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India: RBI Directs SBM Bank (India) Ltd To Stop Outward Remittance Transactions

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The Reserve Bank of India (RBI) has directed SBM Bank (India) to end all transactions under the liberalized remittance scheme (LRS) until further notice. The bank regulator gave the direction on Monday, citing “material supervisory concerns” without divulging further details.

The central bank had concerns regarding specific overseas money transfer practices of SBM’s fintech partners not following the appropriate procedures, a source revealed to British news agency Reuters. 

RBI has set some guidelines, in the form of LRS, that allow Indian residents to transfer funds overseas. As per LRS scheme, Indian residents can send up to $250,000 in a foreign location each financial year.

In an official press release, the RBI stated, “The Reserve Bank of India has today, in exercise of its powers under sections 35A and 36(1)(a) of the Banking Regulation Act, 1949, directed SBM Bank (India) Ltd to stop, with immediate effect, all transactions under Liberalised Remittance Scheme (LRS) till further orders.”

“RBI has said the ownership of the entire transaction needs to rest with the bank to ensure better control mechanisms and the bank has been asked to fix that,” Reuters quoted the source as saying.

“For money transfers the account has to be opened with the bank even if it is via a fintech (company), which is typically more convenient, and this needs to be fixed,” the source told the British daily. 

Even though the RBI did not give any deadline, SBM is making complete efforts to fulfill all the requirements as soon as possible. 

A subsidiary of the State Bank of Mauritius, SBM Bank India became the first foreign bank to have a global banking license as part of an Indian scheme for fully owned subsidiaries, which made it possible for foreign lenders to compete with Indian banks.

SBM is a fintech friendly bank which has links with dozens of startups for agreeing to various financial transactions. These startups are Zolve, Vested, IND money, Instarem, HOPRemit-Money, BookMyForex, Airpay. 

“RBI has asked the bank to ensure that only those customers having accounts with the bank should be allowed to do remittance business. This is to refrain those customers who are referred by fintech partners from undertaking these transactions through the bank,” a person close to the matter told Reuters.

Startups including Slice, Uni, and LazyPay were harmed by SBM’s decision to discontinue all partnerships with fintech partners for the prepaid credit card sector last year. This occurred after the RBI mandated that payments be made and received directly between consumer bank accounts and the lending bank or non-banking financial company (NBFC), without the need of a middleman account or technology. The model of lending through prepaid payment instruments (PPIs), such as wallets and prepaid cards, was abolished under these regulations.

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