All Authorised Dealers in Foreign Exchange

Madam/Sirs,

FEMA 1999 - Grant of Loans by Indian Companies to the Employees of their Branches Outside India

Attention of Authorised Dealers is invited to A. D. (M. A. Series) Circular No. 11 dated May 16, 2000. In Regulation 5 of Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 vide Notification No. FEMA 3/2000-RB dated May 3, 2000 contained thereat, borrowing and lending in foreign currency by persons other than Authorised Dealers is envisaged.

2. At present loans granted by the Indian companies to the employees of their branches outside India require permission of the Reserve Bank since such loans are treated as loans by a resident to a non-resident.

3. It is clarified that though branches of Indian companies outside India are treated as residents as per the definition, the employees of such branches are treated as persons resident outside India.

4. As a further measure of liberalisation and procedural simplification, it has been decided to grant general permission to the Indian Companies in India to grant loans in foreign currency to the employees of their branches outside India for personal purposes in accordance with the lender's Staff Welfare Scheme/Loan Rules and other terms and conditions as applicable to its staff resident in India and abroad.

5. A copy of Notification No.FEMA 80/2003-RB dated January 8, 2003 which has been issued, amending the provisions of Notification No.FEMA 3/2000-RB dated May 3, 2000 is enclosed (Sub-regulation 6 of the amended Notification may please be read as No.7. A Corrigendum is being issued separately).

6. Authorised Dealers may bring the contents of this circular to the notice of their constituents concerned.

7. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of FEMA 1999 (42 of 1999).