Roll-Over of Overseas Guarantees Permitted

Clarifying the position on rollover or renewal of guarantees issued by an Indian resident on behalf of its overseas joint venture/wholly owned subsidiary (“Overseas Guarantees”), RBI has in its circular dated January 3, 2014 (“RBI Circular”) stated that renewal or rollover of an existing Overseas Guarantee issued by an Indian resident would not be treated as a fresh financial commitment of such Indian party under the extant Foreign Exchange Management Regulations on overseas direct investment by residents (“FEMA Regulations”).

However, the RBI Circular subjects this exemption to certain riders, some of which are stated as under, which if not met would require prior RBI approval for any rollover or renewal of previously issued Overseas Guarantees:

  • the existing Overseas Guarantee was issued in terms of the extant/prevailing FEMA Regulations;
  • there is no change in the end use of such Overseas Guarantee, i.e. a change in the facilities availed by the joint venture/wholly-owned subsidiary/step down subsidiary;
  • save and except the validity period, there is no change in any other term & condition of the Overseas Guarantee; and
  • the rollover or renewal of the Overseas Guarantee should be reported as a fresh financial commitment in Part II of 'Form ODI' prescribed under the extant FEMA Regulations.