RBI Deputy Governor Raises Concerns Over Quality of Disclosures by NBFCs

RBI Deputy Governor Raises Concerns Over Quality of Disclosures by NBFCs

In a recent address at the Conference of Statutory Auditors and Chief Financial Officers of Commercial Banks and All India Financial Institutions, Reserve Bank of India (RBI) Deputy Governor M Rajeshwar Rao expressed concerns over the quality of disclosures made by some Non-Banking Financial Companies (NBFCs). Rao urged auditors to ensure that entities provide appropriate qualitative information to depositors and other stakeholders.

Rao emphasized the crucial role that statutory auditors play in maintaining stakeholder confidence in audited financial statements, especially in the banking industry where trust is paramount. He highlighted the importance of promoting sound and high-quality accounting and disclosure standards in the banking and financial sector to strengthen market discipline.

The deputy governor noted that the RBI has been moving towards principle-based regulations to provide regulated entities with flexibility in decision-making. However, he stressed that the application of principle-based standards requires significant management judgment.

Rao pointed out that disclosures are essential for transparency and trust in the market, bridging the gap between management knowledge and external user understanding. He shared the RBI’s observations on the disclosure practices of some NBFCs in the context of the Expected Credit Loss (ECL) framework, noting a lack of specific insights in their disclosures.

To address this issue, Rao urged REs to enhance the quality of their disclosures and called on auditors to critically evaluate disclosure practices to meet the needs of accounting standards and end-users. He also emphasized the importance of providing qualitative information related to governance and control mechanisms.

Rao highlighted the need for a harmonized approach by regulators and auditors to identify and mitigate risks in the banking sector, ultimately contributing to financial stability and the robustness of individual institutions.

As the RBI continues to push for improved disclosure practices in the financial industry, stakeholders are urged to prioritize transparency and accountability to maintain trust and confidence in the market.