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The Reserve Bank of India establishes a concurrent audit framework for Local Area Banks to detect errors and prevent fraud. Banks must define the audit scope through their Audit Committee of the Board. The audit must cover risk-sensitive areas including cash, loans, KYC/AML compliance, and treasury operations. Banks may use internal staff or external auditors. The policy mandates tenure limits for auditors and requires a structured reporting system for findings. Banks must report fraudulent transactions immediately to the Internal Audit Department and the Chief Vigilance Officer. These directions replace previous concurrent audit instructions for Local Area Banks and take effect immediately.
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RBI/DoS/2026-27/445 DoS.CO.ARG.39/08.91.021/2026-27 July 31, 2026
Reserve Bank of India (Local Area Banks – Concurrent Audit) Directions, 2026
Table of Contents
Chapter I - Preliminary A. Short Title and Commencement B. Applicability C. Definitions
Chapter II - Governance and Oversight A. Role of the Board and Senior Management
Chapter III - Guidelines for Concurrent Audit A. Coverage B. Appointment of Concurrent Auditors C. Accountability D. Tenure E. Remuneration F. Reporting System
Chapter IV - Repeal and Other Provisions A. Repeal and Saving B. Application of Other Laws Not barred C. Interpretations
Introduction
Concurrent audit aims at shortening the interval between a transaction and its independent examination. It is, therefore, integral to the establishment of sound internal accounting functions and effective controls and is regarded as part of a bank's early warning system to ensure timely detection of serious errors and irregularities, which also helps in averting fraudulent transactions and preventive vigilance in the bank.
In exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949, and all other provisions / laws enabling the Reserve Bank of India (‘RBI’) in this regard, RBI being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Directions hereinafter specified.
Chapter I - Preliminary
A. Short Title and Commencement
These Directions shall be called the Reserve Bank of India (Local Area Banks – Concurrent Audit) Directions, 2026.
These Directions shall come into effect immediately upon issuance.
B. Applicability
C. Definitions
Chapter II - Governance and Oversight
A. Role of the Board and Senior Management
The detailed scope of the concurrent audit shall be determined and approved by the Audit Committee of the Board (ACB).
The ACB of the bank shall decide (i) the maximum tenure of external concurrent auditors, and (ii) remuneration to be paid to external concurrent auditors.
The ACB of the bank shall review the effectiveness of the Concurrent Audit System as well as the performance of the concurrent auditors on an annual basis and take necessary measures to suitably strengthen the system.
Chapter III - Guidelines for Concurrent Audit
A. Coverage
The Head of Internal Audit (HIA) at its discretion with the prior approval of the ACB shall determine the scope of work to be entrusted to concurrent auditors, including the coverage of business activities and branches.
The bank shall, however, ensure that risk sensitive areas identified by it as per its specific business models are covered under concurrent audit. The broad areas of coverage under concurrent audit shall be based on the identified risk of the unit and must include random transaction testing of sufficiently large sample of such transactions wherever required.
The bank shall ensure that the concurrent audit, at minimum, covers the following areas, as applicable:
B. Appointment of Concurrent Auditors
The bank shall formulate a Board approved policy specifying whether concurrent audit shall be conducted through its own staff or through external auditors, including retired staff of its own bank, as considered appropriate.
The HIA in the bank shall participate in selection of concurrent auditors where such function is outsourced and shall be responsible for the quality review (including skills of the staff employed) of the work of the concurrent auditors reporting to them. It shall, however, be ensured that if any partner of a Chartered Accountant firm is a Director on the Board of a bank, no partner of the same firm shall be appointed as concurrent auditor in the same bank.
Where the bank has engaged its own officials as concurrent auditors, it shall ensure that such officials are experienced, well trained, and sufficiently senior. The staff engaged in concurrent audit must be independent of the branch / business unit, where concurrent audit is conducted.
C. Accountability
Where the bank appoints an external audit firm as a concurrent auditor and identifies any serious acts of omission or commission in the discharge of its responsibilities, the bank shall provide the audit firm a reasonable opportunity of being heard before taking any adverse action; cancel the appointment of the audit firm, where such omission or commission is established, and report the matter to ACB of the bank, RBI and Institute of Chartered Accountants of India (ICAI).
The bank shall put in place a policy for fixing accountability in cases of serious acts of omission or commission noticed in the working of bank's own staff or retired staff, working as concurrent auditors.
D. Tenure
E. Remuneration
F. Reporting System
The bank’s Internal Audit Department should develop a reporting system for concurrent auditors with the approval of ACB.
The findings of the concurrent auditors shall be received in a structured format prescribed by the bank.
Minor irregularities pointed out by the concurrent auditors shall be rectified on the spot. The major deficiencies / aberrations noticed during audit should be immediately brought to the notice of Head Office / Controlling Office of the concerned branch / business unit of the bank.
A quarterly review containing important features brought out during concurrent audits should be placed before the ACB. The zone-wise findings of concurrent audit shall be reported to ACB on a quarterly basis.
Whenever fraudulent transactions are detected, they should immediately be reported to Internal Audit Department (Head Office) as also to the Chief Vigilance Officer as well as Branch Managers concerned (unless the branch manager is involved).
Follow-up action on the concurrent audit reports and rectification of the deficiencies should be accorded high priority by the Head Office / Controlling Office of the concerned branch / business unit of the bank.
