measured upto the requirement of periodically auditing the assumptions and inputs that go into calculating various statutory ratios relating to liquidity risk management. we also observe that even in some large nbfcs, there is lack of capacity building in their mid office and back - office functions, which can seriously compromise the assessment and monitoring of the alm and liquidity risk. inadequate attention and independence of assurance functions amidst the escalating complexity of risks, it is disconcerting to note that nbfcs have the lowest average number of compliance staff relative to their size compared to other sectors like commercial and cooperative banks. despite regulatory measures aimed at ensuring the autonomy of these functions, it is disheartening to encounter instances where heads of assurance functions are given junior positions within the hierarchy or there is lack of direct access to the board. further, instances of dual - hatting with other roles is also observed. such practices undermine the effectiveness and independence of assurance functions, potentially exposing nbfcs to heightened risks, thereby attracting enhanced regulatory scrutiny. independence of assurance functions is therefore sacrosanct, and there must be no compromise on this front. clear delineation of responsibilities and a robust framework for independence are vital to preserving the credibility of your roles. it is imperative that nbfcs prioritize the strengthening of their governance structures, ensuring that heads of assurance functions are positioned appropriately within the organizational hierarchy and granted direct access to the board. this will not only enhance the credibility and effectiveness of assurance functions but also bolster the overall risk management framework of nbfcs. while we have had interactions with the board directors of banks and nbfcs and shared these expectations, it is also necessary that as heads of assurance functions, each one of you conduct yourselves in a manner in which you don't diminish or compromise such independence. 3 / 5 bis - central bankers'speeches fair and transparent conduct towards customers customer protection is one of the core elements of policy making at rbi. given the service - oriented nature of the financial services industry, safeguarding the interests of customers should rank foremost among the priorities of our regulated entities as well. transparency in pricing is essential to build trust and confidence amongst customers. towards our ongoing commitment for principle - based regulations, rbi has given the liberty of benchmarking and pricing of loans to the boards of nbfcs, but the master directions in this regard clearly state that rates beyond a certain level maybe seen to be excessive which can neither be sustained nor be considered as

conforming to normal financial practice. therefore, excessive rates will invite supervisory scrutiny. during our onsite examinations last year, we identified instances of unfair practices in charging of interest by many entities. these include charging interest from the date of loan sanction or agreement execution rather than from actual disbursement of the loan, charging interest from the date of the cheque for loans disbursed through cheques, despite handing over the cheque to customers much later, and levying interest for the entire month instead of the period for which the loan was actually outstanding. additionally, some nbfcs collected advance instalments but calculated interest based on the full loan amount. wherever such practices came to light, rbi has initiated action including directing these supervised entities to refund such excess charges. however, as heads of assurance functions, it is incumbent upon each of you to serve as custodians of conscience within your respective organizations and ensure that there are no such unfair practices prevalent in your entities which may be detrimental to your customers. importance of meaningful assurance assurance endeavours, especially internal audit and compliance should transcend mere box - ticking exercises and delve into addressing root causes of the issue. by going beyond surface - level checks, assurance functions can uncover the fundamental factors contributing to problems, allowing for more effective and sustainable solutions to be implemented. this proactive approach not only helps mitigate risks but also enhances organizational resilience and fosters a culture of continuous improvement. we have also observed that there are some misguided or intelligent interpretation in the market to circumvent regulations, which poses a significant threat to the integrity of the financial system. when individuals or regulated entities start interpreting regulations to their advantage or for their gain, it undermines the effectiveness of regulatory frameworks and compromises the stability and fairness of the market. such practices erode trust and confidence in the financial sector, potentially exposing consumers, investors and the broader economy to risks and vulnerabilities. rbi's supervision will review the substance of such transactions over their legal form. should we encounter instances of such circumvention of regulations, we will not hesitate to initiate appropriate supervisory action, as has been demonstrated in some of our recent actions. conclusion 4 / 5 bis - central bankers'speeches before i conclude, i would like to highlight the importance of assurance functionaries keeping themselves abreast of all the latest developments. in the rapidly evolving landscape of finance and regulation, new challenges, risks