The central bank had concerns that certain overseas money transfer practices of SBM's fintech partners did not follow the appropriate procedures, a banking source said on condition of anonymity because discussions were private.
Neither SBM nor the RBI responded immediately to emailed requests for comment.
The LRS scheme allows Indian residents to send up to $250,000 abroad each financial year.
"RBI has said the ownership of the entire transaction needs to rest with the bank to ensure better control mechanisms and the bank has been asked to fix that," the source said.
"For money transfers the account has to be opened with the bank even if it is via a fintech (company), which is typically more convenient, and this needs to be fixed."
The RBI has not set any deadline, but SBM is working on ensuring that it meets all requirements as soon as possible the source added.
SBM Bank India is a subsidiary of the State Bank of Mauritius and became the first foreign bank to receive a universal banking licence under an Indian scheme for wholly owned subsidiaries, which allowed foreign lenders to compete with Indian banks.
(Additional reporting by Chris Thomas in Bengaluru; Editing by David Goodman)
By Nupur Anand
