India's central bank and market regulator have increased scrutiny of overseas investments by companies and family offices, issuing at least 10 queries over the past three weeks to assess whether investment routes may have been misused.
The heightened oversight comes at a time when India's currency has faced pressure from rising oil prices and foreign capital outflows, sources familiar with the matter told Reuters.
Authorities have responded with measures aimed at preserving foreign exchange, including higher taxes on precious metal imports and calls to conserve reserves.
Regulators seek clarity on overseas fund flows
The Reserve Bank of India has sent at least 10 queries in recent weeks to determine whether funds were transferred overseas without a clear business purpose or without backing from tangible assets.
As cited in a Reuters report, the regulator is examining whether overseas remittances were linked to genuine business activity and whether the underlying investments had sufficient economic justification.
The current review is focused on the pace of capital outflows and their potential impact on the country's financial position.
Focus on ODI sructures and valuations
India maintains a partially open capital account.
Under existing regulations, companies can invest abroad through the Overseas Direct Investment route, subject to limits linked to their net worth and for specific purposes.
Individuals, meanwhile, are permitted to remit up to $250,000 annually under the Liberalised Remittance Scheme for purposes including education, healthcare, and investments.
Regulators are paying particular attention to large overseas investments conducted through complex or opaque structures.
Areas under review include potentially inflated valuations of offshore assets and possible use of ODI mechanisms for private wealth management.
RBI data shows overseas direct investment increased 11% year-on-year to $48.39 billion during the 2024-25 financial year.
Individual remittances abroad totalled $28.9 billion during the same period.
Current regulations require entities undertaking ODI remittances to obtain sector-specific no-objection approvals and submit valuation reports to the RBI.
Larger or more complex transactions may also require prior approval from the central bank.
SEBI has recently slowed the issuance of no-objection letters for regulated entities seeking to establish overseas structures.
Family offices under closer examination
Family offices have emerged as a key area of focus for regulators.
Two sources familiar with the matter told Reuters that authorities are closely examining offshore remittances by family offices that are structured as corporate entities.
Such structures can provide access to higher remittance limits under ODI rules compared with limits available to individuals.
The RBI is reviewing at least two instances in which family offices may have used the ODI route primarily for personal wealth management purposes.
The central bank may also examine cases where companies have established overseas investment vehicles that are used for capital market exposure rather than for genuine strategic expansion, sources said.
SEBI reviews valuation practices
Separately, SEBI is examining proposals from regulated entities, including investment funds and wealth management firms, that seek approval to establish overseas structures.
Valuation exercises are typically carried out by SEBI-registered merchant bankers.
Regulators are also reviewing whether valuation professionals are assigning excessively high valuations in certain transactions.
Despite the increased oversight, legal experts do not view the regulatory approach as an attempt to restrict legitimate overseas expansion.
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