Many Indians attempting to transfer money abroad are encountering heightened scrutiny from banks, which are increasingly demanding detailed proof of the origins of the funds. This intensified vigilance arises as the Indian rupee continues to depreciate against the US dollar, leading many individuals to consider moving their assets overseas. Reports indicate that at least two private sector banks in Mumbai have requested high net worth individuals (HNIs), non-resident Indians (NRIs), and even film production companies to provide chartered accountant-certified testimonials to validate the source of their funds. In certain instances, banks have stipulated that these certifications must come from accountants approved by the bank rather than from the clients’ preferred accountants.
Rules for Overseas Fund Transfers
Despite established regulations governing overseas fund transfers, banks are tightening their requirements. The Reserve Bank of India (RBI) permits resident individuals to remit up to $250,000 annually for various purposes, including investments and travel, under the liberalized remittance scheme (LRS). Non-resident Indians can repatriate up to $1 million per year after selling assets in India. Businesses are also allowed to make outward remittances to pay foreign vendors, such as covering expenses for film production abroad. Rajesh P. Shah, a partner at Jayantilal Thakkar & Co, emphasized that only legitimate funds can be remitted under the LRS.
More Regulations
The regulations are especially stringent for remittances from non-resident ordinary (NRO) accounts, where borrowed funds are prohibited. NRO accounts are utilized by NRIs to manage their income earned in India, including rental income and dividends. Pankaj Bhuta, founder of CA firm P R Bhuta & Co, noted that recent enforcement actions may be affecting banks’ heightened scrutiny. He pointed to a penalty imposed on a major bank, highlighting the necessity for banks to conduct due diligence to ensure compliance with the Foreign Exchange Management Act (FEMA) rules. According to RBI guidelines, funds remitted from NRO accounts must originate from legitimate income sources in India, complicating matters for clients transitioning from resident to non-resident status.
Problems with Regulations
The current landscape has led to banks imposing additional compliance requirements beyond what is required by regulations. Shah indicated that once a chartered accountant certifies the source of funds, there should be no need for further documentation. Nonetheless, compliance teams at banks are requesting extra paperwork, adding to the burden on customers. Some banks have even started insisting on certificates from accountants listed with them, further complicating the process. While due diligence is critical, industry experts assert that banks should avoid imposing unnecessary requirements that hinder the remittance process. As the rupee’s value continues to decline, the pressure on banks and customers alike is expected to increase, making compliance even more challenging.
Digihunt is not a financial advisor and this is not investment advice.