What changed
Previously, under FEMA Regulation 8(d), only housing loans taken by NRIs could be repaid by resident close relatives. Now, RBI has extended this permission to all rupee loans granted by authorised dealers to NRIs under Regulation 7 of FEMA 4/2000-RB. The change is effective from September 16, 2011, and formal amendments to the regulations are being issued separately.
What it means for you
Banks can now accept loan repayments from resident close relatives for any rupee loan extended to NRIs, not just housing loans. This simplifies compliance for lenders and reduces the need for case-by-case approvals. It also expands the pool of potential repayers, potentially lowering default risk on NRI loan portfolios.
What you must do
- Update internal loan repayment policies to accept repayments from resident close relatives for all NRI rupee loans under Regulation 7.
- Train branch staff on the expanded definition of 'relative' as per Section 6 of the Companies Act, 1956.
- Ensure loan documentation captures the relationship between the NRI borrower and the resident relative making repayment.
- Monitor for any separate amendment notification to FEMA 4/2000-RB and align systems accordingly.
Who it affects
Authorised dealers (banks) handling NRI rupee loans, NRI borrowers with rupee loans from Indian banks, Resident close relatives of NRIs who wish to repay loans
Does this circular apply to loans given by housing finance institutions?
The circular specifically mentions loans granted by an authorised dealer. Housing finance institutions are not covered under this expansion; the earlier housing loan provision for them remains unchanged.
What is the definition of 'close relative' under this circular?
The circular refers to 'relative as defined in Section 6 of the Companies Act, 1956'. Banks should refer to that definition for determining eligible resident relatives.
Are there any additional approvals needed for such repayments?
No, the circular grants general permission. However, banks must ensure compliance with other applicable laws and maintain proper documentation.