Reserve Bank of India said on Thursday that shadow banks also known as non-banking finance companies (NBFC) with asset size of more than Rs. 5,000 crore should appoint a chief risk officer (CRO) in a move to tighten regulation after a series of defaults at top lender Infrastructure Leasing & Financial Services (IL&FS).
The government took control of IL&FS last year after its default triggered fears about contagion in India's financial sector.
"With the increasing role of NBFCs in direct credit intermediation, there is a need for NBFCs to augment risk management practices," the central bank said in a statement.
An independently functioning chief risk officer with clearly specified role and responsibilities has to be appointed by the NBFCs, the Reserve Bank of India said.
The CRO shall be a senior official in the hierarchy of an NBFC and shall possess adequate professional qualification or experience in the area of risk management, RBI added.The central bank said that the chief risk officer has to be appointed for a fixed tenure and cannot be removed without board's approval of the NBFC.