The Reserve Bank of India (RBI) has extended the risk-based internal audit (RBIA) system to select housing finance companies to improve the quality and efficacy of its internal audit system. RBI had issued a circular in February mandating the RBIA framework for select urban co-operative banks and non-banking financial companies (NBFCs) by March 31, 2022. On Friday, the RBI extended the requirements declared for NBFCs to housing finance companies (HFCs) through a circular. The Central bank stated that the provisions will refer to all deposit-taking HFCs, irrespective of their size, and non-deposit-taking HFCs with asset size of Rs 5,000 crore and above. Such HFCs are required to put an RBIA framework in place by June 30, 2022. An effective RBIA is an audit method that connects an organisation's overall risk management framework and renders an assurance to the Board of Directors and the senior management on the risk management, quality, and effectiveness of the organisation's internal controls, and governance-related systems and processes. According to the RBI's February circular, the internal audit function must broadly evaluate and contribute to the overall improvement of the organisation's governance, risk management, and control processes applying a systematic and disciplined approach. The internal audit system at NBFCs/UCBs generally focuses on transaction testing, testing accuracy and reliability of accounting records and financial reports, adherence to legal and regulatory requirements, which may not be adequate in a changing scenario. In February, RBI had stated that all deposit-taking NBFCs; all UCBs having an asset size of Rs 500 crore and above; and all non-deposit taking NBFCs with asset size of Rs 5,000 crore and above under will have to execute the RBIA framework by March 31, 2022. Image Source Also read: Monetary Policy 2021 maintains growth supportive stance, industry applauds Also read: RBI forms advisory taskforce to assist regulatory review authority