Introduction:
Borrowing and lending between
Non-Resident Indian (NRI) and Person resident in India is governed by Foreign
Exchange Management Act, 1999 (FEMA).
Formerly, borrowing and lending in
foreign exchange was governed by Foreign Exchange Management (Borrowing and
Lending in Foreign Exchange) Regulations, 2000 and borrowing and lending in
Indian Rupees (INR) was governed by Foreign Exchange Management (Borrowing and
Lending in Indian Rupees) Regulations, 2000 (“Erstwhile Regulations”).
However, in an attempt to simplify the
provisions dealing with borrowing and lending in foreign exchange and Indian
Rupees, the RBI had notified consolidated Foreign Exchange Management
(Borrowing and Lending) Regulations, 2018 (the Borrowing and Lending
Regulation) on 17 December 2018.
Accordingly, the Borrowing and Lending
Regulation supersedes:
· Foreign
Exchange Management (Borrowing and Lending in Indian Rupee) Regulations, 2000;
and
· Foreign
Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations,
2000
Keeping in mind the above, we shall now
discuss below, the key provisions in respect of borrowing
and lending (in INR and Forex) between NRI and Person resident in India:
Part A: Borrowing by NRI in INR:
NRI’s can
borrow/raise INR sum of money from following persons, subject to terms and
conditions specified therein:
a.
From
Authorized Dealer:
1. NRIs/OCI Cardholders can avail loan from banks in
India in INR. The loan in INR may be utilized for the following
purposes:
· Meeting NRIs personal requirements; or
· NRIs business purposes; or
· Acquisition of a residential
accommodation in India (No limit on number of properties); or
· Acquisition of motor vehicle in India; or
· For any other purpose, which is not
prohibited for NRI.
2. Providing
overdraft facility: The bank in India may provide overdraft facility to an NRI/OCI
in INR for an amount up to INR 5 billion or any other amount as prescribed by
the RBI. Such overdraft facility shall be granted by the overseas branch of the
Indian bank.
b.
From
his/her relative resident in India:
NRIs/OCI Cardholders may borrow INR loan
of a sum not exceeding limit prescribed in LRS scheme (i.e. USD 2,50,000/- or
its equivalent) from his/her Relative resident in India, subject to terms and
conditions as specified by RBI from time to time in consultation with the
Government of India.
The term “Relative” means and cover the
following:
1.
Husband and
wife
2.
Father
(including step- father)
3.
Mother
(including step-mother)
4.
Son (including
step- son)
5.
Son’s wife
6.
Daughter
7.
Daughter’s
husband
8.
Brother
(including step- brother)
9.
Sister
(including step-sister)
c. From registered
NBFC/ registered housing finance institution:
NRIs/OCI Card holders may borrow INR housing or vehicle loan from registered NBFC/ registered housing finance
institution or any other financial institution as specified by RBI subject to
terms and conditions as prescribed by RBI from time to time.
d. From
his/her Indian Employer:
NRIs/OCI Cardholders may borrow INR loan
of a sum from his/her Indian Employer in accordance with the Staff Welfare Scheme and subject to terms and conditions as specified by RBI
from time to time in consultation with the Government of India.
Part B: Borrowing by NRI in Foreign
Exchange:
NRI’s can
borrow Foreign Loan by AD Bank from its branch outside India against NRE/FCNR
FD– Branches outside India can extend foreign exchange loans against the
security of funds held in NRE/FCNR account as specified by RBI.
· Further,
borrowings by NRI from a Resident Individual in foreign exchange is generally
not permissible. If required, NRI can obtain RBI approval before extending
loan.
Part C: Borrowings by
Resident Individuals in INR
· An
individual resident can borrow in INR from a NRI or a Relative outside India
who is OCI Cardholder,
subject to terms and conditions as specified by RBI from time to time in
consultation with the Government of India.
· Any
person resident in India including Resident Individuals can take
loans/overdraft facility against security of funds held in NRO/NRE/FCNR account
held by NRI. However, the same is required to be in compliant with Foreign
Exchange Management (Deposit) Regulations, 2016, under FEMA.
Part D: Borrowing by
Resident Individual in Foreign Exchange:
· A
resident individual can borrow a sum not exceeding USD 2,50,000/- or its
equivalent from his/her relative outside India, subject to terms and conditions
as specified by RBI from time to time in consultation with the Government of
India.
· Further,
a resident individual studying abroad, may raise a loan outside India not
exceeding USD 250000/- or its equivalent or any other amount as decided by the
RBI for the purpose of payment of education fees and maintenance.
Other key
issues:
1. Terms and conditions prescribed by RBI
At present, RBI has not come out with the terms and
conditions applicable for above borrowing, unlike the terms and conditions
given in the erstwhile Regulation. Hence, it may be important for one to seek
professional guidance before entering into loan transaction.
2. Restriction on utilization of borrowed funds:
All
the borrowed funds (as listed above) shall not be utilized for any of the activities
as listed below, in which investment by an NRI is restricted:
·
The business of
chit fund, or
·
Nidhi Company,
or
·
Capital market
including margin trading and derivatives, or
·
Agricultural or
plantation activities or
·
Real estate
activity, or construction of farm houses, or
·
Trading in
Transferable Development Rights.
3. Use of Credit card in India:
Use
of Credit Card a) In India by an NRI or b) outside India by a Resident person
shall not be deemed as borrowing or lending in INR/foreign exchange.
4. Continuation of loan in the event of change in residential status of the
NRI lender/borrower:
Where the residential status of the lender undergoes
a change in a respective year, the RBI has given permission to the borrower to
continue the loan and key provisions in this regard are as under:
· AD Bank may allow continuance of loan granted
to a resident individual who subsequently becomes a person resident outside
India, subject to terms and conditions as specified by RBI from time to time.
· In case a loan was granted by a RI to another
RI and the resident lender subsequently becomes a person resident outside
India, the repayment of loan by the RI borrower should be made by credit to the NRO account of the lender.
· In case a loan was granted by a NRI/OCI to RI and the NRI/OCI lender
subsequently becomes a resident, the repayment of the loan may be made to the
designated account of the lender maintained with AD bank as specified by RBI
from time to time, at the option of the lender.
· Resident Individual is now permitted to service loan taken overseas earlier
as person resident outside India, subject to specified terms and conditions.
5.
Borrowing under erstwhile Regulation: Can be
continued as permitted up to the date of repayment.
6.
Repatriation of borrowed funds: Borrowed funds are
not allowed to be repatriated outside India.
Conclusion:
In conclusion, borrowing and lending transactions
between residents and non-residents are subject to strict regulations under
FEMA. It is essential for individuals and business entities to be well-informed
about the specific provisions and restrictions outlined by the RBI to ensure
compliance with the law. Any violation of these regulations may lead to
penalties, emphasizing the importance of adhering to the prescribed rules.
Borrowing and Lending between NRI and Resident
Individual in any other manner other than above may require prior RBI approval
before entering into the loan transaction.
Further any borrowing from one NRI to another NRI in India is not governed under the above mentioned regulation. Accordingly due to lack of clarity one may consider to obtain RBI clarification/approval before entering into such transactions.
- Updated 05/2024