The RBI has released draft guidelines to overhaul its two-decade-old guarantee framework. Moving to a principle-based approach, the draft FEM (Guarantees) Regulations 2025 aim to simplify cross-border transactions while tightening compliance and reporting norms.
Key Highlights –
‣ Clear Definitions – Guarantee, Principal Debtor, Creditor & Surety explicitly defined
‣ Extended Compliance – Obligations now cover PRIIs acting as creditors or principal debtors
‣ No LoUs/LoCs – AD banks barred from issuing LoUs/LoCs for trade credits on imports
‣ Strict Reporting – Guarantees (issuance, changes & invocation) must be reported to RBI within 7 days
‣ Exemptions – Certain transactions by AD branches abroad & custodian banks excluded
The draft framework strikes a balance between ease of doing business and enhanced regulatory oversight.
