Category II Authorised Dealers have been given certain additional powers vide RBI circular dated 4th April 2012 on the subject. They have now been allowed to issue forex pre-paid cards to residents travelling out of India on personal/ business visits subject of course to adhering to KYC norms. However the settlement of forex pre-paid cards can be made only through category I Authorised Dealers.
Further they have also been allowed to open Nostro accounts subject to some conditions such as (1) only one nostro account per currency, (2) Balances in the nostro accounts to be used only for making remittances which are permissible and not for settlement of forex pre-paid cards, which can be done only through Category I Authorised Dealers, (3) No idle balance should remain in the account (4) Reporting requirements.
Category II authorised dealers are travel agents such as Thomas Cook, Cox & Kings and other finance companies which are not banks.
Copy of the RBI circular can be found here
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