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The Reserve Bank of India (RBI) has increased oversight of large overseas direct investments (ODIs) by Indian companies as it works to support the rupee.

In the past week, the central bank circulated a detailed, standardised checklist to major banks. This document specifies extensive information on ODIs that banks must obtain from corporate clients investing abroad and then share with the RBI. The new requirements apply to all ODI proposals exceeding $1 billion and to those that go beyond the existing regulatory ceiling of four times the net worth of the Indian company making the investment, according to two people familiar with the move.

Although the RBI has not formally imposed new capital controls or explicit restrictions, the depth of information now demanded on the rationale, justification, financials and explanations for these transactions signals much tighter monitoring of large ODI outflows. This comes at a time when the rupee is under strain and foreign portfolio investors have been selling Indian assets.

ODI volumes have become a significant source of capital outflows, rising to more than $30 billion in FY26 from around $11 billion five years earlier.

The RBI has made it clear that banks processing ODI transactions cannot merely depend on the presence of a valuation report for the overseas entity. They must also independently satisfy themselves about the robustness of that valuation. Specifically, banks are expected to scrutinise any premium being paid, check whether the consideration is materially above intrinsic value, and, in share-swap deals, ensure that the exchange ratio is defensible based on the valuations of both entities.

“This is clearly a preventive step by the RBI so that large ODIs do not later turn into impaired assets, causing losses to Indian companies and to the country,” said Suhas Bendre, founder of Bendre Consultancy, which focuses on the Foreign Exchange Management Act (FEMA).

Beyond the usual review of the Indian investor’s financials and the proposed ODI, banks must now evaluate the quality of the company’s earnings, its past experience with ODIs, its existing overseas exposures, and its capacity to withstand adverse developments. Lenders are expected to ask why an overseas acquisition is being chosen instead of buying an Indian asset, how the deal aligns with the company’s current business, whether the foreign entity is an operating company or a holding structure, what commercial returns are expected, the intended holding period, and the planned exit strategy.

“All this increases the evidentiary burden on applicants and places greater responsibility on banks to independently evaluate the logic and risks of these commitments. We are seeing a move towards more rigorous scrutiny of the commercial soundness of investments, their benefits to India, and the financial strength of Indian investors, including through stress testing and similar tools,” said Moin Ladha, partner at Khaitan & Co.

Banks must also verify the genuineness of the foreign entity and assess country risk. “The detailed checklist given to banks is closer to a full-fledged ODI due diligence framework. While the existing Master Direction on Overseas Investments already sets out indicative approval criteria—such as the foreign entity’s viability, benefits to India, and the Indian investor’s track record—the new checklist spells out the required information in far greater detail, addressing gaps that may have existed earlier. With the rupee volatile, this should ensure that approvals are granted only where banks are convinced about the authenticity of the proposed deals,” said Harshal Bhuta, cofounder of tax and regulatory advisory firm Ascentium India.

Where related-party elements are involved or where a transaction could effectively shift value out of India, banks are required to apply an even higher level of scrutiny.

To gauge how a large ODI might benefit the Indian economy, banks must provide estimates and timelines for potential gains such as higher exports from India, import substitution, access to new markets, transfer of technology or intellectual property to India, and expected inflows of dividends and fees. When the Indian parent company provides guarantees to help the overseas entity borrow at lower cost, banks must also assess the probability that these guarantees could be invoked.

Source: Economic Times