On August 14, 2025, the Reserve Bank of India (“RBI”) released the draft Foreign Exchange Management (Guarantees) Regulations, 2025 (“Draft Regulations”) for public comments. The Draft Regulations seek to replace the Foreign Exchange Management (Guarantees) Regulations, 2000 (“Existing Regulations”) to rationalise the regime governing guarantees involving persons resident in India.
The Draft Regulations propose to liberalise the regime governing guarantees by allowing persons resident in India to act as sureties, creditors or principal debtors in a contract of guarantee. However, the underlying transaction and the transaction on invocation of guarantee must not contravene the Foreign Exchange Management Act, 1999 (“Act”) and any rules, regulations or directions issued under the Act.
The Draft Regulations seek to introduce reporting requirements for persons resident in India who act as sureties, creditors or principal debtors, to report details regarding issuance of guarantee, any change in its amount or validity and invocation of the guarantee to the AD Bank within seven (7) days of the issue/ invocation/ change in amount or validity of the guarantee.
The Draft Regulations permit a wider range of guarantees to be given, subject to compliance with the Act, rules, regulations and reporting requirements. This is a welcome shift from the position under the Existing Regulations, where only a narrow range of specified guarantees could be given subject to specific conditions being fulfilled. Persons resident in India will have to ensure timely reporting of guarantees to the AD Bank.