Lok Sabha Question No. 2649 (UNSTARRED), answered on 2025-03-17
Subject: India's Rating in FATF
Ministry: FINANCE
Asked by: Dr. K Sudhakar

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE

## LOK SABHA

## UNSTARRED QUESTION NO. 2649

TO BE ANSWERED ON MONDAY, 17 TH  MARCH 2025/PHALGUNA 26, 1946 (SAKA)

## India's Rating in FATF

2649. Dr. K. Sudhakar

Will the Minister of FINANCE

be pleased to state:

- (a) the details of the country's rating in the last FATF review and the number of countries are sharing the same ranking;
- (b) the manner in which the country continuously engaged with FATF;
- (c) whether Financial Intelligence Unit (FIU) improved its dissemination abilities of STR's;
- (d) if so, the details thereof;
- (e) whether any details of FDI inflows in the country, if so, the details thereof;
- (f) whether there is any plans for privatisation or stake sale of banks or insurance companies, if so, the details thereof; and
- (g) the steps taken by the Government to regulate lending by micro finance companies and NonBanking Financial Companies, if so, the details thereof?

## ANSWER MINISTER OF STATE IN THE MINISTRY OF FINANCE

## (SHRI PANKAJ CHAUDHARY)

- (a) Out  of  40  recommendations,  India  received  Compliant  or  Largely  Compliant  rating  in  37 recommendations. It received partially compliant rating in 3 recommendations. None of the recommendations was rated as non-compliant.

Consequently, India was placed in 'regular follow up', which is the best possible rating by any country being assessed under FATF methodology. There are only three other G20 countries in FATF which have received this rating. This reflects India's strong position in AML/CFT regime among the leading global economies. A detailed note on this is in Annexure-I.

- (b) India  continuously engaged with FATF in the course of the Mutual Evaluation process. Over a two-year  period,  the  Department  of  Revenue  spearheaded  India's  engagement  with  FATF  during  the mutual evaluation. This success was driven by the exceptional efforts and invaluable contribution of a diverse, multi-disciplinary team comprising representatives from various ministries, the National Security Council  Secretariat  (NSCS),  state  authorities,  the  judiciary,  financial  sector  regulators,  self-regulatory organisations, financial institutions, and other businesses.

Even after the Mutual Evaluation, India remains committed to robust and risk-based AML/CFT controls and continuously engages with FATF. India is a member of the Steering Group. Other ways in which India continuously engages with FATF are detailed in Annexure-II.

## (c) Yes.

- (d) With  FINnet  2.0,  the  upgraded  IT  system  of  becoming  functional,  the  dissemination  of  cases based on STRs received from the Reporting Entities (Res) has increased significantly. FINnet 2.0 utilizes advanced  analytics  and  provides  end-to-end  solution  to  all  the  information  technology  needs  of  FIUIndia. FINnet 2.0 has gone live and its impact is evident from the data of the STRs disseminated in last 3 years :-

| 2022-23   | 2023-24   | 2024-25 (till Feb 2025)   |
|-----------|-----------|---------------------------|
| 80,546    | 1,14,199  | 4,36,287                  |

FIU-IND also disseminates STRs in the form of Operational Analysis (OA) and Priority STRs, the details of which are as follows:

| Year    |   No. of OA's shared |   No. of Priority STRS shared |
|---------|----------------------|-------------------------------|
| 2021-22 |                   62 |                          1613 |
| 2022-23 |                  202 |                          2682 |
| 2023-24 |                  139 |                          2750 |

40% of Priority STRs shared have been found to be useful by the Law Enforcement Agencies (LEAs). As a result of intelligence shared by FIU-IND, the following has been achieved:-

- a) Assets attached worth of Rs 983.40 crores and Criminal proceeds identified for Rs 2763.30 crores.
- b) Undisclosed income detected for Rs 10,998 crores.
- c) Seizure of 461 kgs Narcotics/Psychotropic substances.
- d) Regulatory action by FIU on REs: 211 compliance orders with Rs 39.14 crores penalty levied.
- e) 184 arrests made in ML/TF and other predicate offences.
6. (e) India has received FDI inflows of USD 62,483 Million in FY 2024-25 till December 2024. For details of FDI inflows from FY 2000-01 to FY 2024-25, please refer to Annexure-III
7. (f) At  present,  IDBI  Bank  Ltd.  ("IDBI  Bank")  is  undergoing  strategic  disinvestment,  wherein, Government of India (Gol) and LIC are respectively divesting 30.48% and 30.24% of equity, aggregating to  60.72% of the equity share capital of IDBI Bank, along with transfer of management control in the Bank.

In other Public Sector Banks and Insurance Companies which are listed, disinvestment through Minority Stake Sale is carried out through various SEBI-approved methods from time to time based on prevailing market conditions and investor interest subject to the condition that Gol retains 52% shareholding post disinvestment.

(g) The  Reserve  Bank  of  India  (RBI),  on  March  14,  2022,  has  put  in  place  a  comprehensive regulatory  framework  for  microfinance  loans  with  the  objective  of  addressing  the  concerns  of  overindebtedness of low-income households, enabling the competitive forces to bring down the interest rates on  microfinance  loans,  strengthening  the  customer  protection  measures  and  introducing  activity-based regulation in the microfinance sector. The instructions include, among other things, a common definition of  microfinance  loans  for  all  REs  of  RBI,  cap  on  outflow  due  to  repayment  of  loan  obligations  of  a household  as  a  percentage  of  the  household  income,  no  pre-payment  penalty  and  no  requirement  of collateral for microfinance loans, etc.

RBI follows graded regulatory and supervisory structure to effectively regulate the NBFC sector.   The Base  Layer  NBFCs  are  those  which  have  lower  perceived  risk  in  view  of  lower  asset  size  and interconnectedness. They are considered to be having lowest level of risk and hence are subject to lighttouch regulations. NBFCs in Middle Layer are considered to be systemically significant and hence are subject to enhanced prudential regulations and detailed prudential, conduct and governance regulations viz.,  capital  adequacy,  exposure  limits,  corporate  governance  norms,  etc.  NBFCs  in  Upper  Layer  are subject  to  stringent  bank-like  regulations  in  terms  of  capital,  large  exposure  framework,  governance, disclosures & transparency, listing, etc.  The supervisory efforts are also proportionately focused on larger NBFCs in Upper Layer and Middle Layer.

The  regulatory  prescriptions  for  NBFCs  can  be  broadly  classified  into  two  categories  viz.,  prudential regulations  and  business  conduct  regulations.  As  a  macro-prudential  regulator,  RBI  prescribes  certain prudential regulations for NBFCs, which are listed in Annexure-IV.

## India's rating in FATF

India's  Mutual  evaluation  was  conducted  by  FATF  in  2024,  assessing  the  country's  compliance  with FATF's  40  Recommendations  and  the  effectiveness  of  its  anti-money  laundering  and  counter-terrorist financing (AML/CFT) framework across 11 Immediate Outcomes (IOs). India secured the best possible outcome  by  being  placed  under Regular  Follow-up ,  indicating  a  strong  and  robust  AML/CFT framework.

## 1. India's Ratings in Immediate Outcomes (IOs)

The  effectiveness  of  India's  AML/CFT  framework  was  assessed  based  on  11  Immediate  Outcomes, categorized  as High/Substantial  Effectiveness  (HE/SE),  Moderate  Effectiveness  (ME),  or  Low Effectiveness (LE) . India has been rated as Substantially Effective in 6 , Moderately Effective in 5 out of 11  measures  of  Effectiveness.  It  is  to  be  noted  that  India  has Zero Low  Effectiveness  ratings.  India's ratings are as follows:

| Immediate Outcome                                   | Rating   |
|-----------------------------------------------------|----------|
| IO.1 - Risk, policy, and coordination               | SE       |
| IO.2 - International cooperation                    | SE       |
| IO.3 - Supervision                                  | ME       |
| IO.4 - Preventive measures                          | ME       |
| IO.5 - Legal persons and arrangements               | SE       |
| IO.6 - Financial intelligence                       | SE       |
| IO.7 - MLinvestigation &prosecution                 | ME       |
| IO.8 - Confiscation                                 | SE       |
| IO.9 - TF investigation &prosecution                | ME       |
| IO.10 - TF preventive measures &financial sanctions | ME       |
| IO.11 - PF financial sanctions                      | SE       |

## 2. India's Ratings in the 40 FATF Recommendations

FATF  evaluates  technical  compliance  with  40  Recommendations,  rated  as Compliant  (C),  Largely Compliant (LC), Partially Compliant (PC), or Non-Compliant (NC) . India secured Compliant/Largely Compliant ratings on 37 out of 40 recommendations. It is to be noted that India has Zero Non-Compliant rating. India's ratings are summarized below:

| Rating                              |   Count |
|-------------------------------------|---------|
| Compliant/ Largely Compliant (C/LC) |      37 |
| Partially Compliant (PC)            |       3 |
| Non-Compliant (NC)                  |       0 |

## 3. FATF Follow-up Categories and India's Status

FATF  classifies  evaluated  jurisdictions  into  different  follow-up  categories  based  on  their  compliance. These are:

-  Regular  Follow-up :  Countries  demonstrating  a  strong  AML/CFT  framework  with  no  major deficiencies.  It  is  the highest  category of  rating  by  FATF  of  a  Mutual  Evaluation.  They  are required  to  report  back  to  FATF  on  improvements  through  periodic  updates.  Requirements  for Regular Follow up is as under:
-  Enhanced Follow-up : Countries requiring closer monitoring due to moderate deficiencies. They are  required  to  report  back  more  frequently,  typically  on  an  annual  basis,  and  demonstrate progress in addressing deficiencies.
-  Grey  List :  Countries  with  strategic  deficiencies  needing  significant  improvements.  These countries are subject to increased scrutiny and need to implement an action plan to strengthen their AML/CFT measures to avoid the risk of being placed on the blacklist.
-  Blacklist : Countries with severe deficiencies posing threats to the global financial system. These jurisdictions  have  failed  to  address  FATF's  concerns  and  are  subject  to  countermeasures, including  restrictions  on  financial  transactions  and  increased  due  diligence  from  international financial institutions.

| Requirements for Regular follow up                                  | India's MEROutcome                                                      |
|---------------------------------------------------------------------|-------------------------------------------------------------------------|
| More than 32 C/LC out of 40 recommendations                         | India has received 37 C/LC out of 40 recommendations                    |
| 3 or more C/LC out of 'Big 5 rec                                    | India is C/LC on ALL 'Big 5 rec'                                        |
| 5 or more 'Substantially Effective/Highly Effective' ratings in IOs | India has received 6 'Substantially Effective/Highly Effective' ratings |
| No requirements on 'low level of effectiveness'                     | India has not received 'low level of effectiveness' in any IO           |

India  has  been  placed  in  the Regular Follow-up category,  indicating  that  its  AML/CFT  framework  is robust and aligned with international standards. Regular follow up is the best possible outcome of Mutual Evaluation.

## 4. Global Comparisons

As per  the  FATF  Mutual  Evaluation  reports, 12 out  of  38  member  countries  are  in  regular  follow  up category including  India (Russia had  received Regular  follow up rating  but its FATF membership has been suspended). UK, France and Italy are among the only G-20 countries which have been placed in this  category apart from India. Even major G7 countries like USA, Canada, Germany, Japan etc. have been placed under Enhanced Follow up category. This reflects India's strong position among the leading global economies with a strong AML/CFT regime.

## The manner in which the country continuously engaged with FATF

India  maintains  continuous  and  active  engagement  with  FATF.  India  participates  in  all  FATF working group meetings, contributing to policymaking and technical discussions. It is an active member of  the Asia/Pacific  Group  on  Money  Laundering (APG)  and  the Eurasian  Group  on  Combating Money Laundering and Terrorist Financing (EAG),  both  of  which  are  FATF-style  regional  bodies (FSRBs).

2. Progress of grey list countries is reviewed in the Joint Group. India is an active member of Asia Pacific Joint Group (APJG), Europe/Eurasia Middle East Joint Group (EEMEJG). India's contributions extend beyond participation, as it regularly provides experts for FATF mutual evaluations and assessment processes. In an upcoming on-site visit of Africa Joint Group to Mali, India is also providing an expert as lead reviewer. India  plays  a  leadership  role  within  FATF  structures,  with  its  Head  of  Delegation  (HOD)  serving  as  a member of the FATF Steering Group, which is responsible for high-level decision-making. Additionally, India serves as a co-lead in the Training Project Team, ensuring global AML/CFT capacity building and knowledge  sharing.  India  also  holds  the  co-chair  position  in  the  Risk  Trends  and  Methods  Group (RTMG), a  working  group  responsible  for  identifying  and  analyzing  emerging  money  laundering  and terrorist  financing  risks  worldwide.  India  has  been  involved  in  the  work  of  various  project  teams including National Risk Assessment Project team, Asset Recovery Project team, Virtual Assets Project team, Online Child Sexual Exploitation Project team, Cyber enabled Fraud Project team etc. India  has  further  strengthened  its  engagement  with  FATF  by  hosting  multiple  FATF-related  meetings, reinforcing  its  leadership  role  in  the  global  AML/CFT  community.  The  following  table  highlights  the

events hosted by India:

| Event Name                                                                                      | Date                                 | Location   |
|-------------------------------------------------------------------------------------------------|--------------------------------------|------------|
| Country training on Effectiveness of FATF recommendations by FATF/APG/EAG for Mutual Evaluation | 14 th -16 th March, 2023             | New Delhi  |
| FATF Joint Experts Meeting (JEM)                                                                | 3 rd - 6 th April, 2023              | New Delhi  |
| APJG Meeting                                                                                    | 7 th - 8 th September, 2023          | New Delhi  |
| APG Annual Typologies &Capacity Building Workshop                                               | 28 th November - 1 st December, 2023 | New Delhi  |
| 41 st EAG Plenary                                                                               | 25 th - 29 th November, 2024         | Indore, MP |

3. There  are  some  upcoming  events  which  will  be  hosted  by  India  such  as  FATF  Private  Sector Collaboration Forum (PSCF) meeting which will take place in Mumbai from 25 th to 27 th March, 2025 and FATF Joint Assessors Training (JAT) which will take in New Delhi from 7 th to 11 th April 2025.
4. Beyond  formal  engagements,  India's  HOD  actively  interacts  with  FATF  member  jurisdictions during  plenary  meetings,  fostering  diplomatic  relations  and  building  a  strong  and  positive  reputation among  the  global  AML/CFT  community.  India  also  ensures  consistent  communication  with  FATF through  regular  video  conference  (VC)  meetings,  further  strengthening  its  ongoing  coordination  and cooperation. Furthermore, India extends its expertise and support to neighboring countries by providing capacity building and technical assistance, thereby advancing FATF's mandate and reinforcing regional AML/CFT frameworks.

FINANCIAL YEAR WISE TOTAL FDI INFLOW April, 2000 to December, 2024

|   S. No. | Financial Year              | Total FDI Inflow (in USD Million)   |
|----------|-----------------------------|-------------------------------------|
|        1 | 2000-01                     | 4,029                               |
|        2 | 2001-02                     | 6,130                               |
|        3 | 2002-03                     | 5,035                               |
|        4 | 2003-04                     | 4,322                               |
|        5 | 2004-05                     | 6,051                               |
|        6 | 2005-06                     | 8,961                               |
|        7 | 2006-07                     | 22,826                              |
|        8 | 2007-08                     | 34,843                              |
|        9 | 2008-09                     | 41,873                              |
|       10 | 2009-10                     | 37,745                              |
|       11 | 2010-11                     | 34,847                              |
|       12 | 2011-12                     | 46,556                              |
|       13 | 2012-13                     | 34,298                              |
|       14 | 2013-14                     | 36,046                              |
|       15 | 2014-15                     | 45,148                              |
|       16 | 2015-16                     | 55,559                              |
|       17 | 2016-17                     | 60,220                              |
|       18 | 2017-18                     | 60,974                              |
|       19 | 2018-19                     | 62,001                              |
|       20 | 2019-20                     | 74,391                              |
|       21 | 2020-21                     | 81,973                              |
|       22 | 2021-22                     | 84,835                              |
|       23 | 2022-23                     | 71,355                              |
|       24 | 2023-24                     | 71,279                              |
|       25 | 2024-25 (up-to December 24) | 62,483                              |

## Annexure-III

As a macro-prudential regulator, RBI prescribes the following major prudential regulations for NBFCs:

-  Capital adequacy for credit risk (for all NBFCs), market risk (only for SPDs) and operational risk (not  insisted)  to  ensure  availability  of  requisite  regulatory  capital  to  ensure  financial  resilience  of NBFCs,
-  Income Recognition, Asset Classification and Provisioning (IRACP) norms to provide for stress in account. In case of NBFCs implementing Indian Accounting Standards, these norms act as prudential floor.
-  Exposure  norms  (including  large  exposure  framework  for  NBFC-UL)  to  address  risks  emanating from concentration of credit/ investment,
-  Regulatory  restrictions  viz.,  Loan  to  Value  prescriptions,  etc.,  to  ensure  availability  of  adequate collateral for secured loans,
-  Liquidity  risk  management  framework  to  address  ALM  risks  and  LCR  prescriptions  under  an extreme market meltdown scenario to ensure that NBFCs have requisite liquid assets to fulfil their committed obligations to customers, lenders and other stakeholders.

With respect to business conduct related aspects, RBI prescribes the following major conduct regulations for NBFCs:

-  Know Your Customer/ Anti Money Laundering/ Countering Financial of Terrorism provisions as per the provisions of PMLA and Rules made thereunder,
-  Corporate  Governance  norms  viz.,  prior  approval  for  change  in  control/  management,  Board Committees, appointment of Chief Risk Officer, restrictions on exposures to directors/ relatives of directors, compensation framework, detailed disclosure norms, etc., to ensure the NBFCs function in the  interests  of  stakeholders/  customers  and  management  of  NBFCs  is  not  detrimental  to  public interest,
-  Fair Practices Code to improve and fairness and transparency in operations of NBFCs for sustainable development of NBFC sector,
-  Customer  Protection initiatives viz.,  Grievance  Redressal  Mechanism,  Ombudsman  Scheme, customer awareness campaigns, etc., to improve fairness and transparency in operations of NBFCs and educating customers on financial aspects.

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