As discussed in the article ‘Borrowing and Lending under FEMA, an Overview’, FEMA provisions controls the transactions of borrowing and lending by a person resident in India in foreign exchange.
The lending in rupee denominated foreign loan by a person resident in India is specifically permissible as under:
- Lending by an Authorised Dealer:
- An AD in India is allowed to grant a loan to an NRI/OCI Cardholder for meeting the borrower’s personal requirements/own business purposes/acquisition of a residential accommodation in India/ acquisition of motor vehicle in India / or for any purpose as per the loan policy laid down by the Board of Directors of the AD and in compliance with prudential guidelines of Reserve Bank of India. The AD bank is required to ensure that the borrowed funds are not used for restricted end uses.
- Overdraft in rupee account maintained with an AD in India by a bank outside India: An AD is allowed to permit a temporary overdraft, for value not exceeding Rupees 5 billion or any other amount as prescribed by the Reserve Bank from time to time, in rupee accounts maintained with it by its overseas branch or correspondent or Head Office outside India.
- Lending 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):
- A registered non-banking financial company in India or a registered housing finance institution in India or any other financial institution as may be specified by the Reserve Bank from time to time, is allowed to provide housing loan or vehicle loan, as the case may be, to an NRI/OCI Cardholder. The borrower is required to ensure that the borrowed funds are not used for restricted end uses.
- An Indian entity is allowed to grant loan in Indian Rupees to its employee who is an NRI/OCI Cardholder in accordance with the Staff Welfare Scheme. The borrower is required to ensure that the borrowed funds are not used for restricted end uses.
- A resident individual is allowed to grant Rupee loan to an NRI/OCI Cardholder relative within the overall limit under the Liberalised Remittance Scheme. The borrower is required to ensure that the borrowed funds are not used for restricted end uses.
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