RBI proposes New Guarantee Regulations: Guarantees invoking Cross-Border Transactions

The Reserve Bank of India (“RBI”) has released a draft of the Foreign Exchange Management (Guarantees) Regulations, 2025 (“DraftGuarantee Regulations”) vide a press release No. FEMA 8(R)/2025-RB dated August 14, 2025. These draft regulations introduce significant revisions with the aim of rationalizing the framework governing guarantees under the Foreign Exchange Management Act, 1999 (“FEMA”) and facilitating cross-border transactions to enhance ease of doing business.

Salient features of the Draft Guarantee Regulations have been provided below:

• Definitions for key terms: The Draft Guarantee Regulations introduces definitions for ‘Guarantee’, ‘Principal Debtor’, ‘Surety’ as well as ‘Creditor’.

• Expansion of Scope of Automatic Route: The scope of guarantees that may be issued under the automatic route is proposed to be broadened and now guarantees in cross border transactions will generally be permitted under automatic route subject to the condition that both the underlying transaction and the resultant transaction are not in contravention, directly or indirectly, of FEMA provisions.

• Reporting Requirements: To counterbalance the relaxation of approval requirements, the RBI has introduced comprehensive reporting obligations under the Draft Guarantee Regulations for a person resident in India acting as a surety, principal debtor or a creditor in respect of a guarantee. 

• Late Submission Fee for delayed reporting: If reporting requirements are not met within the prescribed timelines, the regulations permit compliance to be regularized with payment of a late submission fee, applicable for up to three years from the original reporting due date.

These Draft Guarantee Regulations have been made vide Press Release No. FEMA 8(R)/2025-RB dated August 14, 2025 (available here).

The comments/feedback on the Draft Guarantee Regulations may be submitted through the respective link under the ‘Connect 2 Regulate’ Section available on the RBI’s website or may be forwarded via email by September 04, 2025, with the subject line “Feedback on draft guarantee regulations under FEMA, 1999.

We trust you will find this an interesting read. For any queries or comments on this update, please feel free to contact us at insights@elp-in.comor write to our authors:

Manendra Singh, Partner – ManendraSingh@elp-in.com ; 

Tanvi Goyal, Associate Partner – TanviGoyal@elp-in.com

Hiral Mehta, Senior Associate- hiralmehta@elp-in.com