SBM Bank India is a subsidiary of the State Bank of Mauritius and became the first foreign bank to receive a universal banking licence under an Indian scheme for wholly owned subsidiaries, which allowed foreign lenders to compete with Indian banks. “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," the RBI said in a release.
This action is based on certain material supervisory concerns observed in the bank, the RBI said. The central bank, however, didn’t specify what exactly are the supervisory concerns surrounding the bank.
LRS is a set of guidelines by the RBI that enable Indian residents to remit capital overseas.
A fintech friendly bank, SBM has ties with dozen of startups for undertaking various financial transactions.
Firms like Zolve, Vested, IND money, Instarem, HOPRemit-Money, BookMyForex, Airpay have tie-ups with the bank for a number of features, including forex transactions and purchasing foreign stocks, ETFs. “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," said a person familiar with the matter.
Last year SBM stopped all tie-ups with fintech partners for prepaid credit card business, which impacted startups like Slice, Uni and LazyPay. This came after RBI mandated that disbursals and repayments must happen directly between the bank accounts of customers and the lender bank or non-banking financial company (NBFC), without the presence of a third party account or fintech in the middle. These rules quashed the model of lending through prepaid payment instruments (PPIs) including wallets and prepaid cards.
With inputs from Reuters.
