What changed
Previously, only AD banks could grant rupee loans to NRIs. Now, resident individuals have general permission to lend to their NRI/PIO close relatives, as defined under Section 6 of the Companies Act, 1956, subject to conditions. The loan must be interest-free, have a minimum one-year maturity, and stay within the LRS limit of USD 200,000 per financial year.
What it means for you
Banks must update their internal guidelines and customer advisories to reflect this new facility. Lenders (resident individuals) are responsible for ensuring the loan amount does not exceed the LRS cap. The loan proceeds must be credited to the NRO account of the borrower and cannot be remitted abroad, ensuring funds stay within India.
What you must do
- Update internal circulars and staff training materials to include the new lending facility for resident individuals to NRI/PIO close relatives.
- Advise customers that loans must be interest-free, with a minimum one-year maturity, and within the USD 200,000 LRS limit per financial year.
- Ensure loan proceeds are credited only to the NRO account of the NRI/PIO borrower and not remitted outside India.
- Monitor repayment methods: inward remittances, debit to NRO/NRE/FCNR accounts, or sale proceeds of shares/securities/immovable property.
Who it affects
All Authorised Dealer (AD) banks, Resident individuals wishing to lend to NRI/PIO close relatives, NRI/PIO borrowers receiving rupee loans from resident relatives
What is the maximum loan amount a resident individual can lend to an NRI close relative under this circular?
The loan amount must be within the overall limit under the Liberalised Remittance Scheme (LRS) of USD 200,000 per financial year for the resident individual. The lender must ensure compliance with this limit.
Can the loan be used for real estate or agricultural activities?
No. The loan cannot be used for agricultural/plantation activities, real estate business (except development of townships, construction of residential/commercial premises, roads, or bridges), chit fund, Nidhi Company, or trading in Transferable Development Rights (TDRs).
How should the loan amount be credited and repaid?
The loan amount must be credited to the NRO account of the NRI/PIO borrower. Repayment can be made via inward remittances, debit to the borrower's NRO/NRE/FCNR account, or from sale proceeds of shares/securities/immovable property against which the loan was granted.