RBI’s risk-based internal audit system to also cover housing finance firms
To boost the quality and effectiveness of the internal audit system for housing finance companies (HFCs), the Reserve Bank of India (RBI) on Friday increased the risk-based internal audit (RBIA) system. All deposit-taking HFCs and non-deposit-taking HFCs with an asset size of Rs 5,000 crore and above will pertain to the benefits. By June 30, 2022, these HFCs have to establish an RBIA framework.
A notice ordering the RBIA framework for select NBFCs and urban co-operative banks by March 31, 2022, was issued by the Reserve Bank of India this February. The financial sector entities were called upon to make the quality of governance, risk management, and internal controls the highest priority as these are the first line of defence in matters related to financial sector stability, by the RBI governor Shaktikanta Das.
A risk-based audit is a right step because of the focus around harmonization of regulations between banking and NBFCs, according to the national managing partner of Grant Thornton Bharat, Dinesh Anand. It will also help build investor confidence in the future considering the increased interest of private equity inventors. According to, Sonam Chandwani, managing partner at KS Legal & Associates, NBFCs, UCBs, and HFCs deal with alike issues in the current economic climate, though the effectiveness of the circular is dependent on the essentials committed in the shadow financing sector.
The organization’s overall risk management framework will be linked to RBIA. This will serve as an assurance to the board of directors and the senior management on the quality and effectiveness of the company’s internal controls, risk management, and governance-related systems and processes.
According to the Reserve Bank of India, the companies will have to form a committee of senior executives with the duty of formulating a suitable action plan, to guarantee an effortless conversion from the existing system of internal audit to RBIA. According to the Reserve Bank of India guidelines, the boards of companies are essentially in charge of overseeing their internal audit functions.