RBI Foreign Exchange Management (Guarantees) Regulations, 2026 – Key Changes & Implications

Background and Regulatory Context

On January 06, 2026, the Reserve Bank of India (“RBI”) notified the Foreign Exchange Management (Guarantees) Regulations, 2026 (“Guarantee Regulations”) under the Foreign Exchange Management Act, 1999 (“FEMA”), by way of an official Gazette notification.

Subsequently, on January 12, 2026, the RBI issued the operational circular and public communication to Authorised Dealer (“AD”) banks, thereby formally operationalising and implementing the Guarantee Regulations for market participants.

The Guarantee Regulations replace the earlier regulatory framework governing cross-border guarantees and introduce a consolidated, principle-based regime applicable to guarantees involving residents and non-residents. These changes form part of RBI’s broader initiative to rationalise FEMA regulations, align them with evolving cross-border financing and corporate structuring practices, and enhance regulatory clarity while maintaining effective oversight over foreign exchange exposures.

The objectives of the new Regulations are to:

1. Simplify and consolidate the regulatory framework governing guarantees under FEMA;
2. Transition from transaction-specific approvals to a principle-based permission model;
3. Improve transparency and regulatory oversight through standardised reporting; and
4. Align guarantee-related permissions with FEMA frameworks governing borrowing, lending, and overseas investment.

Scope and Applicability of the Regulations

The Guarantee Regulations apply to all guarantees and counter-guarantees where any one of the parties, the surety, principal debtor, or creditor, is a person resident outside India.

A “guarantee” is broadly defined to include any undertaking, promise, or arrangement to discharge a liability or perform an obligation upon default by the principal debtor. The scope, therefore, extends beyond traditional corporate guarantees to include structured guarantees and indirect or back-to-back arrangements.

The Regulations clarify that no person resident in India may be a party to a guarantee involving a non-resident, except in accordance with the provisions of these Regulations or as otherwise expressly permitted under FEMA.

Regulatory Structure and Permission Framework

The Guarantee Regulations introduce a principle-based permission framework, under which guarantees are generally permitted provided that:

1. The underlying transaction is permissible under FEMA and the applicable subordinate regulations;
2. The guarantee does not result in a circumvention of FEMA provisions relating to borrowing, lending, or capital account transactions; and
3. All prescribed conditions, reporting requirements, and prudential norms are complied with.

Where these principles are satisfied, guarantees may be issued without prior RBI approval, subject to compliance with the relevant FEMA regulations governing the underlying transaction.

Key Provisions and Regulatory Changes

1. Expanded Automatic Route: The Regulations significantly expand the scope of guarantees permitted under the automatic route, thereby reducing dependence on case-by-case RBI approvals.
2. Alignment with Other FEMA Frameworks: Guarantees must be consistent with the applicable FEMA frameworks, including those governing external commercial borrowings, overseas investment, trade credit, or financial commitments, as relevant.
3. Clear Allocation of Compliance Responsibility: The Regulations clearly identify reporting and compliance responsibilities based on the roles and residency status of the surety, principal debtor, and creditor.
4. Restrictions on Structuring and Ring-Fencing: Guarantees cannot be structured to indirectly facilitate transactions that are otherwise prohibited or restricted under FEMA, reinforcing a substance-over-form compliance approach.

Exemptions and Carve-Outs

The Guarantee Regulations do not apply to certain specified arrangements, including:

1. Guarantees issued by branches of authorised dealer banks located outside India or in International Financial Services Centres, subject to specified conditions;
2. Certain irrevocable payment commitments issued by authorised dealer banks acting as custodians; and
3. Guarantees issued in accordance with the Foreign Exchange Management (Overseas Investment) Regulations, 2022, which continue to be governed independently.

Reporting and Compliance Requirements

A key feature of the new framework is the introduction of mandatory periodic reporting:

1. All guarantees that are issued, modified, extended, invoked, or extinguished must be reported every quarter in the prescribed form through the designated AD bank.
2. Reporting responsibility is determined based on the residency and role of the parties involved in the guarantee.
3. Reports must be submitted within the prescribed timelines from the end of each calendar quarter.

Delays in reporting attract a Late Submission Fee (“LSF”) calculated on a formula-based mechanism linked to the amount involved and the duration of delay.

Implications for Corporations, Banks, and Financial Institutions

Entities engaging in cross-border financing, group support arrangements, or structured credit enhancements should:

1. Review existing and proposed guarantee structures for alignment with the new principle-based framework;
2. Update internal policies, approval matrices, and documentation standards;
3. Strengthen internal tracking systems to meet quarterly reporting obligations; and
4. Coordinate closely with AD banks to ensure timely and accurate regulatory filings.

Implications and Next Steps

Entities engaging in cross-border financing, group support arrangements, or structured credit enhancements should promptly review existing and proposed guarantee structures to ensure alignment with the new principle-based framework. This includes updating internal policies, approval matrices, and documentation standards, strengthening internal systems to meet the prescribed quarterly reporting obligations, and coordinating closely with Authorised Dealer banks to ensure timely and accurate regulatory filings.

The Guarantee Regulations are effective from the date of notification, with operational implementation reinforced through RBI’s circular dated January 12, 2026. Market participants should therefore undertake an immediate compliance assessment of their guarantee arrangements under the revised FEMA framework. These Regulations mark a significant step toward regulatory simplification and proportional oversight, while preserving the RBI’s supervisory control over India’s cross-border guarantee exposures.