The Reserve Bank of India’s (RBI) latest move to allow Indians to double overseas investments to $200,000 (Rs79.4 lakh) may not trigger an immediate rush among investors to seek opportunities abroad. This is one of a string of measures that the Indian central bank announced on Tuesday to encourage investments abroad and rein in the appreciating local currency.
Window of opportunity: The central bank’s move may not trigger an immediate rush among investors to seek opportunities abroad.
Bankers and financial planners are not expecting the rush by investors for various reasons. First in December 2006, RBI doubled the outward remittance limit by individuals from $25,000 to $50,000 and in April 2007 again, the limit was doubled to $100,000. Despite an eightfold increase in the investment limit in past 10 months, not many banks and financial institutions started offering global investment products.
They blame RBI riders for such a response. In February 2004, when such remittances were first allowed, the central bank had prohibited banks not based in India from soliciting any financial products except for foreign currency fixed deposits.
In April 2007, when the limit was doubled to $100,000, another RBI rider prevented investors from using these dollars towards payment of margin money for any kind of overseas investments. It also disallowed banks from extending any credit facility to individuals to invest abroad.
Against this backdrop, not too many banks and financial institutions were willing to launch international products or offer an international investing window to investors.
RBI’s latest annual report reveals that until December, Indian investors remitted $13.3 million abroad under the scheme, which now allows individuals to invest up to $200,000 overseas annually. This figure grew to $42 million by the end of March.
Kotak Commodity Services Ltd, which has a tie up with Man Financial of London to offer commodity futures trading in other global markets, hasn’t seen new investors ever since RBI came with the rider on margin money. “It’s only the amount and not the ways and means of deploying funds that has been expanded,” said Pritam Patnaik, associate vicepresident, Kotak Commodity Services Ltd.
Another brokerage saw demand rising in among certain high net worth groups. “Although it’s a niche product, we expect volumes to go up as the demand for such products is high among investors who can afford to remit money abroad,” said Sudip Bandyopadhyay, chief executive, Reliance Money Ltd.
In the absence of a large number of big players, small independent financial planners have gone ahead and opened an international investing window for clients. One of them, Gaurav Mashruwala helps his clients open accounts with three banks, which he doesn’t want to name, based in Singapore and has also tied up with wealth management firms there. “There are few wealth management firms keen on offering their services to Indian investors, but they don’t find the $100,000 limit attractive,” Mashruwala said. “With the limit being enhanced to $200,000, Indian investors are likely to get more access to such global wealth management firms.”
Mutual funds have also got a boost from the new RBI policy. The overseas limit for the industry has been raised from $4 billion to $5 billion.