Reserve Bank Of India
A. P. (DIR Series) Circular No. 20
August 29, 2012
To
All Category-I Authorised Dealer Banks
Madam / Sir,
Non-resident guarantee for non-fund based facilities entered between two
resident entities
Attention of Authorised Dealer Category - I (AD Category - I) banks is invited
to
Notification No. FEMA 29 / 2000-RB dated September 26, 2000 viz. Payment to
person resident outside India on invocation of guarantee,
A.P. (DIR Series)
Circular No. 28 dated March 30, 2001 and
A.P. (DIR Series) Circular No. 5 dated
August 1, 2005 relating to External Commercial Borrowings (ECB).
- Borrowing and lending of Indian Rupees between two persons resident in India
does not attract the provisions of the Foreign Exchange Management Act, 1999. In
case where a Rupee loan is granted against the guarantee provided by a person
resident outside India, 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 Reserve Bank vide Notification No. FEMA
29/2000-RB dated September 26, 2000 has granted general permission to a person
resident in India, being a principal debtor, to make payment to a person
resident outside India, who has met the liability under a guarantee.
- On a review, it has been decided to extend the facility of non-resident
guarantee under the general permission for non-fund based facilities (such as
Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC)
) entered into between two persons resident in India. The method of discharge of
liability by the non-resident guarantor under the guarantee and the subsequent
repayment of the liability by the principal debtor would continue, as hitherto,
as detailed in A.P. (DIR Series) Circular No. 28 dated March 30, 2001.
- It has also been decided to introduce a reporting format to capture such
guarantees issued and invoked. Authorized Dealer Category-I banks are required
to furnish such details by all its branches, in a consolidated statement, during
the quarter, as per the format in Annex to the Chief General Manager, Foreign
Exchange Department, ECB Division, Reserve Bank of India, Central Office
Building, 11th floor, Fort, Mumbai – 400 001 (and in MS-Excel file through
email) so as to reach the Department not later than 10th day of the following
month.
- The policy would be reviewed at an appropriate time based on the experience
gained in this regard.
- The modifications to the policy will come into force from the date of this
circular. AD Category - I banks may bring the contents of this circular to the
notice of their constituents and customers.
- The directions contained in this circular have been issued under sections
10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and
are without prejudice to permissions / approvals, if any, required under any
other law.
Yours faithfully,
(Rashmi Fauzdar)
Chief General Manager
RBI/2012-13/179