RESERVE Bank’s regulation on outsourcing of IT services by banking sector entities is aimed at improving corporate governance and will protect the interest of consumers, say industry experts. The Reserve Bank of India (RBI) has recently come out with detailed norms for the outsourcing of IT services by banks, NBFCs and other regulated financial sector entities to ensure that such arrangements do not undermine their responsibilities and obligations to customers.

These norms came in the backdrop of the current practice of regulated entities (REs) of extensively leveraging IT and IT-enabled services (ITeS) to support their business models and also the products and services being offered to customers. Commenting on the Master Direction issued by the Reserve Bank of India on ‘Outsourcing of Information Technology Services’, Monish G Chatrath, Managing Partner, MGC Global Risk Advisory LLP, said, “Strong corporate governance practices and comprehensive risk management frameworks are aspects that are imperative to enhance the resilience of the BFSI sector in India. This is a significant development that is in the best interests of the consumers.” He further said the directions have brought under purview those IT & ITeS tasks that have the potential to significantly impact the business operations of regulated entities in the event of a disruption or compromise and those that can have material impact on the customers of the regulated entities in the event of any unauthorised access, loss or theft of customer information.

The Master Direction on ‘Outsourcing of Information Technology Services’ will come into effect from October 1, 2023. The Reserve Bank of India said the underlying principle of the Master Direction is to ensure that outsourcing arrangements neither diminish REs’ ability to fulfil its obligations to customers nor impede effective supervision by the RBI. Siddhartha Tipnis, Partner, Deloitte India, said the RBI’s directives provide key foundational broad strokes to regulated entities for managing technology outsourcing relationships.