Foreign Currency loan Questions and Answers

By | August 14, 2015

Foreign Currency loan

Question:  Whether the A person resident in India can borrow in foreign currency ?

A person resident in India can raise foreign currency loans with permission of RBI. Provisions are prescribed in Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000.

The borrowing in foreign exchange may be from an overseas bank/export credit agency/supplier of equipment or foreign collaborator, foreign equity holder, NRI, corporate/institution with a good credit rating from internationally recognised credit rating agency, or from international capital market by way of issue of bonds, floating rate notes or any other debt instrument by whatever name called.

General permission for borrowing in foreign exchange is available only in case of project exports, where in any case, other approvals have to be obtained. In addition, funds can be raised from abroad under ECB (External Commercial Borrowing) Scheme.

Question: How much amount can be borrowed by  individual resident  in India  from his close relatives outside India? What should be the tenure of loan ? What are the other conditions ?

An individual resident can borrow upto US $ 2,50,000 or equivalent from his close relatives outside India. Minimum maturity period should be one year. Loan should be free of interest. Amount should be received through inward remittance or by debit to NRE/FCNR account of non-resident lender. Close relative means as defined in section 6 of Companies Act – RBI circular No. 24 dated 27-9-2003.

The repayment can be credited to NRE/FCNR(B) account of the lender if the loan to resident individual was extended by inward remittance of by debit to NRE/FCNR(B) account – RBI circular No. 95 dated 21-3-2012.

Question: Who are authorized to lend in foreign currency in India ? what is the security to be kept ?

Borrowing from authorised dealers

Provisions are contained in Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000.

If the required conditions are not satisfied, borrowing or lending is permissible only with permission of RBI.

Regulation 4(1) of Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000, provides as follows –

An authorised dealer in India or his branch outside India may lend in foreign currency. Its branch outside India can extend foreign currency loans in the normal course of its banking business outside India. An authorised dealer may grant loans to his constituents in India for meeting their foreign exchange requirements or for their rupee working capital requirements or capital expenditure subject to compliance with prudential norms, interest rate directives and guidelines, if any, issued by Reserve Bank in this regard. An authorised dealer may extend credit facilities to a wholly owned subsidiary abroad or a joint venture abroad of an Indian entity; if not less than 51 per cent of equity in such subsidiary or joint venture is held by the Indian entity.

An authorised dealer can grant loans in foreign exchange to his constituent maintaining RFC Account, against the security of funds held in such account. A branch outside India of an authorised dealer may extend foreign currency loans against the security of funds held in NRE/FCNR deposit accounts. An authorised dealer in India may extend foreign currency loans to another authorised dealer in India and can borrow from other authorised dealer.

An authorised dealer can grant foreign currency loans in India against security of funds held in FCNR(B) account, to the account holder only, subject to guidelines of RBI.

Question: Can the authorised dealer borrow  in foreign currency ? From whom he can borrow ?

An authorised dealer in India can borrow in foreign currency as per conditions specified in regulation 4(2) of Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000.

It can borrow from its HO or branch or correspondent outside India or any other entity as permitted by RBI, upto 100% (till 10-10-2013, the limit was 50%) of unimpaired tier capital or USD 10 million, whichever is more. Branch outside India of authorised dealer in India (who is a Bank) can borrow in foreign currency in normal course of its banking business outside India, subject to directions and guidelines issued by RBI. An authorised dealer can borrow from bank or FI outside India, for granting pre-shipment or post shipment credit in foreign currency within guidelines of RBI. [The word in italics have been inserted vide amendment dated 26-9-2013].- regulation 4(2) of Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 as amended upto 26-9-2013.

Question: Whether the a person resident in India can borrow in foreign currency outside India ? What are the purposes for which he can borrow ? 

A person resident in India may borrow, whether by way of loan or overdraft or any other credit facility, from a bank situated outside India, for execution outside India of a turnkey project or civil construction contract or in connection with exports on deferred payment terms, provided the terms and conditions stipulated by the authority which has granted the approval to the project or contract or export in accordance with the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 – Regulation 5(2) of Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000.

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