May 20, 2019

NBFCs with assets over Rs.5,000 Crore must appoint Chief Risk Officers, says RBI


The Reserve Bank of India (RBI) has said NBFCs with assets over Rs.5,000 crore must appoint Chief Risk Officer (CRO) in order to make for more efficiency in dealing with risk management. The need highlights several downgrades of non-banking ventures, especially Infrastructure Leasing & Financial Services, of recent times.

Normally, no business is new to risks as there is the element of risk in every venture. Mitigating risk factors is part of the management strategy and hitherto it was felt there was no need for departmentalizing risks and dealing with it in a day to day routine. However, with galloping changes in technology and guarantees for an assured long-term product or services withering the need to address risks has gained exponentially in these days.

RBI’s move is deft and makes way for greater efficiency and reporting of risk management and avoid liquidity crises in an era prone to quick growth and profiteering or quick collapse even of yester-year giants due to lack of control in risk management. Changes in the economic scenario is fraught with greater maneuverability with technology evolving in every sphere of business, marketing, production and services.

The role of the CRO will be identifying, measuring and mitigating elements of risks in credit products in terms of retail as well as wholesale enterprise. The pre-occupation of the CRO with these elements alone is expected to solidify the mitigating factors for risk avoidance and management every time the needs arise.

The CRO will report to the Managing Director, the CEO or the risk management committee. Other than these, the CRO will have no other vertical relation to any responsible managing department in order to ensure the powers for risks management is effective and absolute. In short, the position of CRO is poised for a long and effective cohabitation in the hierarchies of every successful venture.

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