FEM (Borrowing and Lending) Amendment Regulations, 2021

Background: The Reserve Bank of India has notified Foreign Exchange Management (Borrowing and lending) Amendment Regulations, 2021 (Amendment Regulations) on 24.05.2021 pursuant to which the original Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (Original Regulations) has been amended.

1. What are the amendments in the Original Regulations?

Through the Amendment Regulations, in Regulation 7 of the Original Regulations, in clause (A), after sub-clause (ii), a new sub-clause (iii) has been inserted;

Pursuant to this the Authorised Dealer Banks (AD) in India have been authorised to lend money to a person resident outside India for making margin payments in respect of settlement of transactions involving Government Securities by the person resident outside India subject to such terms and conditions as may be specified by the Reserve Bank of India.

Such terms and conditions will be framed and communicated to the AD separately.

2. What is the definition of Government Securities for the purpose of Amendment Regulations?

As per the explanation provided to the aforesaid newly inserted sub-clause (iii), the expression “Government Security” shall have the same meaning as assigned to it in Section 2(f) of Government Securities Act, 2006.

Pursuant to Section 2(f) of the Government Securities Act, 2006, Government Security means a security created and issued by the Government for the purpose of raising a public loan or for any other purpose as may be notified by the Government in the Official Gazette and having one of the forms mentioned in section 3. As per Section 3 of the aforesaid Act, Government Securities may be in the form of promissory note, bearer bond, stock or bond.

3. What is the significance of Amendment Regulations?

The Amendment Regulations authorises the AD Banks to lend money to a person resident outside India for the purpose of making margin payments in respect of settlement of transactions involving government securities.

It aims provide easy liquidity and money in the hands of person resident outside India dealing in Government Securities outside India and will make Government Securities more popular.



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