Borrowing & Lending
in Rupees and Forex

Points to Remember:

  • A person resident in India can borrow in INR from NRIs/ PIOs on non-repatriation basis only.

  • A RI can grant loan to NRI close relative within the overall limit under LRS per FY available for a RI. It would be the responsibility of the lender to ensure that the amount of loan is within the limits prescribed under LRS during the FY.

Frequently asked questions

Can a RI lend money to his close relative NRI / PIO?

Yes, a RI can lend money by way of crossed cheque /electronic transfer within the overall limit of USD 2,50,000/- per FY under LRS. The loan should be interest free and have a maturity of minimum 1 year and cannot be remitted outside India. Repayment of loan shall be made by way of inward remittances from outside India or debit to NRE/NRO/FCNR a/c of the borrower or out of the sale proceeds of shares/securities/immovable property against which such loan was granted.

What are the restrictions on the end use of the funds borrowed by a relative NRI from a resident Indian?

The loan shall be utilised for meeting the borrower’s personal requirements or for hisown business purposes in India. It shall not be utilised for any of the activities in which investment by persons resident outside India is prohibited, namely in;

  • the business of chit fund, or
  • Nidhi Company, or
  • agricultural or plantation activities or in real estate business, or construction of farm houses, or
  • trading in Transferable Development Rights.

Can a resident Indian who is a close relative of a NRI, borrow money in INR from NRI?

A resident Indian may borrow in rupees on non-repatriation basis from NRI close relative. Loan shall be received by way of inward remittance from outside India or out of NRE/ NRO/ FCNR/NRNR/NRSR a/c of NRI maintained with a Bank in India. The period of the loan shall not exceed 3 years and rate of interest shall not exceed 2% point over the prevailing bank rate. The borrowed amount is not permitted to be repatriated outside India. The payment of interest, repayment of loan shall be made by credit to the NRI’s NRO a/c or NRSR a/c.

Further, to the above question are there any restrictions on end use of the borrowed funds?

Funds borrowed in rupees from NRI close relative shall be utilized by Resident Indian for his own business purpose only other than certain specified businesses*. He is not permitted to utilize the loan funds for any investment, whether by way of capital or otherwise, in any company/ partnership firm/ proprietorship concern or any entity, or for relending. * the business of chit fund, as Nidhi Company, agricultural or plantation activities or real estate business; or construction of farm houses, or trading in Transferable Development Rights. Provided that RBI may permit such resident entities/ companies to use such borrowed funds:

  • For on lending/ re-lending to the infrastructure sector; or
  • For keeping in fixed deposits with banks in India pending utilization by them for permissible end-uses.

Can a RI repay loans of close relative NRIs to banks in India?

Yes, where a Bank in India has granted loan to a NRI such loans may also be repaid by any relative (as defined under the Companies Act), of NRI by crediting the borrower's loan a/c through the bank a/c of such relative.

Can a NRI avail loan from a Bank in India?

Yes, NRI is permitted to avail loan from a Bank in India subject to terms and conditions specified by RBI. Banks can grant loan to NRIs against the security of shares and other securities and immovable property (other than agricultural land / plantation property / farm house).

Can NRIs obtain loan from their Banks for acquiring ESOPs?

Yes, NRIs are permitted to acquire loan from the Bank till the extent of 90% of the purchase price of the ESOPs or Rs. 20 lakhs per NRI employee whichever is lower. The loan amount shall be directly paid to the company and should not be credited to NRI’s a/c’s in India. Additional conditions have been laid down by RBI for the same.

Can a RI borrow money from his close relatives outside India?

Yes, an individual resident Indian can borrow sum not exceeding the LRS limit (current limit is USD 250,000/-) or its equivalent from his close relatives staying outside India, subject to the conditions that:

  • the minimum maturity period of the loan is one year;
  • the loan is free of interest; and
  • the amount of loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/FCNR a/c of the NRI.

A NRI wants to avail loan against her NRO/ NRE FDs. Is she permitted to do so?

She can freely avail loan/ overdraft against securities of her NRO/NRE FDs in India without any monetary ceiling. The end use of the loan amount is however specified under FEMA.

Can a resident Indian and a friend of NRI take loans against the NRO fixed deposit a/c of NRI?

Third-party being RI, firms or companies resident in India can avail loan/overdraft against security of NRO deposits for personal/business purposes, subject to stipulated terms and conditions. However, loan amount cannot be utilized for relending, agricultural/plantation activities or real estate business.

When a NRI uses his credit card, will it be considered as borrowing in India?

It is clarified that use of credit card in India by a person resident outside India shall not be deemed as borrowing or lending in rupees.

Can INR loan/ overdraft granted to RI who subsequently becomes a person resident outside India be continued?

An AD Bank may allow continuance of loan/ overdraft granted to a person resident in India who subsequently becomes a person resident outside India, subject to following terms and conditions:

  • The AD Bank is satisfied, according to his/ its commercial judgment, about the reasons to continue the loan or overdraft;
  • The period of loan or overdraft shall not exceed the period originally fixed at the time of granting the loan/ overdraft;
  • So long as the borrower continues to a remain a person resident outside India, the repayment shall be made either by inward remittance from outside India through normal banking channels or from the funds held in NRE/ FCNR/ NRNR/ NRO/ NRSR a/c of the borrower.

Can INR loan be continued in the event of change in residential status of the lender?

In case INR loan was granted by a person resident in India to another person resident in India and the lender subsequently becomes a non-resident, the repayment of loan by the resident borrower should be made by credit to the NRO or NRSR a/c of the lender maintained with a bank in India, at the option of the lender.