Last month Indian authorities decided to make it mandatory for banks participating in the Liberalised Remittance System, by the terms of which Indian residents can send up to $250,000 overseas every year, to produce daily reporting of all transactions made under the scheme.
The Reserve Bank of India, who introduced LRS as part of the Foreign Exchange Management Act (FEMA) of 2004, announced that: “In order to improve monitoring and also to ensure compliance with the LRS limits, it has been decided to put in place a daily reporting system by AD banks of transactions undertaken by individuals under the LRS, which will be accessible to all the other ADs.”
Banks will now be expected to make a daily report, even on days when there are no transactions completed, to help the authorities keep a better track of how the scheme is working and who may be approaching or exceeding their annual limit.
All Indian residents, including minors, have the right to send $250,000 to any overseas destination; the figure was originally £25,000 but has been revised upwards; but cannot make any further overseas money transfers within the calendar year once that limit is reached.
In order to use the scheme, residents are usually required to have an existing relationship with the bank going back more than 1 year, or have a bank account and number, or payment debit card at a corresponding bank.
Until now, remitters have been asked to make independent declarations to banks that they were adhering to LRS limits, but going forward the onus will move back towards the banks to ensure that remitters are always in compliance with the limits.
The Reserve Bank of India announced in January that an incredible $1.2 billion was remitted overseas by Indian residents that month – more than double the amount sent the previous year. The RBI said that gifts, maintenance costs for relatives abroad, travel and education accounted for more than 90 percent of the total flows.
The RBI says that Remittances are not permitted for trading on the forex markets, sending margin to overseas exchanges and counterparties or the purchase of FCCB issued by Indian companies abroad. The annual limit can be breached with special permission, however, in the case of medical treatment, overseas education and emigration. In these cases, it is still possible to remit more than USD 250,000 without approval from RBI provided certain documents are obtained.
India is home to one of the most competitive money transfer markets in the world, with disruptive new technology being employed to offer alternative options to using a bank for making all-important international remittances. With even the likes of Google, and Facebook; through the hugely popular in India WhatsApp messaging service; working on faster and cheaper money transfer solutions, it may become harder and harder for the Indian government to track who is sending how much to whom, and why.
On the other hand, digital integration could swing things the opposite way, and present an easier to deal with situation than large denomination Indian Rupee notes, for example, which were taken out of circulation last year due to anti-corruption measures.