As per RBI directives which of the following areas/functions cannot be outsourced by the Banks:

The correct answer is: C. Recovery of bad loans

As per RBI directives, banks cannot outsource the following areas/functions:

• Recovery of bad loans. This is because recovery of bad loans is a critical function that requires banks to have a deep understanding of the borrower’s financial situation and the ability to negotiate with them. Outsourcing this function to a third party could compromise the bank’s ability to recover the loan and could also lead to reputational damage.
• Credit underwriting. This is the process of assessing the creditworthiness of a borrower and deciding whether to extend credit to them. It is a critical function that requires banks to have a deep understanding of the borrower’s financial situation and the ability to assess the risks involved in lending to them. Outsourcing this function to a third party could compromise the bank’s ability to make sound lending decisions and could also lead to losses.
• Treasury operations. This is the process of managing a bank’s liquidity and interest rate risk. It is a critical function that requires banks to have a deep understanding of financial markets and the ability to manage risk. Outsourcing this function to a third party could compromise the bank’s ability to manage its liquidity and interest rate risk and could also lead to losses.
• Market risk management. This is the process of managing a bank’s exposure to market risk, such as interest rate risk, foreign exchange risk, and equity risk. It is a critical function that requires banks to have a deep understanding of financial markets and the ability to manage risk. Outsourcing this function to a third party could compromise the bank’s ability to manage its market risk and could also lead to losses.
• Operational risk management. This is the process of identifying, assessing, and controlling operational risk. It is a critical function that requires banks to have a deep understanding of the risks involved in their operations and the ability to manage those risks. Outsourcing this function to a third party could compromise the bank’s ability to manage its operational risk and could also lead to losses.
• Internal audit. This is the process of assessing the effectiveness of a bank’s internal controls. It is a critical function that helps to ensure that the bank’s operations are conducted in a safe and sound manner. Outsourcing this function to a third party could compromise the bank’s ability to maintain effective internal controls and could also lead to losses.

Banks should carefully consider the risks involved in outsourcing any of these functions before making a decision to do so.