Recently, the Reserve Bank of India (“RBI”) notified the Foreign Exchange Management (Guarantees) Regulations, 2026 (“Guarantees Regulations 2026”), which replace the erstwhile Foreign Exchange Management (Guarantees) Regulations, 2000 (“Guarantees Regulations 2000”). The Guarantees Regulations 2026 have been introduced under the Foreign Exchange Management Act, 1999 (“FEMA”) with the objective of regulating cross-border guarantees involving Indian residents and non-residents.

The Guarantees Regulations 2026 lay down a comprehensive framework governing the issuance of guarantees by Indian residents, including prohibitions, exemptions, and conditions applicable to persons acting as sureties, creditors, or principal debtors. In addition, the Guarantees Regulations 2026 prescribe reporting requirements and provide for the levy of late submission fees in cases of delayed reporting.

Previously, the Guarantees Regulations 2000 were primarily focused on situations where an Indian guarantor provided cross-border guarantees and operated under a bank-centric, approval-based framework. The regime was largely transaction-specific, with residents generally prohibited from issuing guarantees for non-resident obligations without prior approval of the RBI, and without a structured recognition of the distinct roles of principal debtors, sureties, and creditors, or clearly articulated exemptions.

In contrast, the Guarantees Regulations 2026 adopt a comprehensive and principle-based approach that applies whenever an Indian entity becomes a party to a guarantee involving a non-resident. The Guarantees Regulations 2026 expressly define the roles of principal debtors, sureties, and creditors, specify the circumstances in which residents may act in each such capacity, and introduce clear conditions, exceptions, and compliance requirements, and penalties linked to the underlying transaction and applicable borrowing and lending regulations. By replacing the fragmented, approval-centric regime of 2000 with an overarching framework of broader applicability and reduced reliance on transaction-specific restrictions, the Guarantees Regulations 2026 bring enhanced clarity, consistency, and regulatory certainty to cross-border guarantee transactions.

The Guarantees Regulations 2026 prohibit a person resident in India, except in accordance with the provisions thereof, from being a party, whether as a principal debtor, surety, or creditor, to a guarantee where any of the other parties to such guarantee is a person resident outside India.

However, the Guarantees Regulations 2026 carve out certain exceptions to the aforesaid prohibition, including the following:

1. A guarantee undertaken by a branch of an authorised dealer bank located outside India or in an International Financial Services Centre, provided that none of the other parties to the guarantee is a person resident in India;

2. An Irrevocable Payment Commitment issued by an authorised dealer in its capacity as a custodian bank, where the principal debtor is a registered Foreign Portfolio Investor and the creditor is an authorised central counterparty in India; and

3. A guarantee given in accordance with the Foreign Exchange Management (Overseas Investment) Regulations, 2022.

A person resident in India may act as a surety or principal debtor for a guarantee, provided the underlying transaction is permitted under FEMA and its regulations and the surety and principal debtor are eligible to lend to and borrow from each other under the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018. However, these conditions do not apply where the guarantee is issued by an authorised dealer bank against a counter-guarantee or a 100% non-resident cash collateral, where an Indian agent gives a guarantee on behalf of a foreign shipping or airline company for its statutory or governmental obligations in India, or where both the surety and principal debtor are residents in India.

Further, persons resident in India may obtain a guarantee in their favour as creditors, provided both the principal debtor and the surety are persons resident outside India and the underlying transaction is permitted under FEMA. The Guarantees Regulations 2026 treat a guarantee as a substitute for credit exposure and subject it to the same prudential discipline as cross-border lending.

1. Guarantees covered under the Guarantees Regulations 2026 will have to be reported:

• by the surety where such surety is a person resident in India; or

• by the principal debtor who has arranged the guarantee, and where the surety is a person resident outside India; or

• by the creditor where the surety and the principal debtor both are persons resident outside India or where the creditor has arranged the guarantee.

2. The person having the obligation to report the guarantee will also have to report:

• issuance of the guarantee,

• any subsequent change in guarantee terms, namely, guarantee amount, extension of period or pre-closure, and

• invocation of guarantee, if any, in the format provided under the Guarantees Regulations 2026.

3. Reporting, as referred to above, shall be made to an authorised dealer bank on a quarterly basis within fifteen (15) calendar days from the end of the relevant quarter, for onward submission to the RBI.

4. An authorised dealer bank shall submit the returns received under the Guarantees Regulations 2026 to the RBI, in the manner and format prescribed for this purpose, within thirty (30) calendar days from the end of the relevant quarter.

The reporting framework for guarantees marks a significant shift between the Guarantees Regulations 2000 and the Guarantees Regulations 2026. Under the Guarantees Regulations 2000, there was no comprehensive or uniform reporting obligation prescribed for guarantees as such. Reporting, where applicable, was indirect and largely embedded within authorised dealer (AD) bank procedures or specific approval conditions, resulting in fragmented disclosure and limited regulatory visibility for the RBI.

In contrast, the Guarantees Regulations 2026 introduce a structured, residency-based reporting mechanism that clearly identifies the person responsible for reporting, whether the surety, principal debtor, or creditor, depending on the residency status of the parties and who arranged the guarantee. The Guarantees Regulations 2026 mandate reporting not only of the issuance of guarantees but also of subsequent changes in terms and invocation, thereby ensuring lifecycle-based monitoring. Further, reporting timelines are clearly defined on a quarterly basis, with specified deadlines for both the reporting entity and the AD bank, significantly enhancing transparency, accountability, and regulatory oversight compared to the earlier regime.

A person resident in India who fails to comply with the reporting requirements may regularise the delay by completing the required reporting and paying a late submission fee. The late submission fee is calculated as ₹7,500 plus 0.025% of the amount involved, multiplied by the period of delay (rounded to the nearest month), with the final amount rounded up to the nearest hundred.

The treatment of non-compliance with reporting requirements represents a notable regulatory evolution from the Guarantees Regulations 2000 to the Guarantees Regulations 2026. Under the 2000 framework, there was no explicit provision for regularising delayed or missed reporting of guarantees through a structured late submission fee mechanism. Non-compliance was generally dealt with under the broader FEMA compounding or adjudication framework, which involved discretion, longer timelines, and regulatory uncertainty for residents.

The Guarantees Regulations 2026, however, introduce a clear, quantified, and predictable regularisation mechanism. They expressly permit a person resident in India to regularise delayed or missed reporting by completing the required filings and paying a prescribed late submission fee in a manner calculated as per the formula provided in the Guarantees Regulations 2026. This shift reflects a move away from penal uncertainty towards a compliance-oriented, ease-of-doing-business approach, while still preserving regulatory discipline.

The Guarantees Regulations 2026 represent a shift from the earlier fragmented framework to a comprehensive, principle-based regime governing guarantees involving persons resident in and outside India. The Guarantees Regulations 2026 clearly delineate the roles of surety, principal debtor, and creditor, permit resident participation subject to compliance with FEMA and applicable regulations, and prescribe a structured, residency-based reporting mechanism. Further, the introduction of lifecycle-based reporting, defined timelines, and a prescribed late submission fee mechanism enhances regulatory certainty and oversight. Collectively, the Guarantees Regulations 2026 replace approval-centric controls with a compliance-driven framework characterised by transparency and predictability.

About the authors: Neeraj Vyas is a Partner and Mehak Chadha is an Associate at Saga Legal.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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