RBI publishes the draft Foreign Exchange Management (Guarantees) Regulations, 2025

The Reserve Bank of India (RBI) has published the draft Foreign Exchange Management (Grantees) Regulations, 2025 (Draft Regulations) inviting public comments, vide notification dated August 14, 2025. These Draft Regulations will supersede the extant Foreign Exchange Management (Grantees) Regulations, 2000 (Previous Regulations) and have been published with the intent to promote ease of doing business. The salient features of the proposed regulations include inter alia the following: (i) the Draft Regulations are principle based and in general guarantees involving cross border transactions will be under automatic route provided that underlying transaction, and the transactions resulting from invocation of guarantee are not in contravention of the provisions of Foreign Exchange Management Act, 1999 (FEMA, 1999); and (ii) the universe of guarantees enabled under automatic route is being expanded, and therefore a comprehensive reporting of all guarantees, issued and invoked, is proposed to be introduced.

The key aspects notified by the RBI include inter alia the following:

1. Definitions of key aspects under the Draft Regulations

The Draft Regulations introduce definitions for certain key aspects thereunder, including inter alia the following:

• • • ‘Guarantee’: A guarantee means a contract, by whatever name called, to perform the promise, or discharge a debt, obligation or other liability, in case of default by the principal debtor.

• • • ‘Principal Debtor’: A principal debtor means a person in respect of whose default the guarantee is given.

• • • ‘Surety’: A surety means a person who gives a guarantee.

2. Exemption under the regulations 

Under the Draft Regulations, it has been clarified that nothing contained in these regulations will apply to the following:

• • • a branch of an authorized dealer (AD) outside India acting in the capacity of a surety or a principal debtor or a creditor in the normal course of its banking business outside India unless any of the other parties to the guarantee is a person resident in India.

• • • an AD in its capacity as a custodian bank issuing Irrevocable Payment Commitments (IPCs), where the principal debtor is a registered Foreign Portfolio Investor and the creditor is a Stock Exchange/ Clearing Corporation of the Stock Exchange in India, and the underlying transaction is permitted under the provisions of Foreign Exchange Management (non-debt instruments) Rules, 2019.

3. Permission to act as a surety or a principal debtor or a creditor

A person resident in India may act as a surety/principal debtor/creditor for a guarantee subject to the following:

• • • The underlying transaction and the resultant transaction in case of invocation of the guarantee are not in contravention, directly or indirectly, of FEMA, 1999 or rules or regulations thereunder;

• • • Where the surety is a person resident in India and the principal debtor is a person resident outside India, the resultant transaction upon invocation of guarantee, that is, the lending by a person resident in India to a person resident outside India, shall be in compliance with Foreign Exchange Management (Borrowing and Lending) Regulations, 2018.

• • • An AD shall not give a letter of comfort or a letter of undertaking; and

• • • An AD acting as surety shall also ensure compliance to regulatory guidelines issued by Department of Regulation, RBI.

For more details, kindly refer to the Draft Regulations by clicking on this link.