Borrowing in Rupee Denominated Foreign loan under FEMA

As discussed in the article ‘Borrowing and Lending under FEMA, an Overview’, FEMA provisions controls the transactions of borrowing by a person resident in India in Rupee denominated foreign loan.

The borrowing in Indian Rupees by a Person Resident in India is specifically permissible as under:

1. Borrowing in Indian rupees by an AD is specifically permitted as under: An AD is allowed to raise Rupee denominated ECB from outside India in accordance with the provisions contained in Schedule I of FEMA Notification No. FEMA.3(R)/2018-RB. For detailed analysis of provisions of Schedule I of FEMA Notification No. FEMA.3(R)/2018-RB, refer ‘External Commercial Borrowings by person resident in India’.
2. Borrowing by a person resident in India other than AD (subject to the terms and conditions as specified by the Reserve Bank from time to time in consultation with the Government of India):
   1. Eligible resident entities are allowed to raise Rupee denominated ECB from outside India in accordance with the provisions contained in Schedule I of FEMA Notification No. FEMA.3(R)/2018-RB. For detailed analysis of provisions of Schedule I of FEMA Notification No. FEMA.3(R)/2018-RB, refer ‘External Commercial Borrowings by person resident in India’.
   2. Eligible resident entities, as defined by the Government of India, are allowed to borrow from overseas Multilateral Financial Institutions/International Development Financial Institutions, where the source of funds of such institutions is Rupee denominated bonds issued overseas or resources raised domestically, or any other source as approved by the Government of India.
   3. Trade Credits are allowed to be raised from outside India in Indian Rupees by importers for import of capital or non-capital goods as permissible under the extant Foreign Trade Policy of the DGFT in accordance with the provisions contained in Schedule II of FEMA Notification No. FEMA.3(R)/2018-RB. For detailed analysis of provisions of Schedule II of FEMA Notification No. FEMA.3(R)/2018-RB, refer ‘Trade Credit provisions under FEMA’.
   4. Any foreign investment in the nature of debt arising out of transfer or issue of security, not covered under the above sub-regulations, should be in compliance with Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, notified vide Notification No. FEMA 20(R)/ 2017-RB dated November 07, 2017.
   5. Any person resident in India accepting any deposit from, or making any deposit with, a person resident outside India, including loans/ overdrafts against security of funds held in such accounts, should be in compliance with Foreign Exchange Management (Deposit) Regulations, 2016, notified vide Notification No. FEMA 5(R)/2016-RB dated April 1, 2016, as amended from time to time.
   6. A person resident in India, not being a company incorporated in India, is allowed to borrow in Indian Rupees from NRI/Relatives who are OCI Cardholders outside India. The borrower should ensure that the borrowed funds are not used for restricted end uses.
   7. Financial Institutions, set up under an Act of the Indian Parliament, are allowed to raise Rupee denominated borrowings from outside India with the prior approval of the Government of India for the purpose of onward lending. However, where such borrowings, which are in the nature of ECB, shall be subject to provisions contained in Schedule I of FEMA Notification No. FEMA.3(R)/2018-RB. For detailed analysis of provisions of Schedule I of FEMA Notification No. FEMA.3(R)/2018-RB, refer ‘External Commercial Borrowings by person resident in India’.

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