RBIi: Indians can invest up to $250,000 annually overseas

 Encouraged by foreign exchange reserves touching record levels, the Reserve Bank of India (RBI) doubled the annual overseas investment ceiling for individuals to $250,000.

“On a review of the external sector outlook and as a further exercise in macro-prudential management, it has been decided to enhance the limit under the liberalised remittance scheme (LRS) to $250,000 per person per year,” the RBI said in its Bi-Monthly Monetary Policy Statement.

In view of the worsening current account deficit and a volatile rupee, the RBI had in August 2013 reduced the ceiling from $ 200,000 to $75,000 per person in a year under the LRS. Consequently, with improvement in the forex situation, it was raised to $125,000 in June 2014.

The LRS allows residents to acquire and hold shares, debt instruments or other assets outside India without prior approval of the RBI.

In mid-January, India’s foreign exchange reserves touched a new life-time high at $322.135 billion, driven by higher foreign fund inflows and lower forex outgo on the back of a massive fall in global crude prices.

Foreign funds had been pumping more and more dollars into Indian equities ever since the new government assumed charge in May.

In 2014, FIIs pumped in $16.15 billion into Indian equities while they have exhausted the cap of $30 billion in government securities. They have parked $32.5 billion in corporate bonds, which is 64 per cent of their cap of $ 51 billion.

Foreign direct investments (FDI) in the country rose by 22 per cent to $18.88 billion during the eight months of the current fiscal. The amount was $15.45 billion in the April-November period of 2013-14.

India's current account deficit narrowed to 1.9 per cent of GDP in the first half of current fiscal from 3.1 per cent of GDP in in the corresponding period of 2013-14.

Rajan said inflation was likely to be around the target level of 6 per cent by January 2016 but flagged monsoon, oil prices and "the unlikely possibility of significant fiscal slippage" as upside risks.

Meanwhile,  RBI Governor Raghuram Rajan said on Wednesday in a TV interview that India’s banking sector was not at risk of a crisis despite the bad loans impacting the sector, adding most problems were at state-run banks backed by the government.

“I don’t think there is any risk of a crisis from the bad loans in the system, and there is a reason for it, which is bad loans are primarily in the public sector system, which means that the full faith and credit of the government is behind that,” said Rajan. “So, it is not going to take down the banks. Nobody should be worried about it: banks are safe,” he said.

 The comments come a day after the RBI cut the statutory liquidity ratio, the minimum portion of net deposits that banks must hold in government bonds, cash or gold, in a bid to get more banks to lend.

The RBI also allowed lenders more flexibility to restructure large projects that stall when cash runs out, but stopped short of giving banks freer rein on other problematic loans.