“RBI, in the 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 LRS till further orders,” the RBI statement read.
However, over half a dozen fintech companies and several offline players that had active partnerships with the bank have reportedly been impacted by the RBI’s move.
ETtech looks at the ramifications of this order on fintechs:
Which companies are affected by RBI’s order against SBM India?
The RBI’s move has directly affected neo-banking fintechs Niyo and Zolve, which was started by former TaxiForSure cofounder Raghunandan G, US-stock investment platforms such as IndMoney and Vested Finance, multiple industry leaders, people working with these fintechs told ET on condition of anonymity.
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SBM India has been known in the industry for its fintech-first growth model and has marquee partnerships with at least 35 financial technology companies in the country.While Niyo has temporarily paused international transactions for its forex card in association with SBM India, Vested and IndMoney had to change user transaction flows to help load US brokerage accounts.
What is the Liberalised Remittance Scheme?
Under the Liberalised Remittance Scheme, which was introduced by the banking regulator in 2004, Indian residents, including minors, are allowed to freely remit up to $250,000 per financial year for any permissible current or capital account transaction or a combination of both.
What is SBM’s response to the ban?
According to customer communication sent out by the bank, SBM is engaging with RBI to address “supervisory concerns”.
“We would like to state that SBM Bank (India) Ltd. is committed to upholding the highest standard of banking. SBM Bank (India) Ltd. remains open for business in all other areas,” it said in the email.
What measures are the affected companies taking?
Niyo, which offers its forex card Niyo Global Card through an exclusive partnership with SBM India, has temporarily paused international transactions for its forex card.
“Our SBM Niyo Global programme provides an international debit card with a savings account in partnership with SBM India, an RBI-regulated bank. Currently, international transactions on this debit card are paused to comply with the recent RBI order,” its spokesperson told ET.
“However, users can continue using the card for their domestic spends and transfers through various transactions and payment modes – ATM withdrawal, UPI, IMPS, POS, ecommerce, etc.”
Platforms including Vested and IndMoney, which allow Indians to invest in US stocks, had to change user transaction flows to help load US brokerage accounts.
IndMoney went offline for almost 48 hours to change its transaction flow of how money is loaded to a user’s USD wallet.
“We are trying to understand what are the supervisory concerns with SBM Bank that have been highlighted by the regulator,” Ashish Kashyap, founder, and chief executive of IndMoney told ET.
ET reported on January 25 that Vested Finance paused processing fresh deposits via Vested Direct – its rupee wallet that allows customers to load dollars into the platform’s US brokerage account.
“There could be different forex charges which customers have to pay depending on their banks,” explained Viram Shah, cofounder, and chief executive of Vested Finance, as one of the impacts of customers loading their wallets directly.
How will card users be impacted?
According to three fintech industry executives ET spoke with, the LRS ban impacts only international remittances for debit card customers of SBM India. They said that account holders with SBM can withdraw their deposits otherwise or make domestic payments.
“The decision by the regulator is expected to impact several Indian travellers currently abroad who won’t be able to access funds through their cards or will be facing failed transactions, creating anxiety. Further, some of these cards such as Niyo are also part of corporate spending or company policies, leaving the user in a fix,” a fintech executive told ET.
