TeamLease, a regulatory technology (regtech) solutions company in India, has released its report titled ‘Simplifying Compliance Management for NBFCs in India.’ The report claims to dive deep into the regulatory environment for Indian NBFCs (non-banking financial companies), discusses challenges, and proposes actionable recommendations for effectively managing their compliance obligations.

According to the report, more than 9000 registered NBFCs in India provide credit services to the underserved sections of the economy. These institutions have performed well in deepening credit to the underbanked and the unbanked sections of society. The report also highlights that compliance management remains a massive challenge due to the lack of an accurate and updated list of applicable compliance. It cites that  94 per cent of the compliance officers at NBFCs believe they don’t have the required visibility and control in their organization's compliance program.

The report finds that there are more than 200 industry-specific compliance requirements for an NBFC operating at a single location within the country. These 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.

It reveals that a company operating in a single state must comply with at least 621 compliances that involve more than 35 one-time registrations and approvals. As an institution grows its geographical footprint, the number of applicable compliances also rises in conjunction. In 2022 alone, RBI alone issued more than 27 regulatory updates specific to the NBFC sector. This significant number of regulatory updates creates a compliance universe that is highly fluid. As the NBFCs expand their business, ad-hoc, paper-based, and people-dependent processes fail to scale. 

The report finds that 92 per cent of the surveyed NBFCs agreed that they had missed at least one critical compliance during the 12-month period. The report suggests that 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 the companies stay on the right side of the law.

Mr. Rishi Agrawal, CEO, and Co-Founder of TeamLease Regtech said, “The NBFC sector is one of the key drivers of growth in the Indian economy. It serves a section of society that is not usually catered to by commercial banks. The report delves into the regulatory ecosystem of NBFCs to give readers an insight into the complexity of the compliance landscape. It points out the challenges and inefficiencies in the present compliance processes adopted by these financial institutions. It also proposes recommendations that will allow these companies effectively manage their compliance obligations with the help of digital processes.”