LENDING IN FOREIGN CURRENCY
Question: Who can lend in Foreign Currency ?
A ) Lending by 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.
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.
B) Lending abroad by persons other than authorised dealer
Persons other than authorised dealers can lend foreign exchange as per following provisions –
Lending to WOS or JV – An Indian Entity can have joint venture abroad. ‘Indian entity’ means a company or a body corporate or a firm in India. ‘Joint Venture abroad’ means a foreign concern formed, registered or incorporated in a foreign country in accordance with the laws and regulations of that country and in which investment has been made by an Indian entity. – – -An Indian entity may lend in foreign exchange to its wholly owned subsidiary or joint venture abroad constituted in accordance with the provisions of Foreign Exchange Management (Transfer or Issue of Foreign Security) Regulations, 2000 [Regulation 5(1) of Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000].
Lending from EEFC account – A person resident in India may lend in foreign currency out of funds held in his EEFC account, for trade related purposes to his overseas importer customer. There is no ceiling of trade related loans/advances. Where the amount of loan exceeds US $ 1,00,000, a guarantee of a bank of international repute situated outside India should be provided by the overseas borrower in favour of the lender.
Lending in foreign exchange by Financial Institutions – Foreign currency loans may be extended by Export Import Bank of India, Industrial Development Bank of India, Industrial Finance Corporation of India, Industrial Credit and Investment Corporation of India Limited, Small Industries Development Bank of India Limited or any other institution in India to their constituents in India out of foreign currency borrowings raised by them with the approval of the Central Government for the purpose of onward lending.
Loans to employees for personal purposes – Indian Companies can grant loans in foreign currency to the employees of their branches outside India for personal purposes, as per the lender’s welfare scheme/loan rules – RBI circular No. 74 dated 20-2-2004.