RBI-SEBI tighten ODI checks: 10 queries as rupee slides

What changed in the last three weeks

India’s two main financial regulators have tightened checks on overseas investments by companies and family offices, as pressure on the rupee keeps the spotlight on capital outflows. Three sources with direct knowledge of the matter told Reuters that the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) have issued at least 10 queries in the past three weeks linked to overseas direct investment (ODI) and related remittances. The focus is on whether certain transfers represent genuine business investments or whether money is being routed overseas through opaque structures. Regulators are also paying closer attention to offshore asset valuations that appear inflated, according to the sources.

The scrutiny comes at a time when the rupee has been under sharp pressure, with Reuters citing surging oil prices and foreign money outflows as key drivers. That pressure has also led to other measures aimed at conserving foreign exchange, including higher taxes on precious metal imports and tighter import rules for silver. Officials have also called for steps to conserve foreign exchange and reduce fuel consumption.

RBI’s “rare move”: queries on business purpose and asset backing

One of the sources said the RBI has sent at least 10 queries over the past three weeks to ascertain whether funds were routed overseas without a clear business purpose or tangible asset backing. Another source described the intent as oversight rather than a blanket curb. The scrutiny, the source said, is about the pace of capital outflows and whether they are worsening pressure on the currency and foreign exchange reserves.

Reuters’ reporting frames this as an unusual step, with the central bank asking more detailed questions before allowing money to leave the country. In India, where cross-border money flows remain partly restricted, a sudden rise in demand for dollars can show up quickly in both currency moves and reserve management.

What regulators are looking for: opaque structures and valuations

According to the sources, regulators are focusing on large overseas investments routed through opaque structures, inflated valuations of offshore assets, and potential misuse of ODI routes as a private wealth management channel. SEBI, while reviewing and approving proposals from its regulated entities such as funds and wealth management firms to set up overseas structures, is flagging cases where its assessments indicate aggressive valuations in capital market and private asset investments.

The sources also said regulators are scrutinising whether bankers are assigning inflated valuations. This is particularly relevant when offshore investments involve non-transparent holding structures or private assets where valuation discipline can vary widely.

Family offices and ODI: a specific area of scrutiny

Two sources told Reuters that regulators are taking a closer look at offshore remittances by family offices, many of which are structured as corporate entities. This matters because a corporate structure can potentially use ODI routes for overseas exposures that look less like strategic business expansion and more like investment management.

One source said the RBI is examining at least two instances of family offices using the ODI route for managing personal wealth. Reuters also reported that regulators are looking at family offices set up as companies, which can sometimes send more via ODI than the Liberalised Remittance Scheme (LRS) limit of $150,000 per person per year.

SEBI’s no-objection process has slowed

Separately, Reuters reported that SEBI has recently slowed the issuance of no-objection letters for its regulated firms seeking to establish overseas structures. The same reporting noted that regulated entities must secure sectoral no-objections and file valuation reports with the RBI for ODI remittances under current rules.

In practice, this combination of RBI queries and a slower SEBI clearance process can extend timelines for outbound structures, even if regulators are not formally changing the rulebook.

Why this is happening now: rupee pressure and FX management

Reuters linked the stepped-up oversight to a broader period of currency stress. On June 3, traders told Reuters that the RBI likely intervened in the foreign exchange market to limit the rupee’s fall as crude prices rose on renewed U.S.-Iran hostilities. The rupee was quoted at 95.47 per dollar, down 0.2% on the day.

In other Reuters reports cited in the provided material, the RBI has been selling dollars via state-run banks to manage the pace of the rupee’s decline. Bankers estimated daily dollar sales in the spot market at about $1.8 billion to $1.0 billion in recent days, and one economist estimated around $1.0 billion of sales in the first week of May. The goal, as described by market participants, has been to manage volatility rather than fully reverse the trend.

Offshore speculation controls and recent FX rule tightening

The broader context includes steps aimed at limiting speculative pressure. A senior Axis Bank official told Reuters that RBI tightening of foreign exchange rules would help shield the rupee from pressures emanating from offshore markets. Reuters reported that a 4.5% fall in the rupee since the breakout of the Iran war prompted the RBI to cap banks’ net open FX positions in onshore markets in late March.

The same Reuters report said the RBI barred lenders from offering non-deliverable forward (NDF) contracts to clients and stopped firms from re-booking cancelled FX contracts. These steps were described as aimed at curbing speculation and preventing offshore market signals from translating into onshore pressure.

ODI and remittances: what the latest data shows

Reuters cited RBI data showing ODI rose 11% year-on-year to $18.39 billion in FY 2025-26. Remittances under the LRS totalled $18.9 billion in the same period, according to the report. As outbound flows rise, regulators appear to be calibrating the checks applied to remittances, particularly where structure and valuation raise questions.

Moin Ladha, Partner at Khaitan & Co, told Reuters that the approach appears to be enhanced oversight and calibration of remittances rather than any rollback of legitimate cross-border expansion by Indian companies and entrepreneurs.

Key numbers at a glance

What to watch next

Reuters reported that the RBI is studying ways to mobilise dollar inflows to bolster foreign exchange buffers, including reviving a mechanism last used in 2013 to draw in dollar deposits from non-resident Indians. Another option under discussion is eliminating the 5% withholding tax on overseas government bond investors to encourage inflows, though Reuters said no final decision has been taken and any move would be made in consultation with the government.

For now, the immediate story is a tightening of questions and documentation around outbound structures at a time when currency management is a priority. Further developments are likely to hinge on how quickly ODI and related remittances grow, how valuations are justified in filings, and how the rupee responds to oil prices and portfolio flows.