New Delhi. The Reserve Bank of India (RBI) has extended the rules for Risk Based Internal Audit (RBIA) of deposits accepting and non-accepting housing finance companies (HFCs) with assets above Rs 5000 crore with effect from June 30, 2022. On February 3, before the notification issued by the RBI on Friday, the RBI had applied these rules to other entities.
Here, the HFC stock has also declined after the notice to expand the internal audit rules for HFCs. Share price of LIC Housing Finance fell to a grinding low of Rs 519, down 1.5 per cent from the previous close. It is to be known that on February 3, RBI had announced rules regarding risk-based internal audit of non-banking finance companies (NBFCs) and urban co-operative banks (UCBs). In which RBI had issued a circular saying that these rules would be applicable to NBFCs having an asset size of more than 5000 crores while for UCBs the asset size would be 500 crores and above.
The objective behind this circular is, inter alia, to provide the essentials for a strong internal audit function which also includes adequate authority, stature, independence, resources and professional competence. So that these requirements in large NBFCs/UCBs can be scheduled and aligned to
RBIA to be adopted to enhance greater effectivenessThe central bank expects RBIA to be adopted by such entities to enhance the quality and greater effectiveness of their internal audit system. On 4 December 2020, RBI had said that suitable guidelines would be issued to large UCBs and NBFCs to adopt a risk-based internal audit (RBIA).
or say new rules
The new RBI guidelines are significant in the context of the increasing tussle between financial regulators and governors in banks and NBFCs in recent years. In order to ensure smooth transition from the existing system of internal audit to RBIA, the concerned NBFCs and UCBs will also have to constitute a committee of senior officers with the responsibility of preparing a suitable action plan.
The regulator said, the committee can change the transitional and management issues and the board should give progress reports from time to time. As per the new guidelines, the boards of NBFCs and UCBs are primarily responsible for overseeing their internal audit functions.
>> RBIA Policy will be formulated with the approval of the Board and will be widely disseminated within the organization. RBI said that the policy will clearly document the purpose, authority and responsibility of the internal audit activity, with a clear demarcation of the role and expectations from the risk management function and risk-based internal audit function.
In addition, the senior management of these firms is responsible for ensuring adherence to the Board-approved internal audit policy guidelines and developing an effective internal control function, which identifies, measures, monitors and reports all risks, the RBI said. is.
>> RBI also stated that “it shall ensure that appropriate action is taken on the internal audit findings within the given time frame and the status of closure of the audit report is placed before the ACB/Board.”
>> Further, RBI said that senior management is responsible for setting up a comprehensive and independent internal audit function that promotes accountability and transparency.
>> RBI has specifically stated that the internal audit function should make appropriate recommendations to improve governance processes on business decision making, risk management and control, as well as promote appropriate ethics and values within the organization, and be effective Performance management and accountability of employees etc. should also be ensured.
>> RBI said that to ensure effectiveness, the internal audit function should have sufficient authority, stature, independence and resources to enable the internal auditors to perform their functions properly.