Introduction
The Reserve Bank of India issued the Foreign Exchange Management (Guarantees) Regulations, 2026 on January 6, 2026, replacing the 25-year-old FEM (Guarantees) Regulations, 2000. This major regulatory update introduces a comprehensive framework for cross-border guarantees involving Indian residents and non-residents, with a significant focus on reporting obligations through a new standardized reporting form.
For businesses, exporters, importers, and financial institutions involved in cross-border transactions, understanding these new regulations is crucial. The most notable change is the introduction of Form GRN (Guarantee Reporting Notification) with mandatory quarterly reporting requirements and penalties for non-compliance.
What are FEM (Guarantees) Regulations?
The Foreign Exchange Management (Guarantees) Regulations are issued under the Foreign Exchange Management Act, 1999 to regulate guarantees involving a person resident in India and any party resident outside India. These regulations ensure:
- Monitoring of contingent liabilities – The RBI tracks India’s potential guarantee obligations to foreign entities
- Compliance with FEMA provisions – Ensures that underlying and resultant transactions comply with foreign exchange rules
- Transparency and accountability – Creates a systematic reporting mechanism for cross-border guarantee obligations
Why the Need for New Regulations?
The earlier 2000 regulations were outdated and lacked:
- Comprehensive reporting mechanisms
- Clear timelines for reporting guarantee modifications and invocations
- Standardized documentation requirements
- Penalty frameworks for non-compliance
The new 2026 framework addresses these gaps by introducing a principle-based approach that encourages ease of doing business while strengthening oversight and transparency.
Key Features of FEM (Guarantees) Regulations, 2026
1. Expanded Automatic Route for Guarantees
Under the new regulations, guarantees in cross-border transactions are generally permitted under the automatic route, subject to the condition that:
- Both the underlying transaction and the resultant transaction comply with FEMA provisions
- The guarantee is not for a prohibited transaction
- The resident party has reciprocal borrowing/lending eligibility (where applicable)
This principle-based framework provides greater flexibility to businesses engaged in international trade and investment.
2. Participation by Indian Residents
Indian residents can act as:
- Surety (guarantor)
- Principal debtor
- Creditor (guarantee holder)
However, participation is restricted to:
- Non-prohibited underlying transactions (as per FEMA Master Directions)
- Transactions where reciprocal borrowing/lending eligibility exists
Exemptions: Certain guarantees are exempted from these regulations:
- Guarantees issued by overseas branches and IFSC banking units of authorized dealer banks
- Specified irrevocable payment commitments for FPI clearing arrangements
- Guarantees issued under the overseas investment regime
3. Introduction of Form GRN (Guarantee Reporting Notification)
Form GRN is a standardized reporting tool that tracks the entire lifecycle of a guarantee, divided into four parts:
Part A & B: Issuance of new guarantees (from the date of notification)
Part C: Modification of existing guarantees (any change in guarantee terms)
Part D: Invocation of guarantees (when the guarantee is actually called upon)
Any guarantee issued before January 6, 2026 that subsequently undergoes modification must be reported as a “fresh issuance” under the new system.
Mandatory Quarterly Reporting Obligations
Who Must Report?
- The principal debtor (borrower)
- The surety/guarantor (Indian resident acting as guarantor)
- The creditor (non-resident guarantee beneficiary)
Any one of these parties can file the report.
Reporting Timeline
Reports must be submitted to an Authorized Dealer (AD) bank on a quarterly basis within 15 calendar days from the end of the respective quarter:
- Q1 (Jan-Mar): Report by April 15
- Q2 (Apr-Jun): Report by July 15
- Q3 (Jul-Sep): Report by October 15
- Q4 (Oct-Dec): Report by January 15
The AD bank will then submit the compiled returns to the RBI within 30 calendar days from the end of the respective quarter.
What Must Be Reported?
Reporting parties must submit:
- ✓ Issuance of guarantees
- ✓ Any modifications in guarantee terms
- ✓ Invocation of guarantees (when the guarantee is called)
- ✓ Prescribed guarantee data as specified in the form
Late Reporting Penalties
The regulations introduce a penalty structure for late submissions:
Penalty Formula: ₹7,500 + 0.025% of the guarantee amount × number of years of delay
Example:
- Guarantee amount: ₹100 lakhs (₹10 million)
- Delay: 2 years
- Penalty = ₹7,500 + (0.025% × ₹10,000,000 × 2)
- Penalty = ₹7,500 + ₹5,000 = ₹12,500
These penalties are mandatory and calculated based on the delay period. However, the regulations provide a three-year window for compliance with late fees, allowing retrospective reporting with penalties.
Impact on Different Stakeholders
1. Exporters & Importers
- If you have provided a guarantee to a foreign buyer or supplier, you must report it quarterly
- Any modification (increase/decrease in amount, extended tenure, etc.) triggers a fresh reporting requirement
- Ensure timely reporting to avoid penalties
2. Cross-Border Lending Parties
- If you’ve received a guarantee from an Indian resident for a cross-border loan, the Indian party must report it
- Verify that reporting is being done by the responsible party to avoid compliance gaps
3. Banks & Financial Institutions
- AD banks must compile and submit all guarantee reports to RBI within 30 days of quarter-end
- Ensure proper documentation and record-keeping of all guarantee-related transactions
- Educate customers about reporting obligations
4. Non-Resident Creditors
- If you hold a guarantee from an Indian resident, ensure the Indian party reports the obligation quarterly
- Maintain documentation of any modifications to the guarantee
Important Transitional Provisions
Existing Guarantees Before January 6, 2026
- Guarantees issued prior to the notification date continue to be valid
- Any modification to these guarantees must be reported as a fresh issuance under Form GRN
- The three-year retrospective compliance window with late fees applies to these guarantees
Discontinuation of Trade Credit Guarantee Reporting
- Quarterly reporting of trade credit guarantee issuance has been discontinued with effect from the quarter ending March 2026
- This eliminates duplicate reporting requirements under earlier Master Directions
Practical Compliance Checklist for Businesses
Identify your guarantee obligations:
- ✓ List all guarantees provided to non-residents (surety role)
- ✓ List all guarantees received from non-residents (creditor role)
- ✓ Document the guarantee amount, terms, and parties involved
Prepare for quarterly reporting:
- ✓ Maintain a register of all guarantees with issuance dates
- ✓ Track any modifications to guarantee terms
- ✓ Monitor for guarantee invocations
- ✓ Document supporting agreements and correspondence
Coordinate with AD banks:
- ✓ Identify your AD bank for submission
- ✓ Understand the bank’s reporting timeline and requirements
- ✓ Provide guarantee details to the bank well in advance of the 15-day deadline
Set internal compliance deadlines:
- ✓ Submit guarantee data to your AD bank 5 days before the 15-day deadline
- ✓ Implement a tracking mechanism for quarterly deadlines
- ✓ Maintain audit trail of all reporting
Frequently Asked Questions
Q1: Do all guarantees require reporting?
A: No. Guarantees issued by overseas/IFSC branches of AD banks, FPI clearing arrangements, and those under the overseas investment regime are exempted.
Q2: What if we miss the 15-day reporting deadline?
A: Late submission penalties apply at ₹7,500 + 0.025% of guarantee amount per year of delay. However, a three-year retrospective window is available.
Q3: Do existing guarantees from before January 2026 need to be reported?
A: Only if they are modified. Any modification triggers reporting as a fresh issuance. Retrospective reporting with penalties is available for old guarantees.
Q4: Can multiple parties file the same guarantee report?
A: Yes, any party (debtor, surety, or creditor) can file the report. Coordination is recommended to avoid duplicate submissions.
Q5: What is the “three-year window” for late fees?
A: The RBI has provided a three-year compliance window to allow retrospective reporting of guarantees with applicable late fees, providing businesses time to regularize older guarantee obligations.
Conclusion
The FEM (Guarantees) Regulations, 2026 represent a significant modernization of India’s cross-border guarantee framework. The introduction of Form GRN with quarterly reporting and the principle-based automatic route aims to balance ease of doing business with enhanced regulatory oversight.
For businesses involved in cross-border transactions, the key takeaway is to:
- Identify all guarantee obligations immediately
- Establish a quarterly reporting mechanism with your AD bank
- Track modifications to guarantee terms promptly
- Plan for timely submissions within the 15-day deadline
- Maintain proper documentation for audit and compliance purposes
Non-compliance carries mandatory penalties, but the three-year retrospective window offers a grace period to regularize existing guarantees. Given the complexity and significance of these regulations for international trade, businesses should consider consulting with their chartered accountant or tax advisor to ensure full compliance.
The effective date is January 6, 2026, and the first quarterly reporting deadline would be April 15, 2026 for guarantees issued/modified after the notification date.
FCA, CWM (AAFM-US), CBV, CIFRS, R-ID, B.COM (H), RV* (IBBI)
Practising Chartered Accountant in Delhi NCR Since 2011. He can be contacted at ankitgulgulia@gmail.com or +91-9811653975.