Sheena Ogra , Anirudh Agarwal
April 12, 2023
The Reserve Bank of India (“RBI”) vide notification no. RBI/2023-24/102 dated April 10, 2023, released the RBI (Outsourcing of Information Technology Services) Directions, 2023 (“Directions”) effective from October 1st, 2023, and will be applicable to entities such as the commercial banks, urban co-operative banks, non-banking financial companies, credit information companies, etc. (“Regulated Entities”).
According to the RBI, Regulated Entities have been extensively leveraging Information Technology (“IT”) and IT enabled services to support their business models, products and services offered to their customers. Hence, to mitigate the degree of risks while outsourcing the IT services, these Directions will ensure that the outsourcing arrangements neither diminish the ability of the Regulated Entities to fulfill its obligations towards the customers nor impede effective supervision by the RBI.
The following are some of the key provisions enumerated under the Directions:
Apart from the aforesaid provisions, the central bank also delved into the provisions pertaining (including but not limited) to cross-border outsourcing, exit strategy, risk management, evaluation and engagement of the service providers, etc. Furthermore, under the Directions by way of appendix, the RBI has also shared an indicative list of the services which do not fall under the ambit of the outsourcing of the IT services along with the list of the vendors/entities who are not considered as third-party service providers.
Keeping in mind the exponential growth of the fintech industry and the constant efforts hammered into by our Hon’ble Prime Minister, towards making India the hub for digital innovation, the steps taken by the RBI towards regulating the financial sector entities in terms of outsourcing of IT services is a step in the right direction. It is interesting to note that the Directions encompasses a comprehensive list of the provisions that are required to be incorporated under the outsourcing agreement. Nonetheless, the RBI has given adequate time to the Regulated Entities to re-visit their outsourcing arrangements and comply with the requirements enclosed under the Directions.
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