The Reserve Bank allowed resident individuals to make remittances to International Financial Services Centres (IFSCs) in the country under the Liberalised Remittance Scheme (LRS).
The RBI decision is targeted at enhancing the financial markets of the IFSCs and providing resident individuals with an opportunity to diversify their portfolios.
The Reserve Bank of India introduced the Liberalized Remittance System in 2004 in a bid to simplify and liberalize foreign exchange in India.
Under the Liberalized Remittance System, all resident individuals, including minors, are entitled to openly remit up to USD 2.50,000 every financial year (April to March).
International Financial Service Centre (IFSC) are centres that cater to customers outside their own jurisdiction.
Banks may allow resident individuals to make remittances under LRS to IFSCs in India, subject to the following conditions:
1) The remittance must only be made for the purpose of making investments in shares in IFSCs other than those provided by entities/companies residing in India (other than IFSCs).
2) A non-interest bearing Foreign Currency Account (FCA) in IFSCs can also be opened by resident individuals to make the above allowable investments under LRS.
3) Any funds lying idle in the account for a period not exceeding 15 days from the date of their receipt into the account shall be repatriated immediately to the investor's domestic INR account in India.
4) Individuals should not resolve any domestic deals with other citizens through this process.
Although approving such remittances, the RBI has clarified that banks must ensure compliance with all other terms and conditions, including the monitoring specifications, set out in the Scheme.