Issuance of draft regulations on cross-border guarantees

The Reserve Bank of India (RBI) has released draft Foreign Exchange Management (Guarantees) Regulations, 2025 (Draft Regulations) for public consultation, proposing a comprehensive overhaul of the existing regulations (i.e. FEMA 8/2000-RB) governing cross-border guarantees.

The Draft Regulations are part of RBI’s broader initiative to rationalize FEMA-related frameworks and promote ease of doing business. Once notified, the 2025 regulations shall supersede the existing FEMA 8/2000-RB, except in respect of actions already undertaken under the earlier regime.

Key changes proposed under the Draft Regulations include:

• Principle-based approach: Guarantees involving cross-border transactions will generally be permitted under the automatic route, provided the underlying and resultant transactions are not in contravention of FEMA.
  
  
• Expanded scope under automatic route: The categories of permissible guarantees have been broadened, including those involving overseas investments, trade transactions and financial obligations.
  
  
• Prohibition on Letters of Comfort/Undertaking: AD banks have been barred from issuing Letters of Comfort or Undertaking for the guarantees to be issued under the Draft Regulations.
  
  
• Detailed reporting framework: All guarantees—whether issued or invoked—will be subject to detailed reporting requirements. Specific formats have been prescribed for reporting by the surety, principal debtor, and creditor under the Draft Regulations.
  
  All reporting should be completed within seven calendar days of issuance, change, or invocation of the guarantee.
  
  
• Late submission fee: Delayed reporting may be regularized with a late submission fee, subject to a maximum period of three years from the due date.
  
  
• Exemptions: Certain transactions, such as those involving overseas branches of AD banks or irrevocable payment commitments by custodian banks for FPIs, are exempt from the new Draft Regulations. 

Source: RBI Press Release No. 2025-2026/916 dated 14 August 2025 and Draft Foreign Exchange Management (Guarantees) Regulations, 2025