Key Highlights

• RBI plans to ban foreign-currency fixed deposits abroad under LRS to deter passive wealth transfers.
• Scheme changes aim to protect forex reserves and currency stability while allowing equity, mutual fund, property remittances.

India's central bank intends to tighten rules for overseas remittances by resident Indians, prohibiting them from holding foreign currency deposits with lock-in periods, according to two government sources.

The Reserve Bank of India (RBI) will amend regulations to prevent overseas transfers from being used to park money in time deposits or other interest-bearing accounts abroad, according to one source.

"This is akin to passive wealth shifting, which is a red flag for the RBI in a still-controlled capital regime," the first source familiar with the central bank's thinking explained.

The proposed changes reflect India's cautious stance on an increase in outward remittances and the rupee's full convertibility, as authorities work to protect foreign exchange reserves and manage currency volatility, sources say.

Individuals' overseas investments are covered by the central bank's Liberalised Remittance Scheme (LRS), which allows resident Indians to remit up to $250,000 per year for a variety of purposes, including foreign education, travel, equity and debt investments, and medical treatments.

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While discussions with the government are ongoing, the RBI intends to prevent such deposits from being made, even under different names, according to the second source.

The move is part of a comprehensive review of the scheme's legal framework aimed at simplifying regulations, as highlighted by the central bank in its annual report. According to RBI data, resident individuals' outward remittance deposits increased sharply to $173.2 million in March, up from $51.62 million the previous month.

Outward remittances typically peak in March as residents try to maximise their annual limits and minimise taxes, making it the busiest month under LRS, but the RBI is concerned that some of this may be passively parked.

Total annual outward remittances under the scheme fell slightly but remained high at nearly $30 billion in fiscal year 2024/25, compared to $31 billion the previous year.

The amount currently held in foreign currency deposit accounts was not disclosed, but the move is "preventative" according to the sources.

India's outward remittances under the scheme have steadily increased, thanks to fintech platforms and private banks that have made global investing more accessible to retail investors.

"The move addresses a growing misuse of the scheme as a vehicle for passive capital export," the second source explained.

"It also makes the scheme more consistent with India's calibrated approach to capital account convertibility."

India has been cautious about allowing unrestricted outflows, partly to protect its foreign exchange reserves and manage currency volatility. According to the second source, the revised rules will not affect permissible foreign investments in equities, mutual funds, or property under the LRS.