advances against NR(E)RA and FCNR(B) deposits: By: Nirmal Kapanee

1. Advances against NR(E)RA and FCNR
(B) account deposits
Presented By:
Nirmal Kapanee
LLM (Banking and Finance)

2. Contents:
• 1) Introduction
• 2) NR(E)RA account
• 3) FCNR(B) account
• 4) Advances against NR(E)RA account deposit
• 5) Advances against FCNR(B) account deposit
• 6) Restrictions on advances against FCNR(B) deposits - Quantum of
loans

3. 1) Introduction:
• With the rupee continuing to remain volatile, Non-resident External Rupee Account (NR(E)RA)
and Foreign Currency Non Resident (FCNR(B)) account can be a good option for Non Resident
Indians (NRIs) looking to invest in India without worrying about currency risks.

4. 2) NR(E)RA account
• NRE accounts are opened and maintained in terms of Non-Resident (External) Accounts Rules,
1970. Government Notification No.1/9/EC/69 dated 10th February 1970 contains the Rules (see
Appendix II in Volume II). These accounts are permitted to be opened in the names of non-resident
individuals of Indian nationality or origin (NRIs), overseas companies, firms, societies and other
corporate bodies which are owned directly or indirectly to the extent of at least 60% by NRIs and
overseas trusts in which at least 60% of the beneficial interest is irrevocably held by such persons
i.e OCB’s.

5. 3) FCNR(B) account
• An FCNR account is a term deposit account that can be maintained by NRIs and PIOs in foreign
currency. Thus, FCNRs are not savings accounts but fixed deposit accounts. In October 2011, the
RBI decided that authorised dealer banks in India may be permitted to accept FCNR deposits in
any permitted currency. 'Permitted currency' for this purpose would mean a foreign currency which
is freely convertible and popularly include Danish Krone, Swiss Frank and Swedish Krona among
others.

6. 4) Advances to NRE Account Holders in India:
• (i) Authorised dealers may grant loans/overdrafts in India to the account holders themselves for
purposes other than investment in India, provided that the advances are fully secured by the fixed
deposits and regulations relating to normal margin, interest rate, etc. are complied with. Repayment
will have to be made either by adjustment of the deposit or by fresh remittances in foreign
exchange from abroad. The loan can also be repaid out of local rupee resources held in the NRO
account of the borrower subject to the condition that the loan repaid from local resources would be
charged interest at commercial rate as in force from time to time.
• (ii) Authorised dealers may also grant loans/overdrafts in India to the account holders themselves
for purposes of making direct investment in India on non-repatriation basis by way of contribution
to the capital of Indian firms/companies engaged in manufacturing/industrial activities, export
oriented trading activities, hospitals, hotels of 3 star or higher grades, shipping, development of
computer software and oil exploration services subject to compliance with certain conditions.
•

7. Advances to NRE Account Holders outside India
• Authorised dealers may allow their overseas branches/correspondents to grant any type of fund
based and/or non-fund based facilities to or in favour of non-resident depositor or to third parties at
the request of the depositor for bona fide purpose against the security of funds held in the NRE
Accounts in India. Authorised dealers may also agree to remittance of the funds from India, if
necessary, for liquidation of the outstandings, subject to report to Reserve Bank.

8. Advances to Residents against Security of Fixed Deposits in
NRE Accounts
• Authorised dealers may grant any type of fund based and/or non-fund based facilities to resident
individuals/firms/companies in India against the collateral of fixed deposits held in NRE accounts
subject to certain conditions.

9. 5) Advances against FCNR(B) account deposit
• When a loan or an advance is granted against an FCNR(B) term deposit which stands in the name
of a borrower either singly or jointly, a bank would be free to charge a rate of interest without
reference to its own Base Rate.
• If the term deposit against which an advance was granted is withdrawn before completion of the
prescribed minimum maturity period, such an advance should not be treated as advance against
term deposit and interest should be charged as prescribed in terms of Reserve Bank of India's
directive on interest rates on advances issued from time to time.
• When a loan or advance is granted out of resources mobilised under the scheme, interest rate
chargeable should be at the rate as prescribed in terms of Reserve Bank of India’s directive relating
to Interest Rates on Advances.

10. 6) Restrictions on advances against FCNR(B)
deposits - Quantum of loans
• With effect from April 28, 2009, banks were permitted to grant advance upto Rs. 100 lakh
on loans against security of funds held in NR(E)RA and FCNR(B) deposits either to the
depositors or third parties.
• The existing position in this regard has been reviewed and it has been decided that with
effect from October 12, 2012, banks may grant loans against NR(E)RA and FCNR(B)
deposits either to the depositors or the third parties as under:-
• (a) Loans against NRE/FCNR(B) Fixed Deposits in Indian currency: Rupee loans to be
allowed to depositor/third party without any ceiling subject to usual.
• (b) Loans against NRE/FCNR(B) Fixed Deposits in foreign currency: Foreign Currency
loans to be allowed to depositor/third party without any ceiling subject to usual margin
requirements