The RBI (Local Area Banks – Concurrent Audit) Directions, 2026 were issued on July 31, 2026 by the Department of Supervision, RBI under Section 35-A of the Banking Regulation Act, 1949 to establish a framework for concurrent audit in Local Area Banks (LABs). The Directions aim to strengthen real-time monitoring of transactions, identify irregularities, operational risks, and frauds at an early stage.
The Audit Committee of the Board (ACB) will oversee the concurrent audit framework by approving the audit scope, auditor appointment policy, remuneration, and reviewing effectiveness annually. The Head of Internal Audit (HIA) will determine audit coverage based on risk assessment, including areas such as cash transactions, loans and advances, KYC/AML compliance, FATCA/CRS, remittances, treasury, forex, reconciliation, card business, employee conduct, and compliance with RBI guidelines. All Centralized Processing Centres must also be covered. LABs must follow a Board-approved policy for appointment of internal, retired staff, or external auditors, ensuring independence and avoiding conflicts of interest.
External auditor tenure is limited to 5 years with the bank and 3 years for a specific unit, while retired staff auditors cannot exceed 70 years of age. The Directions also prescribe accountability measures for auditor lapses, reporting requirements, escalation of major deficiencies, and immediate reporting of fraudulent transactions to Internal Audit and the Chief Vigilance Officer. These Directions supersede earlier concurrent audit instructions for LABs.
