Notification No.FEMA 3 /2000-RB 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

1. Short title and commencement:-  

¹[(a) These Regulations may be called the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) (Second) Amendment) Regulations, 2012.

(b) They shall come into force from the date of their publication in the Official Gazette.]

[(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.]

2.Definition-

In these Regulations unless the context other wise requires--

a) 'Act' means the Foreign Exchange Management Act, 1999 (42 of 1999);. 

b) 'authorized dealer' means a person authorized as an authorized dealer under subsection (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.

3. Prohibition to Borrow or Lend in Foreign Exchange:- 

Save as otherwise provided in the Act, Rules or Regulations made there under, 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.

4. Borrowing and Lending in Foreign Exchange by an Authorized dealer:- 

(1) An authorized 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 authorized 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 authorized 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 authorized 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 authorized dealer may, in his commercial judgment and in compliance with the prudential norms, grant loans in foreign exchange to his constituent maintaining [EEFC Account or] ^omitted  RFC Account, against the security of funds held in such account. 

v) A branch outside India of an authorized 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 authorized dealer in India may extend foreign currency loans to another authorized dealer in India

¹[(vii) An authorized 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 authorized dealer in India may borrow in foreign currency in the circumstances and subject to the conditions mentioned below, namely: 

i) An authorized dealer may borrow from his Head Office or branch or correspondent outside India up to [ fifty]² [fifteen]^Old 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 authorized dealer from his Head Office, all branches and correspondents outside India, shall be reckoned. 

^omitted[ ii) An authorized 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 utilized 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 authorized 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.]

³[iii) A branch outside India of an authorized 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 authorized 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.]

5. Borrowing and Lending in Foreign Exchange by persons other than authorized 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 supplier of goods, provided the import is in compliance with the Export Import Policy of the Government of India in force. 

(4) A 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:

^old [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]

⁴[Provided that where the amount of loans exceed 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. 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'.]

⁶[(7) Indian Companies in India may grant loans in foreign currency to the employees of their branches outside India for personal purpose provided that the loan shall be granted for personnel purpose 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]

⁷[6.Other borrowings in foreign exchange under Automatic Route or with prior approval of Reserve Bank of India under the Approval Route or as Trade Credit

(1) A person resident in India, other than a branch or office in India owned or controlled by a person resident outside India, may raise in accordance with the provisions of the Automatic Route Scheme specified in Schedule I, foreign currency loans of the nature and for the purposes as specified in that Schedule; provided that this shall be deemed to have come into force with effect from February 1, 2004 except in relation to item 1(iv)(A)(c) of Schedule I which shall be deemed to have come into force with effect from February 23, 2004.

(2) A person resident in India who desires to raise foreign currency loans of the nature or for the purposes as specified in Schedule II and who satisfies the eligibility and other conditions specified in that Schedule, may apply to the Reserve Bank for prior approval to raise such loans; provided that this shall be deemed to have come into force with effect from February 1, 2004 except in relation to item 3(iii)(A)(c) of Schedule II which shall be deemed to have come into force with effect from February 23, 2004.

(3) Trade Credit not exceeding USD 20 million per import transaction shall be raised by borrowings subject to the terms specified in Schedule III hereto; provided that this shall be deemed to have come into force with effect from April 17, 2004]

⁸[(4)]⁹[ Where prior approval is required] the reserve Bank may grant its approval subject to such terms and condition 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.

¹⁰[(5)]¹¹ [The Reserve Bank may grant its approval to any other foreign currency loan proposed to be raised by a person resident in India, which falls outside the scope of Schedule I, II and III subject to such terms and conditions as it may consider necessary.]

---

1 Inserted by the FEM (Borrowing or Lending in Foreign Exchange) (Second Amendment) Regulation 2003.

2.Substituted by the FEM (Borrowing or Lending in Foreign Exchange) (Amendment) Regulation 2009

3. Existing Clause (iii) and (iv) renumbered as (ii) and (iii).

4.Substituted by the FEM (Borrowing or Lending in Foreign Exchange) (Amendment) Regulation 2004

5.Inserted by the FEM (Borrowing or Lending in Foreign Exchange) (Second Amendment) Regulation 2002

6.Inserted by the FEM (Borrowing or Lending in Foreign Exchange) (Second Amendment) Regulation 2003

7.Substituted by the FEM (Borrowing or Lending in Foreign Exchange) (Second Amendment) Regulation 2004

8. Sub-regulation (2) renumbered as sub-regulation (4),ibid

9.Inserted,ibid

10.Sub-regulation (3) renumbered as sub-regulation (5),ibid

11.Substituted,ibid

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SCHEDULE I

[(See Regulation 6(1)]

 

Borrowings in Foreign Exchange under the Automatic Route

 

(1) Borrowing in Foreign Exchange up to US$ 500 Million or its equivalent

The borrowing in foreign exchange by a person resident in India under the Automatic Route is subject to the terms and conditions set out in this schedule.

i) Eligibility

^old [Any corporate registered under the Companies Act, 1956 shall be eligible to borrow in terms of this Schedule. However, financial intermediaries (such as banks, financial institutions (FIs), housing financing companies, Non-Banking Finance Companies, Trusts, Non-Profit making organizations (NPOs), Micro Finance Institutions, proprietorship / partnership concerns and individuals are not eligible to borrow under the Automatic Route]

.(a)  Any company registered under the Companies Act, 1956, other than a financial intermediary (such as a bank, financial institution, housing finance company and a non-banking finance company) is eligible to borrow under this Schedule.

[Provided that they have not at any time violated any of the provision of these regulation and no investigation is pending against them for contravention of the provision of these regulation under the act.]

(b) Non-Government Organizations engaged in micro-finance activities may borrow in foreign exchange under this Schedule under such terms and conditions as specified by the Reserve Bank from time to time.

[Provided that they have not at any time violated any of the provision of these regulation and no investigation is pending against them for contravention of the provision of these regulation under the act.]

(c) Any other entity as specified by the Reserve Bank."

[Provided that they have not at any time violated any of the provision of these regulation and no investigation is pending against them for contravention of the provision of these regulation under the act.]

ii) Amount

^old [The borrowing in foreign exchange under the Automatic Route whether raised in tranches or otherwise shall not exceed US$ 500 Million in any one financial year (April-March)]

 a. The borrowing in foreign exchange by an entity as specified in paragraph (i) (a) of section I of Schedule I, under the Automatic Route whether raised in tranches or otherwise, shall not exceed USD 500 million or equivalent in any one financial year (April – March)

b. The borrowings in foreign currency under as specified in paragraph (i) (b) of section I of Schedule I, by a non-government organization engaged in micro-finance activities shall not exceed USD 5 million or equivalent during a financial year (April – March)."

iii) Lenders

The borrowings in foreign currency by way of issue of bonds, floating rate notes or other debt instruments by whatever name called may be made from -

a) International bank or export credit agency or international capital market or

b) Multilateral financial institutions, namely, IFC, ADB, CDC etc., or

c) Foreign collaborator or foreign equity holder as specified by the Reserve Bank or

d) Supplier of equipments provided the amount of loan raised does not exceed the total cost of the equipment being supplied by the lender or

e) Any other eligible entity as prescribed by the Reserve Bank in consultation with Government of India

iv) Purpose (End-use)

A) Borrowing in foreign exchange in terms of this Schedule may be for any of the following purposes, namely: -

a) for investment (such as import of capital goods, new projects, modernization / expansion of existing production units) in real sector - industrial sector including small and medium enterprises (SME) and infrastructure sector - in India.

Explanation : 

[The following sectors will qualify as infrastructure sectors, namely:.

(i) Power ,(ii) Telecommunications, (iii) Railways,(iv)  Roads including bridges, (v) Sea Ports and Airport, (vi) Industrial Parks (vii)  Urban infrastructure (water supply, sanitation and sewage projects)] (viii) Mining ,Exploration and Refining.]

 

^old[The following sectors will qualify as infrastructure sectors, namely:.

Power , Telecommunications, Railways, Roads including bridges, Ports, Industrial Parks and Urban infrastructure (water supply, sanitation and sewage projects)] 

b) for first stage acquisition of shares in the disinvestments process and also in the mandatory second stage offer to the public under the Government's disinvestments programme of PSU shares ,

c) for direct investment in overseas Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS) subject to the existing guidelines on Indian Direct Investment in JV/WOS abroad.

[d) any other eligible purpose as specified by the Reserve Bank]

[(AA) Borrowings in foreign exchange per borrower company per financial year up to such amounts not exceeding US Dollars 500 million or its equivalent as directed by the Reserve Bank from time to time shall be permitted for such permissible end-uses as indicated by Reserve Bank from time to time".]

B) Other than the purposes specified hereinabove, the borrowings shall not be utilized for any other purpose including the following purposes, namely:

On-lending, investment in capital (stock) market, investment in real estate business, working capital requirements, general corporate purpose, and repayment of Rupee loans

[Note - For the purpose of this clause, real estate business shall not include development of integrated township as defined by the Government of India, Ministry of Commerce and Industry, Department of Industrial Policy and Promotion, SIA (FC Division), Press Note 3(2002 Series) dated January 4, 2002]^omitted

v) Maturity

The maturity of the borrowings in foreign exchange shall be as under :

Amount	Minimum Average Maturity
i) Up to US$ 20 Million or equivalent	Not less than 3 years
ii) Exceeding US$ 20 Million and upto US$ 500 Million or equivalent	Not less than 5 years

Note - Borrowing up to US$ 20 Million can have call/put option provided the minimum average maturity of 3 years as prescribed above is complied with before exercising call/put option.

vi) All-in-cost ceilings

The all-in-cost ceilings for the borrowing in foreign exchange shall be specified by the Reserve Bank from time to time

vii) Security

The borrower shall be at liberty to provide security to the lender / suppliers, provided that-

a) Where the security is in form of immovable property in India or shares of a company in India, it shall be subject to Regulation 8 of Notification No.FEMA.21/ 2000-RB dated May 3, 2000 and Regulation 3 of Notification No.FEMA.20/2000-RB dated May 3, 2000, respectively.

b) Guarantee 

Banks, financial institutions and Non-Banking Finance Companies shall not provide (issue) guarantee or Letter of Comfort or Standby Letter of Credit in favour of overseas lender on behalf of their constituents for their borrowings in foreign exchange.

viii) Prepayment

Notwithstanding the provisions of clause (v) above, prepayment of outstanding foreign currency loan may be made as per the directives issued by the Reserve Bank from time to time.

ix) Parking of loan amount abroad

^old [The proceeds of borrowings in foreign exchange shall be parked abroad until actual requirement in India.] ^old

[The proceeds of borrowings in foreign exchange availed under the schedule may, pending utilization for permissible end-uses, be parked abroad or in India as directed by the Reserve Bank from time to time”]

x) Loan Agreement

The loan agreement entered into by the borrower with the overseas lender shall strictly conform with these Regulations.. The procedure for obtaining loan registration number would be prescribed by the Reserve Bank.

xi) Drawal of Loan

Draw-downs of borrowing in foreign exchange shall be made strictly in accordance with the terms of the loan agreement only after obtaining the loan registration number from the Reserve Bank.

xii) Reporting

The borrower shall adhere to the reporting procedure as specified by the Reserve Bank from time to time.

xiii) Debt Servicing

The designated Authorized Dealer (AD) shall have the general permission to make remittances of principal, interest and other charges in conformity with the guidelines on borrowing in foreign exchange from overseas, issued by Central Government / the Reserve Bank from time to time.

2. Refinancing of existing borrowing in foreign exchange

(i) Refinancing of outstanding amounts of loans raised in foreign exchange in accordance with the Act or the Rules and Regulations made there under, may be made by making fresh borrowing in foreign exchange in accordance with this Schedule provided that there is reduction in cost of borrowing and the outstanding maturity of the original borrowing is not reduced.

ii. Provisions of sub-paragraphs (ii), and (v) of paragraph 1 shall not apply to the borrowings made under Clause 2 (i),

²[(3) Foreign currency borrowings by successful bidders of 2G spectrum reauction

1. (i) The successful bidders can avail of foreign currency borrowing in the nature of bridge finance for the purpose of making upfront payment towards spectrum allocation and refinance the same by making fresh borrowing in foreign exchange in accordance with the Act or the Rules and Regulations made thereunder in accordance with this Schedule, subject to satisfying the terms and conditions as may be specified by the Reserve Bank, from time to time in this regard.

2. Provisions of sub-paragraph (v) of paragraph 1 shall not apply to the foreign currency borrowing in the nature of bridge finance made under para 3(i).

3. The restriction of repayment of Rupee loans as specified in clause (B) in sub-paragraph (iv) of paragraph 1 shall not apply to the foreign currency borrowing availed of for refinancing domestic borrowings for making upfront payment towards spectrum allocation.

4. Such foreign currency borrowings can also be availed of from the ultimate parent company subject to satisfying the terms and conditions as may be specified by the Reserve Bank, from time to time in this regard.”]

 

SCHEDULE II

a) for investment (such as import of capital goods, new projects, modernization / expansion of existing production units) in real sector - industrial sector including small and medium enterprises (SME) and infrastructure sector - in India.

Explanation : ^old [The following sectors will qualify as infrastructure projects, namely:-

i) Power, Telecommunications, Railways, Roads including bridges, Ports, Industrial Parks and Urban infrastructure (water supply, sanitation and sewage projects).]

[The following sectors will qualify as infrastructure sectors, namely:.

(i) Power ,(ii) Telecommunications, (iii) Railways,(iv)  Roads including bridges, (v) Sea Ports and Airport, (vi) Industrial Parks (vii)  Urban infrastructure (water supply, sanitation and sewage projects)] (viii) Mining ,Exploration and Refining.]

b) for first stage acquisition of shares in the disinvestments process and also in the mandatory second stage offer to the public under the Government's disinvestments programme of PSU shares.

c) for direct investment in overseas Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS) subject to the existing guidelines on Indian Direct Investment in JV/WOS abroad.

[(AA) Borrowings in foreign exchange per borrower company per financial year up to such amounts not exceeding US Dollars 500 million or its equivalent as directed by the Reserve Bank from time to time shall be permitted for such permissible end-uses as indicated by Reserve Bank from time to time".]

b) Guarantee

Banks, financial institutions and Non-Banking Finance Companies shall not provide (issue) guarantee or Letter of Comfort or Standby Letter of Credit in favour of overseas lender on behalf of their constituents for their borrowings in foreign exchange.

Exception – Banks, financial institutions and Non-Banking Finance Companies shall be permitted to provide Bank Guarantee, or Letter of Comfort or Standby Letter of Credit in favour of Small and Medium Enterprises (SMEs) with the approval of the Reserve Bank.

"Exception- 2 - Banks may provide Bank Guarantee, Standby Letter of Credit, Letter of Undertaking or Letter of Comfort in respect of ECB by textile companies for modernization or expansion of their textile units, with the approval of the Reserve Bank."

1. Amended Vide Notification No. FEMA .245/2012-RB Dated 12.11.2012

2. Inserted Vide Notification No. FEMA .245/2012-RB Dated 12.11.2012