Will you still guarantee?

Cross‑border guarantees have long functioned as the quiet scaffolding behind global financing, trade flows, and group‑wide treasury structures. Yet, for years, India’s regulatory approach to guarantees has remained largely unchanged and occasionally ambiguous.

That has now changed.

With the Foreign Exchange Management (Guarantees) Regulations, 2026 (“Guarantee Regulations 2026”), the RBI has effectively re‑engineered India’s guarantee architecture. What was once a narrow, exception‑driven regime is now replaced with a principle‑based law. Additionally, there are disclosure requirements as well under the new regime, which effectively ensure that all cross-border guarantees are getting reported.

What follows is our breakdown of the key shifts and why many familiar structures may need a rethink.

• Key changes:

Key provisions under the Draft Directions are set out below.

• Who Can Guarantee Now? An expanded universe

Earlier, the erstwhile Foreign Exchange Management (Guarantees) Regulations, 2000 (“Guarantee Regulations 2000”) was heavily regulating the guarantees which were particularly outbound and at the same time was also providing certain principle for structured obligation trades (offshore guarantee for onshore capital market transactions). The erstwhile regime restricted the type of transaction which could be guaranteed. Unlike the Guarantee Regulations 2000, the Guarantee Regulations 2026 provide regulations for both inward and outward guarantee but at the same time allow all kinds of guarantee transactions as long as the underlying debt is in compliance with the Foreign Exchange Management Act, 1999 (“FEMA”) provisions (if applicable).

• Wider Eligibility: Surety, Creditor, Debtor – Make your choice
• A person resident in India may now act as surety or principal debtor so long as:
• the underlying transaction for which the guarantee is being given is not prohibited under FEMA; and
• the surety and the principal debtor are eligible to lend or borrow under FEMA (Borrowing and Lending Regulations), 2018 (as amended from time to time).
• But there are smart carve‑outs. These conditions do not apply to:
• guarantees given by authorised dealer bank backed fully by collateral or counter‑guarantee from a person resident outside India;
• guarantees issued by Indian agents of foreign shipping / airline companies for regulatory obligations in India; and
• guarantees where both the debtor and the surety are persons resident in India.
• Now, there is an obligation on the creditor as well if the creditor is acting from India and the other parties to the transaction are acting from outside India. If there is an Indian creditor and an offshore borrower, the Indian creditor must ensure that the underlying transaction is not prohibited under FEMA.
• Targeted and Calibrated Exemptions?

For the first time, the regulations carve out full exemptions for certain guarantee categories. Newly exempt transactions include:

• guarantees taken by foreign branches of authorised dealer banks (including branches in IFSC), unless another party to the guarantee is a person resident in India.
• irrevocable payment commitments (IPCs) issued by a custodian authorised dealer bank where the debtor is a foreign portfolio investor and the creditor is an authorised central counterparty in India.
• guarantees given in accordance with the Foreign Exchange Management (Overseas Investment) Regulations, 2022.
• Mandatory Quarterly Reporting and Fresh Classification of Modified Guarantees

A major compliance shift:

• All guarantees – issued, modified, or invoked – must be reported quarterly by one of the relevant person resident in India (surety / creditor /principal debtor) to the authorised dealer bank using Form GRN.
• Reporting deadline: 15 calendar days from the end of the respective quarter for onward submission to RBI.
• Any modification to a pre‑existing guarantee now triggers fresh reporting.
• Delayed reporting will require a late submission fee.

This elevates cross‑border guarantee reporting to the same discipline imposed on borrowings and overseas investments.

• Conclusion:

The Guarantee Regulations 2026 signal RBI’s intention to regulate guarantees via principles rather than prohibitions which is a welcome move. Now market participants can structure credit enhancement in a cross-border transaction efficiently as there is no restriction on guarantees provided on cross border basis.

The new framework marks maturing of India’s approach to cross‑border guarantees – more flexibility, more transparency, and clearer rule‑making.

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