreign Exchange Management (Overseas Investment) Regulations, 2022.


References

Reserve Bank of India. (2026, January 12). 'Foreign Exchange Management (Guarantees) Regulations, 2026'. Retrieved from https://rbi.org.in/Scripts/NotificationUser.aspx?Id=13268&Mode=0

Reserve Bank of India. (2026, January 06). 'Foreign Exchange Management (Guarantees) Regulations, 2026'. Retrieved from https://rbi.org.in/Scripts/NotificationUser.aspx?Id=13269&Mode=0

Reserve Bank of India. (2026, January 12). 'Issuance of Foreign Exchange Management (Guarantees) Regulations, 2026'. Retrieved from https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=62016


Follow at - Telegram   Instagram   LinkedIn   X   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Digital Payments – E-mandate Framework 2026

Reserve Bank of India (RBI) has issued e-mandate framework for digital payments. What is an e-mandate?  A mandate is a standard instruction that a customer provides to his / her issuing bank and other institutions allowing them to automatically debit the mentioned amount from his / her bank account. e-mandate is the electronic version of it. To whom shall the framework be applicable? The framework shall be applicable to Payment System Providers and Payment System Participants. To which transactions shall the framework be applicable? The framework shall be applicable to processing of recurring transactions, domestic or cross-border, using cards / Prepaid Payment Instrument (PPI) / Unified Payments Interface (UPI). What are the guidelines for registration and revocation of e-mandate? A customer desirous of opting for e-mandate facility shall undertake a one-time registration process. The mandate shall be registered only after successful validation of additional factor of authenticati...
Post a Comment
Read more

Guidelines to facilitate faster cross-border inward payments

Reserve Bank of India (RBI) has issued guidelines to facilitate faster cross-border inward payments. What is the rationale behind the guidelines? The RBI’s Payments Vision 2025 aims to bring efficiency in the cross-border payments aligning with the G20 roadmap for cross-border payments that has set targets for achieving cheaper, faster, more transparent, and more accessible cross-border payments. One of the challenges with speed of cross-border payments is experienced at the beneficiary leg i.e., the time taken from receipt of the payment at the beneficiary bank till credit to the beneficiary account. What are the guidelines to facilitate faster cross-border inward payments? Banks shall inform their customer of the receipt of cross-border inward transactions immediately on receipt of inward message. Messages received after close of operating hours of banks shall be informed to customer immediately at the start of the next business day. Banks shall undertake reconciliation and confirmat...
Post a Comment
Read more

Guidelines on Money Changing Activities (Updated as on April 02, 2026)

Reserve Bank of India (RBI) has updated the guidelines on money changing activities. Who is Authorised Person? Authorised Person means an authorised dealer, money changer, off-shore banking unit or any other person authorised under section 10(1) of Foreign Exchange Management Act, 1999 (FEMA) to deal in foreign exchange or foreign securities. What are the categories of Authorised Persons? Authorised Dealer (AD) Category-I – entities which are authorised by RBI to carry out all permissible current and capital account transactions. Authorised Dealer (AD) Category-II – entities which are authorised by RBI to carry out specified non-trade related current account transactions, all the activities permitted to Full Fledged Money Changers (FFMC) and any other activity as decided by RBI, and include (i) Upgraded FFMCs; (ii) Select Regional Rural Banks (RRBs); (iii) Select Urban Cooperative Banks (UCBs); and (iv) Other entities. Authorised Dealer (AD) Category-III – entities which are authorised...
Post a Comment
Read more

Continuous Clearing and Settlement on Realisation in Cheque Truncation System (CTS) (Updated as on December 24, 2025)

Reserve Bank of India (RBI) has issued direction on continuous clearing and settlement on realisation in Cheque Truncation System (CTS). What is Cheque Truncation System (CTS)? Cheque Truncation System (CTS) involves halting the physical movement of the cheque and its replacement by images of the instrument and the corresponding data contained in the MICR line.  In CTS, 3 images are taken of each cheque – front Gray Scale, front Black & White and back Black & White. MICR (Magnetic Ink Character Recognition) is a 9-digit code printed at the bottom of cheques using magnetic ink – first 3 digits indicate City Code, middle 3 digits indicate Bank Code and the last 3 digits indicate Bank Branch Code. Only CTS-2010 standards compliant instruments can be presented for clearing through CTS. The presenting banks which truncates the cheques need to preserve the physical instruments for 10 years. From when will the continuous clearing and settlement on realisation in CTS be implemented...
Post a Comment
Read more

FEMA - Borrowing and Lending [including External Commercial Borrowing (ECB) and Trade Credit (TC)]

Reserve Bank of India (RBI) has amended the regulations for borrowing and lending under the Foreign Exchange Management Act, 1999 (FEMA). What are the regulations for External Commercial Borrowing (ECB)? External Commercial Borrowing (ECB) means borrowing by an eligible borrower from a recognised lender. Eligible borrowers – Any person resident in India (other than an individual) that is incorporated, established or registered under a Central or State Act is an eligible borrower, provided such person is permitted for ECB in terms of applicable Acts. An eligible borrower that is under a restructuring scheme or corporate insolvency resolution process may raise ECB only if specifically permitted under the restructuring or resolution plan. An eligible borrower against whom any investigation, adjudication or appeal by a law enforcement agency for contravention of any rule, regulation or direction issued under FEMA is pending, may raise ECB notwithstanding the pending investigation or adjudi...
Post a Comment
Read more