RBI, SEBI tighten checks on overseas investments by firms, family offices

RBI and SEBI Raise Scrutiny of Overseas Remittances

India's central bank and securities regulator have increased scrutiny of overseas investments by companies and family offices, according to three people with direct knowledge of the matter. Over a three-week period, the Reserve Bank of India is reported to have issued at least ten queries seeking to establish whether funds sent abroad lacked a clear business purpose or tangible asset backing. Separately, the Securities and Exchange Board of India has slowed the issuance of no-objection letters to regulated entities seeking to set up offshore structures. Neither regulator responded to emailed queries.

The checks come amid pressure on the rupee from rising oil prices and foreign capital outflows, which has already prompted higher taxes on precious metal imports and public calls to conserve foreign exchange. Sources described the exercise as a review of the pace and rationale of outflows rather than a formal tightening of rules, noting concerns that such flows may be adding to pressure on the currency and reserves.

Why It Matters for Businesses

India maintains a partially open capital account. Companies may invest overseas through the overseas direct investment route, within limits linked to net worth and for specified purposes, while individuals can remit up to $250,000 a year under the Liberalised Remittance Scheme for uses including education, healthcare and investments.

Regulators are said to be focusing on large overseas investments channelled through opaque structures, inflated valuations of offshore assets, and possible use of the ODI route for private wealth management. Family offices structured as corporate entities are of particular interest, since this form allows access to higher ODI limits than individual remittance caps. The RBI is reportedly examining at least two cases where family offices used the ODI route to manage personal wealth. Corporate overseas investment arms are also under review, on th…