Time NBFCs adopt digital processes to meet compliance obligations

It may sound preposterously unbelievable but the fact is that there are over 200 industry-specific compliance requirements for an NBFC, operating at a single location within India. These compliances include maintenance of records, returns and filings under the Prevention of Money Laundering Act, 2002, Prevention of Money Laundering (Maintenance of Records) Rules, 2005, and RBI Guidelines on Fair Practices Code for NBFCs, among others. That's not all. A company operating in a single state must go about around 621 compliances that involve more than 35 one-time registrations and approvals. As an institution keeps growing, the number of applicable compliances also rises in conjunction with geographical footprint. In 2022, for instance, RBI alone issued more than 27 regulatory updates specific to NBFC sector. This significant number of regulatory updates creates a compliance universe that is highly fluid. As NBFCs expand their businesses, ad-hoc, paper-based and people-dependent processes fail to scale. These are notwithstanding the fact that the NBFC sector is one of Indian economy's key drivers of growth. It serves a section of society that is not usually catered to by commercial banks.

Mind you that there are over 9000 registered NBFCs in India that provide credit services to the underserved sections. These institutions have been instrumental in deepening credit to the under-banked and the unbanked sections of society. The industry has witnessed remarkable success in vehicle, housing and microcredit services. Despite its bullish prospects, the TeamLease report highlights that compliance management remains a massive challenge in the absence of an accurate and updated list of applicable compliances. The irony is, if one goes by the recent survey by TeamLease Regtech, a mindboggling 94 per cent of compliance officers at NBFCs believe that they don't have the required visibility and control in their organization's compliance programme. For all practical purposes, compliance management remains a big challenge due to the non-availability of the updated list of applicable compliance.

Going by the TeamLease survey, nearly 92 per cent of the surveyed NBFCs agreed that they had missed out on one critical compliance or the other during the 12-month period. Companies need to adopt digital processes that can help them create a transparent, accountable and timely compliance environment. Only by adopting such digital processes can they stay on the right side of the law. The Centre must come up with some steps and actions that will allow these companies to effectively manage their compliance obligations by adopting digital processes.

It is time that a compliance checklist that acts as a baseline is created. This needs to be assessed and reviewed at regular intervals in order to establish a robust compliance culture within the entity. The government must proactively initiate some moves that result in a transparent, timely and traceable culture of compliance which, in turn, helps enhance the level of corporate governance, in addition to a digitized solution that has transformed compliance processes.