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Indian banks cannot outsource core functions: RBI

Our Bureau

Mumbai , Dec 7

INDIAN banks cannot outsource core banking functions including management of investment portfolio.

According to the guidelines on outsourcing of banking activities issued by the Reserve Bank of India today, banks also cannot outsource the work of deciding whether a person is eligible to open a deposit account as per the RBI's know-your-customer norms.

The draft guidelines said banks cannot outsource core management functions such as corporate planning, organisation, management and control and decision-making functions and loan sanctioning.

According to bankers these guidelines would not hamper deposit mobilisation. While banks do use sales force for garnering deposits, the norms for opening accounts are decided by bank employees, said a senior official from a private bank. "We anyway segregate marketing functions from know-your-customer functions," he said.

RBI also said that outsourcing does not diminish the bank's obligations to customers. Banks should not engage in outsourcing activities that would weaken their internal control or compromise their business conduct or reputation.

In case of offshore outsourcing, prior approval from RBI is necessary, the guideline said. This would expose the bank to risk as the conditions and events in a foreign country may adversely affect the bank.

To manage the country risk, banks should have appropriate contingency and exit strategies in place. Banks cannot outsource to a country where it does not have a branch.

Banks should also notify RBI in case any overseas authority seeks access to customer information, the guideline said.

This clause may affect banks that have overseas operations. But the impact may not be as much, as most banks have centralised back offices in India, said bankers. The guidelines also assign the responsibility of formulating a policy framework and periodic review of the outsourcing procedure on the bank's board and senior management.

Customers must get a time limit of 60 days for preferring their complaints and grievances related to outsourced activities, RBI said.

The grievance redressal procedure of the bank should fix a time frame for responding to the complaint and should be placed on the bank's Web site, RBI said.

Related Stories:
RBI officers' body opposes outsourcing
RBI plans norms for outsourcing banking activities
`Outsourcing banking work carries a hidden price'
IBA panel to discuss outsourcing norms next week

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