Outsourcing Of Financial Services: RBI Raises Concerns Over Non-transparency In Digital Transactions
Money & Banking
The Reserve Bank of India (RBI) has raised concerns regarding non-transparency in transactions and violation of extant guidelines on outsourcing of financial services and Fair Practices Code vis-a-vis digital delivery in credit intermediation by banks and non-banking finance companies (NBFCs).
In this regard, the RBI has directed banks and NBFCs that have engaged digital lending platforms as their agents to follow its instructions, including disclosing the names of the platforms engaged as agents on their websites, and ask the agents to disclose upfront to the customer the name of the bank/ NBFC on whose behalf they are interacting with him.
Loan agreement
As per instructions, banks and NBFCs must engage digital lending platforms as their agents to source borrowers and/ or to recover dues immediately after sanction but before execution of the loan agreement, and the sanction letter shall be issued to the borrower on the letter head of the bank/ NBFC concerned.
A copy of the loan agreement, along with a copy each of all enclosures quoted in the loan agreement, should be furnished to all borrowers at the time of sanction/ disbursement of loans.
“Effective oversight and monitoring shall be ensured over the digital lending platforms engaged by the banks/ NBFCs.
“Adequate efforts shall be made towards creation of awareness about the grievance-redressal mechanism,” the RBI said.
The RBI underscored that outsourcing of any activity by banks/ NBFCs does not diminish their obligations, as the onus of compliance with regulatory instructions rests solely with them.
The central bank observed that lending platforms tend to portray themselves as lenders without disclosing the name of the bank/ NBFC at the backend, as a consequence of whichcustomers are not able to access grievance redressal avenues available under the regulatory framework.
“Although digital delivery in credit intermediation is a welcome development, concerns emanate from non-transparency of transactions and violation of extant guidelines on outsourcing of financial services and Fair Practices Code issued to banks and NBFCs,” the RBI said.
Hence, the central bank reiterated that banks and NBFCs, irrespective of whether they lend through their own digital lending platform or through an outsourced lending platform, must adhere to the Fair Practices Code guidelines in letter and spirit. They must also meticulously follow regulatory instructions on outsourcing of financial services and IT services, it added.
Violation of norms
The RBI warned that any violation of its ‘Loans Sourced by Banks and NBFCs over Digital Lending Platforms: Adherence to Fair Practices Code and Outsourcing Guidelines’ by banks and NBFCs (including NBFCs registered to operate on ‘digital-only’ or on digital and brick-mortar channels of delivery of credit) will be viewed seriously
Published on
June 24, 2020
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The Reserve Bank of India (RBI) has raised concerns regarding non-transparency in transactions and violation of extant guidelines on outsourcing of financial services and Fair Practices Code vis-a-vis digital delivery in credit intermediation by banks and non-banking finance companies (NBFCs).
In this regard, the RBI has directed banks and NBFCs that have engaged digital lending platforms as their agents to follow its instructions, including disclosing the names of the platforms engaged as agents on their websites, and ask the agents to disclose upfront to the customer the name of the bank/ NBFC on whose behalf they are interacting with him.
Loan agreement
As per instructions, banks and NBFCs must engage digital lending platforms as their agents to source borrowers and/ or to recover dues immediately after sanction but before execution of the loan agreement, and the sanction letter shall be issued to the borrower on the letter head of the bank/ NBFC concerned.
A copy of the loan agreement, along with a copy each of all enclosures quoted in the loan agreement, should be furnished to all borrowers at the time of sanction/ disbursement of loans.
“Effective oversight and monitoring shall be ensured over the digital lending platforms engaged by the banks/ NBFCs.
“Adequate efforts shall be made towards creation of awareness about the grievance-redressal mechanism,” the RBI said.
The RBI underscored that outsourcing of any activity by banks/ NBFCs does not diminish their obligations, as the onus of compliance with regulatory instructions rests solely with them.
The central bank observed that lending platforms tend to portray themselves as lenders without disclosing the name of the bank/ NBFC at the backend, as a consequence of whichcustomers are not able to access grievance redressal avenues available under the regulatory framework.
“Although digital delivery in credit intermediation is a welcome development, concerns emanate from non-transparency of transactions and violation of extant guidelines on outsourcing of financial services and Fair Practices Code issued to banks and NBFCs,” the RBI said.
Hence, the central bank reiterated that banks and NBFCs, irrespective of whether they lend through their own digital lending platform or through an outsourced lending platform, must adhere to the Fair Practices Code guidelines in letter and spirit. They must also meticulously follow regulatory instructions on outsourcing of financial services and IT services, it added.
Violation of norms
The RBI warned that any violation of its ‘Loans Sourced by Banks and NBFCs over Digital Lending Platforms: Adherence to Fair Practices Code and Outsourcing Guidelines’ by banks and NBFCs (including NBFCs registered to operate on ‘digital-only’ or on digital and brick-mortar channels of delivery of credit) will be viewed seriously
Published on
A letter from the Editor
Dear Readers,
The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill.
In these difficult times, we, at BusinessLine, are trying our best to ensure the newspaper reaches your hands every day. You can also access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute.
But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.
I appeal to all our readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. You can help us by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section.
Our subscriptions start as low as Rs 199/- per month. A yearly package costs just Rs. 999 – a mere Rs 2.75 per day, less than a third the price of a cup of roadside chai..
A little help from you can make a huge difference to the cause of quality journalism!
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