In a bid to ensure independence of bank auditors, the Reserve Bank of India (RBI) on Tuesday said that commercial and urban co-operative banks and non-banking finance companies will have to appoint auditors for a continuous period of three years. The auditor’s removal ahead of this time period will need the RBI’s approval.


The guidelines for the appointment of Statutory Central Auditors (SCAs)/Statutory Auditors (SAs) will be implemented for the first time for urban co-operative banks (UCBs) and NBFCs (including housing finance companies) from 2021-22. However, UCBs and NBFCs will have the flexibility to adopt these guidelines from the second half of the year to ensure that there is no disruption.

For entities with asset size of ₹15,000 crore and above, as at the end of previous year, the statutory audit has to be conducted jointly by a minimum of two firms. All other entities need to appoint a minimum of one audit firm. Entities need to ensure that joint auditors do not have any common partners and that they are not under the same network of firms.

BK Divakara, Chief Financial Officer, CSB Bank, said linking the maximum number of SCAs/SAs that can be appointed to the asset size of the entity is a key highlight of the guidelines. With this the RBI has brought in uniformity in the maximum number of SCAs that can be appointed across banks. Earlier, the RBI had prescribed the maximum number of auditors only for public sector banks, he added.

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Bankers’ say the effectiveness of the central bank’s supervision process increases when there are two or more auditors involved in a bank’s audit.

An audit firm will not be eligible for reappointment in the same entity for six years (two tenures) after completion of full or part of one term of the audit tenure.

The RBI said one audit firm can concurrently take up statutory audit of a maximum of four commercial banks (including not more than one PSB or one all-India financial institution such as Nabard, SIDBI, NHB, EXIM Bank or the RBI), eight UCBs and eight NBFCs during a year.

The RBI said that non-deposit taking NBFCs with asset size below ₹1,000 crore have the option of continuing with their extant procedure. Commercial banks (excluding Regional Rural Banks) and UCBs will be required to get the RBI’s approval for the appointment/reappointment of SCAs/SAs every year.

While NBFCs do not have to take the approval, all entities need to inform the RBI about the appointment for each year.

Non-deposit taking NBFCs with asset size below ₹1,000 crore can continue with extant procedure

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