What changed
Previously, any rollover or renewal of a guarantee for an overseas joint venture or wholly owned subsidiary was treated as a fresh financial commitment, requiring fresh approval. Now, RBI has decided that such rollovers will not be considered fresh commitments if the original guarantee was issued under then-prevailing FEMA rules, there is no change in end use or terms except validity period, and the Indian party is not under investigation without informing the agency.
What it means for you
Banks can now process guarantee rollovers for clients' overseas investments without needing prior RBI approval, as long as the conditions are met. This reduces compliance burden and speeds up renewals for Indian companies with existing overseas operations. However, banks must ensure strict adherence to the conditions and continue reporting the rolled-over guarantee as a fresh financial commitment in Form ODI.
What you must do
- Verify that the original guarantee was issued under then-prevailing FEMA guidelines before approving rollover.
- Confirm no change in end use or terms (except validity period) of the guarantee.
- Ensure the rolled-over guarantee is reported as a fresh financial commitment in Part II of Form ODI.
- If the Indian party is under investigation, inform the concerned agency before processing rollover.
- Advise customers that any deviation from conditions requires prior RBI approval through your bank.
Who it affects
AD Category-I banks handling overseas direct investment transactions, Indian parties with existing guarantees for JVs/WOSs/Step Down Subsidiaries, Compliance teams managing FEMA reporting for overseas investments
Does this circular apply to all types of guarantees?
It applies to renewal or rollover of existing guarantees that are part of the total financial commitment under Regulation 6 of FEMA Notification No. FEMA.120/RB-2004, provided the original guarantee was FEMA-compliant and terms remain unchanged except validity.
What if the guarantee amount changes during rollover?
If any term or condition changes, including the amount, the rollover cannot be treated as not a fresh commitment. In such cases, prior RBI approval is required through the designated AD bank.
Is reporting still required for rolled-over guarantees?
Yes, the rolled-over guarantee must be reported as a fresh financial commitment in Part II of Form ODI, as was done earlier.