According to a recent report by the Economic Times (ET), large foreign banks are closing the bank accounts of high-net-worth individuals (HNIs) in India. This action is attributed to the stringent minimum balance requirements set by these banks and the stricter norms imposed by the Reserve Bank of India (RBI).
Accounts closed in past two months
The report specifies that, over the past two months, two British banks, one Swiss bank, and a prominent Emirates lender have terminated the accounts of Indian individuals.
RBI Liberalised Remittance Scheme
The funds in these accounts were initially transferred under the Reserve Bank of India’s Liberalised Remittance Scheme (LRS), which permits individuals to invest up to $250,000 annually in stocks, properties, and other avenues. However, certain foreign banks mandate a fixed minimum balance of $1 million. For those with lower balances, these banks are encouraging customers to utilize their wealth management services for investments in stocks and debt instruments.
Report
The report quotes Moin Ladha, a partner at the law firm Khaitan & Co., stating that an increasing number of banks are expressing their reluctance to bear the costs associated with maintaining accounts holding low balances.
LRS Limit
The LRS limit was $200,000 until 2013 when it was reduced to $75,000 per year. Subsequently, in 2015, it was raised to $250,000. Additionally, the RBI has instructed Indian customers to either invest their funds or repatriate idle funds within 180 days. According to the ET report, in case of violations, the Enforcement Directorate (ED) is authorized to seize assets in India equivalent to the amount under the Foreign Exchange Management Act (FEMA). This regulatory environment has resulted in a visible impact on LRS outflows, with a 37% decline in October.
