RBI Targets Offshore Time Deposits in Overhaul of Remittance Rules
In a move to strengthen capital control mechanisms, the Reserve Bank of India (RBI) is preparing to amend rules under the Liberalised Remittance Scheme (LRS) to prevent resident Indians from placing funds in offshore time deposits or interest-bearing accounts, according to two government sources familiar with the matter.
The revision aims to address what the RBI sees as “passive wealth shifting,” which raises red flags within India’s still-partially controlled capital regime. By curbing such deposits, the central bank seeks to reduce avenues for passive capital exports that may contribute to forex instability.
“Such use of overseas remittance privileges is increasingly seen as a backdoor for capital export without productive economic utility,” one source said, requesting anonymity due to the sensitive nature of the regulatory review.
🔍 Passive Parking Under Scrutiny
These deposits are typically made using remittance routes permitted under the LRS, which allows individuals to send up to $250,000 annually abroad for education, travel, investments, and medical needs. However, time deposits abroad — especially those with lock-in periods — are now under the RBI’s radar.
RBI data shows a significant jump in such remittances in March 2025, when deposits reached $173.2 million, up from just $51.62 million in February. Officials say this seasonal spike is often driven by residents seeking to fully utilize their annual LRS cap before the fiscal year ends — and in some cases, to optimise tax implications.
🛡️ Safeguarding Forex Reserves
India’s total outward remittances under LRS in FY24-25 stood at around $30 billion, a slight dip from $31 billion the previous year, but still high enough to warrant regulatory tightening. Though the exact amount held in offshore deposit accounts hasn’t been disclosed, the sources described the RBI’s intervention as “preventative.”
The tightening of regulations also comes amid growing ease of global investing, driven by fintech platforms and private banks offering seamless cross-border options.
🧾 Permitted Investments Unaffected
The proposed changes will not impact legitimate foreign investments under LRS, including equities, mutual funds, or property. Instead, the RBI’s focus is on eliminating misuse of the scheme for wealth parking in foreign currency deposit products.
“The regulatory adjustment aligns with India’s careful approach to capital account convertibility,” one of the sources explained.
The RBI and Finance Ministry have not issued official comments yet, but the move is seen as part of a broader overhaul of foreign exchange laws to simplify and modernize the framework — while ensuring financial stability.
