Regulation 7 - Loans in Rupees to Non-residents - Foreign Exchange Management (Borrowing And Lending In Rupees) Regulations, 2000

7. 2 Loans in Rupees to Non-residents :- Subject to the directions issued by the Reserve Bank from time to time in this regard, an authorised dealer in India may grant loan to a non-resident Indian, (A) against the security of shares or other securities held in the name of the borrower, or (B) against the security of immovable property (other than agricultural or plantation property or farm house), held by him in accordance with the Foreign Exchange Management (Acquisition and transfer of immovable property in India) Regulations, 2000: Provided that (a) the loan shall be utilised for meeting the borrower's personal requirements or for his own business purposes; and (b) the loan shall not be utilised, either singly or in association with other person, for any of the activities in which investment by persons resident outside India is prohibited, namely; (i) the business of chit fund, or (ii) Nidhi Company , or (iii) agricultural or plantation activities or in real estate business, or construction of farm houses; or (iv) trading in Transferable Development Rights (TDRs). Explanation: For the purpose of item (iii) of proviso, real estate business shall not include development of townships, construction of residential/ commercial premises, roads or bridges. (c). the Reserve Bank's directives on advances against shares/ securities /immovable property shall be duly complied with; (d) the loan amount shall not be credited to Non-resident External (NRE)/ 1 (***) Foreign Currency Non-resident (FCNR)/Non-resident Non-repatriable (NRNR) account of the borrower; (e) the loan amount shall not be remitted outside India; (f) repayment of loan shall be made from out of remittances from outside India through normal banking channels or by debit to the Non-resident Ordinary (NRO)/Non-resident Special Rupee (NRSR)/Non-resident Non-repatriable (NRNR)/Non-resident External (NRE)/Foreign Currency Non-resident (FCNR) account of the borrower or out of the sale proceeds of the shares or securities or immovable property against which such loan was granted. 3 (C). for any purpose as per the loan policy laid down by the Board of Directors of the Authorised Dealer. Provided that (a) the loan shall not be utilised either singly or in association with other person for (i) the business of chit fund, or (ii) Nidhi Company, or (iii) agricultural or plantation activities or in real estate business or construction of farm houses, or (iv) trading in Transferable Development Rights (TDRs), or (v) investment in capital market including margin trading and derivatives. (b) the Reserve Bank's directives on such advances shall be duly complied with; (c) the loan amount shall not be credited to NRE/FCNR(B) accounts; (d) the loan amount shall not be remitted outside India; (e) repayment of loan shall be made from out of remittances from outside India through normal banking channels or by debit to NRE/FCNR(B)/NRO accounts. 4 (D) An Authorised Dealer in India may grant Rupee loans to NRI employees of Indian companies for acquiring shares of the companies under the Employees Stock Option (ESOP) Scheme subject to the following conditions : (i) The ESOP Scheme should be as per the policy approved by the bank's Board. (ii) The loan amount should not exceed 90% of the purchase price of the shares or Rupees 20 lakhs per NRI employee, whichever is lower. (iii) The rate of interest and margin on such loans may be decided by the banks, subject to directives issued by the Reserve Bank from time to time. (iv) The amount shall be paid directly to the company and should not be credited to the borrowers' non-resident accounts in India. (v) The loan amount would have to be repaid by the borrower by way of inward remittances or by debit to his/her NRO/NRE/FCNR(B) account. (vi) The loans will be included for reckoning capital market exposures and the bank will ensure compliance with prudential limits, prescribed by the Reserve Bank from time to time, for such exposure to capital market. ********************************* Note : 1. The words 'Non-Resident Ordinary (NRO)/' has been deleted vide Notification No. 031/2000 dated 27/11/2000 2. The title Loans in rupees to non-residents against security of shares or immovable property in India has been substituted as Loans in Rupees to Non-residents vide Notification No. 115/2004 dated 25/3/2004 3. Has been inserted vide Notification No. Supra 4. Has been inserted vide Notification No. 160/2007 dated 18/9/2007