RBI Proposes New FEMA Rules to Simplify Cross-Border Guarantees

The Reserve Bank of India (RBI) is proposing new, principle-based regulations to simplify the process for guarantees under the Foreign Exchange Management Act (FEMA), 1999. These new rules, known as the Foreign Exchange Management (Guarantees) Regulations, 2025, aim to improve ease of doing business by expanding the types of cross-border guarantees that can be issued under the automatic route. This means that if the underlying transaction and any transaction resulting from the guarantee’s invocation comply with FEMA, they will be permitted without requiring specific RBI approval. To support this expanded scope, the new regulations will introduce a comprehensive reporting system, requiring all issued and invoked guarantees to be reported to the RBI. This new framework also defines key terms such as ‘creditor,’ ‘guarantee,’ ‘principal debtor,’ and ‘surety.’ It also specifies conditions under which a person resident in India can act as a surety, principal debtor, or creditor. The draft regulations are currently open for public feedback via the RBI’s website or email until September 4, 2025.

Reserve Bank of India

August 14, 2025

Guarantee regulations under Foreign Exchange Management Act (FEMA), 1999 – Draft for feedback

Reserve Bank of India has been reviewing and rationalising the regulations issued under FEMA, 1999 with an intent to promote ease of doing business. On a review, it has been decided to rationalise regulations pertaining to guarantees issued under FEMA, 1999. Salient features of proposed regulations are as under:

a) The regulations are principle based and in general guarantees involving cross border transactions will be under automatic route provided that underlying transaction, and the transactions resulting from invocation of guarantee are not in contravention of FEMA, 1999;

b) The universe of guarantees enabled under automatic route is being expanded, and therefore a comprehensive reporting of all guarantees, issued and invoked, is proposed to be introduced.

The draft regulations under FEMA are available for public response.

Comments/feedback on the draft regulations may be submitted through the respective link under the ‘Connect 2 Regulate’ Section available on the RBI’s website or may be forwarded via email by September 04, 2025, with the subject line “Feedback on draft guarantee regulations under FEMA, 1999”.

(Puneet Pancholy)
Chief General Manager

Press Release: 2025-2026/916

DRAFT

RESERVE BANK OF INDIA
(FOREIGN EXCHANGE DEPARTMENT)
CENTRAL OFFICE
MUMBAI 400 001

No. FEMA 8(R)/2025-RB

August xx, 2025

Foreign Exchange Management (Guarantees) Regulations, 2025

In exercise of the powers conferred by sub-section (2) of Section 6 and sub-section (2) of section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), and in supersession of Notification No. FEMA.8/2000-RB dated May 3, 2000, except as respects things done or omitted to be done before such supersession, the Reserve Bank of India makes the following regulations namely:

1. Short title and Commencement.-(1) These regulations may be called the Foreign Exchange Management (Guarantees) Regulations, 2025.

(2) They shall come into force from the date of their publication in the Official Gazette.

2. Definitions.– (1) In these regulations, unless the context otherwise requires,-

(a) ‘‘Act’’ means the Foreign Exchange Management Act, 1999 (42 of 1999);

(b) “Authorised dealer” or an “AD” means a person authorised as an authorised dealer under sub-section (1) of section 10 of the Act;

(c) “Creditor” means a person to whom the guarantee is given;

(d) “Guarantee” means a contract, by whatever name called, to perform the promise, or discharge a debt, obligation or other liability, in case of default by the principal debtor;

(e) “Principal debtor” means a person in respect of whose default the guarantee is given;

(f) “Surety” means a person who gives a guarantee.

(2) The words and expressions used but not defined in these regulations shall have the same meanings respectively assigned to them in the Act or rules or regulations made thereunder.

3. Restriction on a person resident in India. –Save as otherwise provided in the Act or rules or regulations or directions issued under the Act or with the general or special permission of the Reserve Bank of India, no person resident in India shall act as a surety or a principal debtor or a creditor for a guarantee where the underlying transaction between creditor and principal debtor, or the resultant transaction in case of invocation of the guarantee, is a current or capital account transaction under the Act.

4. Exemption under these regulations.-Nothing contained in these Regulations shall apply to the following:

(1) a branch of an AD outside India acting in the capacity of a surety or a principal debtor or a creditor in the normal course of its banking business outside India unless any of the other parties to the guarantee is a person resident in India.

(2) an AD in its capacity as a custodian bank issuing Irrevocable Payment Commitments (IPCs), where the principal debtor is a registered Foreign Portfolio Investor and the creditor is a Stock Exchange/ Clearing Corporation of the Stock Exchange in India, and the underlying transaction is permitted under the provisions of Foreign Exchange Management (non-debt instruments) Rules, 2019.

5. Permission to act as a surety or a principal debtor or a creditor.-A person resident in India may act as a surety or a principal debtor or a creditor for a guarantee subject to the following conditions:

(a) The underlying transaction and the resultant transaction in case of invocation of the guarantee are not in contravention, directly or indirectly, of the Act or rules or regulations or directions issued under the Act.

(b) Where the surety is a person resident in India and the principal debtor is a person resident outside India, the resultant transaction upon invocation of guarantee, that is, the lending by a person resident in India to a person resident outside India, shall be in compliance with Foreign Exchange Management (Borrowing and Lending) Regulations, 2018.

(c) An AD shall not give a Letter of Comfort or a Letter of Undertaking.

(d) An AD acting as surety shall also ensure compliance to regulatory guidelines issued by Department of Regulation, Reserve Bank of India.

6. Reporting requirements under these regulations.-(1) Reporting by a person resident in India, as specified in this regulation, shall be made through an AD to the Reserve Bank of India in the format as annexed to these regulations.

(2) A person resident in India acting as surety under these regulations shall report the guarantee given by it, including any change in the amount and validity of the guarantee, and invocation of such guarantee, if any, within seven calendar days from the date of issuance/ aforementioned change/ invocation of such guarantee, as per the format at Annex I of these regulations.

(3) A person resident in India being a principal debtor arranging on its behalf a guarantee from a surety who is a person resident outside India shall report the guarantee, including any change in the amount and validity of the guarantee, and invocation of such guarantee, if any, within seven calendar days from the date of issuance/ aforementioned change/ invocation of such guarantee as per the format at Annex II of these regulations.

(4) A person resident in India being a creditor arranging in its favour a guarantee from a person resident outside India shall report the guarantee, including any change in the amount and validity of the guarantee, and invocation of such guarantee, if any, within seven calendar days from the date of issuance/ aforementioned change/ invocation of such guarantee as per the format at Annex III of these regulations.

7. Late Submission Fee for delayed reporting –(1) A person resident in India who does not meet the reporting requirements, as specified under regulation 6, may do such reporting along with Late Submission Fee within such period, at the rates and in the manner as per the directions issued by the Reserve Bank of India to ADs:

Provided that facility of such delayed reporting with Late Submission Fees is available only up to a period of three years from the due date of such reporting.

(                      )
Chief General Manager-in-Charge

Annex I

Reporting by a surety under regulation 6(2) of Foreign Exchange Management (Guarantees) Regulations, 2025

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Annex II

Reporting by a principal debtor under regulation 6(3) of Foreign Exchange Management (Guarantees) Regulations, 2025

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Annex III

Reporting by a creditor under regulation 6(4) of Foreign Exchange Management (Guarantees) Regulations, 2025

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Instructions for filling up the form

1) The form is required to be submitted to the AD bank by the person resident in India with the reporting obligation under regulation 6 of these regulations.

2) Any change in guarantee conditions shall be reported in the same form.

3) In case of invocation of guarantees, only the pertinent field may be filled.

4) AD may ensure that all guarantees are duly backed by an agreement.

5) Reserve Bank of India reserves the right to put the information furnished here in the public domain.