The limit on loans taken against non-resident deposits may have been eliminated to improve the liquidity situation in the country. The move is speculated to be a significant step for increasing capital inflow in the economy.

It is to be noted that earlier, there was a restriction on the maximum amount of loan that could be taken, either in foreign currency or in India rupee, against NRE and FCNR(B) term deposits. The maximum amount of loan under these was restricted to Rs. 1 crore. Later, in a notification to banks on October 12 this year, Reserve Bank of India, eliminated this limit.

On why RBI removed the cap, an official from a public sector bank, who is designated as the in charge of NRI operations said that prior to the year 2000, there was no such limit on loans against NRE and FCNR(B) fixed deposits. It was in the year 2000 only that RBI introduced such a cap of Rs. 20 lakh. Later, in the year 2009, this limit was increased to Rs. 1 crore.

Presently, RBI has again eliminated this limit and has permitted the balance in such accounts to be extended by either the third party or by the account holder himself. It is reported that the reason for this could be to increase liquidity in the economy.