RBI Directs Banks to Comply Guarantee Contract With FEMA

Mumbai: The Reserve Bank of India (RBI) has asked banks to ensure that any guarantee contracts they advise or facilitate for their resident clients must align with FEMA guidelines.

FEMA, or the Foreign Exchange Management Act is India’s rulebook for managing foreign financial matters. It regulates how India deals with foreign exchange, ensuring all transactions are legal and transparent.

In a notification last week, the central bank said that it has identified instances where guarantees, including Standby Letters of Credit (SBLCs) and performance guarantees, were issued by non-residents that do not comply with existing Foreign Exchange Management Act (FEMA) regulations to Indian residents.

The RBI has directed these banks to communicate the contents of this circular to their clients to enhance awareness and compliance.

Meanwhile, in August Telugu Desam party spokesperson Anam Venkata Ramana Reddy had alleged fake bank guarantee scams involving contractors from Andhra Pradesh and Telangana and a foreign bank. Addressing a press conference, the TD leader had charged that several contractors from the two Telugu states have been submitting fake bank guarantees issued by Euro Exim Bank, based in Saint Lucia, West Indies. He underlined that while Euro Exim’s revenues last year had been estimated at around Rs 1,900 crore, bank guarantees issued by it in India alone exceed Rs 2,400 crore.