NBFC body advises members to strengthen KYC norms, risk management practices

also highlighted that the members should take any suggestion or action from the regulator on highest priority and suitable action should be taken within the prescribed time frame.

Finance Industry Development Council (FIDC), a representative body of non-banking financial companies (NBFCs) in India, on March 11 advised its members to firm up their know your customer (KYC) norms and risk management practices.

“All norms relating to KYC/AML should be followed by all our members. There should not be a short cut or an attempt to circumvent these most important norms in any manner,” FIDC said in a release.

The advisory comes in the backdrop of action by the Reserve Bank of India (RBI) against NBFCs like JM Financials and IIFL Finance.

Also read: Concerns over asset quality, risk management may have prompted RBI's crackdown on NBFCs: Experts

Additionally, it said that member NBFCs should have appropriate risk management frameworks in place. “While each NBFC should have the flexibility to define its own financial risk appetite as decided by their boards, appropriate risk management frameworks must be in place and reviewed periodically. The members must ensure that there is zero risk appetite on regulatory matters. Appropriate processes for monitoring the end use of loans must be put in place.”

It also highlighted that the members should take any suggestion or action from the regulator on highest priority and suitable action should be taken within the prescribed time frame.

Recent actions on NBFCs

On March 5, the central bank barred JM Financial Products from issuing loans against shares and debentures, including sanctioning and disbursing loans against the Initial Public Offering (IPO) of shares. In addition, some media reports said the Securities and Exchange Board of India (Sebi) will come out soon with an order on JM Financial Products for its alleged role in inflating its IPO price.

Also read: NBFC body urges RBI to re-evaluate risk weight norms for bank loans

A day earlier, the RBI asked IIFL Finance to stop sanctioning or disbursing gold loans with immediate effect, noting "supervisory concerns" in the company's gold loan portfolio.

On January 31, the RBI imposed business restrictions on Paytm Payments Bank, citing repeated violations of norms and non-compliance with multiple rules. On November 15, the RBI directed Bajaj Finance to stop sanctioning and disbursing loans under its two lending products, ‘eCOM’ and ‘Insta EMI Card’, with immediate effect.