The RBI’s Liberalised Remittance Scheme (LRS) governs foreign investments by individuals. (AI image)

The Reserve Bank of India intends to strengthen regulations concerning international money transfers, that is, overseas remittances by Indian residents, with new restrictions on foreign currency deposits that involve lock-in periods.The RBI’s Liberalised Remittance Scheme (LRS) governs foreign investments by individuals, permitting resident Indians to send up to $250,000 annually for various purposes, including overseas education, travel, investment in equity and debt instruments, and healthcare services.The RBI will modify its guidelines to stop international transfers from being utilised to deposit funds in overseas interest-bearing accounts or time deposits, an official told Reuters.“This is akin to passive wealth shifting, which is a red flag for the RBI in a still-controlled capital regime,” noted the official.India’s conservative approach towards increasing outward remittances and complete rupee convertibility is evident in these proposed modifications, as officials work to protect forex reserves and control currency fluctuations, according to the sources.The central bank, whilst in talks with the government, intends to implement measures preventing such deposits from being made under different nomenclatures, as per the second source.Also Read | Rs 4.58 crore siphoned off from customer accounts, FDs! How former ICICI Bank relationship manager pulled off a stunning fraud – explained in 10 pointsThe initiative aims to streamline regulations within the scheme’s legal structure, aligning with the central bank’s stated objectives in its yearly report.According to RBI statistics, individual residents’ outward remittance deposits increased significantly to $173.2 million in March, up from $51.62 million in February.March traditionally sees heightened outward remittances as residents seek to utilise their yearly allowances and manage tax implications. Whilst it remains the scheme’s peak period under LRS, the RBI has expressed concerns about potential passive fund parking.The total outward remittances under the scheme for the financial year 2024/25 showed a slight decrease but maintained substantial levels at approximately $30 billion, compared to $31 billion in the previous year.The outbound transfers from India through the programme have shown consistent growth, especially with fintech companies and private banking institutions facilitating international investments for individual investors.Also Read | Remittances tax: How Donald Trump’s ‘The One Big Beautiful Bill’ may turn out to be ugly for Indians in the US“The move addresses a growing misuse of the scheme as a vehicle for passive capital export,” according to the second official.“It also aligns the scheme more closely with India’s calibrated approach to capital account convertibility.”India maintains a prudent stance regarding unrestricted outward flows, primarily to safeguard its forex reserves and regulate currency fluctuations.The updated regulations will not impact authorised foreign investments in shares, mutual funds or real estate under the LRS, as confirmed by the second official.