The Reserve Bank of India has allowed non-residents to provide guarantee for non-fund based activities to residents, a move that would facilitate business relationship between non-residents and local businessmen, reports PTI.
Earlier, this facility of providing guarantee by non-residents was available for rupee loans only.
"...it has been decided to extend the facility of non-resident guarantee under the general permission for non-fund based facilities (such as Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) ) entered into between two persons resident in India," RBI said in a notification.
It said there would be no change in method of discharge of liability by the non-resident guarantor under the guarantee and the subsequent repayment of the liability by the principal debtor.
The notification further said that a new reporting format would be introduced to capture such guarantees issued and invoked. The banks would be required to furnish the details of such transactions by 10th day of the following month.
Best Regards
Prakash Nair
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