The Reserve Bank of India, vide A.P. (DIR Series) Circular No. 19 dated 12 January 2026, notified the Foreign Exchange Management (Guarantees) Regulations, 2026, comprehensively replacing the FEM (Guarantees) Regulations, 2000. The new framework governs cross-border guarantee transactions where at least one party is a person resident in India and another party is a non-resident, introducing mandatory quarterly reporting and a liberalised compliance pathway.
Background
The FEM (Guarantees) Regulations, 2000, which governed cross-border guarantee issuance and invocation for over two decades, had been supplemented by numerous A.P. (DIR Series) circulars issued between 2002 and 2023. This layered regulatory structure had become increasingly difficult for market participants to navigate, creating compliance uncertainty and interpretive challenges.
The RBI undertook a comprehensive review of the guarantee framework as part of its broader initiative to rationalise and consolidate FEMA regulations. The 2026 Regulations represent a shift from an approval-heavy model to a principle-based approach, retaining the statutory prohibition structure under FEMA while clearly articulating the permissions, exemptions, and compliance pathways available to regulated entities.
Key Provisions
The FEM (Guarantees) Regulations, 2026 introduce the following significant changes:
Principle-based compliance: Permissibility of cross-border guarantee transactions is now determined through objective compliance criteria rather than narrow, case-specific approvals. While the prohibition under FEMA remains the starting point, the pathway to compliance has been substantially liberalised.
Mandatory quarterly reporting via Form GRN: All guarantee transactions — including issuance, modification, invocation, and closure — must now be reported on a quarterly basis through a prescribed Form GRN. Returns must be submitted to the Authorised Dealer (AD) bank within 15 calendar days from the end of each quarter. The AD bank is required to forward consolidated returns to the RBI within a further 15 days.
Late Submission Fee mechanism: The framework extends the late submission fee (LSF) mechanism to guarantee reporting. This allows entities to regularise reporting delays through prescribed fees rather than resorting to the more onerous compounding proceedings under FEMA.
Supersession of earlier circulars: A wide range of A.P. (DIR Series) Circulars issued between 2002 and 2023 on guarantee-related matters stand superseded, except for actions already undertaken under the earlier framework. This consolidation eliminates the need to cross-reference multiple circular layers.
Implications for Practitioners
The 2026 Regulations will have an immediate impact on banks, NBFCs, corporates, and their advisors involved in cross-border guarantee transactions. The shift to quarterly reporting through Form GRN requires entities to establish or upgrade internal tracking systems for guarantee issuance, modification, invocation, and closure events.
For companies with existing cross-border guarantee arrangements, a compliance review against the new framework is advisable to ensure that ongoing transactions meet the revised regulatory requirements. The supersession of earlier circulars means that compliance advice based on prior regulatory guidance must be reassessed.
The introduction of the LSF mechanism for guarantee reporting is a practical measure that reduces the risk of disproportionate enforcement action for procedural delays. However, practitioners should not treat the LSF as a substitute for timely compliance — the RBI's expectation of quarterly discipline in reporting is clear.
Banks acting as Authorised Dealers should update their internal processes to accommodate the 15-day forwarding window for consolidated returns to the RBI.