Operating framework for facilitating Outward Remittance services by non-bank entities through Authorized Dealer (Category I) banks in India

The Reserve Bank of India (RBI) has issued an operating framework governing the facilitation of outward remittance services by non-bank Payment Service Provi...

What Happened

The Reserve Bank of India (RBI) has issued an operating framework governing the facilitation of outward remittance services by non-bank Payment Service Providers (PSPs).
The framework establishes eligibility conditions, compliance requirements, and operational limits for non-bank entities seeking to offer outward cross-border remittance services to residents.
Non-bank PSPs facilitating outward transactions must be authorised as Payment Aggregators – Cross Border (PA-CB) under the RBI's Master Direction on Regulation of Payment Aggregators (issued September 15, 2025).
Outward transactions through non-bank PA-CBs are capped at INR 25 lakh per transaction to prevent misuse of aggregator channels for large-scale capital transfers.
All such transactions must comply with FEMA, 1999 requirements, and entities must register with the Financial Intelligence Unit – India (FIU-IND) for anti-money laundering compliance.

Static Topic Bridges

Liberalised Remittance Scheme (LRS)

The Liberalised Remittance Scheme (LRS) was introduced by the RBI in 2004 to allow resident individuals (including minors) to remit funds abroad freely for any permissible current or capital account transaction. LRS is the primary channel through which resident Indians send money overseas for education, travel, medical treatment, gifts, maintenance of relatives abroad, and investments.

Annual limit: USD 250,000 per financial year per resident individual (April–March)
Legal basis: LRS operates under the Foreign Exchange Management Act (FEMA), 1999 (which replaced FERA, 1973)
FEMA came into force: June 1, 2000
Authorised Dealers (banks and non-bank entities licensed by RBI) process LRS transactions
TCS (Tax Collected at Source): applies to outward remittances above INR 10 lakh per year (threshold revised in Budget 2025 from INR 7 lakh)
LRS does NOT apply to Non-Resident Indians (NRIs) — they have separate repatriation rights through NRO/NRE/FCNR accounts
Prohibited uses: purchase of lottery tickets, banned magazines, foreign exchange for trading on foreign exchanges

Connection to this news: The RBI's new operating framework for non-bank PSPs expands the set of entities through which residents can route LRS-eligible outward remittances, beyond the traditional Authorised Dealer bank channel. Non-bank PSPs are now a licensed alternative pathway for these transactions.

Payment Aggregator – Cross Border (PA-CB) Framework

The RBI introduced the Payment Aggregator – Cross Border (PA-CB) framework to regulate non-bank entities that aggregate cross-border payment transactions (both inward and outward) under FEMA's current account transaction rules. The PA-CB framework was first introduced in 2023 and was superseded and consolidated by the Master Direction on Regulation of Payment Aggregators (issued September 15, 2025), which brought PAs, PA-CBs, and their operational requirements under a single consolidated direction.

PA-CB: two sub-categories — inward (foreign exchange inflow into India) and outward (foreign exchange outflow from India)
Non-bank PA-CBs must be licensed by the RBI and registered with FIU-IND (Financial Intelligence Unit – India)
Per-transaction cap for outward transactions: INR 25 lakh
Fund segregation: PA-CBs must maintain a separate Outward Collection Account (OCA) with an Authorised Dealer (AD) Bank
Co-mingling prohibited: outward and inward funds must not be netted off or co-mingled under any circumstances
PA-CBs cannot deal in foreign currency with any entity other than an AD Bank
Superseded framework: the earlier OPGSP (Online Payment Gateway Service Provider) system was replaced by the PA-CB classification

Connection to this news: The new operating framework for outward remittance builds on the PA-CB architecture, specifying the conditions under which non-bank PSPs can offer outward remittance services — a market previously dominated by banks and a few licensed money transfer operators.

FEMA, 1999 and the Authorised Dealer Framework

The Foreign Exchange Management Act, 1999 (FEMA) governs all cross-border foreign exchange transactions in India. It replaced the Foreign Exchange Regulation Act (FERA), 1973, shifting from a criminal-enforcement to a civil-penalties approach. Under FEMA, transactions are classified as current account transactions (generally freely permissible) or capital account transactions (regulated and restricted). Outward remittances under LRS are current account transactions.

FEMA enacted: 1999; in force from June 1, 2000
Administered by: RBI (for forex management), Enforcement Directorate (ED) (for FEMA violations)
Authorised Dealers (ADs): banks and institutions licensed by RBI to deal in foreign exchange
AD Category I: full-service forex dealers (major banks)
AD Category II: limited forex services (select non-bank entities)
Full-Fledged Money Changers (FFMCs): authorised to buy and sell foreign currency notes and travellers' cheques
Non-bank PSPs under the new framework would operate effectively as an extension of the AD channel for outward remittance, routing transactions through AD banks

Connection to this news: The RBI's framework for non-bank PSPs is grounded in FEMA's current account transaction permissions, with the AD Bank remaining the entity ultimately responsible for FEMA compliance, reporting to IDPMS/EDPMS, and maintaining the transaction audit trail.

FinTech Regulation and Consumer Protection in Remittances

The expansion of outward remittance services to non-bank PSPs introduces both efficiency gains and regulatory risks. Non-bank PSPs — including fintech companies — can potentially offer lower transaction costs, better user experience, and faster settlement than traditional bank channels. However, risks include potential use for money laundering, hawala transactions, and tax evasion through fragmented small transactions.

FIU-IND registration is mandatory for non-bank PA-CBs to ensure Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) compliance
The Prevention of Money Laundering Act (PMLA), 2002 requires reporting entities (including PA-CBs) to maintain KYC (Know Your Customer) records
Per-transaction cap of INR 25 lakh limits the size of individual outward transfers through non-bank channels, mitigating large-scale misuse
The National Payments Corporation of India (NPCI) and RBI jointly oversee the payments ecosystem
RBI's Payments Vision 2025 emphasised expanding the role of regulated non-bank entities in the payments ecosystem

Connection to this news: The operating framework is designed to balance financial inclusion and market competition (by enabling non-bank PSPs) with systemic safeguards (FEMA compliance, FIU-IND registration, transaction caps, and AD bank oversight).

Key Facts & Data

LRS annual limit: USD 250,000 per financial year per resident individual
LRS introduced: 2004 by RBI; legal basis: FEMA, 1999
FEMA in force since: June 1, 2000 (replaced FERA, 1973)
Per-transaction outward remittance cap for non-bank PA-CBs: INR 25 lakh
PA-CB Master Direction issued: September 15, 2025
Non-bank PA-CBs must register with: FIU-IND (Financial Intelligence Unit – India)
TCS threshold on LRS remittances (post Budget 2025): INR 10 lakh per financial year
Enforcing agency for FEMA violations: Enforcement Directorate (ED)
AML/CFT framework: Prevention of Money Laundering Act (PMLA), 2002
Replaced framework: OPGSP (Online Payment Gateway Service Provider) system