| Non-resident guarantee for non-fund based facilities entered between two resident entities |
| Indian residents have the option to borrow money from non-resident persons either in foreign exchange or in Indian rupees as per FEMA guidelines. However borrowing and lending of Indian Rupees between two persons resident in India does not attract the provisions of the Foreign Exchange Management Act, 1999. In case where a Rupee loan is granted against the guarantee provided by a person resident outside India, there is no transaction involving foreign exchange until the guarantee is invoked and the non-resident guarantor is required to meet the liability under the guarantee. |
| As per the extant FEMA guidelines, person resident in India being a principal debtor has been given general permission to make payment to a person resident outside India, who has met the liability under a guarantee. |
| RBI has since reviewed the provisions regarding giving guarantee by a non resident person and has decided to extend the facility of non-resident guarantee under the general permission for non-fund based facilities (such as Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) ) entered into between two persons resident in India. The revised guidelines in this regard are contained in the A.P.(DIR Series) Circular No. 20 dated 29th August, 2012 issued by RBI. |
| In order to capture such guarantees issued and invoked, RBI has introduced the reporting format in Excel sheet which is required to be mailed to RBI at fedcoecbd@rbi.org.in not later than 10th day of the following month. |