- December 12, 2024
How technology supports corporate discipline and compliance
In recent months, the RBI has taken stringent actions, including cancelling the licences of four NBFCs by exercising powers under Section 45-IA (6) of the Reserve Bank of India Act, 1934, while also accepting the voluntary surrender of licences from 13 other Non-Banking Financial Companies.
In 2019, the RBI cancelled 1,701 NBFC licences for failing to meet minimum capital requirements. These actions have been driven by non-adherence to the provisions of the RBI Act, 1934, or actions deemed not to be in the public interest. Serious violations of guidelines, including non-adherence to codes of conduct, security protocols, KYC norms for customer onboarding and loan disbursements, and breaches of customer confidentiality, have been reported.
This raises an intriguing question: what motivates such violations? Lawbreakers and rule-busters are not always driven by the thrill of defiance. For many, the ongoing operation of a compliant business offers more significant long-term benefits than unethical practices and the risk of being caught.
NBFCs (Non-Banking Financial Companies) primarily operate in the lending space, offering personal loans, business loans, acquisition of shares, finance leasing, hire-purchase, and digital lending via apps, among other services. The RBI regulates all NBFC activities, enhancing trust among clients and investors. Entities venturing into the NBFC business must register with the RBI under Section 45-IA of the RBI Act, 1934. This stipulation ensures that every entity involved in lending or investment that meets the principal business criteria set by the RBI obtains a certificate of registration.
It is worth noting, however, that certain categories, including Housing Finance Companies, Merchant Banking Companies, Stock Exchanges, Stockbroking or Sub-broking Companies, Venture Capital Fund Companies, Nidhi Companies, Insurance Companies, and Chit Fund Companies, are exempt from the registration requirement under Section 45-IA of the RBI Act, 1934, subject to specific conditions.
Technology, coupled with digital transformation and the use of AI and chatbots, simplifies data collation, ensuring timely and factual reporting to stakeholders, including compliance with regulatory and statutory requirements. Low-code and no-code platforms reduce development costs, increase productivity, and enhance governance. Incorporating corporate discipline through technology fosters periodic reporting, which builds trust and confidence among customers and investors.
The timely submission of quarterly returns on key financial parameters, such as Risk Asset Ratios, fraud monitoring, and ALM returns, is streamlined and made more accurate with technological tools. Software applications that integrate seamlessly with organisational modules ensure maximum automation and minimal manual intervention, thereby reducing the risks of errors, omissions, and fraud.
AI, often debated as a threat to human jobs, should instead be viewed as a valuable guide. It processes human inputs and provides well-informed recommendations by analysing numerous permutations and combinations.
The intent to perform, grow, and achieve goals is fundamental to success. With the increasing focus on ESG guidelines and principles, organisations and individuals must fulfil their obligations to society—not only through donations and charitable activities but also by creating jobs and services. Equally important is fostering a transparent, fair, and clean economy.
Transparency and openness are essential for maintaining brand reputation and meeting responsibilities to shareholders, investors, customers, and employees.
Today, entrepreneurs are not only driven by the desire for personal success but also by the ambition to build a foundation for future generations to innovate, ideate, and create a resilient future for themselves.
Authored by Ms. Anita Ananthan, Chief Financial Officer – Legal & Compliances at Credence Analytics, a micro-certified MSME software company. Ms. Ananthan is a Certified Independent Director and a distinguished alumna of the London School of Economics (LSE). She is also the founder of ‘Club of Hope’, an NGO dedicated to supporting children and the elderly.
Disclaimer: The views expressed here are personal. The author can be reached at anitakumar@credenceanalytics.com