Module: | Deposits, Reserve Ratios & Branch Authorisation
Q302: Which of the following statements, regarding the engagement of Non-deposit taking NBFCs (NBFCs-ND) as Business Correspondents (BCs), are incorrect?
1. The bank must ensure there is no co-mingling of bank funds and those of the NBFC-ND.
2. The NBFC-ND is permitted to restrict its BC services specifically to its own existing lending customers.
3. A specific contractual arrangement must be in place to prevent and handle conflicts of interest.
4. The bank must ensure that forced bundling of the NBFC-ND's products with the bank's services takes place to maximize revenue.
2. The NBFC-ND is permitted to restrict its BC services specifically to its own existing lending customers.
3. A specific contractual arrangement must be in place to prevent and handle conflicts of interest.
4. The bank must ensure that forced bundling of the NBFC-ND's products with the bank's services takes place to maximize revenue.
✅ Correct Answer: B
The correct answer is B. The question specifically asks to identify the INCORRECT statements, which are statements 2 and 4. Statement 2 is incorrect because regulatory guidelines explicitly state that an NBFC-ND acting as a Business Correspondent must not adopt restrictive practices, such as limiting its BC services solely to its own existing customer base; it is mandated to serve the general public.
Statement 4 is completely incorrect because forced bundling of the NBFC-ND's proprietary products (like insurance or mutual funds) with the bank's services is strictly prohibited to protect consumer interests.
Statements 1 and 3 are factually correct regulatory requirements—banks must prevent co-mingling of funds and actively manage any potential conflicts of interest through robust contractual agreements.
Statement 4 is completely incorrect because forced bundling of the NBFC-ND's proprietary products (like insurance or mutual funds) with the bank's services is strictly prohibited to protect consumer interests.
Statements 1 and 3 are factually correct regulatory requirements—banks must prevent co-mingling of funds and actively manage any potential conflicts of interest through robust contractual agreements.