**Summary:**
This Reserve Bank of India (RBI) circular (A.P. DIR Series Circular No. 18, dated October 04, 2024) addresses due diligence requirements for Category I Authorised Dealer (AD) banks in relation to nonresident guarantees availed by persons resident in India. The RBI has observed instances of guarantees, including Standby Letters of Credit (SBLCs) and/or performance guarantees, issued by non-residents favoring Indian residents, which are not compliant with existing Foreign Exchange Management Act (FEMA) regulations. The circular directs AD Category-I banks to ensure that all guarantee contracts advised by them to, or on behalf of, their resident constituents adhere to FEMA regulations. This directive is issued under Section 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999). Contact: Dr. Aditya Gaiha, Chief General Manager-in-Charge, Foreign Exchange Department, Central Office, 11th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai – 400 001, India. Tel: 91-22-2260 3000; Fax: 91-22-2262 1038; Email: fedcoecb@rbi.org.in.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the banking system and managing the country's currency.
Category I Authorised Dealer Banks: Banks authorized by the Reserve Bank of India to deal in foreign exchange.
FEMA: Foreign Exchange Management Act, regulations governing foreign exchange transactions in India.
Standby Letters of Credit: Financial instrument used as a guarantee of payment.
Foreign Exchange Department: A department of the Reserve Bank of India.
Dr Aditya Gaiha: Chief General Manager-in-Charge at Reserve Bank of India.
Mumbai, Maharashtra: City in India, location of the Central Office Building of the Reserve Bank of India.
Foreign Exchange Management Act, 1999: An Act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
भारतीय �रज़वर् ब�क
RESERVE BANK OF INDIA
www.rbi.org.in
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
�वदेशी मुद्रा �वभाग, केन्द्र�य कायार्लय, 11 वी मजं �ल, शह�द भगत �सहं माग,र् फोटर्, मुम्बई – 400 001, भारत
Foreign Exchange Department, Central Office, 11th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai – 400 001, India
Tel: 91-22-2260 3000 Fax: 91-22-2262 1038 E-mail: fedcoecbd@rbi.org.in