The Reserve Bank of India (RBI) is set to tighten regulations on overseas remittances, barring resident Indians from holding foreign currency deposits with lock-in periods. The move aims to prevent passive capital export, safeguard foreign exchange reserves, and manage currency volatility.
The RBI plans to amend regulations to prevent overseas transfers from being used to park money in time deposits or other interest-bearing accounts abroad. Officials believe this practice amounts to passive wealth shifting, which is a red flag in India’s controlled capital regime.
The Liberalised Remittance Scheme (LRS) allows resident Indians to remit up to $250,000 annually for purposes such as foreign education, travel, investments, and medical treatments. While discussions with the government are ongoing, the RBI aims to ensure such deposits cannot be made even under alternate names.
RBI data shows that deposits under outward remittances by resident individuals surged to $173.2 million in March, up from $51.62 million in February. Outward remittances typically spike in March as residents maximize their annual limits and optimize taxes, making it the busiest month under LRS. However, the RBI is concerned that a portion of these funds may be passively parked abroad.
India has remained cautious about unrestricted capital outflows, partly to preserve foreign exchange reserves and manage currency volatility. The revised rules will not affect permissible foreign investments in equities, mutual funds, or property under the LRS.
The RBI’s decision to tighten remittance rules reflects its calibrated approach to capital account convertibility and its efforts to curb misuse of the LRS. The move is expected to strengthen India’s financial stability while ensuring that outward remittances align with regulatory objectives.
