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Appointment of Statutory Auditors of Co-Operative Banks

The Banking Regulation (Amendment) Act, 2020 was implemented on 1 April, 2021 for Rural, State and Central Co-operative Banks making it mandatory to seek approval of RBI for appoint, re-appointment or removal of Statutory Auditor (SAs) according to Section 30(1A) of the Banking Regulation Act, 1949 (BR Act).

In light of this RBI has issued guidelines for the appointment or re-appointment of Statutory Auditors (SAs) of State and Central Co-operative Banks vide circular bearing RBI/2023-24/113 Ref.No.DOS.ARG/SEC.8/08.91.001/2023-24 dated January 15, 2024, which states that banks shall seek prior approval for the appointment of SAs before July 31 of the reference financial year.

These guidelines shall be applicable to all State Co-operative Banks and Central Co-operative Banks from 1 April,

The guidelines focus on:

  • Eligibility criteria
  • Review performance of SAs
  • Independence of Auditors
  • Tenure and Rotation of SAs

SAs can be appointed for one year and then re-appointed for two years, provided they meet the eligibility criteria. Approval from the Board of Directors and the RBI is required for any removal. After completing a certain tenure (one to two years), if a SAs are not re-appointed, they are ineligible for re-appointment for six years.

The criteria for the eligibility of State and Central Co-operative banks to appoint SA include factors such as asset size, the firm’s association with partners, paid CA’s, professional staff, and other basic compliances. If the audit firm fails to meet all the eligibility criteria, it should promptly notify the bank and take the necessary actions to become eligible.

The Independence of Auditors shall be maintained by the National Bank for Agriculture and Rural Development (NABARD). There will be a one-year break between two assignments for Statutory Auditors (SAs). However, the SA can still perform non-audit work that does not create any conflict of interest. This includes tax audits, tax representation, auditing of interim financial statements, issuing statutorily required certificates, and reporting on financial standards. If any issues arise, the SAs and the Board of Directors can report to NABARD.