Non-resident guarantee for domestic fund based and non-fund based facilities

Non-resident guarantee for domestic fund based and non-fund based facilities: 

Borrowing and lending in Indian Rupees between two residents does not attract any provisions of the Foreign Exchange Management Act, 1999. In cases where a Rupee facility which is either fund based or non-fund based (such as letter of credit / guarantee / letter of undertaking / letter of comfort) or is in the form of derivative contract by residents that are subsidiaries of multinational companies, is guaranteed by a non-resident (non resident group entity in case of derivative contracts), there is no transaction involving foreign exchange until the guarantee is invoked and the non-resident guarantor is required to meet the liability under the guarantee. The arrangements shall be with the following terms:

The non-resident guarantor may discharge the liability by 

i) payment out of rupee balances held in India or 

ii) by remitting the funds to India or 

iii) by debit to his FCNR(B)/NRE account maintained with an AD bank in India.

In such cases, the non-resident guarantor may enforce his claim against the resident borrower to recover the amount and on recovery he may seek repatriation of the amount if the liability is discharged either by inward remittance or by debit to FCNR(B)/NRE account. However, in case the liability is discharged by payment out of Rupee balances, the amount recovered can be credited to the NRO account of the non-resident guarantor.

General Permission is available to a resident, being a principal debtor to make payment to a person resident outside India, who has met the liability under a guarantee.

In cases where the liability is met by the non-resident out of funds remitted to India or by debit to his FCNR(B)/ NRE account, the repayment may be made by credit to the FCNR(B)/ NRE/ NRO account of the guarantor provided, the amount remitted/credited shall not exceed the rupee equivalent of the amount paid by the non-resident guarantor against the invoked guarantee.

AD Category I banks are required to furnish at quarterly interval details of guarantees availed of/ invoked, by all its branches, in a format specified by RBI, so as to reach the Department not later than 10th day of the month following quarter to which the data pertain to.