RBI Allows Individuals To Open Interest-earning FCAs Without Restriction
The Reserve Bank of India lifted limitations on individuals creating interest-earning Foreign Currency Accounts (FCA) in yet another effort to make India's International Financial Services Centre (IFSC) more appealing.
Furthermore, the central bank abolished the requirement that any funds remaining idle in the FCA account for up to 15 days be repatriated.
According to industry participants, the RBI's long-awaited modification now puts the IFSC on a level with other jurisdictions in terms of remittances.
The RBI authorised resident individuals to send remittances to IFSCs established in India under the Liberalised Remittance Scheme (LRS) in February 2021. However, the payments were only to be used for investments in IFSC securities.
Furthermore, under LRS, only a non-interest-bearing FCA was permitted in IFSCs and any funds remaining idle in the account for up to 15 days from the date of receipt were to be instantly transferred back to the investor’s domestic account in India. These key restrictions are lifted by the RBI circular released on Wednesday.
According to legal experts, the measure will increase activity at Gift City, India's first and only IFSC.
“Interest-bearing accounts may now be available. One can park money in an IFSC and earn interest on that amount. People were not sending money to GIFT City because of the previous restrictions. There are a lot of fees involved,” said a market specialist who asked to remain anonymous.
The LRS empowered authorised dealers to facilitate remittances by resident individuals up to USD 250,000 per fiscal year for any transactions permitted by law.
The RBI’s latest decision will also assist banks at IFSC in mobilising liabilities. According to one expert, it will provide them with cheaper access to cash, allowing them to lend at more competitive rates.
