As part of its efforts to streamline the regulatory framework governing cross-border guarantees, the Reserve Bank of India (‘RBI’) has notified the Foreign Exchange Management (Guarantees) Regulations, 2026 (‘2026 Regulations’) on January 6, 2026, superseding the Foreign Exchange Management (Guarantees) Regulations, 2000 (‘2000 Regulations’). Some of the key changes that have been introduced pursuant to the 2026 Regulations are as follows:
- Under the 2000 Regulations, any person resident in India being a party to a guarantee (in any capacity including as a principal debtor, surety or creditor) where any other party is a non–resident, was generally restricted unless it was either specifically exempted or it was approved by the RBI. However, as a shift in principle, the 2026 Regulations now allow a broader exemption to permit all transactions which are otherwise compliant with the Foreign Exchange Management Act, 1999 (‘FEMA’) and the rules, regulations and directions thereunder. The 2026 Regulations now permit creditors that are persons resident in India to obtain guarantees from non-residents, subject to the underlying transaction not being prohibited under FEMA. This general permission was not available under the 2000 Regulations;
- Additionally, the 2026 Regulations introduce a dedicated exemption for: (a) guarantees by branches of Authorised Dealer (‘AD’) banks located outside India or in an International Financial Services Centre (‘IFSC’) (unless any of the other parties is a person resident in India); (b) any irrevocable payment commitments issued by AD banks where the principal debtor is a registered Foreign Portfolio Investor (‘FPI’); and (c) guarantees given under the Foreign Exchange Management (Overseas Investment) Regulations, 2022; and
- The 2000 Regulations did not prescribe any specific reporting obligation for resident parties in cross-border guarantee transactions. A mandatory quarterly reporting requirement has now been introduced under the 2026 Regulations along with provision for calculating the Late Submission Fee (‘LSF’) for delayed reporting. Reports in Form GRN must be submitted to an AD bank within 15 calendar days from the end of each quarter.
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