Availing Loan from Non Resident Indians
A resident Indian or a company registered in India can avail loan from an NRI. However the conditions to be met are different for the borrowers being resident Indian and Company.
Borrowing by Resident Indians (Individual) from a Non-Resident Indian
A resident Indian may borrow only in INR from an NRI subject to the following Terms and Conditions:
- The loan can be received by the Resident Indian in India ether by inward remittance from outside India or by debit to the NRE / NRO account held by the NRI.
- Borrowing shall be only on a non-repatriation basis, that means the repayment of the loan can be done only in India to the NRO account held by the NRI and the borrower cannot send the funds outside India for repayment of the loan.
- The term for the repayment of the loan can not be more than 3 years.
- The interest on the loan shall not be more than prevailing Bank Rate + two per cent above on the date of availing the loan.
- Payment of the interest shall be made only to the NRO account held by the NRI.
However a resident can borrow in Foreign Exchange from an NRI subject to the following terms and conditions:
- The lender NRI has to be relative of the resident borrower (relative being Both the lender and borrower are members of a Hindu undivided family / Spouse / Father / Mother / Son / Son’s wife / Daughter / Father’s father / Father’s mother / Mother’s mother / Mother’s father Son’s son / Son’s son’s wife / Son’s daughter / Son’s daughter’s husband / Daughter’s husband Daughter’s son / Daughter’s son’s wife / Daughter’s daughter / Daughter’s Daughter’s husband / Brother / Brother’s wife / Sister / Sister’s husband).
- 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.
There is 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 Section 6 of the Companies Act) resident outside India subject to –
Non-Repatriable Borrowing in Rupees by Residents
Borrowing by Companies from a Non-Resident Indian
A company incorporated under the Companies Act can borrow money from an NRI and the borrowing can be both on repatriable and non-repatriable basis subject to the following terms and conditions:
- The Indian borrowing company should not be engaged in agriculture or real estate business or a chit fund company.
- Borrowing can be done only by way of issuing Non-Convertible Debentures (NCD) by public offer.
- The interest rate on the NCD shall not be more than interest charged by the State Bank of India + three percent.
- The term for repayment of the loan shall not be less than 3 years. However, there is no maximum time limit prescribed.
- If the borrowing is on repatriation basis, then the percentage of NCDs 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 account held by the NRI in India. In such case, the payment of interest and repayment of principal shall be made only to the NRO account of the lender.
- The loan amount so received by the Indian company can be utilized only for its own business and cannot be used for further investment or further lending to any person or a company. However, it is permitted to keep the loan in fixed deposits with banks till utilization of funds.
Compliances to be done by the Company:
The following documents to be submitted by the Borrower Company to the regional branch of the Reserve Bank of India with in 30 days of the borrowing:
- Details of the remittance received with a list containing name and address of NRIs who have given loan Amount and date of money received.
- A certificate from the Company Secretary of the Indian company stating that all applicable provisions with respect to issue of Non-Convertible debenture have been followed.