RBI Cracks Down on Non-Resident Guarantees for Residents
Current · Source: Reserve Bank of India · RBI/2024-25/79 · issued 04 Oct 2024 · ~2 min read
Quick answerRBI warns AD Category-I banks about unauthorized non-resident guarantees (including SBLCs/performance guarantees) favoring Indian residents. Banks must ensure all such guarantee contracts comply with FEMA regulations or face action under FEMA Sections 10(4) and 11(1).
The rule, in the simplest words
Banks must check if non-resident guarantees (like SBLCs or performance guarantees) for Indian residents follow FEMA rules.
Banks must be careful when helping clients with cross-border guarantee transactions to avoid breaking FEMA rules.
Banks must train their trade finance and forex teams about FEMA rules for non-resident guarantees.
How it plays out — a real example
A forex & trade-finance officer in Indore, Mr. Kumar, reviews a client's non-resident guarantee contract to ensure it complies with FEMA regulations. He checks if the guarantee is properly approved by RBI and if it follows all necessary rules. If not, he advises the client to restructure the arrangement immediately to avoid any issues.
What changed
RBI issued a circular on October 4, 2024, flagging instances where non-resident guarantees (including SBLCs and performance guarantees) for resident Indians violate FEMA rules. AD Category-I banks are now explicitly directed to verify that any guarantee contracts they advise or handle for resident clients are fully compliant with FEMA regulations.
What it means for you
Banks must tighten due diligence on cross-border guarantee transactions to avoid facilitating unauthorized structures. Non-compliance could invite regulatory action under FEMA, impacting both the bank and its client. This reinforces RBI's stance against circumventing capital account restrictions via guarantee instruments.
What you must do
Review all outstanding non-resident guarantee contracts (including SBLCs and performance guarantees) for resident clients to ensure FEMA compliance.
Update internal compliance checklists to flag any guarantee from a non-resident favoring a resident Indian as a high-risk item requiring prior approval.
Train trade finance and forex teams on the specific FEMA provisions governing non-resident guarantees.
Advise resident clients to seek RBI approval or restructure any non-compliant guarantee arrangements immediately.
Who it affects
AD Category-I banks, Resident Indian companies availing non-resident guarantees, Trade finance and forex departments, Compliance officers handling FEMA matters
❓ Common questions
What types of guarantees are covered by this circular?
The circular covers all guarantees issued by non-residents in favor of resident Indians, including Standby Letters of Credit (SBLCs) and performance guarantees.
What action can RBI take if a bank fails to comply?
RBI can initiate action under Section 10(4) and 11(1) of FEMA, 1999, which may include directions to the bank or penalties for non-compliance.
Does this circular apply to guarantees already in place?
Yes, banks must ensure that all existing guarantee contracts advised by them are in accordance with FEMA regulations, implying a review of past transactions as well.
📜 Read the original circular — full text as issued by RBI
RBI/2024-25/79
A.P. (DIR Series) Circular No. 18
October 04, 2024
To
All Category - I Authorised Dealer Banks
Madam / Sir,
Due diligence in relation to non-resident guarantees availed by persons resident in India
The Reserve Bank of India (RBI) has come across instances of guarantees (including Standby Letters of Credit [SBLCs] and / or performance guarantees) issued by persons resident outside India, favouring persons resident in India, which are not permitted under the extant FEMA regulations.
2. AD Category-I banks may ensure that guarantee contracts advised by them to, or on behalf of, their resident constituents are in accordance with the FEMA regulations. The contents of this circular may be brought to the notice of your constituents.
3. This direction is issued under Section 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999).
Yours faithfully,
(Dr Aditya Gaiha)
Chief General Manager-in-Charge
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2024-25/79 · issued 04 Oct 2024. The plain-English explanation above is BankPulse’s own independent summary.
Example: if you are a Compliance officer at a bank this circular applies to (AD Category-I banks, Resident Indian companies availing non-resident guarantees, Trade finance and forex departments, Compliance officers handling FEMA matters), your first concrete step on “RBI Cracks Down on Non-Resident Guarantees for Residents” is: “Review all outstanding non-resident guarantee contracts (including SBLCs and performance guarantees) for resident clients to ensure FEMA compliance.” (RBI issued this 04 Oct 2024).
Circular: RBI/2024-25/79 -- RBI Cracks Down on Non-Resident Guarantees for Residents
Issued: 04 Oct 2024
Action required: Review all outstanding non-resident guarantee contracts (including SBLCs and performance guarantees) for resident clients to ensure FEMA compliance.
Action required: Update internal compliance checklists to flag any guarantee from a non-resident favoring a resident Indian as a high-risk item requiring prior approval.
Action required: Train trade finance and forex teams on the specific FEMA provisions governing non-resident guarantees.
Action required: Advise resident clients to seek RBI approval or restructure any non-compliant guarantee arrangements immediately.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12737&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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