What changed
Previously, non-resident guarantees were allowed only for rupee loans between residents. This circular extends the same general permission to non-fund based facilities like letters of credit, guarantees, letters of undertaking, and letters of comfort. A new quarterly reporting format has been introduced for AD Category-I banks to report such guarantees issued and invoked.
What it means for you
Banks can now accept non-resident guarantees for non-fund based credit facilities between resident entities without seeking prior RBI approval, simplifying cross-border credit support. This reduces compliance burden and expands the scope of permissible guarantees, but banks must ensure accurate quarterly reporting to the RBI's ECB Division so as to reach not later than the 10th day of the following month.
What you must do
- Update internal policies to allow non-resident guarantees for non-fund based facilities between residents under general permission.
- Train staff on the new reporting format and ensure consolidated quarterly submission to RBI's ECB Division by the 10th of the following month.
- Notify customers and constituents about the expanded guarantee facility and its conditions.
- Monitor guarantee invocations and ensure repayment by the principal debtor follows existing procedures per A.P. (DIR Series) Circular No. 28 dated March 30, 2001.
Who it affects
All Category-I Authorised Dealer Banks, Resident entities availing non-fund based facilities with non-resident guarantees, Non-resident guarantors providing guarantees for such facilities
Does this circular apply to fund-based facilities like rupee loans?
No, this circular specifically extends the facility to non-fund based facilities such as letters of credit, guarantees, letters of undertaking, and letters of comfort. Fund-based facilities were already covered under earlier circulars.
What is the reporting requirement for AD Category-I banks?
Banks must submit a consolidated quarterly statement in the prescribed format to the Chief General Manager, Foreign Exchange Department, ECB Division, RBI, Mumbai, and also via email in MS-Excel, so as to reach by the 10th day of the following month.
When did this circular come into effect?
The modifications came into force from the date of the circular, i.e., August 29, 2012.