Loans in India to Non-residents against Shares/

Securities/Properties held by them in India

(ii)

Reserve Bank has granted general permission to certain financial institutions

providing housing finance e.g. Housing Development Finance Corporation, LIC Housing Finance Ltd., etc. to grant housing loans to non-resident Indian nationals for acquisition of a house for self occupation subject to certain conditions. Full details of the documents/particulars required to be furnished by the borrowers should be ascertained from the financial institution concerned.

(iii)

Authorised dealers may also grant housing loans to NRIs holding Indian passports

against the security of immovable property proposed to be acquired by them subject to the following conditions:

(a)

The house/flat will be used for self occupation by the non-resident on return to India and not for any other purpose.

(b)

The quantum of loan, margin money and the purpose of loan will be at par with those applicable to housing loans being granted to residents.

(c)

The loan should be fully secured by creating equitable mortgage of the concerned property and if necessary, lien on borrower's other assets in India.

(d)

Repayment of the loan should be made by the borrower within a period not exceeding 15 years and in instalments comprising principal and interest including all charges by remittances from abroad through normal banking channels or out of funds in his/her NRE/FCNR/NRO account in India.

(e)

If the house/flat is rented out, the entire rental income, even if it is more than the prescribed instalment, should be adjusted towards repayment of the loan. If the rental income is less than the prescribed instalment, the borrower should remit the amount to the extent of the shortfall from abroad or pay the difference out of his/her NRE/FCNR/NRO account in India.

(f)

The housing loans would be subject to interest rate directives issued by Reserve Bank from time to time and will be outside the purview of the housing finance allocations prescribed for providing finance to resident Indians.

Authorised dealers should maintain separate record of such loans granted by them with full details such as name and address of the borrower, amount of margin money paid, amount of loan, period of loan, payment schedule, details of repayment received and manner of such payments, for verification by inspecting officials of Reserve Bank.

NOTE:

In the case of persons who have returned to India for permanent settlement, the repayment of the outstanding loans may be allowed in rupees.

(iv)

Authorised dealers may also grant loans to NRIs where the NRI is a principal borrower with resident close relative(s) (as defined in Section 6 of Companies Act, 1956) as co-obligant/guarantor or where the land is owned jointly by NRI borrower with resident close relative subject to the conditions mentioned in sub-paragraph (iii) above. There would also be no objection to loans being granted to residents with NRI as a co-obligant.

(v)

Reserve Bank will also be prepared to grant general permission to companies/ banks and other institutions in India to grant housing loans to their employees deputed abroad and holding Indian passports, under their "Staff Housing Loan Schemes" upto Rs.25 lakh per employee subject to certain conditions. Application for the purpose should be made to the Chief General Manager, Reserve Bank of India, Exchange Control Department, Central Office, (External Payments Division), Mumbai-400 001 by letter togetherwith full details of the scheme.

Loans in India to NRIs against Security of

NRI Bonds issued by SBI

10D.3

Deleted.

Loans in India to Non-resident holders of

India Development Bonds issued by SBI

10D.4

Deleted.

Loans/Overdrafts to Residents against

Security of India Development Bonds

10D.5

Deleted.

Loans in India against Guarantees by Non-residents

10D.6

(i)

Authorised dealers may grant loans and overdrafts to persons, firms and companies

in India against the guarantees of individuals, firms and companies (including banks)

outside India subject to the following conditions:-

(a)

No direct or indirect outgo of foreign exchange is involved by way of guarantee commission or otherwise.

(b)

The loan is fully secured by the guarantee of an international bank and the lender bank adheres to the guidelines prescribed for capital adequacy, prudential norms, etc. and the lending discipline prescribed for working capital and term loan purposes, by Reserve Bank from time to time.

(c)

Regulations relating to normal margin, interest rates, etc. as stipulated by Reserve Bank from time to time are complied with.

Authorised dealers should, however, apply the usual norms and considerations and obtain such security as they consider necessary.

(ii)

Authorised dealers should promptly report to Reserve Bank, details of cases where

the guarantee has been invoked but the amount has not been remitted by the non-resident guarantor.

Loans to Residents against Shares/Securities/

Properties in India of Non-residents

10D.7

(i)

Authorised dealers may grant loans to resident family members of persons of

Indian nationality/origin who have gone abroad for employment, etc. (NRI) for land-

based agricultural activities against the security of land held by them in India either singly or jointly with other resident members of the family subject to the following conditions:

(a)

The loan should be need-based and granted only in cases where the total land holding of the NRI does not exceed five (5) hectares in his individual name or jointly with others. The amount of loan should not exceed Rs.3 lakhs.

(b)

The amount of loan should be utilised for carrying on agricultural activities on the existing land holding only and not to be used for acquiring any additional land.

(c)

The loan can be repaid out of income generated from the agricultural activity or by remittances in foreign exchange sent by NRI from abroad or by debit to his NRE/FCNR/NRO account.

(d)

Requirements regarding security, margin, rate of interest etc. as stipulated by Reserve Bank from time to time should be complied with.

(ii)

Applications not covered by sub-paragraph (i) above for grant of loans/overdrafts

against pledge of collateral viz. shares/securities of Indian companies or immovable propertty held in India by persons, firms and companies resident outside India should be referred to Reserve Bank for prior approval in form LOV 1.

Loans from Non-resident Relatives

10D.8

Persons (i.e., individuals) resident in India can avail of interest free loans on non-repatriation basis from their non-resident relatives for personal purposes and business activities and not for

the purpose of carrying on agricultural/plantation activities, purchase of immovable property, shares, debentures, bonds or for re-lending. Under the general permission granted by Reserve Bank vide its Notification No. FERA.175/97-RB dated 27th February 1997, such loans can be availed of subject to the following conditions:

(a)

The loans should be from the relatives as defined in Section 6 of the Companies Act, 1956.

(b)

The loan amount should be received through normal banking channels or by debit to the lender's NRE/FCNR account with an authorised dealer.

(c)

The repayment of loan amount is made by credit to the Ordinary Non-resident Rupee (NRO) account of the non-resident lender.

Applications for availing of loans from non-resident relatives on non-repartiation basis but which do not fall within the above criteria or loans on repatriation basis, should be referred to Reserve Bank for prior approval giving full details such as name/address of lender, loan amount, rate of interest, purpose and period of the loan repayment schedule, etc.

Guarantees for Non-residents

10D.9

(i)

In terms of Section 26 of FERA, 1973, persons resident in India cannot, except with the general or special permission of the Central Government or Reserve Bank, give a

guarantee in respect of any debt or other obligation or liability (a) of a person resident in India, and due or owing to a person resident outside India; or (b) of a person resident outside India. Reserve Bank has by its Notification No. FERA.132/93-RB dated 26th April 1993 granted general permission to shipping agents to give, in respect of any debt or other obligation or liability of their foreign shipping principals, guarantees in favour of Income-tax, Customs, Port Trust and other Central and State Government authorities in India, subject to such instructions as may be issued by Reserve Bank from time to time. Shipping agents should abide by the following instructions while giving such guarantees.

(a)

he guarantee should be covered by counter-guarantee of overseas shipping principal to the effect that the latter will reimburse the amounts which the shipping agent may have to pay on behalf of the shipowner under the guarantee. In lieu of specific counter-guarantees, the shipping agents may also obtain a general undertaking from the shipping principal in the form of a letter addressed to the agent providing the following clause:

"This is to clarify that you, as our shipping agents, have the full authority to give guarantees in respect of any of our debts or other obligations or liability in favour of any officer or other authority appointed or constituted under the Income-tax Act, the Customs Act, the Major Ports Act or any other Central or State Act in force in India. You may pay the dues payable to any of those authorities out of our funds representing genuine freight collections and lying with you or at your power or disposal. If any shortfall arises, we will fully reimburse you by making adequate remittance in this regard in foreign exchange through banking channel."

NOTE:

In case of tramp agencies, shipping agents may obtain, if they so desire, such letters of undertaking from the master of the ship instead of overseas principals.

(b)

Amounts paid by shipping agents should be recovered out of the funds remitted from abroad by the overseas shipping principal through normal banking channels and/or from the latter's surplus freight/passage fare collections in India.

(ii)

Reserve Bank has likewise granted general permission to authorised dealers vide

the above Notification to give guarantees in favour of persons resident in India in respect of any debt or other obligation or liability of a person resident outside India subject to such instructions as may be issued by Reserve Bank from time to time. Authorised dealers may accordingly give on behalf of their overseas Head Office/branches/correspondents or a bank of international repute guarantees/performance bonds in favour of residents of India in connection with genuine transactions involving debt, liability or obligation of non-residents provided the bond/guarantee is covered by a counter guarantee of the overseas Head Office/branch/correspondent or a bank of international repute. Authorised dealers may make rupee payments to the resident beneficiaries immediately when the guarantee is invoked and simultaneously arrange to obtain the reimbursement from the overseas bank concerned which had issued the counter guarantee. Authorised dealers are well advised that they should ensure that counter guarantees are properly evaluated and their own guarantees against such guarantees are not issued in routine manner. Before issuing a guarantee against the counter guarantee from an overseas Head Office/branch/ correspondent/bank of international repute, authorised dealers should satisfy themselves that the obligations under the counter guarantee, when invoked, would be honoured by the overseas bank promptly. If the authorised dealer desires to issue guarantee with the condition that payment will be made provided reimbursement has been received from the overseas bank which had issued the counter guarantee, this fact should be made clearly known to the beneficiary in the guarantee document itself. Cases where payments are not received by the authorised dealers when the guarantees of overseas banks are invoked, should be reported to Reserve Bank indicating the steps being taken by the bank to recover the amount due under the guarantee.

NOTE:

Authorised dealers may issue guarantees in favour of overseas organisations issuing travellers cheques in respect of blank travellers cheques stocked for sale by them or on behalf of their constituent who are full-fledged money changers holding valid licences from Reserve Bank, subject to suitable counter guarantee being obtained from the latter. In the event of the guarantee being invoked authorised dealers may effect remittance but should send a separate report thereon furnishing full details to the Chief General Manager, Exchange Control Department, (Forex Market Division), Reserve Bank of India, Central Office, Mumbai 400 001.