Guidelines for Appointment of Statutory Auditors: RBI
The Chairman/Managing Director/Chief Executive Officer,
All Commercial Banks (Excluding RRBs)
All Primary (Urban) Co-operative Banks (UCBs)
All Non-Banking Finance Companies (NBFCs) (Including Housing Finance Companies)
Madam/Dear Sir,
Guidelines for Appointment of Statutory Central Auditors (SCAs)/Statutory Auditors (SAs) of Commercial Banks (excluding RRBs), UCBs, and NBFCs (including HFCs)
The following guidelines are issued under Section 30(1A) of the Banking Regulation Act, 1949, Section 10(1) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980, and Section 41(1) of SBI Act, 1955; and under provisions of Chapter IIIB of RBI Act, 1934 for NBFCs. These guidelines supersede all previous guidelines (list enclosed at Table 1) issued on the subject.
Related Topic:
Long Form Audit Report (LFAR) – Review: RBI
2. Applicability:
2.1 These guidelines will be applicable to the Commercial Banks (excluding RRBs), UCBs, and NBFCs including HFCs (hereinafter referred to as the Entities) for Financial Year 2021-22 and onwards in respect of appointment/reappointment of SCAs/SAs1 of the Entities. However, non-deposit-taking NBFCs with asset size2 below ₹1,000 crores have the option to continue with their extant procedure.
2.2 As RBI guidelines regarding the appointment of SCAs/SAs shall be implemented for the first time for UCBs and NBFCs from FY 2021-22, they shall have the flexibility to adapt these guidelines from H2 (second half) of FY 2021-22 in order to ensure that there is no disruption.
3. Prior Approval of RBI:
3.1 Commercial Banks (excluding RRBs) and UCBs will be required to take prior approval of RBI (Department of Supervision) for appointment/reappointment of SCAs/SAs, on an annual basis in terms of the above-mentioned statutory provisions. For this purpose, they should apply to the Department of Supervision, RBI before 31st July of the reference year, and the Public Sector Banks (PSBs) shall approach RBI within one month of receipt of the list of eligible audit firms from RBI.
3.2 For this purpose, all Commercial Banks (excluding RRBs) in India and UCBs under Mumbai Region shall approach the Central Office of RBI (Department of Supervision). Other UCBs shall approach the concerned Regional Office of RBI (Department of Supervision), under whose jurisdiction their Head Office is located.
3.3 While NBFCs do not have to take prior approval of RBI for appointment of SCAs/SAs, all NBFCs need to inform RBI (to the same office as applicable to UCBs, as stated in para 3.2 above) about the appointment of SCAs/SAs for each year by way of a certificate in Form A within one month of such appointment.
4. Number of SCAs / SAs and Branch Coverage
4.1 For Entities with an asset size of ₹15,000 crores and above as at the end of the previous year, the statutory audit should be conducted under joint audit of a minimum of two audit firms [Partnership firms/Limited Liability Partnerships (LLPs)]. All other Entities should appoint a minimum of one audit firm (Partnership firm/LLPs) for conducting a statutory audit. It shall be ensured that joint auditors of the Entity do not have any common partners and they are not under the same network3 of audit firms. Further, the Entity may finalize the work allocation among SCAs/SAs, before the commencement of the statutory audit, in consultation with their SCAs/SAs.
4.2 The Entities should decide on the number of SCAs/SAs based on a Board/Local Management Committee (LMC) Approved Policy, inter alia, taking into account the relevant factors such as the size and spread of assets, accounting and administrative units, complexity of transactions, level of computerization, availability of other independent audit inputs, identified risks in financial reporting, etc.
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