Reserve Bank of India (Rural Co-operative Banks - Statutory Audit) Directions, 2026

RBI/DoS/2026-27/452 DoS.CO.ARG.46/08.91.001/2026-27

July 31, 2026

Reserve Bank of India (Rural Co-operative Banks - Statutory 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 Appointment A. Guidelines for Selection of Branches B. Eligibility Criteria C. Independence of Auditors D. Review of Performance of Statutory Auditors (SAs) E. Tenure and Rotation F. Number of State Co-operative Banks and Central Co-operative Banks an Audit firm can audit G. Audit Fees and Expenses H. Appointment Procedure

Chapter IV - Repeal and Other Provisions A. Repeal and Saving B. Application of Other Laws Not barred C. Interpretations

Annex I

Annex II

Introduction

The Banking Regulation (Amendment) Act, 2020 (No. 39 of 2020), notified in the Gazette of India on September 29, 2020 (vide Notification No. 64 of that date), has come into force with effect from April 01, 2021 (Gazette Notification No. 4113 dated December 23, 2020), for Rural Co-operative Banks i.e., State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs). Accordingly, Reserve Bank of India (RBI), in exercise of its powers conferred under Section 30(1A) of the Banking Regulation Act, 1949 (BR Act), has framed the guidelines which shall be applicable to StCBs and CCBs for seeking prior approval of RBI for appointment, re-appointment or removal of Statutory Auditor (SA), and other related matters.

State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs) are required to obtain prior approval of RBI for appointment, re-appointment or removal of Statutory Auditor (SA) as per the provisions of Section 30(1A) of the BR Act, with effect from 1st April 2021, i.e., the date on which Banking Regulation (Amendment) Act, 2020 (Act 39 of 2020) came into effect.

In exercise of powers conferred by Section 30(1A) of the Banking Regulation Act, 1949 (‘BR Act’), read with Section 56 of the BR Act (AACS and all other provisions / laws enabling the 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

1. These Directions shall be called the Reserve Bank of India (Rural Co-operative Banks - Statutory Audit) Directions, 2026.

2. These Directions shall come into effect immediately upon issuance.

B. Applicability

3. These Directions shall be applicable to the Rural Co-operative Banks (hereinafter collectively referred to as ‘banks’ and individually as ‘bank’) in respect of appointment / reappointment of their Statutory Auditors (SAs).

In this context, ‘Rural Co-operative Banks’ shall mean State Co-operative Banks (collectively referred to as ‘StCBs’ and individually as ‘StCB’) and Central Cooperative Banks (collectively referred to as ‘CCBs’ and individually as ‘CCB’), as defined in the National Bank for Agriculture and Rural Development Act, 1981.

C. Definitions

4. In these Directions, unless the context states otherwise, the terms herein shall bear the meaning assigned to them below.

• (1) ‘All India Financial Institutions’ (hereinafter collectively referred to as ‘AIFIs’) shall mean National Bank for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI), National Housing Bank (NHB), Export-Import Bank of India (EXIM Bank) and National Bank for Financing Infrastructure and Development (NaBFID) as established under their respective statutes.
• (2) ‘Audit Firm’ shall mean a partnership firm or Limited Liability Partnership (LLP) or Proprietorship Firms.
• (3) ‘Central Co-operative Banks (CCBs)’ shall be as defined under Sub-Section (d) of Section 2 of National Bank for Agriculture and Rural Development Act, 1981.
• (4) ‘Commercial Banks’ shall mean banking companies (other than Small Finance Banks, Payment Banks, and Local Area Banks), corresponding new banks, and the State Bank of India, as defined respectively under clauses (c), (da), and (nc) of Section 5 of the Banking Regulation Act, 1949.
• (5) ‘Group Entities’ shall mean two or more entities related to each other through any of the following relationships, viz. Subsidiary - parent [defined in terms of Accounting Standards (AS) 21], Joint venture (defined in terms of AS 27), Associate (defined in terms of AS 23), Promoter - Promotee [as provided in the SEBI (Acquisition of Shares and Takeover) Regulations, 1997] for listed companies, a related party (defined in terms of AS 18), Common brand name, and investment in equity shares of 20 per cent and above.
• (6) ‘NABARD” means “National Bank” established under Section 3 of National Bank for Agriculture and Rural Development Act, 1981
• (7) ‘NBFCs (including HFCs)’ shall mean such entities as defined in the Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025 .
• (8) ‘Public Sector Banks (PSBs)’ (individually as a ‘PSB’) shall refer to State Bank of India and corresponding new banks collectively.
• (9) ‘State Bank of India (SBI)’ shall mean State Bank of India as defined in Section 5 (nc) of the Banking Regulation Act, 1949.
• (10) ‘State Co-operative Banks (StCBs)’ shall be as defined under Sub-Section (u) of Section 2 of National Bank for Agriculture and Rural Development Act, 1981.

5. All other expressions unless defined herein shall have the same meaning as have been assigned to them under the Reserve Bank of India Act, 1934, Banking Regulation Act, 1949, the Companies Act, 2013, or any statutory modification or re-enactment thereto or other regulations issued by the RBI or the Glossary of Terms published by the RBI or as used in commercial parlance, as the case may be.

Chapter II - Governance and Oversight

A. Role of the Board and Senior Management

6. The bank shall frame a Board-approved policy on appointment of SAs and host it on its official website / public domain. The bank shall also formulate necessary procedures thereunder for selection / appointment / re-appointment / removal of SA. Apart from conforming to all the relevant statutory / regulatory requirements, the policy shall accord necessary transparency and objectivity on all the major aspects of this important assurance function.

7. The Board / Audit Committee of the Board (ACB) of the bank shall monitor and assess the independence of auditors and conflict of interest, if any, in terms of the relevant statutory / regulatory provisions, Standards and best practices. Concerns, if any, raised by the Board / ACB shall be reported to NABARD.

8. The Board / ACB of the bank shall review the performance of SAs annually. The bank shall report any serious lapse / negligence in discharging audit responsibilities, conduct issues on the part of the SAs, or any other matter considered as relevant, to NABARD within two months from the completion of the audit, with the approval of the Board / ACB.

Chapter III - Guidelines for Appointment

A. Guidelines for Selection of Branches

9. Norms to be followed while making selection of branches for audit by SAs are as under:

• (1) The branches selected for audit should cover at least 70 per cent of the total advances outstanding.
• (2) Top 20 branches / Top 20 per cent of the branches of the banks (in case of banks having less than 100 branches) to be selected in order of level of outstanding advances should be compulsorily included for audit.
• (3) The bank may take up for audit those branches where fraud, embezzlements or transactions of a suspicious nature are suspected or have taken place, if such branches are not covered with reference to 9(2) above.
• (4) The bank should also compulsorily take up for audit those branches where the loan, business growth is 50 per cent and more over the preceding year, if such branches are not covered with reference to criteria 9(2) and 9(3) above.
• (5) The Board / ACB should decide the actual selection of branches to be taken up for audit, keeping in view the above guidelines.
• (6) While deciding the branches and business coverage, the bank shall, inter alia, consider bank-specific characteristics such as degree of centralisation of processes, need to address fraud risk and credit risk, adverse report from internal / concurrent auditors, whistle blower complaints, and unusual patterns / activity shown by internal MIS reports.
• (7) The bank shall also disclose on its website / public domain the extent of branch / business coverage under Statutory Audit for the respective year and the previous year.