The Reserve Bank of India (RBI) has asked the country’s lenders to increase scrutiny over funds flowing indirectly from Pakistan, according to a letter seen by Reuters that cited a “high risk” of such money being used to buy arms.

Direct flows of funds from Pakistan to India are largely prohibited, with every transaction requiring the central bank’s approval.

The directive, dated August 6, follows investigations by Indian agencies after the two neighbouring countries engaged in a fierce military conflict in May, triggered by India........

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