The RBI’s foreign exchange department is asking companies to explain the intent and rationale behind investments, the governance structure of overseas entities, and future plans, according to a person aware of the development.
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The sharp rise in ODI outflows has raised questions over the use of funds.
Total annual ODI outflows – comprising equity, loans and invoked guarantees – rose from $14.5 billion in FY24 to $27 billion in FY26. Singapore, the US and the UAE are among the top ODI destinations.
“Corporates must realise ODIs are for genuine business and not merely a structuring exercise. The recent RBI queries suggest that the regulator is examining the commercial substance of investments, fund end-use, governance, performance and repatriation plans,” said Moin Ladha, partner at law firm Khaitan & Co.
The RBI spokesperson did not respond to ET’s queries.A company or limited liability partnership (LLP) can annually remit up to four times its net worth for ODI, provided the investment is a bona fide business activity. Remittances are generally automatic, though RBI approval is needed once a company’s annual ODI crosses $1 billion.
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Over the past few weeks, at least four companies have received RBI questionnaires on past ODIs.
A “bona fide business” is one permitted under the laws of India and the destination country. Unlike the RBI’s Liberalised Remittance Scheme (LRS), under which individuals must invest tax-paid money abroad, ODI rules allow borrowing. For instance, a company with a net worth of ₹100 crore can borrow ₹300 crore and make a ₹400-crore ODI. The scope and size of remittances under ODI are therefore far larger than under LRS, which is capped at $250,000.
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The central bank has sought details on the choice of jurisdiction, performance and economic outcomes of overseas investments, risk management practices, future capital commitments, control mechanisms, and intermediate holding entities and subsidiaries.
“Since most ODIs are routed through Singapore or Dubai SPVs for tax efficiency, RBI may want to know whether companies are parking profits, dividends or fees from ODIs at the Singapore or UAE level,” said a person aware of the matter.
A senior banker said he would not be surprised if some ODI approval mechanism and stricter reporting requirements are introduced to curb misuse.
Companies should expect closer monitoring to ensure that the rationale, governance and structure remain appropriate and that the value of investments is protected, Ladha said. Clear documentation, business plans and board records will be critical, he added.
Banks are also seeking explanations when overseas subsidiaries are merged or acquired, and when balance sheets show financial or real estate assets, to assess whether investments are aligned with declared activities, said Harshal Bhuta, partner at CA firm P. R. Bhuta & Co..
For ODIs, companies must specify the activity using the National Industrial Classification Code, though regulators may find it difficult to verify whether the declared activity is being followed.
“Given the pressure on the rupee, RBI may explore standardised disclosures under regular FLA/APR forms, including ODI entities’ operational details such as continuity of business activity during the year, reasons for losses, key revenue sources, headcount or other business metrics,” Bhuta said. Currently, reporting is limited largely to financial parameters.
Suhas Bendre, former banker and managing partner at Bendre Consultancy, said the RBI in some cases is asking why Indian parents did not consider giving loans instead of equity. “Perhaps because loans create an obligation to recover the money,” he said.