RBI unveils risk-based audit norms for NBFCs

Currently, all RBI-supervised entities have own approaches on internal audit

The Reserve Bank of India (RBI) on Wednesday unveiled the risk-based internal audit (RBIA) system for select non-bank lenders and urban co-operative banks, with a view to enhance the quality and effectiveness of their internal audit system.

All the deposit-taking nonbanking financial companies (NBFCs) and the ones with an asset size of over Rs 5,000 crore, and urban co-operatives banks (UCBs) with assets of over Rs 500 crore will have to migrate to the new system, the RBI said.

Currently, all the entities supervised by the RBI have their own approaches on internal audit, resulting in certain inconsistencies, risks and gaps in the system, the RBI said.

The NBFCs and UCBs face risks similar to the ones for scheduled commercial banks which require an alignment of processes, it added.

The central bank said the RBIA is an audit methodology that links an organisation's overall risk management framework. It provides an assurance to the board of directors and the senior management on the quality and effectiveness of the organisation's internal controls, risk management and governance-related systems and processes, it added.

The internal audit function is an integral part of sound corporate governance and is considered as the third line of defence, it said.