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October 2012

A. P. (DIR Series) Circular No. 20 dated 29th August, 2012

By Gaurang Gandhi, Chartered Accountant
Reading Time 1 mins
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Non-resident guarantee for non-fund based facilities entered between two resident entities.

 Presently, a non-resident can issue a guarantee to a resident lender as security for funds lent to a resident borrower. RBI has granted general permission to resident borrower to make payment to the non-resident guarantor who has met the liability under the guarantee.

This circular grants general permission to a nonresident to issue a guarantee to a resident provider of non-fund based facilities, such as Letters of Credit/ Guarantees/Letter of Undertaking/Letter of Comfort, etc., to a resident borrower. General permission has also been granted to a resident borrower to make payment to the non-resident guarantor who has met the liability under the guarantee.

Further, annexed to this circular is a format introduced by RBI for reporting, on a quarterly basis, the issue and invocation of such guarantees. This format has to reach the Chief General Manager, Foreign Exchange Department, ECB Division, Reserve Bank of India, Central Office Building, 11th floor, Fort, Mumbai – 400 001, not later than 10th day of the following month.

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