No lock-in FDs abroad: RBI set to tighten overseas remittance rules

Reserve Bank of India plans to block overseas fixed deposits under Liberalised Remittance Scheme to curb misuse, protect forex reserves, and prevent passive capital flight by resident Indians

The Reserve Bank of India (RBI) is preparing to tighten rules on overseas remittances by resident Indians, aiming to stop them from parking money in foreign currency deposits with lock-in periods, Reuters reported.

 

The central bank plans to amend the Liberalised Remittance Scheme (LRS) to block the use of funds sent abroad for fixed deposits or other interest-earning accounts. “This is akin to passive wealth shifting, which is a red flag for the RBI in a still-controlled capital regime,” a source told Reuters.

 

The move comes amid rising concerns over growing outward remittances and India’s cautious approach toward full capital account convertibility. RBI officials are worried that some individuals may be using the LRS route to quietly move money overseas, which could affect foreign exchange reserves and increase currency volatility.

   

 

Currently, the LRS allows resident Indians to send up to $250,000 abroad in a financial year for purposes like education, travel, investments in foreign stocks or bonds, and medical treatment.

 

Sources said the RBI also wants to close any loopholes that may allow such deposits to be made under different names or through indirect routes. “The move addresses a growing misuse of the scheme as a vehicle for passive capital export,” said a second source.

 

This proposed change is part of a broader effort to simplify and strengthen the legal framework around overseas remittances. The RBI had highlighted this as a priority in its latest annual report.

 

Data from the central bank shows that foreign currency deposits made by resident individuals surged from $51.62 million in February to $173.2 million in March 2025. Experts say March typically sees a spike in remittances, as people try to make full use of their annual limits and plan for taxes before the financial year ends.

 

 

Although total outward remittances dipped slightly in FY25 to nearly $30 billion from $31 billion in FY24, the figure remains historically high. The exact amount currently held in foreign fixed deposits is unknown, but officials described the proposed move as “preventative”.

 

In recent years, the growing use of fintech apps and support from private banks has made it easier for Indians to invest globally, contributing to the steady rise in remittances. “It also aligns the scheme more closely with India’s calibrated approach to capital account convertibility,” the second source added.

 

Notably, the revised rules will not affect genuine foreign investments allowed under LRS, such as buying stocks, mutual funds, or property abroad, the source clarified.