RBI Notifies Foreign Exchange Management (Guarantees) Regulations, 2026.

RBI, through notification dated 06.01.2026, notified the Foreign Exchange Management (Guarantees) Regulations, 2026 (“Guarantee Regulations 2026”)¹ to supersede the Foreign Exchange Management (Guarantees) Regulations, 2000.

The salient features of the Guarantee Regulations 2026 are as follows:

1. Definition of “Guarantee”: shall include ‘counter guarantee' and mean to be a contract, by whatever name called, to perform the promise, or discharge a debt, obligation or other liability (including portfolio of debts, obligations or other liabilities), in case of default by the principal debtor.
2. Prohibition: Unless permitted under the Foreign Exchange Management Act, 1999 (“FEMA”), no person resident in India may be a party, i.e. – either as principal debtor, surety or creditor, to a guarantee where any of the parties to such guarantee involve any person resident outside India.
3. Exemptions: The Guarantee Regulations 2026 shall not apply to: (a) guarantees undertaken by a branch of an authorised dealer bank outside India or in an International Financial Services Centre (“IFSC”), unless any other party to the guarantee is a person resident in India; (b) an irrevocable payment commitment (IPC) issued by an authorised dealer in its capacity as custodian bank, where the principal debtor is a registered foreign portfolio investor and the creditor is an authorised central counterparty in India; or (c) guarantees issued in accordance with the Foreign Exchange Management Investment) Regulations, 2022.
4. Permission to act as surety or principal debtor: A person resident in India may act as a surety or a principal debtor for a guarantee, subject to compliance with the following conditions: (a) the underlying transaction for which the guarantee is being given or arranged is not prohibited under FEMA or rules or regulations or directions issued under FEMA; and (b) the surety and the principal debtor are eligible to lend to and borrow from each other, respectively, under the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, as amended from time to time. These conditions shall not be applicable if the guarantee is: (a) by an authorised dealer bank, backed by a counter guarantee or 100% collateral from a non-resident; or (b) by an Indian agent of a foreign shipping or airline company, for obligations to any statutory or government authority in India; or (c) where both the surety and the principal debtor are residents of India
5. Permission to obtain a guarantee as creditor: A person resident in India being a creditor may arrange or obtain a guarantee in its favour, subject to the condition that where the principal debtor and surety both are persons resident outside India, the creditor shall ensure that the underlying transaction is not prohibited under the applicable laws.
6. Reporting requirements: Guarantees covered under the Guarantee Regulations 2026 shall be reported by: (a) the surety, where the surety is a person resident in India; (b) the principal debtor (who arranged the guarantee), where the surety is a person resident outside India; or (c) the creditor, where both the surety and principal debtor are persons resident outside India or where the creditor has arranged the guarantee.
7. Scope and timeline of reporting: The reporting person shall report (a) issuance of a guarantee, (b) any subsequent changes in its terms (including change in amount, extension, or pre-closure), and (c) invocation of the guarantee, if any, in the prescribed format. Such reporting shall be submitted to an authorised dealer bank on a quarterly basis within fifteen calendar days from the end of each quarter for onward submission to the RBI, and the authorised dealer bank shall submit the returns to the RBI in the prescribed manner and format within thirty calendar days from the end of the relevant quarter.
8. Late Submission Fee (“LSF”) for delayed reporting: A person resident in India who has delayed reporting may regularise the delay by completing the reporting and/or paying the applicable LSF. The LSF shall be INR 7,500 + (0.025% × Amount Involved × Number of Years of delay) (rounded up to the nearest hundred).

The Guarantee Regulations 2026 have come into force on the date of publication in the Official Gazette i.e., 06.01.2026.

Footnote

1. Foreign Exchange Management (Guarantees) Regulations, 2026.

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