Indian investors taking 'alternate' route to bet on cryptocurrencies abroad: Report

Banks have are asking investors give an undertaking under LRS that the money will not be used to purchase the digital assets, allowing ODI to emerge as an avenue

With the liberalised remittance facility, typically used by wealthy residents to invest abroad, shut for investing in cryptocurrencies, Indian investors are adopting overseas direct investment (ODI) to bet on exotic digital assets.

These individuals use a non-banking finance company to sponsor an overseas investment company in financial centres like Dubai, and the funds used are placed into securities and assets abroad, including cryptocurrencies, a report by The Economic Times said.

Considering the RBI's concerns about cryptocurrencies, private and foreign banks have been asking investors remitting funds under Liberalised Remittance Scheme (LRS) to give an undertaking that the money will not be used to purchase the digital assets, the report said, allowing ODI to emerge as an avenue to investors.

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"Unlike the LRS Scheme which restricts direct investment in the financial services sector overseas, the ODI scheme permits regulated financial services companies to invest in the financial services sector under approval route. Such an investment is subject to prior approval from the relevant financial regulators in India and overseas. Once a duly approved overseas direct investment is made in a financial services company, the entity should be able to undertake business in accordance with the laws applicable in the relevant jurisdiction," Moin Ladha, partner at law firm Khaitan & Co, told the publication.

"Technically, it may not go down well with RBI if investment by the foreign investment company is largely into cryptos. But the central bank may never get to know of it from the annual information which the RBI receives. RBI typically doesn't ask for their balance sheets," a consultant specialising on foreign exchange regulations said.

According to the report, some consultants and software professionals are receiving fees from foreign clients in coins like Ethereum, while some investors are placing money in overseas accounts into crypto, after signing LRS undertakings with banks.

Another transaction being pursued by investors involves transferring funds as a 'gift' to children before they travel abroad to study, and later drawing as much $1 million a year from the latter's NRO (non-resident ordinary) account, the report added.