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RBI to issue guidelines to regulate banks outsourcing business

The Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday said that the regulator will soon bring in rules to ensure outsourcing of business by banks doesn’t expose them to risks.

The RBI, which has been concerned about financial institutions outsourcing various core activities such as booking fixed deposits, sanctioning buy-now-pay-later loans and credit card onboarding, is looking to ensure that contracting out of services doesn’t lead to abuse by non-regulated entities.

“Regulated entities are increasingly using outsourcing as a means for reducing costs as well as for availing expertise not available internally,” governor Das said after the post-policy announcement. “Although outsourcing of a permissible activity is an operational decision of regulated entities, it exposes them to various risks.”

The regulator has in the past issued several directions to banks, NBFCs and housing finance companies on managing risks in outsourcing of financial services.

The RBI now aims to harmonise all the past guidelines, adopt and incorporate global best practices and enable all entities regulated by it to have all current instructions on outsourcing of financial services at one place for reference.

The central bank will soon issue draft regulations to manage risks and code of conduct in outsourcing of financial services. The draft rules will be open to public comments shortly. The scope of the new directions will be expanded to include regional rural banks, local area banks, all-India financial institutions, credit information companies, and non-scheduled payments banks.

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