When it comes to cross-border lending, many Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) often ask: Can NRIs give or receive loans in India?
The answer is yes—NRIs can lend to Resident Indians (both individuals and companies) and can also borrow from Resident Indians, subject to specific conditions under the Foreign Exchange Management Act (FEMA) and the Income Tax Act.

This blog explains the rules, limits, conditions, and reporting requirements in detail.

I. Loans Given by NRI/OCI to Resident Individuals in India (INR)

NRIs can give loans in Indian Rupees (INR) to Resident Individuals in India, subject to the following conditions:

Non-Repatriable Basis

• Loan principal and interest cannot be directly repatriated outside India.
• Repayment must be made to the NRO account of the NRI lender.
• However, NRIs can still repatriate up to USD 1 million per financial year from their NRO account (including such repayments).

Mode of Receiving Loan

The loan amount must be transferred via:

• Direct remittance from an overseas account of the NRI, or
• Debit to NRO/NRE/FCNR(B) account in India.

Cash transactions are not permitted.

Loan Tenure

• Maximum period: 3 years.

Interest Rate

• Interest cannot exceed 2% above the prevailing Bank Rate on the date of granting the loan.

Repayment

• Repayment of loan and interest can only be made into the NRO account of the NRI.

Tip: Always draft a loan agreement under FEMA & tax compliance with professional assistance.

II. Loans by NRI/OCI to Indian Companies (INR)

NRIs can lend to Indian companies in INR, either on a repatriation or non-repatriation basis. However, strict conditions apply:

Prohibited Sectors
The Indian company must not engage in:

• Agricultural/plantation/real estate business (except township development, construction, roads, bridges),
• Trading in Transferable Development Rights (TDR), or
• Acting as a Nidhi or chit fund company.

Mode of Borrowing

• Loans can only be raised by issuing Non-Convertible Debentures (NCDs).
• NCDs must be issued via a public offer (not privately).

Interest Rate

• Interest cannot exceed 3% above SBI’s lending rate.

Loan Tenure

• Minimum period: 3 years.

Repatriation Rules

• For loans on repatriation basis: NCD allotment to NRIs must not exceed the ceiling applicable to FDI.
• For non-repatriation basis: Loan proceeds must be received via inward remittance or debit to NRE/NRO account. Repayment can only be made to the NRO account.

Utilization of Loan

• Funds must be used only for the borrower company’s business activities.
• Cannot be used for further lending or investment.
• Can be parked in bank fixed deposits until utilized.

Reporting Requirements
Within 30 days of loan receipt, the company must submit a report to RBI containing:

• Details of remittance & lender’s information.
• A Company Secretary certificate confirming compliance with NCD rules.

Hence, a company cannot simply take a loan from its NRI directors casually—it must issue NCDs and follow RBI-prescribed procedures.

III. Loans from Foreign Individuals (Non-NRIs) to Indian Companies

Foreign nationals who are not NRIs/OCIs cannot directly lend to Indian companies.
They can only do so if:

• They hold at least 25% direct equity in the company, or
• At least 51% indirect holding exists.

Such loans fall under the category of External Commercial Borrowings (ECBs), permitted only if the lender is a resident of a FATF or IOSCO compliant country.

IV. Loans by Resident Individuals to NRI Relatives

Resident Indians can also lend to their NRI relatives under FEMA guidelines:

Mode of Transfer

• Only via crossed cheque/electronic transfer to the NRO account of the NRI.

Loan Limit

• Within the Liberalized Remittance Scheme (LRS) limit of USD 250,000 per financial year.

Interest-Free Loan

• The loan must be interest-free.

Minimum Tenure

• At least 1 year maturity period.

Permitted Use

• Loan cannot be used for real estate business or further lending.
• However, the NRI can purchase immovable property in their own name using the loan.

Repayment Options

• Via inward remittance from abroad,
• Debit to NRO/NRE/FCNR(B) account, or
• Sale proceeds of property purchased from the loan.

Frequently Asked Questions (FAQs) on NRI Loans in India

1. Can NRIs give loans to friends or family in India?

Yes, NRIs can give loans to Resident Indians, but only through banking channels (NRO/NRE/FCNR accounts or direct remittance), not in cash.

2. Can NRIs charge interest on loans to residents?

Yes, but the interest rate must not exceed 2% above RBI’s Bank Rate for individual loans.

3. Can NRI loans be repatriated outside India?

• For loans to individuals: Repayment is only on a non-repatriable basis (into NRO account).
• For loans to companies: Repatriation is allowed only if conditions under FEMA and RBI are met.

4. Can Resident Indians give loans to NRIs?

Yes, but only to their NRI relatives, and such loans must be:

• Interest-free,
• Within USD 250,000 per year, and
• With a minimum tenure of 1 year.

5. Can foreign nationals (not NRIs/OCIs) give loans to Indian companies?

No, unless they meet the ECB criteria (minimum equity holding + FATF/IOSCO compliance).

6. What is the safest way for NRIs to lend to residents in India?

The safest way is via NRO/NRE account transfer with a properly drafted loan agreement under FEMA & Income Tax Act.

Key Takeaway

NRIs can give loans to both Resident individuals and Indian companies, but strict FEMA rules apply regarding tenure, interest, mode of transfer, and repatriation. Similarly, Resident Indians can extend interest-free loans to their NRI relatives under LRS.

For compliance and tax efficiency in NRI Taxation, it’s always best to consult a FEMA and tax professional before structuring cross-border loans.