On May 16, 2019, the Reserve Bank of India (“RBI”) issued a notification titled ‘Risk Management System – Appointment of Chief Risk Officer (CRO) for NBFCs’, as per which, non-banking financial companies (“NBFCs”) with asset size of more than Rs. 50,000,000,000 (Indian Rupees fifty billion) would be required to appoint a Chief Risk Officer (“CRO”) with clearly specified roles and responsibilities.
The following instructions have also been issued by the RBI in this regard:
(a) The CRO shall be a senior official in the hierarchy of a NBFC and possess adequate professional qualification/ experience in the area of risk management.
(b) With the approval of the board, the CRO must be appointed for a fixed period. In case of transfer or removal of such CRO before completion of the said tenure, approval of the board must be taken and must 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 must put in place policies to safeguard the independence of the CRO. 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 have no reporting relationship with the business verticals of the NBFC and 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, and it shall only have an advisory role in deciding credit proposals.
(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.
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