Foreign funds under scanner

Mumbai: Seeking to root out black money, India’s market regulator has sent letters to some large wealth managers operating out of low-tax centres like Hong Kong and Singa-pore to try and bring them under its remit, people with knowledge of the matter said.

The Narendra Modi government is cracking down on tax evasion as a means of boosting revenues, and in October said the state was prosecuting several individuals on suspicion of having undeclared assets outside the country.

In a significant new move by Prime Minister Narendra Modi’s government, the Securities and Exchange Board of India (Sebi) has recently started to reach out to international private banks, asking them to register their offshore units with the Indian watchdog if they are soliciting business in India, five people with direct knowledge of the matter told Reuters.

By registering with Sebi, some private banks would have to admit that they are managing funds of wealthy Indian clients outside the country. That in turn could prompt further requests from Sebi to share information about Indian individuals.

“There are banks which do below-the-radar private banking in India to hunt for offshore assets,” said a banker with direct knowledge of the matter. “For them Sebi’s message is clear - you should be transparent and therefore you must register with us.”

An estimated $344 billion has been illegally removed from the Indian economy between 2002 and 2011, data from the US think-thank Global Financial Integrity show, depriving the country of an important source of tax revenues.

As well as affecting wealthy individuals, Sebi’s moves could make private bankers think twice about building their business in India, even though Indian private wealth is expected to show double-digit growth.

Attracted by a growing number of Indian millionaires, foreign banks including Barclays Plc, BNP Paribas SA and Standard Chartered Plc are offering onshore wealth management services in India under the regulatory supervision of local watchdogs.

In its letters, Sebi did not mention what actions it might take against those not willing to comply, sources said, but it is a sign that India is becoming more aggre-ssive in pursuing citizens who illegally park funds abroad.