The Reserve Bank of India (RBI) extended the Risk-Based Internal Audit (RBIA) system for all deposit-taking Housing Finance Companies (HFCs), irrespective of their size, and for non-deposit taking HFCs with asset size of Rs 5,000 crore and above to enhance the quality and effectiveness of their internal audit system.
- The HFCs are directed by RBI to implement the RBIA framework by June 30, 2022.
- The RBIA system was earlier imposed on Non-Banking Financial Companies (NBFCs) and Primary (Urban) Co-operative Banks (UCBs).
i.Third line of defence: The internal audit function is an integral part of sound corporate governance and is considered the 3rd line of defence.
ii.Thus the RBIA audit methodology will evaluate the risk management systems and control procedures in various areas of operations, in addition to transaction testing. It will also help in anticipating areas of potential risks and mitigating such risks.
Note – The RBIA framework has been mandated to HFCs in the backdrop of the troubles at Dewan Housing Finance Corporation Ltd and Reliance Home Finance.
On February 03, 2021, RBI issued guidelines on RBIA for selected NBFCs with asset size of Rs 5,000 crore and above, and UCBs having an asset size of Rs 500 crore and above and directed them to implement the RBIA framework by March 31, 2022. It also specified them to set up a committee of senior executives to formulate a suitable action plan. Click here to know more
What is RBIA?
It is an audit methodology that links with an organisation’s overall risk management framework, which 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.
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About Reserve Bank of India (RBI):
i.It was established on the recommendation of the Hilton Young Commission.
ii.The First Governor of RBI was Sir Osborne Smith (1935 – 1937).
iii.The First Indian Governor of RBI was CD Deshmukh (1943 – 1949).
iv.Manmohan Singh is the only Prime Minister to have also served as the Governor of RBI ((1982 – 1985).
v.The First woman deputy Governor of RBI was KJ Udeshi.