What changed
RBI superseded all previous guidelines on auditor appointments with a single, consolidated framework effective from FY 2021-22. For the first time, UCBs and NBFCs are brought under these rules, with a flexible adoption option for the second half of FY 2021-22. Non-deposit taking NBFCs with assets below ₹1,000 crore can continue their existing procedure.
What it means for you
Commercial banks (excluding RRBs) and UCBs now need annual prior RBI approval for auditor appointments, with PSBs required to apply within one month of receiving the eligible audit firm list from RBI. NBFCs must inform RBI of appointments via Form A within one month. Entities with assets of ₹15,000 crore or more must have at least two audit firms as joint auditors, with no common partners or network links.
What you must do
- Ensure your entity's Board or LMC approves a policy for determining the number of SCAs/SAs based on factors like asset size, complexity, and risk.
- For commercial banks (excluding RRBs) and UCBs, apply to the appropriate RBI Department of Supervision office by July 31 each year for prior approval of auditor appointments.
- For NBFCs, file Form A with RBI within one month of appointing SCAs/SAs.
- Verify that joint auditors (if applicable) have no common partners and are not from the same audit network.
- Review asset size to determine the maximum number of SCAs/SAs allowed (e.g., up to 4 for assets up to ₹5,00,000 crore).
Who it affects
All Commercial Banks (excluding RRBs), All Primary (Urban) Co-operative Banks (UCBs), All Non-Banking Finance Companies (NBFCs) including Housing Finance Companies (HFCs), Non-deposit taking NBFCs with asset size below ₹1,000 crore (optional compliance)
Do NBFCs need prior RBI approval for appointing auditors?
No, NBFCs do not require prior RBI approval. However, they must inform RBI about the appointment within one month by submitting a certificate in Form A to the concerned Regional Office.
What is the minimum number of auditors required for entities with assets of ₹15,000 crore or more?
Entities with asset size of ₹15,000 crore and above must have a joint audit with a minimum of two audit firms (partnership firms or LLPs). These firms must not have common partners or be part of the same audit network.
Can UCBs and NBFCs adopt these guidelines later in FY 2021-22?
Yes, since these guidelines apply to UCBs and NBFCs for the first time from FY 2021-22, they have the flexibility to adopt them from the second half (H2) of FY 2021-22 to avoid disruption.