On 6-1-2026, the Reserve Bank of India notified the Foreign Exchange Management (Guarantees) Regulations, 2026 to regulate cross- border guarantees by Indian residents. These Regulations are issued in supersession of Foreign Exchange Management (Guarantees) Regulations, 2000.
Key Provisions:
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These Regulations are governed by the Foreign Exchange Management Act, 1999.
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Prohibition- No person who is a resident of India can be a party, either a Principal Debtor or a Creditor, to a guarantee where any of the other parties to the guarantee is a person who is not a resident of India.
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Exemptions:
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Guarantee undertaken by a branch of an authorized dealer bank outside India or in an International Financial Services Centre, unless any of the other party to the guarantee is a person resident in India;
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An Irrevocable Payment Commitment issued by an authorized dealer in its capacity of a custodian bank, where the principal debtor is a registered Foreign Portfolio Investor and the creditor is an authorized central counterparty in India;
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A guarantee given in accordance with the Foreign Exchange Management (Overseas Investment) Regulations, 2022.
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Permission to act as a Surety or a Principal debtor: A person who is a resident of India can act as a Surety or a Principal Debtor for a guarantee, if:
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The underlying transaction for which the guarantee is being given or arranged is not prohibited under the Act or rules or regulations or directions issued under the Act;
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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.
Exceptions: This will not be applicable if the guarantee is:
✓ By an authorised dealer bank, backed by a counter-guarantee or 100% collateral from a non-resident.
✓ By an Indian agent of a foreign shipping or airline company, for obligations to any statutory or government authority in India.
✓ Where both the surety and the principal debtor are residents of India.
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An Indian resident who is Creditor can arrange or obtain a guarantee in their favor.
Condition- If both the principal debtor and the surety are outside India, the creditor have to make sure the underlying transaction is not prohibited under Foreign Exchange Management Act, 1999 or any related rules, regulations, or directions.
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Reporting requirements:
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Guarantees will have to be reported:
✓ By the surety where he is a person resident in India;
✓ By the principal debtor who has arranged the guarantee and where the surety is a person resident outside India;
✓ By the creditor where the surety and the principal debtor both are persons resident outside India or where the creditor has arranged the guarantee.
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Person obligated to report the guarantee will also have to report:
✓ Issuance of guarantees;
✓ Any subsequent changes in guarantee terms;
✓ Invocation of guarantee.
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Reporting will be done to an authorized dealer bank on a quarterly basis within 15 calendar days from the end of the respective quarter for onward submission to the Reserve Bank of India.
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Authorized dealer bank will have to submit the returns received to the Reserve Bank of India within 15 calendar days from the end of the respective quarter.
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The Foreign Exchange Management (Guarantees) Regulations, 2026 govern guarantees issued by persons resident in India to or for non-residents. They prohibit participation in such guarantees unless explicitly permitted under the regulations or with prior approval from the Reserve Bank of India.