The Institute of Chartered Accountants of India (ICAI), through its Auditing and Assurance Standards Board (AASB), has released the Exposure Draft of the "Guidance Note on Audit of Banks (2026 Edition)", inviting public comments from stakeholders by February 23, 2026.
The revised Guidance Note is expected to significantly impact statutory central auditors (SCAs), branch auditors, banking professionals, and financial reporting teams across India, aligning audit procedures with the latest regulatory changes introduced by the Reserve Bank of India (RBI).
Comprehensive Revision Covering Central and Branch Audits
The draft Guidance Note is divided into two key sections:
Section A - Statutory Central Audit
This section provides detailed audit guidance across critical banking departments, including:
- Personal Banking Department
- Retail Banking and Marketing
- Financial Services Provided by Banks
- International Banking Division
- Treasury Operations
- Audit of IT and Digital Banking Division
- Risk Management and Credit Monitoring
- Government Business and Balance Sheet Consolidation
The revised draft emphasizes KYC compliance, interest rate application, deposit classification, digital lending risks, and securitisation norms, in line with updated RBI Master Directions issued in late 2025.
Section B - Bank Branch Audit
The branch audit section offers a practical roadmap for auditors, especially first-time statutory branch auditors. It covers:
- Audit Planning and Documentation
- Advances Verification and Reporting
- Cash, Deposits and Borrowings
- Contingent Liabilities
- GST Compliance in Bank Branch Audit
- Fraud Reporting and Internal Accounts
The inclusion of a detailed chapter on GST compliance (spanning nearly 90 pages) highlights increasing regulatory focus on indirect tax compliance in banking operations.
Strong Focus on KYC, Digital Lending & RBI Directions
The draft requires auditors to ensure compliance with the latest RBI frameworks, including:
- Updated KYC/AML norms (2025 amendments)
- Digital Banking Units (DBUs) guidelines
- External benchmark-linked lending norms
- Securitisation and credit risk transfer regulations
- Asset classification and provisioning norms
The Guidance Note also stresses system-based asset classification, de-duplication controls (CIF level), and enhanced monitoring of fintech-led onboarding processes.
International Banking & IFSC Units Under Lens
Special attention has been given to audit procedures for overseas branches and IFSC Banking Units (IBUs), including:
- Capital adequacy compliance
- Liquidity Coverage Ratio (LCR) monitoring
- Anti-Money Laundering compliance
- Foreign currency translation and consolidation
- Treasury and derivative operations review
Auditors are expected to align foreign branch accounting policies with Indian GAAP and RBI presentation and disclosure requirements.
Heightened Emphasis on Risk Management & Internal Controls
The Exposure Draft underscores:
- Early Warning Signal (EWS) monitoring in retail portfolios
- Fraud Containment Unit (FCU) reviews
- Internal/office account reconciliation
- Audit trail in Video-based Customer Identification Process (V-CIP)
- Outsourcing risk compliance under RBI’s 2025 outsourcing directions
The draft reinforces that core management functions such as sanctioning loans and KYC compliance cannot be outsourced.
Comments Invited Till February 23, 2026
ICAI has invited detailed and paragraph-specific comments from stakeholders. Feedback must include rationale and suggested alternative wording, where applicable.
Comments may be submitted to the Secretary, Auditing and Assurance Standards Board, ICAI, New Delhi, or via email to the AASB.
Why This Matters
The revised 2026 edition will serve as the principal reference for:
- Statutory Central Auditors (SCAs)
- Bank Branch Auditors
- Risk and Compliance Officers
- Finance and Treasury Teams
- Banking Regulators
Given the increasing regulatory scrutiny, digital transformation in banking, and expanded disclosure requirements, the updated Guidance Note aims to standardize audit quality and strengthen financial reporting reliability in India’s banking sector.
Once finalized, this edition is expected to shape bank audit practices for the coming years.
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