The Reserve Bank of India is quietly tightening scrutiny of large corporate overseas investments, folding the move into its broader policy push to defend the rupee exchange rate.
Citing two people familiar with the matter, Bloomberg reported on Tuesday that the RBI last week circulated a standardized checklist to major commercial banks, requiring them to provide detailed information on overseas direct investments exceeding $1 billion and on transactions exceeding the regulatory ceiling of four times the investor's net worth. The RBI did not respond to Bloomberg's request for comment.
The rupee has fallen more than 5% so far this year, with persistent dollar demand and capital outflows posing the main pressure. This escalation of scrutiny over overseas investment is consistent with the central bank's earlier moves to tighten corporate foreign exchange hedging rules and restrict importers' foreign exchange purchases, forming an overall policy mix aimed at stabilizing the exchange rate. Notably, the central bank has not yet imposed new restrictive rules on overseas investment.
Accelerating Capital Outflows Become the Trigger for Scrutiny
The rapid rise in Indian companies' overseas direct investment in recent years has provided the direct motivation for the central bank's intervention.
According to RBI data, overseas direct investment totaled $26.7 billion in the fiscal year ending March this year, nearly doubling from two years earlier. The momentum has not slowed this year—in the five months from April to August alone, capital outflows reached about $22.7 billion, reflecting the continued acceleration of corporate internationalization.
The acceleration of capital outflows stems from Indian companies actively expanding overseas supply chains and international operations, while wealthy individual investors are also using the overseas direct investment channel to allocate to offshore equity and venture investments. The RBI stipulates that Indian residents may invest up to $250,000 abroad per person per year, and high-net-worth individuals often circumvent this by setting up holding companies or offshore subsidiaries.
The largest single transaction so far this year was IT company Coforge Ltd's acquisition of Silicon Valley-based artificial intelligence and digital engineering firm Encora at an enterprise value of $2.35 billion.
Banks Must Assess Independently, Not Simply Rely on Valuation Reports
The contents of the checklist represent a clear escalation in the regulatory approach.
According to reports, under the central bank's requirements, banks must independently assess overseas asset valuations, covering acquisition premiums and equity swap ratios, rather than relying solely on third-party valuation reports; banks must also review the investor's earnings quality, historical overseas investment track record, existing financial commitments, and ability to withstand financial shocks.
This shift means commercial banks' role in the overseas investment approval chain will change from passive recipients to active risk assessors, with compliance costs and due diligence standards both rising. For Indian companies intending to pursue large cross-border M&A, the transaction process may therefore be lengthened, and the approval pace will tend to be more cautious.
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