Securing the Future: A Practical Guide to Data Protection and VAPT for NBFCs

In today’s digital world, data isn’t just something you collect—it’s the key to building trust with customers and staying competitive. For Non-Banking Financial Companies (NBFCs), this is especially important. As more financial services move online, NBFCs are handling large amounts of personal and financial information. This makes them a bigger target for cyberattacks and puts them under increasing pressure from both regulators and customers to keep data safe. In a time when one data breach can damage both reputation and business, securing customer data is no longer optional—it’s a must. The real challenge is not just being secure, but staying secure and being ready for anything.

With the introduction of the Digital Personal Data Protection (DPDP) Act, 2023 and strengthened RBI guidelines, NBFCs are now challenged to strike the right balance between regulatory compliance and building customer trust by adopting comprehensive data security strategies. The core of this challenge lies in how NBFCs protect what matters most—their customers’ personal data and the trust placed in them. By making strong compliance measures an integral part of their operations, particularly through aligning with the DPDP Act, NBFCs demonstrate both accountability to authorities and commitment to customer confidence in a fast-evolving digital landscape.

Understanding the DPDP Act, 2023: What It Means for NBFCs

The Digital Personal Data Protection Act (DPDP), 2023 is India’s first comprehensive framework that governs the way organizations collect, store, process, and share personal data. It compels all businesses—including NBFCs—to handle data responsibly and places a strong focus on individual rights, consent, and accountability.

Key Takeaways for NBFCs:

• Designation as Data Fiduciaries: NBFCs are considered “data fiduciaries” under the Act, carrying the responsibility to manage personal data lawfully and securely.

• Consent and Transparency: Personal data can only be processed with the user’s informed consent. NBFCs must clearly communicate why and how data is being used and allow users to withdraw consent at any time.

• Data Minimization & Storage Limits: Data should be collected only when necessary and stored only as long as required. Holding data beyond its purpose, unless mandated by law, is considered a violation.

• Safeguards Against Breaches: NBFCs must implement appropriate technical and organizational measures—encryption, access control, monitoring—to protect data from unauthorized access or misuse.

• Breach Notification Protocol: In case of a data breach, companies are required to notify both the Data Protection Board of India and affected users within 72 hours.

Impact on Business Operations

DPDP compliance isn’t just a legal necessity—it’s an opportunity to strengthen internal data handling policies, patient consent management, and public perception. For NBFCs, it means reviewing third-party vendors, customer communication systems, and legacy IT infrastructure with fresh eyes—and making security a culture, not just a checkbox.

Cybersecurity in Focus: Why VAPT Is Critical for NBFCs

Even with solid data governance processes in place, today’s digital threats demand a more proactive approach. That’s where Vulnerability Assessment and Penetration Testing (VAPT) comes into play.

What is VAPT?

• Vulnerability Assessment (VA): Identifies known security weaknesses in a system.

• Penetration Testing (PT): Simulates real-world attacks to test how well systems can withstand breaches.

Together, VAPT helps identify risks before attackers do, enabling NBFCs to patch vulnerabilities, strengthen defenses, and stay compliant.

RBI’s Mandate on VAPT

The RBI’s Master Direction – Information Technology Governance, Risk, Controls and Assurance Practices, effective April 1, 2024, outlines clear requirements for VAPT and IT security compliance for regulated entities, including NBFCs.

Key VAPT Requirements for NBFCs:

• Coverage: All critical IT systems—especially those that handle customer data, internet banking, mobile apps, APIs, and payment gateways—must undergo regular VAPT.

• Frequency:

• Vulnerability Assessments: At least every 6 months.

• Penetration Testing: At least once a year for critical applications.

• Third-Party Assessments: Assessments must be conducted by independent, CERT-In empaneled security auditors.

• Remediation Timeline: Security gaps identified during testing must be addressed with documented timelines and follow-up testing.

Action Plan: How NBFCs Can Strengthen Their Security Posture

Here’s how NBFCs can start building a privacy-by-design, security-first environment:

1. Appoint a Data Protection Officer (DPO): Someone accountable for compliance with both DPDP and RBI guidelines.

2. Map & Audit Data Processes: Understand what personal data is collected, where it’s stored, who accesses it, and for how long.

3. Implement Regular VAPT Programs: Stay ahead of threats with timely assessments and attack simulations.

4. Employee & Vendor Training: People are often the weakest link. Train staff and partners on data privacy and security best practices.

5. Incident Response Plan: Be prepared for the worst with a structured plan to detect, respond, report, and recover from data breaches.

6. Update Customer Communication: Make consent and data privacy notices clearer, and empower users with tools to manage their data.

The data security landscape is changing—and fast. For NBFCs, strong data protection is no longer just about compliance; it’s about leading with trust, enabling secure digital innovation, and gaining an edge in a data-driven financial sector. By aligning with the DPDP Act, 2023 and RBI’s IT security mandates—including regular VAPT testing—NBFCs can position themselves as responsible custodians of customer data in today’s digital-first economy.

Security, after all, is not a one-time effort, but a continuous journey. And for NBFCs, that journey begins now.

Reference

RBI Master Circular dated Nov 7, 2023.

RBI/2023-24/107

DoS.CO.CSITEG/SEC.7/31.01.015/2023-24