Non resident guarantee for non fund based facilities between two resident entities

Hitherto RBI had allowed a resident entity to make payment to a non resident entity who had given guarantee on a ECB loan on the invocation of the guaranty. Now it has extended this facility further by allowing the same even for non-fund based facilities between two resident entities in India (i.e. letter of credit/ guarantees/ letter of undertaking/ letter of comfort). The provisions of FEMA will become applicable only when the guaranty is invoked so when that happens the non resident guarantor will satisfy the guaranty to the resident lender in India and the principal debtor in India will then make the necessary arrangements to repatriate the funds to the non resident guarantor.

http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=7531&Mode=0