• NRI starting a mortgage company in India

I am a non resident Indian living in Canada with Canadian PR and Indian Citizenship. I want to start a business/company in India which gives mortgage loans to real estate builders for short term (upto 5 Years). I will collect money as loan from Individual investors in Canada and USA who want to invest into Indian real estate. I will collect monthly interest from the builder and after taking my expenses, will pass on to investors. In case of default, mortgage will be used to recover the money.
Could you please advise what legal framework will be applicable in India for this type of business and are there any restrictions? I particularly want to know about FEMA and any financing company related laws applicable.
If you could please provide me some guidance about the above it will be great. If you have any further questions, please feel free to ask.

Thank you
Asked 2 years ago in Business Law from Canada
1. No money en doing business allowed in India unless the entity gets license of from RBI.
2. Presently only the Bank and NBFCs on the grant of necessary license carry on such business.
3. SO you have to first form a company, start business of micro finance at the beginning and then will have to apply for such license from RBI. The whole process takes not less than 10 years and even then there is guarantee that RBI will grant you such license.
Devajyoti Barman
Advocate, Kolkata
13197 Answers
175 Consultations

5.0 on 5.0

1. NRIs can incorporate a company or LLC in India.    

2.  Applying for DSC starts the registration process. To apply for DSC, NRI will have to submit application accompanied by income tax PAN  and address proof attested by Indian embassy in the country where the applicant resides. 

 2.  After DSC is acquired the applicant should apply for DIN number. DIN application in Form DIR 3 will be submitted along with declaration, PAN card and address proof. A minimum of one director should be a resident of India.

3. After allotment of approved DIN, the applicant is required to apply for name approval application in Form INC-1. Name should be unique and should not be prohibited 

4. After Name approval the applicant shall apply for incorporation application. This shall be accompanied by prescribed documents such as residential proofs, identity proofs, and Address proofs for registered Office. Form shall also be accompanied by declaration and certificate by a professional. 

5. The form for appointment of Directors has to be filed with the form of incorporation. Through this form, directors gives their consent to act as a director of the proposed companies. 

6. After the incorporation, the intimation of registered office address form shall be filed within 30 days from the date of incorporation. This form shall be accompanied by address proof of registered office.
Ashish Davessar
Advocate, Jaipur
23180 Answers
641 Consultations

5.0 on 5.0

A) According to the regulations of FEMA and RBI, an NRI is permitted to make specific investment in real estate. A NRI is allowed to do the following investments in property:

1.    Any immovable property can be purchased by an NRI in India other than any agricultural land, farm house and plantation property.

2.    He can get any immovable property as mentioned above by gift from Indian resident, Indian citizen residing outside India or person of Indian origin.

3.    Obtain any property by inheritance.

4.    He can transfer immovable property to any resident of India by sale.

5.    He can transfer any agricultural land, farm house or plantation land to any resident of India by gift.

6.    He can also transfer his residential or commercial property by means of gift to any person either residing in India or abroad or person of Indian origin.

B) NRI may, without limit, purchase on repatriation basis:

? Government dated securities / Treasury bills

? Units of domestic mutual funds;

? Bonds issued by a public sector undertaking (PSU) in India.

? Non-convertible debentures of a company incorporated in India.

? Perpetual debt instruments and debt capital instruments issued by banks in India.

? Shares in Public Sector Enterprises being dis-invested by the Government of India, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids.

? Shares and convertible debentures of Indian companies under the FDI scheme (including automatic route & FIPB), subject to the terms and conditions specified in Schedule 1 to the FEMA Notification No. 20/2000- RB dated May 3, 2000, as amended from time to time.

? Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme, subject to the terms and conditions specified in Schedule 3 to the FEMA Notification No. 20/2000- RB dated May 3, 2000, as amended from time to time.

c)Non-Banking Financial Company (NBFC) is a company registered under the Companies Act,  engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business

d) n terms of Section 45-IA of the RBI Act, 1934, no Non-banking Financial company can commence or carry on business of a non-banking financial institution without a) obtaining a certificate of registration from the Bank and without having a Net Owned Funds of Rs. 25 lakhs (Rs Two crore since April 1999).

e) Effective from April 24, 2004, NBFCs cannot accept deposits from NRIs except deposits by debit to NRO account of NRI provided such amount does not represent inward remittance or transfer from NRE/FCNR (B) account.

f) for setting mortgage company in india you would need RBI licence . it is doubtful whether any such licence would be issued 
Ajay Sethi
Advocate, Mumbai
46940 Answers
2776 Consultations

5.0 on 5.0

NRIs are eligible to invest in MFs on a repatriable as well as a non-repatriable basis. RBI has granted general permission in this regard and as such no specific permission is required 

2)Under Schedule 4 of TISPRO Regulations, NRIs on a non-repatriation basis are permitted to purchase
shares or convertible debentures of an unlisted Indian company without any limit and permission
to purchase

3)Investment by NRI in unlisted securities on repatriation basis is in a manner similar to any
Regulatory Framework for Foreign Investment  other investment allowed under Schedule 1 of
TISPRO Regulations; 

Ajay Sethi
Advocate, Mumbai
46940 Answers
2776 Consultations

5.0 on 5.0

Opening of micro-finance company is equally difficult for the NRIs since it requires full time involvement and engagement if directors which you may not do so.
Making investment in any listed company is easy task by way of buying its share for which no approval or paper work is required.
Devajyoti Barman
Advocate, Kolkata
13197 Answers
175 Consultations

5.0 on 5.0

A NRI cannot start a mortgage business in india directly.  He can invest in any NBFC who is into the business or likely to start in the future. In India, property prices have appreciated significantly over the past five years. However, for the overseas Indian, it has only been a marginal increase owing to the depreciation of the Indian rupee against the US dollar. This has made investments in India's real estate sector more affordable and extremely lucrative for overseas investors. 

1) What options do we have that requires minimum approvals and paperwork? 
Ground Checks:
First, determine the nature of the property. As per the guidelines from the Reserve Bank of India (RBI), an overseas Indian cannot buy agricultural land, plantations and farm land in the country.

Examine all the legal documents before buying the land. There have been cases of residential projects being built on agricultural land without securing approval from the government. In such cases, the investment will be deemed illegal, irrespective of who buys the land.
Besides this, also ascertain that the property has secured all clearances required by law, such as environment and municipal clearances and the authority to transfer the undivided share of land to each apartment owner and the entire plot to the society upon completion of the project. Even for projects under construction, insist on these documents to ensure that your investment is safe.

The property can be registered in the name of the NRI and the holder of the power of attorney can sign on his behalf .The power of attorney should be notarised with the Indian consulate in the buyer's country of residence.
Reserve Bank has granted general permission to foreign citizens of Indian origin, whether resident in India or abroad, to purchase immovable property in India for their bona fide residential purpose. They are, therefore, not required to obtain prior permission of Reserve Bank.

2) Is it easier to open a micro-finance company for NRI and Can it lend to real estate sector(Mainly commercial).

If you want to initiate business in India but you do not wish to move here then you need partner/s in India for carrying out your venture. Select your partner/s on the basis of his/her past records, integrity and other personal aspects and avoid choosing them on the basis of your emotional relationships.  You can choose partnership, sole proprietorship, company or any other form of business entity. But make sure that whichever form you are incorporating, you follow all the instructions and regulations associated with it.  Non Banking Financial Companies (NBFCs) can accept deposits from Non Resident Indians (NRIs) under some conditions such as the deposits should be debited from the Non Resident Ordinary (NRO) account of the NRI. Deposit from NRIs are also accepted on the condition that the principal and interest amount would not be credited to a Non Resident External (NRE) account. The amounts received from the deposits are also on non repatriable.

3) If we include a Canadian who is not an NRI, does our investment options change? 

They are required to file a declaration in form IPI 7 with the Central Office of Reserve Bank at Mumbai within a period of 90 days from the date of purchase of immovable property or final payment of purchase consideration along with a certified copy of the document evidencing the transaction and bank certificate regarding the consideration paid.

T Kalaiselvan
Advocate, Vellore
37121 Answers
403 Consultations

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