RBI has mandated NBFC to formulate various policies like KYC Policy, IT Policy, Fair practice code, etc. and be governed by those policies while operating its business operations.
The NBFC once formulate the policy must follow the same in its normal business practices.
These policies are mandated by RBI on NBFC, to reduce the chances of fraud and bring more transparency in all the transactions done by NBFC.
Information Technology (IT) Policy
As the scope of the IT framework has been increasing day by day in the NBFC sector, RBI has mandated to formulate an IT Policy for every NBFC, which must be approved by the Board of the NBFC.
The Reserve bank of India has categorized the directions for formulation of IT Policy in two parts for Systematically important NBFC and Non Systematically important NBFC. That framework must be kept in mind while formulating the IT Policy by the concerned NBFC.
Know Your Customer (KYC) Policies and Anti Money Laundering (AML) Measures
RBI has mandated every NBFC to formulate the KYC Policy framework and Anti Money Laundering Measures and get it approved by the Board of the NBFC.
KYC policy includes elements like Customer acceptance Policy, Customer identification procedures, etc.
The NBFC must comply with the KYC Policy and AML Measures and must ensure that the KYC information obtained from the customer must be kept confidential and also all the processes followed by the NBFC must ensure that no transaction will lead to any kind of money laundering.
Fair Practice Code (FPC) of NBFC
Every NBFC must formulate the fair practice code of the company which must be approved by the Board of the company.
The fair practice code includes the general principles on adequate disclosures on the terms and conditions of a loan and also adopting a non-coercive recovery method.
The Fair practice code of the company must be reviewed every year by the board of the company and the company must ensure to follow the operation in consonance with the fair practice code of the NBFC.
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Is it mandatory for NBFC to get the policies approved by the board as formulated by the Company?
Yes, RBI has mandated that almost all the policies formulated by NBFC must be approved by the Board.
What If the NBFC does not formulate the mandatory policies as prescribed by RBI?
In that case, RBI may ask the NBFC to formulate the policy and also take action for non-formulation of the required policy including the cancellation of COR.
What If the NBFC formulates the mandatory policies as prescribed by RBI but does not comply with the same?
The NBFC must operate its business according to the policies as formulated by the company, in case of failure, the RBI has the power to take action against the company including the cancellation of COR.
Can NBFC make changes in the policies once framed and approved by the Board of the company?
Yes, the NBFC can make changes in the policies provided it must be approved by the board post changes are made.
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