Reserve Bank of India (RBI) has rolled out a new framework to modernise the rules governing foreign exchange guarantees. The Foreign Exchange Management (Guarantees) Regulations, 2026 replace a framework that had been in place since 2000. The updated rules expand the automatic route for cross-border guarantees while introducing stricter disclosure and reporting norms. The central bank said the approach is principle-based and aims to improve ease of doing business without weakening regulatory oversight.
The earlier system relied heavily on approvals and restrictive conditions. The new regulations were finalised after reviewing feedback on draft rules issued in August 2025. The central bank stated that while automatic permissions are being widened, full visibility of guarantees issued, modified, or invoked will be ensured through enhanced reporting. The regulations apply to all guarantees, including counter-guarantees, where any party is a person resident outside India, unless specifically exempted. A guarantee is defined broadly as a contract to perform a promise or discharge a debt, obligation, or other liability in case of default by the principal debtor.
Under the new principle-based regime, a resident in India may act as a surety or principal debtor if the underlying transaction is not prohibited under FEMA and the parties are otherwise eligible to lend or borrow under existing borrowing and lending rules. Guarantees meeting these conditions are permitted without prior approval. A resident creditor may also obtain or arrange a guarantee in its favour. If both the principal debtor and surety are non-residents, the resident creditor must ensure the transaction complies with FEMA. The rules do not apply to guarantees issued by overseas or IFSC branches of authorised dealer banks unless an Indian resident is involved. They also exclude irrevocable payment commitments by custodian banks for FPIs, as well as guarantees issued under the Overseas Investment Regulations, 2022.
The most significant change issued by the RBI is mandatory granular reporting of all guarantees. Guarantees must be reported quarterly, covering the issuance of guarantees; any change in amount, validity, or closure; invocation; and honouring of guarantees. Reports must be submitted to authorised dealer banks within 15 days of the quarter-end, with banks forwarding the data to the central bank. A Late Submission Fee will apply for delays. The new Form GRN will capture details on relationships between parties, the nature of the transaction, guarantee commission, invocation details, and timelines for extinguishing liabilities. The central bank has said it may place this information in the public domain.
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