FEMA

NRI Loans to Resident Indian/ Indian Company

Under this system, an NRI would provide a loan to a resident Indian/ Indian Company. There are certain restrictions which would be placed on the borrowing limit of the loan. These restrictions would be placed by the Reserve Bank of India (RBI). Apart from this institution, the Authorized Dealer (Bank or Financial Institution) would have regulation of NRI loans to resident Indian. A resident Indian or a Company can borrow money from an NRI subject to certain conditions.

Who Regulates NRI Loans to Resident Indian

Lending and borrowing is regulated by the Ministry of Finance and the Reserve Bank of India

The laws which apply here are:

1. Foreign Exchange Management Act of 1999.

2. Master Direction on Borrowing and Lending transaction in Indian Rupee between Persons Resident in India and Non-Resident Indians issued by the Reserve Bank of India on January 1, 2016.

3. Foreign Exchange Management (Borrowing or lending in foreign exchange) Regulations, 2000.

Eligibility Criteria for NRI Loans to Resident Indian/ Indian Company

The following conditions have to be followed for NRI Loans to Resident Indian/ Indian Company:

• The Loans that are used by Individuals should not be used for other purposes other than permitted purposes.
• Loans used by companies cannot be used for real estate, agriculture or chit fund purposes.
• Loans must be paid within their period of maturity.

Process / Procedure of NRI Loans to Resident Indian / Company

• The resident Indian or Indian Company has to approach the authorised dealer to borrow money from a Non-Resident Indian.
• There are certain situations where the RBI allows a person to borrow in foreign exchange from a person outside India.
• The following are the situations where a resident Indian can borrow from an NRI:
  1. To carry out constructions and projects which are situated abroad
  2. Resident Importer can borrow foreign currency from an overseas supplier, which has to be paid in three years.
  3. Loan in foreign exchange can be taken. Close relatives can take it from NRI. However, the ceiling limit of this is USD 250000.

Resident Indian can also borrow in Indian Rupees from NRI

• Once the money is sent to the resident Indian, it cannot be taken back, i.e. Non-Repatriation Basis
• Debit the NRO/NRE/ FCNR account of the NRI and Credit the resident Indian. Otherwise, this can be through inward remittance from abroad.
• The loan cannot be given more than three years
• Rate of interest on the loan is fixed; it should not be more than 2% above the bank rate of interest that is prevailing in such period
• Repayment of the principal amount can only be made on an NRO account

Companies that are incorporated in India can also take loans

• Companies involved in agriculture activities, real estate business and chit funds cannot take a loan.
• Borrowing can be done only through public offer of non-convertible debentures.
• Interest that is charged cannot be more than 3% of the SBI lending rate.
• The loan should be repaid in 3 years.
• If the borrowing is on repatriation basis, then the percentage of Non-convertible debentures issued to NRIs to the total paid-up value of all NCDs issued shall not exceed the ceiling prescribed for issue of equity shares/convertible debentures for foreign direct investment in India.
• If the borrowing is on a non-repatriation basis from NRIs, then the amount of loan should be received either by inward remittance from outside India or by debit to NRE/NRO/FCNR(B)/NRNR/NRSR account of the investor maintained with an authorised dealer or an authorised bank in India.

Procedure to be following for an Indian Company while borrowing a loan:

• Remittance details of the loan and the NRI who is giving the loan.
• Amount and money that is received.
• Certificate from Company Secretary that all the procedures have been followed for raising non-convertible debentures.

How can an Indian company borrow foreign exchange from NRI

• An Indian Company can take up to 5 million USD from the NRI however it has to be used only for corporate purposes.
• The maturity period of such loans is three years.
• Indian Entity can borrow 10 Million USD from NRI for only a few purposes
• Financing of infrastructure projects
• Long term borrowings
• Borrowing by an exporter who is earning in foreign exchange.

Documents required for NRI Loans to Resident Indian/ Indian Company

For a resident Indian receiving loan from an NRI:

• Remittance Amount
• Name of the NRI remitting the amount
• Relationship of the NRI to the resident Individual

For an Indian Company receiving a loan from an NRI:

• Remittance details of the loan and the NRI who is giving the loan
• Amount and money that is received
• Certificate from Company Secretary that all the procedures have been followed for raising non-convertible debentures.

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