IV. Remittance of Dividend/Interest and other Income and Sale/Transfer of Shares/Debentures

Remittance of Dividend/Interest on Shares/

Bonds/Debentures held by NRIs/OCBs

10C.24

(i)

The procedure outlined in paragraph 10B.6 and 10B.7 should be followed for

remittance of dividend (including interim dividend) or interest on

shares/bonds/debentures to non-resident holders who have been permitted to make investments with repatriation benefits. In cases where the dividend/interest is to be credited to the non-resident holder's NRE account with a bank in India, it may be paid by issuing individual dividend/interest warrants to the shareholders' mandatee banks for credit to NRE account. The following particulars/documents should be furnished by Indian companies along with the dividend/interest warrant:

(a)

Nationality and origin of the non-resident share/bond/debenture holder and place/country of permanent residence;

(b)

A certified statement from the company, under the signature of an authorised official, showing the number of shares/bonds/debentures held by the non-resident, face value, number and date of Reserve Bank's approval under Section 19(1)/29(1)(b)/29(4)(a) of the Act for issue / purchase / holding of the shares/bonds/debentures, rate of dividend declared or interest payable, year/period to which it relates, gross dividend/interest, tax deducted at source and net remittable amount;

(c)

A certified statement from the company, under the signature of an authorised official, that in the terms of permission granted by Reserve Bank for acquisition of the shares/bonds/debentures there is no prohibition for the remittance of dividend/ interest.

On receipt of the above particulars/documents and after verifying documentary evidence that the permission granted by Reserve Bank to the non-resident share/bond/debenture holder for purchase/ holding/issue of shares/bonds/debentures under Section 29(1)(b)/ 29(4)(a)/19(1) of FERA 1973 does not prohibit the remittance of dividend/interest, authorised dealers may credit the amount of the dividend/interest warrant to the NRE account of the non-resident share / bond / debenture holder.

(ii)

While granting permission to bank branches of authorised dealers to purchase

shares/debentures on behalf of NRIs, under the Portfolio Investment Scheme, Reserve Bank also authorises the bank branch concerned to remit or to credit the dividend/interest to the non-resident investor's NRO/NRE/FCNR account, as the case may be. Dividend/interest due to the non-residents may accordingly be credited to the respective accounts after ensuring that the conditions laid down in this regard are satisfied.

(iii)

Dividend/Interest due to non-resident share /bond/debenture holders who are

not eligible for having them remitted abroad should be paid to their mandatee bankers in India for credit to their NRO accounts. Reserve Bank would permit repatriation of the net (i.e. after payment of tax) income/interest earned during the financial year 1994-95 and onwards on such investments in accordance with the procedure laid down in paragraph 10C.24A.

(iv)

Before allowing remittance of dividend/interest to an OCB, authorised dealers

should ensure that it has submitted the required annual certificate in form OAC or OAC 1, as the case may be, and that the ownership/beneficial interest of non-resident individuals of Indian nationality/origin had remained at or above the level of 60% up to the end of the period for which dividend is to be remitted.

Remittance of Income on Investments on

non-repatriation basis

10C.24A

(i)

Non-resident persons of Indian nationality/origin (NRIs) and overseas

corporate bodies (OCBs) predominantly owned by NRIs have been permitted to make

investment in partnership / proprietorship concerns, shares/debentures of Indian companies, Indian mutual funds, real estate, deposits with Indian companies/banks, units of Unit Trust of India, etc. on non-repatriation basis. NRIs are also permitted by Reserve Bank to grant loans to resident persons/firms/companies on non-repatriation basis. Further, the investment/deposits held in India by Indian nationals who have become non-residents on account of their going abroad on employment/emigration, as well as income/interest earned on such investment/deposit/loan is also not allowed to be repatriated abroad. [cf. paragraphs 10C.6 to 10C.10, 10C.30, 10C.31, 10C.34, 10D.8, 11E.6(item A.5), 11E.7 and 13A.9]. Although the investment/principal amount of deposits/loans made/held on non-repatriation basis under these schemes, investment made by NRIs out of rupee loans from banks in India against the security of NRE/FCNR accounts, sale proceeds of the house/flat acquired/constructed out of loans obtained by NRIs against the security of the NRE/FCNR accounts, if sold, continue to be non-repatriable, authorised dealers may allow repatriation of net income/interest earned (i.e. after payment of tax) on these investments/deposits/loans, as also of net income by way of rent earned on house/flat acquired/constructed, in a phased manner as under :

Incomes earned during the financial year Amount eligible for repatriation

1994-95

up to U.S.$ 1,000 (U.S.dollars one thousand) in full and one third of the balance amount of income

1995-96

up to U.S.$ 1,000 (U.S. dollars one thousand) in full and two third of the balance amount of income

1996-97onwards

Entire income

Applications for remittance of such incomes may be made to Reserve Bank on a consolidated basis at the end of the year in accordance with the procedure laid down in paragraph (ii). Since the entire income will be repatriable from 1996-97 onwards, remittances pertaining to the period 1996-97 and onwards will be permitted to be made either in one lumpsum or in suitable instalments, if so desired by the applicants.

(ii)

For the purpose of availing of this facility, the concerned NRI/OCB should

designate a branch of an authorised dealer through whom the remittance of income is sought to be made and submit an application to it in form RCI, duly completed, together with the documents specified therein and details of income earned on investments/deposits as also any other income like pension earned. Authorised dealer on satisfying himself with reference to the particulars/documents and the Chartered Accountants certificate furnished that the income/interest etc. sought to be repatriated is eligible for remittance, may allow the remittance out of the relevant funds held in the applicant's NRO account or credit the same to the NRE/FCNR account of the applicant after ensuring that the Income-tax has been paid as per the provisions of Income-tax Act and an undertaking/certificate regarding payment of income-tax (cf. paragraph 3 B.10) has been produced from the Income-tax Authorities. Doubtful cases should be referred to Reserve Bank with full particulars

NOTE :

Remittance of pension may be allowed if the applicant does not have any other income in India, without insisting on a certificate from Chartered Accountant/Income tax authorities regarding payment of Income-tax. In such cases authorised dealers should obtain a "one time certificate" issued by the pension disbursing office that the applicable Income-tax is being deducted by them.

(iii)

The designated branch should maintain party-wise records of the approvals

granted by Reserve Bank as also actual remittances made there against. A half-yearly statement in form CIR should be sent to Reserve Bank giving details of the remittances made/credits to NRE/FCNR accounts allowed, by 15th of the month following the half-year.

Sale/Transfer of Shares/Bonds/Debentures

by NRIs to Residents

10C.25

(i)

In order to facilitate quick transfer of shares/bonds/debentures held by NRIs to

residents, Reserve Bank has granted general exemptions by Notifications issued under

Section 19(6) of FERA1973 for sale/transfer of shares/bonds/ debentures through stock exchanges in India subject to fulfillment of certain conditions. The details of these exemptions have been explained in paragraphs 10C.26 and 10C.27.

(ii)

Applications for sale/transfer of shares / bonds /debentures held by

NRIs/OCBs by private arrangement i.e. other than through stock exchange should be made to Reserve Bank in form TS 1 either by the transferor or the transferee, attaching therewith the letter of consent of the other party irrespective of whether the shares/bonds/ debentures are listed on a stock exchange or not. While conveying its approval, Reserve Bank will stipulate the conditions subject to which the sale/transfer should be effected. In cases of sale/transfer of shares/bonds/debentures acquired on repatriation basis, repatriation of such proceeds of bulk holdings (i.e. shares/bonds/debentures exceeding Rupees one lakh in face value or 5% of the company's paid-up capital whichever is lower) will be permitted only on production of a certificate from a Chartered Accountant or the concerned company's secretary stating that shares with necessary transfer forms duly signed have been received/lodged with the company for registration in favour of the transferee.

General Exemption for Sale/Transfer of Shares/Bonds/

Debentures of Indian Companies through a Stock Exchange

acquired without repatriation benefit

10C.26

(i)

Reserve Bank by its Notification No. FERA.149/93-RB dated 26th April 1993

has exempted the transfer of shares, bonds or debentures of Indian companies made by

NRIs through stock exchange in India in case where (a) such transfers are made in favour of an Indian citizen or person of Indian origin resident in India or in favour of a company or other body corporate incorporated in India and (b) sale proceeds of shares are credited to the NRO account of the transferor with no right of repatriation outside India. In such cases, authorised dealers may credit the sale proceeds to the seller's NRO account after verifying the contract notes issued by recognised stock exchange brokers through whom the sale was effected. This exemption is available in respect of shares, bonds or debentures acquired by NRIs under the Portfolio Investment Scheme as well as under any Direct Investment Scheme.

(ii)

For sale/transfer of shares, bonds or debentures by OCBs acquired on non-

repatriation basis through a stock exchange in India, a consolidated application giving full particulars may be submitted to the concerned office of Reserve Bank. Permission will be granted by Reserve Bank for a specific period subject to renewal.

General Exemption for Sale/Transfer of Shares/Bonds/Debentures

of Indian Companies through a Stock Exchange acquired with

repatriation benefits under the Portfolio Investment Scheme

10C.27

(i)

Reserve Bank by its Notification No.FERA.150/93-RB dated 26th April 1993

has exempted transfer of shares, bonds or debentures of Indian companies registered

in India previously acquired by NRIs/OCBs with repatriation benefits under the Portfolio Investment Scheme to persons resident in India or persons of Indian origin resident in India or in favour of companies or bodies corporate, incorporated under any law in force in India on the following conditions.

(a)

The transferor had purchased such shares, bonds or debentures from the stock market through a member of a recognised stock exchange in India and delivery of shares, bonds or debentures so purchased has been taken by him or on his behalf by the concerned authorised dealer or its nominee.

(b)

The shares, bonds or debentures are sold in the stock market through a member of a recognised stock exchange in India and the sale transaction is effected at the ruling market price as determined on the floor of the stock exchange by normal bid and offer method and through the same designated branch of the authorised dealer through which the shares, bonds or debentures were earlier purchased;

and

(c)

The sale proceeds are paid to the said designated branch.

Consequently, it is not necessary for NRIs/OCBs to obtain Reserve Bank's permission for sale of shares/bonds/debentures effected in the above manner. As regards the repatriation of sale proceeds received by the designated branches, Reserve Bank will, while granting approval for purchase of shares/bonds/debentures also grant approval for repatriation of the sale proceeds if and when shares/bonds/debentures are sold in the above manner. The actual repatriation of the sale proceeds or credit thereof to the NRE/FCNR account of the beneficiary will be subject to payment of Indian taxes.

(ii)

Sale/transfer of shares/bonds/debentures acquired by NRIs/OCBs with

repatriation benefits under the Direct Investment Scheme and sold through the Stock Exchange in India will require permission of Reserve Bank. Applications for necessary permission should be made by NRIs/OCBs to the Central Office of Reserve Bank in form TS 4 through the designated bank branch of an authorised dealer.

In such cases, permission for sale/transfer of shares / bonds/ debentures acquired with the right of repatriation will be granted by Reserve Bank to the bank branch designated by the seller or to the authorised dealer, as the case may be, who may sell the holdings at the ruling market price through a stock exchange at any time within the validity of the permission. While granting permission for sale/transfer, Reserve Bank will also authorise the designated branch/authorised dealer to credit the sale proceeds to the NRE or FCNR account of the seller or to remit them abroad subject to payment of taxes on capital gains, if any. Where the amount of capital gains tax is not immediately determinable, the designated branch/authorised dealer may allow repatriation of sale proceeds or credit thereof to the seller's NRE/FCNR account to the extent of the original cost of investment immediately on realisation of the sale proceeds. The excess amount, if any, representing capital gain should be kept by the designated branch/authorised dealer in a separate NRO account of the seller or in a suspense account. The designated branch/authorised dealer may allow withdrawal of this amount for credit to the NRE/FCNR account of the seller or remit it abroad, on production of necessary tax clearance certificate.

NOTE:

Under Section204 of the Income-tax Act 1961, authorised dealers are required to deduct income-tax at a flat rate of 20% of the long-term capital gains accruing to NRIs on the transfer of specified assets which include shares/bonds/debentures of Indian companies, Government securities and any other notified assets. The amount of capital gains is to be arrived at on the basis of a formula laid down by Government. The tax deducted at source is required to be paid into Government treasury or the office of Reserve Bank, State Bank or any other nationalised bank authorised for the purpose, within one week from the date of deduction of tax. NRIs have, however, been given the option to pay tax at the above flat rate or pay it on the total income for the assessment year, in which case the remaining amount of sale proceeds withheld by authorised dealers may be credited to NRE/FCNR account of the seller or remitted to him abroad only after production of the necessary tax clearance certificate.

(iii)

A quarterly statement of sales / transfers of shares / bonds / debentures

acquired by NRIs/OCBs under the Direct Investment Scheme and sold through stock exchange by authorised dealers vide sub-paragraph (ii) above should be submitted by the concerned authorised dealer to the Central Office of Reserve Bank in form DSP within 15 days from the close of each calendar quarter.

General Exemption for Transfer of Rupee

Securities by Non-residents as Gift

10C.28

By its Notification No. FERA.151/93-RB dated 26th April 1993, Reserve Bank has

also exempted transfer, by way of gift, of any share, bond or debenture of a company

registered in India made by a non-resident Indian or person of Indian origin to a citizen of India or a person of Indian origin resident in India provided -

(a)

such share, bond or debenture was held by the transferor with the permission of the Reserve Bank,

and

(b)

such transfer is between relatives as defined in Section 6 of the Companies Act, 1956.

Transfer of Rupee Securities to Non-residents as Gifts

10C.29

Transfer of rupee shares/securities by residents to non-residents by way of gift

requires prior approval of Reserve Bank. Applications for such transfers should be

made to the concerned Office of Reserve Bank and should, inter alia, contain the following information:

(a)

Name, address and permanent place of residence of both the transferor and the transferee.

(b)

Relationship between the transfer or and the transferee.

(c)

Reason for making the gift.

Recording of Overseas Address by Indian Companies

Consequent on Resident Security Holder Becoming Non-resident

10C.30

In terms of Section 19(4) of FERA 1973, permission of Reserve Bank is required to be

obtained by Indian companies for recording in their registers/books, the overseas

address of the holder of securities, consequent on change of his status from resident to non-resident. By its Notification No. FERA 122/92-RB dated 17th September 1992, Reserve Bank has granted general permission to companies in India to enter the overseas address in such cases provided the company obtains an undertaking from the holder of any security that he will not seek repatriation of any income, dividend or sale proceeds of the security. The dividend/interest earned on such securities or sale proceeds thereof should, therefore, be credited only to the Ordinary Non-resident Rupee (NRO) Account of the holder with a bank in India.

Note:

See paragraph 10C.24A regarding repatriation of income/interest earned during the financial year 1994-95 and onwards.

Conversion of Holdings of Securities into

Joint Holdings Between Residents/Non-residents

10C.31

By its Notification No. FERA.145/93-RB dated 26th April 1993 issued under sub-

sections (1) and (5) of Section 19 of FERA 1973,Reserve Bank has granted general

permission to NRIs/resident Indian citizens for conversion of their holdings in securities issued or registered in India, into joint holdings by addition of the names of persons of Indian nationality or origin subject to the following conditions:

a)

An NRI to convert his holding into joint holding by addition of name/s of person/s of Indian nationality/origin resident in India provided (i) transfer formalities as required under the Companies Act, 1956 are complied with and (ii) dividend income or sale proceeds of the securities accruing to the person resident in India are not repatriated outside India in the event of his becoming a non-resident sole (or joint named) holder of the security by succession, gift or otherwise.

b)

A resident Indian citizen to convert his holding into a joint holding by addition of name/s of an NRI/s provided (i) the resident holder continues to be the first holder; (ii) the joint holding is treated as non-resident holding in the books of the company; (iii) any dividend or income or sale proceeds becoming payable to NRIs are credited to his NRO account and (iv) the securities are not sold or disposed of otherwise than through a member of a recognised stock exchange in India, except with the permission of Reserve Bank.

Note:

See paragraph 10C.24A regarding repatriation of income/interest earned during the financial year 1994-95 and onwards.

V. Investment in Government Securities/Units, etc.

Investment in Government Securities, National Plan/

Savings Certificates and Units of UTI

10C.32

(i)

NRIs are permitted to invest freely in securities (other than bearer securities) of the Central or any State Government and National Plan/Savings Certificates

by making remittances from abroad or out of funds held in their NRE/FCNR accounts, provided the purchase/subscription is arranged through the authorised dealer maintaining the account. Authorised dealers may also make such investments on behalf of NRIs out of funds held in their NRO accounts subject to the condition that the funds invested and any income earned thereon will not be eligible for repatriation out of India at any time in future. Likewise, OCBs can also invest in Government securities and National Plan/Savings Certificates if permitted under the terms and conditions applicable to the sale/issue of such securities and the purchase/subscription is arranged through an authorised dealer.

(ii)

NRIs/OCBs are permitted to invest in units of UTI subject to the terms and

conditions applicable for the issue/sale thereof, against remittances from abroad or out of funds held in their NRE/FCNR account, through the authorised dealer maintaining the account. Funds held in their NRO accounts may also be utilised for the purpose subject to the condition that the funds invested and any income earned on such investment will not be eligible for repatriation out of India at any time in future. UTI has also been granted general permission by Reserve Bank for issue of units to NRIs/OCBs, provided the funds towards the purchase price are remitted by the investors from abroad in an approved manner or the price is paid out of the investors' NRE/FCNR accounts maintained with authorised dealers in India. Where funds held in NRO accounts are utilised for purchase of units, UTI will issue units to NRIs/OCBs on the condition that the funds invested and income earned thereon will not qualify for repatriation out of India at any time in future. Units can thus be bought by NRIs/OCBs directly from UTI also.

Sale/Transfer of Government Securities/Units

10C.33

NRIs/OCBs may freely sell/transfer Government securities through a Stock Exchange in India, provided the sale/transfer of such securities is arranged through an authorised

dealer. Similarly NRIs/OCBs holding units of UTI may freely tender them for repurchase by the Trust.

Repatriation of Interest/Dividend/Maturity

Proceeds of Government Securities/National

Plan and Savings Certificates/Units

10C.34

Interest and maturity proceeds of Government securities including National Plan/Savings Certificate, sale proceeds of Government securities sold on Stock Exchanges as well

as dividend on Units of UTI and repurchase proceeds thereof may be credited by authorised dealers to the NRO accounts of non-resident investors without reference to Reserve Bank. As far as credits of such funds to NRE/FCNR accounts are concerned, powers of authorised dealers are restricted to cases where the original investment was made by remittances from abroad or by debit to the NRE/FCNR accounts maintained by non-resident investors. In the case of Units purchased directly from UTI, authorised dealers may credit the dividends/repurchase proceeds to the investor's NRE/FCNR account or make remittance to the investor abroad only if the payment is received from UTI with a confirmation that the investment in those units was made out of funds received from abroad in an approved manner or by debit to NRE/FCNR account of the unit holder. In all other cases, dividend/repurchase proceeds should be credited to NRO accounts.

Note:

See paragraph 10C.24A regarding repatriation of income/interest earned during the financial year 1994-95 and onwards.

PART D - LOANS, OVERDRAFTS AND GUARANTEES FOR NON-RESIDENTS

Loans Abroad against Securities provided in India

10D.1

(i)

The pledging of securities or the giving of guarantees by banks and others in India

to banks and others outside India for the purpose of grant of loans or overdrafts abroad is,

prohibited except to the extent provided in sub-paragraphs (ii) and (iii) below.

(ii)

Authorised dealers may grant through their overseas branches and correspondents,

to Indian nationals or persons of Indian origin, OCBs established in business or trade, loans and overdrafts against the security of fixed deposits or other assets in India, provided they are satisfied that such assets represent funds which had been previously remitted to India in an approved manner. Overseas branches and correspondents of authorised dealers can also accept shares/debentures of Indian companies as collateral for the purpose of granting loans/overdrafts to non-resident borrowers, provided these shares/debentures were acquired on repatriation basis out of remittance from abroad or funds held in NRE/FCNR accounts. Any remittance from India other than the sale proceeds of the shares held by the concerned NRIs on repatriation basis (net of applicable taxes, if any) to be adjusted for liquidation of outstandings in such loans or overdrafts accounts will, however, require prior approval of Reserve Bank. Grant of loans and overdrafts against security of fixed deposits with authorised dealers in NRE/FCNR accounts is governed by the provisions in Chapters 13 and 14.

(iii)

Deleted.

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.