In recent developments, several large foreign banks have reportedly shut down the bank accounts of Bharat high-net-worth individuals (HNIs). The primary reasons cited include the high minimum balance requirements imposed by these banks and the stricter norms introduced by the Reserve Bank of India (RBI). According to a report by the Economic Times (ET), two British banks, one Swiss bank, and a leading Emirates lender have closed the accounts of these Indians in the last two months.
The funds in question were initially transferred to these foreign banks under the RBI’s Liberalised Remittance Scheme (LRS). The LRS allows individuals to invest up to $250,000 per year in various assets, such as stocks and properties. However, some foreign banks have set a fixed minimum balance threshold of $1 million. Additionally, for accounts with lower balances, these banks are encouraging customers to utilize their wealth management services to invest in stocks and debt instruments.
Moin Ladha, a partner at the law firm Khaitan & Co., highlighted the growing trend among banks, stating that many are explicitly expressing their reluctance to bear the costs associated with maintaining accounts with low balances.
The LRS limit, which was initially $200,000 until 2013, was reduced to $75,000 per year before being raised to the current limit of $250,000 in 2015. Alongside these changes, the RBI has mandated that Indian customers must either invest or repatriate idle funds within 180 days.
To enforce compliance, the Enforcement Directorate (ED) is authorized, under the Foreign Exchange Management Act (FEMA), to seize assets equivalent to the violation amount within Bharat. This regulatory measure seems to have had a tangible impact on LRS outflows, with October witnessing a notable 37% decrease in funds leaving Bharat under the LRS.
This development sheds light on the complex interplay between regulatory measures, foreign banking practices, and the financial decisions of high-net-worth individuals in India, prompting a reevaluation of investment strategies and banking relationships.
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