RBI permits Residents to Make Remittances to IFSCs under LRS

On February 16, 2021, the Reserve Bank of India (RBI) permitted resident individuals to make remittances under Liberalised Remittance Scheme (LRS) to International Financial Services Centres (IFSCs) set up in India under the Special Economic Zone Act, 2005. In this regard, Authorized Dealer (AD) Category 1 Banks allow resident individuals to make these remittances subject to the following conditions:

• The remittance shall be made only for making investments in IFSCs in securities, other than those issued by entities/companies resident (outside IFSC) in India.
• Resident Individuals can open a non interest bearing Foreign Currency Account (FCA) in IFSCs, for making the investments under LRS.
• Any funds lying idle in the account for a period upto 15 days will be immediately repatriated to domestic INR account of the investor in India.
• Resident Individuals shall not settle any domestic transactions with other residents through these FCAs held in IFSC.

Purpose of the RBI regulation :The decision of the RBI is aimed at deepening the financial markets in the IFSCs and providing an opportunity to resident individuals to diversify their portfolios.

Key Point:

–Any person resident in India (outside IFSC) entering into any transaction with a person/entity in IFSC should be governed by RBI and should adhere to the rules notified under Foreign Exchange Management Act (FEMA), 1999.

Liberalised Remittance Scheme:

LRS is a scheme introduced by RBI as liberalisation measure to facilitate Resident Individuals (RI) to freely remit funds (transfer money to abroad) upto USD 2,50,000/- outside India in a financial year (April to March).

Note – There is no such limit on sending money from other countries to India, It will be based on the particular country regulation.

Recent Related News:

i.In accordance with RBI data, the annual growth (y-o-y) in all-India House Price Index (HPI) remained moderate at 1.1% in Q2FY21 (July-September) as compared to 2.8% in the Q1FY21 and 3.3% in Q2FY20.

ii.On January 11, 2021, Reserve Bank of India (RBI) released the 22nd issue of its bi-annual Financial Stability Report (FSR) 2021. It stated that gross non-performing assets (GNPAs) may rise to 13.5% by September 2021, from 7.5% in September 2020 under the baseline scenario.

About Reserve Bank of India (RBI):

Formation– 1 April 1935
Governor– Shaktikanta Das
Headquarters– Mumbai, Maharashtra
Deputy Governors– 4 (Bibhu Prasad Kanungo, Mahesh Kumar Jain, Michael Debabrata Patra, and M Rajeswar Rao)