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Dependency on single vendor for essential providers can create lock-in conditions, cautions Deputy Governor Rao

RBI Deputy Governor M Rajeshwar Rao referred to as upon regulated entities to go in for vendor diversification as dependency on a single third occasion can create vendor lock-in conditions.

Rao cautioned that Regulated Entities/REs(reminiscent of Banks and NBFCs) that lack vendor diversification, the place they change into reliant on a single vendor for essential providers, can enhance dependency dangers and restrict their flexibility to adapt to altering market situations or technological developments.

Referring to third-party dependencies and digital outsourcing changing into integral to REs operations, the Deputy Governor stated with quickly evolving expertise, REs are more and more counting on third-party companies and outsourcing of their operations to boost effectivity, scale back prices, and enhance buyer expertise.

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Nevertheless, whereas third-party dependencies provide a number of advantages, additionally they pose sure dangers and challenges.

“One of many major issues is number of the outsourcing companion or in case of digital lending operations, the lending service suppliers (LSPs).

“Regulated entities have to assess the reliability, safety, and regulatory compliance of their third events to make sure that they meet the required requirements” Rao stated at a BFSI occasion organised by CareEdge Rankings.

For instance, whereas digital lending pointers mandate that REs ought to be certain that LSPs engaged by them have appropriate grievance redressal mechanism on their web site or apps, a latest research undertaken by RBI discovered that not all LSPs or apps have that.

“Poorly managed third-party relationships can expose regulated entities to not solely buyer dissatisfaction and reputational injury, however may invite regulatory and supervisory actions,” cautioned the Deputy Governor.

Rao stated cybersecurity is one other essential space the place regulated entities have to assess the preparedness of third-party service suppliers to guard their digital property and buyer data.

With the rising frequency and class of cyber-attacks, it’s important for entities to make sure that strong cybersecurity measures are deployed by the service suppliers to safeguard towards threats, he added.

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