The Reserve Bank of India on May 16, 2019, released a notification in regard to the appointment of a Chief Risk Officer (CRO) for Non Banking Financial Companies (NBFCs) with an asset size of more than Rs.50 billion with clearly specified role and responsibilities. This move has been taken in consideration the increasing role of NBFCs in direct credit intermediation, the need for NBFCs to augment risk management practices.
The notification also notifies some instructions which the NBFCs would have to adhere to:
- 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.
- The CRO would be a senior officer in the NBFC’s hierarchy and would be required to posses the necessary professional qualification and experience in risk management.
- He/she shall be involved in process of identification, measurement and mitigation of risks that might be incurred by the company and would be responsible for the critical examination of all credit products (retail or wholesale) from the perspective of inherent and control risks. His/ Her role in deciding credit proposals would be limited to that of an advisor.
- The CRO’s appointment would be for a fixed tenure that will be decided with the approval of the board. She/he would be liable to be transferred / removed from his/her post before the completion of his/her tenure with the approval of the Board only.
- The Department of Non-Banking Supervision of the regional office of the Bank under whose jurisdiction the NBFC is registered has to be notified about the premature transfer or removal. Any change in the duration of the tenure will have to be reported to the stock exchanges, if the NBFC is listed.
- In case of the NBFCs that follow committee approach in credit sanction process for high value proposals and if the CRO is one of the decision makers in the credit sanction process, He/she would have the right to vote. All the members who would be a part of the credit sanction process would be liable for all the aspects including the risk aspect in relation to the credit proposal both individually and severally.
- The board is required to instate policies for safeguarding the independence of the CRO. The CRO would directly report to the MD & CEO/ Risk Management Committee (RMC) of the Board and shall meet with the Risk Management committee/Board without the presence of the MD & CEO, on a quarterly basis at least.
- The CRO shall not be given any other responsibility and he/she would not report to any other business verticals of the company or have business targets.
Click here to see notification.
