Reserve Bank of India (Small Finance Banks – Statutory Audit) Directions, 2026
UR
- Applies toSmall finance banks
- StatusIn force
- ImportanceMUST READ
- IssuedJul 31, 2026
- Amendmentsnone tracked
- Length53 points in 4 sections · 5 min read
The four dates on this rule
- PublishedJul 31, 2026The day RBI put this document out.
- Starts to applyNot statedNot stated separately in this document. Read the rule itself before you assume a start date.
- Time to get readyNot statedCannot be worked out until the day it starts to apply is known.
- Last date to actNot statedNo date to act by was found in this document. Other dates may sit inside single paragraphs.
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Numbers to remember
| two months | A serious lapse by the auditor must be reported to RBI within two months. RBI Para 8 |
| ₹15,000 crore | A bank of ₹15,000 crore or more must have a joint audit by at least two firms. RBI Para 11 |
| two years | A merger of audit firms counts only after two years; a demerger counts at once. RBI Para 14(4) |
| three years | An auditor is appointed for a continuous term of three years, eligibility permitting. RBI Para 23 |
| six years | After a term, a firm cannot return to the same bank for six years. RBI Para 24 |
| six year | A part term also starts the six year rest; it is not a fresh chance. RBI Para 24 |
What it says
Chapter I. Preliminary
1. Audit rules for SFBs
This paper sets who may audit small finance banks and for how long.
2. Start date
These Directions came into effect immediately upon issuance.
BankPulse example. There is no gap here between issue and effect. The Directions come into effect immediately upon issuance. A bank cannot wait for a separate start date, because there is none.
3. Who is covered
These Directions apply to every small finance bank.
Chapter II. Governance and Oversight
Must know
1. Two months to report
A serious lapse by the auditor must be reported to RBI within two months.
Do it
2. Watch the auditor's independence
The audit committee must watch the auditor's independence and any clash of interest.
3. Flag a concern upward
Any such concern must be flagged to the Board and to RBI's supervision department.
4. Review the auditor yearly
The Board or audit committee must review the auditor's work once a year.
Background
5. Send the firm's full details
Such a report goes with Board approval and the full details of the audit firm.
6. Board acts if no committee
Where there is no audit committee, the Board itself reviews the auditor.
7. Recommend the fee
The Board or committee recommends the audit fee to the competent authority.
Chapter III. Guidelines for Appointment
Must know
1. Fifteen thousand crore, joint audit
A bank of ₹15,000 crore or more must have a joint audit by at least two firms.
BankPulse example. Suppose a bank's assets are ₹18,000 crore at the end of the previous year. That is ₹15,000 crore or more. The statutory audit must then be a joint audit by at least two firms.
2. Joint auditors must be separate
Joint auditors must share no partners and must not be in the same network.
3. Not a partner elsewhere
Such a partner must not be a partner in another audit firm.
4. Not employed elsewhere
Such a partner must not be employed elsewhere, full time or part time.
5. Not in separate practice
Such a partner must not practise in his own name or otherwise be in practice.
6. Merger waits two years
A merger of audit firms counts only after two years; a demerger counts at once.
7. One year for the staff
Professional staff must have been with the firm a year to be counted.
8. No debarred firm
A firm debarred by any government agency, the reporting authority or RBI is out.
9. And bars the whole group
If a partner is a director in a bank, the firm cannot audit that bank's group entities.
10. No concurrent auditor
A concurrent auditor of the bank must not be made its statutory auditor.
11. Three continuous years
An auditor is appointed for a continuous term of three years, eligibility permitting.
12. Six years out
After a term, a firm cannot return to the same bank for six years.
13. Part term counts as full
A part term also starts the six year rest; it is not a fresh chance.
14. No sub-contracting
Sharing or sub-contracting the audit to another firm in the network is not allowed.
Do it
15. Split the work first
Work must be split between the auditors before the audit starts, in consultation with them.
16. Check the partner's income
The Board must satisfy itself that the partner earns enough from the firm to count as a full-time partner.
17. Follow the code of ethics
The appointment must follow the institute's code of ethics and raise no clash of interest.
18. Regain eligibility before starting
A firm that loses eligibility must regain it before the annual audit begins.
19. Go to the committee first
Where the management blocks the audit, the auditor must approach the audit committee.
20. But check the clash
The Board must still see there is no clash of interest and the auditor stays independent.
21. Follow the standards
The auditor must follow the professional standards with the highest diligence.
22. Incoming must be unconnected
The incoming firm is ineligible if it is tied to the outgoing one or its network.
23. No shared partners on change
On a change of branch auditors there must be no common partners with the retiring firm.
24. Sister firms rest too
Sister and associate firms of a rested auditor must also wait out the rest period.
25. Fee must fit the work
The fee must be reasonable and match the size, spread and complexity of the audit.
26. Take the firm's certificate
A certificate must be taken from the firm proposed, in the given form.
Background
27. Board fixes the number
The Board decides how many auditors to appoint, within the set limits.
28. Meet the eligibility rules
Only an audit firm meeting the eligibility rules may be appointed.
29. What counts as experience
Audit experience means work as a central or branch auditor of a bank or institution.
30. Board only in two cases
The auditor goes straight to the Board only where there is no committee, or a member is involved.
31. A large borrower, no bar
Auditing a company that is a large borrower does not by itself bar the firm.
32. Tax work is allowed
Tax audit, tax representation and tax advice do not normally create a clash.
33. Bars reach the network
These bars also apply to any firm in the same network or sharing a partner.
34. A network counts as one
Firms in one network or sharing partners are treated as a single firm for allotment.
35. Fee follows the statute
The audit fee is decided under the relevant statutory and regulatory provisions.
36. RBI approves each year
RBI's prior approval is needed every year to appoint or reappoint the auditor.
37. Names in order of choice
Shortlisted firms go before the audit committee in order of preference.
Chapter IV. Long Form Audit Report
1. Get the long form report
The bank must see that the long form audit report arrives on time.
2. Put it to the committee
That report goes to the audit committee with the action taken on each point.
3. Widening scope needs notice
Adding materially to the audit scope needs written reasons and notice to the committee.
4. Branch auditors report upward
A branch auditor submits the long form report to the central auditors.
Chapter V. Repeal and Other Provisions
1. Old repeals stand
Anything repealed before these Directions stays repealed.
2. These add to other law
These Directions add to any other law and do not cut it down.
The same subject for other kinds of institution
The same subject for other kinds of institution.
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