{"id":3774,"date":"2021-04-01T09:45:42","date_gmt":"2021-04-01T09:45:42","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=3774"},"modified":"2021-04-01T09:48:46","modified_gmt":"2021-04-01T09:48:46","slug":"risk-based-internal-audit-on-nbfcs-and-ucbs","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/risk-based-internal-audit-on-nbfcs-and-ucbs\/","title":{"rendered":"Framework of Risk Based Internal Audit will be Applicable on NBFCs and UCBs"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The Reserve Bank\nof India (RBI) on 03.02.2021, by way of Notification No DoS. CO. PPG. \/ SEC. 05\/\n11.01.005\/ 2020-21 has increased the applicability of Risk Based Internal\nAudit. That means the framework of Risk Based Internal Audit will be applicable\nto NBFCs and UCBs as well. <\/p>\n\n\n\n<p>Further, the concept of RBIA was firstly implemented for all the Scheduled Commercial Banks (except the Regional Rural Banks) vide RBI Circular DBS.CO.PP.BC.10\/ 11.01.005\/ 2002, issued on 27.12.2002. The same was further supplemented by way of circular DoS. CO. PPG\/ SEC.04\/ 11.01.005\/2020-21, issued on 07.01.2021. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3a91c4dc12c\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3a91c4dc12c\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/risk-based-internal-audit-on-nbfcs-and-ucbs\/#Concept_of_Risk_Based_Internal_Audit\" title=\"Concept of Risk Based Internal Audit\">Concept of Risk Based Internal Audit<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/risk-based-internal-audit-on-nbfcs-and-ucbs\/#Need_for_Increasing_the_Ambit_of_Risk_Based_Internal_Audit_Framework\" title=\"Need for Increasing the Ambit of Risk Based Internal Audit Framework\">Need for Increasing the Ambit of Risk Based Internal Audit Framework<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/risk-based-internal-audit-on-nbfcs-and-ucbs\/#Which_are_all_NBFCs_and_UCBs_Eligible_for_Risk_Based_Internal_Audit\" title=\"Which are all NBFCs and UCBs Eligible for Risk Based Internal Audit?\">Which are all NBFCs and UCBs Eligible for Risk Based Internal Audit?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/risk-based-internal-audit-on-nbfcs-and-ucbs\/#Directions_for_the_Eligible_NBFCs_and_UCBs\" title=\"Directions for the Eligible NBFCs and UCBs\">Directions for the Eligible NBFCs and UCBs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/risk-based-internal-audit-on-nbfcs-and-ucbs\/#Conclusion\" title=\"Conclusion \">Conclusion <\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Concept_of_Risk_Based_Internal_Audit\"><\/span>Concept of Risk Based Internal Audit<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The term RBIA is an audit methodology that links an entity\u2019s overall risk management framework and offers an assurance to the BOD (Board of Directors) and the Top Level\/ Senior Management on the quality and efficiency of the organisation\u2019s risk management, internal controls, and governance concerning systems and processes. The same is done by using a systematic and disciplined approach.<\/p>\n\n\n\n<p>Further,\nit shall be noted that the same is an essential part of sound corporate\ngovernance and is termed as the third line of defence. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Need_for_Increasing_the_Ambit_of_Risk_Based_Internal_Audit_Framework\"><\/span>Need for Increasing the Ambit of Risk Based Internal Audit Framework<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>An independent and effective \u201cinternal audit function\u201d in a financial entity offers vital assurance to the <strong>Board of Directors<\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Board_of_directors\" class=\"text-primary\"><strong>[1]<\/strong><\/a><\/sup> and its senior or top level management concerning the quality and efficiency of the organisation\u2019s internal control, governance, and risk management framework. <\/p>\n\n\n\n<p>Further, the essential requirements for\na strong and robust internal audit function comprise of the following:<\/p>\n\n\n\n<ol><li>Sufficient\nAuthority;<\/li><li>Proper\nStature; <\/li><li>Independence;\n<\/li><li>Adequate\nResources, and;<\/li><li>Professional\nCompetence;<\/li><\/ol>\n\n\n\n<p>Further,\nthe range and commonality of the risks faced by SEs (Supervised Entities) would\nwarrant harmonized and effective systems and processes for the \u201cinternal audit\nfunction\u201d across the SEs. The same will be based on some common guiding\nprinciples.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Which_are_all_NBFCs_and_UCBs_Eligible_for_Risk_Based_Internal_Audit\"><\/span>Which are all NBFCs and UCBs Eligible for Risk Based Internal Audit?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The NBFCs (Non banking Financial\nCompanies) and UCBs (Urban Cooperative Banks) eligible for the risk based\ninternal audit are as follows:<\/p>\n\n\n\n<ol><li>All the deposit taking <a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\"><strong>NBFCs<\/strong><\/a>, regardless of their size;<\/li><li>All the Non-deposit taking NBFCs (comprising of Core Investment Companies) with an asset size of Rs 5000 crores and above; <\/li><li>All the UCBs that have an asset size of Rs 500 crore and above;<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Directions_for_the_Eligible_NBFCs_and_UCBs\"><\/span>Directions for the Eligible NBFCs and UCBs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>All Supervised Entities, as specified in Paragraph 3, will implement the framework of RBIA by 31.03.2022. The same must be done in accordance with the Guidelines issued on the Risk Based Internal Audit by the apex bank. <\/p>\n\n\n\n<p>Further, the guidelines issued intend to\nenhance and improve the efficacy of the internal audit mechanisms and\nprocedures followed by the NBFCs and UCBs.<\/p>\n\n\n\n<p>Also, in order to confirm a smooth\ntransition from the prevailing system of internal audit to the Risk Based\nInternal Audit, the concerned NBFCs and UCBs will require to constitute a\ncommittee comprising of senior executives with the duty of formulating an\nappropriate action plan. <\/p>\n\n\n\n<p>Furthermore, the said committee may\naddress the transitional and change management issues as well and need to\nreport the progress periodically to the Board of Directors and Senior\nmanagement.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In a nutshell, to improve the efficacy of the internal audit mechanism followed by NBFCs and UCBs, the apex bank has decided that the framework of Risk Based Internal Audit will be applicable on these entities as well. The same was notified by way of Notification Notification No DoS. CO. PPG. \/ SEC. 05\/ 11.01.005\/ 2020-21, issued on 03.03.2021.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/major-challenges-and-remedies-by-nbfcs\/\">What are the Major Challenges and Remedies by NBFCs? \u2013 An Overview<\/a><\/mark><\/p>\n\n\n\n<p><strong>Official RBI Notification on the Applicability of Risk Based Internal Audit Framework<\/strong><\/p>\n\n\n<a href=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/04\/88NBFCSUCBS9C069C43CFCB494795E304AC9D23C87F.pdf\" class=\"pdfemb-viewer\" style=\"\" data-width=\"max\" data-height=\"max\"  data-toolbar=\"bottom\" data-toolbar-fixed=\"off\">88NBFCSUCBS9C069C43CFCB494795E304AC9D23C87F<br\/><\/a>\n<p class=\"wp-block-pdfemb-pdf-embedder-viewer\"><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Reserve Bank of India (RBI) on 03.02.2021, by way of Notification No DoS. CO. PPG. \/ SEC. 05\/ 11.01.005\/ 2020-21 has increased the applicability of Risk Based Internal Audit. That means the framework of Risk Based Internal Audit will be applicable to NBFCs and UCBs as well. Further, the concept of RBIA was firstly [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":3777,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[58],"tags":[556],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/3774"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=3774"}],"version-history":[{"count":13,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/3774\/revisions"}],"predecessor-version":[{"id":3799,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/3774\/revisions\/3799"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/3777"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=3774"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=3774"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=3774"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}