The Reserve Bank of India (“RBI”) has, in a notification dated May 16, 2019, directed Non-Banking Financial Institutions (“NBFCs”) with asset size of more than Rs.50 billion to appoint a Chief Risk Officer (“CRO”).

The notification is issued with a view to enhance the risk management practices of NBFCs in light of their increased role in direct credit intermediation. Accordingly, all NBFCs having asset size of more than Rs. 50 billion must mandatorily appoint a CRO who will function independently so as to ensure highest standards of risk management. TheMaster Direction – Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 has also been modified by the RBI accordingly.

As an eligible NBFC, ensure the following:

1. The CRO must be a senior official in the hierarchy of an NBFC and must possess adequate professional qualification/ experience in the area of risk management.
2. The CRO must be appointed for a fixed tenure with the approval of the Board.
3. You can transfer or remove the CRO from his post before completion of the tenure only with the approval of the Board and such premature transfer/ removal must be reported to the Department of Non-Banking Supervision of the regional office of the Bank under whose jurisdiction you are registered.
4. In case you are a listed NBFC, any change in incumbency of the CRO shall also be reported to the stock exchanges.
5. The Board shall put in place policies to safeguard the independence of the CRO and the CRO shall have direct reporting lines to either the MD & CEO or the Risk Management Committee (RMC) of the Board.
6. In case the CRO reports to the MD & CEO, ensure that the RMC/ Board meet the CRO without the presence of the MD & CEO, at least on a quarterly basis.
7.  The CRO must not have any reporting relationship with the business verticals of the NBFC and cannot be given any business targets. Do not give any additional responsibility to the CRO in excess of what is specified.
8. The CRO must be involved in the process of identification, measurement and mitigation of risks and all credit products must be vetted by the CRO from the angle of inherent and control risks. The CRO’s role in deciding credit proposals shall be limited to being an advisor.
9. In case you follow the committee approach in credit sanction process for high value proposals, if the CRO appointed by you is one of the decision makers in the credit sanction process, then 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.

Source: Reserve Bank of India

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