A S BANKA ADVISORS

On January 6, 2026, the Reserve Bank of India notified the FEMA (Guarantees) Regulations, 2026, replacing a framework that had governed cross-border guarantees since 2000. For founders with overseas subsidiaries, startups raising cross-border capital, and advisors structuring international transactions, this is a significant shift in how guarantee compliance works under FEMA.

Here is what changed, what it means for your business, and what you should do about it.

The Core Shift: From Approvals to Principles

The old regime required case-specific RBI approvals for most cross-border guarantees. The new framework introduces a principle-based approach: if your underlying transaction is not prohibited under FEMA, and the surety and principal debtor are eligible to lend to and borrow from each other under the FEMA (Borrowing and Lending) Regulations, 2018, the guarantee is automatically permitted.

This dual-condition test replaces narrow carve-outs with clear, objective criteria. For most compliant structures, this means automatic route access without RBI’s prior approval.

What Counts as a “Guarantee” Now

The definition has been expanded significantly. It now covers direct, indirect, and contingent liabilities, including portfolios of obligations. Counter-guarantees are explicitly included for the first time. If your structure involves any form of credit support for a cross-border obligation, it likely falls within scope.

Three Key Exemptions Worth Knowing

IFSC Operations: Branches of authorised dealer banks in IFSCs are exempt when no party to the guarantee is an Indian resident.

Overseas Investments: Guarantees issued under the Foreign Exchange Management (Overseas Investment) Regulations, 2022 are carved out entirely.

Foreign Portfolio Investors: Irrevocable Payment Commitments (IPCs) issued by custodian banks for registered FPIs are exempt, subject to SEBI and FEMA compliance.

New Reporting: One Unified Quarterly Form

The fragmented reporting requirements have been replaced with a centralized quarterly form with four parts: Parts A and B for issuance, Part C for modifications or pre-closures, and Part D for invocations. Reports are due within 15 calendar days from the end of each quarter. Quarterly trade credit guarantee reporting has been discontinued from March 2026, a welcome relief for MSMEs.

Late Submission Fee: Self-Regularize Without Compounding

One of the most practical changes is the new Late Submission Fee formula: LSF = Rs. 7,500 + 0.025% x Amount x Years of Delay. This replaces open-ended compounding proceedings and allows businesses to regularize past compliance gaps with predictable costs. For a Rs. 10 Crore guarantee delayed by two years, the LSF works out to approximately Rs. 57,500.

Immediate Action Items

1. Audit all existing cross-border guarantees against the new two-condition permissibility test.
2. Implement the four-part quarterly reporting format with internal deadlines 15 days from quarter-end. The first deadline is April 15, 2026.
3. Use the LSF mechanism to self-regularize any unreported or delayed guarantee filings before they compound further.
4. Assess whether IFSC or Overseas Investment exemptions apply to your current structures.
5. Update internal FEMA compliance policies to reflect the principle-based approach.

Need help reviewing your cross-border guarantee structures under the new framework? Whether you are restructuring existing guarantees, setting up new ones for overseas subsidiaries, or regularizing past filings, we can help you navigate the compliance landscape.

Book a consultation with CA Adityavikram Banka