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Borrowing and lending money by NRIs to residents of India and Indian companies

December 29, 2017
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Nri borrowing

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In this article, Shubham Kumar of Hidayatullah National Law University discusses rules and procedures to be followed by residents of India while borrowing from NRIs.

Introduction 

The lending and borrowing between residents of India and Non-Resident Indians are regulated by the Ministry of Finance and the Reserve Bank of India. Some notifications are issued from time to time by the RBI, regulating the lending and borrowing. The lending and borrowing is regulated by The Foreign Exchange Management Act, 1999 (see here), 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 (see here) and Foreign Exchange Management (Borrowing or lending in foreign exchange) Regulations, 2000 issued by the RBI on May 3, 2000 (see here). In this article, the recent notifications regulating the transactions will be dealt in detail.

Some important definitions you should know before reading this article

Can a resident of India borrow money from an NRI?

Yes, as per the 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 and the Foreign Exchange Management (Borrowing or lending in foreign exchange) Regulations, 2000 issued by the RBI on May 3, 2000 an Indian resident can borrow money from NRI but there are restrictions upon it. However, there is a difference between FDI and loan which can be understood by reading https://blog.ipleaders.in/every-indian-know-fdi/

For Indian Citizens

What are the conditions to be satisfied by residents of India for borrowing in Indian rupees from NRI’s?

Resident of India can only borrow money in Indian rupees from NRIs. The conditions under which he/she can borrow are:

Click Above

What are the conditions to be satisfied by residents of India for borrowing in foreign exchange from NRI’s?

A resident of India cannot borrow in foreign exchange from an NRI. However, under certain situations, RBI may permit a person to borrow in foreign exchange from a person outside India. These situations are described below:

For Indian Companies:

Can an Indian Company borrow from NRIs?

Yes, a company incorporated in India under the Companies Act can borrow money from NRI’s, but only subject to certain terms and conditions.

What are the conditions to be satisfied by Indian companies for borrowing in Indian rupees from NRI’s?

What are the procedures to be followed by Indian company while borrowing?

After taking a loan, the borrowing company should submit to the nearest office of the RBI:

Is there any restriction on the company in utilization of funds?

What are the conditions to be satisfied by Indian companies for borrowing in foreign exchange from NRI’s?

  1. Borrowing for Financing of Infrastructure Projects:

Borrowing in order to finance equity investment in a subsidiary/joint venture company promoted by the Indian entity for implementing infrastructure projects. The minimum average maturity of such loan is three years. In case the loan is to be raised by more than one promoter entity for a single project, the aggregate of the loan by all promoters should not exceed US$ 10 million.

2. Borrowings by Exporter/Foreign Exchange Earner:

Borrowing in foreign exchange by an exporter/foreign exchange earner up to three times of the average amount of his annual foreign exchange earnings during the previous three years subject to a maximum of US$ Ten million or its equivalent, with a minimum average maturity of three years.

3. Long-term Borrowings:

Borrowing for general corporate purposes at the minimum average maturity of eight years.

Other procedures of loan by Indian Companies can be studied at https://blog.ipleaders.in/nbfc-foreign-loan/.

Can an NRI borrow from a resident Indian?

Yes, a resident Indian can give loans to an NRI relative subject to the following terms and conditions:

Can an NRI borrow from an Indian company?

Yes, an NRI can borrow from an Indian Company subject to the following terms and conditions:

What are the procedures to be followed by an NRI in case a resident of India defaults in payment of loan?

In such a case, he has to file a petition under the Civil Procedure Code, 1908 in a district court or a high court depending upon the amount of loan. The court in such cases pass a decree against the lender directing him to pay the amount and in case of failure to repay, freezes his bank accounts, attaches his property and repays to the NRI. The case of Vijay Malia on default of loan would be interesting to read in this regard https://blog.ipleaders.in/vijay-mallya-case-study/.

Conclusion

Thus, a loan from an NRI can be taken by a resident of India or an Indian Company. Similarly, the loan can be taken by an NRI from a resident of India. The rules and procedures to be followed in such cases have been dealt above. RBI from time to time revises such rules, so one needs to be updated regarding the current rules. This article is based on rules prevalent on December 15, 2017. Any change in the rule is updated by the RBI on its website.

 

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