Such information, rarely, if ever, sought earlier, will be gathered by banks from corporate clients with overseas direct investments (ODIs) and shared with the Reserve Bank of India (RBI).
Amid concerns that some overseas investments may not flow into bona fide businesses, questions on credential and know-your-customer (KYC) checks of foreign partners feature in a long list of probing queries from the regulator.
Besides key financial data since 2021-22, corporates have been asked to disclose energy consumption, R&D expenditure, headcount and employee costs of every foreign entity, and clarify whether these entities have physical offices and take independent business decisions.
ET has reviewed RBI’s questionnaire sent to several private and multinational banks around the end of June.
“The question on partners’ KYC is noteworthy. Clearly, RBI wants greater visibility on due diligence practices adopted by Indian investors. Maybe, this could attract increased regulatory focus going forward,” said Moin Ladha, partner at Khaitan & Co.
A dubious overseas partner could defraud the company, collude with an Indian promoter to siphon off funds, or act as a front to round-trip money.”Under the Overseas Investment framework, the Indian investor’s primary obligation is to ensure that the investment is in a bona fide business and complies with the regulations. The framework does not expressly prescribe a separate KYC exercise for overseas JV partners. However, cross-border investments are already subject to multiple layers of KYC and due diligence by overseas regulators, banks and professional intermediaries,” Ladha said.
ODIs have surged to $34 billion in FY26 from about $11 billion five years ago.
Other information sought by RBI includes dividends and loan interest paid by foreign entities to their Indian parents, exports and imports between the two, dealings with step-down foreign subsidiaries and, significantly, capital written off – a possible route to move money out of India by declaring a foreign venture a failure.
“In my view, RBI is responding to a real concern. Once money leaves as ODI, Indian regulators’ visibility narrows to annual filings, a thin window in a multi-jurisdictional chain. Unlike the Black Money Act, which is backed by automatic international information exchange, FEMA largely relies on annual self-reporting. There are limited means to independently pull data on the overseas entity,” said Ayush Tandon, partner at law firm AZB & Partners.
RBI has also sought foreign entities’ financial ratios, detailed expenditure and transactions with parent companies – information that may not always be readily available.
The intent is probably to avoid the double impact of forex losses and dividend tax leakage if funds ultimately benefit promoters, Tandon said.
“There have been cases where dollars went out and all that was left was a questionable investment and a post-mortem investigation. It was extremely difficult to recover what had been lost,” he said.
In its communication to banks, RBI said the purpose of the questionnaire was to understand the “business rationale, capital flow dynamics, and economic implications of the investments, and assess its coherence with India’s broader macroeconomic and capital account management objectives”.