Press Release: 2025-2026/916, Dated 14.08.2025
RBI Issues Draft Regulations on Guarantees under FEMA, 1999
The Reserve Bank of India (RBI) has released draft regulations on guarantees under the Foreign Exchange Management Act (FEMA), 1999, seeking public comments. The proposed framework is designed to simplify and rationalize the rules governing guarantees in cross-border transactions. By adopting a principle-based approach, the draft aims to enhance clarity, reduce procedural hurdles, and bring consistency in regulatory treatment.
Principle-Based Framework for Cross-Border Guarantees
Under the new draft, guarantees in cross-border transactions will generally be permitted under the automatic route. This relaxation is subject to the condition that both the underlying transaction and the resultant transaction comply with FEMA provisions. This principle-based framework is expected to provide greater flexibility to businesses engaged in international trade and investment, while ensuring adherence to India’s foreign exchange regulations.
Expanded Scope of Automatic Route
The draft regulations also propose an expansion in the scope of guarantees that can be issued under the automatic route. This would mean that a wider range of cross-border transactions could be supported by guarantees without requiring prior RBI approval. Such a measure is aimed at reducing delays, promoting ease of doing business, and aligning India’s regulatory framework with global best practices.
Strengthened Reporting and Transparency
To balance the relaxation, the RBI has proposed comprehensive reporting requirements for guarantees. All guarantees issued and invoked will need to be reported, ensuring greater oversight and transparency. This reporting mechanism is intended to help regulators track systemic risk, monitor external exposures, and maintain the integrity of India’s foreign exchange ecosystem.
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