In view of the clarifications sought on the current status in regard to the facilities for investment in India by NRIs, following the derecognition of OCBs as an investor class, the position in regard to such facilities for (i) Bank Accounts and Deposits, (ii) Other investments on repatriation basis, (iii) Other investments on non-repatriation basis, (iv) Immovable Property and (v) Facilities to returning NRIs/PIOs are given below :

(i) Bank Accounts and Deposits

a) NRE Accounts (Principal/interest repatriable)

Savings - Interest is paid at par with domestic deposits. Currently it is 3.5 per cent.

Term deposits - Fixed or floating rates of interest within the ceiling rate announced by RBI from time to time. At present the rate is USD LIBOR/SWAP rates of corresponding term plus 100 basis points.

Current - No interest is paid.

b) FCNR(B) (Principal/interest repatriable)

Term deposit can be placed with ADs in India in 4 specific foreign currencies.

Rate of Interest - Fixed or floating within the ceiling rate of LIBOR/SWAP rates for the respective currency/corresponding term minus 25 basis points.

c) NRO Accounts (Current earnings repatriable)

Savings - Normally operated for crediting rupee earnings / income such as dividends, interest. Currently the interest rate is 3.5 per cent.

Term Deposit - Banks are free to determine interest rates.

Current - No interest is paid.

Repatriation from NRO balances

Authorised Dealers can allow remittance/s upto USD 1 million, per calendar year from balances in NRO accounts subject to payment of applicable taxes. The limit of USD 1 million per year includes sale proceeds of immovable properties held by NRIs/PIOs for a period of 10 years. In case a property is sold after being held for less than 10 years, remittance can be made after the sale proceeds have been held in the account for the balance period.

(ii) Other Investments on repatriation basis:

·         Government dated securities/treasury bills.

·         units of domestic mutual funds.

·         bonds issued by a public sector undertaking (PSU) in India.

·         shares in Public Sector Enterprises being dis-invested by the Government of India, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids.

·         shares and convertible debentures of Indian companies under FDI scheme (including automatic route & FIPB).

·         shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme.

·         Deposits with Indian companies, non-banking finance companies registered with RBI, housing finance companies and other financial institutions.

(iii) Other Investments on non-repatriation basis:

·         units of Money Market Mutual Funds in India.

·         the capital of a firm or proprietary concern in India, not engaged in any agricultural or plantation activity or real estate business.

(iv) Immovable Property

NRIs can acquire –

·         immovable property in India other than agricultural/plantation property or a farmhouse.

PIOs can acquire -

·         immovable property other than agricultural land/farm house/plantation property in India out of repatriable funds.

NRIs and PIOs can repatriate –

·         sale proceeds of immovable property acquired in India to the extent of repatriable funds used for acquiring the property, without any lock-in period, upto two residential properties.

·         refund of application/earnest money/purchase consideration made by house-building agencies/seller on account of non-allotment of flats/plots/cancellation of booking/deals for purchase of residential/commercial properties, together with interest, net of taxes, provided original payment is made out of NRE/FCNR(B) account/inward remittances.

(v) Facilities to returning NRIs/PIOs:

·         may continue to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India, if such currency, security or property was acquired, held or owned when resident outside India.

·         may open, hold and maintain with an authorised dealer in India a Resident Foreign Currency (RFC) Account to transfer balances held in NRE/FCNR(B) accounts. Proceeds of assets held outside India at the time of return, can be credited to RFC account. The funds in RFC accounts are free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment in any form outside India.

Alpana Killawala
General Manager

Press Release : 2003-2004/387

Responding to queries, the RBI spokesperson clarified that the overseas entities owned by Non-resident Indians (NRIs) can enjoy all the facilities available to any foreign investor, including automatic route for foreign direct investment.

It may be recalled that the Reserve Bank of India, on September 16, 2003 had, in consultation with the Government of India derecognised overseas corporate bodies (OCBs) in India as an eligible class of investor under various rules and schemes available for foreign investment. The Reserve Bank has clarified that derecognition of OCBs as a separate category of investor meant withdrawal of special facilities made available to OCBs and that entities owned by NRIs would continue to enjoy all the facilities available to other foreign investors.

The Reserve Bank of India has stated that the rate of interest on Non-Resident External (NRE) deposits taken by non-banking finance companies (NBFCs) should be the same as applicable to scheduled commercial banks i.e. not exceeding 100 basis points above the LIBOR/SWAP rates for US dollar deposits. Other terms and conditions contained in Notification No.FEMA 5/2000-RB dated May 3, 2003 remain unchanged. It may be recalled that the banks have already been directed on September 15, 2003 in the matter.

The relative notifications and detailed circular is available on the RBI web site http://www.rbi.org.in

Alpana Killawala
General Manager

Press Release : 2003-2004/379

It has been decided in consultation with Government to derecognise with immediate effect Overseas Corporate Bodies (OCBs) in India as an eligible ‘class of investor’ under various routes/schemes available under extant Foreign Exchange Regulations.

This decision is a follow up of the review of investment activities of OCBs in India, carried out by the Reserve Bank on the basis of the recommendations of the Joint Parliamentary Committee on Security Market Scam. In the light of the said review, after taking all relevant aspects into account, it has been decided in consultation with the Government, that henceforth, OCBs shall not be permitted to make fresh investment under FDI scheme (including automatic route) and in other investments / deposits / loans under the various routes / schemes available to the non-residents under the extant Exchange Control Regulations. Further, the facility of opening and maintaining fresh Non-Resident (External) Accounts (NRE) (Savings, Current, Recurring or Fixed), Foreign Currency (Non-Resident) Accounts (Banks) [FCNR(B)] and Non-Resident Ordinary (NRO) Accounts with Authorised Dealers (ADs) in India by OCBs, stands withdrawn with immediate effect.

Besides OCBs, no unincorporated entity shall be permitted to make fresh investment under FDI scheme (including automatic route).

Detailed instructions in regard to existing investments and processing of balances in existing bank accounts, are also being advised to the ADs.

It may be recalled that Reserve Bank has already prohibited OCBs from undertaking fresh purchases under the Portfolio Investment Scheme, since November 2001.

It may be noted that existing facilities available to NRIs other than OCBs are in no way modified / restricted by these instructions.

Alpana Killawala
General Manager

Press Release No. 2003-04/371

A.P.(DIR Series ) Circular No.14

To
All Authorised Dealers in Foreign Exchange

Madam/Sirs,

Borrowing from Close Relatives Abroad

Attention of Authorised Dealers is invited to paragraph (iv) of the Schedule to Regulation 6 of Notification No.FEMA 3/2000-RB dated May 3, 2000 in terms of which an individual resident in India is allowed by Reserve Bank, on application, to borrow a sum not exceeding USD 2,50,000 or its equivalent in foreign exchange from a close relative resident outside India, subject to the conditions indicated therein.

2. With a view to further liberalising and simplifying the existing regulations, Reserve Bank has issued Notification No.FEMA 75/2002-RB dated November 1, 2002 (copy enclosed). Accordingly, an individual resident may borrow a sum not exceeding USD 2,50,000 or its equivalent from close relatives residing outside India, subject to the conditions that :

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

2. the loan is free of interest; and
3. the amount of loan is received by way of inward remittances in free foreign exchange through normal banking channels or by debit to the NRE/FCNR(B) account of the non-resident lender.

Explanation :

'Close relative' means relative as defined in Section 6 of the Companies Act, 1956'.

3. Authorised Dealers may bring the contents of the circular to the notice of their constituents concerned.

4. The directions contained in this circular have been issued under Section 10(4) and Section 11(1) of the FEMA 1999 (42 of 1999).

Yours faithfully,
Grace Koshie
Chief General Manager

Reserve Bank Of India
Exchange Control Department
Central Office
Mumbai 400 001.

Notification No.FEMA/ 75 /2002-RB

November 1, 2002

In exercise of the powers conferred by clause (d) of sub-section (3) of Section 6 and sub-section (2) of Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999) and in partial modification of its Notification No.FEMA 3/2000-RB dated May 3, 2000, as amended from time to time, the Reserve Bank of India makes the following amendments in the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000, namely :-

1. (1) These Regulations may be called the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) (Second Amendment) Regulations, 2002.

(2) They shall come into force with effect from their publication in the Official Gazette.

2. In the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulation, 2000.

                      i. In Regulation 5, after sub-regulation (5), the following sub-regulation shall be added, namely : -

"(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;

2. the loan is free of interest; and
3. 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".

                               ii. In the Schedule, clause (iv) with the heading "Scheme for raising loans from NRIs on repatriation basis", shall be omitted.

Sd/-
K.J. UDESHI
Executive Director.