Introduction
In supersession of earlier regulations, the Reserve Bank of India made ‘The Foreign Exchange management (Borrowing and Lending) Regulations, 2018’ Notification No. G.S.R. 1213 (E), dated 17.12.2018. These regulations came into effect from 17.12.2018. These regulations are made for borrowing and lending between a person resident in India and a person resident outside India.
Prohibition to borrow or lend
No person resident in India shall borrow or lend in foreign exchange from or to a person resident in or outside India and no person resident in India shall borrow in rupees from, or lend in rupees to, a person resident outside India:
The Reserve Bank may, for sufficient reasons, permit a person resident in India to borrow or lend in foreign exchange from or to a person resident in or outside India and/or permit a person resident in India to borrow in rupees from, or lend in rupees to, a person resident outside India.
Use of credit card
Use of Credit Card-
- in India by a person resident outside India; or
- outside India by a person resident in India
shall not be deemed as borrowing or lending in Indian Rupee/foreign exchange.
Regulations for borrowing
The borrowing may be in foreign exchange or in Indian Rupees.
- Borrowing from outside India in Foreign Exchange by a Person Resident in India
- Borrowing by an Authorized Dealer or its branch outside India;
- Borrowing by Persons other than Authorized Dealers.
- Borrowing in Indian Rupees by a Person Resident in India-
- Borrowing by an Authorized Dealer;
- Borrowing by persons other than Authorized Dealer.
Borrowing by an Authorized Dealer or its branch outside India
- An Authorized Dealermay borrow from-
- its Head Office ; or
- branch; or
- correspondent outside India; or
- any other entity
up to limit specified and subject to terms and conditions as specified by the RBI from time to time, in consultation with Government of India.
- A branch outside India of an Authorized Dealer being a bank incorporated or constituted in India, may borrow in foreign exchange in the normal course of its banking business from outside India.Such borrowing is subject to the directions or guidelines issued by the RBI from time to time, and the Regulatory Authority of the country where the branch is located.
- An Authorized Dealermay borrow in foreign exchange from-
- a bank; or
- a financial institution outside India,
for the purpose of granting pre-shipment or post-shipment credit in foreign exchange to its exporter constituent, subject to compliance with the guidelines issued by the Reserve Bank in this regard.
Raising of ECB
- An Authorized Dealer and eligible resident entitiesmay raise ECB from outside India.
- An Authorized Dealer may raise Rupee denominated ECB from outside India..
- Eligible resident entities may raise Rupee denominated ECB from outside India
- Such borrowings which are in the nature of ECBs shall be subject to provisions contained in Schedule Iin accordance with the. following procedure-
- ECB can be raised in any freely convertible foreign currency as well as in Indian Rupees or any other currency as specified by the RBI in consultation with the Government of India.
- ECB can be raised in the forms as prescribed by the Reserve Bank in consultation with the Government of India. Certain hybrid instruments, such as optionally convertible debentures, presently covered under ECB, would be governed by specific hybrid instruments’ Regulations when notified by the Government of India.
- All entities eligible to receive foreign direct investment, including Start-ups. Further, Reserve Bank, in consultation with the Government of India may specify any other entity/sector eligible to raise ECBs or amend the existing eligibility norms.
- Minimum average maturity will be 3 years.
- RBI in consultation with Government of India may prescribe minimum average maturity stipulation for ECBs raised by entities in certain sectors or for certain amount of ECB or for certain end uses or for borrowing from certain recognized lenders.
- The lender should be resident of FATF or IOSCO compliant country as defined in the ECB policy, including on transfer of ECBs.
- Multilateral and Regional Financial Institutions where India is a member country will also be considered as recognised lenders.
- RBI, in consultation with the Government of India, may specify any other lender/set of lenders under the schedule or amend the existing provisions.
- Foreign branches / subsidiaries of Indian banks are permitted as recognized lenders only for ECBs raised in foreign exchange.
- For ECBs raised in foreign exchange, the maximum spread over the benchmark of 6-month LIBOR or applicable benchmark for the respective currency will be 450 basis points p.a. or as prescribed by the RBIin consultation with the Government of India.
- For ECBs raised in Indian Rupees, the maximum spread will be 450 basis points per annum over the prevailing yield of the Government of India securities of corresponding maturity or as prescribed by the Reserve Bank in consultation with the Government of India.
- The proceeds of borrowing raised from outside India can be used for all purposes except for those activities prescribed in the negative end-use list by the RBI in consultation with the Government of India.
- All eligible borrowers/category of borrowers may raise ECB of up to USD 750 million or equivalent per financial year.
- or Startups the amount would be limited to USD 3 million or equivalent per financial year.
- RBI, in consultation with Government of India may prescribe higher limits for ECBs raised by entities in certain sectors or for certain end uses.
- The said individual limits may be subject to review by the RBI in consultation with the Government of India.
- The borrower may provide security to the lender/suppliers.
- The borrower may also provide corporate and/or personal guarantee as security for the borrowing, subject to terms and conditions as specified by the RBI from time to time
- The banks, financial institutions and Non-Banking Finance Companies shall not provide (issue) any type of guarantee in favor of overseas lender on behalf of their constituents for their borrowings, except in accordance with specific stipulations made by the RBI.
- he proceeds of borrowings may, pending utilization for permissible end-uses, be parked abroad or in India as per the directions issued by the RBI from time to time.
- Draw-downs of borrowing shall be made only after obtaining the loan registration number from the RBI or from the Authorized Dealers, as per the system put in place by the RBI.
- The borrower shall adhere to the reporting procedure as specified by the RBI from time to time.
- The designated Authorized Dealer shall have the general permission to make remittances of principal, interest and other charges in conformity with the guidelines on borrowing.
- RBI, in consultation with the Government of India, may stipulate hedging requirements for borrowing.
- All ECBs can be raised under the automatic route if it conforms to the parameters prescribed under this Schedule and subject to specified reporting conditions. All other cases will be considered by RBI under the approval route.
Penalty
. For non-adherence, the borrower may be required to pay penalty as specified by the Reserve Bank from time to time. Non-payment of penalty as above shall be treated as a contravention and shall be subject to compounding or adjudication as provided in the Act or Rules framed there under.
Trade credit
- Trade Credit may be raised from outside India by importers for import of capital or non-capital goods as permissible under the extant Foreign Trade Policy of the DGFT.
- Eligible resident entities, may borrow from overseas Multilateral Financial Institutions/International Development Financial Institutions, where the source of funds of such institutions is Rupee denominated bonds issued overseas or resources raised domestically, or any other source as approved by the Government of India.
- Trade Credit may be raised from outside India in Indian Rupees by importers for import of capital or noncapital goods as permissible under the extant Foreign Trade Policy of the DGFT
- For purchase of non-capital and capital goods within a Special Economic Zone (SEZ) or from a different SEZ subject to terms and conditions as stipulated by the Reserve Bank from time to time.
- Trade credits can be raised in any freely convertible foreign currency as well as in Indian Rupees or any other currency as specified by the Reserve Bank in consultation with the Government of India.
- Importers can raise trade credit up to 50 million equivalent per import transaction for import of capital or non-capital goods or any other amount as decided by the Reserve Bank in consultation with the Government of India.
- The period of trade credit reckoned from the date of shipment shall be as under-
- For import of non-capital goods – Maximum period of up to 1year and linked with the operating cycle, or for a period as per the guidelines issued by the RBI from time to time for any import of any goods / for import by any specific sector.
- For import of capital goods – Maximum period of 3 years or for a period as per the guidelines issued by the RBI from time to time.
- Overseas suppliers, banks and other financial institutions, foreign equity holders and financial institutions in International Financial Services Centres (IFSCs) in India or any other entities as decided by the RBI in consultation with the Government of India.
- For trade credits in foreign exchange, the maximum spread over the benchmark of 6-month LIBOR or applicable benchmark for the respective currency will be 250 basis points per annum or as prescribed by the RBI in consultation with the Government of India.
- For Rupee denominated trade credit, the all-in-cost shall be commensurate with prevailing market conditions or as prescribed by the RBI in consultation with the Government of India.
- The borrower covered may provide security to the lender/suppliers, as specified by the RBI from time to time in terms of these regulations or under any other Regulations framed under the Act.
- The borrower may also provide corporate and/or personal guarantee as security for the borrowing subject to terms and conditions as specified by the RBI from time to time.
- Authorized Dealer Category I banks are permitted to issue bank guarantees in favor of overseas supplier, bank or financial institution duly ensuring the underlying import/trade credit complies with extant norms.
- The reporting requirement and procedure will be as specified by the Reserve Bank from time to time.
Borrowing loan
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, where export of goods or services is proposed to be made on deferred payment terms or in execution of a turnkey project or a civil construction contract, provided the terms and conditions stipulated by the authority which has granted the approval.
Borrowings by financial institutions
Financial Institutions, set up under an Act of the Indian Parliament, may raise foreign exchange borrowings with the prior approval of the Government of India for the purpose of onward lending. These borrowings are in the nature of ECB.
Borrowing by an individual
An individual resident in India may borrow a sum not exceeding USD 250,000 or its equivalent, or any other amount as decided by the RBI from time to time, from his/her relatives outside India and subject to such terms and conditions as specified by the RBI from time to time in consultation with the Government of India.
An individual resident in India studying abroad may raise loan outside India not exceeding USD 250,000 or its equivalent, or any other amount as decided by the RBI from time to time, for the purposes of payment of education fees abroad and maintenance subject to terms and conditions as specified by the RBI from time to time in consultation with the Government of India.
Regulations for lending
The lending may be in foreign exchange or in Indian Rupees.
- Lending in Foreign Exchange by a Person Resident in India
- Lending by an Authorized Dealer or its branch outside India;
- Lending by Persons other than Authorized Dealers.
- Lending in Indian Rupees by a Person Resident in India-
- Lending by an Authorized Dealer;
- Lending by persons other than Authorized Dealer.
Lending by an Authorized Dealer
An Authorized dealer in India or its branch outside India may extend foreign currency denominated External Commercial Lending (ECL) to a borrower outside India and Eligible resident entity may extend foreign currency denominated ECL to a borrower outside India in accordance with the procedure as detailed below-
- An Authorized Dealer in India may extend External Commercial Lending (ECL) in foreign exchange to a foreign entity in which an Indian entity has made overseas direct investment.
- Foreign branches of the Indian banks may extend foreign exchange loans in the normal course of their banking business outside India.
- An eligible entity, may lend in foreign exchange to a foreign entity in which it has made direct investment in accordance with the provisions under the said regulations.
- A person resident in India may lend in foreign exchange out of funds held in his/her EEFC account, for trade related purposes to his/her overseas importer customer subject to such terms and conditions as stipulated by the RBI from time to time in consultation with Government of India.
- Indian companies may grant loans in foreign exchange to the employees of their branches outside India for personal purposes provided that the loan shall be granted for personal purposes in accordance with the lender's Staff Welfare Scheme / Loan Rules and other terms and conditions as applicable to its staff resident in India and abroad.
An Authorized dealer may grant loans to its 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 RBI in this regard. An AD in India may extend foreign exchange loans to another AD in India subject to the directions or guidelines issued by the RBI from time to time.
The branches outside India of Authorized Dealer banks may extend foreign exchange loans against the security of funds held in NRE/FCNR deposit accounts or any other account as specified by the Reserve Bank from time to time.
Lending in Indian rupees
An Authorized Dealer in India may grant loan to a NRI/OCI Cardholder for meeting the borrower's personal requirements/own business purposes/acquisition of a residential accommodation in India/acquisition of motor vehicle in India/or for any purpose as per the loan policy laid down by the Board of Directors of the Authorized Dealer and in compliance with prudential guidelines of RBI. The Authorized Dealer bank should ensure that the borrowed funds are not used for restricted end uses.
Overdraft in rupee account maintained with Authorized Dealer in India by a bank outside India: An Authorized Dealer may permit a temporary overdraft, for value not exceeding ₹ 5 billion or any other amount as prescribed by the RBI from time to time, in rupee accounts maintained with it by its overseas branch or correspondent or Head Office outside India, subject to such terms and conditions as the RBI may direct from time to time.
A registered non-banking financial company in India or a registered housing finance institution in India or any other financial institution as may be specified by the RBI Bank from time to time, may provide housing loan or vehicle loan, as the case may be, to a NRI/OCI Cardholder subject to such terms and conditions as prescribed by the Reserve Bank from time to time. The borrower should ensure that the borrowed funds are not used for restricted end uses.
An Indian entity may grant loan in Indian Rupees to its employee who is a NRI/OCI Card holder in accordance with the Staff Welfare Scheme subject to such terms and conditions as prescribed by the RBI from time to time. The borrower should ensure that the borrowed funds are not used for restricted end uses.
A resident individual may grant Rupee loan to a NRI/OCI Cardholder relative within the overall limit under the Liberalized Remittance Scheme subject to such terms and conditions as prescribed by the RBI from time to time. The borrower should ensure that the borrowed funds are not used for restricted end uses.
Continuation of loan in the event of change in the residential status
An authorized dealer/authorized bank, may allow continuance of loans granted to a resident individual who subsequently becomes a person resident outside India, subject to such terms and conditions as specified by the RBI from time to time.
If the loan was granted by a resident individual to another resident individual and the lender subsequently becomes a non-resident, the repayment of the loan by the resident borrower should be made by credit to the NRO account or any other account of the lender maintained with a bank in India as specified by the RBI from time to time, at the option of the lender.
In case a loan was granted by a NRI/OCI Cardholder to a person resident in India and the lender subsequently becomes a resident, the repayment of the loan may be made to the designated account of the lender maintained with a bank in India as specified by the RBI from time to time, at the option of the lender.
A resident individual will be permitted to service loans taken overseas earlier as a person resident outside India subject to terms and conditions and limit as specified by the RBI from time to time.
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