A resident Indian or a company registered in India can avail loan from an NRI on repatriable or non- repatriable basis.

The borrowing and lending in INR between the resident and non-resident persons are governed by-

1. clause (e) of sub-section 3 of section 6 of the Foreign Exchange Management Act, 1999

2. Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000, as amended from time to time.

3. Master Direction – Borrowing and Lending transactions in Indian Rupee between Persons Resident in India and Non-Resident Indians/ Persons of Indian Origin, as issued from time to time.

We can divide the borrowing under two heads-

1. Borrowing by Resident Indians (Individual) in INR from a Non Resident Indian

2. Borrowing by Companies in INR from a Non Resident Indian

1. Borrowing by Resident Indians (Individual) in INR from a Non Resident Indian

A resident person in India, (individual and not a Company) may borrow in INR from an NRI subject to the following Terms and Conditions-

i. Borrowing shall be only on a non-repatriation basis ie repayment of the loan would be done only in India and the borrower cannot repay the loan outside India to the NRI. The repayment of the loan to be done only to the NRO account of the NRI.

ii. The loan amount can be received by the Borrower in India ether by inward remittance from outside India or by debit to the NRE/ NRO account maintained with an authorised bank in India;

iii. The term of the loan should not be more than 3 years. Which means that the loan shall be repaid within a period of 3 years.

iv. The interest on the loan shall not exceed more than two per cent above Bank Rate prevailing on the date of availing the loan;

v. Payment of the interest amount and the repayment of the principal of loan shall be made only to the NRO account of the NRI lender maintained in India with an AD Bank.

2. Borrowing by Companies in INR from a Non Resident Indian

A company incorporated in India under the Companies Act can borrow money from an NRI and the borrowing can be both on repatriable and non-repatriable basis, ie the loan amount can be repaid either in India or the loan amount can be repatriated to the bank account of the NRI maintained outside India.

  • The following conditions to be met for the borrowing:
  • The company which intends to borrow funds from NRI, should not be engaged in agriculture or real estate business or a chit fund company.
  • Borrowing can be done only by way of issuing non-convertible debentures (NCD). Such issue of a non-convertible debenture is made by public offer.
  • The interest rate on the NCD shall not be more than three percent of the interest charged by the State Bank of India while lending.
  • The term of the loan shall not be less than 3 years. Which means the loan can be repaid only after 3 years from the date of borrowing.
  • If the borrowing is on repatriation basis, then the percentage of NCDs issued to NRIs to the total paid up value of all NCDs issued shall not exceed the ceiling prescribed for issue of equity shares/convertible debentures for foreign direct investment in India.
  • If the borrowing is on a non-repatriation basis from NRIs, then the amount of loan should be received either by inward remittance from outside India or by debit to NRE/NRO account of the NRI lender maintained with an authorized dealer or an authorized bank in India.
  • Payment of interest and repayment of principal shall be made only to the NRO account of the lender.
  • The loan amount so received can be utilized only for the own business of the borrower company.
  • The loan raised cannot be used for further investment or further lending to any person or a company. However, it is permitted to keep the loan in fixed deposits with banks till utilization of funds.

Compliances to be done by the Company:

The following documents to be submitted by the Borrower Company to the regional branch of the Reserve Bank of India-

  • Details of the remittance received with a list containing name and address of NRIs who have given loan Amount and date of money received.
  • A certificate from the Company Secretary of the Indian company stating that all applicable provisions in regards to issue of Non-Convertible debenture have been followed.

In view of the above, a Company can not just take loan from its NRI Directors from their NRO accounts. It has to issue NCD by following the prescribed procedure in this regard.


Disclaimer: This article has been prepared in good faith on the basis of information available on the date of publication without any independent verification. The Author does not guarantee or warrant the accuracy, reliability, completeness or currency of the information in this publication nor its usefulness in achieving any purpose. The Author will not be liable for any loss, damage, cost or expenses incurred or arising by reason of any person using or relying on information in this publication. Readers are requested to consult a professional before taking any action.

(Author – Sonika Bharati, FCS, LLB, is a Company Secretary in Practice from Delhi and can be contacted at [email protected]).

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April 2021