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Borrowing in Rupees from Non Resident

“A Company can borrow from NRI/PIO only in the form of NCD issued by public offer, which in other words means a private company cannot borrow from NRI/PIO since it cannot issue debentures to the public”

“Non company borrowers can borrow on non-repatriation basis only, i.e the repayment and interest has to be credited to NRO account of the lender”

The Foreign Exchange Management Act, 1999 has empowered the Reserve Bank of India in consultation with Central Government to specify permissible capital account transaction and their monetary limits admissible. In exercise of this power given under Section 6 of the Act, the RBI has notified Foreign Exchange Management (Borrowing and Lending in Rupee) Regulations 2000 to regulate borrowing and lending in Rupee.

No person shall borrow in rupee from, or lend in rupee to , a person resident outside India otherwise than in accordance with this regulation. However the RBI may permit a person resident in India to borrow in rupee from, or lend in rupee to a person resident outside India.

The use of Credit Card in India by a person resident outside India shall not be treated as borrowing in Indian Rupee.

Borrowing in Rupee by persons other than Companies in India :

A person other than a company may borrow in rupee from a non-resident Indian (NRI) or a person of Indian Origin (PIO) resident outside India on non-repatriation basis only. Additionally, the following conditions should be met :

  1. the amount of loan shall be received from outside India by way of Inward remittance, or out of NRE/NRO/FCNR account of the lender.

  2. the period of loan shall not exceed 3 years

  3. the rate of interest shall not exceed 2% over the Bank Rate prevailing on the date of availing loan

  4. the payment of interest and repayment of loan shall be made to NRO account of the lender only

  5. the amount borrowed shall not be allowed to be repatriated outside India

Any other form of borrowing will require the approval of RBI.

Borrowing in Rupee by persons other than Companies in India :

A company incorporated in India may borrow in Rupee on repatriation or non-repatriation basis from an NRI or PIO by way of investment in Non-Convertible Debenture (NCD) only. Additionally, the following conditions should be met :

  1. the issue of NCD is by public offer

  2. the rate of interest on such NCD does not exceed the Bank Rate of State Bank of India as on the date of passing resolution approving the issue of NCD, plus 300 basis points

  3. the period for redemption of such NCD is not less than 3 years

  4. the borrowing company files with RBI not later than 30 days from date of receipt of remittance and from date of issue of NCD such details as prescribed

Further if the issue of NCD is on repatriation basis then :

  1. the percentage of NCD issued to NRI to the paid up value of NCD issued shall not exceed the ceiling prescribed for issue of equity shares/convertible debentures for FDI in India as specified by RBI and

  2. the amount is received by remittance from outside India through normal banking channels or transfer of fund held in NRE/FCNR account

Also if the issue of NCD is on non-repatriation basis then :

  1. the amount is received by remittance from outside India through normal banking channels or transfer of fund held in NRE/FCNR/NRO account

  2. the payment of interest and repayment of loan shall be made to NRO account of the lender only

Any other form of borrowing by a company will require the approval of RBI.

No person resident in India who has borrowed from a person resident outside India shall use the fund for prohibited business such as agricultural/plantation/real estate business, trading in TDR or Chit fund etc…

CA. Roshan Thomas

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