Large overseas banks are closing bank accounts of Indian high-net-worth individuals (HNIs) due to the high minimum balance imposed by these banks and the Reserve Bank of India's (RBI) tougher standards, according to an Economic Times (ET) story on Friday. It went on to say that in the previous two months, two British banks, one Swiss bank, and a major UAE lender have closed these Indians' accounts.
The funds were moved to these institutions through the Reserve Bank of India's (RBI) Liberalized Remittance Scheme (LRS), which permits individuals to invest up to $250,000 per year in equities and real estate, among other things. Some overseas banks, however, have a fixed minimum balance of $1 million. Customers with smaller balances are also encouraged to use their wealth management arm to invest in stocks and financial securities.
"More and more banks are making it clear that they don't want to bear the cost of maintaining accounts with low balances," Moin Ladha, partner at law firm Khaitan & Co., was quoted as saying in the paper.
Until 2013, the LRS maximum was $200,000 per year, when it was reduced to $75,000 per year. It was later increased to $250,000 in 2015.
Furthermore, the RBI has demanded that Indian consumers either invest or return idle cash within 180 days. According to the ET article, the Enforcement Directorate (ED) is authorized under the Foreign Exchange Management Act (FEMA) to seize the equal amount of the customer's assets in India for infractions. The impact of this can be seen in LRS outflows. Outflows from India under LRS were down 37% in October.
