Outsourcing Policy for Cooperative Banks[i]
The Reserve Bank of India recently, through its circular dated 28.06.2021 asked cooperative banks to ensure that outsourcing policy does not diminish the ability to fulfill its obligations to customers and Reserve Bank of India. The policy should not delay effective supervision by the RBI or NABARD.
Cooperative banks therefore have to take steps to ensure that the service provider employs the same high standard of care in performing the services as would be employed by them if activities were conducted by the banks and not outsourced. Cooperative banks should not engaged in outsourcing that would result in their internal control, business conduct being compromised.
In the new guidelines released by the RBI for “Managing risk outsourcing of financial services by cooperative banks”. A cooperative banks intending to outsource any of its financial activities should put in place a comprehensive outsourcing policy. The policy requires bank to put in place certain criteria for selection of such activities as well as service providers for defining material outsourcing based on the broad criteria, a delegation of authority depending on risk and materiality and a system to monitor and review the operation of activities.
The RBI clarified that the board and CEO along with the senior management shall be responsible for outsourcing operations and for managing risks inherent in such outsourcing. Cooperative banks should undertake the due diligence process to assess the capability of the service provider to comply with obligations in the outsourcing agreements. The RBI emphasised that the cooperative banks that choose to outsource financial services, should not outsource core management functions or services including policy formulation, internal audit, KYC norms, portfolio investment an credit sanctioning.
During inspections, the RBI/NABARD will review the implementation of these guidelines to assess the quality of related risk management system particularly in respect to material outsourcing. Also, the grievance redressal of mechanism of cooperative banks should not be compromised on account of outsourcing. The outsourcing policy should not anyhow affect the rights of the customer.[ii]
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.
[i] The Reserve Bank of India, Guidelines for managing risk in outsourcing of financial services by cooperatives banks, Also available at: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12123&Mode=0
[ii] Gopika Gopalkumar, RBI Announce New Outsourcing Policy for cooperative Banks, (Accessed: 01st July, 2021 11:30 am), Available at: https://www.livemint.com/economy/rbi-announces-new-outsourcing-policy-for-cooperative-banks-11624900205346.html
