India’s Banking Sector Confronts Compliance Challenges

RBI Crackdown Highlights Regulatory Shortcomings

The Reserve Bank of India’s (RBI) recent crackdown on fintech giants like Paytm and non-banking financial companies (NBFCs) such as JM Financial and IIFL has shed light on the pressing need for improved compliance within the sector. A thorough examination reveals a multitude of regulatory shortcomings, governance concerns, and compliance issues affecting various financial entities.

Regulatory Non-Compliance: A Pressing Issue

The RBI’s findings indicate that numerous banks, NBFCs, and fintech players have breached several compliance standards or regulations. These violations include:

Know your customer (KYC) norms
Money laundering
Reporting frauds
Digital lending guidelines
Connected lending norms
Data security
Privacy regulations

Experts Emphasize the Importance of Regulatory Frameworks

Industry experts emphasize the importance of recognizing the significance of regulatory frameworks and the risks associated with compliance failures.

“RBI’s stance is one of zero tolerance for non-compliant behavior, with the central bank imposing fines and penalties on defaulters,” says Sandeep Agrawal, Co-founder and Director of TeamLease Regtech, a compliance management software company.

Increasing Compliance Sensitization

Agrawal suggests that there is an urgent need to increase compliance sensitization across local branches and regional offices. Companies must implement and adopt the digitization of internal processes that can monitor their activities.

“Banks can cultivate a culture where compliance is not seen as a burden but as a shared responsibility and a competitive advantage,” says Nagaraj Krishnan, Managing Director of Aparajitha Corporate Services.

The Role of Technology in Compliance

Experts agree that the complexity of the regulatory ecosystem requires thousands of obligations to be complied with. Manual, ad-hoc systems have been causing delays, lapses, and defaults, with compliance teams failing to keep up with pending, ongoing, and upcoming compliances.

“Financial institutions must incorporate technology and create a culture of compliance,” Agrawal stresses.