RBI to Strengthen Rules for Overseas Remittances by Indian Residents

The RBI’s Liberalised Remittance Scheme (LRS) helps manage foreign investments by individuals.

New Limits on Foreign Currency Deposits

The Reserve Bank of India (RBI) is set to introduce stricter rules for overseas remittances by Indian residents. The new rules will focus on foreign currency deposits with lock-in periods.

What is the Liberalised Remittance Scheme (LRS)?

The RBI’s Liberalised Remittance Scheme (LRS) lets Indian residents send up to $250,000 each year for different needs. These needs include:

• Studying abroad
• Traveling
• Investing in stocks and bonds
• Getting healthcare services

Updates to the LRS Guidelines

The RBI will update its guidelines. It wants to stop international transfers from being used to deposit funds in overseas interest-bearing accounts or time deposits. An official said:

“This is like passive wealth shifting. It is a red flag for the RBI in a still-controlled capital system.”

India’s Careful Approach

India is careful about increasing outward remittances and full rupee convertibility. These proposed changes show that. Officials want to protect foreign exchange reserves and control currency changes.

The central bank is talking with the government. They plan to take steps to prevent such deposits under different names.

Recent Trends in Outward Remittances

RBI data shows that outward remittance deposits by individual residents went up a lot. It increased to $173.2 million in March from $51.62 million in February. March usually sees more outward remittances. Residents use their yearly allowances and manage tax issues.

The total outward remittances under the scheme for the financial year 2024/25 went down a bit. But it was still large at about $30 billion, compared to $31 billion the previous year.

Growth in Outbound Transfers

Outbound transfers from India through the program have grown steadily. This growth is especially notable with fintech companies and private banks helping with international investments for individual investors.

“The move addresses a growing misuse of the scheme. It is used as a way to export passive capital,” said a second official. “It also aligns the scheme more closely with India’s measured approach to capital account convertibility.”

Impact on Authorized Foreign Investments

India is careful about unrestricted outward flows. It wants to safeguard its forex reserves and regulate currency changes. The updated rules will not affect authorized foreign investments in shares, mutual funds, or real estate under the LRS.