By Shubham Batra
Mumbai (Reuters) – India’s central bank plans to tighten overseas remittance rules for residents of Indians, banning them from holding foreign currency deposits with locked-up periods, two government sources said.
A source said the Reserve Bank of India (RBI) will amend regulations to prevent overseas transfers from being used to park currency or other accounts with interest abroad.
“This is similar to the transfer of passive wealth, which is a red flag for the Reserve Bank of India in a capital regime that is still under control,” said the first source of central bank thinking.
Sources said the proposed changes reflect India’s cautious stance on external remittances and full cashing of the rupee as authorities work to protect foreign exchange reserves and manage currency volatility.
Individuals’ overseas investments are part of the Central Bank Free Remittance Program (LRS) (LRS) (allowing resident Indians to remit up to $250,000 a year), and are intended to invest from foreign education, travel, equity, and debt to medical treatment.
The second source said that despite ongoing discussions with the government, the Reserve Bank of India’s goal is to ensure that such deposits are not available even under alternative names.
Both sources declined to be named due to the confidentiality of the talks. The Ministry of Finance and the Reserve Bank of India did not respond to an email request for comment.
The move is part of a comprehensive review of the legal framework that manages the program to simplify regulations, a priority highlighted by the central bank in its annual report.
Data from the Reserve Bank of India showed that in March, deposits under remittances to foreign exchange rose to $173.2 million from $51.62 million in February.
External remittances typically soared in March as it allows residents to maximize their annual restrictions and optimize taxes, making it the busiest month under the LRS, but the Reserve Bank of India is concerned that some of them may be parked passively.
In the fiscal year 2024/25, annual outbound remittances under the plan fell, but remained at nearly $30 billion, compared with $31 billion a year ago.
Sources did not disclose the amount currently held in foreign currency deposit accounts, but said the move was “preventive”.
India’s external remittances under the scheme have steadily increased, especially as fintech platforms and private banks make global investments easier for retail investors.
“The move is targeting the growing abuse of the program as a passive capital export tool,” a second source said.
