Who exactly is an NRI?
Broadly, there are two definitions of an NRI.
Under the Income Tax, a person is an NRI for tax purposes if he or she has stayed abroad for 182 days in the previous year.
However, under the Foreign Exchange Management Act (FEMA), an NRI is any person holding an Indian passport and residing outside India for employment, business, or other purposes for an indefinite period.
The core term here is indefinite period.
Therefore, if a young executive leaves India to take up a job in UK, then that person is classified as an NRI from the day he leaves the shores of India. That is the definition we will also use here.
Financial Options for NRIs In India
The extant rules of the government of India permit the NRIs to access all the assets that a resident investor has access to. For example, just as a resident investor can invest in equities, bonds, mutual funds, property etc, the NRIs can also invest in all these assets after going through the necessary RBI compliance.
There are some restrictions on NRIs like they cannot do intraday trades, they cannot buy into chit fund stocks, nor can they buy plantations and agricultural stocks. In addition, NRIs are also barred from investing in sovereign gold bonds.
Just as NRIs can access most assets in India, they can also access loans from banks and financial institutions, like any resident India. One thing we will focus on here is how NRIs can access loan against property in India.
Can NRI access LAP (Loan Against Property) products in India?
The answer is an emphatic YES.
NRIs can access loan against property in India. They would have to, however, meet certain criteria before they are eligible for the same. The ideal situation would be that the property against which loan is sought, is owned by the NRI.
However, the NRI can also access loan against property on the properties that are owned by the close family members of the NRI. In this case, the NRI is required to establish what they intend to do with the funds raised. It can be used for business or personal expenses, but NRIs are barred from using such loans to indulge in any speculative activity with these funds, either in India or abroad.
Documents Needed by an NRI to Access LAP Products
The documentation is a little more elaborate in case of NRIs for loan against property. Here is a quick summary -
- NRIs must furnish valid identity proof issued by the government like valid passport, OCI card, PIO card etc.
- The overseas address must be evidenced by bank statements or utility bills in the name of the NRI.
- The income proof of NRI must be evidenced by multiple income proofs like salary slip, bank statements, tax returns etc.
- The property documents must evidence unfettered ownership with NOC and certificate of no encumbrance.
- Copy of Power of Attorney (POA) authorizing a representative in India to act on behalf of the NRI to facilitate the loan process.
With these documents, the NRI can proceed with the loan against property application.
What Factors Impact the Approval of Loan Against Property For NRI?
While loan against property should not be a problem if documents are in place, here are some factors that will go into eligibility.
- A good credit score is always an advantage for NRIs apply for loan against property
- The lower the debt to income ratio, higher the chances of loan being approved
- NRIs with stable employment in reputed companies stand a better chance
- Property condition, maintenance, age, and legal challenges also impact LAP approval
- It is always better that the NRIs have property insurance as it gives comfort to banks.
These are just indicative factors for NRIs applying for loan against property in India.
Loan Against Property for NRI – Complete Process Flow
For NRIs looking to access loan against property from banks, here is the process to follow to ensure smooth flow.
- Start by doing your homework. Compare various loan against property providers before finalizing. Compare on rate of interest, fees, freebies, LTV etc.
- Get all the paper work in place like ID proof, income proof, tax filings, property documents, NOC, link documents etc
- Approach the lender you have zeroed in on and fill the application form. You can fill the form either online or offline, depending on the facility offered by the bank.
- Submit the application, either online or offline, with all relevant documents and await for the verification to be completed and approval letter to be issued.
- Once you sign the loan against property agreement with the bank and meet conditions as stated in the loan approval letter, your loan is disbursed in a few days.
A Loan Against Property Can Add Value To NRIs
NRIs can use loan against property to meet a variety of personal and business funding needs. Normally, loan against property comes at competitive rates with flexible repayment options. Being back to back secured, even rates are lower. For NRIs, it does check all boxes.