RBI Notifies Foreign Exchange Management (Guarantees) Regulations, 2026

Regulation 4 provides an exception for branches of AD banks located abroad or in International Financial Services Centres (IFSC). This exception applies only if no other party to the guarantee is an Indian resident; otherwise, the exemption is void.

For Irrevocable Payment Commitments (IPCs) from an AD bank acting as a custodian, the exception is only valid if the main borrower is a registered Foreign Portfolio Investor. Basically, these guarantees usually pop up when an Indian company backs its overseas joint venture or a fully owned foreign subsidiary, or when they’re part of allowed overseas investment setups. So, if permission is given, someone living in India can act as a guarantor or the main borrower, as long as the main deal isn’t banned by FEMA and the borrowing and lending rules fit with the FEMA (Borrowing and Lending) Regulations from 2018.

The rule about lending doesn’t count if an AD bank provides the guarantee and it’s backed by a counter-guarantee or full foreign assets, or if an Indian representative for a foreign shipping or airline company issues the guarantee for legal requirements in India, or if both the guarantor and the main borrower are Indian residents.

An Indian resident can also get a guarantee in their name. If neither the main borrower nor the guarantor is an Indian resident, the lender needs to make sure the deal itself is allowed under FEMA. Reg 5, stating the core rule regulating when a person resident in India may act as surety principal debtor for a guarantee, following two conditions: the underlying transaction must be permitted under FEMA, and it is not prohibited by the FEMA, 1999, FEMA Rules, FEMA Regulations, RBI directions/circulars. The surety and the principal debtor must be eligible to lend to and borrow from each other as per FEMA (Borrowing and Lending) Regulations, 2018.

An exception applies when an Indian resident can act as a guarantor or the main borrower only if the deal complies with FEMA and the borrowing/lending eligibility is met under FEMA, 2018. This exception doesn’t apply if the guarantee is fully secured by an overseas party through an AD bank, if it’s issued by an Indian agent of a foreign shipping or airline company for official dues, or if both parties involved are Indian residents. Regulation 7 mandates the submission of quarterly reports by entities to an authorized dealer (AD) bank within 15 days following the conclusion of each quarter, utilizing Form GRN. Concurrently, AD banks are obligated to furnish consolidated quarterly returns to the Reserve Bank of India (RBI) within 30 days of the quarter’s close.

The final regulation provides a transparent fee structure for delays. A Late Submission Fee (LSF) has been established, calculated as LSF = ₹7,500 + (0.025% × Amount × Period of delay). The duration of the delay is measured in years, rounded up to the nearest month, while the ‘Amount’ denotes the value in Indian Rupees. The resultant fee is then rounded upwards to the nearest hundred.

The 2026 Regulations supersede the existing Specified A.P. (DIR Series) Circulars. Guarantees for Trade Credit will no longer be reported on a quarterly basis as of the quarter that ends in March 2026. In addition, the new regulatory framework has been incorporated into the guarantee-related provisions of several FEMA Master Directions, such as those concerning External Commercial Borrowings, Trade Credits and Structured Obligations, Export and Import of Goods and Services, Other Remittance Facilities, and Reporting under FEMA. For a smooth transition, AD banks have been directed to notify their stakeholders and clients about these updates and circulars.