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February 2015

A. P. (DIR Series) Circular No. 56 dated 6th January, 2015

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, general permission has been granted to nonresidents to issue guarantee for non-funded facilities such as Letters of Credit/guarantees/Letters of Undertaking (LoU)/Letter of Comfort (LoC) entered between two persons resident in India.

This circular clarifies that resident entities that are subsidiaries of multinational companies can also hedge their foreign currency exposure through permissible derivative contracts entered into with a bank in India on the strength of guarantee issued by its non-resident group entity.

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