The Hindu Business Line : RBI prescribes norms for loans against NRI deposits

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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