Implement Core Financial Services Solutions by September 2025: NBFCs directed by Reserve Bank of India (RBI)

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Reserve Bank of India (RBI), in a circular published on October 1, 2022 said it has been decided that NBFCs - Middle Layer and NBFCs - Upper Layer with 10 and more 'fixed point service delivery units' as on shall be mandatorily required to implement CFSS.

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Reserve Bank of India: The Reserve Bank of India (RBI) on 23rd Feb, 2022, Wednesday has asked non-banking financial corporations (NBFCs) in a certain category to mandatorily implement 'Core Financial Services Solution (CFSS)' by September 30, 2025. CFSS is akin and comparable to the Core Banking Solution (CBS) system that is used by Banking Institution. This arrangement will lead to integration of the operation of NBFCs, seamless customer interface and centralized database which will help the customers to get better service anywhere and anytime.

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Under CFSS, NBFC can easily offer digital offers and transactions related to products and services anytime, anywhere. In addition, it provides centralized data and accounting data. CFSS is akin to the Core Banking Solution (CBS) adopted by banks. "CFSS shall provide for seamless customer interface in digital offerings and transactions relating to products and services with anywhere/ anytime facility, enable integration of NBFCs' functions, provide centralized database and accounting records, and be able to generate suitable MIS, both for internal purposes and regulatory reporting," RBI said.

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The central bank has created several categories of NBFCs. In this context, NBFC “middle layer” means such non-banking financial companies that accept deposits regardless of their asset size. Apart from this, there are also NBFCs in this category with asset size of Rs 1,000 crore or more, which are not taking deposits.

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The Middle Layer consists of all deposit-taking NBFCs (NBFC-Ds), irrespective of asset size; non-deposit taking NBFCs with asset size of Rs 1,000 crore and above. NBFCs undertaking activities, like standalone primary dealers, infrastructure debt fund - NBFCs, core investment companies, housing finance companies, infrastructure finance companies, too fall in the Middle Layer. The Upper Layer comprises those NBFCs which are specifically identified by RBI as warranting enhanced regulatory requirements based on a set of parameters and scoring methodology.

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As per the timeline mentioned in the circular, NBFCs under the two categories must implement CFSS on or before September 30, 2025. However, NBFC - Upper Layer shall ensure that the CFSS is implemented at least in 70 percent of 'Fixed point service delivery units' on or before September 30, 2024.

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In the case of NBFC - Base Layer and NBFC - Middle and Upper Layers with fewer than 10 'Fixed point service delivery units', implementation of CFSS is not mandatory. However, they may consider the implementation of a CFSS for their own benefit, the circular said.

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Moreover, it directed NBFCs to furnish quarterly progress reports on the implementation of CFSS along with various milestones to RBI commencing from the quarter ending March 31, 2023.\

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