The Reserve Bank of India (RBI) on July 31, 2026, issued the Reserve Bank of India (Local Area Banks – Concurrent Audit) Directions, 2026, in exercise of powers under Section 35A of the Banking Regulation Act, 1949. Applicable to all Local Area Banks and effective immediately, the Directions position concurrent audit as an early warning mechanism that shortens the gap between a transaction and its independent examination, forming a core part of internal control and fraud prevention. The Directions define "Audit Firm" to include proprietorship firms, partnership firms, or LLPs, while other undefined terms draw meaning from the RBI Act, 1934, the Banking Regulation Act, 1949, the Companies Act, 2013, and RBI's Glossary of Terms.
Under Chapter II, the Audit Committee of the Board (ACB) is vested with approving the scope of concurrent audit, deciding the tenure and remuneration of external auditors, and annually reviewing the audit system's effectiveness. Chapter III mandates that the Head of Internal Audit (HIA), with ACB approval, determine coverage of business activities and branches based on risk, mandatorily including cash transactions, loans and advances, KYC/AML compliance, remittances, treasury operations, forex transactions, card business, and employee conduct, among others, with all Centralized Processing Centres also brought under audit. Appointment rules require a Board-approved policy on in-house versus external auditors, bar conflicted Chartered Accountant partners from appointment, and cap external auditor tenure at five years overall and three years per branch, with a 70-year age limit for retired staff auditors.
The Directions further prescribe accountability measures, including a hearing opportunity before adverse action against audit firms and mandatory reporting of serious lapses to the ACB, RBI, and ICAI, alongside a structured reporting system requiring quarterly ACB reviews and immediate escalation of fraud to the Internal Audit Department and Chief Vigilance Officer. Chapter IV repeals all prior Concurrent Audit instructions applicable to Local Area Banks (as listed in circular DoS.CO.PPG.66/11.01.005/2026-27 dated July 31, 2026), while preserving actions, rights, and liabilities accrued under the repealed framework, and clarifies that RBI's interpretation of any provision shall be final and binding.
[Notification No. RBI/DoS/2026-27/445, DoS.CO.ARG.39/08.91.021/2026-27]
