Ensure high standard in outsourced services: RBI to banks

The RBI on Wednesday asked banks to ensure high standard of care while outsourcing financial services and directed them to put in place a robust system of internal audit of all such activities.

"Banks have been advised to take steps to ensure that the service provider employs the same high standard of care in performing the services as would be employed by the banks, if the activities were conducted within the banks and not outsourced," the RBI said in a notification.

Reiterating its stance, the central bank said that outsourcing of any activity by the bank does not diminish its obligations and those of its Board and senior management who have the ultimate responsibility for the outsourced activity.

"Banks should not engage in outsourcing that would result in their internal control, business conduct or reputation being compromised or weakened," the RBI further said.

The central bank said instances of non adherence with the guidelines have been observed with regard to sub-contracting by the primary outsourced vendors and the engagement of sub-contractors by the outsourced service providers without the prior consent of the bank.

In certain cases, like outsourcing of cash management, banks should ensure that reconciliation of transactions between the bank and the service provider are carried out in a timely manner, the notification said.

The RBI also asked banks to put in place a robust system of internal audit of all outsourced activities which should also be monitored by the Audit Committee of the Board of the bank.