Source: TOI Context: In May 2026, the Reserve Bank of India (RBI) removed the prior approval requirement for non-bank entities (fintechs) to enter into tie-up arrangements with Authorised Dealer (AD) Category-I banks for facilitating outward remittance services in India. The change is part of a revised operating framework for outward remittance facilitated by non-bank entities through AD Category-I banks and replaces the more restrictive 2016 framework, under which RBI’s prior approval was mandatory for every such tie-up. The updated framework applies to cross-border outward remittance of funds for non-trade current account transactions routed through websites, online platforms, mobile apps, and software applications operated by third-party entities (fintechs). Key Highlights About the News What has the RBI changed? The RBI has removed the prior approval requirement for non-bank entities (fintechs) to enter into tie-ups with Authorised Dealer (AD) Category-I banks for facilitating outward remittance services from India. What was the previous arrangement under the 2016 framework? Under the 2016 framework, non-bank entities had to obtain RBI’s prior approval before forming tie-up arrangements with AD banks for outward remittance services — making each partnership subject to case-by-case regulatory clearance. What kind of transactions are covered? Cross-border outward remittances for non-trade current account transactions — for example, foreign education fees, medical expenses, gifts, maintenance of relatives abroad, travel, and donations — facilitated through websites, online platforms, software applications, and mobile apps operated by third-party (fintech) entities. Are AD banks now free of compliance obligations? No. RBI has retained two critical compliance anchors. AD banks must comply with FEMA, 1999 and perform KYC-based due diligence, regardless of whether the customer accesses the service directly or through a fintech channel. What new customer disclosures are mandated? Banks must inform customers of: (a) the exact foreign-exchange amount the beneficiary will receive; and (b) the maximum time required for the beneficiary to receive the funds. These disclosures aim to address persistent issues of opaque pricing, hidden exchange-rate margins, and delayed credits in cross-border payments. Who are “Authorised Dealer (AD) Category-I banks”? AD Category-I banks are commercial banks authorised by the RBI under FEMA, 1999 to deal in all categories of foreign exchange transactions — including current and capital account transactions, trade finance, remittances, and foreign-currency accounts. They form the primary regulated rail through which all foreign exchange transactions are routed in India. Why has RBI made this change? To reduce regulatory friction, encourage fintech innovation in cross-border payments, deepen competition, and lower remittance costs for retail customers — while still preserving systemic oversight through FEMA, KYC, and customer-disclosure obligations on the regulated bank side. What is the broader policy direction this signals? A shift from ex-ante licensing-based regulation (where every tie-up needs RBI’s clearance) to ex-post conduct-based supervision (where banks bear the responsibility for compliance, KYC, and customer protection). This mirrors RBI’s broader risk-based, principles-based regulatory approach. Background Concepts What is the Reserve Bank of India (RBI)? The RBI is India’s central bank and the monetary authority, established under the Reserve Bank of India Act, 1934 and nationalised in 1949. Its functions include monetary policy, currency issuance, banking regulation, payment systems oversight, foreign exchange management (under FEMA), and consumer protection in financial services. It is headquartered in Mumbai. What is the Foreign Exchange Management Act (FEMA), 1999? FEMA, 1999 is the principal legislation governing foreign exchange transactions in India. It replaced the earlier FERA, 1973 (Foreign Exchange Regulation Act), shifting India’s approach from prohibition to management of forex. FEMA classifies transactions into current account transactions (generally permitted) and capital account transactions (regulated), and is administered jointly by the RBI (for procedural directions) and the Central Government (for capital account rules). What are “Authorised Dealers (AD)” under FEMA? Entities authorised by the RBI to deal in foreign exchange, classified into three categories: What is an “Outward Remittance”? A transfer of funds from India to a person or entity abroad — for purposes such as education, medical treatment, travel, gifts, maintenance of relatives, donations, or investment abroad. Outward remittances are governed under FEMA, 1999, and most retail outward remittances flow through the Liberalised Remittance Scheme (LRS). What is the Liberalised Remittance Scheme (LRS)? A scheme under which resident individuals (including minors) can remit up to USD 250,000 per financial year abroad — for permissible current or capital account transactions — without prior RBI approval, subject to FEMA and tax rules. LRS is the principal retail channel for outward remittances and applies to remittances for education, travel, healthcare, gifts, maintenance, and overseas investments. What is the difference between Current and Capital Account transactions? Current account transactions involve income and expenditure flows that do not alter India’s assets or liabilities abroad — e.g., trade, travel, remittances, dividends, interest. Capital account transactions involve changes in assets or liabilities — e.g., FDI, FPI, ECBs, overseas investment, real estate purchases abroad. Current account transactions are generally freely permitted; capital account transactions are more tightly regulated under FEMA. What is KYC (“Know Your Customer”)? A mandatory customer-due-diligence process prescribed by the RBI’s Master Direction on KYC and the Prevention of Money Laundering Act (PMLA), 2002. KYC verifies a customer’s identity, address, and beneficial ownership to prevent money laundering, terror financing, and fraud. It includes e-KYC via Aadhaar, Video-KYC, Central KYC Registry (CKYCR), and risk-based periodic re-verification. What is a “Fintech” and how is it regulated in India? A fintech is a technology-driven firm providing financial services — covering payments, lending, wealth management, insurance, and cross-border remittances. India regulates fintechs through a multi-pronged architecture: RBI (payments, lending, NBFCs, remittance), SEBI (capital-markets fintech), IRDAI (insurtech), and PFRDA (pension fintech). The RBI Regulatory Sandbox (2019) and dedicated Fintech Department (2022) are key institutional anchors. How are cross-border payments evolving globally? The G20 has prioritised cheaper, faster, more transparent cross-border payments as a policy goal. Initiatives include the BIS Project Nexus (linking domestic fast-payment systems globally), UPI’s international expansion (UAE, Singapore, France, Mauritius, Bhutan, Nepal, Sri Lanka), and the CBDC pilot for cross-border settlement. RBI’s framework changes are aligned with this global thrust. Practice MCQs Q1. With reference

Source: The Hindu Context: A recent editorial — “Bursting at the Seams: The current rise in inflation is not transient, but systemic” — flags a sharpening divergence between India’s retail and wholesale inflation prints, arguing that the apparent calm in Consumer Price Inflation (CPI) masks substantial upstream price pressures still working their way through the economy. CPI inflation edged up to a 13-month high of 3.48% in April, only marginally above March’s 3.4%, even as Wholesale Price Inflation (WPI) more than doubled to 8.3% in April from 3.88% in March — a 42-month high. Key Highlights Drivers of WPI spike: Component YoY Change Fuel and power +24.71% Petroleum and natural gas +67.2% About the News Why is the editorial titled “Bursting at the Seams”? Because it argues that retail inflation appears benign on the surface (3.48%), while wholesale inflation has surged to 8.3% — signalling that upstream cost pressures have not yet fully passed through to end-consumers, and that the CPI is likely to spike once producers can no longer absorb costs. What is the latest retail inflation print? India’s CPI inflation rose to 3.48% in April, a 13-month high, only marginally higher than March’s 3.4%. The CFPI (food inflation) rose to 4.2% from 3.87%. What does the WPI spike indicate? WPI more than doubled — from 3.88% in March to 8.3% in April, a 42-month high — led by fuel and power (+24.71%) and petroleum and natural gas (+67.2%). This indicates that producer-level costs are rising sharply, and the full impact has yet to reach end-consumers. What are “under-recoveries”, and how are OMCs affected? Under-recoveries are the difference between the cost of producing or importing fuel and the price at which it is sold in the domestic retail market. When global oil prices rise but retail prices are not raised correspondingly, OMCs absorb the loss — currently estimated at ~₹30,000 crore per month since the conflict began. Why is the Centre likely to raise retail petrol and diesel prices? Because OMC losses are fiscally and operationally unsustainable. As noted by Union Petroleum Minister Hardeep Singh Puri, the Centre may have little choice but to raise retail prices, which would have economy-wide cascading effects — on transport, food, manufacturing, and services. How is commercial LPG feeding food inflation? The 19.2 kg commercial LPG cylinder — used heavily by restaurants, dhabas, food vendors, and small businesses — has risen by ₹850–₹1,000, while the 5 kg canister, widely used by migrant wage labourers, has risen by over ₹200. These costs are passed directly into food basket prices, particularly hitting lower-income consumers. Why is the rupee depreciating so sharply? A combination of factors: (a) Rising crude oil import bill (India imports ~85% of its oil). (b) Capital outflows as investors seek safe-haven assets (US dollar, gold). (c) Widening current account deficit pressure. (d) Global risk aversion amid the U.S.–Israel–Iran conflict. The ~8.5% slide in 2.5 months is exceptionally sharp by historical standards. Why has the Centre doubled import duties on gold and silver? To discourage safe-haven investment flows into precious metals, ease pressure on the rupee, and narrow the current account deficit — since gold and silver imports are major contributors to India’s trade gap. What does the editorial conclude about RBI’s options? That the RBI has limited room but to eventually tighten monetary policy — i.e., raise the repo rate — to keep inflation within its 2%–6% tolerance band, even as growth concerns create competing pressure. What is the key takeaway of the editorial? That current inflation is not merely transient (commodity-volatility-driven) but systemic — driven by persistent fuel cost pressures, rupee depreciation, and cascading services inflation — leaving both the government and the RBI with limited manoeuvring space. Background Concepts (Q&A) What is Inflation? Inflation is the sustained rise in the general price level of goods and services in an economy over a period of time, eroding purchasing power. It is typically measured in India by the Consumer Price Index (CPI) and the Wholesale Price Index (WPI). What is the Consumer Price Index (CPI)? The CPI measures retail inflation — the change in prices of a basket of goods and services consumed by households. India’s official headline inflation measure is the CPI (Combined), compiled by the National Statistical Office (NSO) under MoSPI, with 2012 as the base year. Food and beverages have the largest weight (~45.86%). What is the Wholesale Price Index (WPI)? The WPI measures the change in prices of goods at the wholesale or producer level, before reaching retail. It is compiled by the Office of the Economic Adviser, DPIIT (Ministry of Commerce and Industry), with 2011–12 as the base year. WPI excludes services and weights manufactured products (~64%), primary articles (~22.6%), and fuel and power (~13.2%). Why do CPI and WPI sometimes diverge sharply? Because they measure different stages of the price chain (retail vs wholesale), have different baskets and weights (CPI is consumer-centric with food and services; WPI is producer-centric and excludes services), and reflect different lag structures in the cost pass-through. A divergence typically signals that producer-level cost pressures are not yet fully reflected at the retail level. What is the Consumer Food Price Index (CFPI)? The CFPI is a sub-index of the CPI that measures the change in prices of the food and beverages component of the consumer basket. It is a key indicator of food inflation in India. What is the RBI’s “Inflation Targeting” framework? Under the Monetary Policy Framework Agreement (2015) and the amended RBI Act, 1934 (2016), the RBI follows a Flexible Inflation Targeting (FIT) regime. The Centre, in consultation with RBI, has set a headline CPI inflation target of 4%, with a tolerance band of ±2% (i.e., 2%–6%). The framework is overseen by the six-member Monetary Policy Committee (MPC). What is the Monetary Policy Committee (MPC)? A six-member statutory committee of the RBI — three RBI representatives (Governor, Deputy Governor in charge of monetary policy, and one nominee) and three external members appointed by the Centre — that decides the

Source: Business Standard Context: The Reserve Bank of India (RBI), in a discussion paper released in April, has proposed a one-hour delay on account-to-account digital transfers above ₹10,000 before the funds are credited to the beneficiary’s account — a measure aimed at curbing the sharp rise in digital payment fraud. Stakeholders were asked to submit feedback by May 8. Banks have broadly supported the idea of a delay, but have urged the central bank to raise the threshold to ₹25,000, arguing that ₹10,000 is too low for a country where small everyday transactions are increasingly digital. The payments industry — including the Self-Regulated Payment System Operators Association (SRPSOA) — has submitted its feedback, flagging operational issues such as delayed payments and the whitelisting of accounts, and warning that even if peer-to-peer (P2P) transfers are restricted, peer-to-merchant (P2M) flows could become the next attack surface. Key Highlights Other measures in the discussion paper: Measure What it does Additional authentication by trusted individuals For vulnerable users (senior citizens, first-time digital users) Tighter scrutiny of accounts For accounts receiving large credits — potential mule-account check Expanded customer-controlled safeguards Per-account / per-customer customisable risk controls ₹25 lakh ceiling on annual aggregate credits Proposed cap on total credits into a bank account in a year (banks flagged as not feasible) Why the urgency — fraud stats: Metric Figure Share of fraud cases by volume from transactions above ₹10,000 ~45% Share of fraud cases by value from transactions above ₹10,000 ~98.5% Growth in digital payment fraud value over the past 5 years 41× Total digital payment fraud value ~₹23,000 crore Industry concerns: About the News (Q&A) What has the RBI proposed in its April discussion paper? A one-hour delay before account-to-account digital transfers above ₹10,000 are credited to the beneficiary’s account — applicable to peer-to-peer (P2P) transfers, with the objective of curbing rising digital payment fraud. Why has the RBI proposed this delay? Because the fraud pattern data shows that transactions above ₹10,000 account for ~45% of fraud cases by volume and ~98.5% by value — and digital payment frauds have grown 41 times in five years to nearly ₹23,000 crore. A short cooling-off window can give victims time to reverse fraudulent transfers and banks time to flag mule-account behaviour. What is the position of banks? Banks have broadly supported the idea of some kind of delay, but have urged the RBI to raise the threshold from ₹10,000 to ₹25,000 — arguing that ₹10,000 is too low for everyday small-value digital transactions in India. What other measures are in the discussion paper? (a) Additional authentication by trusted individuals for vulnerable users (e.g., a senior citizen’s child or another nominated person). (b) Tighter scrutiny of accounts receiving large credits — to identify mule accounts. (c) Expanded customer-controlled safeguards — letting customers set their own limits and alerts. (d) A proposed ₹25 lakh ceiling for annual aggregate credits into a bank account. What concerns has the payments industry raised? (a) The measures cover only P2P transfers; P2M flows could become the next fraud vector. (b) Operational issues — implementation costs, delayed payments, whitelisting mechanics, customer education. (c) Risk that fraud prevention ends up creating friction for honest users. (d) The ₹25 lakh annual aggregate credit ceiling is not operationally feasible to implement. What is the difference between P2P and P2M in this context? (a) P2P (Peer-to-Peer) — transfers between two individuals. Beyond basic KYC, banks have limited additional checks for the recipient. (b) P2M (Peer-to-Merchant) — payments from individuals to registered merchants. Merchants undergo due diligence at onboarding by banks/payment aggregators, so the counterparty risk is lower. The RBI’s discussion paper has focused on P2P because that is where the due-diligence gap is widest. How is this proposal connected to the broader rise in cyber fraud? The proposal complements other recent measures: (a) MuleHunter.AI to detect mule accounts. (b) CBI’s ‘Abhay’ helpbot to counter digital arrest scams. (c) National Cybercrime Reporting Portal + 1930 helpline for financial-fraud reporting. (d) KYC tightening and video-KYC norms. Together, these point to a systemic effort to harden the digital payments rail. Background Concepts (Q&A) What is the Reserve Bank of India (RBI)? India’s central bank and monetary authority, established under the RBI Act, 1934 and nationalised in 1949. The RBI handles monetary policy, currency issuance, banking regulation, payment systems oversight, foreign exchange management (FEMA), and consumer protection in financial services. Its Payments and Settlement Systems Department regulates and oversees digital payments and PSOs. What is the Payment and Settlement Systems Act, 2007? The legal foundation for payment systems oversight in India. It empowers the RBI to regulate and supervise payment systems, including the authorisation, monitoring, and supervision of Payment System Operators (PSOs) — such as NPCI, Visa, Mastercard, RuPay, payment aggregators, and prepaid issuers. What is the Unified Payments Interface (UPI)? A real-time, 24×7 inter-bank payments system developed by the National Payments Corporation of India (NPCI) under RBI’s framework. It enables instant push-and-pull payments between bank accounts through mobile apps. UPI is the world’s largest real-time payments system by volume. What is the National Payments Corporation of India (NPCI)? An umbrella organisation for retail payments and settlement systems in India, incorporated in 2008 under the PSS Act, 2007. It operates UPI, IMPS, RuPay, NACH, AePS, NETC FASTag, and BBPS, and is jointly owned by major Indian banks. What is a “Mule Account”? A bank account used by cybercriminals to receive, layer, and move proceeds of fraud. Mule accounts can be: (a) Opened directly by fraudsters using stolen identities. (b) Rented or bought from unsuspecting account-holders lured by easy money schemes. The RBI’s MuleHunter.AI detects mule accounts by analysing transaction patterns in near-real time. What is KYC (“Know Your Customer”)? A mandatory customer-due-diligence process prescribed by the RBI’s Master Direction on KYC and the Prevention of Money Laundering Act (PMLA), 2002. It verifies a customer’s identity, address, and beneficial ownership to prevent money laundering, terror financing, and identity-based fraud. It includes e-KYC via Aadhaar, Video-KYC, Central KYC Registry (CKYCR), and risk-based periodic

Source: ET Context of the News In May 2026, the Reserve Bank of India (RBI) cancelled the banking licence of Mumbai-based Sarvodaya Co-operative Bank Limited, with effect from 12 May 2026, invoking Sections 22(4) and 56 of the Banking Regulation Act, 1949. The cancellation was triggered by the bank’s inadequate capital, weak earning prospects, inability to fully repay depositors, and non-compliance with capital adequacy and licensing requirements under Sections 11(1) and 22(3) of the Act. Key Highlights About the News (Q&A) Which bank had its licence cancelled, and by whom? The RBI cancelled the licence of Sarvodaya Co-operative Bank Limited (Mumbai) with effect from 12 May 2026. Under which provisions was the licence cancelled? Under Sections 22(4) and 56 of the Banking Regulation Act, 1949. The bank had also breached Sections 11(1) (capital requirements) and 22(3) (licensing requirements) of the Act. What were the specific reasons cited by RBI? (a) Inadequate capital and weak earning prospects. (b) Inability to fully repay current and future depositors. (c) Non-compliance with regulatory requirements on capital adequacy and licensing. (d) Continuation of the bank would have been prejudicial to depositor interests. What happens after the licence is cancelled? (a) The bank ceases all banking operations — no deposits, no repayments. (b) The Maharashtra Registrar of Co-operative Societies (RCS) initiates the winding-up process. (c) A liquidator is appointed. (d) Eligible depositors receive insurance compensation from DICGC. How are depositors protected? Through the Deposit Insurance and Credit Guarantee Corporation (DICGC), which insures deposits up to ₹5 lakh per depositor per bank. This covers principal and interest on savings, current, fixed, and recurring deposits. What is the role of the Maharashtra RCS? As co-operative societies fall under State legislation, the Registrar of Co-operative Societies at the state level is responsible for the formal winding-up and liquidation of co-operative banks once the RBI cancels their licence. Why does RBI take such action? Because once a bank loses the capacity to honour deposits, allowing it to continue operating only worsens depositor losses. The RBI’s action freezes the situation and triggers the DICGC’s insurance machinery to compensate depositors quickly. How does this fit into the wider regulatory trend? Following the PMC Bank crisis (2019) and similar episodes, the Banking Regulation (Amendment) Act, 2020 strengthened RBI’s powers over co-operative banks — including governance, audits, supersession of boards, and licensing. The RBI has since cancelled the licences of several weak urban co-operative banks to protect depositor interests and clean up the sector. Are depositors with more than ₹5 lakh at risk? Yes — any amount above ₹5 lakh per depositor is not covered by DICGC insurance and depends on the recovery during liquidation of the bank’s assets. This is one reason the RBI advises depositors to diversify across banks for safety. Background Concepts (Q&A) What are co-operative banks in India? Co-operative banks are member-owned financial institutions established under state co-operative societies legislation (or the Multi-State Co-operative Societies Act, 2002). They serve specific communities, regions, or trades, and combine co-operative ownership with banking activities. What is the structure of co-operative banks? Indian co-operative banks broadly fall into: Urban Co-operative Banks (UCBs) — operating in urban/semi-urban areas; can be single-state or multi-state. Rural Co-operative Banks: Who regulates co-operative banks in India? A dual control structure: Banking functions: Regulated by the RBI (and NABARD for rural co-operatives). Co-operative functions (registration, governance): Regulated by state Registrars of Co-operative Societies (or the Central Registrar for multi-state co-operatives). What was the Banking Regulation (Amendment) Act, 2020? A law that significantly expanded RBI’s powers over co-operative banks, particularly UCBs: (a) Brought them under RBI’s banking regulation framework. (b) Empowered the RBI to supersede co-operative bank boards. (c) Tightened audit, governance, and capital norms. (d) Helped align co-operative banks more closely with commercial banks on prudential standards. What is the Banking Regulation Act, 1949? The principal law governing banking in India. It defines what constitutes banking business, regulates licensing, capital adequacy, management, supervision, mergers, winding-up, and gives the RBI extensive powers to issue directions, conduct inspections, and impose penalties. What are Sections 11, 22, and 56 of the BR Act? Section 11(1): Requires banking companies to have minimum paid-up capital and reserves. Section 22: Deals with licensing of banking companies by the RBI, including conditions for issuance, refusal, and cancellation. Section 56: Adapts the BR Act for co-operative societies — i.e., the modifications under which it applies to co-operative banks. What is the Deposit Insurance and Credit Guarantee Corporation (DICGC)? A wholly-owned subsidiary of the RBI, established under the DICGC Act, 1961. It provides deposit insurance to depositors of all commercial banks (including foreign banks operating in India), regional rural banks, and co-operative banks. The cover was raised to ₹5 lakh per depositor per bank in 2020 (from ₹1 lakh earlier). What kinds of deposits does DICGC insure? DICGC insurance covers savings, current, fixed, and recurring deposits — including principal and interest — up to ₹5 lakh per depositor per bank. The cover is automatic and does not require any separate enrolment by depositors. What was the PMC Bank case? In 2019, the Punjab and Maharashtra Co-operative (PMC) Bank crisis exposed massive fraud and governance failures in a major urban co-operative bank, triggering depositor losses and public outrage. The crisis directly led to: (a) The 2020 BR Act amendment. (b) Doubling of DICGC cover from ₹1 lakh to ₹5 lakh. (c) Faster claim disbursal mechanisms. What is “winding-up” in the banking context? The formal process of closing down a financial institution, including: (a) Realising its assets. (b) Settling its liabilities in a defined order of priority. (c) Distributing residual amounts to shareholders/members. For co-operative banks, the state RCS typically conducts the winding-up after RBI’s licence cancellation. Why have urban co-operative banks been under stress? (a) Weak governance and politicised boards. (b) Limited geographical and product diversification. (c) Concentration risk in lending. (d) Inadequate capital. (e) Historically dual control regulatory ambiguity (now partly resolved). What is the constitutional status of co-operatives in India? The 97th Constitutional Amendment Act, 2011 added: