In February this year, RBI had issued a circular mandating the RBIA framework for select non-banking financial companies (NBFCs) and urban co-operative banks by March 31, 2022.
The Reserve Bank of India (RBI) on Friday extended the risk-based internal audit (RBIA) system for housing finance companies (HFCs) to enhance the quality and effectiveness of their internal audit system. The provisions will apply to all deposit-taking HFCs and non-deposit-taking HFCs with asset size of Rs 5,000 crore and above. Such HFCs have been asked to put in place an RBIA framework by June 30, 2022.
In February this year, RBI had issued a circular mandating the RBIA framework for select non-banking financial companies (NBFCs) and urban co-operative banks by March 31, 2022. RBI governor Shaktikanta Das had earlier called upon the financial sector entities to give the highest priority to quality of governance, risk management and internal controls as these are the first line of defence in matters related to financial sector stability.
Dinesh Anand, national managing partner, risk and private equity, Grant Thornton Bharat, said, “Given the regulatory focus around harmonisation of regulations between banking and NBFCs (non-bank financial companies) and the increased focus on governance within financial services, a risk-based internal audit is a step in the right direction.” This will also help build investor confidence further, especially given the increased interest of private equity players in this space, he added.
Similarly, Sonam Chandwani, managing partner at KS Legal & Associates, said that NBFCs, UCBs and HFCs face similar issues in today’s economic climate, however, the effectiveness of the circular is contingent on the nitty-gritties laid down in the shadow financing sector.
RBIA will be linked to the organisation’s overall risk management framework. This will provide an assurance to the board of directors and the senior management on the quality and effectiveness of the organisation’s internal controls, risk management and governance-related systems and processes.
To ensure smooth transition from the existing system of internal audit to RBIA, the companies will have to constitute a committee of senior executives with the responsibility of formulating a suitable action plan, RBI said. The committee may address transitional and change management issues and should report progress periodically to the board and senior management. According to the guidelines, the boards of companies are primarily responsible for overseeing their internal audit functions.