Borrowing from a Foreign National or Non Resident Indian

CAN AN INDIAN CITIZEN BORROW FROM A FOREIGN NATIONAL OR AN NRI?

Not only an individual but an Indian company can also borrow from a foreign national or a Non- resident Indian (NRI). However, these borrowings are subject to certain conditions and policies that are regulated by the Ministry of Finance and the Reserve Bank of India. The RBI is responsible for and overseas all lending and borrowing between residents of India and non- resident Indians.

WHO IS A RESIDENT OF INDIA?

The Foreign Exchange Management Act defines a person as a resident of India if during the course of the preceding financial year that person has been residing in the country for more than one hundred and eighty-two days but will not consider any person who has gone out of India for the purpose of full-time employment, a person who has left the country to carry out a business abroad.

CONDITIONS FOR BORROWING BY AN INDIAN CITIZEN FROM A NON- RESIDENT INDIAN OR AN INDIAN LIVING OUTSIDE OF THE COUNTRY

• The borrowings are done on a non- repatriation basis
• The borrower can only receive the loan amount by the way of inward remittance from outside the country or from an NRE, NRO, FCNR, NRNR, and NRSR.
• Another condition is that it has to be interest-free
• The maturity period of the loan has to be at least 1 year.

THE LENDING AND BORROWINGS IN FOREIGN CURRENCY ARE PERMITTED TO AUTHORIZED DEALERS AND ITS BRANCHES AND ALSO OTHERS WHO ARE SUBJECT TO CERTAIN CONDITIONS

The authority sanctions the process of lending and borrowing in foreign money to certain authorized institutions and other individuals and companies who are all subject to pre- set conditions, which are as follows:

• The loan can be borrowed from a branch, a head office, or a correspondent which is situated outside the country up to the limit of 100 per cent of its unimpaired tier 1 capital or USD of $ 10 million, whichever is higher.
• The money can be loaned from an Indian bank whose branch is situated outside India for the purpose of its normal course of banking business outside Indian only.
• The loan can be borrowed from any financial institution or bank that is located outside of India for granting pre-shipment and post-shipment foreign currency credit to its exported constituent.