Risk-Based Internal Audit rules to HFCs extended by RBI

The Risk-Based Internal Audit (RBIA) rules were extended on June 11 by the Reserve Bank of India to all deposit-taking and non-deposit taking HFCs with above ₹5,000 crore assets with effect from June 30th, 2022 as mentioned by the central bank in a notification. The rules were made applicable to other entities by the Reserve Bank of India earlier on February 3.

After the RBI circular extended the internal audit rules to HFCs, the share price of the same took a beating. Falling to an intraday low of ₹519 per piece, the share price of LIC Housing Finance fell down 1.5 per cent from the previous close.

The RBI had mentioned that the circular applies to NBFCs with ₹5,000 crores and above the size of assets and all Primary Urban Cooperative Banks (UBCs) with an asset size of ₹500 crores and above while announcing the rules on risk-based internal audit for Non-Banking finance companies (NBFCs).

To enhance the quality and effectiveness of the internal audit systems, the central bank expects the adoption of RBIA by such entities. The concerned NBFCs and UBCs will have to constitute a committee of senior executives taking the responsibilities of formulating a suitable action plan to ensure the smooth transition from the already existing system of internal audit to RBIA, as per the new guidelines by the Reserve Bank of India which are important in the context of governance issues in banks and NBFCs in recent years along with rising instances of financial regularities.

According to the regulator, the transition and change management issues could be addressed by the committee and should report progress periodically to the board and senior management.

 

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