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RBI/2018-19/184
DNBR (PD) CC. No.099/03.10.001/2018-19
May
16, 2019
Non-Banking Financial Company–
Investment and Credit Companies, Infrastructure Finance Companies,
Micro Finance Institutions, Factors and Infrastructure Debt Funds
Madam / Dear Sir,
Risk Management System –
Appointment of Chief Risk Officer (CRO) for NBFCs
With the increasing role of
NBFCs in direct credit intermediation, there is a need for NBFCs to augment
risk management practices. While Boards of NBFCs should strive to follow
best practices in risk management, it has been decided that NBFCs with
asset size of more than Rs.50 billion shall appoint a CRO with clearly
specified role and responsibilities. The CRO is required to function
independently so as to ensure highest standards of risk management.
2. The NBFCs shall strictly
adhere to the following instructions in this regard:
a) The CRO shall be a senior
official in the hierarchy of an NBFC and shall possess adequate
professional qualification/ experience in the area of risk management.
b) The CRO shall be appointed
for a fixed tenure with the approval of the Board. The CRO can be
transferred/ removed from his post before completion of the tenure only
with the approval of the Board and such premature transfer/ removal shall
be reported to the Department of Non-Banking Supervision of the regional
office of the Bank under whose jurisdiction the NBFC is registered. In case
the NBFC is listed, any change in incumbency of the CRO shall also be
reported to the stock exchanges.
c) The Board shall put in place
policies to safeguard the independence of the CRO. In this regard, the CRO
shall have direct reporting lines to the MD & CEO/ Risk Management
Committee (RMC) of the Board. In case the CRO reports to the MD & CEO,
the RMC/ Board shall meet the CRO without the presence of the MD & CEO,
at least on a quarterly basis. The CRO shall not have any reporting
relationship with the business verticals of the NBFC and shall not be given
any business targets. Further, there shall not be any ‘dual hatting’ i.e.
the CRO shall not be given any other responsibility.
d) The CRO shall be involved in
the process of identification, measurement and mitigation of risks. All credit
products (retail or wholesale) shall be vetted by the CRO from the angle of
inherent and control risks. The CRO’s role in deciding credit proposals
shall be limited to being an advisor.
e) In NBFCs that follow
committee approach in credit sanction process for high value proposals, if
the CRO is one of the decision makers in the credit sanction process, the
CRO shall have voting power and all members who are part of the credit
sanction process, shall individually and severally be liable for all the aspects,
including risk perspective related to the credit proposal.
3. Master
Direction - Non-Banking Financial Company - Systemically Important
Non-Deposit taking Company and Deposit taking Company (Reserve Bank)
Directions, 2016 has been modified accordingly.
Yours faithfully,
(Manoranjan Mishra)
Chief General Manager
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