The Reserve Bank of India (RBI) has issued a rare directive to Indian lenders, calling for enhanced scrutiny of financial transactions that may be routed indirectly from Pakistan. The move comes amid rising national security concerns, with authorities worried that such funds could be linked to arms financing.

According to officials familiar with the directive, the central bank has identified Pakistan as a “high-risk” jurisdiction for arms-related funding. While direct transactions from Pakistan already require RBI clearance, the concern now extends to indirect routes, where funds are moved through third countries before reaching India. Regulators fear this could create gaps in oversight and allow suspicious capital flows to bypass monitoring systems.

The RBI’s alert follows heightened security assessments earlier this year, particularly after investigations into a border clash revealed the possibility of funds entering India from Pakistan through disguised channels. By tightening its checks, the central bank aims to ensure that Indian lenders detect, flag, and report any questionable activity tied to high-risk jurisdictions.

This development also aligns with findings from the Financial Action Task Force (FATF), which recently highlighted sanction breaches by Pakistani entities. One case underlined how state-linked organizations attempted to conceal sensitive imports, raising international concerns about Pakistan’s compliance with global financial standards. North Korea was also mentioned alongside Pakistan in the RBI’s high-risk advisory.

In response, Pakistani banking authorities rejected the concerns as politically motivated and emphasized their compliance with international anti-money laundering and counter-terrorism frameworks. Despite these denials, India’s regulatory stance underscores a commitment to safeguarding its financial system from being misused for defense-related or illicit activities.

The RBI’s decision signals a clear message: Indian banks must remain vigilant, as financial security is now an integral part of national security.