RBI, SEBI tighten scrutiny of overseas investments as rupee falls

The Reserve Bank of India and the Securities and Exchange Board of India have stepped up scrutiny of overseas investments and remittances by family offices, issuing at least 10 queries over the past three weeks and slowing no-objection clearances for some applications.

Regulators have sent targeted questions to companies and corporate-structured family offices to establish whether transfers abroad had clear business purposes and were backed by tangible assets rather than serving mainly private wealth management.

The enquiries focus on large remittances routed through complex or opaque structures that can permit higher outflows than individual limits. The central bank has opened the enquiries amid pressure on the rupee from rising oil prices and foreign capital outflows.

Under current rules, companies may invest overseas through the Overseas Direct Investment framework subject to limits linked to net worth and for specified business reasons. Individuals may remit up to $250,000 a year under the Liberalised Remittance Scheme for education, medical costs and permitted investments. Regulators are checking whether some corporate vehicles are being used to access larger remittance caps for family wealth rather than for strategic business expansion.

Authorities are also reviewing valuation reports submitted with ODI applications and whether valuation professionals assigned inflated prices to offshore assets, a practice that could enable larger capital flows abroad. SEBI has reduced the pace of no-objection letters for regulated entities seeking permission to set up overseas structures, and larger or more complex ODI transactions can require prior RBI approval.

Family offices are a particular area of interest. The RBI is examining at least two cases in which family offices structured as corporate entities appear to have used ODI routes mainly for personal wealth management. Regulators are also scrutinising proposals from regulated investment funds and wealth managers seeking approval to set up overseas vehicles and are checking whether those vehicles are intended for genuine strategic expansion or primarily for capital market exposure.

The reviews form part of wider steps taken to protect foreign exchange reserves. Authorities have applied higher taxes on precious metal imports and issued advisories aimed at limiting non-essential outflows.

Data for the 2024-25 financial year show overseas direct investment rose 11% year-on-year to $48.39 billion, while individual remittances totalled $28.9 billion. Current regulations require sector-specific no-objection approvals for ODI remittances and submission of valuation reports to the RBI, and SEBI typically requires valuation work to be done by merchant bankers it registers.

Legal advisers contacted in connection with the checks view the increased enforcement as an application of existing rules to ensure economic justification for remittances. The enquiries and slower clearances are intended to secure clearer documentation and valuation standards for cross-border transactions while monitoring the effect of outflows on India’s external financial position.