RBI Urges Banks to Heighten Checks on Indirect Pakistan Fund Flows Amid Security Concerns

The Reserve Bank of India (RBI) has instructed the country’s lenders to step up monitoring of funds that may be entering India indirectly from Pakistan, citing what it described as a “high risk” of such money being diverted to purchase arms. The directive, outlined in a letter dated August 6 and reviewed by Reuters, comes against the backdrop of investigations by Indian agencies following the intense four-day military clash between the two neighboring nations in May.

While direct financial flows from Pakistan into India remain largely prohibited—with each transaction requiring prior clearance from the RBI—the central bank has now turned its attention to indirect routes, urging tighter scrutiny by domestic lenders.

Responding to the move, Pakistan’s central bank dismissed the concerns raised by India, characterizing them as politically driven rather than fact-based. “Pakistan-related fund flows were ‘high risk’ is not a claim we accept. Such assertions are politically motivated,” a spokesperson for the State Bank of Pakistan (SBP) told Reuters. The official emphasized that the measures being taken in India did not align with “objective assessments made by global standard-setting bodies.”

The SBP spokesperson further stressed that the central bank remained committed to working with international financial authorities in order to ensure that Pakistan’s trade and remittance transactions stayed “smooth, transparent and regulated.”

Adding to the defense of Pakistan’s banking system, Zafar Masud, president of the Pakistan Banks Association, issued a statement underlining the strength of the country’s safeguards. “Pakistan’s anti-money laundering laws and combating the financing of terrorism is very strict and robust,” Masud said, reaffirming the stance that existing mechanisms were strong enough to counter any illicit financial activity.

By fLEXI tEAM