Rupee Borrowings by Resident Individuals from NRIs/OCIs: Regulatory Clarity under the 2026 FEMA Amendment
The regulatory framework governing borrowing in Indian Rupees (INR) by a resident individual from Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) has now attained much-needed clarity. Pursuant to the issuance of the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 on 9 February 2026, the Reserve Bank of India has prescribed the specific terms and conditions that had remained undefined for several years.
Evolution of the Regulatory Framework: 2000–2018
To appreciate the new regulation, we must look at where we started:
The 2000 Framework (FEMA 4/2000-RB): Borrowing and lending between resident and non-resident was governed by Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000. As per Regulation of 4 of this regulation, residents (not being a company) could borrow from NRI/PIO on non-repatriation basis subject to terms and conditions such as
- Funds must be received through proper banking channels i.e Inward Remittance from outside India or by way of debit to the lender’s NRE, NRO, FCNR(B), Non-resident Non-repatriable (NRNR) or Non-resident Special Rupee (NRSR) account.
- The period of loan shall not exceed three years
- The rate of interest on the loan shall not exceed two percentage points over the Bank rate prevailing on the date of availment of loan.
Accordingly, the Regulations clearly prescribed specific terms and conditions governing such borrowings.
- The 2018 Transition (FEMA 3(R)/2018-RB): In 2018, the RBI undertook a comprehensive overhaul of the regulatory framework. Through Notification No. 3(R)/2018-RB, the erstwhile Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000 were replaced by the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, with effect from 17 December 2018.
Regulation 6B(vi) of the 2018 Regulations provided that a resident individual (other than a company) may borrow from NRIs or relatives who are OCI cardholders, subject to such terms and conditions as specified by the Reserve Bank and end use restriction.
The Era of Uncertainty:
Following the 2018 notification, a significant regulatory grey area emerged. While the Regulations permitted such transactions subject to terms and conditions to be specified by the Reserve Bank, no such conditions were subsequently prescribed, leading to ambiguity regarding borrowings between resident and NRIs/OCIs.
This created significant uncertainty among stakeholders. In the absence of clearly defined terms and conditions such as interest rate caps, prescribed modes of repayment, and specific reporting requirements, the permissibility of such transactions was widely questioned. Without this regulatory clarity, it was challenging to determine whether these transactions were compliant with FEMA.
The 2026 Amendment:
The 2026 Amendment finally resolves this dilemma. FEM (Borrowing and Lending) (First Amendment) Regulation, 2026 on February 9, 2026, substituted the regulation 6(B) sub regulation (vi) of Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 in the following manner
[A person resident in India being an individual may borrow in INR from an NRI or a relative who is an OCI cardholder for utilization in India, subject to the following terms and conditions:
(a) The amount of loan should be received either by inward remittance from outside India or by debit to NRE / NRO / FCNR(B) / SNRR account of the lender; and
(b) Borrowing shall be on non-repatriation basis i.e. payment of interest and repayment of principal shall be made only to the NRO account of the lender]
Therefore, a resident individual may borrow in INR from an NRI or a relative who is an OCI cardholder. The amendment clarifies that funds must be received through proper banking channels i.e Inward Remittance from outside India or by way of debit to the lender’s NRE, NRO, FCNR(B), or SNRR accounts. This borrowing is subject to end use restrictions as given in the regulation i.e chit funds, real estate, agricultural/plantation activity, trading in TDR etc.
Borrowing shall be on non-repatriation basis i.e. payment of interest and repayment of principal shall be made only to the NRO account of the lender.
Conclusion:
The 2026 amendment effectively addresses a long-standing regulatory ambiguity by prescribing clear conditions for rupee borrowings by resident individuals from NRIs and OCI relatives. By mandating specific modes of fund receipt through permitted banking channels and restricting repayment on a non-repatriation basis, the Reserve Bank of India has provided a definitive compliance framework that was absent post-2018. Although the amendment adopts a more principle-based approach without reintroducing detailed parameters such as interest rate caps or tenure limits, it significantly enhances regulatory certainty. Consequently, stakeholders can now undertake such transactions with greater confidence, subject to strict adherence to end-use restrictions and proper documentation to ensure compliance with FEMA.
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