The Reserve Bank of India (RBI) has issued the Reserve Bank of India (Local Area Banks – Statutory Audit) Directions, 2026, with immediate effect under Section 30(1A) of the Banking Regulation Act, 1949. The Directions apply to all Local Area Banks (LABs) in respect of the appointment, reappointment, independence, tenure, rotation, and oversight of Statutory Central Auditors (SCAs) / Statutory Auditors (SAs). They also prescribe the framework for Long Form Audit Reports (LFARs) and strengthen governance over statutory audits.
The Directions require every LAB to adopt a Board-approved policy for determining the number of SCAs/SAs based on factors such as the size and complexity of operations, risk profile, level of computerisation, and audit coverage. The Audit Committee of the Board (ACB) is responsible for monitoring auditor independence, assessing conflicts of interest, reviewing audit performance, and reporting significant concerns to the Board of Directors and the Senior Supervisory Manager (Department of Supervision), RBI. The framework also prescribes detailed norms relating to auditor eligibility, independence, professional standards, tenure and rotation, audit fees, appointment procedures, and branch audit coverage.
Further, the Directions introduce detailed requirements for Long Form Audit Reports (LFARs) by Statutory Central Auditors and Statutory Branch Auditors, including the scope, objectives, timelines, and indicative areas of audit, with the objective of enhancing the quality of statutory audits, strengthening financial reporting, and improving regulatory oversight of Local Area Banks. [Notification No. RBI/DoS/2026-27/448]
