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Can NRI pledge shares?

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As per RBI guidelines, an NRI is allowed to pledge their shares with Indian banks, overseas banks, and Non-Banking Finance Companies (NBFC) for genuine business purposes. It is a general rule that the NRI shareholders are required to submit the declaration that the funds so availed as loan have been utilized for declared purposes only. An NRI can approach their banks for any guidance required in this regard.

The below table provides a summarized view on NRI pledging:

Shares can be pledged with

Purpose

Primary Condition for pledging

Authorised Dealer [AD] Bank in India

To avail loan for resident investee Indian company

Indian company should follow all SEBI disclosure norms

Overseas Bank

To avail loan for the non-resident investor or for the overseas group company

The loan should be availed from the overseas bank only and should be utilized for overseas business purposes only. Such funds should not be directly or indirectly be linked to any investments in India.

NBFC

[AD bank has been delegated with the power to pledge NRI shareholding with NBFC]

To avail loan for the resident investee Indian company

Pledging of only listed equity shares on a recognized stock exchange is allowed.


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