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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


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