Under FEMA (Borrowing and Lending) Regulations, 2018 and RBI Guidelines

Introduction

Authorised Dealers (ADs) can lend in Indian Rupees (INR) to Non-Resident Indians (NRIs) for specified purposes such as business activities, acquisition of shares under Employee Stock Option Plans (ESOPs), and purchase of residential property. Indian companies and resident individuals may also lend in INR to NRIs/OCIs in compliance with applicable FEMA regulations.

1. Lending by Authorised Dealers (ADs) in INR to NRIs

ADs may grant loans in INR to NRIs for the following purposes:

• (a) For own business or personal requirements
• (b) For acquiring shares under ESOPs

1.1 Lending by ADs for Business Purposes

Loans can be granted against the security of shares, securities, or immovable property (excluding agricultural/plantation land or farmhouses) subject to:

• (a) Loan proceeds cannot be used for agricultural activities, trading in transferable development rights (TDR), or functioning as Nidhi or chit funds.
• (b) Loans cannot finance activities where foreign investment is prohibited, including joint utilization with others.
• (c) Loan amounts cannot be remitted outside India or credited to NRE/FCNR(B) accounts of the borrower.
• (d) RBI guidelines on loans and advances against shares/securities/immovable property must be complied with.
• (e) Repayments must be made by inward remittance from abroad, debit to NRO/NRE/FCNR(B) accounts, or from sale proceeds of securities provided as collateral. Additionally, repayments can be made by any relative of the borrower (as defined under the Companies Act) via account transfers.

1.1.1 Lending by ADs for Other Than Business Purposes

ADs may lend for other purposes, subject to:

• Adherence to the authorised dealer’s board-approved lending policy.
• Loan proceeds must not be used for capital market investments, including margin trading or derivatives.
• Loan repayments must be made by remittance from abroad or debit to NRE/FCNR(B)/NRO accounts.
• Compliance with prudential norms and other RBI regulations applicable to loans for business purposes.

2. Lending by ADs for Acquiring Shares Under ESOPs

Loans to NRI employees for ESOP shares must meet:

• (a) Lending as per the AD’s Board-approved policy, conforming to RBI’s capital market exposure and prudential norms.
• (b) Loan amount capped at 90% of purchase price or INR 20 lakhs per employee, whichever is lower.
• (c) Interest rate and margin decided by the AD, subject to RBI guidelines.
• (d) Loan proceeds paid directly to the company, not credited to borrower’s non-resident accounts.
• (e) Repayment through inward remittances or debit to NRO/NRE/FCNR(B) accounts.

3. Lending by ADs for Housing to NRIs/OCIs

ADs or NHB-approved housing finance institutions (now under RBI) may grant housing loans for acquisition of residential property in India, subject to:

• (a) Loan quantum, margin, and tenure similar to housing finance for residents.
• (b) Loan amount not credited to NRE/FCNR(B) accounts.
• (c) Loan secured by equitable mortgage of property and, if needed, lien on borrower’s other assets in India.
• (d) Loan installments, interest, and charges payable by inward remittances, debit to NRE/FCNR(B)/NRO accounts, rental income, or by any relative via account transfer.
• (e) Interest rates as per RBI/NHB directives.

4. Lending by Indian Companies to NRI/OCI Employees

Indian companies may lend INR loans to their NRI/OCI employees under:

• (a) Loans granted only for personal purposes including purchase of housing property.
• (b) Loans granted as per company’s Staff Welfare/Housing Loan Schemes applicable to resident employees.
• (c) Prohibition on use for real estate investment or on-lending.
• (d) Loan amount credited to borrower’s NRO account.
• (e) Repayments only via inward remittance or debit to borrower’s NRO/NRE/FCNR(B) accounts, stated in loan agreements.

5. INR Loans by Resident Individuals to NRIs

A resident individual may grant interest-free INR loans to NRI relatives subject to:

• (a) Minimum loan maturity of 1 year.
• (b) Loan amount within the resident’s Liberalised Remittance Scheme (LRS) limit per financial year.
• (c) Prohibition on real estate investment or on-lending using loan proceeds.
• (d) Loan amount credited to borrower’s NRO account and not remitted outside India.
• (e) Repayment by inward remittance, debit to NRO/NRE/FCNR(B) accounts, or sale proceeds of securities/immovable property against which loan was granted.

6. Change in Status of the Lender

If a lender resident in India grants an INR loan to a resident borrower and subsequently becomes a non-resident, repayment by the borrower shall be made by credit to the lender’s NRO account.

7. Overdraft Facility by Authorised Dealers to Their Overseas Branches

An AD may grant temporary overdrafts on INR accounts maintained with their overseas branches, correspondents, or Head Office up to INR 5 crore (Rs. 500 lakhs), subject to RBI conditions. The total overdrafts across all such overseas accounts should not exceed this limit.