Rich Indians may lose prized offshore credit cards as global banks tighten rules: Report

Several offshore banks are reportedly growing reluctant to issue or renew international credit cards for wealthy Indian residents, as tighter rules on overseas fund usage make it increasingly difficult for account holders to maintain large balances abroad.

According to a report by The Economic Times, banks in major financial hubs such as Zurich, Singapore, London and parts of West Asia are increasingly refusing to issue or renew such cards for affluent Indian clients.

These international credit cards have long been popular among wealthy Indians, as they allow overseas spending in foreign currencies without the currency-conversion charges typically levied on India-issued cards. In many cases, the cards are linked to foreign bank accounts and, as per the ET report, also offer a higher degree of privacy in overseas transactions.

The reported tightening comes amid growing regulatory scrutiny of how Indian residents use funds remitted abroad under the Liberalised Remittance Scheme (LRS).

Why offshore banks are tightening rules

The development is linked to a 180-day requirement under India’s overseas investment and remittance framework, ET reported.

The Reserve Bank of India (RBI) revised its overseas investment rules in 2022. Under the LRS, resident individuals can remit up to $250,000 per financial year for permitted overseas transactions.

However, funds sent abroad under this route are required to be deployed within 180 days or repatriated back to India.

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The ET report said offshore banks are increasingly wary of maintaining accounts and credit-card relationships with Indian residents due to this requirement. Firstpost has not independently verified the report.

Moin Ladha, partner at Khaitan & Co, told ET that the 180-day deployment rule was having an unintended impact on overseas banking relationships of Indian families.

A key complication is that simply parking money in an overseas savings or current account, or even placing it in a fixed deposit, does not qualify as “deployment” under the rules.

Permitted deployment includes investments in securities or property, as well as certain current-account expenses such as hotel stays, airline tickets and restaurant payments.

Why international credit cards were popular

Foreign-issued credit cards have been particularly attractive to frequent Indian travellers and high-net-worth individuals.

Since transactions are settled in the same currency in which they are made, users can avoid foreign exchange conversion costs that typically apply to India-issued cards.

The ET report also noted that tax experts believe settlement of dues on certain foreign-issued cards is not treated as an LRS remittance under RBI guidance.

Harshal Bhuta, partner at CA firm PR Bhuta & Co, told ET that there is no specific monetary cap prescribed by the RBI for remittances from India towards settling such foreign card liabilities. Instead, the effective limit is determined by the credit limit set by the foreign bank or card issuer.

This flexibility has made such cards especially attractive to wealthy Indians with significant international spending needs.

However, increasing regulatory scrutiny of overseas financial activity is now complicating these arrangements.

What the 180-day rule means in practice

Under the LRS framework, money remitted abroad cannot remain idle indefinitely in foreign bank accounts.

If the funds are not used for an eligible purpose within 180 days, they are generally required to be brought back to India.

This has created compliance concerns for offshore banks that offer banking and credit-card services to Indian residents, particularly where maintaining such services requires substantial account balances.

According to the ET report, even cards nearing renewal or already expired are being affected by the reported reluctance of some banks.

The development does not amount to a ban on international credit cards for Indian residents. Instead, it reflects a growing hesitation among foreign banks to continue such relationships amid tightening compliance obligations.

Additional hurdles for minors

The ET report also highlighted challenges faced by minors holding overseas accounts under the LRS framework.

While minors are permitted to remit funds abroad, their ability to independently deploy those funds is limited.

Ladha noted that overseas banks are increasingly questioning the viability of maintaining such accounts given the restrictions on fund deployment.

However, Rajesh Shah, partner at CA firm Jayantilal Thakkar & Co, said the rules governing remittances by minors have remained unchanged since the LRS was introduced in 2004.

The issue has also raised broader concerns about whether non-earning family members could be used to increase the total amount a household can remit overseas.

What lies ahead

The reported pullback by offshore banks highlights the growing compliance challenges faced by wealthy Indians with international financial footprints.

While India’s LRS continues to allow legal overseas remittances, the funds remain subject to strict rules on usage, deployment and repatriation.

For global banks, the challenge lies in balancing demand for international banking services with increasingly stringent regulatory requirements.

For Indian customers, the reported tightening could reduce access to foreign-issued credit cards and limit overseas banking options.

The development also reflects a broader global shift towards greater transparency in cross-border financial flows, as regulators seek tighter oversight of money held and spent abroad.