Risk-Based Internal Audit (RBIA)

  1. An unrestricted and productive internal audit function in a financial organization administers crucial guarantees to the Board and its senior management regarding the quantity and effectiveness of the institution’s internal control, risk management, and governance framework. The important requirements for a strong internal audit function include sufficient authority, proper stature, independence, adequate resources, and professional competence.
  2. The range and commonality of risks faced by Supervised Entities (SE’s) would warrant constructive and balanced systems and processes for the internal audit function across the SE’s based on certain ordinary guiding principles.
  3. The establishment of a Risk-Based Internal Audit (RBIA) system was mandated for all Scheduled Commercial Banks (except Regional Rural Banks) on December 27, 2002, it was further supplemented with January 07, 2021. It has now become a mandatory system by the  RBIA framework for the following Non-Banking Financial Companies (NBFC’s) and Primary (Urban) Co-operative Banks (UCB’s).
  4. All deposit-taking NBFCs, irrespective of their size;
  5. All Non-deposit taking NBFCs (including Core Investment Companies) with asset size of ₹5,000 crores and above; and
  6. All UCBs having asset size of ₹500 crore and above.
  7. The Supervised Entities as stated in para 3 above shall exercise the RBIA framework by March 31, 2022, by accommodating the Guidelines in Risk–Based Internal Audit. The Guidelines deliberately come in force to enhance the potency of internal audit systems and processes followed by the NBFC’s and UCBs.
  8. In order to smoothen the transformation from the currently existing system of internal audit to RBIA, the concerned NBFCs and UCBs may create a committee of senior executives with the responsibility of formulation of a suitable action plan. The committee may address transitional and medication in management issues and should report progress systematically to the Board and senior management.
  9. This circular should be presented before the Board in its next meeting. The implementation of these guidelines as per timeline detailed under the oversight of the Board.

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