RBI Puts Cos, Family offices on Notice Over ODI Transfers

Several domestic entities including companies and large family offices have received queries from the Reserve Bank of India (RBI) seeking the status of unutilised money remitted out of India through the overseas direct investment (ODI) route.

These firms parked the offshore money in financial assets situated in foreign countries including in liquid funds, which could be a violation of overseas investment rules, said people with direct knowledge of the matter.

The thinking within RBI is that money transferred from India to overseas destinations through the ODI route can be only used for ‘bone fide purposes’. Money sent abroad through the ODI route has been mostly utilised for acquisitions overseas and capital infusion into foreign subsidiaries. In 2021, Indian entities sent $2 billion to various overseas destinations through the ODI route, RBI data showed.

Most of the remittances made between September 2020 and July 2021, said a person cited above. An email sent to RBI remained unanswered.

“One of the key requirement to invest overseas under the general permission is to satisfy the bonafides business test and need to demonstrate why money was retained in liquid funds instead,” said Moin Ladha, partner, Khaitan & Co. “Some of these entities may possible be awaiting the right business opportunity to invest the money.”

Lawyers and consultants said a lot of the money sent overseas through the ODI route was the utilised by companies because of the disruptions due to Covid-19. “The onset of the second wave of Covid put several deals in limbo and the entities didn’t want to lose interest on the money. So, they invested in products like liquid funds abroad,” said one of the people quoted above.

RBI has another concern about investment in mutual funds abroad, said people aware of the development. Under the current rules, only the entities registered as non-banking financial companies (NBFC) can use the outward remittance route to invest in foreign securities as their primary purpose.

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