The representative body of non-banking financial companies (NBFC) – The Finance Industry Development Council (FIDC) – has released a set of code of conduct for the entities.
It focuses on the need to enhance responsible lending behaviour, and ensure ethical practices while conducting the business.
“The purpose of this Code of Conduct is to ensure that the members take effective measures aimed at compliance with regulatory requirements and maintain standards of fair business conduct,” FIDC said in its document.
This code of conduct shall be a step in the right direction to restore the confidence in the non-bank lending community, as this shall bring better discipline and harmony among NBFC-ICCs, it added.
Risk management
FIDC said for risk management to be effective, NBFCs need to be focussed on the sources of uncertainty around the achievement of objective and is integrated into the organisational processes, and should conduct regular review of compliances through internal as well as external compliance audit.
They should undertake an independent risk assessment for the purpose of formulating a risk-based audit plan which considers the inherent business risks emanating from an activity/location and the effectiveness of the control systems for monitoring such inherent risks.
All categories of NBFCs are required to appoint a risk management committee at the board or executive level, which shall report to the board of directors.
All NBFCs with asset size of more than Rs 5000 crore are required to appoint a chief risk officer (CRO) with clearly specified roles and responsibilities
The code of conduct also talked about the audit requirement, grievance redressal mechanisms, and other risk management aspects.
Engagement of recovery agents
The representative body has mentioned that the members should introduce exhaustive dos and don’ts for the agencies and the agents with respect to the adopted principles of fair means of treating customers are in line with adoption of Fair Practice Code and RBI Guidelines, as amended from time to time.
They should be trained to handle their responsibilities, particularly in relation to privacy of customer information, conveying the correct terms and conditions of the product, etc.
Notably, the FIDC also released a ‘Vision document for NBFC sector’ talking about its role in India’s growth story as developed nation by 2047.
“Given the heterogeneity of NBFCs and the relatively lower level of financial literacy of their customers, strong governance and self-discipline of NBFCs is a sine qua non for sustainable economic progress of the country,” it said.
