RBI Bars Resident Indians from Issuing Credit Guarantees to NRIs

The Reserve Bank of India (RBI) has issued new Foreign Exchange Management Regulations prohibiting resident Indians from issuing credit guarantees in favour of Non-Resident Indians (NRIs).

Key Provisions

• Resident Indians cannot issue credit guarantees for NRIs under FEMA regulations.
• Residents may act as:
  • Surety, or
  • Principal debtor,
    only if:
  • The underlying transaction is permitted under foreign exchange law, and
  • Both resident and non-resident parties are eligible to lend or borrow from each other under existing borrowing and lending rules.

Legal Framework

• Issued under the Foreign Exchange Management Act (FEMA).
• Aims to ensure:
  • Compliance with cross-border capital flow regulations
  • Prevention of unauthorised financial exposure and risk