New FEMA Regulation on Borrowing and Lending Supersedes
3 May 2000 Notification
[Notification
No. FEMA.3(R)/2018-RB dated 17th December 2018]
1. Short Title and Commencement: -
2. Definitions: -
3. Prohibition to Borrow or Lend: -
4. Borrowing from outside India in Foreign Exchange
by a Person Resident in India: -
5. Lending in Foreign Exchange by a Person Resident
in India: -
6. Borrowing in Indian Rupees by a Person Resident
in India: -
7. Lending in Indian Rupees by a Person Resident in
India: -
8. Continuation of loan in the event of change in
the residential status of the lender/borrower:
Schedule I – Borrowings from outside India by a person resident in India
Schedule II – Trade Credit for Imports
Schedule III – Lending to borrowers outside India by a person resident in
India
Sub: Foreign Exchange Management (Borrowing and
Lending) Regulations, 2018
In exercise of the powers conferred by clauses (a), (d) and (e)
of Sub-Section (3) of Section 6, sub- section (2) of Section 47 of the Foreign
Exchange Management Act, 1999 (42 of 1999) and in supersession of Notification
No. FEMA. 3/2000-RB dated May 3, 2000, as amended from time to time,
Notification No. FEMA. 4/2000-RB dated May 3, 2000, as amended from time to
time and Regulation 21 of Notification No. FEMA. 120/RB-2004 dated July 7, 2004
as amended from time to time, the Reserve Bank makes the following regulations
for borrowing and lending between a person resident in India and a person
resident outside India, namely:
1. Short Title and Commencement: -
i) These Regulations may
be called the Foreign Exchange Management (Borrowing and Lending) Regulations,
2018.
ii) They shall come into force from the date of their
publication in the Official Gazette.
2. Definitions: -
In these regulations, unless the context otherwise requires -
i) “Act” means the
Foreign Exchange Management Act, 1999 (42 of 1999);
ii) “Authorised Dealer (AD)” means
a person authorised as an Authorised
Dealer under sub-section (1) of section 10 of the Act;
iii) “EEFC Account”, “RFC Account” shall have the same
meaning as assigned to them respectively in the Foreign Exchange Management
(Foreign Currency Accounts by a person resident in India) Regulations, 2015, as
amended from time to time;
iv) “External Commercial Borrowings (ECB)” means borrowing by
an eligible resident entity from outside India in accordance with framework
decided by the Reserve Bank in consultation with the Government of India;
v) “External Commercial Lending (ECL)” means lending by a
person resident in India to a borrower outside India in accordance with
framework decided by the Reserve Bank in consultation with the Government of
India;
vi) “Foreign Exchange” shall have the same meaning assigned
to it in the Act;
vii) “Foreign branches/subsidiaries of the Indian banks”
means entities established overseas in terms of provisions contained in the
Banking Regulation Act, 1949, as amended from time to time;
viii) 'Authorised Bank',
'Non-resident Indian (NRI)', 'FCNR (B) Account', 'NRO Account', and 'NRE
Account' shall have the same meanings as assigned to them respectively in the
Foreign Exchange Management (Deposit) Regulations, 2016, as amended from time
to time;
ix) “Housing Finance Institution” and “National Housing Bank”
shall have the same meaning as assigned to them in the National Housing Bank
Act, 1987, as amended from time to time;
x) “Indian Entity” means a company incorporated in India
under the Companies Act, 2013, as amended from time to time, or a Limited
Liability Partnership formed and registered in India under the Limited
Liability Partnership Act, 2008, as amended from time to time;
xi) “Overseas Citizen of India (OCI)” Cardholder shall have
the same meaning as assigned to it under Section 7(A) of the Citizenship Act,
1955, as amended from time to time;
xii) “Real Estate Activity” means any activity involving own
or leased property for buying, selling and renting of commercial and
residential properties or land and also includes activities either on a fee or
contract basis assigning real estate agents for intermediating in buying,
selling, letting or managing real estate. However, this would not include
development of integrated township, purchase/ long term leasing of industrial
land as part of new project/modernisation or
expansion of existing units or any activity under ‘infrastructure sub-sectors’
as given in the Harmonised Master List of
Infrastructure sub-sectors approved by the Government of India vide
Notification F. No. 13/06/2009-INF, as amended/ updated from time to time;
xiii) “Relative” shall have the same meaning as assigned to
it in the Companies Act, 2013, as amended from time to time;
xiv) “Restricted End Uses” shall mean end uses where borrowed
funds cannot be deployed and shall include the following:
a) In the business of chit fund or Nidhi
Company;
b) Investment in capital market including margin trading and
derivatives;
c) Agricultural or plantation activities;
d) Real estate activity or construction of farm houses; and
e) Trading in Transferrable Development Rights (TDR), where
TDR shall have the meaning as assigned to it in the Foreign Exchange Management
(Permissible Capital Account Transactions) Regulations, 2015.
xv) “Schedule” means the Schedule to these Regulations;
xvi) “Start-up” means an entity which complies with the
conditions laid down in Notification No. G.S.R 180(E) dated February 17, 2016,
as amended/ updated from time to time, issued by Department of Industrial
Policy and Promotion, Ministry of Commerce and Industry, Government of India;
xvii) “Trade Credit” refer to the credits extended by the
overseas supplier, bank /financial institution for imports into India in
accordance with the Trade Credit framework decided by the Reserve Bank in
consultation with the Government of India;
Explanation: Depending
on the source of finance, such trade credits include both suppliers’ credit and
buyers’ credit. Suppliers’ credit relates to the credit for imports into India
extended by the overseas supplier, while buyers’ credit refers to loans for
payment of imports into India arranged by the importer from overseas bank or
financial institution. Imports should be as permissible under the extant
Foreign Trade Policy of the Director General of Foreign Trade (DGFT).
xviii) The words and expressions used but not defined in
these Regulations shall have the same meaning respectively assigned to them in
the Act.
3. Prohibition to Borrow or Lend: -
Save as otherwise provided in the Act, Rules or Regulations
made thereunder, 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:
Provided that 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.
Explanation: Use of
Credit Card (a) in India by a person resident outside India or (b) outside
India by a person resident in India shall not be deemed as borrowing or lending
in Indian Rupee/foreign exchange.
4. Borrowing from outside India in Foreign Exchange by a
Person Resident in India: -
A. Borrowing by an Authorised
Dealer or its branch outside India
i) An AD may 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
Reserve Bank from time to time, in consultation with Government of India.
ii) A branch outside India of an AD being a bank incorporated
or constituted in India, may borrow in foreign exchange in the normal course of
its banking business from outside India, subject to the directions or
guidelines issued by the Reserve Bank from time to time, and the Regulatory
Authority of the country where the branch is located.
iii) An AD may 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.
iv) An AD may raise ECB from
outside India in accordance with the provisions contained in Schedule I.
B. Borrowing by Persons other than Authorised
Dealers
i) Eligible resident
entities may raise ECB from outside India in accordance with the provisions
contained in Schedule I.
ii) 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 in accordance with the provisions
contained in Schedule II.
iii) 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 to the arrangement are in accordance with the Foreign
Exchange Management (Export of goods and services) Regulations, 2015, notified
vide Notification No. FEMA.23(R)/2015-RB dated January 12, 2016, as amended
from time to time.
iv) 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.
Explanation:
Such borrowings, which are in the nature of ECB, shall be subject to provisions
contained in Schedule I.
v) 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 Reserve Bank from time to time, from his/her relatives outside India and
subject to such terms and conditions as specified by the Reserve Bank from time
to time in consultation with the Government of India.
vi) 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 Reserve Bank from time to time, for the purposes of
payment of education fees abroad and maintenance subject to terms and
conditions as specified by the Reserve Bank from time to time in consultation
with the Government of India.
5. Lending in Foreign Exchange by a Person Resident in India:
-
A. Lending by an Authorised Dealer
in India or its branch outside India
i) An AD in India or its
branch outside India may extend foreign currency denominated ECL to a borrower
outside India in accordance with the provisions contained in Schedule III.
ii) An AD 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 Reserve Bank
in this regard.
iii) Subject to the directions or guidelines issued by the
Reserve Bank from time to time, an AD in India may extend foreign exchange
loans to another AD in India.
iv) Branches outside India of AD 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,
maintained in accordance with the Foreign Exchange Management (Deposit)
Regulations, 2016, notified vide Notification No. FEMA 5(R)/2016-RB dated April
1, 2016, as amended from time to time.
B. Lending by persons other than Authorised
Dealer
Eligible resident entity may extend foreign currency denominated
ECL to a borrower outside India in accordance with the provisions contained in
Schedule III.
6. Borrowing in Indian Rupees by a Person Resident in India:
-
A. Borrowing by an Authorised
Dealer
An AD may raise Rupee denominated ECB from outside India in
accordance with the provisions contained in Schedule I.
B. Borrowing by persons other than Authorised
Dealer
i) Eligible resident
entities may raise Rupee denominated ECB from outside India in accordance with
the provisions contained in Schedule I.
ii) Eligible resident entities, as defined by the Government
of India, 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.
iii) Trade Credit may be raised from outside India in Indian
Rupees by importers for import of capital or non-capital goods as permissible
under the extant Foreign Trade Policy of the DGFT in accordance with the
provisions contained in Schedule II.
iv) Any foreign investment in the nature of debt arising out
of transfer or issue of security, not covered under the above sub-regulations,
should be in compliance with Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident Outside India) Regulations, 2017, notified vide
Notification No. FEMA 20(R)/ 2017-RB dated November 07, 2017, as amended from
time to time.
v) Any person resident in India accepting any deposit from,
or making any deposit with, a person resident outside India, including loans/
overdrafts against security of funds held in such accounts, should be in
compliance with Foreign Exchange Management (Deposit) Regulations, 2016,
notified vide Notification No. FEMA 5(R)/2016-RB dated April 1, 2016, as
amended from time to time.
vi) A person resident in
India, not being a company incorporated in India, may borrow in Indian Rupees
from a NRI/Relatives who are OCI Cardholders outside India, subject to such
terms and conditions as specified by the Reserve Bank from time to time in
consultation with the Government of India. The borrower should ensure that the
borrowed funds are not used for restricted end uses.
vii) Financial Institutions, set up under an Act of the
Indian Parliament, may raise Rupee denominated borrowings from outside India
with the prior approval of the Government of India for the purpose of onward
lending.
Explanation: Such
borrowings which are in the nature of ECBs shall be subject to provisions
contained in Schedule I.
7. Lending in Indian Rupees by a Person Resident in India: -
A. Lending by an Authorised Dealer
i) An AD 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 AD and in compliance
with prudential guidelines of Reserve Bank of India. The AD bank should ensure
that the borrowed funds are not used for restricted end uses.
ii) Overdraft in rupee account maintained with AD in India by
a bank outside India: An AD may permit a temporary overdraft, for value not
exceeding Rupees 5 billion or any other amount as prescribed by the Reserve
Bank 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 Reserve Bank may direct from time to time.
B. Lending by persons other than Authorised
Dealer
i) 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 Reserve 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.
ii) An Indian entity may grant loan in Indian Rupees to its
employee who is a NRI/OCI Cardholder in accordance with the Staff Welfare
Scheme 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.
iii) A resident individual may grant Rupee loan to a NRI/OCI
Cardholder relative within the overall limit under the Liberalised
Remittance Scheme 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.
8. Continuation of loan in the event of change in the
residential status of the lender/borrower:
i) An authorised dealer/authorised
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 Reserve Bank from time to time.
ii) In case a 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 Reserve Bank from time to time, at the option of the
lender.
iii) In case a loan was granted by a NRI/OCI Cardholder to a
person resident in India in accordance with the provisions contained in these
regulations 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 Reserve Bank from time to time, at the option
of the lender.
iv) 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
Reserve Bank from time to time.
9. Any
borrowing under erstwhile regulations can be continued as permitted up to the
due date of repayment.
Schedule
I
[See Regulations 4(A)(iv),
4(B)(i), 4(B)(iv), 6(A), 6(B)(i),
6(B)(vii)]
Borrowings from outside India by a person resident in India
Eligible entities may raise External Commercial Borrowings
(ECB) from outside India in accordance with the provisions contained in this
Schedule.
1. Currency of borrowing
ECB 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.
2. Forms
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.
3. Eligibility of borrowers
All entities eligible to receive foreign direct investment,
in terms of Foreign Exchange Management (Transfer or Issue of Security by a
Person Resident Outside India) Regulations, 2017,
notified vide Notification No. FEMA 20(R)/ 2017-RB dated November 07, 2017, as
amended from time to time, 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.
4. Maturity
Minimum average maturity will be 3 years. However, Reserve
Bank, 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 recognised lenders.
5. Lenders:
The lender should be resident of FATF or IOSCO compliant
country as defined in the ECB policy, including on transfer of ECBs. However,
Multilateral and Regional Financial Institutions where India is a member
country will also be considered as recognised
lenders. Further, Reserve Bank, in consultation with the Government of India
may specify any other lender/set of lenders under the schedule or amend the
existing provisions.
Explanation: Foreign
branches / subsidiaries of Indian banks are permitted as recognised
lenders only for ECBs raised in foreign exchange.
6. All-in-cost
i. 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 per
annum or as prescribed by the Reserve Bank in consultation with the Government
of India.
ii. 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.
7. End-uses
The proceeds of borrowing raised from outside India in terms
of this Schedule can be used for all purposes except for those activities
prescribed in the negative end-use list by the Reserve Bank in consultation
with the Government of India.
8. Individual Limits of borrowing
All eligible borrowers/category of borrowers may raise ECB of
up to USD 750 million or equivalent per financial year. For Startups the amount
would be limited to USD 3 million or equivalent per financial year. However,
Reserve Bank, 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 Reserve Bank in
consultation with the Government of India.
9. Security
The borrower covered in this Schedule may provide security to
the lender / suppliers, as specified by the Reserve Bank 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 Reserve Bank
from time to time. However, banks, financial institutions and Non-Banking
Finance Companies shall not provide (issue) any type of guarantee in favour of overseas lender on behalf of their constituents
for their borrowings under this Schedule, except in accordance with specific
stipulations made by the Reserve Bank.
10. Parking of loan amount abroad
The proceeds of borrowings under this Schedule may, pending utilisation for permissible end-uses, be parked abroad or
in India as per the directions issued by the Reserve Bank from time to time.
11. Drawal of Loan
Draw-downs of borrowing under this Schedule shall be made
only after obtaining the loan registration number from the Reserve Bank or from
the ADs, as per the system put in place by the Reserve Bank. For non-adherence,
the borrower may be required to pay penalty as specified by the Reserve Bank
from time to time.
Provided that 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 thereunder.
12. Reporting
The borrower shall adhere to the reporting procedure as
specified by the Reserve Bank from time to time. For non-adherence, the
borrower may be required to pay penalty as specified by the Reserve Bank from time
to time.
Provided that 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 thereunder.
13. Debt Servicing
The designated AD shall have the general permission to make
remittances of principal, interest and other charges in conformity with the
guidelines on borrowing under this Schedule.
14. Hedging
Reserve Bank, in consultation with the Government of India,
may stipulate hedging requirements for borrowings under this schedule.
15. Available routes for raising ECB
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.
Schedule
II
[See Regulations 4(B)(ii)
& 6(B)(iii)]
Trade Credit for Imports
Importers may raise trade credits from outside India in
accordance with the provisions contained in this Schedule.
1. Purpose
Trade Credits can be raised for the purpose of import of
non-capital and capital goods as permitted under the extant Foreign Trade
Policy of the DGFT and 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.
Explanation: SEZ is as
defined in the SEZ Act, 2005.
2. Currency of borrowing
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.
3. Amount of borrowing
Importers can raise trade credit up to USD 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.
4. Period
The period of trade credit reckoned from the date of shipment
shall be as under:
i. For import of
non-capital goods – Maximum period of up to one year and linked with the
operating cycle, or for a period as per the guidelines issued by the Reserve
Bank from time to time for any import of any goods / for import by any specific
sector.
ii. For import of capital goods – Maximum period of three
years or for a period as per the guidelines issued by the Reserve Bank from
time to time.
5. Recognised Lenders
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 Reserve Bank in consultation with the Government of
India.
6. Cost:
i. 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 Reserve Bank in consultation with the Government
of India.
ii. For Rupee denominated trade credit, the all-in-cost shall
be commensurate with prevailing market conditions or as prescribed by the
Reserve Bank in consultation with the Government of India.
7. Security and guarantee
The borrower covered in this Schedule may provide security to
the lender / suppliers, as specified by the Reserve Bank 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 Reserve
Bank from time to time. Further, AD Category I banks are permitted to issue
bank guarantees in favour of overseas supplier, bank
or financial institution duly ensuring the underlying import /trade credit
complies with extant norms.
8. Reporting requirements
The
reporting requirement and procedure will be as specified by the Reserve Bank
from time to time.
Schedule
III
[See Regulations 5(A)(i), 5(B)]
Lending to borrowers outside India by a person resident in
India
Eligible entities may extend External Commercial Lending
(ECL) to borrowers outside India in accordance with the provisions contained in
this Schedule.
1. An AD 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 in accordance with Foreign Exchange Management
(Transfer or Issue of any Foreign Security) Regulations, 2004, as amended from time
to time.
2. Foreign branches of the Indian banks may extend foreign
exchange loans in the normal course of their banking business outside India.
3. An eligible entity, as defined under Foreign Exchange
(Transfer or Issue of any Foreign Security) Regulations, 2004, notified vide
Notification No.FEMA.120/RB-2004 dated July 7, 2004, as amended from time to
time, 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.
4. 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 Reserve Bank of India from time to time in consultation with
Government of India.
5.
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.