RBI and SEBI have tightened checks on overseas investments
by firms and family offices, issuing at least 10 queries in the
past three weeks to determine any potential misuse of the
investment route, three sources with direct knowledge of the
matter said to Reuters.
The South Asian nation’s currency has come under sharp
pressure from surging oil prices and foreign money outflows,
prompting higher taxes on precious metal imports and calls to
conserve foreign exchange.
In a rare move over the past three weeks, the Reserve Bank
of India (RBI) has sent at least 10 queries to ascertain whether
funds were routed overseas without a clear business purpose or
tangible asset backing, one of the three sources said.
“The scrutiny is not about curbs but about the pace of
capital outflows and why and whether they are exacerbating
pressure on the currency and reserves,” another source said.
India’s capital account is only partially open. Companies
can invest abroad through the overseas direct investment (ODI)
route, subject to limits tied to net worth and for specific
purposes. Individuals may remit up to $250,000 annually under
the Liberalised Remittance Scheme (LRS) for uses such as
education, healthcare and investments.
Regulators are focusing on large overseas investments routed
through opaque structures, inflated valuations of offshore
assets, and potential misuse of ODI routes for private wealth
management by individuals and family offices, the sources said.
Reuters could not determine the recipients of the letters.
The sources declined to be identified as they are not
authorised to speak to the media. Email queries sent to RBI and
Securities and Exchange Board of India (SEBI) on Tuesday went
unanswered.
DETAILS OF QUERIES
According to RBI data, overseas direct investment rose 11%
year-on-year to $48.39 billion in financial year 2024–25, while
individuals remitted $28.9 billion abroad.
Under current rules, regulated entities must secure sectoral
no-objections and file valuation reports with the RBI for ODI
remittances. Larger or complex deals may also need prior RBI
approval.
The SEBI has also recently slowed no-objection letters for
its regulated firms seeking to establish overseas structures, a
third source said.
FOCUS ON FAMILY OFFICES
In particular, regulators are taking a closer look at
offshore remittances by family offices, many of which are
structured as corporate entities, two sources said. This allows
them to access higher remittance limits under ODI, compared with
the individual remittance caps.
The RBI is examining at least two instances of family
offices using the ODI route for managing personal wealth, the
second source said.
The RBI could also scrutinise instances where corporates
have established overseas investment arms, as such structures
are often used for capital market exposure rather than genuine
strategic expansion abroad, two sources said.
Separately, SEBI, while approving proposals from its
regulated entities – including funds and wealth management firms
– to set up overseas structures, is flagging cases where its
assessments indicate aggressive valuations in capital market and
private asset investments, one of the three sources said.
Valuations are typically conducted by SEBI-registered
merchant bankers. Regulators are also scrutinizing whether
bankers are assigning inflated valuations.
“The current approach appears to be one of enhanced
oversight and calibration of remittances, rather than any
rollback of legitimate cross-border expansion by Indian
companies and entrepreneurs,” said Moin Ladha, Partner, Khaitan
& Co, a law firm in India.
Below are steps India is taking to manage dollar outflows:
HIGHER DUTIES ON GOLD, SILVER
India raised import tariffs on gold and silver to 15% from
6% in May.
The government has imposed a 10% basic customs duty and a 5%
Agriculture Infrastructure and Development Cess (AIDC) on gold
and silver imports, taking the effective import tax to 15% from
6%.
TIGHTER IMPORT RULES
India has also imposed tougher import rules on gold and
silver.
It has tightened rules for duty-free gold imports for
jewellery exports by capping imports at 100 kilograms per
licence.
India this week, placed imports of silver bars with 99.9%
purity and all other semi-manufactured forms of silver under the
restricted category with immediate effect.
APPEAL TO CONSERVE FOREX
While India has not imposed restrictions on travel, Prime
Minister Narendra Modi appealed to citizens to avoid unnecessary
foreign travel.
He also urged people to work from home to conserve fuel and
help the government to reduce costly oil imports.
STEPS TO CURB CURRENCY SPECULATION
In February and March, the Reserve Bank of India cut the
limit for net open forex positions that banks can hold.
The step sought to rein in speculative positions in the
rupee, which were exacerbating depreciation pressures.