The Reserve Bank of India has notified the new FEMA (Borrowing and Lending) Regulations on 17th December, 2018, to regulate borrowing and lending transactions between a person resident in India and a person resident outside India. RBI has come up with these regulations to cope up with the changing dynamics of the economy.
Regulation 3 prohibits any person resident in India to borrow or lend in foreign exchange from or to a person resident in or outside India and to any person resident in India to borrow in rupees from, or lend in rupees to, a person resident outside India, save as otherwise provided in the Act, Rules or Regulations made thereunder. Use of Credit Card in India by a person resident outside India or outside India by a person resident in India will not be deemed as borrowing or lending in Indian Rupee/ foreign exchange. An individual resident in India may borrow a sum not exceeding USD 250,000/- or its equivalent from his/her relatives outside India and subject to such terms and conditions as specified by the Reserve Bank. An individual resident in India studying abroad may raise loan outside India not exceeding USD 250,000/- or its equivalent, or any other amount as decided by the Reserve Bank, for the purposes of payment of education fees abroad and maintenance.
The Regulations have also been made for Authorized Dealers (AD) or their branch outside India and for persons other than Authorized Dealers. The ADs may borrow from its Head Office or branch or correspondent outside India or any other entity up to the limit specified and subject to terms and conditions as specified by the RBI from time to time. A branch outside India of an AD being a bank incorporated or constituted in India, may borrow in foreign exchange in the normal course of its banking business from outside India, subject to the directions or guidelines issued by the Reserve Bank from time to time, and the Regulatory Authority of the country where the branch is located.
In respect of persons other than ADs, any person resident in India may borrow, whether by way of loan or overdraft or any other credit facility, from a bank situated outside India, where export of goods or services is proposed to be made on deferred payment terms or in execution of a turnkey project or a civil construction contract, provided the terms and conditions stipulated by the authority which has granted the approval to the arrangement are in accordance with the Foreign Exchange Management (Export of goods and services) Regulations, 2015.
The Regulations contain three Schedules. In accordance with the provisions contained in Schedule I, eligible entities may raise External Commercial Borrowings (ECB) from outside India. Importers may raise trade credits from outside India in accordance with the provisions contained in Schedule II. Under the provisions of Schedule III, eligible entities may extend External Commercial Lending (ECL) to borrowers outside India.
Click here for the Regulations.
