RBI Moves FEMA Compounding for ODI, Borrowing and Guarantee Breaches to Regional Offices

The Reserve Bank of India has delegated the power to compound contraventions under the Foreign Exchange Management Act, 1999 relating to overseas investment, borrowing and lending, and guarantees to seven of its Regional Offices. The change comes through A.P. (DIR Series) Circular No. 28/2026-27 (RBI/FED/2026-27/298) dated 23 October 2026, addressed to all AD Category-I banks and other Authorised Persons. Until now, compounding applications for these three categories had to be filed with the Central Office of the Reserve Bank; Regional Offices handled only certain foreign direct investment contraventions.

For an Indian company that missed an overseas investment approval, made a late financial commitment to its overseas subsidiary, or gave a guarantee outside the permitted framework, the practical question now is which office receives the application. The circular answers that by category: overseas investment cases go by the Unique Identification Number (UIN) of the foreign entity, while borrowing, lending and guarantee cases go by the Indian applicant's registered office or domicile.

The RBI describes the move as a customer service measure. It does not change what is compoundable, the application fee or the compounding matrix. Those continue to be governed by the Master Direction on Compounding of Contraventions under FEMA, 1999 dated 22 April 2025, which the RBI says will be updated to reflect the new allocation.

Overseas investment contraventions: office decided by UIN prefix

Section A of the circular covers contraventions of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations of 2000 and 2004, the Foreign Exchange Management (Overseas Investment) Rules, 2022, the Foreign Exchange Management (Overseas Investment) Regulations, 2022 (FEMA 400/2022-RB), and any other provision of the Act, rules or regulations so far as it relates to the underlying overseas investment transaction. The application goes to the Regional Office mapped to the opening letters of the UIN allotted to the foreign entity, overseas joint venture or wholly owned subsidiary.

The allocation in the circular is as follows.

Where no UIN was allotted, the application goes to the Cell for Effective implementation of FEMA (CEFA), Foreign Exchange Department, Central Office, 11th floor, Central Office Building, Shahid Bhagat Singh Road, Fort, Mumbai 400001. The UIN prefix is the first thing to check before filing, because the office is tied to the foreign entity's number and not to the city in which the Indian party is located. A company registered in Hyderabad whose overseas subsidiary carries a UIN beginning with ND will file in New Delhi, not Hyderabad.

Borrowing, lending and guarantee contraventions: office decided by registered office

Section B covers contraventions of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000, the Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000, the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, the Foreign Exchange Management (Guarantees) Regulations, 2000 and the Foreign Exchange Management (Guarantees) Regulations, 2026 (FEMA 8(R)/2026-RB). Here the application is filed with the Regional Office that has jurisdiction over the registered office of the Indian company or entity, or over the applicant's place of domicile. The jurisdictions are listed in Part C of Annexure I to the Master Direction.

There is one carve-out that will catch many groups with outbound structures. If the borrowing, lending or guarantee contravention arises from a transaction with a foreign entity in which the applicant has made an overseas investment, the case is treated under Section A. A loan or guarantee to one's own overseas subsidiary therefore follows the UIN route, not the registered office route.

The Guarantees Regulations, 2026 also carry their own late submission fee for delayed quarterly reporting of guarantees to the AD bank, calculated as ₹7,500 plus 0.025% of the amount involved for each year of delay. Reporting delays covered by that fee sit alongside the compounding route, so it is worth checking which applies before preparing an application.

Applications covering more than one category go to CEFA

Section C deals with applications that involve contraventions of different sets of rules or regulations for which compounding powers sit with different offices. These may be submitted to CEFA at the Central Office in Mumbai. The wording is permissive and applies only when the offices actually differ. If a company's overseas subsidiary has a UIN mapped to Mumbai and its registered office also falls under the Mumbai Regional Office, both contraventions can be compounded there.

Consider an illustration. A Pune-based company made a financial commitment of ₹3 crore to its wholly owned subsidiary in Singapore whose UIN begins with BY, and separately raised a foreign currency loan that breached a condition of the Borrowing and Lending Regulations, 2018. The first contravention is a Section A case and goes to the Mumbai Regional Office by UIN prefix. The second is a Section B case and goes to whichever Regional Office has jurisdiction over Pune under Part C of Annexure I. If both point to the same office, one application there is enough; if they point to different offices, the company may file a single combined application with CEFA.

What stays the same: fee, timelines and the compounding matrix

The procedure introduced by A.P. (DIR Series) Circular No. 17/2024-25 dated 1 October 2024, which implemented the Foreign Exchange (Compounding Proceedings) Rules, 2024, and consolidated in the Master Direction, is untouched. The application fee is ₹10,000 plus GST, payable by demand draft in favour of the Reserve Bank of India at the office concerned or by NEFT or other permitted electronic mode, with payment details e-mailed within two hours using the Annexure I template. Applications can be filed physically or through the PRAVAAH portal, either suo motu or after the RBI issues a Memorandum of Contraventions. The RBI must pass the compounding order within 180 days of receiving a complete application, and the compounded amount must be paid within 15 days of the order. Non-payment within that period means the application is treated as never made.

Eligibility is also unchanged. Contraventions of section 3(a) of FEMA, cases where the sum involved cannot be quantified, cases attracting section 37A, matters already adjudicated with a penalty under section 13, and serious cases flagged by the Directorate of Enforcement remain outside RBI compounding. A similar contravention within three years of an earlier compounded one is not compoundable. Required administrative action, such as obtaining the approval, unwinding the transaction or completing the reporting, has to be finished before the application is processed.

The guidance matrix in the Master Direction continues to set the amount. For non-reporting contraventions outside the specified categories, it prescribes a fixed ₹50,000 per regulation plus a variable percentage of the sum involved that rises with the period of contravention: 0.50% for under one year, 0.55% for one to two years, and up to 0.75% for five years or more. Guarantee-related non-reporting contraventions carry a fixed ₹5,00,000 with variable rates from 0.050% to 0.075%. The total cannot exceed 300% of the sum involved.

Taking the ₹3 crore financial commitment from the illustration above, and assuming it was regularised 18 months after the commitment was made, the indicative compounding amount under the general non-reporting row works out as ₹50,000 + (0.55% × ₹3,00,00,000) = ₹50,000 + ₹1,65,000 = ₹2,15,000. The application fee adds ₹10,000 plus 18% GST of ₹1,800. The RBI can adjust the final figure for factors such as undue gain and the applicant's track record, so this is a starting estimate, not a ceiling.

Points the circular leaves open

The circular does not specify a separate effective date, so the new allocation operates from 23 October 2026. It is silent on applications for overseas investment, borrowing, lending or guarantee contraventions already pending at the Central Office, so applicants with cases already filed should watch for any communication from the office concerned. The Master Direction and its Annexure I will be revised, and until that revision is published, Part C of the existing annexure is the reference for Section B jurisdiction. AD banks have been asked to bring the circular to the notice of their constituents, so clients with pending overseas investment or guarantee regularisation should check the UIN prefix and registered-office jurisdiction before the application is drafted.

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