RBI Notifies New FEMA Regulations on Foreign Guarantees

The Reserve Bank of India has issued the Foreign Exchange Management (Guarantees) Regulations, 2026, establishing a comprehensive regulatory framework for guarantees involving persons resident outside India. The move is aimed at streamlining processes, enhancing transparency and strengthening regulatory oversight in cross-border guarantee transactions.

Scope and Applicability of the New Regulations

Under a circular issued by the RBI, all Authorised Dealer Category-I banks have been directed to comply with the new regulations while facilitating guarantees linked to non-residents. Banks must also ensure adherence to regulatory instructions issued by the Department of Regulation. The framework applies to guarantees that are issued, modified or invoked under the Foreign Exchange Management regime.

Mandatory Reporting and Compliance Requirements

The regulations mandate comprehensive reporting of all guarantee-related transactions by authorised dealer banks in a prescribed format. While the manner and format for submission of these returns will be communicated separately, the RBI has made it clear that timely and accurate reporting will be compulsory. Banks have also been advised to inform their customers about the new regulatory requirements.

Supersession of Earlier Circulars and Reporting Changes

With the issuance of the Foreign Exchange Management (Guarantees) Regulations, 2026, several earlier A.P. (DIR Series) circulars listed in the annexure have been superseded. Additionally, the RBI has discontinued the requirement of quarterly reporting on guarantees issued for Trade Credit, effective from the quarter ending March 2026. This is expected to reduce compliance burden while maintaining regulatory clarity.

Imporatnt Facts for Exams

• RBI issued the Foreign Exchange Management (Guarantees) Regulations, 2026.
• The regulations govern guarantees involving persons resident outside India.
• Quarterly reporting on Trade Credit guarantees is discontinued from March 2026.
• The directions are issued under the Foreign Exchange Management Act, 1999.

Amendments to Existing Master Directions

Guarantee-related provisions in several existing RBI Master Directions have been amended to align with the new regulations. These include directions on External Commercial Borrowings, Trade Credits, Export and Import of Goods and Services, and reporting requirements under the Foreign Exchange Management Act. The updated framework is intended to ensure consistency, improve regulatory supervision and support orderly development of India’s foreign exchange market.