New rules to make NBFCs more accountable

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The Reserve Bank of India (RBI) has proposed norms to regulate outsourcing of services by non-banking financial companies (NBFCs), making them accountable for actions of their service provider, including direct sales agents (DSAs).

The central bank intends to prescribe norms as NBFCs outsourcing various activities are exposed to various risks. NBFCs will be responsible for the actions of DSAs, as well as direct marketing agents and recovery agents. They would also be responsible for the confidentiality of the information about customers available with the service provider concerned.

RBI has invited comments on the draft guidelines, which tells NBFCs to retain ultimate control of the outsourced activity.

NBFCs should not outsource core management functions including internal audit, compliance function and decision-making functions like determining compliance with Know-Your-Customer norms for opening deposit accounts, and sanction for loans and management of investment portfolio. Moreover, service providers should not be located outside India, said RBI.

According to the central bank, outsourcing arrangements should not affect the rights of a customer against the NBFC, including the ability to obtain redress as applicable under relevant laws.

NBFCs need to also have a robust grievance redress mechanism, which in no way should be compromised on account of outsourcing.

The RBI said an NBFC intending to outsource any of its financial activities should put in place a comprehensive outsourcing policy, approved by its board.

According to the RBI the outsourcing of any activity by NBFC does not diminish its obligations, and those of its board and senior management, who have the ultimate responsibility for the outsourced activity.