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RBI prescribes norms for NRI loans
August , 2004
In a bid to reduce possibility of frauds, the Reserve Bank of India
has mandated that applications for loans against non-resident Indian
(NRI) deposits be forwarded through a bank branch in the country where
the deposit holder resides.
In a circular issued to all scheduled commercial banks, the RBI said this
decision is also aimed towards facilitating legitimate transactions.
"The preferable procedure would be to route
such requests through the bank branch at which the concerned NRI is maintaining
his accounts,''
the RBI has said. The routing of the loan requests through the suggested
procedures would ensure due diligence and compliance with `Know Your Customer'
norms by that branch. A copy of the passport of NRI should also preferably
accompany the application for loan against NRI deposits.
These instructions of RBI come in wake of the observations of the Committee
on Procedures and Performance Audit (Tarapore Committee), which examined
the previous instructions in respect of such loans. In a May 2002 circular,
banks were advised that that in case of loans to third parties against
NRI deposits, the relative documentation should be done at the branch from
where the loan is being sought by the NRI depositor. The loan should be
sanctioned only when the depositor himself executes loan documents in the
presence of bank officials and an acceptable witness. The advances against
such deposits to third parties should not be granted on the basis of the
`power of attorney'.
These instructions had resulted in considerable difficulties for the non-resident
ordinary (NRO) account holders.
The objective in view of examining these instructions was to facilitate
legitimate transactions in NRO accounts in a liberal foreign exchange
policy scenario.
Consultation with Indian Banks' Association (IBA) was carried out to
examine the issues pertaining to this matter, which led to the recent
instructions.
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