The Reserve Bank of India (RBI) has issued a circular on risk-based internal audit (RBIA) for Non-banking finance companies (NBFCs) and Urban Cooperative Banks (UCBs). This circular is applicable to NBFCs with asset size of Rs 5,000 crore and above and all Primary Urban Cooperative Banks (UCBs) with asset size of Rs 500 crore and above.
RBIA is an audit methodology that links an organisation's overall risk management framework and 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.
“The circular intends, inter alia, to provide the essential requirements for a robust internal audit function, which include sufficient authority, stature, independence, resources and professional competence, so as to align these requirements in larger NBFCs/UCBs with those stipulated for Scheduled Commercial Banks,” the RBI said.
This audit is expected to enhance the quality and effectiveness of their internal audit system. This audit is considered as the third line of defense.