All loans or credits secured by persons resident in India from non-residents (abroad) as also repayment of such loans/credits and payment of interest an other charges thereon require permission of the Reserve Bank of India.
The proposal for raising a foreign currency loan should be submitted to the Government of India, Ministry of Finance, Department of Economic Affairs, for their clearance. At present such loans are permitted by Government for certain specific purposes such as financing import of capital goods and technical know-how, purchase of aircraft/ships, etc.
In cases approved by Government a letter indicating the terms and conditions regarding amount of loan, rate of interest, period of repayment, etc., is issued to the applicant. Thereafter, the borrower should make an application in form FCL-1 to the Reserve Bank for permission to raise the loan.
On receipt of Reserve Bank’s approval, the borrower may conclude the loan agreement with the overseas lender. Requisite number of copies of the agreement should be filed with the Government, which will take it on record and advise the borrower it conforms to the approved terms. Thereafter the borrower should apply to the Reserve Bank along with 2 copies of the loan agreement for permission to effect withdrawal of the loan amount for utilization towards approved purposes.
Reserve Bank allots a registration number to each foreign currency loan which should be quoted in all returns/statements/communications to the Reserve Bank.
Prior permission of the Reserve Bank is also required for:
(i) issue of bank guarantees for repayment of foreign currency loans; and
(ii) opening of bank accounts by the borrower abroad.
The borrower should submit to the Reserve Bank a return in form FCL-2 each time withdrawal of the loan is made as also at the time of any change in the repayment schedule. A quarterly statement about the utilization of the loan should also be sent to the Reserve Bank.
All remittances under the loan require prior permission of the Reserve Bank. If the Reserve Bank has granted general permission, subsequent remittances can be made on the basis of that permission. Details of remittances should be reported by the bank to the Reserve Bank in form FCL-3 in duplicate, within a week from the date of remittance.