The AD Category-I banks are permitted to issue Bank Guarantee to non-resident service provider on behalf of resident customer of the bank. The maximum limit for issue of such guarantee is fixed up to USD 500,000 (increased from previous limit of USD 100,000) or its equivalent. The above limit is not applicable in the case of a Public Sector Company or a Department/ Undertaking of the Government of India/ State Governments.
For issuance of guarantees on behalf of a Public Sector Company or a Department/ Undertaking of the Government of India/ State Governments, for an amount exceeding USD 100,000 (USD One hundred thousand) or its equivalent, approval from Ministry of Finance, Government of India is necessary.
The guarantee issuing bank should satisfy itself about bonafides of the transaction before issuing the guarantee to non-resident service provider on behalf of resident customer. Further, it is important to make sure that the resident customer submits documentary evidence for import of services in the normal course. The purpose of the guarantee shall be to secure a direct contractual liability arising out of a contract between a resident and a non-resident.
Whenever the guarantees are invoked by the beneficiaries (to whom guarantee is issued for import service), the Authorised Dealer shall report the matter to RBI, Foreign Exchange Department, Mumbai, on the circumstances leading to the invocation of the guarantee.
