Skip to main content

RBI updates guidance note on operational risk management, extends it to NBFCs

By

 

The Reserve Bank of India on Tuesday updated its "guidance note" on operational risk management for the financial sector, and also extended it to the NBFCs, including housing finance companies. The 2005 'Guidance Note on Management of Operational Risk' covered only commercial banks.The Reserve Bank of India (RBI) said an operational disruption can threaten the viability of a regulated entity (RE), impact its customers and other market participants, and ultimately have an impact on financial stability. It can result from man-made causes, Information Technology (IT) threats, geopolitical conflicts, business disruptions, internal/external frauds, execution/delivery errors, third-party dependencies, or natural causes. The latest 'Guidance Note on Operational Risk Management and Operational Resilience' aligns with the RBI's regulatory guidance with the Basel Committee on Banking Supervision (BCBS) Principles, the central bank said. The guidance note intends to promote and further improve the effectiveness of operational risk management of the REs, and enhance their operational resilience given the interconnections and interdependencies, within the financial system, that result from the complex and dynamic environment in which the REs operate.

 

One of the key changes carried out in the updated guidance note is that its applicability has been extended to all non-banking financial companies (NBFCs) -- including housing finance companies -- co-operative banks, and financial institutions, in addition to commercial banks.The 2005 guidance note, which has now been repealed, was applicable to only scheduled commercial banks. The new note explicates the "three lines of defence model" wherein business unit forms the first line of defence, organisational operational risk management function forms the second line, and audit function forms the third line of defence. It has separate principles for mapping of internal and external interconnections and interdependencies, incident management, ICT, and disclosures. The note also introduces separate principles on "lessons learned exercise" and continuous feedback mechanism. Until recently, the predominant operational risks that REs faced emanated from vulnerabilities related to increasing dependence and rapid adoption of technology for provision of financial services and intermediation. However, the financial sector's growing reliance on third-party providers exacerbated by the Covid-19 pandemic with greater reliance on virtual working arrangements, has highlighted the increasing importance of operational risk management and operational resilience.

 

 

 

- The Economic Times  01thMay, 2024

Comments

Post a Comment

Popular posts from this blog

RBI deputy governor cautions fintech platform lenders on privacy concerns during loan recovery

By
  India's digital lending infrastructure has made the loan sanctioning system online. Yet, loan recovery still needs a “feet on the street” approach, Swaminathan J, deputy governor of the Reserve Bank of India, said at a media event on Tuesday, September 2, according to news agency ANI.According to the ANI report, the deputy governor flagged that fintech operators in the digital lending segment are giving out loans to customers with poor credit profiles and later using aggressive recovery tactics.“While loan sanctioning and disbursement have become increasingly digital, effective collection and recovery still require a 'feet on the street' and empathetic approach. Many fintech platforms operate on a business model that involves extending small-value loans to customers often with poor credit profiles,” Swaminathan J said.   Fintech platforms' business models The central bank deputy governor highlighted that many fintech platforms' business models involve providing sm
Post a Comment
Read more

Credit card spending growth declines on RBI gaze, stress build-up

By
  Credit card spends have further slowed down to 16.6 per cent in the current financial year (FY25), following the Reserve Bank of India’s tightening of unsecured lending norms and rising delinquencies, and increased stress in the portfolio.Typically, during the festival season (September–December), credit card spends peak as several credit card-issuing banks offer discounts and cashbacks on e-commerce and other platforms. This is a reversal of trend in the past three financial years stretching to FY21 due to RBI’s restrictions.In the previous financial year (FY24), credit card spends rose by 27.8 per cent, but were low compared to FY23 which surged by 47.5 per cent. In FY22, the spending increased 54.1 per cent, according to data compiled by Macquarie Research.ICICI Bank recorded 4.4 per cent gross credit losses in its FY24 credit card portfolio as against 3.2 per cent year-on-year. SBI Cards’ credit losses in the segment stood at 7.4 per cent in FY24 and 6.2 per cent in FY23, the rep
Post a Comment
Read more

India can't rely on wealthy to drive growth: Ex-RBI Dy Guv Viral Acharya

By
  India can’t rely on wealthy individuals to drive growth and expect the overall economy to improve, Viral Acharya, former deputy governor of the Reserve Bank of India (RBI) said on Monday.Acharya, who is the C V Starr Professor of Economics in the Department of Finance at New York University’s Stern School of Business (NYU-Stern), said after the Covid-19 pandemic, rural consumption and investments have weakened.We can’t be pumping our growth through the rich and expect that the economy as a whole will do better,” he said while speaking at an event organised by Elara Capital here.f there has to be a trickle-down, it should have actually happened by now,” Acharya said, adding that when the rich keep getting wealthier and wealthier, they have a savings problem.   “The bank account keeps getting bigger, hence they look for financial assets to invest in. India is closed, so our money can't go outside India that easily. So, it has to chase the limited financial assets in the country and
Post a Comment
Read more