RBI Guidelines on Statutory Central Auditors for Banking

RBI i.e. Reserve Bank of India is the central bank of India. It has set various rules and regulations so as to control and manage the operations of the Banking sector in India. In this article, we will discuss the guidelines by RBI on Statutory Central Auditors. So, let us see what those guidelines are through this article.

Contents

Applicability of Guidelines regarding Statutory Central Auditors by RBI

RBI has issued guidelines for appointment of Statutory Central Auditors through notification number-Ref.No.DoS.CO.ARG/SEC.01/08.91.001/2021-22 dated 27.04.2021.

  • Applicability-The said guidelines will be applicable on Commercial Banks, UCBs (Urban Cooperative Banks), NBFCs from Financial year 2021-2022. NBFCs which are not taking deposits and have an asset size less than Rs.1, 000 crore can continue with their earlier procedure. As it is first time application for UCB and NBFCs, they can opt to choose it after Half Year.
  • RBI’s prior Approval- It is made mandatory of UCBs and Commercial Banks to take prior approval of RBI for appointment of Statutory Central Auditors. The approval has to be taken from Department of Supervision.
    Particulars Timeline to take approval Relevant jurisdiction
    UCBs Before 31st July of reference year If located in Mumbai region, Central office of RBI. Otherwise concerned regional office where head office of UCB is located
    Commercial Banks Within one month after receipt of eligible audit firms list from RBI Department of Supervision, Central office of RBI
    NBFCs No prior approval needed Intimation through prescribed form within one month of appointment.

Number of Statutory Central Auditors: RBI and Branch Coverage

  • Number of Statutory Central Auditors – The guidelines specify that number of Statutory Central Auditors should be in correlation with the asset size of the entities. The entities can decide the number of SCAs on basis of Local Management Committee’s approved policy. The committee should consider various relevant factors before deciding such number. Any entity with an asset size of more than Rs.15, 000 crore should have minimum of two joint auditors. Following is the criteria for maximum auditors that can be appointed based on the asset size:-
    Asset Size of the Company Maximum Number of SCAs
    Up to Rs.5 lakh crore 4
    Rs.5 lakh crore- Rs.10 lakh crore 6
    Rs.10 lakh crore- Rs.20 lakh crore 8
    Above Rs.20 lakh crore 12
  • Branch Coverage-We all are aware that public sector banks have a well-knit network of branches throughout the country. Therefore, practically it is not possible to conduct audit of each and every branch by SCAs. Hence, RBI guidelines also tells criteria about allotment of branches to SCAs. The entities should allot Top 20 branches on the basis of outstanding advances. Such 20 branches should cover 15% of the total gross advances of the bank. In case of an entity having less than 100 branches 20% of the branches can be selected. In addition to this, provisions of companies act, 2013 should be followed to the extent applicable.

Norms and Criteria for appointment of Statutory Central Auditors: RBI

  • Independence of Auditors – The Board/LMC should assess the independence of the auditors. The same can be assessed on various factors. Like common partners, conflict of interest etc. The entity should maintain time gap between audit and non-audit work.
  • Professional Standards and due diligence – Board should assess the professional standards and due diligence of the auditors on an annual basis. Also any lapse if found should be brought into light.
  • Tenure and Rotation – An entity has to appoint SCAs for three continuous years. The audit firm should satisfy the eligibility criteria each year. Hence, if entity removes the SCA during the above period then prior approval of RBI is required (in case of UCBs or Commercial Banks). NBFC can intimate within one month. The same firm will not be appointed as SCA for minimum six years after completion of tenure.
  • Audit Fees and expenses- The audit fees/expenses will be decided on the basis of recommendations from the board/LMC. They will take into consideration various factors and submit their recommendations to the competent authority.

Eligibility Criteria for Auditors

An auditor should satisfy following conditions for appointment as a Statutory Central Auditor:-

  • The notification specifies the number of auditors that should be associated with the firm. The number of FCA/ACA, the tenure of their association with the firm etc.
  • It specifies that the number of full time partners that should have CISA/ISA Qualification.
  • It also mentions the number of required professional staff i.e. paid assistants and article clerks.
  • These specifications differ on the basis of Asset Size of the entity.
  • The auditor should be qualified as an auditor as per provisions of Companies Act,2013
  • Code of conduct as per ICAI should be followed. The audit firm should not be debarred.
  • Salary of the partner if the firm is appointed for a PSB should be in threshold limits as per C&AG.
  • The firms with capability of executing CAAT (Computer Assisted Audit Techniques) and GAS (Generalised Audit Software) will be given more preference.
  • If the firm is appointed for say, three years than it should satisfy eligibility criteria during this entire tenure.

Procedure to Appoint Statutory Central Auditors: RBI

  • The entity has to shortlist 2 audit firms for appointment as Statutory Central Auditors.
  • Banking Companies can continue to follow their existing procedure. The existing procedure is to shortlist names and present it to Board/AMC. The auditor will be selected in consultation with Board/AMC.
  • In case of Public Sector Banks, Office of C&AG will give list of empaneled auditors to RBI. Thereafter, RBI will verify the list and publish the list of eligible auditors. The PSBs will then shortlist the auditor and will decide after consultation with their Board/ACB.
  • Both PSBs and UCB will take certificate from the selected audit firm. The certificate will be to the effect that the audit firm satisfies the eligibility criteria.
  • Thereafter, they will send the appointment details to RBI for approval in specified format. The entity should mention its total assets as on 31st March of the previous year.

Conclusion

The above notification lays down the compliances for appointment of Statutory Central Auditors: RBI. RBI is the central bank of India. Therefore, all the announcements, regulations, notifications from RBI are binding on the banks. From above discussion we can conclude that banks have to follow the procedures and ensure eligibility of auditors before appointment. So, this was the article about Guidelines from RBI on appointment of Statutory Central Auditors.

CategoryMiscellaneous

CA Rohit Goyal has experience in multiple spheres including general functions in the field of Auditing, Accounting, and handling Scrutiny Assessments, Taxation Matters along with the specialized functions including Finance, Banking and also handles the field of Stock Audit, Internal Audit and other Various Assignments of Banks.

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