RBI Should Tighten Rules on Foreign Remittances, SBI Research Says

SBI Research has recommended that the Reserve Bank of India implement tighter curbs on non-essential remittances sent abroad through the Liberalised Remittance Scheme (LRS), citing the need to stabilise the domestic currency in an increasingly volatile global environment.

The recommendation comes as India's rupee faces sustained depreciation pressure driven by capital outflows, geopolitical tensions, and divergent monetary policy paths between the RBI and major central banks. Foreign exchange reserves, while substantial, require active management to ensure stability.

The research arm of India's largest bank has also called for enhanced scrutiny of Overseas Direct Investment (ODI) flows, suggesting that a more granular examination of outbound investment patterns could help distinguish between essential business expansion and discretionary capital movements.

SBI Research's proposals reflect broader concerns within India's financial establishment about managing the balance between maintaining the currency's strength and preserving the policy space needed for economic growth. The recommendations underscore the delicate equilibrium policymakers must navigate as India remains exposed to external economic shocks while pursuing its development objectives.

The RBI has previously used various tools to manage forex volatility, including adjustments to daily trading limits and monitoring mechanisms. The latest suggestions from SBI Research add to ongoing discussions about whether additional administrative measures are needed to protect the rupee without impeding legitimate cross-border transactions and investments.