II. Investment with
Repatriation Benefits
III. Portfolio Investment in Shares/Debentures of Indian Companies and in
Domestic Mutual Funds
IV. Remittance of Dividend/Interest and other Income and Sale/Transfer of
Shares/Debentures
V. Investment
in Government Securities/Units, etc.
PART
D - LOANS, OVERDRAFTS AND GUARANTEES FOR NON-RESIDENTS
CHAPTER 10 (Part 2 Of 2)
FOREIGN INVESTMENT IN INDIA
II. Investment with Repatriation Benefits
NRIs/OCBs are also permitted to make investments in Indian firms/companies
with repatriation benefits i.e. capital invested and dividend/income earned
thereon are allowed to be repatriated outside India, under various schemes as
explained in paragraphs 10C.11 to 10C.18.
Investment in New issues of Indian Companies under 40% Scheme
10C.11
- NRIs/OCBs are permitted to subscribe to new issues of shares (both
equity and preference) and convertible debentures of any new or existing
company, with the right of repatriation of capital invested and income
earned thereon subject to payment of applicable taxes, provided:
- The issue of equity/preference shares and convertible debentures to
NRIs/OCBs with repatriation facility does not exceed 51 per cent of the face
value of each new issue of the company concerned, and
- The shares of the company are not listed on any stock exchange, and
- The company is engaged in manufacturing activity not being an activity
specified in Annexure III to the Statement of Industrial Policy 1991 of
Government of India, amended from time to time.
Investment under this scheme can be made for setting up new manufacturing
projects or for expansion/diversification of their existing manufacturing
activities.
- Reserve Bank, vide its Notification No.F.E.R.A.187/98-RB dated 3rd
October 1998 read with Notification No.F.E.R.A. 190/98-RB dated 2nd December
1998, has granted general permission under Section 19(1)(a), 19(1)(d) and
29(1)(b) of FERA 1973 to Indian companies for issue and export of equity
shares/convertible debentures to NRI/OCB investors in respect of eligible
investments. Indian companies seeking investment from NRIs/OCBs under the
scheme and such unlisted Indian companies satisfying the conditions laid
down in the said Notifications may issue shares/convertible debentures to
NRIs/OCBs without prior approval of Reserve Bank and file a declaration in
Form ISD(R) together with the required documents with the concerned Regional
Office of Reserve Bank, under whose jurisdiction their Registered Office is
situated, within 30 days from the date of issue of shares/convertible
debentures. Accordingly, NRIs/OCBs who have been issued shares/convertible
debentures under the general permission granted by this Notification would
not need any specific approval under Section 29(1)(b) of FERA 1973 from
Reserve Bank.
- The Indian company should report within 30 days from the date of
receipt of remittance from NRIs/OCBs, full details of remittance like name,
amount, date of receipt to the Regional Office of Reserve Bank under whose
jurisdiction it is situated.
Investment in New issues of Indian Companies under 24% Scheme
10C.11A NRIs/OCBs are permitted to subscribe to new issues of equity
shares/convertible debentures of existing or new companies (both private and
public limited) engaged/proposing to engage in any activity including finance,
hire purchase, leasing, trading or other services etc., (except
agricultural/plantation activities and real estate business) with repatriation
benefits upto 24% of the new issue of the concerned Indian company. Reserve
Bank, vide its Notification No.F.E.R.A.187/98-RB dated 3rd October 1998 has
granted general permission under Section 19(1)(a), 19(1)(d) and 29(1)(b) of FERA
1973 to Indian companies for issue and export of equity shares/convertible
debentures to NRI/OCB investors in respect of the eligible investment. Indian
companies seeking investment from NRIs/OCBs under the Scheme and satisfying the
conditions laid down in the said Notification may issue equity
shares/convertible debentures to NRIs/OCBs without prior approval of Reserve
Bank and file a declaration in Form ISD together with the required documents
with the concerned Regional Office of Reserve Bank, under whose jurisdiction
their Registered Office is situated, within 30 days from the date of issue of
shares/convertible debentures. Accordingly, NRIs/OCBs who have been issued
shares/convertible debentures under the general permission granted by this
notification would not need any specific approval under Section 29(1)(b) of FERA
1973 from Reserve Bank.
Investment in Priority Industries under 100% Scheme
10C.12
- NRIs/OCBs are permitted to invest in priority industries (industries
included in Annexure III to Ministry of Industry's Press Note No.14 (1997
series) dated 8th October 1997 and in Indian companies primarily engaged in
export trading activity, with full repatriation benefits up to 100% of the
new issue of shares. Reserve Bank, vide its Notification No. F.E.R.A.
180/98-RB dated 13th January 1998 (as amended up to 14th July 1998) has
granted general permission under Sections 19(1) and 29 (1) (b) of FERA 1973
to Indian companies for issue and export of equity shares to NRI/OCB
investors in respect of the eligible investment. Indian companies seeking
investment from NRIs/OCBs under the Scheme and satisfying the conditions
laid down in the said Notification may issue equity shares to NRIs/OCBs,
without prior approval of Reserve Bank and file a declaration in form ISD(R)
together with the required documents with the concerned Regional Office of
Reserve Bank, under whose jurisdiction their Registered office is situated,
within 30 days from the date of issue of shares. The scheme is open to new
industries as well as for expansion/diversification of existing industrial
undertakings. A company, existing on the date of the above Notification,
which is not engaged in the Annexure III activities will also be eligible to
issue shares if it embarks upon expansion programme predominantly in the
Annexure III activities, subject to the condition that the equity raised by
issue of equity shares to non-resident investors is utilised for such
expansion.
NOTE : In terms of Reserve Bank Notification dated 13th January 1998
referred to above, the general permission does not cover investment by -
(a) persons who are citizens of Pakistan, Bangladesh or Sri Lanka
(b) companies incorporated in Pakistan or Bangladesh
(c) a company being -
(i) manufacturer of items reserved for small scale sector;
(ii) unit manufacturing items which require industrial licence;
(iii) unit manufacturing any item of aerospace and defence equipments
whether specifically mentioned or not;
(iv) unit manufacturing any item related to production or use of atomic
energy including carrying out of any process, preparatory or ancillary to
such production or use, under the Automic Energy Act, 1962; and
(v) 100 % Export Oriented Unit and unit in Export Processing Zone.
- Since the general permission referred to in sub-paragraph (i) above
does not cover investment by individual NRIs in partnership firms,
applications for necessary permission for seeking such investment should be
made to Reserve Bank, Central Office, Mumbai in form ISD(R) by the
non-resident investor or the Indian firm proposing to invite the investment.
- Applications for foreign investment which do not satisfy the
parameters prescribed for general permission as laid down in the Reserve
Bank Notification dated 13th January 1998 as amended upto 14th July 1998
referred to above or in 100% Export Oriented Units are required to be made
to the Secretariat for Industrial Assistance (SIA)/Foreign Investment
Promotion Board (FIPB), as the case may be. If the unit is located in any of
the Export Processing Zones, applications should be made to the Development
Commissioner of the Export Processing Zone concerned.
- With a view to simplifying the procedure in respect of proposals
approved by SIA/FIPB, Reserve Bank, vide its Notification
No.F.E.R.A.182/98-RB dated 10th February 1998 has granted general permission
under Sections 19(1) and 29(1)(b) of FERA 1973 to Indian companies for issue
and export of shares/securities to foreign investors in respect of
investments approved by SIA/FIPB. As a result of the general permission,
Indian companies seeking foreign investments from NRIs/OCBs under the scheme
based on the approvals granted by SIA/FIPB and satisfying the conditions
laid down in the notification will not require any prior clearance of
Reserve Bank. Such Indian companies may issue shares/securities to foreign
investors and file a declaration in form ISD together with the required
documents, with the concerned Regional Office of Reserve Bank under whose
jurisdiction their Registered Office is situated, within 30 days from the
date of issue of shares/securities to foreign investors.
Investment in Housing and Real Estate Development
10C.13
NRIs/OCBs will be permitted to invest up to 100% in the new issue of equity
shares/
convertible debentures of Indian companies engaged in the following areas:
- Development of serviced plots and construction of built up residential
premises;
- Real estate covering construction of residential and commercial premises
including business centres and offices;
- Development of township;
- City and region level urban infrastructure facilities including roads and
bridges;
- Manufacturing of building materials;
- Financing of housing development.
Repatriation of original investment in this case will be permitted by
Reserve Bank only after a lock in period of three years from the date of
issue of the equity shares/convertible debentures. Applications for the
purpose should be made to Reserve Bank (Central Office) in form ISD(R).
NOTE:
OCBs will be permitted to repatriate net profit (up to 16 per cent) arising
from sale of such investment after the lock-in-period of three years.
Investment in Air Taxi Operations
10C.14
NRIs/OCBs will be allowed to set up Indian companies with 100% equity
participation for carrying on Air Taxi Operations in terms of the guidelines
issued by the Director General of
Civil Aviation for Air Taxi Operations. Applications for the purpose should
be made to Reserve Bank (Central Office) in form ISD(R). Repatriation of the
investment and/or remittance of dividend will be permitted only after the
expiry of five years of operation of the Air Taxi Scheme and only out of
accumulated net foreign exchange earnings.
A.D.(M.A. Series) Circular No.9
Investment in non-convertible Debentures of Indian Companies
10C.15 Reserve Bank of India vide its Notification No.F.E.R.A.213/99-RB
dated 1st November 1999, has granted general permission to Indian companies
to issue, by way of public issue, non-convertible debentures (NCDs) to
NRIs/PIOs/OCBs on repatriation basis subject to the following conditions:
- The amount of subscription should be received by inward remittance from
abroad through normal banking channels or by debit to the non-resident's
NRE/FCNR account, as the case may be, with an authorised dealer in India.
Further, the percentage of such NCDs issued to NRIs/OCBs to the total
paid-up value of each series of NCDs issued should not exceeed the ceiling
applicable for issue of equity shares/convertible debentures as prescribed
by the Reserve Bank from time to time, under the respective schemes viz.
24%/ 51%/100% etc. for investment by NRIs/OCBs on repatriation basis in the
capital of the issuer company.
- The rate of interest on such NCDs shall not exceed prime lending rate of
State Bank of India, plus 300 basis points.
- The minimum period for redemption of such NCDs should be three years.
- The company raising funds through NCDs should not be engaged in
agricultural/plantation activity, real estate business, trading in
transferable development rights (TDRs) or act as Nidhi/Chit Fund company.
- The issuer company files with the Regional Office of Reserve Bank, not
later than thirty days from the date of receipt of remittance, a report
containing the following:-
- A list containing names of NRIs/OCBs.
- Country of residence or incorporation of the non-resident investor;
- Amount and date of receipt of remittance and its rupee equivalent;
- Name and address of the authorised dealer in India through whom the
remittance is received.
- The issuer company files with Regional Office of Reserve Bank, not later
than thirty days from the date of issue of NCDs, the following:-
- A list containing names of NRIs/OCBs and the number and face value of
NCDs issued to each of them on repatriation basis.
- Certified true copy of resolution passed in the meeting of the Board of
Directors of the company, indicating the quantum and value of NCDs issued to
NRIs/OCBs and residents and other details of the issue such as coupon rate,
date of redemption, etc.
- Original Foreign Inward Remittance Certificate (FIRC)/Bank Certificate
evidencing receipt of funds, from abroad or from the NRE/FCNR accounts as
the case may be, of the NRI/PIO/OCB.
- Memorandum and Articles of Association of the issuer company.
- Certificate in Form OAC/OAC1 indicating the NRI shareholding to the
extent of atleast 60% either directly or indirectly in case of investment by
OCB.
- Any information sought by the Reserve Bank with reference to the issue
of NCDs within such time as may be stipulated.
- An undertaking that the issuer company is not and shall not be engaged
in agricultural/plantation activity, real estate business, trading in TDRs
or act as Nidhi/Chit Fund company.
Investment in Sick Industrial Units
10C.16
- NRIs/OCBs will be permitted by Reserve Bank to undertake revival of sick
industrial units by making bulk investment in them either by way of purchase
of
equity shares from existing shareholders or in the form of subscription to
new equity issues of the sick units on the following basis :
- The bulk investment can be made on private placement basis up to 100% of the
equity capital of the sick company with full benefits of repatriation of
capital invested and income earned thereon.
- Issue/transfer of equity shares should be approved by the existing
shareholders of the company through a Special Resolution.
For the purpose of investment under the scheme, a company should be declared
as sick or there should be a rehabilitation programme approved by the public
financial institution/commercial bank or a consortium of banks or by the
Board for Industrial and Financial Reconstruction (BIFR).
- Applications for permission for issue/transfer of equity shares to
non-residents
should be made by the concerned Indian company in form RSU to the Central
Office of Reserve Bank together with the particulars/documents specified in
the application form.
Investment in the Schemes of Domestic Mutual Funds
10C.16A
- Reserve Bank, by its Notification Nos. F.E.R.A.195/99-RB dated
30th March 1999 and No. F.E.R.A. 212/99-RB dated 18th October 1999, has
granted general permission under Section 19(1)(d) and 19( 1)(a) read with
Section 9 (1) (a) of the Foreign Exchange Regulation Act, 1973 to domestic
mutual funds referred to in clause (23D) of Section 10 of the Income Tax
Act, 1961:-
- to issue units or any other similar instrument,on repatriation basis, to
NRIs/OCBs/PIOs/FIIs under the schemes floated by them with the approval of
the Securities and Exchange Board of India, subject to the conditions
mentioned under (ii), below.
- to send such units/instruments out of India to the place of residence or
location, as the case may be, of the non-resident investor, or to their
global custodians in the case of FIIs.
- to repurchase units or similar instruments issued to NRIs/OCBs/PIOs/FIIs and
to make payment therefor to them;
- the general permission to issue units referred to in (i)(a) is subject
to the following conditions:-
- The mutual fund should comply with the terms and conditions stipulated by
the Securities and Exchange Board of India.
- The amount representing investment should be received by inward remittance
through normal banking channels or by debit to the NRE/ FCNR account of the
non-resident investor or Special Non-Resident Rupee account of the FII
maintained with an authorised dealer/ designated bank in India.
- The net amount representing the dividend/interest and maturity
proceeds may be remitted through normal banking channel or credited to
NRE/FCNR/NRO/NRSR account of the non-resident investor or Special
Non-Resident Rupee Account of the FII.
- Authorised dealers may allow the credit of net amount of
dividend/interest or the maturity proceeds/ repurchase value to the NRE/FCNR
account of the non-resident investor or Special Non-resident Rupee account
of the FII or allow remittance thereof only on production of a certificate
from the mutual fund that the investment was made out of inward remittance
from abroad or from the funds held in NRE/FCNR account of the non-resident
investor maintained with an authorised dealer or Special Non-Resident Rupee
Account of the FII with a designated bank in India and subject to compliance
with the provisions of paragraph 3B.10.
Investment in Bonds issued by Public Sector Undertakings (PSUs)
10C.16B
NRIs/OCBs will be permitted to invest in the Bonds issued by Public Sector
Undertakings (PSUs) in India with repatriation benefits. The concerned PSU
should obtain the
necessary approval from Government of India for raising funds through issue
of bonds and adhere to the guidelines issued by Government of India,
Ministry of Finance, in this regard. Applications for necessary permission
should be made by the concerned PSU to Reserve Bank (Central Office) in form
ISD(R) along with a certified copy of the approval of Government of India
for issue of bonds.
General Permission to NRIs/OCBs to purchase
shares of Public Sector Enterprises (PSEs)
10C.16C
Reserve Bank by its Notification No.FERA.159/94-RB dated 5th October 1994
has granted general permission under Sections 29(1) and 19(4) of FERA 1973
to NRIs/
OCBs to purchase the shares on repatriation basis disinvested by Government
of India in certain Public Sector Enterprises (PSEs) and to PSEs to register
in their books the overseas address of such NRIs/OCBs, subject to the
conditions that (a) the holding of shares by a NRI or by an OCB, at any
time, does not exceed one per cent of the paid up capital of the PSE
concerned, (b) the purchase consideration/bid money is received by way of
remittance from abroad through normal banking channels or by transfer of
funds held in investor's NRE/FCNR accounts, and (c) the application is
submitted alongwith deposit of bid money/purchase consideration at the
branch of State Bank of India designated by the Government of India for that
purpose in the notice inviting the bids.
Opening of Foreign Currency Collection Accounts
10C.17
- In order to facilitate collection of subscriptions from NRIs/OCBs at foreign
centres, Reserve Bank may allow Indian companies inviting NRI investments
to open temporary foreign currency bank accounts at various foreign centres.
After final allotment of shares/debentures to non-resident subscribers to
the new issues, refund of excess subscriptions is allowed to be made out of
funds lying in the overseas accounts. The temporary bank accounts have to be
closed thereafter and the balance repatriated to India.
- Applications for opening temporary foreign currency accounts for the above
purpose may be made by letter giving names and addresses of overseas bank
branches with whom accounts are to be opened, full details of NRI issue, and
number and date of Reserve Bank's approval for issue of shares/debentures to
NRIs/OCBs, to the concerned office of Reserve Bank if the NRI investment is
on non-repatriation basis or where the investment is to be made in 100%
Export Oriented Unit and to Central Office of Reserve Bank in other cases.
Refund of Subscription
10C.18
Where NRIs/OCBs intend to subscribe to new issues of Indian companies,
authorised dealers may allow payment of subscription (application money)
from the applicants'
NRE/FCNR accounts or NRO accounts, as the case may be. If the subscription
or any portion thereof (inclusive of interest on delayed refunds of share
application money) is to be refunded by the company, authorised dealers may
recredit the amount to the same account of the applicant from which it was
drawn earlier. In cases where subscription to new issues of
shares/securities were made by remittance from abroad or by debit to the
investor's NRE/FCNR account, he will have the option of having the excess
subscription refunded to him either by remittance of the amount abroad or by
credit to his NRE/FCNR account. Remittance of funds abroad or credit thereof
to the applicant's NRE/FCNR account may be allowed only if the relative
refund order is accompanied by a certificate from the collecting bankers or
the investee company's bankers indicating that the original subscription was
received by way of remittance from abroad or by debit to the applicants'
NRE/FCNR account. Authorised dealers may also ensure that the payment of
interest in respect of delayed refund of share subscription is in accordance
with the provisions indicated in the prospectus of the company in its public
issue as vetted by Securities and Exchange Board of India (SEBI).
Deposits with Companies
10C.19
NRIs and OCBs will be permitted to place funds in fixed deposits with public
limited companies in India (including Government undertakings with limited
liability) with
full repatriation benefits for a period of three years. The total amount of
fixed deposits permitted to be accepted will be stipulated by Reserve Bank
in individual cases. The application for permission to accept deposits from
non-residents with repatriation rights may be made by the Indian company
through its bankers to the concerned office of Reserve Bank under whose
jurisdiction its Head/Registered Office is situate, giving details of the
deposit scheme. It is not necessary for non-resident depositors to seek
separate permission from Reserve Bank in this regard. Reserve Bank will
grant permission to the bank branch nominated by the company for accepting
deposits. While granting permission, Reserve Bank will authorize the branch
to allow remittance of interest and maturity proceeds of deposits or credit
thereof to the depositor's NRE/FCNR account.
III. Portfolio Investment in Shares/Debentures of Indian Companies and in
Domestic Mutual Funds
Regulations regarding Portfolio Investment (i.e. investment through Stock
Exchange) in shares/debentures by NRIs/OCBs have been explained in
paragraphs 10C.20 to 10C.23.
Registration of Designated Branches
10C.20
Portfolio investments in shares/debentures by NRIs/OCBs are permitted only
through designated branches of authorised dealers preferably located at
centres having stock
exchanges. Authorised dealers should inform the names of such branches to
Central Office of Reserve Bank and obtain approval. The Code number allotted
by Reserve Bank should be quoted in all correspondence undertaken with
Reserve Bank in this regard. Non-resident investors can also authorise
Indian residents or stock exchange brokers as their agents in India to
purchase/sell shares on their behalf under the schemes but all transactions
should be routed through the designated branch of authorised dealer.
General Conditions for Purchase with
Repatriation or Non-Repatriation rights
10C.21
- NRIs/OCBs will be permitted to make portfolio investment in
shares/debentures (convertible and non-convertible) of Indian companies,
with or without repatriation benefits provided the purchase is made through
a stock exchange and also through designated branch of an authorised dealer.
NRIs/OCBs are required to designate only one branch authorised by Reserve
Bank for this purpose.
- Investment in equity shares and convertible debentures will be
permitted subject to an overall ceiling of (a) 10 per cent of the total
paid-up equity capital of the company concerned; and (b) 10 per cent of the
total paid-up value of each series of the convertible debentures issued by
the company concerned for all NRIs/OCBs taken together both on repatriation
and on non-repatriation basis. [See paragraph 10C.23(ii) in respect of
investments in excess of the limit of 10%].
- The purchase of shares and debentures under the scheme is required to
be made at the ruling market price.
10C.21
- NRIs/OCBs intending to invest on non-repatriation basis should
submit their applications in Form NRI and NRC respectively, through a
designated branch of an authorised dealer, to Reserve Bank (Central Office).
Reserve Bank will grant general permission to the concerned authorised
dealer to purchase shares/debentures of Indian companies, securities (other
than bearer securities) of the Central or any State Government and Treasury
Bills on behalf of the NRI/OCB subject to the condition that the payment for
such investment is received through inward remittance or from the investor's
NRE/FCNR/NRO/NRSR account. The general permission granted by Reserve Bank
would be initially valid for a period of five years. Authorised dealers may
themselves renew the permission granted by Reserve Bank to individual NRIs
as well as OCBs for a period of five years at a time.
- NRIs and OCBs intending to invest with repatriation benefits should
submit their applications through a designated branch of an authorised
dealer in Form RPI and RPC respectively. Reserve Bank will grant general
permission to the designated branch for purchase of shares/debentures of
Indian companies, securities (other than bearer securities) of the Central
or any State Government and Treasury Bills subject to the conditions that -
- the payment is received through an inward remittance in foreign exchange or
by debit to the investor's NRE/FCNR account.
- investment made by any single NRI/OCB investor in equity/preference shares
and convertible debentures of any listed Indian company does not exceed 5%
of its total paid-up equity or preference capital or 5% of the total paid-up
value of each series of convertible debentures issued by it.
- NRIs/OCBs take delivery of the shares/convertible debentures purchased and
give delivery of the shares/convertible debentures sold under the Scheme.
The general permission granted by Reserve Bank will be valid initially for a
period of five years. Authorised dealers may themselves renew the permission
granted by Reserve Bank to individual NRIs as well as OCBs for a further
period of five years at a time. Authorised dealers may note to obtain the
latest OAC/OAC 1 certificate from the OCB concerned before renewing the
permission.
- NRIs/OCBs intending to invest in the units of domestic mutual funds on
non-repatriation/repatriation basis under the Portfolio Investment Scheme
should apply to Reserve Bank (Central Office) in the manner indicated in
sub-paragraphs (iv) and (v) above. However, approvals already granted for
portfolio investment in shares/debentures of Indian companies will also be
valid for purchase of units of domestic mutual funds.
Registration of Shares & Investment in Joint Names
10C.22
- Shares/debentures purchased by NRIs/OCBs should be held and
registered in the names of either the investor himself or an authorised
dealer or the latter's nominee/s.
- Shares/debentures can be purchased by NRIs in joint names with other
NRIs with permission of Reserve Bank. In such cases, if the investment is
with repatriation benefits, the first holder is to be treated as investor
for the purpose of 5% ceiling. The second or third holder will be eligible
to invest separately in the same company in his own name as the first holder
in joint holdings up to the limit of 5%. Reserve Bank will also permit
investment jointly with residents. However, if the resident joint holder
inherits the shares/debentures, he/she will not be entitled to repatriation
benefits.
Procedure for Monitoring the Overall Ceilings
10C.23
- Reserve Bank (Central Office) will monitor the overall ceiling of
10% on the acquisition of shares/debentures by NRIs/OCBs under the Portfolio
Investment Scheme with the assistance of link offices of authorised dealers
in Mumbai. The link offices should submit a statement in form LEC (NRI)
giving details of purchases/sales of shares/debentures (company-wise) made
by all designated branches on daily basis. The daily statement should be
serially numbered. All purchase and sale transactions for which commitments
have been made(as evidenced by contract notes issued by recognised stock
exchange brokers) irrespective of whether the actual deliveries have been
effected or not should be included in the daily statement. Sales where
shares/debentures were originally purchased by the NRI/OCB investors through
stock exchange should only be included in the statement. If no transactions
are effected on any day, a 'nil' statement need not be submitted.
- Indian companies listed on recognised stock exchanges in India may,
however, resolve by a General Body Resolution to allow NRIs/OCBs to acquire
shares/debentures up to 24% instead of the 10% mentioned in paragraph
10C.21(ii). Indian companies desirous of exceeding the limit of 10% should,
therefore, forward the necessary resolution to Reserve Bank indicating that
the General Body has no objection to NRIs/OCBs purchasing shares/debentures
up to 24% of the paid up capital/paid up vakue of each series of convertible
debentures. On receipt of the resolution, the name of the company will be
intimated to all link offices of designated branches of authorised dealers
to enable them to make purchases on behalf of their clients up to the
raised/revised limit in respect of the company.
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
- 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:
- Nationality and origin of the non-resident share/bond/debenture holder and
place/country of permanent residence;
- 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;
- 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.
- 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.
- 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.
- 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
- 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.
- 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.
- 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
- 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.
- 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
- 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.
- 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
- 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.
- 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.
- 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
- 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.
- 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.
A.D.(M.A. Series) Circular No.9
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.
- 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 -
- such share, bond or debenture was held by the transferor with the permission
of the Reserve Bank,
and
- such transfer is between relatives as defined in Section 6 of the Companies
Act, 1956.
A.D.(M.A. Series) Circular No.9
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:
- Name, address and permanent place of residence of both the transferor and
the transferee.
- Relationship between the transfer or and the transferee.
- 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:
- 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.
- 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
- 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.
- 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
- 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.
- 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.
- Deleted.
Loans in India to Non-residents against Shares/
Securities/Properties held by them in India
10D.2
- Authorised dealers may grant loans and overdrafts to Non-resident
persons of Indian nationality/origin against the security of
shares/debentures and immovable property held by them in India, according to
their commercial judgement provided:
- Shares/Securities are held in the name of the concerned NRI with the
general or special permission of Reserve Bank. In the case of loans against
security of immovable properties (other than agricultural/plantation
property or farm house) to persons of Indian origin holding foreign
passport, the properties have been acquired with the general or special
permission of Reserve Bank.
- The loan is utilised for meeting the borrower's personal requirements
and/or for his own business purposes and not for (i) re-lending or
investment in shares/securities/immovable property, or (ii) investment in
agricultural/plantation activities or farm house and in real estate business
(i.e. dealing in land and other immovable property for commercial purposes
either singly or in association with others).
- The quantum of loan, margin, interest etc., are in accordance with the
guidelines issued by Department of Banking Operations and Development
regarding advances against shares/securities/immovable properties.
- The loan amount is retained in India and not remitted abroad. The loan
amount should not be credited to NRE/FCNR/NRNR account of the non-resident.
- The repayment of the loan is made by way of remittances from abroad
through normal banking channel or by debit to the NRO/NRSR/NRE/FCNR account
of the borrower or out of the sale proceeds of the
shares/securities/immovable property against which such loan was granted.
Regulations governing grant of loans/overdrafts against balances held in
NRO/NRE/FCNR account have been laid down in Chapters 13 and 14.
- 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.
- 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:
- The house/flat will be used for self occupation by the non-resident on
return to India and not for any other purpose.
- 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.
- 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.
- 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.
- 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.
- 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.
A.D.(M.A. Series) Circular No.48
- 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.
- 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
- 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:-
- No direct or indirect outgo of foreign exchange is involved by way of
guarantee commission or otherwise.
- 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.
- 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.
- 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
- 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:
- 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.
- 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.
- 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.
- Requirements regarding security, margin, rate of interest etc. as stipulated
by Reserve Bank from time to time should be complied with.
- 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:
- The loans should be from the relatives as defined in Section 6 of the
Companies Act, 1956.
- The loan amount should be received through normal banking channels or by
debit to the lender's NRE/FCNR account with an authorised dealer.
- 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
- 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.
- 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.
- 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.
- 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.