The Reserve Bank of India (RBI) has mandated Risk-Based Internal Audit (RBIA) framework for all deposit-taking Housing Finance Companies (HFCs), irrespective of their size, and for non-deposit taking HFCs with asset size of ₹5,000 crore and above.
The central bank said these entities have to put in place an RBIA framework by June 30, 2022.
The RBIA framework has been mandated in the backdrop of the troubles at Dewan Housing Finance Corporation Ltd and Reliance Home Finance.
The RBI had mandated an RBIA framework for non-banking finance companies in February 2021. HFCs, which are also NBFCs, have now been brought under the ambit of this framework.
According to the RBI, an independent and effective internal audit function provides vital assurance to the financial entity’s board and its senior management regarding the quality and effectiveness of the entity’s internal control, risk management and governance framework.
The internal audit function is required to broadly assess and contribute to the overall improvement of the organisation’s governance, risk management, and control processes using a systematic and disciplined approach.
Third line ofdefence
The RBIA function is an integral part of sound corporate governance and is considered as the third line of defence, with the management, and risk management and compliance being the first two.
The essential requirements for a robust internal audit function include sufficient authority, proper stature, independence, adequate resources and professional competence.
On February 3, 2021, the RBI had mandated the RBIA framework for all deposit-taking NBFCs, irrespective of their size; all non-deposit taking NBFCs (including Core Investment Companies) with asset size of ₹5,000 crore and above; and all Urban Co-operative Banks (UCBs) having asset size of ₹500 crore and above.
The above-mentioned Supervised Entities have to implement the RBIA framework by March 31, 2022.