The Reserve Bank of India vide its notification dated 3rd February 2021 has issued guidelines on a risk-based internal audit system for non-banking financial companies (NBFCs) and urban cooperative banks (UCBs) with a view to strengthen the Internal Audit Function, which works as a third line of defence.
The new framework will be applicable to all deposit-taking NBFCs, all non-deposit taking NBFCs (including Core Investment Companies) with asset size of Rs 5,000 crore and above, and all UCBs with asset size of Rs 500 crore and above.
This notification provides 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.
