The regulator also specified that RBIA policy shall clearly document the purpose, authority, and responsibility of the internal audit activity, with a clear demarcation of the role and expectations from risk management function and risk -based internal audit function.
In order to strengthen the quality and effectiveness of the internal audit system, the Reserve Bank of India (RBI) on Wednesday issued guidelines on risk-based internal audit (RBIA) system for select non-bank lenders and urban co-operative banks (UCBs). While NBFCs and UCBs have grown in size and become systemically important, prevalence of different audit systems/approaches in such entities has created certain inconsistencies, risks and gaps, RBI said. The entities have to implement the RBIA framework by March 31, 2022, and have been asked to constitute a committee of senior executives, to be entrusted with the responsibility of formulating a suitable action plan.
The new framework will be for all deposit taking NBFCs, irrespective of their sizes, all non-deposit taking NBFCs (including core investment companies) with an asset size of `5,000 crore and also for all UCBs, having an asset size of `500 crore and above. The NBFCs and UCBs face risks similar to the ones faced by scheduled commercial banks, which require an alignment of processes, the central bank said.