On October 4, 2024, the Reserve Bank of India (RBI) issued A.P. (DIR Series) Circular No. 18 to Category-I Authorised Dealer Banks, addressing issues related to non-resident guarantees provided to residents in India. The RBI identified instances where guarantees, including Standby Letters of Credit (SBLCs) and performance guarantees, were issued by non-residents that do not comply with existing Foreign Exchange Management Act (FEMA) regulations. The circular emphasizes that these banks must ensure that any guarantee contracts they advise or facilitate for their resident clients align with FEMA guidelines. The RBI has directed these banks to communicate the contents of this circular to their clients to enhance awareness and compliance. This directive is issued under Section 10(4) and 11(1) of the FEMA, 1999, reinforcing the importance of regulatory adherence in foreign exchange operations.
Reserve Bank of India
RBI/2024-25/79
A.P. (DIR Series) Circular No. 18 Dated: October 04, 2024
To
All Category – I Authorised Dealer Banks
Madam / Sir,
Due diligence in relation to non-resident guarantees availed by persons resident in India
The Reserve Bank of India (RBI) has come across instances of guarantees (including Standby Letters of Credit [SBLCs] and / or performance guarantees) issued by persons resident outside India, favouring persons resident in India, which are not permitted under the extant FEMA regulations.
2. AD Category-I banks may ensure that guarantee contracts advised by them to, or on behalf of, their resident constituents are in accordance with the FEMA regulations. The contents of this circular may be brought to the notice of your constituents.
3. This direction is issued under Section 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999).
Yours faithfully,
(Dr Aditya Gaiha)
Chief General Manager-in-Charge
