The Reserve Bank of India (RBI) has removed the requirement for non-bank entities to obtain prior regulatory approval when setting up outward remittance service partnerships with banks in India. Issued under a new operating framework, this directive allows digital platforms and financial technology companies to collaborate directly with Authorised Dealer Category-I (AD Category-I) banks to process cross-border money transfers. This regulatory easement aims to streamline international transaction channels for Indian consumers by reducing administrative compliance burdens.
New Operating Framework for Outward Remittances
The Reserve Bank of India (RBI) issued the revised operating framework on May 13, 2026, through its official directive, A.P. (DIR Series) Circular No. 10. This framework fundamentally changes how cross-border money transfers are managed in India. Under the previous guidelines, non-bank entities like financial technology startups and digital payment service providers had to secure prior, case-by-case approval from the central bank to partner with banks for outward remittances. The new rules eliminate this administrative layer completely.
With the removal of the prior permission requirement, the central bank has placed the sole responsibility for compliance and oversight on Authorised Dealer Category-I (AD Category-I) banks. These commercial banks must now independently conduct comprehensive due diligence and ensure that all tie-up arrangements comply with Indian foreign exchange laws. The framework applies exclusively to digital outward remittances for non-trade current account transactions, which include payments for overseas education, medical treatment, international travel, and family maintenance.
Operational Compliance and Cybersecurity Mandates
To ensure that the removal of prior approvals does not compromise financial security or consumer interests, the central bank has established stringent operational guidelines. Authorised Dealer banks must oversee their third-party partnerships to ensure absolute security and transparency.
Strict Security and Fund Safeguards
Commercial banks must ensure that all partnered non-bank entities adhere to the cybersecurity standards prescribed by the central bank. To protect remitter funds, the operating framework dictates that customer money must be completely ringfenced from any insolvency risks associated with the third-party digital platforms.
To safeguard transactions, the funds are prohibited from passing through any account held by the non-bank partner in India. Outward remittances must move directly from the remitter’s domestic bank account to the beneficiary’s bank account overseas.
Disclosures and Consumer Protection
To maintain transparency, the digital platforms used for initiating transactions must display specific information to customers. The digital interface must show the exact exchange rate quoted by the bank, along with a timestamp showing when the rate was generated and its validity period.
Additionally, the platform must display a clear breakdown of all transaction costs, including service fees, margins, and applicable taxes, alongside the exact foreign currency amount that will be credited. Customers must also be informed of the maximum duration required for the beneficiary to receive the funds. Finally, commercial banks are required to publish lists of all active third-party tie-ups and details of their customer data storage policies on their public websites.
Regulatory Comparison: Old vs. Revised Framework
The transition to the new operating framework streamlines cross-border outward remittance services while enhancing bank accountability. The table below details the key differences between the previous 2016 framework and the newly issued 2026 guidelines:
| Parameters | Previous 2016 Framework | Revised 2026 Operating Framework |
|---|---|---|
| Prior Approval | Required non-bank entities to obtain case-by-case approval from the RBI | Dispensed with; no prior approval needed from the RBI |
| Locus of Responsibility | Shared monitoring between the central bank and partnering commercial banks | Solely rests on Authorised Dealer Category-I banks |
| Scope of Transactions | Broad outward remittance services under the miscellaneous category | Online outward remittances for non-trade current account transactions |
| Fund Routing Route | Permitted through third-party intermediaries | Must flow directly from the remitter’s bank to the beneficiary’s bank |
| Cybersecurity Mandate | General security requirements | Must comply with strict RBI-stipulated cybersecurity standards |
Statutory Context: FEMA and the Liberalised Remittance Scheme
The revised framework operates within India’s broader statutory systems governing foreign exchange and cross-border capital flows. The primary law in this domain is the Foreign Exchange Management Act, 1999 (FEMA), which came into force in 2000 to replace the more restrictive Foreign Exchange Regulation Act, 1973 (FERA). Under FEMA, transactions are categorized into current account transactions and capital account transactions.
To simplify outward transactions for individuals, the central bank introduced the Liberalised Remittance Scheme (LRS) in 2004. Under LRS, resident individuals are permitted to freely remit up to USD 250,000 per financial year for any permitted current or capital account transactions, such as overseas education, travel, or investment.
To execute these transactions, the central bank relies on Authorised Dealer Category-I (AD Category-I) banks, which are commercial banks licensed to deal in foreign exchange for both current and capital accounts. By decentralizing partnership approvals to these institutions, the central bank leverages the operational capacity of commercial banks to manage LRS compliance directly.
Strategic Significance for FinTech and Digital Payments
By removing administrative compliance bottlenecks, the central bank is actively promoting ease of doing business within India’s digital finance ecosystem. Previously, the prolonged approval process for bank-fintech partnerships delayed the deployment of digital remittance platforms. This deregulation allows financial technology players to enter the cross-border payment space much faster, fostering greater market competition.
Increased competition among digital platforms is expected to drive down remittance costs for consumers. Typically, traditional outward remittances through brick-and-mortar bank branches incur high exchange rate markups and administrative fees. Digital-first partnerships enabled by the new framework offer more transparent, cost-effective alternatives. Additionally, the decentralization of compliance ensures that while innovation is encouraged, consumer interests and cybersecurity remain heavily guarded under the direct supervision of commercial banks.
Key Takeaways
- The Reserve Bank of India (RBI) issued a revised operating framework on May 13, 2026, removing the prior approval requirement for bank partnerships with non-banks for outward remittances.
- Under the new framework, Authorised Dealer Category-I (AD Category-I) banks assume sole responsibility for ensuring transaction compliance and conducting due diligence.
- The framework permits digital cross-border outward remittances exclusively for non-trade current account transactions such as overseas education, travel, and medical expenses.
- Remittance funds must flow directly from the remitter’s bank to the beneficiary’s overseas account without passing through any accounts held by the non-bank partner in India.
- Sanjay Malhotra assumed charge as the 26th Governor of the Reserve Bank of India on December 11, 2024.
- The Liberalised Remittance Scheme (LRS), introduced in 2004 under the Foreign Exchange Management Act, 1999 (FEMA), permits residents to remit up to USD 250,000 per financial year.
