RBI set parameters for appointing Bank Auditor for FY 2021-22 and onwards

Manish Mehra | Last updated: 02 May 2021

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The Reserve Bank of India (RBI) has issued new guidelines for the appointment of Statutory Central Auditors (SCA) and Statutory Auditors (SA) for commercial banks, Urban Cooperative Banks, and Non-Banking Financial Companies, effective from FY 2021-22. These guidelines detail crucial aspects such as applicability, the requirement for prior RBI approval for certain entities, the number of auditors, eligibility criteria based on firm experience and partner qualifications, auditor independence, and tenure with rotation rules.

RBI on 27.04.2021 vide notification RBI/2021-22/25 Ref.No.DoS.CO.ARG/SEC.01/08.91.001/2021-22 has issued guidelines for appointment of Statutory Central Auditors (SCA)/ Statutory Auditor (SA) of commercial banks (excluding RRB), Urban cooperative banks (UCBs) and Non-Banking Financial Companies(NBFCs) including Housing Finance Companies. Notification clarifies applicability, approval, number of auditors (i.e. maximum and minimum), eligibility, independence, tenure and rotation of SCA/SA.

I. Applicability of notification

Applicability

Non deposit taking NBFC having assets size below Rs. 1,000 crore may follow earlier policy.

II. RBI’s Prior approval of RBI is required for appointing SCAs/SAs as follows :-

Commercial Banks (excluding RRB) and UCBs – before 31^st July of reference year.
Public Sector Bank – approach RBI within 1 month of receipt of list of eligible audit firms.
NBFC – don’t need approval rather they need to inform RBI within one month of appointment.

RBI Bank Auditor Appointment Guidelines 2021-22 Onwards

III. Number of SCAs/SAs

Asset Size

Joint auditors should not have common partners and they are not under same network of audit firms.
Aside Board/Local Management Committee (LMC) may increase no. of SCA/SA depending upon asset size of entity. Following are limits for appointment of maximum no. of SCAs/SAs
PSB shall allot Top 20 branches to SCAs as to cover a minimum of 15% of total gross advances.
For other entities SCAs/SAs shall visit and audit at least Top 20 branches or Top 20% branches so as to cover a minimum of 15% of total gross advances.

IV. Eligibility criteria of Auditors

Basic Eligibility

Asset Size of Entity as on 31st March of Previous Year	Minimum No. of Full-Time partners (FTPs) associated with the firm for a period of at least three (3) years	Out of total FTPs, Minimum No. of Fellow Chartered Accountant (FCA) Partners associated with the firm for a period of at least three (3) years	Minimum No. of Full Time Partners/ Paid CAs with CISA/ISA Qualification	Minimum No. of years of Audit Experience of the firm	Minimum No. of Professional staff
Asset Size of Entity as on 31st March of Previous Year	Note 1		Note 2	Note 3	Note 4
Above Rs 15,000 crore	5	4	2	15	18
Above Rs 1,000 crore and Up to Rs 15,000 crore	3	2	1	8	12
Upto Rs 1,000 crore	2	1	1*	6	8
* Not mandatory for UCBs/NBFCs with asset size of upto Rs 1,000 crore.

(* Notes are attached for detail reference)

V. Independence of Auditors

For Commercial Banks (exclu. RRB) and NBFC – Audit Committee/LMC shall monitor and access independence of auditor.
For UCB/remaining NBFC - Board shall monitor and access independence of auditor.
Any concern regarding independence shall be reported to RBI.
Any concern with management of the entity regarding non availability of information or non-cooperation shall be intimated to RBI.
Concurrent auditor of Entity shall be ineligible to appoint as SCA/SA of same entity.
Time gap between non audit work and acceptance of audit should be of one year.

VI. Professional Standard

SCA/SA should follow relevant professional standard.
Board/Audit committee/LMC of entity shall annually review performance of SCA/SA. Any lapses in audit responsibilities by SCA/SA shall be reported within 2 months of completion of annual audit.

VII. Tenure and Rotation

SCA/SA shall be appointed for continuous period of 3 years unless they not satisfy any eligibility criteria.
Cooling period of 6 years applied after completing one term of 3 year (in full or part)
One audit firm can take statutory audit of maximum 4 commercial bank (including not more than 1 PSB)

Attached File : 2286454_44591_notes.pdf

FAQ :

The notification provides guidelines for the appointment of Statutory Central Auditors (SCA)/ Statutory Auditors (SA) for commercial banks, Urban Cooperative Banks (UCBs), and Non-Banking Financial Companies (NBFCs) for the financial year 2021-22 and onwards.

Commercial Banks (excluding RRBs) and UCBs require prior approval from the RBI before 31st July of the reference year. Public Sector Banks need to approach the RBI within one month of receiving the list of eligible audit firms.

Eligibility criteria include the minimum number of full-time partners, Fellow Chartered Accountant partners, partners with CISA/ISA qualifications, years of audit experience, and professional staff, all varying based on the entity's asset size as of the previous year's 31st March.

SCAs/SAs can be appointed for a continuous period of 3 years. After completing a term, a cooling-off period of 6 years is applied. An audit firm can audit a maximum of 4 commercial banks, with no more than 1 being a Public Sector Bank.

Yes, a concurrent auditor of an entity is ineligible to be appointed as the SCA/SA of the same entity. There must also be a one-year gap between performing non-audit work and accepting the statutory audit.

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Manish Mehra

Ex-Banker

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RBI set parameters for appointing Bank Auditor for FY 2021-22 and onwards

I. Applicability of notification

II. RBI’s Prior approval of RBI is required for appointing SCAs/SAs as follows :-

III. Number of SCAs/SAs