The Reserve Bank of India (RBI) has mandated all the Non-Banking Financial Company's (NBFC) with a size of over Rs.5,000 crore to appoint Chief Risk Officers (CROs) with clearly specified roles and responsibilities. RBI said that with the increasing role of NBFCs in direct credit intermediation, there is a need for NBFCs to augment risk management practices.
RBI’s move comes in the wake of ongoing rating downgrades of non-banks which has raised fears of another liquidity crisis.
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CRO guidelines by RBI:
The CRO shall be a senior official in the hierarchy of an NBFC (non-banking finance company).
They will possess adequate professional qualification/experience in the area of risk management.
The CRO will be appointed for a fixed tenure with the approval of the board.
Removal or transfer will need the board’s approval and has to be reported to the regulator.
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.
Non-Banking Financial Company (NBFC):
NBFC is a company registered under the Companies Act, 1956 of India. It is engaged in the business of loans and advances, acquisition of shares, stock, bonds, hire-purchase insurance business or chit-fund business.
It does not include any institution whose principal business includes agriculture, industrial activity or the sale, purchase or construction of immovable property.
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