The RBI (Small Finance Banks – Statutory Audit) Directions, 2026 provide a regulatory framework for the appointment, eligibility, independence, tenure, and responsibilities of Statutory Central Auditors (SCAs) and Statutory Auditors (SAs) of Small Finance Banks (SFBs). Banks must have a Board-approved policy for auditor appointment, determine the number of auditors based on asset size, complexity, risks, and operations, and obtain prior approval from RBI’s Department of Supervision for appointment or reappointment. The Audit Committee of the Board (ACB) is responsible for monitoring auditor independence, performance, and conflicts of interest.
The Directions prescribe eligibility requirements for audit firms, including adequate partners, qualified professionals, audit experience, and IT audit capabilities. Banks with assets of ₹15,000 crore and above must conduct audits through joint auditors, while auditors must comply with independence, professional standards, tenure, and rotation requirements. The statutory audit must cover critical areas such as credit risk, asset quality, fraud risk management, investments, regulatory compliance, KYC/AML, IT and cybersecurity controls, capital adequacy, liquidity risk, governance, and internal controls.
Auditors are required to submit Long Form Audit Reports (LFARs) highlighting gaps, risks, and control weaknesses, which must be reviewed by the ACB and submitted to RBI within the prescribed timeline. The Directions also regulate audit fees, restrict conflicts of interest, limit audit assignments by firms, and ensure auditor accountability. Earlier statutory audit guidelines are repealed, while actions taken under previous provisions remain protected, and RBI’s interpretation of the Directions remains final and binding.
