NBFCs directed to Implement Core Financial Services Solutions by September 2025 – Doubtlessly, NBFCs play an important role in India’s financial inclusion enterprises, specifically in offering loans and proceeds to credit-underserved parts of the economy. Even though NBFCs are registered under the Companies Act of 1956, they are controlled by the Reserved Bank of India (RBI) under adopted provisions of the RBI Act of 1934. Via a notification dated 23.02.22, the RBI has explained that particular NBFCs must compulsorily execute Core Financial Services Solutions (CFSS). As an outcome, companies that do not presently utilize CFSS platforms will be required to move their NBFC software.
Moreover, the Reserve Bank of India has asked some classes of Non-Banking Financial Companies to compulsorily execute ‘Core Financial Services Solution (CFSS)’ by September 30, 2025, to offer a continuous customer interface as well as have a consolidated database. In the circular, RBI said it has determined that NBFCs of Middle Layer. The upper Layer with 10 or further ‘fixed point service delivery units’ as of October 1, 2022, shall be compulsorily needed to execute CFSS. CFSS is similar to the Core Banking Solution (CBS) adopted by banks.
NBFCs are directed to Implement Core Financial Services Solutions by September 2025
CFSS shall offer for flawless customer interface in digital deals and transactions relating to products and facilities with anywhere or anytime service, allow the combination of NBFCs’ functions, offer centralized database and accounting records, and be capable of creating appropriate MIS, both for internal motives and regulatory reporting,” RBI said. As per the agenda explained in the circular, the two classifications of NBFCs have to execute CFSS on or before September 30, 2025. The notification also explains that ‘A quarterly progress report on the execution of the Core Financial Services Solution, along with different milestones as approved by the Board or Committee of the Board, shall be made by the NBFC to the Senior Supervisory Manager (SSM) Office of Reserve Bank beginning from the quarter ending March 31, 2023.’
In spite of that, NBFC – Upper Layer shall ensure that the CFSS is executed at least in 70 percent of ‘Fixed point service delivery units’ on or before September 30, 2024. In the condition of NBFC – Base Layer and NBFC – Middle and Upper Layers with less than 10 ‘Fixed point service delivery units’, execution of CFSS is not necessary. However, they may think about the execution of a CFSS for their benefit. A ‘Fixed point service delivery unit’ is a space of operation from where the business performance of non-banking financial intervention is carried out by the NBFC and which is manned as a choice by its staff or outsourced agents. Administrative Offices and Back Offices which do not have any straightforward interface with consumers should not be known as a ‘Fixed point service delivery unit’. The notification was not improved, the industry was informed and hoping for such regulations.
This notification would follow to improve the operational success of NBFCs, the goal for a bigger picture of Financial Inclusion. This shall aid in the reminders with the name of the NBFC and functions under the administrative management of the NBFC worries. This circular is an addition to the Scale Based Regulatory framework for NBFCs. The NBFC falling under these groups has to share the execution roadmap and implement it by 2025.
Benefits Of Adopting CFSS
Core financial services solutions will offer the NBFCs the same benefits that CBS has given to the banks. Some main benefits include the following.
- Customers will have trusted service availability all across access points
- Anywhere and anytime, extended service access via digital connections
- CFSS will combine with and accompany other systems of NBFC
- An operating system, centralized database, and management information system (MIS) eases the compatibility of different departments and enhances data analysis abilities
- Reporting becomes effortless with customized reports auto-created according to regulatory formats.
Conclusion
The decision to present CFSS fulfills a dual aim of enhancing the customer experience and improving the operational abilities of NBFCs. NBFCs must also ensure that the CFSS is executed according to the RBI’s existing guidelines in the Master Direction-Information Technology Framework for the NBFC industry and Master Direction – Know Your Customer (KYC) Direction. While the CFSS regulation currently excludes NBFCBase Layer and other NBFCs that do not fall into the asset size and branch number area, it is logical to imagine that these organizations will have to follow the CFSS in the future. The circular does advise that those outside the scope of the norms may embrace CFSS for their operational advantages.
FAQs
What is the time limit for CFSS execution?
The time limit for NBFCs in the middle layer and upper layer to execute CFSS is September 30, 2025.
What is the perspective of CFSS?
The perspective of CFSS is to automate and smooth NBFC operations. This will aid NBFCs in adapting to market transformations and consumer hopes.
What are the advantages of CFSS?
CFSS can enhance clarity, business monitoring, and customer amenities. It can also decrease operational expenses and enhance productivity.
What is the central purpose of the core financial system?
General Ledger Management is the central purpose of the core financial system. The general ledger is the topmost level of summarization and will manage account balances by the accounting categorization elements settled in the core financial system management function.
