Effective corporate governance ensures that NBFCs comply with RBI regulations, manage risks efficiently, and protect the interests of all stakeholders—including shareholders, customers, and regulatory bodies. Robust governance fosters stakeholder confidence, reduces operational and financial risks, and sustains long-term growth in a competitive market.
Key Governance Aspects
- Transparency: Open communication builds credibility and trust among stakeholders.
- Risk Management: Mitigates credit, operational, and market risks for business sustainability.
- Compliance: Adherence to RBI regulations minimizes legal risks and regulatory interventions.
- Stakeholder Protection: Safeguards interests of investors, customers, and shareholders.
- Sustainability: Promotes responsible growth and financial stability.
RBI’s Corporate Governance Framework
RBI has repeatedly strengthened governance norms for NBFCs, especially through recent scale-based regulations issued in 2023 and ongoing directions. NBFCs are now classified by business nature and asset size, with intensive monitoring and stricter norms for those considered systemically important.
Core Requirements
- Board Oversight: Boards must include independent directors and have members with expertise in risk, finance, and regulatory matters. Fit and proper criteria apply to all board appointments.
- Internal Controls & Committees: Large NBFCs must establish audit, nomination, and risk management committees with regular oversight and disclosure of risk exposures.
- Chief Compliance Officer: Upper Layer NBFCs require a CCO to oversee governance and compliance practices.
- Risk Management Committees: Responsible for assessing financial, operational, cybersecurity, and fraud risks, ensuring capital adequacy, and reporting regularly to the Board and RBI.
- Disclosure Requirements: Periodic financial and risk disclosures are mandatory to foster transparency.
Best Practices for NBFCs
To stay compliant and promote sustainable development, NBFCs should:
- Frame internal governance guidelines approved by the Board of Directors.
- Ensure all strategic and risk policies are regularly reviewed and updated
- Align corporate governance policies with applicable company and listing regulations.
- Rotate statutory audit partners at least every three years for unbiased assessments.
- Voluntarily adopt best practices even if below regulatory asset thresholds.
Conclusion
Corporate governance in NBFCs is no longer optional. With RBI’s scale-based regulations and enhanced scrutiny, NBFCs must build strong governance frameworks—active board oversight, internal controls, risk management committees, and transparent disclosures—to ensure compliance, mitigate risks, and maintain stakeholder trust in an evolving financial landscape
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Disclaimer:
The information provided herein is exclusively for educational purposes based on publicly available sources and subject to change. The author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial/real estate decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
