The lifting of the ceiling on loans against non-resident deposits is a substantial move and may have been prompted by the easing of the liquidity situation, said bankers.
There was cap of Rs 1 crore for foreign currency and rupee loans taken against NRE and FCNR(B) fixed deposits. The Reserve Bank of India, in a notification issued on October 12, has lifted this cap.
According to an official from a public sector bank, in charge of NRI operations, there was no cap on such loans prior to 2000.
In 2000, the RBI introduced a cap of Rs 20 lakh. This was increased to Rs 1 crore in 2009.
Now, the RBI has lifted the cap again and allowed either the account holder or a third party to extend the balance in account.
“Probably, the purpose of the limiting loan has been achieved now. It may have to do with liquidity in the system,'' he said.
These loans are availed of by NRIs when they want to make investments in India but do not want to break their deposits, as it would attract penalty for premature withdrawal.
The purpose could be for investment in real estate or commodities like gold, the bank official. There is no restriction on the end use of such loans. With a rebound in the Indian equity markets, it is possible that NRIs may also be looking to invest in equities.
While NRI advances account for a minuscule part of the bank's advances, loans against deposits account for about 10% of NRI advances, the official added.