The Reserve Bank of India on Monday tweaked forex rules under the new Foreign Exchange Management (Guarantees) Regulations, 2026, and barred resident Indians from issuing credit guarantees to non-resident Indians (NRIs).
"No person resident in India shall, except in accordance with these regulations, be a party (principal debtor, surety or a creditor) to a guarantee where any of the other parties to the guarantee is a person resident outside India," the central bank said in a notification.
The definition of guarantee has been widened to include counter-guarantees and liability portfolio.
A person living in India can act as a guarantor or principal debtor for a guarantee, as long as the underlying transaction is allowed under FEMA and related rules, and both the surety and the principal debtor are permitted to lend to or borrow from each other under the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018.
However, these condition does not apply to a fully collateralized authorised dealer bank, agent of a foreign shipping or airline company and resident-to-resident guarantees.
Exemption
The exception to the rule includes a guarantee undertaken by a branch of an AD bank outside India or in an International Financial Services Centre, unless any of the other parties is a resident, and a guarantee given in accordance with the Foreign Exchange Management (Overseas Investment) Regulations, 2022.
An Irrevocable Payment Commitment (IPC) issued by an authorised dealer in its capacity of a custodian bank, where the principal debtor is a registered FPI and the creditor is an authorised central counterparty in India, is also exempted.
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