The RBI (Local Area Banks – Internal Audit Function) Directions, 2026, issued on 31 July 2026, establish a Risk-Based Internal Audit (RBIA) framework for Local Area Banks. The Directions require banks to strengthen governance by ensuring an independent Internal Audit Function, with Board-approved audit policies, risk-based audit planning, periodic risk assessments, and effective oversight by the Board, Audit
Committee, and Senior Management. The Directions also prescribe the roles, independence, reporting structure, and tenure of the Head of Internal Audit, prohibit outsourcing of the Internal Audit Function (except engagement of experts under supervision), mandate regular performance evaluations, and repeal earlier instructions on internal audit while preserving actions taken under the previous framework.
