What changed
The ceiling on loans against NR(E)RA and FCNR(B) deposits has been raised from Rs 20 lakh to Rs 100 lakh. This change, announced in the Annual Policy Statement 2009-10, applies to both depositors and third parties. The prohibition on artificial slicing of loan amounts to circumvent the limit remains in place.
What it means for you
Banks can now offer larger loans secured by NRE/FCNR deposits, potentially boosting credit uptake from non-resident customers. This may increase demand for such deposit products as collateral. Lenders must ensure strict adherence to the Rs 100 lakh cap and avoid any structuring of loans to evade the limit.
What you must do
- Update internal loan policies and systems to reflect the new Rs 100 lakh limit for loans against NR(E)RA and FCNR(B) deposits.
- Train staff on the revised ceiling and reinforce the prohibition on artificial slicing of loan amounts.
- Communicate the change to customers holding NRE/FCNR deposits to encourage loan applications.
- Review existing loan portfolios to ensure compliance with the new limit and adjust any loans exceeding Rs 100 lakh.
Who it affects
All Category-I Authorised Dealer banks, Authorised banks handling NRE/FCNR deposits, Non-resident depositors with NR(E)RA or FCNR(B) accounts, Third parties seeking loans against such deposits
Does the new Rs 100 lakh limit apply to both fresh loans and renewals?
Yes, the circular states that banks may now grant loans against these deposits up to Rs 100 lakh, covering both new loans and renewals of existing ones.
Can a bank split a Rs 150 lakh loan into two parts to stay under the cap?
No, the circular explicitly advises banks not to undertake artificial slicing of the loan amount to circumvent the ceiling.
When does this change take effect?
The instructions come into force with immediate effect from the date of the circular, April 28, 2009.