RBI’s Directive on Non-Resident Issuing Guarantees
Background:
On October 4, 2024, the Reserve Bank of India (RBI) issued an important directive to address irregularities in guarantees provided by non-residents to Indian entities. The circular highlighted cases where instruments such as Standby Letters of Credit (SBLCs) and performance guarantees were issued by non-residents without adhering to FEMA regulations. These violations raised concerns about unauthorized financial practices and potential risks to India’s financial ecosystem.
Key Directives:
To tackle these irregularities, the RBI has instructed Authorized Dealer (AD) Category-I banks to:
- Ensure all guarantee contracts they advise comply with FEMA regulations.
- Educate their constituents on the regulatory requirements outlined in the circular.
In addition, banks and businesses are urged to strengthen internal procedures to align with FEMA guidelines. Businesses should reassess their guarantee arrangements with non-residents to ensure full compliance, avoiding penalties and potential reputational damage.
Conclusion:
The RBI’s circular underscores the critical importance of regulatory compliance in cross-border financial transactions. By implementing these guidelines, Indian banks and businesses can safeguard their operations, ensure legality, and contribute to a more transparent and resilient financial environment. Adherence to these rules isn’t just about avoiding violations—it’s about fostering trust and accountability in a globally connected financial landscape.
Disclaimer: This is an effort by Lexcomply.com, to contribute towards improving compliance management regime. User is advised not to construe this service as legal opinion and is advisable to take a view of subject experts.
