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RBI Directed NBFCs to Implement CFSS by September 2025

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RBI Specified NBFCs to implement core financial services solutio

On 23rd February 2022 Reserve Bank of India (RBI) directed certain Non-Banking Financial Companies (NBFCs)  to mandatorily implement ‘Core Financial Services Solution (CFSS)’ by 30th September 2025.

  • Background: In October 2021, RBI introduced the ‘Scale Based Regulation’ (SBR) framework for NBFCs and mandated NBFCs with 10 and more branches to adopt Core Banking Solution with effect from October 01, 2022.

Timeline for implementation of CFSS:

i.As per the framework, currently RBI has directed the NBFCs – Middle Layer and NBFCs – Upper Layer with 10 and more ‘fixed point service delivery units’ as on 1st October 2022 to implement CFSS (similar to the Core Banking Solution (CBS) adopted by banks) on or before September 30, 2025.

  • Special Timeline for NBFC-Upper Layer: NBFC – Upper Layer should implement CFSS at least in 70 percent of ‘fixed point service delivery units’ on or before September 30, 2024.

ii.The implementation of CFSS is not mandatory in NBFC – Base Layer and NBFC – Middle and Upper Layers with fewer than 10 fixed point service delivery units.

About Core Financial Services Solution (CFSS):

CFSS shall provide customer interface in digital offerings and transactions relating to products and services by enabling integration of NBFCs’ functions, providing centralised databases and generating suitable MIS for both internal purposes and regulatory reporting.

  • A quarterly progress report on implementation of CFSS should be submitted by the concerned NBFCs to the Senior Supervisory Manager (SSM) Office of RBI (from quarter ending 31st March 31, 2023).

What is a fixed point service delivery unit?

i.A fixed point service delivery unit is a place of operation from where the business activity of non-banking financial intermediation is carried out by a NBFCs through its own staff or by outsourcing and it functions under the administrative control of the NBFC concerned.

ii.Administrative Offices and Back Offices which do not have any direct interface with customers will not be considered as a ‘Fixed point service delivery unit’.

Note – The above directions are issued by RBI under Sections 45L and 45M of RBI Act,1934.

About NBFC- Middle Layer and Upper Layer:

i.NBFC-Middle Layer: It includes all deposit taking NBFCs (NBFC-Ds), irrespective of asset size and Non-deposit taking NBFCs with Rs.1000 crore and above as asset size.

  • Additionally, NBFCs undertaking activities, like standalone primary dealers, infrastructure debt fund, core investment companies, housing finance companies, infrastructure finance companies, also come under the Middle Layer.

ii.The NBFC – Upper Layer includes NBFCs that are specifically identified by RBI.

Recent related news:

In October 2021, RBI introduced a revised regulatory framework for non- banking finance companies (NBFCs) named ‘Scale Based Regulation (SBR) to regulate the NBFCs based on their size, activity, complexity and interconnectedness within the financial sector.

About Reserve Bank of India:

Establishment – 1st April 1935
Headquarters – Mumbai, Maharashtra
Governor – Shaktikanta Das
Deputy Governors – T. Rabi Sankar, M. Rajeshwar Rao, Michael Debabrata Patra, Mahesh Kumar Jain