The Reserve Bank India (RBI) will soon issue directions related to outsourcing of financial activities by lenders, it said in the Statement on Developmental and Regulatory Policies release on August 5. The paper will be floated for consultation shortly, the regulator said after announcing a 50 basis point (bp) repo rate hike.
Regulated entities such as banks and non-banking finance companies and housing finance companies among others were increasingly using outsourcing as a means for reducing costs, as well as for availing expertise not available internally, the RBI noted.
Although outsourcing of a permissible activity is an operational decision of the lender, it exposes them to various risks, the central bank added.
“With a view to update and harmonise the extant guidelines, adopt and incorporate global best practices as also enable REs (regulated entities) to have all current instructions on outsourcing of financial services at one place for reference, the RBI proposes to issue draft Reserve Bank of India (Managing Risks and Code of Conduct in Outsourcing of Financial Services) Directions, 2022, for public comments shortly,” the central bank said.
Importantly, the scope of these directions is now also being expanded to include regional rural banks, local area banks, all Indian financial institutions, credit information companies, and non-scheduled payments banks among others.
On July 15, Moneycontrol reported that the central bank will likely announce new regulations for fintech companies with respect to various aspects including credit operations and know your customer (KYC) norms.
The RBI scrutiny comes at a time when lenders are even being barred from onboarding new customers due to non-compliance with data privacy and cybersecurity norms.
The central bank had on March 11 barred Paytm Payments Bank from onboarding new customers due to several reasons including violation in following norms related to Know Your Customer (KYC). The RBI is yet to remove the ban on lender from onboarding new customers.
Further, the RBI had also barred India’s largest private lender HDFC Bank from offering new digital offerings in 2021, and the ban was lifted only in 2022. The bank, however, did not witness any data breach in the last 4 years, its Chief Information Security Officer Sameer Ratolikar told Moneycontrol on August 4.
Extending internal ombudsman scheme
In a separate development, the RBI also said it will bring Credit Information Companies (CICs) also under the ambit of the Reserve Bank-Integrated Ombudsman Scheme (RB-IOS) 2021.
The scheme covers REs such as scheduled commercial banks including urban cooperative banks, non-banking financial companies (NBFCs), and non-scheduled primary co-operative banks with a deposit size of over Rs 50 crore, the RBI said.“This will provide a cost-free alternate redress mechanism to customers of REs for grievances against CICs. Further, with a view to strengthen the internal grievance redress of the CICs and to make it more efficient, it has also been decided to bring the CICs under the Internal Ombudsman (IO) framework,” the central bank said.