RBI Releases Updated Guidance Note for Banks and NBFCs

The Reserve Bank of India (RBI) has expanded its “guidance note” on operational risk management for non-banking financial companies (NBFCs), which includes housing finance companies, and revised it for the financial sector. Only commercial banks were covered under the 2005 “Guidance Note on Management of Operational Risk.”

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RBI Emphasizes Robust ICT Risk Management

In accordance with its operational risk management framework, the RBI advised all regulated enterprises (REs) in India to put in place a comprehensive information and communication technology (ICT) risk management strategy.

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In its advice note, the Reserve Bank stated that “REs should manage their dependencies on relationships, including those of, but not limited to, third parties (which include intragroup entities) for the delivery of critical operations.”

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According to the central bank, every regulated entity in India needs to put in place a strong information and communication technology (ICT) risk management strategy that is in line with their operational risk management framework.

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The Reserve Bank stated, “REs should manage their dependencies on relationships for the delivery of critical operations, including those of, but not limited to, third parties (which include intragroup entities).”

RBI Mandates Risk Assessment and Due Diligence for Third-Party Arrangements by REs

It stated that before making any agreements with outside parties or third parties, all REs have to conduct a risk assessment and due diligence. The RBI further stated that the REs should confirm whether the third party, including the intragroup entity to these arrangements, had at least the same level of operational resilience to protect the RE’s vital activities in both regular and emergency situations.

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RBI Stresses Response and Recovery Plans for Critical Operations Disruption

In accordance with their risk appetite and disruption tolerance, REs should create and implement response and recovery plans to handle events that might prevent the delivery of essential services, according to the central bank. According to the RBI, REs should constantly enhance their incident response and recovery strategies by implementing the knowledge gained from prior occurrences.