The Reserve Bank of India (RBI) has directed the Non-Banking Finance Companies (NBFCs) with assets size of more than Rs 5000 crore to appoint a Chief Risk Officer (CRO) for improving standards of their risk management.
“With the increasing role of NBFCs in direct credit intermediation, there is a need for NBFCs to augment risk management practices,” said the central bank.
RBI’s directive comes at a time when some NBFCs are facing liquidity crunch due to the burden of over-leveraging and discrepancy between assets and liabilities.
“Boards of NBFCs should strive to follow best practices in risk management. The CRO is required to function independently so as to ensure highest standards of risk management,” RBI said.
The Central Bank has also directed the NBFCs to ensure optimum independence of their CROs. The CRO shall hold professional qualification/ experience in the area of risk management. He shall be a senior official in the hierarchy of an NBFC.
“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,” RBI said.
Any change in the incumbency of the CRO will be reported to the stock exchanges if the NBFC is listed.