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The Apex bank regulator of India, the Reserve Bank of India (RBI) has taken a out a notification dated 23rd February 2022 which asks a certain class of Non-Banking Finance Companies (NBFCs) to implement core financial services solutions (CFSS) by the end of September of 2025. This is done to provide seamless customer interface and have a centralised data base both for the convenience in offering services to the customers and also for better accounting and regulatory reporting to the concerned authorities.
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It is said in the circular that the core financial services solutions are similar to that of core banking solutions adopted by the banks. So, following are the services which are provided under CFSS:
RBI has NOT made it mandatory for the implementation of CFSS for the NBFC – Base Layer and NBFC – Middle and Upper Layers having less than 10 Fixed Point Service Delivery Units.
RBI has decided that only those NBFCs who fall within the NBFCs- Middle layer and NBFCs- Upper layer having 10 or more ‘fixed point service delivery units’ as on 1st October, 2022 are required to implement core financial service solutions by the end of September of 2025.
However, in case of NBFCs-Upper Layer, are mandated to implement Core Banking Financial Services in at least 70% percent of ‘Fixed point service delivery units’ before 30th September, 2024.
However, the circular has provided that these categories of NBFCs who are exempted from implementing Core Financial Services Solutions can implement them for their own benefit although it is not mandatory for them to implement them.
The following compliances need to be made by the NBFCs falling in the above category while implementing Core Financial Services Solutions:
The NBFCs falling in the above category need to furnish a quarterly report on the implementation of CFSS along with the other milestones achieved by them to the RBI starting from the quarter which ends on March 31st, 2023.
NBFC – Middle Layer consist of the following NBFCs:
There are other NBFCs which fall in the category of NBFC – Middle Layer such as core investment companies, infrastructure finance companies, housing finance companies, standalone primary dealers, and infrastructure debt fund – NBFCs.
The NBFC – Upper Layer consist of those NBFCs which have been specifically identified by RBI which require enhanced regulatory requirement. This enhanced regulatory requirement is based on scoring technology and a set of parameters.
A ‘fixed point service delivery unit’ is a place where operations of business activity of non-banking financial corporation are carried out by an NBFC. This place of operations has employees either employed by the NBFC itself or they are outsourced to complete the given operations.
These fixed deposit service delivery units carry uniform signage with name of the NBFC and they operate under the administrative control of the concerned NBFC.
The purpose of introducing core financial services solutions is to increase control of RBI over these non-banking companies by introducing digitisation and computerisation. Based on digitisation of the services offered by these NBFCs, the RBI will be able to better monitor the services provided by them and increase transparency for the depositors. It will also provide them with the necessary convenience in offering their services to their clients. It will help the concerned NBFCs in developing such Management Information System both for their internal functioning and external regulatory requirement. The NBFCs will also be able to manage their accounting records in a better manner.
Prabhat has done his BA LLB (Hons) and has been writing research papers since his law school days. His interest in content writing made him pursue a career in legal research and content writing. His core areas of interest are indirect taxes, finance and real estate.
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