RBI removes restrictions on individuals from opening interest-earning FCAs

Mumbai, April 27, 2023

The long-awaited amendment by the RBI now puts IFSC at par with other jurisdictions when it comes to remittances

In yet another initiative to make India’s International Financial Services Centre (IFSC) more attractive, the Reserve Bank of India removed restrictions on individuals from opening interest-earning Foreign Currency Accounts (FCA).

Further, the central bank removed the condition of repatriating any funds lying idle in the FCA account for a period of up to 15 days.

Industry players said the long-awaited amendment by the RBI now puts IFSC at par with other jurisdictions when it comes to remittances.

In February 2021, the RBI allowed resident individuals to make remittances under the Liberalised Remittance Scheme (LRS) to IFSCs set up in India. However, the remittances were to be made only for making investments in IFSC securities.

Moreover, only a non-interest-bearing FCA was allowed in IFSCs under LRS. And any funds lying idle in the account for a period up to 15 days from the date of its receipt were to be immediately transferred back to the domestic account of the investor in India. The RBI circular, issued on Wednesday, removes these key restrictions.

Legal experts say the move will boost activity at Gift City, India’s first and only IFSC.

"Now interest-bearing accounts may be possible. One may be able to park money in IFSC and will be able to earn some interest on that amount. Because of the earlier restrictions people were not remitting money to GIFT City. There are a lot of charges involved,” said a market expert requesting anonymity.

Under the LRS, authorised dealers were allowed to facilitate remittances by resident individuals up to $ 250,000 per financial year for any transactions permitted under the law.

The latest move by the RBI will also help banks at IFSC mobilise liabilities. It will give them cheaper access to funds and in turn, allow them to lend at more competitive rates, said an expert.

[The Business Standard]