Members of the media and other attendees queue at the entrance to the reception of the RBI in Mumbai. (Photographer: Prashanth Vishwanathan/Bloomberg)

RBI Asks NBFCs To Appoint Risk Officers

India’s central bank has asked all non-bank lenders with an asset size of more than Rs 5,000 crore to appoint a chief risk officer to improve risk management.

These officers must have a fixed tenure with clearly specified roles and responsibilities, the Reserve Bank of India said in a statement. They should be involved in the identification, measurement and mitigation of risks, and would assess every credit product of the non-bank finance company, the RBI said. The officers’ role in deciding credit proposals, however, shall be limited to be an advisor.

The NBFCs which already follow a committee-led process to assess any large credit proposal, the chief risk officer might be a part of this committee and must have a vote in the matter, the RBI said.

The move’s a part of the banking regulator’s strategy to ensure that there are no rollover risks in lending.

Tenure Of Officers

The chief risk officers can be removed or transferred before completion of their tenure with the approval of the NBFC’s board, according to the RBI. Any such removal or transfer shall be communicated to the Department of Non-Banking Supervision of the regional office of the RBI, wherever the NBFC is registered. If the NBFC is listed, then it would also have to disclose to the stock exchanges.

The regulator has also mandated that the chief risk officers should report only to the managing director and chief executive officer of the company or the risk management committee of its board. These officers should not report to any business vertical of the NBFC and should not be given any business targets, the regulator said in the statement.