The Reserve Bank of India (RBI) issued a standardised checklist to major banks last week, requiring detailed information on overseas direct investments exceeding US$1 billion and transactions above the regulatory limit of four times an investing company’s net worth, the Economic Times reported on Tuesday, citing two unidentified people familiar with the matter.

The initiative comes as the RBI steps up efforts to defend the local currency, which has tumbled more than 5% this year amid persistent dollar demand and capital outflows. The central bank has already tightened rules on corporate currency hedging and sought to curb dollar purchases by importers. Closer scrutiny of overseas investments adds to those efforts, though the RBI hasn’t imposed new restrictions on such investments.

Capital flows out of India have accelerated in recent years, as businesses diversify their supply chains and expand international operations, while Indians also invest in foreign equity markets and startups. 

Overseas direct investment (ODI) climbed to US$26.7 billion in the fiscal year that ended in March, almost double the figure of two years earlier, according to data released by the RBI. This year’s numbers point to a further acceleration, with outflows of some US$22.7 billion in the five months through August. ODI investments include equity and debt investments, as well as corporate guarantees issued by local entities. 

The largest transaction this year was IT firm Coforge Ltd’s acquisition of Silicon Valley-based artificial intelligence and digital engineering firm Encora, at an enterprise value of US$2.35 billion. 

The RBI caps foreign transactions for Indian nationals at US$250,000 per person per year. Wealthy Indians use ODI as an alternative route to make investments abroad, through holding companies or foreign subsidiaries. 

The regulator’s threshold for classifying a transaction as ODI includes whether it involves control of the foreign entity or more than 10% of the paid-up equity. Investments by individuals are subject to the same criteria. 

Under the RBI’s checklist, banks must independently assess overseas asset valuations, including acquisition premiums and share-swap ratios, rather than simply rely on valuation reports, the Economic Times reported. They must also examine the investing company’s earnings quality, past overseas investments, existing commitments, and ability to withstand financial shocks, the newspaper reported.

The RBI did not immediately respond to a request for comment from Bloomberg.

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