RBI Enforces Stricter Forex Guarantee Rules for Indian Residents
Overview
The Reserve Bank of India has rolled out the Foreign Exchange Management (Guarantees) Regulations, 2026, effective January 6, 2026. These rules restrict Indian residents from issuing guarantees involving non-residents unless explicitly permitted, expand the definition of guarantees, and introduce mandatory quarterly reporting with penalties for delays.
RBI Tightens Foreign Exchange Guarantee Regulations
The Reserve Bank of India (RBI) has finalized new rules governing foreign exchange guarantees, issuing the Foreign Exchange Management (Guarantees) Regulations, 2026. These regulations are set to take effect on January 6, 2026, following their publication in the Gazette.
Key Restrictions on Resident Guarantees
A significant provision bars Indian residents from entering into guarantees that involve non-residents. Such participation is prohibited unless specifically authorized under the Foreign Exchange Management Act (FEMA) or other RBI directives. This move aims to bring greater oversight to cross-border financial commitments.
Expanded Definitions and Specified Exemptions
The scope of what constitutes a 'guarantee' has been broadened under the new framework. It now explicitly includes counter-guarantees and portfolios of liabilities. However, several exemptions are carved out. These include guarantees issued by authorized dealer (AD) bank branches operating abroad, guarantees related to international financial centres (IFSCs), intermediary payment contracts for Foreign Portfolio Investors (FPIs) handled by custodian banks, and guarantees permissible under FEMA's Overseas Investment Rules.
Conditions for Resident Surety and Borrowing
Residents are permitted to act as a surety or principal debtor, provided the underlying transaction adheres to FEMA regulations and all borrowing-lending eligibility criteria are met. For certain fully collateralised guarantees provided by AD bank branches, foreign shipping and airline agents, or resident-to-resident guarantees, the standard borrowing-lending norms will not apply. Furthermore, resident creditors can obtain guarantees, subject to FEMA compliance, even if both the debtor and surety are non-residents.
Mandated Reporting and Penalties
The regulations impose a clear reporting structure. Residents who issue guarantees must report details of issuance, changes, and invocations to their AD banks on a quarterly basis, within 15 days of the quarter's end. AD banks, in turn, are required to compile and submit consolidated returns to the RBI within 30 days of the quarter-end. Non-compliance with these reporting timelines incurs penalties, including a fee of ₹7,500 plus an additional charge of 0.025% of the amount per year for the delay.
