Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000

 

FEMA 3/2000-RB, dated 3-5-2000 [GSR 386(E), dated 3-5-2000] - In exercise of the powers conferred by clause (d) of sub-section (3) of section 6, sub-section (2) of section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve Bank makes the following regulations for borrowing or lending in foreign exchange by a person resident in India, namely :—

 

Short title and commencement.

(i)         These Regulations may be called the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regula­tions, 2000.

(ii)        They shall come into force on 1st day of June, 2000.

 

Definitions.

In these regulations, unless the context otherwise requires—

        (a)           ‘Act’ means the Foreign Exchange Management Act, 1999 (42 of 1999);

(b)           ‘authorised dealer’ means a person authorised as an authorised dealer under sub-section (1) of section 10 of the Act;

(c)            ‘EEFC account’, ‘RFC account’ mean the accounts referred to in the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2000;

(d)           ‘FCNR (B) account’, ‘NRE account’ mean the accounts referred to in the Foreign Exchange Management (Deposit) Regula­tions, 2000;

        (e)           ‘Indian entity’ means a company or a body corporate or a firm in India;

(f)             ‘Joint Venture abroad’ means a foreign concern formed, registered or incorporated in a foreign country in accordance with the laws and regulations of that country and in which in­vestment has been made by an Indian entity;

        (g)           ‘Schedule’ means the Schedule to these Regulations;

(h)           ‘Wholly owned subsidiary abroad’ means a foreign con­cern formed, registered or incorporated in a foreign country in accordance with the laws and regulations of that country and whose entire capital is owned by an Indian entity;

(i)             the words and expressions used but not defined in these Regulations shall have the same meaning respectively assigned to them in the Act.

 

Prohibition to Borrow or Lend in Foreign Exchange.

Save as otherwise provided in the Act, Rules or Regulations made thereunder, no person resident in India shall borrow or lend in foreign exchange from or to a person resident in or outside India:

 

Provided that the Reserve Bank may, for sufficient reasons, permit a person to borrow or lend in foreign exchange from or to a person resident outside India.

 

Borrowing and Lending in Foreign Exchange by an Authorised deal­er.

(1)     An authorised dealer in India or his branch outside India may lend in foreign currency in the circumstances and subject to the conditions mentioned below, namely:

(i)           A branch outside India of an authorised dealer being a bank incorporated or constituted in India, may extend foreign currency loans in the normal course of its banking business outside India;

(ii)          An authorised dealer may grant loans to his constitu­ents in India for meeting their foreign exchange requirements or for their rupee working capital requirements or capital expendi­ture subject to compliance with prudential norms, interest rate directives and guidelines, if any, issued by Reserve Bank in this regard;

(iii)         An authorised dealer may extend credit facilities to a wholly owned subsidiary abroad or a joint venture abroad of an Indian entity:

 

          Provided that not less than 51 per cent of equity in such subsidi­ary or joint venture is held by the Indian entity subject to compliance with the Foreign Exchange Management (Transfer and Issue of Foreign Security) Regulations, 2000;

         

(iv)         An authorised dealer may, in his commercial judgment and in compliance with the prudential norms, grant loans in foreign exchange to his constituent maintaining 1 [***] RFC Account, against the security of funds held in such account

(v)          A branch outside India of an authorised dealer may extend foreign currency loans against the security of funds held in NRE/FCNR deposit accounts maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2000;        (vi)       Subject to the directions or        guidelines issued by the Reserve Bank from time to time, an authorised dealer in India may extend foreign currency loans to another authorised dealer in India

2 [(vii)    An authorised dealer may grant foreign currency loans in India against the security of funds held in FCNR(B) account to the account holder only, subject to the guidelines issued by the Reserve Bank in this regard

(2)       An authorised dealer in India may borrow in foreign currency in the circumstances and subject to the conditions mentioned below, namely :

(i)         An authorised dealer may borrow from his Head Office or branch or correspondent outside India upto 3 [twenty-five] per cent of his unimpaired Tier I capital or US $ 10 million, whichever is more, subject to such conditions as the Reserve Bank may direct

        Explanation.—For the purpose of clause (i), the aggregate loans availed of by all branches in India of the authorised dealer from his Head Office, all branches and correspondents outside India, shall be reckoned.

(ii)        An authorised dealer may borrow in foreign currency without limit from his Head Office or branch or correspondent outside India for the purpose of replenishing his rupee re­sources, provided that

(a)       the funds borrowed are utilised for his own business operations and are not invested in call money or similar other markets

(b)       no repayment of the loan is made without the prior approval of Reserve Bank, which may be granted only if the autho­rised dealer has no borrowings outstanding either from Reserve Bank or other bank or financial institution in India and is clear of all money market borrowings for a period of at least four weeks prior to the week in which the repayment is made

(iii)       A branch outside India of an authorised dealer being a bank incorporated or constituted in India, may borrow in foreign currency in the normal course of its banking business 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

(iv)       An authorised dealer may borrow in foreign currency from a bank or a financial institution outside India, for the purpose of granting pre-shipment or post-shipment credit in foreign currency to his exporter constituent, subject to compli­ance with the guidelines issued by the Reserve Bank in this re­gard

 

Borrowing and Lending in Foreign Exchange by persons other than authorised dealer.

(1)       An Indian entity may lend in foreign exchange to its wholly owned subsidiary or joint venture abroad constituted in accordance with the provisions of Foreign Exchange Management (Transfer or Issue of Foreign Security) Regulations, 2000.

(2)       A person resident in India may borrow, whether by way of loan or overdraft or any other credit facility, from a bank situated outside India, for execution outside India of a turnkey project or civil construction contract or in connection with exports on deferred payment terms, provided the terms and condi­tions stipulated by the authority which has granted the approval to the project or contract or export in accordance with the Foreign Exchange Management (Export of Goods and Services) Regu­lations, 2000.

(3)       An importer in India may, for import of goods into India, avail of foreign currency credit for a period not exceeding six months extended by the overseas supplies of goods, provided the import is in compliance with the Export Import Policy of the Government of India in force.

(4)        person resident in India may lend in foreign currency out of funds held in his EEFC account, for trade related purposes to his overseas importer customer :

 

1 [Provided that where the amount of loan exceeds US $ 100,000, a guarantee of a bank of international repute situated outside India is provided by the overseas borrower in favour of the lender.]

 

(5)       Foreign currency loans may be extended by Export Import Bank of India, Industrial Development Bank of India, Industrial Fi­nance Corporation of India, Industrial Credit and Investment Corporation of India Limited, Small Industries Development Bank of India Limited or any other institution in India to their constituents in India out of foreign currency borrowings raised by them with the approval of the Central Government for the purpose of onward lending.

 

1 [(6)    An individual resident in India may borrow a sum not exceed­ing US$ 250,000 or its equivalent from his close relatives out­side India, subject to the conditions that—

        a.             the minimum maturity period of the loan is one year;

        b.             the loan is free of interest; and

c.             the amount of loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/FCNR account of the non-resident lender

 

Explanation : ‘Close relative’ means relative as defined in section 6 of the Companies Act, 1956.]

 

2 [(7)    Indian companies in India may grant loans in foreign curren­cy to the employees of their branches outside India for personal purposes provided that the loan shall be granted for personal purposes in accordance with the lender’s Staff Welfare Scheme/Loan Rules and other terms and conditions as applicable to its staff resident in India and abroad.]

 

Other borrowings in foreign exchange with prior approval of Reserve Bank or Government of India.

(1)       A person resident in India who desires to raise foreign currency loans of the nature or for the purposes specified in the Schedule and who satisfies the eligibility and other conditions specified in that Schedule, may apply to the Reserve Bank for approval to raise such loans.

(2)       The Reserve Bank may grant its approval subject to such terms and conditions as it may consider necessary :

 

Provided that while considering the grant of approval, the Re­serve Bank shall take into account the overall limit stipulated by it, in consultation with the Central Government, for availment of such loans by the persons resident in India.

(3) Any other foreign currency loan proposed to be raised by a person resident in India, which falls outside the scope of the Schedule, shall require the prior approval of the Central Govern­ment.

Schedule

[See Regulation 6]

1.         The borrowing in foreign exchange by a person resident in India may be under any of the Schemes set out in this Schedule.

2.         The application for the approval of the Reserve Bank under Regulation 6 for borrowing under any of the Schemes shall be made in Form ECB annexed to these Regulations.

3.         The borrowing in foreign exchange may be from an overseas bank/export credit agency/supplier of equipment or foreign col­laborator, foreign equity holder, NRI, 3 [***] corporate/institution with a good credit rating from internationally recognised credit rating agency, or from international capital market by way of issue of bonds, floating rate notes or any other debt instrument by whatever name called.

4.         The borrower shall not utilise the funds borrowed under any of these Schemes for investment in stock market or in real estate business.

    (i)         Short-term loan scheme

(a)       Foreign currency credit extended by the overseas sup­plier of goods to an importer of goods for financing import of goods into India, provided the period of maturity of credit is more than six months but less than three years

(b)       Foreign currency loan/credit extended to an importer in India for financial imports into India, by any bank or financial institution outside India, provided the period of maturity of loan/credit is less than three years.

(ii)        Borrowing under US dollar Five Million Scheme             Borrowing in foreign exchange upto US $ Five Million or its equiv­alent by an Indian entity for general corporate purposes at a simple minimum maturity of three years

    (iii)       Borrowing under US dollar Ten Million Scheme

Borrowing in foreign exchange not exceeding US $ Ten Million or its equivalent by an Indian entity for the following purposes

        (a)       Borrowing for Financing of Infrastructure Projects

(i)         Borrowing in order to finance equity investment in a subsidiary/joint venture company promoted by the Indian entity for implementing infrastructure projects, provided that the minimum average maturity of loan is three years. In case the loan is to be raised by more than one promoter entity for a single project, the aggregate of loan by all promoters should not exceed US $ 10 million

(ii)        Foreign currency loan raised by an Indian entity for financing infrastructure project, provided that the minimum average maturity of loan is not less than three years

(b)       Borrowings by Exporter/Foreign Exchange Earner - Bor­rowing in foreign exchange by an exporter/foreign exchange earner upto three times of the average amount of his annual foreign exchange earnings during the previous three years subject to a maximum of US $ Ten million or its equivalent, with a minimum average maturity of three years

(c)        Long-term borrowings - Borrowing for general corporate purposes at the minimum average maturity of eight years

    (iv)       1 [***]

 [K1]Words “EEFC Account or” omitted by the FEM (Borrowing or Lending in Foreign Exchange) (Amendment) Regulations, 2000, w.e.f. 14-8-2000.

 [K2]Inserted by the FEM (Borrowing or Lending in Foreign Exchange) (Second Amendment) Regulations, 2003, w.e.f. 10-1-2003.

 [K3]Substituted for “fifteen” by the FEM (Borrowing or Lending in Foreign Exchange) (Amendment) Regulations, 2002, w.e.f. 29-4-2002.

 [K4]Substituted by the FEM (Borrowing or Lending in Foreign Exchange) (Amendment) Regulations, 2004, w.e.f. 6-3-2004. Prior to its substitution, it read as under :

“Provided that,—

(a)  the aggregate amount of such loans outstanding at any point of time does not exceed US $ 3 million; and

(b)  where the amount of loan exceeds US $ 25,000, a guarantee of a bank of international repute situated outside India is provided by the overseas borrower in favour of the lender.”

 

 [K5]Inserted, by the FEM (Borrowing or Lending in Foreign Exchange) (Second Amendment) Regulations, 2002, w.e.f. 1-11-2002.

 [K6]Inserted by the FEM (Borrowing or Lending in Foreign Exchange) (Amendment) Regulations, 2003, w.e.f. 8-1-2003.

 [K7]Word “OCB,” omitted by the FEM [Withdrawal of General Permission to Overseas Corporate Bodies) (OCBs)] Regulations, 2003, w.e.f. 3-10-2003.

 [K8]Omitted by the FEM (Borrowing or Lending in Foreign Exchange) (Second Amendment) Regulations, 2002, w.e.f. 1-11-2002.