RBI plans to bar NBFCs from outsourcing core activities

KOLKATA: The Reserve Bank of India plans to bar non-banking finance companies from outsourcing core activities such as internal auditing of accounts or sanctioning of loans; and proposed to bring other outsourced activities within its regulatory ambit.

The regulator said that NBFCs are exposed to risks as they are used outsource various activities from processing loan application to supervision. It has prepared a framework to regulate them and their outsourcing jobs.

“The outsourcing activities are to be brought within regulatory purview to protect the interest of the customers and to ensure that RBI has access to all books, records and information available with service provider,” It said in the draft report. “Outsourcing involves several risks which need to be managed,” RBI said.

This in step with the recommendations of the Financial Sector Legislative Reforms Commission (FSLRC). It has circulated the draft rules seeking market feedback by May 8.

The guidelines are applicable to all NBFCs including core investment companies and primary dealers.

Outsourced financial services typically include applications processing for loan origination and credit card, document processing, marketing and research, supervision of loans, data processing and back office related activities.

“Should an NBFC, in its own judgment, decide to outsource a financial services activity, necessary safeguards for addressing the risks inherent in such outsourcing should be put in place, RBI said.

It has made NBFCs responsible for all the actions of their direct sales agents or recovery agents and the confidentiality of information pertaining to the customers that is available with the service provider.

It told NBFCs to prepare a grievance redress mechanism for customers.