RBI has extended Risk-Based Internal Audit rules to housing financing firms

The Reserve Bank of India (RBI) expanded the risk-based internal audit (RBIA) system to select housing finance businesses in order to improve the quality and efficacy of their internal audit system.

The RBI issued a circular in February this year mandating the RBIA framework for select non-banking financial institutions (NBFCs) and urban co-operative banks by March 31, 2022.

The RBI extended the provisions provided to NBFCs to housing finance firms (HFCs) in a circular released on Friday.

The requirements would apply to all deposit-taking HFCs, regardless of size, as well as non-deposit-taking HFCs with assets of Rs 5,000 crore or more, according to the central bank.

These HFCs have been ordered to implement an RBIA framework by June 30, 2022. An effective RBIA is an audit approach that connects an organization’s whole risk management framework and gives assurance to the Board of Directors and senior management about the quality and effectiveness of internal controls, risk management, and governance-related systems and procedures.

According to the RBI’s February circular, the internal audit function should use a systematic and disciplined methodology to review and contribute to the overall development of the organization’s governance, risk management, and control procedures.

The function is an essential component of good corporate governance and is regarded as the third line of defence, according to the statement. Historically, the internal audit system at NBFCs/UCBs has mostly focused on transaction testing, evaluating the integrity and reliability of accounting records and financial reporting, and adherence to legal and regulatory standards, which may no longer be adequate in a changing environment.

The Reserve Bank of India stated in February that all deposit-taking NBFCs, all non-deposit-taking NBFCs with assets of Rs 5,000 crore or more, and all UCBs with assets of Rs 500 crore or more must adopt the RBIA framework by March 31, 2022.

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