In a move to facilitate business relationship between non-residents and local businessmen, the Reserve Bank of India on Wednesday permitted non-residents to provide guarantee for non-fund based activities to residents.
Earlier, this facility of providing guarantee by non-residents was avilable for rupee loans only.
RBI said that "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".
However, 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.
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