LOANS & OVERDRAFTS

Borrowing in Foreign Exchange by Residents

General permission to borrow up to US$ 250,000 or its equivalent in foreign exchange on a repatriable basis by an individual Resident from his close relatives (as defined in sec. 6 of the Companies Act) resident outside India subject to -

The loan is free of interest

The minimum maturity period of the loan is 1 year.

The amount of loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/FCNR account of the non-resident lender.

Non-Repatriable Borrowing in Rupees by Residents

A resident, not being a company incorporated in India, may borrow in rupees on non-repatriation basis from an NRI or PIO subject to:

The term of the loan shall not exceed 3 years.

The loan has to be utilised for meeting the borrower's personal requirement or for his business purposes and under no circumstances be used for relending or for investment in shares, securities or immovable property.

The rate of interest shall not exceed 2% over the bank rate prevailing on the date of availing of loan.

Loan in Rupees against Shares / Immovable Property

Authorised Dealers(AD) may grant loan in rupees to NRIs against the security of shares or immovable property in India for personal or business purposes and housing loans against the security of houses/flats to be acquired for Residential accommodation in India. Restriction has been removed on the use of loan and allows it to be applied for any purpose other than the basic embargoes on chit funds, Nidhi companies, agricultural and or plantation activities, etc.

It cannot also be applied for

a) Trading in Transferable Development Rights (TDRs) or

b)  Investment in capital market including margin trading and derivatives.

The loan of course is non-repatriable. Hence the loan amount cannot be credited to the NRIs NRE/FCNR accounts.

The repayment of the loans should be from direct remittance from abroad or by way of debit to the NRE / FCNR account or by way of sale of shares and immovable property.

 Loan against NRE, FCNR & NRO

Since the account holder can withdraw from NRE saving deposits at any time, banks should not mark any type of lien, direct or indirect, against these deposits. ADs may grant loans to the account holder against the security of term deposits. The repayments of the loan may be made either by adjusting the deposit against the loan or by fresh remittances from abroad. Repayment may be made by using the NRO account also; in which case, interest has to be charged at full commercial rate in force.

Loan can be given to account holder for the acquisition of flat / house in India against NRE or FCNR fixed deposits on repatriable basis, provided the amount to be repatriated is governed by Foreign Exchange Management Regulation (Acquisition and Transfer of Immovable Property in India).

The loan should be granted by the bank against the NRE fixed deposit issued by the same bank (irrespective of its branch) and not by any other bank. The branch giving the loan should hold the original deposit receipt against which the loan is granted and the branch, which has issued the receipt, should be advised of the lien.

A branch outside India of an Authoried Dealers may grant loan against the security of NRE/FCNR deposit. Authorised Dealers may grant forex loans in India against security FCNR to the account holder only and not to 3^rd parties, with approval of board of bank, subject to -

a) the document should be executed by the deposit holder himself and not by hisPower of Attorney ( PoA) holder.

b) the maturity period of the loan shall not exceed the maturity of the deposit.

c) the loan shall not be used for investment in India.

The repayment of the loan may be made either by adjusting the deposit against the loan or by fresh remittances from abroad. Repayment may be made by using the NRO account also. However in that case, interest has to be charged at full commercial rate in force.

Loan to Third Parties in India

ADs may grant loans to Residents against the collateral of NRE deposits subject to the following conditions: -

There should be no direct or indirect foreign exchange consideration to the NRI depositor for agreeing to pledge his deposits.

The period of loan should not exceed the unexpired period of maturity of the NRE deposit accepted as security.

The loan has to be used for personal purposes of Resident or for carrying on business activities other than agricultural or plantation activities.

In the cases, where a rupee loan is granted against the guarantee provided by a non-resident, there is no transaction involving foreign exchange until the guarantee is invoked and the non-resident guarantor is required to meet the liability under the guarantee. The non-resident guarantor may discharge the liability by

i) payment out of rupee accounts held in India or

ii) by remitting the funds to India or

iii) by debit to his FCNR /NRE account maintained with an AD in India.

Subsequently, he may enforce his claim against the resident borrower. If the liability is discharged by payment out of rupee balances, the amount recovered may becomes non-repatriable and can be credited only to the NRO account of the guarantor.

General permission is given to the resident, being a principle debtor to make payment to a person resident outside India, who has met the liability under a guarantee. The amount remitted / credited shall not exceed the rupee equivalent of the amount paid by non-resident guarantor against the invoked guarantee.

Change in the Residential Status of Borrower

An AD may allow continuance of loan/overdraft granted to a Resident who subsequently becomes Resident Outside India, subject to:

a) The non-resident has informed the bank, details of his date of departure, foreign address, probable duration of his stay outside India and the reason for continuation of the loan.

b)  The Authorised Dealer is satisfied, according to its commercial judgment , about the reasons to continue the loan or overdraft;

c)  The period of loan or overdraft shall not exceed the period originally fixed at the time of granting the loan or overdraft;

d)  As long as the borrower continues to remain an Resident Outside India, the repayment shall be made either by inward remittance from outside India through normal banking channels or from the funds held in the Non- Resident related accounts of the borrower.

Temporary Overdrawings

Authorised Dealers may allow overdrawings in NRE savings bank accounts, up to a limit of Rs 50,000. Such overdrawings together with the interest should be cleared within 2 weeks, out of inward remittances through normal banking channels or by transfer of funds from other NRE/FCNR accounts.

Overdrafts in NRO accounts of the account holders may be allowed without any ceiling.

Change in the Residential Status of the Lender

In case a rupee loan was granted by a Resident to another Resident and the lender subsequently become a non-resident, the repayment of the loan by resident borrower should be made by credit to the NRO account of the lender.

Loans to Employees

It has been decided to grant general permission to Indian companies, viz., a body corporate registered or incorporated in India, to grant rupee loans to its employees who are NRIs or PIOs, subject to the certain conditions

Loans to Foreign National Employees

Ceiling on loans granted to foreign nationals, not permanently resident in India, have been raised for personal purposes such as purchase of household articles, etc., to Rs. 5 lakhs from Rs. 1 1akh. The same ceiling is applicable to liaisons offices of the companies.

Loans to Employees of Branches outside India

Employees of branches outside India are to be treated as persons resident outside India though loans by a resident to a non-resident require RBI permission. General permission is given to the Indian companies in India to grant loans in foreign currency to the employees of their branches outside India for personal purposes in accordance with the lender's Staff Welfare Scheme/Loan Rules and other terms and conditions as applicable to its staff resident in India and abroad.

HOUSING FINANCE

An Authiorised Dealer(AD) or a housing finance institution in India approved by the National Housing Bank may provide housing loan to a NRI or PIO, for acquisition of a residential accommodation in India. Housing Loan may be given for repairs, renovation and improvement of residential accommodation owned by them in India. The loan is subject to ­

• The quantum of loans, margin money and the period of repayment shall be at par with those applicable to resident borrowers.

• The loan shall be fully secured by equitable mortgage of the property proposed to be acquired, and if necessary, also by lien on the borrower's other assets in India.

• The loan amount should not be credited to the borrower's NRE or FCNR account.

• The installment of loan, interest and other charges, if any, shall be paid by the borrower through normal channels or out of his bank accounts in India or out of rental income derived from renting out the property acquired by utilisation of the loan.

• The rate of interest on the loan shall conform to the directives issued by RBI or NHB.

ADs and certain FIs like HDFC, LIC Housing Finance, etc., may grant housing loans to NRIs without reference to RBI where the NRI is a principal borrower with Resident close relative as a co­obligant/guarantor or the land is owned jointly by NRI borrower with a resident close relative. In such cases the payment of margin money and repayment of the loan installments should be made by the NRI borrower. The loans can also be given to Residents with NRI as a co-obligant.

Close relatives (as defined u/s 6 of the Companies Act) of the borrower are allowed in India to repay the installment of such loans, interest and other charges, through their bank account directly to the borrower's loan account.

COMPANY DEPOSITS

Persons other than ADs were permitted to accept deposits from NRIs. This included a company registered under Companies Act (including NBFC registered with RBI) or a body corporate created under an Act of Parliament or state Legislature who has accepted deposits (repatriable) or a company, proprietorship concern or firm in India which has accepted deposits (non-repatriable).

Deposits by NRIs with persons other than ADs out of inward remittances from overseas or by debit to NRE/FCNR accounts are prohibited. However, such deposits by debit to NRO accounts may continue as hitherto provided as long as these do not represent inward remittances or transfer from NRE/ FCNR into the NRO account. Similarly, the existing deposits may continue to be held and renewed on repatriation or non-repatriation basis. The interest, being current income, can be repatriated after the due tax, if any, is paid thereon.

Such deposits are subject to the following conditions:

• Deposits are received under a public deposit scheme.

• Amount of deposits so collected shall not be utilised by the company for relending (not applicable to an NBFC).

• if the deposit accepting company is an NBFC, it should be registered with the RBI and should have obtained the required credit rating. The rate of interest payable on deposits shall be in conformity with the RBI guidelines for such companies. In other cases the rate of interest payable on deposits shall not exceed the ceiling rate prescribed from time to time under the Companies (Acceptance of Deposit) Rules, 1975.

• The maturity period of deposits shall not exceed 3 years.

• The amount of aggregate deposits accepted by the company shall not exceed 35% of its net owned funds.