Seeking to root out undeclared wealth, India's market regulator has sent letters to some large wealth managers operating out of low-tax centres like Hong Kong and Singapore to try and bring them under its remit, people with knowledge of the matter said.

India's 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 said.

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.

PERSONAL WEALTH SOARS

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.

Other players, including JPMorgan Chase & Co and UBS Group AG, have, however, either stayed away or shut down local operations due to high costs and thin margins, preferring to focus on their overseas operations.

JPMorgan, UBS, BNP Paribas, Barclays and Standard Chartered all declined to comment when asked about Sebi's approach to some banks.

In its letters, the regulator 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 aggressive in pursuing citizens who illegally park funds abroad.

"We have been steadily putting in place effective checks and balances of funds that come and go out of India and we will continue to do that without disrupting (the) market," SEBI board member S. Raman told Reuters on Thursday, referring to concerns raised in last month's government report on black money.

He declined, however, to comment on notices being sent out to wealth managers. A Sebi spokesman did not respond to request for comment.

The Sebi directive has not yet been sent to all wealth management players, said the sources, who declined to be named because of the sensitivity of the matter. Some banks were told about the request in meetings that took place last month.

"With regulators all across the world tightening rules for movement of individual wealth across borders, many large banks have pared their focus on offshore advisory business," said a Mumbai-based wealth manager at a European bank.

"On top of that, if a country decides to put in an additional regulatory layer, not many would be willing to accept that process," he said. "I would expect most of the offshore players to simply wind up their business in India."

Some boutique private banks in centres such as Singapore have been trying to tap wealthy Indians and manage their foreign assets without having operations in the country and without informing local regulators, several private banking executives said.

The business opportunity to advise on and manage overseas assets of resident Indians is, however, not very big and not worth the effort of adding another regulatory layer by registering with SEBI, two private bankers said.

Under Indian rules, a resident Indian can remit up to $250,000 per year outside the country. Once the money is moved abroad, authorities lose oversight of the funds.

"I don't think it is abnormal that a country's regulator would try to keep some sort of an oversight over the investment products being marketed in their jurisdiction," said Indian law firm BMR & Associates LLP partner Bobby Parikh.