CORPORATE GURANTEE BY FOREIGN COMPANY

[ankit das]

Dear Members..

 

In case of Loan been sanctioned to Indian Company and a Corporate Guarantee been executed by Foreign Company, so whether RBI prior permission is required in that case...

 

Thanks

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CS Ankit Das

Mob: +91-9701891816

[ishan jain]

Please see

 

Guarantees by ADs on behalf of persons resident in India

(i)      Where a person resident in India incurs any debt/obligation/other liability—

           (a)   as an exporter for exports made from India;

           (b)   as an importer for imports made on deferred payment terms according to the approval granted by the RBI for such terms;

                   and such debt/obligation/other liability is owed to a person resident outside India, an authorised dealer is permitted to give guarantee in such cases.

(ii)     Where a person resident in India incurs any debt/obligation/other liability and owes it to an overseas supplier of goods or bank or a financial institution resident outside India, for import of permitted goods, an authorised dealer is permitted to give guarantee, Letter of Undertaking (LoU) or Letter of Comfort (LoC) to cover such debt/obligation/other liability. (Source: Regulation 4)

Note: In terms of AP (DIR Series) Circular No. 24, dated 1-11-2004, ADs need not take approval of the RBI for issuing guarantees/LoUs/LoCs in favour of overseas supplier, bank and financial institution, up to USD 20 million per transaction for a period up to one year for import of all non-capital goods permissible under Foreign Trade Policy (except gold) and up to three years for import of capital goods, subject to prudential guidelines issued by Reserve Bank from time to time. The period of such guarantees/LoUs/LoCs has to be co-terminus with the period of credit, reckoned from the date of shipment.

As regards reporting arrangements, AD banks are required to furnish data on issuance of guarantees/LoUs/LoCs by all its branches, in a consolidated statement, at quarterly intervals to the ECB Division of RBI at Mumbai (and in MS-Excel file through email to fedc...@rbi.org.in) from December 2004 onwards so as to reach the department not later than 10th of the following month.

(iii)   Where a person resident in India incurs an obligation owed to a person resident outside India in connection with payment of margin money in respect of approved commodity hedging transaction of such resident person, an authorised dealer is permitted to give guarantee or standby Letter of Credit subject to the stipulated terms and conditions. This is effective from 10.11.2008.

As regards terms and conditions, Reserve Bank has issued AP (DIR Series) Circular No. 35, dated 10.11.2008 stipulating following conditions/ guidelines to be adhered to while issuing standby letter of credit/bank guarantee in connection with commodity hedging transactions:

·          The standby letter of credit/bank guarantee may be issued for the specific purpose of payment of margin money in respect of approved commodity hedging activities of the company.

 

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Thanks and Regards

ISHAN JAIN