RBI allows resident Indians to open foreign currency accounts in GIFT City

The Reserve Bank of India (RBI) has widened the scope of remittances to International Financial Services Centres (IFSCs) in India under the Liberalised Remittance Scheme (LRS).

The banking regulator has allowed resident individuals to open Foreign Currency Account (FCA) in IFSCs. This includes all current or capital account transactions, in any other foreign jurisdiction (other than IFSCs) through an FCA held in IFSCs.

At present, remittances under LRS to IFSCs can be made only for making investments in IFSCs in securities except those issued by entities or companies resident in India (outside IFSC); and payment of fees for education to foreign universities or foreign institutions in IFSCs for pursuing courses.

The RBI has now allowed authorised persons to facilitate remittances for all permissible purposes under LRS to IFSCs for availing financial services or financial products as per the International Financial Services Centres Authority Act, 2019 within IFSCs.

Under LRS, Indian residents are allowed to remit up to $250,000 (around ₹2.06 crore) per year without any prior approval from the Reserve Bank of India. RBI allows remittances under LRS for deposits, buying immovable property, investing, medical treatment, travelling and studying among others. The foreign currency account in GIFT City can be used for these purposes.

“This decisive move aligns GIFT IFSC with other global financial centers, allowing resident investors to leverage our platform for a wider range of overseas investments and expenditures. By clarifying the use of LRS for investments and enabling transactions like insurance and education loan payments in foreign currency, the RBI has significantly enhanced the attractiveness and utility of GIFT IFSC,” says Tapan Ray, Managing Director and Group Chief Executive Officer of GIFT City.

On inward remittances to India, the World Bank last month said that remittances to India are forecasted to grow at 3.7% year-on-year to $124 billion in 2024. The growth in remittances is expected at 4% in 2025 to reach $129 billion. India’s efforts to link its Unified Payments Interface with source countries such as the United Arab Emirates and Singapore are expected to reduce costs and speed up remittances, said the World Bank.

The top five recipient countries for remittances in 2023 were India, with an estimated inflow of $120 billion, followed by Mexico ($66 billion), China ($50 billion), the Philippines ($39 billion), and Pakistan ($27 billion).

Remittance flows to India from the United Arab Emirates, which accounts for 18% and is the second largest source of India’s remittances after the United States, benefited from the February 2023 agreement. The latter established a framework to promote the use of local currencies for cross-border transactions and cooperation for interlinking payment and messaging systems between India and the United Arab Emirates. The use of dirhams and rupees in cross-border transactions is instrumental in channeling more remittances through formal channels. In addition to the United Arab Emirates, Saudi Arabia, Kuwait, Oman, and Qatar account for 11% of India’s total remittances.