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Chief Risk Officers for NBFCs

Chief Risk Officers for NBFCs

The Reserve Bank of India (RBI) has asked non-banking finance companies (NBFCs) with asset size of more than Rs5,000 crore to appoint a chief risk officer (CRO) with clearly specified role and responsibilities.

RBI’s move to tighten regulations comes in the backdrop of the increasing role of NBFCs in direct credit intermediation, especially in view of the IL&FS imbroglio and its ripple effects on the financial sector.

Background:

A series of defaults at top lender Infrastructure Leasing & Financial Services' (IL&FS) have necessitated the need for more stringent controls on the functioning of NBFCs, especially the systemically important ones.

Emphasising that there is a need for NBFCs to augment risk-management practices, the central bank said the CRO is required to function independently to ensure highest standards of risk management.

CRO

The CRO can be appointed for a fixed tenure with the approval of the board.

The CRO will be involved in the process of identification, measurement and mitigation of risks. All credit products (retail or wholesale) will be vetted by the CRO from the angle of inherent and control risks.

The CRO should not have any reporting relationship with the business verticals of the NBFC, and should not be given any business targets.

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