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how to make fd s work for nri s

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All of us face an interim liquidity crunch at some time or another. It could be for funds required for down payment of a property or some medical emergency or maybe for a marriage. In all such situations, one is confused between whether to break their existing investments or take a personal loan for the brief period to cover for the expenses.

overdraft for NRI in FDBreaking investments, especially fixed deposits means loss of interest on the deposit on account of the pre-term liquidation penalties levied. At the same time, as an NRI customer, getting a personal loan is out of the question.

In these situations, make your

fixed deposit

work for you. You can take an overdraft facility against your fixed deposits. There is no specific tenure for the loan, you can avail the loan till the deposit matures. If unpaid till maturity, the loan is adjusted against the fixed deposit proceeds. There are no prepayment penalties to foreclose the loan.

The loans/overdrafts shall be in non-repatriable Indian Rupees and can be used for any of the following purpose:

  • For personal purposes or for carrying on business activities except for the purpose of re-lending or speculative purposes or carrying on agricultural/plantation activities or for investment in real estate business.

  • For making direct investment in India on non-repatriation basis by way of contribution to the capital of Indian firms/companies subject to compliance with the provisions of the Foreign Exchange Management (Transfer of Indian security by a person resident outside India) Regulations, 2000 and Foreign Exchange Management (Investment in proprietary or a partnership firm) Regulations, 2000.

  • For acquiring a flat/house in India for his/her own residential use subject to the provisions of the relevant Regulations made under the Act of Reserve Bank of India.

The repayment of the overdraft facility should be made either by adjustment of the deposit or by fresh inward remittances from outside India through normal banking channels. The loan can also be repaid out of local rupee resources in your NRO account.

The overdraft facilities can be taken on NRE deposits, NRO deposits and FCNR (B) Deposits.

Interest will be charged on the amount drawn and not the limit set. Typically Banks offer a Loan to Value (LTV) of upto 90% of the fixed deposits on NRE and NRO deposits. On FCNR (B) it varies from 70 to 90% based on the currency and keeping the exchange fluctuation margins in mind.

The interest rate on the overdrawn amount is around 2-2.5 per cent over the fixed deposit rate. For e.g.If you have a deposit of Rs 1 lakh earning an interest of 10 per cent a year. At 10 per cent margin, your overdraft limit is set at Rs 90,000. If you need Rs 30,000, you can withdraw it from the overdraft account at 12-12.5 per cent (2-2.5 per cent over deposit rate). The interest will be charged on Rs 30,000 and not Rs 90,000.

The processing fee charged for this loan is low compared to personal loans. Sometimes, banks waive off the processing fee. As this is a secured loan, the lender may or may not want to know if you have the cash flow to repay it, hence there are no CIBIL or eligibility checks for this loan. However your deposit will be lien marked for as long as the loan is active.


The cap for overdrafts against NRE and FCNR (B) accounts was placed at Rs. 1 Crore. However, in October 12, 2012, the Udeshi Committee  set up to review the facilities for individuals under FEMA, 1999 recommended that the banks may sanction Rupee loans in India or foreign currency loans outside India to either the account holder or a third party to the extent of the balance in the NRE/FCNR (B) account subject to margin requirements.

Existing provision

Proposed provision

Rupee loans* in India

Loans against NRE/FCNR(B) Fixed Deposits

Rs. 100 lakhs ceiling applicable

Rupee loans to be allowed to depositor/third party without any ceiling subject to usual margin requirements**

Foreign Currency loan* in India/ outside India

Loans against NRE/FCNR(B) Fixed Deposits

Rs. 100 lakhs ceiling applicable

Foreign Currency loans to be allowed to depositor/third party without any ceiling subject to usual margin requirements **

* The term ‘loan’ shall include all types of fund based/non-fund based facilities.

** In case of FCNR deposits, the margin requirement shall be notionally calculated on the rupee equivalent of the deposits in accordance with para 9(2) of Schedule-2 of Foreign Exchange Management (Deposit) Regulations, 2000.

The important point to note is that the

facility of premature withdrawal of NRE/FCNR deposits is no longer available where loans against deposits are taken. Also, the facility of pre-termination of the loan by adjusting against the deposit is no longer permitted. Hence, whenever you want to repay the loan before the maturity of the deposit, it can be done so only with fresh inward remittances from overseas funds or from the NRE accounts.


An important point here is that the loans can be taken for your own consumption; you can even take a third party loan (given to a close relative) on your fixed deposit for their personal consumption. While first party loans are priced at fixed deposit rate + 2 – 2.5%, the third party loans are priced at the Base rate + 2%- 2.5%. Also, the loans can be taken in rupees in India or in foreign currency overseas.


Source :



About the Author:

The author, Daisy Fernandes has a Masters in Management from SP Jain, a Banker by profession and currently pursuing CFP certification. She can be reached at






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