The Reserve Bank of India (RBI) on Friday extended the risk-based internal audit (RBIA) system to select housing finance entities to enhance the quality and effectiveness of their internal audit system.
In February this year, the RBI had issued a circular mandating the RBIA framework for select non-banking financial companies and urban co-operative banks by March 31, 2022. It was following this, that the RBI on Friday through a circular, extended the provisions issued for NBFCs to housing finance companies (HFCs) also.
The provisions will apply to all deposit-taking HFCs, regardless of their size, as well as non-deposit-taking HFCs with asset size of Rs 5,000 crore and above, the central bank said.
An effective RBIA is an audit methodology that links an organisation's overall risk management framework and provides an assurance to the Directors Board and the senior management on the quality and effectiveness of the organisation's internal controls, risk management and governance-related systems and processes.
As per the RBI's February circular, the internal audit function should broadly assess and contribute to the overall improvement of the organisation's governance, risk management, and control processes using a systematic and disciplined approach. The function is an integral part of sound corporate governance and is considered as the third line of defence, it had said.