RBI Expands Risk-Based Internal Audit System to Housing Finance Companies
The Reserve Bank on Friday extended the risk-based internal audit system (RBIA) to select housing finance companies to improve the quality and effectiveness of their internal audit system. In February of this year, the RBI issued a circular mandating the RBIA framework for certain non-bank financial corporations (NBFCs) and urban cooperative banks by March 31, 2022.
The RBI, through a circular, also extended the provisions issued for NBFCs to housing finance companies (HFCs) on Friday.
The provisions will apply to all deposit-accepting HFCs regardless of size, as well as non-deposit-accepting HFCs with an asset size of Rs 5,000 crore and above, the central bank said. .
These HFCs have been asked to put in place an RBIA framework by June 30, 2022.
An effective RBIA is an audit methodology that links the overall risk management framework of an organization and provides assurance to the board of directors and senior management on the quality and effectiveness of internal control systems and processes. , risk management and governance of the organization.
In accordance with the RBI’s February circular, the internal audit function should comprehensively assess and contribute to the overall improvement of the organization’s governance, risk management and control processes using a systematic and disciplined approach.
The function is an integral part of sound corporate governance and is seen as the third line of defense, he said.
Historically, the NBFC / UCB internal audit system has generally focused on transaction testing, accuracy and reliability testing of accounting records and financial reports, compliance with legal and regulatory requirements, which could not be sufficient in a changing scenario.
A shift to a framework focused on assessing risk management systems and control procedures in various areas of operations, in addition to transaction testing, will help anticipate areas of potential risk and mitigate those risks, a said the central bank.
In February, the Reserve Bank of India declared that all NBFCs accept deposits; all NBFC no deposit with an asset size of Rs 5,000 crore and above; and all UCBs with an asset size of Rs 500 crore and above will have to implement the RBIA framework by March 31, 2022.
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